In the face of rising feed costs and flat demand in developed markets such as the U.S., Canadian beef producers need to focus on exports to emerging economies to maintain growth, according to BMO Economics.
“Canada’s beef industry will struggle to expand production and sales if it focuses exclusively on traditional markets, such as North America, for its products,” says Aaron Goertzen, economist, BMO Capital Markets. “It will become increasingly important for the Canadian beef industry to go where the growth is, and that growth, as we’ve seen, is taking place in emerging market economies.”
Goertzen notes emerging markets like India and Brazil, with rapidly growing populations and faster economic growth, have steadily increased their beef consumption — a pace that the United Nations’ Food and Agriculture Organization expects will be sustained over the next decade. In fact, total domestic consumption of beef and veal in India was over 2 million metric tonnes last year — an increase of 73% since 2000; in Brazil, consumption was nearly 8 million metric tonnes — up 29%. In contrast, Canadians consumed just over 1 million metric tonnes last year.
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“It is true that increasing overseas exports is not a straight-forward undertaking, and that it will depend on domestic and foreign regulatory factors that are outside of the industry’s direct control,” Goertzen says. “However, experience in other countries suggests that it can be done. With countries like Australia and New Zealand exporting beef heavily, it’s also difficult to argue that Canada’s relative isolation — excluding our large neighbour to the south — is a limiting factor,” he added.
Goertzen emphasizes that only the most efficient producers, within Canada and globally, will be able to generate profits reliably in this challenging environment. “There is sustained margin pressure resulting from upward-trending feed costs over the longer run. It is therefore imperative that the industry maintain an unwavering focus on productivity growth and cost management through both innovation and scale.”