BeefLedger Market Watch: 20 June 2019

Strong demand growth; first reported cases of meat binding; and more

The dynamics of the marketplace underpin the drivers for authenticity credentialing technologies like the ones BeefLedger is deploying and developing. Food fraud is big business globally, estimated to be worth over US$40 billion annually. Beef fraud is a big part of this.

We maintain a close watching brief on market dynamics, as we continue to prioritise areas of developmental focus. So, what are some of the highlights over the past few months?

In Australia

  1. Export growth to China for Australian beef continues to grow strongly. Trade statistics show that for the past 5 months, export volumes to China have reached historical highs. Indeed, for the month of May, volumes almost exceeded those to the USA for the first time ever. See the charts from the MLA, below.
  2. In part, export volume growth is driven by the ongoing high slaughter volumes, as producers continue to offload cattle on the back of sustained drought conditions. Forecasts for a long, dry winter in Australia have no doubt played on the decision-making process of producers. In recent months, more cows have been slaughtered than steers. Reduced average carcass yields also suggest cattle are being sold at sub-optimal condition, by producers facing difficult choices.
  3. In price terms, this has kept a lid on the cost of live animals. This is unlikely to last much longer, as supply capacity of suitable cattle begins to “bottom out”. Independent industry analysts such as Simon Quilty expects prices for cattle for processing to rise by up to 15% by the end of the year. The national forecaster ABARE is also tipping price rises.

In China

  1. Beef consumption continues to grow as household wealth grows. This repeats a global pattern, tracked historically across country after country. In China, we are witnessing beef consumption growth on the back of comparatively low per capita volumes. At the beginning of the 2010s, annual per capita average beef consumption was approximately 3.8kg. It is now close to 6kg. The trajectory is expected to see this measure rise to the world average of 11kg by 2024. (By way of comparison, Australia’s annual per capita average is 25kg.)
  2. Aside from wealth drivers, we can also see the effects of shorter term factors impacting a shift in consumer sentiment towards beef. The most significant of these is the outbreak of African Swine Flu, which has constrained pork supplies significantly. As pork prices have risen in the past few months, and supplies constrained, consumers are switching to other proteins – including beef.
  3. These conditions are ripe for beef fraud. Private communications with a leading research professor estimate that “fake beef” is 3-5x greater in volume than genuine imported beef. This comprises the use of horse meat, pork and even duck breast as substitutes for beef. Independent Beijing-based industry watcher Ian Lahiffe estimates that for every 1kg of genuine beef, there is 3kg of beef that’s not from the country claimed; a further 3kg that’s not the cut of meat claimed; and finally 3kg+ that’s not beef at all (in whole or adulterated). Australian Accounting Giant PWC estimates that every second kilogram of beef sold in China as Australian isn’t Australian, exacting an annual cost to industry of AU$2 billion. 
  4. In June 2019, the first reported case of “bound meat” being sold as Australian steak was reported. An undercover journalist investigated a restaurant claiming to sell Australian steak, and found that rather than whole steak, the restaurant served meat that was made up of “bound together” offcuts. (The use of meat binder is a long-standing and relatively common industry practice, with some genuine applications but many dubious uses as well.) An example is pictured below.
  5. Lastly, the month of June also saw Brazil voluntarily suspend exports to China after discovering a case of Mad Cows Disease. Brazil is the largest exporter of beef to China, making up over 27% of all imports. How long and how great the impact of this suspension is presently unknown. The suspension was short lived, and was lifted on 17 June. However, while Brazilian volumes may return, what we can’t foretell is how consumers will react. As Chinese consumers are super-sensitive to unhealthy food products, we won’t be surprised one bit if we see a rise in product re-labelling. This represents another threat to the brand value of authentic Australian beef.