Australian beef exports to China head for record high

CANBERRA, March 5 Tue Mar 5, 2013 3:03am EST

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CANBERRA, March 5 (Reuters) - Australian beef sales to China are set to surge more than eightfold this year, providing a boost for farmers in the world's third-biggest exporter struggling with tougher U.S. competition in traditional markets such as Japan.

Chinese demand for beef is growing as the diet of wealthier consumers changes to include more protein. But production has lagged domestically, where pork tends to be more profitable, boosting the outlook for overseas beef suppliers such as Australian Agricultural Company Ltd and Nippon Meat Packers' Australian unit.

China will become Australia's fourth-largest beef export market in the year to June 30, 2013, with imports jumping to around 50,000 tonnes from about 6,000 tonnes a year ago, data from government research group the Australian Bureau of Resource Economics and Sciences (ABARES) showed on Tuesday.

Australian beef exports were already on the rise before a ban on imports from rival Brazil, and the longer-term demand outlook was encouraging, analysts said.

"In the last six months there has been a bigger jump in China's beef imports from Australia because China blocked beef imports from Brazil due to mad cow disease," said Jean Yves Chow, a senior livestock analyst at Rabobank in Hong Kong.

"China doesn't buy from the U.S. because of the same issue as Brazil, so you don't have many options but to buy from Australia. At the same time China's demand continues to increase."

China, the world's third-largest beef producer, is likely to see output rise marginally to 5.58 million tonnes in 2013 from 5.54 million tonnes last year, according to the U.S. Department of Agriculture.

JAPAN WEIGHS

While the spike in Chinese sales might at first appear a boon for Australian beef producers, enthusiasm is tempered by the loss of higher value exports to Japan.

Australian beef exports to Japan, Australia's second-largest market, are expected to fall 5 percent in the 2013/14 season to 290,000 tonnes after dropping 6 percent this year, ABARES said, reflecting increased competition from the United States and a strong local dollar.

Japan eased restrictions on U.S. cattle on Feb. 1, allowing the imports of slaughtered cattle up to 30 months old, having previously allowed cattle up to 20 months old entry into the market from 2005 onwards following an outbreak of bovine spongiform encephalopathy in 2003.

The easing of restrictions means up to 90 percent of all U.S. cattle are eligible for export to Japan, ABARES said, checking Australia's dominance.

"We've had this artificial advantage into Japan for quite some time now, and it's going back to historical levels," Paul Morris, executive director of ABARES, told Reuters.

"That means our farmers will have to look to other markets like China and Vietnam."

Markets such as China are dominated by sales of lower value frozen beef, meaning while sales are rising sharply, returns are not going up as fast.

According to ABARES, Australian beef exports during the 2013/14 marketing year will rise 2.5 percent to 1 million tonnes, from the previous season's total of 975,000 tonnes, and continue rising over the next five years to a peak of 1.04 million tonnes.

However, the real value of cattle exports will remain flat in the 2013/14 season at A$4.6 billion and will fall consistently over the next five years.

ABARES' Morris said that while Australia would have little trouble in selling beef, maximising returns was the challenge.

"We aren't particularly limited by markets, its more limiting in terms of the value of those markets," Morris said.

CHALLENGE IN SOUTH KOREA

Australia is also facing stiff competition from the United States in the South Korean market.

Exports to South Korea, Australia's third-largest market, should continue to rise over the next five years, ABARES said, but at a much slower pace, warning the market was extremely competitive, with increased production from India especially.

However, the outlook could darken if the two countries fail to break a deadlock in trade talks.

Speaking in Canberra, Craig Emerson, minister for trade, said talks to secure a free trade agreement remain ongoing, having rejected Seoul's first proposal.

From January 1, 2012, the United States has had a 5.3 percent tariff advantage over Australia beef -- under the Korea-United States Free Trade Agreement. This tariff differential widens by a further 2.66 percent each year.

Emerson said he remains hopeful that a deal would be reached soon, but was forced to reject Korea's first proposal as it offered the United States such a competitive advantage.

However, ABARES said that with the expansion of U.S. exports, there was more room for Australia to sell beef to North America, cementing the market as Australia's top export market.

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