Global Market Opportunities Drive Beef Production Decisions in Argentina and Uruguay, Amber Waves

FEATURE

Global Market Opportunities Drive Beef Production Decisions in Argentina and Uruguay ISSUE 2

Michael McConnell VOLUME 6 VOLUME [email protected] 22 Kenneth H. Mathews, Jr. [email protected] AMBER WAVES

Over the past decade, export markets have had a growing Argentina and Uruguay are increasingly important influence on the beef industries in Argentina and Uruguay. suppliers of beef in global markets. Together, the two countries provide 13-20 percent of U.S. beef imports, as well as significant amounts to the European Union Keys to both countries’ success in international mar- (EU). Uruguay exports roughly 80 percent of its production kets are certification and traceability programs, which while Argentina is more oriented to meeting the demands of have been improved in response to recent cattle dis- its beef-loving domestic market. Exports account for around 20 ease outbreaks. percent of its production. In 2007, Argentina’s cattle herd was estimated at 51.2 mil- Grass-based production systems and bans against lion head, compared with Uruguay’s 12.1 million. Both coun- feeding meat and bone meal to cattle have helped allay tries have suffered recent outbreaks of foot-and-mouth disease importers’ concerns about bovine spongiform (FMD) and are under pressure from their major trading part- encephalopathy (BSE). ners to control disease outbreaks. The U.S. and the EU require beef export certification (processing plants must meet protocols and sanitary standards acceptable to each importer), and each has its own beef import requirements. The need to meet the demands of these markets has motivated Argentine and

ECONOMIC RESEARCH SERVICE/USDA FEATURE APRIL 2008

23 AMBER WAVES

Monte Vandeveer

Uruguayan beef producers to adopt production practices designed sure to and potential for spreading BSE. Argentina and Uruguay to allay international concerns about animal disease and residual remained in the lowest (“negligible risk”) risk category. They growth hormones in beef. achieved BSE-free status through pasture-based cattle and beef pro- To address such concerns, Argentina and Uruguay have imple- duction technologies and bans on using meat and bone meal mented traceability systems that identify the farm-of-origin and (MBM), a high-protein material rendered from animals, in animal indicate whether the animals have been in areas exposed to FMD. feed. Argentina and Uruguay, along with many other countries, Both countries promote their grass-fed beef production as a imposed bans on feeding MBM to cattle and other ruminants in “healthier” system, which, combined with bans against feeding meat 1996, after the United Kingdom announced a possible link and bone meal to cattle, reduces BSE concerns among importers. between BSE and variant-Cruetzfeld-Jakob Disease (vCJD) in Export markets are important to both countries, and their beef humans. Infected MBM is thought to be the vector for spreading industries are increasingly shaped by the demands of foreign buyers. BSE. In Argentina and Uruguay, the ban against MBM in feed extends to all ruminant livestock feed, including feed for cattle Both Countries Free of BSE held in feedlots, where the animals are fed rations containing high But Wrestle With FMD levels of grains and proteins. In May 2005, the World Animal Health Organization (original- Unlike BSE, foot-and-mouth disease has been an issue for ly named the Office International des Epizooties and still known nearly all South American beef producers. OIE has issued guide- by its abbreviation, OIE) revised its guidelines on countries’ expo- lines for how a country can achieve and maintain FMD-free status.

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Both countries have similar export trends, but Uruguay exports much Domestic Policies Respond more of its production than Argentina To Global Markets At the same time that Argentina and Thousand metric tons of beef Percent 800 100 Uruguay were coping with FMD out- Argentina quantity breaks, external forces affected their 700 Uruguay quantity 90 economies as well. The impacts of a steep Argentina percent of production 80 600 Uruguay percent of production devaluation of the Brazilian currency 70 (Real) in 1999 spilled over the borders, 500 60 first to Argentina and then to Uruguay, 400 50 making all three countries’ goods less 40 300 competitive on the global market. This 30 was enough to push the export-reliant 200 20 Argentine and Uruguayan economies into 100 10 recession. The simultaneous internal 0 0 shock of FMD was even more difficult to 1997 98 99 2000 01 02 03 04 05 06 07 address because of the broader economic ISSUE 2

Source: USDA, Economic Research Service using data from USDA, Foreign Agricultural Service. conditions in the region. Although the two countries faced similar challenges, they chose different paths to recovery. One country’s success at maintaining that prevented Argentina from making inroads Because Uruguay’s beef industry was

VOLUME 6 VOLUME status can be influenced by neighboring in major Asian markets. In January 2007, more export dependent, the industry was countries’ disease-control efforts. In 2001, USDA proposed recognizing the Patagonia also sensitive to trade interruptions relat- 24 an outbreak of FMD along the border area of southern Argentina as FMD-free ed to disease outbreaks. Uruguay’s domes- shared by Argentina, Uruguay, Paraguay, without vaccination, but has yet to make a tic beef consumption declined after the and Brazil resulted in the voluntary sus- final ruling. Such recognition would per- recession, and its beef production and pension of beef exports from all of those mit exports of raw and processed beef exports dropped significantly in 2001. countries. products from this region to the United Exports expanded in 2002, but because of An outbreak in 2000 cost Uruguay its States. Patagonia accounts for about 2 per- FMD, the U.S. did not accept beef imports AMBER WAVES FMD-free status (held since 1995) from cent of Argentina’s cattle. from Uruguay again until 2003. Since the OIE. The regional FMD outbreak in 2001 further damaged Uruguay’s trading status. Since 2001, however, Uruguay has Fresh and frozen beef account for Argentina’s export expansion not had any new cases of FMD and is cur- Thousand metric tons of beef rently classified “FMD-free with vaccina- 600 tion” by the OIE. Uruguay was able to resume its beef exports to the U.S. in 500 2003. Although USDA does not consider Fresh Uruguay to be “FMD-free without vaccina- 400 tion,” Uruguayan beef imports to the 300 United States are allowed under specific Frozen guidelines established by the U.S. 200 Government. Argentina had another outbreak in 100 2006 and is currently able to export only Processed thermo-processed beef (heated to a specif- 0 ic temperature for a specified amount of 2001 2002 2003 2004 2005 2006

time) to the United States. In addition, Source: USDA, Economic Research Service using data from Global Trade Atlas, 2008. importing nations’ FMD-based fears have

ECONOMIC RESEARCH SERVICE/USDA FEATURE then, Uruguayan agricultural exports, customers for fresh/chilled beef. Uruguay exports, and, in 2007, it set a monthly especially beef, have played a large role in faces tariff-rate quotas in several of those export quota of about 40,000 tons carcass- the country’s economic recovery. In 2005, importing countries, including a 20,000- weight equivalent. While helping stabilize beef accounted for 22 percent of metric-ton (MT) quota in the United price levels at home, these measures have Uruguay’s total export value. States; 11,000 MT in Canada; and 6,300 hurt Argentine beef producers’ ability to The Uruguayan Government current- MT under the Hilton beef quota, which trade in foreign markets. ly intervenes minimally in the country’s limits the import of high-quality fresh and Argentine Government policies have beef market. As the disease outbreaks sub- frozen beef into the EU. had several unintended effects. Producers sided, the government allowed market The beef industry was less significant have shifted from grazing cattle to growing conditions to drive the recovery of the in Argentina’s post-2001 economic recov- grains and soybeans, commodities for beef sector. Domestic beef consumption ery. Monetary, fiscal, and exchange-rate which policies have been less disruptive began a gradual rebound in 2006 and is policies, in addition to strong commodity in international markets. Along with this expected to continue increasing. Although exports, were credited for Argentina’s acreage shift, cattle production is also well below its peak in the late 1990s, turnaround, which has since seen the shifting into the northern areas of Uruguayan per capita consumption re- economy grow as much as 8 percent per Argentina, away from the more fertile, mains among the highest in the world. year. However, the strong growth has crop-friendly central regions. These areas Uruguay’s beef production in 2007 was caused inflationary concerns and prompt- are more susceptible to new FMD out- APRIL 2008 projected to be more than double its 2001 ed price-stabilizing policies. Beef plays a breaks because of the northern border. level, and beef exports more than triple. major role in Argentine household budg- Overall, these policies have caused With exports accounting for 80 per- ets, accounting for about 4.5 percent of Argentine beef producers to give up for- cent of Uruguay’s production in recent the Argentine inflation index. Thus, the eign market share, much of which years, the country’s beef industry and gov- beef industry is an important factor in Uruguay, Brazil, and Paraguay have seized. ernment are oriented toward the world domestic policy. Measures such as export However, beef output in Argentina has 25

market. The Uruguayan Government has taxes, minimum slaughter-weight restric- remained quite stable during these years. AMBER WAVES recently reduced several domestic taxes tions, and price controls have been used to Traceability Aims To Protect that affect beef. Uruguay has become an ensure the supply of beef meets domestic Animals and Improve important beef-exporting country, with demand without raising prices. In 2006, Productivity Chile, Brazil, the United Kingdom, the Argentine Government limited beef Germany, and the U.S. among its biggest exports to 70 percent of the prior year’s Animal traceability has become a pri- ority in both countries as a result of the outbreaks of FMD and foreign customers’ demands to know the sources of their Uruguay exports mostly fresh and frozen beef food. Animal identification systems help Thousand metric tons of beef locate the source of an outbreak and miti- 350 gate against further spread of the disease 300 through the isolation of key at-risk herds. Fresh Argentina and Uruguay implemented 250 mandatory national animal identification 200 systems, after having less formal systems Frozen in place for several years. The animal iden- 150 tification programs in place in both coun- 100 tries now make it possible to track animals from birth to slaughter. 50 Processed Before 2007, traceability in Argentina 0 was an informal system. Primarily through 2002 2003 2004 2005 2006 word-of-mouth and based on the reputa- tion of suppliers, the beef industry was Source: ? USDA, Economic Research Service using data from Global Trade Atlas, 2008. able to assure the retail and export mar-

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kets of the quality of beef final products. local police stations, and the Ministry of pen from which the animal came from, The system was sufficient to maintain the Livestock, Agriculture, and Fisheries. The but it is not possible to identify the specif- confidence of the Argentine domestic mar- DICOSE system made Uruguay one of the ic animal or its origins. ket, as well as that of many of its foreign first countries able to track an animal to The planned second phase of this sys- customers. But the programs were inade- its origin and ensure that ranchers and tem would allow carcasses to be tracked quate to meet the needs of all foreign buy- producers were complying with sanitary beyond slaughter and would allow producers of cattle and beef. In 2007, Argentina requirements. ers to obtain information on the post- instituted a compulsory identification pro- In September 2006, Uruguay moved mortem performance of their cattle. In gram, requiring that all calves born after to a mandatory system of two ear tags, one addition to identifying and tracing ani- September 2007 carry official tags. The highly visible and the other containing mals in the event of a disease outbreak or entire herd is expected to be tagged by electronic information. Cattle are tagged food-safety event, producers could use 2017. before they reach 6 months of age or are this information to compare the perform- Uruguay has a comprehensive nation- moved from their farm of birth. Lost tags ance of their cattle with national averages. al animal identification program aimed at are required to be replaced. These tags As designed, the system would maintain animal disease control, quality beef pro- include information on the individual ani- producer confidentiality. These programs duction, and marketing. A pilot program of mal, the farm from which it originated, focus on using technology to better man- ISSUE 2 animal identification, administered by the and its ownership and movement history. age the beef sector and allow Uruguay to government-created Division de Controlar While the Uruguayan Government cur- maintain access to the export markets de Semovientes (DICOSE), was established rently pays for tags, plans are for produc- upon which its beef industry depends. in 1973. The pilot program was designed ers to assume that cost in the future. The Production Systems Promote VOLUME 6 VOLUME to improve animal health and fight against government plans to have all herds regis- Safe, Healthy Beef illegal smuggling. All cattle operations in tered and all cattle tagged by 2010. 26 Internationally Uruguay were required to have documen- Beginning in 2010, the Uruguayan tation on each animal in their herds. The Government will require traceability not Uruguayan and Argentine beef cattle program required hide branding and docu- only of beef cattle from birth to slaughter, are primarily grass-fed in pastures with mentation each time an animal was but also of all cuts of beef back to their high-quality grasses, alfalfa, lotus, and bought, sold, or transported. Copies of farm of origin. Currently the individual clovers. Animals that are finished in “con- each transaction went to the buyer, seller, cuts of meat can be traced back to the final finement” are generally placed in smaller AMBER WAVES

Monte Vandeveer ECONOMIC RESEARCH SERVICE/USDA FEATURE

given to the animal as feed; the animal was raised and fattened on a grass-fed diet; and the animal was on open range and never confined to a yard or feedlot. Uruguay’s grass-fed production system is internationally recognized as an independently certified source of natural beef. The “Certified Natural Meat Program of Uruguay” maintains consumer confidence and differentiates Uruguayan meat through certified compliance with international protocols for animal production and

Kenneth Mathews, Jr., USDA/ERS industrial practices. Uruguay is also in the pastures, and their diets are supplement- health, and sanitation standards. process of obtaining certification for ed with grains and forage, such as corn Argentine and Uruguayan beef-manufac- organic beef production through EUREP- silage. While North American-style grain turing facilities are modern and clean, and GAP, a private-sector certification body in Europe that institutes standards address- feedlots can be found in both countries, those that export meet the conditions APRIL 2008 they are not common because of the rela- established by export verification pro- ing consumers’ concerns regarding prod- tively high cost of grain-based feed. grams in the United States, the EU, and uct safety, environmental impacts, and Neither Argentina nor Uruguay permits other importing countries. Sanitary sam- labor conditions throughout the supply feeding or implanting artificial growth pling is conducted regularly in plants to chain. hormones or feeding antibiotics as growth ensure the product reaches company stan- Beef Will Remain an Important 27 promotants—Uruguay banned growth dards as well as domestic and internation- Industry for Trade in Uruguay hormones in 1978; Argentina banned both al market demands. Uruguay is able to cer- and Argentina AMBER WAVES in 2004. tify that its beef processing plants meet Trade has differing roles in Argentina As a result of these production prac- regulations put in place to allow fresh and and Uruguay and has affected policies tices, Argentine and Uruguayan beef have frozen meat to be exported to the United and programs related to each country’s a number of characteristics attractive to States, despite its current status as FMD- livestock and beef industries. Argentina’s customers. Grass-fed cattle generally pro- free with vaccination. Argentina’s thermo- policies have not been as export- duce leaner meat, and pasture-based pro- processed beef meets the export verifica- friendly as Uruguay’s, due to beef’s role duction is typically seen as less harmful to tion requirements of USDA’s Food Safety in Argentina’s domestic economy. En- the environment than some other produc- and Inspection Service. hanced traceability programs will help tion technologies. The bans against feed- In addition, in 2004, USDA both countries manage and mitigate dis- ing or implanting artificial hormones and announced that Uruguay’s certification ease outbreaks, as well as meet the health feeding sub-therapeutic antibiotics allow program was “Process Verified,” according and sanitary standards of international Argentine and Uruguayan beef to be to a USDA program that validates market- customers. imported into the EU, a market generally ing claims made by suppliers. In this case, closed to U.S. beef. Global demand for beef USDA verifies for U.S. consumers that the products with these characteristics contin- “natural” label placed on Uruguayan beef This article is drawn from . . . ues to increase. is consistent with U.S. criteria. “Natural” Beef Production, Markets, and Trade in Certification is frequently part of means that a credible third party has certi- Argentina and Uruguay: An Overview, by export verification processes imposed by fied that the source is verified from ranch, Kenneth H. Mathews, Jr., and Monte importing countries. Standards are often to harvest, to fabrication, and packing; no Vandeveer, LDP-M-159-01, USDA, higher for exported beef than for domestic added hormones or growth promotants Economic Research Service, September beef, and plants that export beef usually were administered to the animal; no sub- 2007, available at: www.ers.usda.gov/publications/ldp/ must be certified to ensure that they com- therapeutic antibiotics were administered 2007/09sep/ldpm15901/ ply with the importers’ veterinary, animal to the animal; no animal proteins were