Beef
Global Beef Production
World beef production was at approximately 61.3 million MT in 2017, thus averaging a growth rate of 1.7% (compound annual growth rate – CAGR) since 1960. Global beef production is dominated by 10 countries, which produce more than 80% of the world’s output, with Brazil and the United States of America (USA) accounting for about 35% of the global output.
The global beef production
The USA is recognised as being the dominant producer, as well as consumer, of beef in the world. However, the USA’s dominance of world beef production is being endangered by Brazil, whose beef production is about 90% of that of the USA. In 2017, the USA produced about 11.9 MT (USDA, 2018) – 0.1 MT higher than the 11.8 MT in 2014, whereas it had been anticipated to decline to about 10.8 million MT due to tight slaughtering, as beef breeding herds carry on rebuilding from the low-herd cycle point. In contrast, Brazil’s beef production has been increasing, reaching about 10 million MT in 2014. Strong global demand is projected to drive the increase in feedlot capacity over the next few years in Brazil. The Brazilian feedlot production was about 9.4% of its total production in 2013 and it is projected to reach about 19.1% in 2023, with the transformation of the industry supported by the huge availability of feed for cattle.
The global production of beef is projected to reach 75 million MT in 2023, growing at an estimated CAGR of 1.3% between 2014 and 2023. The USA and Brazil are expected to continue being the dominant global beef producers, together accounting for an average of about 28.6% throughout 2014–2023. Among other top -10 producers of beef in the world, India is expected to grow at a CAGR of 2.1%, thus reaching an absolute production growth of 20.7% in 2023, when compared with 2014. China is currently the fourth biggest producer and is anticipated to become the third biggest by 2023, producing about 7.8 million MT.
Given the increase in population, coupled with the rising food demand, beef plays a critical role in solving food insecurity. The increasing demand, mainly from developing countries, because of increasing per capita income and changes in consumer preferences towards consumption of high protein foods, has been met by increasing the production of beef. In addition, the price of beef is also an important driver of demand. The increases in beef prices recently, due to tight global supplies, may result in consumers moving away from beef to other meats such as poultry. Indeed, retailers such as Chipotle, McDonald’s, and Burger King are increasing their offerings of chicken products as beef prices increase.
Forecast Anticipated Growth of the Beef Industry
The ABSA Agricultural Outlook (2017) estimates that the world’s cattle production increased slightly to 59 million tonnes in 2016. This increase is attributable to the expansion in production in the USA, India, and Brazil. However, from an African outlook, the drought has resulted in more cows being slaughtered, which should support prices during the herd-rebuilding phase. These higher prices will be met by some consumer resistance due to economic pressures resulting from inflation, higher interest rates, and reduced net income.
The weaker currency brings about some opportunities for the growing export market.
The following two Figures provide insight into the world’s beef production and consumption trends.
World beef production
World beef consumption
In the early 2000s, growing income levels sustained trends of urbanisation and
improved living standards supported dietary diversification in South Africa, resulting in the inclusion of more protein in typical diets and rapid growth in meat consumption. From 2000 to 2009 rapid consumption was evident in all meat types, but as the most affordable option, chicken (7% p.a.) was the clear winner, followed by pork (3.9% p.a.), beef (1.5% p.a.) and sheep meat (0.3% p.a.). As an affordable alternative protein source to meat, egg consumption also expanded by 2% per annum over the same period. In more recent years, however, economic performance has dwindled and in real terms, consumer incomes have come under pressure, resulting in slower overall growth in meat consumption. At the same time, however, some diversification across meat types has become evident. Since 2009, consumption growth for chicken, beef and pork slowed to 1.9% per annum, 1.2% per annum and 0.1% per annum respectively. Affordability remains critical, but it cannot simply be measured ex abattoir, as a wide range of products of different values is sold at the retail level. For instance, some beef cuts provide affordable alternatives to chicken when meat consumption starts to diversify, whereas higher-value cuts compete more directly with lamb.
Similarly, pork products at the retail level range from affordable alternatives to beef when consumed fresh, to higher-value processed products such as bacon, which is consumed by more affluent consumers. Considering expected income growth over the coming decade, meat consumption is projected to continue an expanding path. As an affordable and healthy option, chicken consumption is projected to accelerate again compared to the recent past, expanding by 27% over the next 10 years. The trend in diversification is also expected to continue, with beef and pork consumption projected to expand by 24% and 23% respectively over the same period.
Meat consumption in South Africa – 27 vs 2015 – 2017
The South African Beef Industry vs the Global Beef Industry
The estimated gross value of beef cattle and calves slaughtered increased significantly during the period 2006/07 to 2015/16. The following Figure displays the calculated gross value of cattle and calves slaughtered for the period 2006/07 to 2015/16.
The estimated gross value of beef cattle and calves slaughtered
The gross value of livestock production is forecast to remain steady at $34 billion in 2022−23. The value of dairy production is forecast to increase by 22% to a record $6 billion in 2022−23 due to much higher farmgate milk prices. These gains will partly offset price falls for beef, sheep meat and wool. Production volumes for meat are forecast to remain steady, with wool production to increase and milk production forecast to fall. The main risks to the forecast are if the global economic downturn is more rapid than forecast (see the Economic overview), or if summer is wetter than forecast (see the Seasonal conditions overview).
Production volumes for meat, wool, sheep meat and milk
Livestock exports are forecast to fall by 5% to $26 billion in 2022−23. The global economic downturn is expected to lead to lower export prices for beef, sheep meat, dairy, and wool. Live export volumes for both cattle and sheep are forecast to fall due to lower demand and high cattle prices. The impact of a fall in prices will be balanced by a lower Australian dollar, which will increase the competitiveness of Australia’s agricultural exports in international markets.
The world meat supply is expected to remain steady. US cow slaughter has continued at higher–than–expected levels in response to drought conditions in many parts of the US. High cow slaughter numbers in 2021 and 2022 will result in a smaller US herd and US beef production falling in 2023. The Brazilian cattle herd will continue to recover from high slaughter numbers in recent years, with a larger herd to facilitate greater volumes of beef production. Global pork prices increased in mid–2022 due to high feed costs reducing producer margins and tightening pork supply. Prices are expected to stabilise in 2023 because China plans to release pork from government reserves to maintain supply.
The total number of cattle in South Africa at the end of August 2020 is estimated at 12.30 million, comprising various international dairy and beef cattle breeds in addition to indigenous breeds such as the Afrikaner and the Nguni. The number is approximately 2.07% lower than the estimate of 12.56 million as of the end of August 2019. Beef cattle contribute approximately 80% to the total number of cattle in the country, while dairy cattle make up the remaining 20%. Holstein-Friesian, Jersey, Guernsey and Ayrshire are the four major dairy breeds found in South Africa.
Cattle are found throughout the country, but mainly in the Eastern Cape, KwaZulu-Natal, Free State and North West. Herd sizes vary according to the type of cattle, ranging between less than 50 and 300 for dairy cattle, while beef cattle herds range from small (less than 20 head of cattle) to large farms and feedlots (more than 4 000 head). Some farms in the North West and Gauteng have been found to have some of the largest cattle herds in the country. The production of weaners for the feedlot industry is the main form of cattle farming – feedlots account for approximately 75% of all beef produced in the country. Prices (R/kg) for weaners and live animals are lower for the first half of the year in comparison to 2018.
Supply and Demand Trends of South Africa
South Africa’s beef consumption was significantly higher than beef production during the period under analysis, which indicates that South Africa is not self-sufficient in terms of beef production. To satisfy local demand, South Africa is a net importer of beef. However, both consumption and production followed the same trend that decreased from 2006/07 to 2007/08 and increased during 2009/10. However, the decline that was observed during 2007/08 was caused by the economic meltdown. During 2009/10, both beef consumption and production experienced significant growth. Beef consumption and production increased by 5% and 4.7%, respectively, during the 2015/16 period as compared with 2014/15. However, over the past decade, beef consumption increased by 35.7% and production by 46%. This could be a result of the increased affordability experienced by clients, as well as deviations in consumer-based diets regarding meat and an increased population.
The red meat industry is one of the most important growth industries in the South African agricultural sector. It contributed approximately 15,8% to the gross value of agricultural production in the RSA during 2019/20. While sheep farming is mainly extensive, a large percentage of beef animals are supplied by feedlots.
Livestock slaughtering It is estimated that the total number of cattle slaughtered increased by 6.0%, sheep (including lambs) slaughtered decreased by 22.1% and pigs slaughtered increased by 8.5% from 2018/19 to 2019/20.
The red meat industry evolved from a highly regulated environment to one that is much more deregulated today. Various policies, such as the distinction between controlled and uncontrolled areas, compulsory levies payable by producers, restrictions on the establishment of abattoirs, the compulsory auctioning of carcasses according to grade and mass in controlled areas, the supply control via permits and quotas, the setting of floor prices, removal scheme, etc., characterized the red meat industry before deregulation commenced in the early 1990s.
Distribution of cattle by province in South Africa (2020)Since the deregulation of the agricultural marketing dispensation in 1997, demand and supply forces determine the prices in the red meat industry. Price formation is one of the important forces in making decisions regarding the production and marketing of beef and beef products.
TCommercial slaughtering of red meat-producing livestock categories over the past five years.
|
YEAR |
2015/2016 |
2016/2017 |
2017/2018 |
2018/2019 |
2019/2020 |
|
CATTLE |
3 003 535 |
2 853 080 |
2 653 789 |
2 445 125 |
2 591 835 |
|
SHEEP |
5 317 938 |
4 786 154 |
4 231 571 |
3 657 328 |
4 464 864 |
|
PIGS |
2 812 161 |
2 704 933 |
2 927 156 |
3 025 292 |
3 281 635 |
South African monthly cattle slaughter – 2017-2022 YTD
Auction Prices
The prices for red meat are mainly determined by the interaction between demand and supply (the latter two are affected by the level of the consumer’s disposable income, the prices of substitute products and import parity prices, etc.). In the case of mutton, for example, the level of wool prices also influences the domestic supply of mutton.
The average producer price of beef for 2019/20 amounted to R44.03/kg (average for all classes on all auction markets), which represents an increase of 1.7% from the average price of R43.28/kg for 2018/19.
Average producer prices of beef, mutton, and pork, 2015/16–2019/20 (July to June)
Despite the decline in global markets and constrained spending power among domestic consumers, South African beef carcass prices increased by almost 8% from February 2022 to September 2022, reflecting a 15% depreciation in the exchange rate, high feed costs and domestic supply constraints. Slaughter volumes over the first 9 months of 2022 remain 1% below the comparable period for 2020 and 2021 and almost 5% below the comparable period in 2019 (pre-COVID). South Africa remains in a herd rebuilding phase following various drought periods since 2016, with mixed enterprise producers (grain-livestock farmers) benefitting in recent years from strong cashflows due to bumper summer crops and quality grazing to expand beef herds.
Furthermore, the continued spread of foot and mouth disease, followed by a 21-day countrywide ban on the movement of cattle, which was extended in some provinces with active outbreaks, all contributed to limiting stocking rates in feedlots, thus exacerbating existing supply constraints. In September 2022, slaughter volumes were almost 10% below that of September 2021. Given that the ban on the movement of cattle has been lifted, additional supply could enter the market in the coming months, but at the same time, seasonal demand typically increases in December, which would lend support to prices, even if supply increases.
South Africa’s food price inflation reached a multi-year high in September 2022, a phenomenon largely driven by global dynamics and evident in many countries around the world. Amongst the various food groups contributing to inflation, meat is the largest at 32%. Therefore, while the price of meat has not increased to the same extent as vegetable oil, bread, and cereals, it has been a major driver of rising food inflation in South Africa. Within the meat basket, poultry (12%) and beef (8%) products make the largest contribution. Thus, it is worth considering the key factors driving meat prices and how these factors might revolve over the coming months.
Contribution of various product groups to food inflation in South Africa