Mercosur

So there is an agreement with 4 South American countries (Mercosur) for free trade. Quite an achievement especially when added onto the Japan and Vietnam trade deals.
But for Irish beef farmers this one seems to be a big problem. The word devastating is used. Devastation to my mind conjures up images of empty fields and beef farmers out of business.
But is that the case?
So we see up to 99,000 tonnes of beef can come into the EU from these 4 countries in the future tariff free.

So EU has population of 512.6 million people as at January 2018. So first number is how many kilos of beef is coming in per person? My calculator is not great at long numbers but it tells me 0.19 kg for every man woman and child. In a year.
In old money that is less than half a LB.

So meat consumption in EU is 65 kg per capita. So that does look significant as 0.19/65 is nearly 0.3% of all meat consumption. On the pure beef consumption it is 1.25% of all beef consumed in the EU. Beef is only a fraction of the meat consumed in the EU.

In 2018 there was 270,000 tonnes of beef imported from Mercosur. That had a tariff of course. So now 99,000 tonnes of this will come in tariff free. So what will the Mercosur exporters do? Will they cut the price to reflect the tariff drop? Will they maintain their price and take the extra profit? Will they share the tariff drop to fund/subsidise more tariff paid exports?

It is important to know the answer. Ireland exports 470 to 560k tonnes of beef. In 2017 there was a largish rise in tonnes exported due to an extra 100,000 animals. This is likely to continue. So any price drop on any or all of this is very significant. Do we assume that the 99,000 tonnes will reduce the price paid for Irish exports? Clearly this is the fear of the Irish producer.

There is further concern that the 99,000 tonnes may be the best quality steak cuts. And if these come in at a lower price it is likely to have a knock on effect on the price of the other cuts.

Everyone recognises this trade deal will have an impact. What the impact is will be clear in time.

The world is increasing beef consumption as wealth and population rises. This is particularly true of China. There is a FAO forecast that there is a 0.5% increase in global consumption every year. It will reach exports of 10 million tonnes in 2019.
The 99,000 tonnes is 1% of this.
So problems ahead. Cost impacts are likely.
The classic answer is to go upmarket . It is clear that the work of Bord Bia with its Origin green scheme is going to be a major factor in getting Irish beef out of the commodity end. The quality of beef, its trace-ability and environmental friendliness will be key to going upmarket.
There is a fund of 1 billion Eur available. Ireland should lean into that heavily and get their product branded. Designation as origine controle (AOC) or getting some geographic designation may be a key strategic goal to get consumer recognition up.
Some form of future contracts might be beneficial too. Far too often Irish farm producers are simply selling stock onto a spot market with few if any alternatives.
This is a good way to get hammered by powerful buyers especially when there are huge seasonal swings in supply.
The impact is clear, prices will be affected. The extent is completely unknown. The Irish industry needs to continue to work to get quality, reliability and value up. Farmers will continue to do their part and will increase efficiency and value of the raw material. The resistance of consumers to the removal of rain forest for soya growing and animal grazing may create a negative attitude towards the South American beef. This could be exploited by a quality Irish product and will help add to the Irish premium image.
If farmers can also get a good scheme to measure and show the carbon sequestration effects of grazing compared to deforestation then a new market advantage may be discovered from this development.
Winning the hearts and minds and pockets of the EU consumer is key. The new adage of produce locally and sell globally has never been more clear!

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