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Riding Argentina's bullish beef market

Cooking meat at a parrilla, or grill, in Buenos Aires, Argentina (Argentine Beef Promotion Institute)
Cooking meat at a parrilla, or grill, in Buenos Aires, Argentina
Argentine Beef Promotion Institute

Slipping through a packed parrilla in Buenos Aires, a waiter nods towards the line waiting for tables. "The price of a tenderloin steak has nearly doubled in a year," he says, "but still people want to eat beef." Three years of strong domestic and international demand have pushed Argentina's beef industry to record growth. Despite economic troubles, the people of Argentina continue to consume more beef than anywhere else in the world, tucking away a yearly average of 62 kilograms per person. It is also the world's third largest beef exporter after overseas sales increased by 40 per cent last year. All good news, it would seem, for beef producers. But thriving internal and foreign demand have created supply pinches and rising domestic prices.

Beef makes up a hefty part of an Argentine family's weekly shopping basket. Therefore, as beef price edges up, so too does overall inflation: last year demand outstripped the annual beef production of 14 million cattle, forcing retail beef prices up by 25 per cent and pushing inflation up to 12 per cent.

Government intervention

First quarter beef prices continued to rise this year and with concerns that inflation was jeopardising overall economic growth, the beef industry boom has been clipped by a series of controversial interventions by the leftist government of President Néstor Kirchner. On March 8, the government imposed a six month beef export ban to keep 600,000 tons of foreign bound meat in the domestic market. By clamping down on US$1.4 billion worth of exports, Economy Minister Felisa Miceli said the government hopes to bring "the internal supply and the internal demand (for beef) into equilibrium."

The measure has angered domestic producers, whose market-price has plummeted by a quarter, and infuriated exporters. "The objective to bring down the price of beef for consumers has not been fulfilled," said Jorge Aguirre Urrete, president of the National Cattle Traders Association. "The price of livestock in the market has fallen by around 30 per cent but the price of beef hasn't registered much of a change to the retailer."

Small farmers to get subsidy

In the famed cattle producing pampas, farmers have taken to the picket lines. In July, farmers unions launched a four day strike, the first national action faced by President Kirchner since he entered office in 2003. Although the export ban was partially lifted in May, allowing some meat to leave the country, the industry still feel aggrieved. "We strike because we need a state that will not close exports from one day to another", said Javier Yayo Ordoqui, president of the Rural Association for Buenos Aires and La Pampa.

Cattle for sale at Liniers cattle market (www.26noticias.com.ar)
Cattle for sale at Liniers cattle market
www.26noticias.com.ar

The government has responded with a US$300 million subsidy package for the country's farmers to boost production. But the money will be aimed at Argentina's small farmers and not the large cattle ranchers that have been hardest hit by falling prices. Government figures show the country's 170,000 small (less than 1,000 cattle) farms are half as productive as Argentina's top ten per cent of cattle ranchers and that these large inefficiencies are slowing industry growth.

However, industry professionals are dubious as to whether small farmers have the desire to improve their herd management techniques, especially as cattle are often held as a 'bank deposit' while cash crops bring in the money. "Many small farmers buy cattle as a safe way of holding on to their money", said Miguel Jairala Cloquell, of the Argentine Beef Promotion Institute, "They don't trust banks since the crisis days of frozen accounts several years ago and are interested in cattle solely for storing money, not increasing production."

Growth and sustainability

Government officials have indicated that they will reopen the export market in November, a move cheered by farmers who favour letting the market set prices naturally.

Cattle production in Argentina has grown exponentially in the last decade and the upward trend is expected to continue, in spite of the government induced blip in production this year. However, if domestic and international demand is met, some industry commentators question whether it will be compatible with extensive grassland farming. "We have plenty of land," said one farmer from the pampas, "but if we increased our cattle numbers like the government wants, we may be forced to feed our cattle with intensive methods". He concluded, "intensively fed cattle will produce an inferior eating experience."

This would be a blow to the queues of people waiting to sample the unique taste cattle reared on vast open pampas. Furthermore, if demand ushers in a new intensive era for Argentine beef, the environment could face damaging pressures - a familiar scenario in next door Brazil, but previously unseen in Argentina.

Written by: William Surman

Date published: September 2006

 

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