Up, Up, and Away: Argentina’s Beef Exports

There is perhaps no part of Argentine cuisine as iconic as beef. Cooked slowly over hot coals on a parilla, the authentic asado is relished by locals and tourists alike. Of course, Argentina’s cattle culture reaches beyond the grill, with herds of tranquilly grazing beef cattle having become synonymous with any mention of the Argentine Pampas.

 

Argentina’s reputation for prized beef stretches well beyond its own borders. Upscale restaurants in Europe and the Middle East offer grass-fed Argentine steaks at exorbitant prices. Other cuts find their way into markets in Asia, Africa, and even into neighboring countries in South America. Indeed, exports are a critical component of Argentina’s beef industry, and are becoming increasingly so. In volume terms, cumulative exports for the first five months of 2019 led the same period in 2018 by 44.9%.

 

But the story of Argentina’s beef exports has not always been one of success. Shipments have ebbed and flowed over the last several decades due to the interference of macroeconomic factors and government policies. For this reason, Argentina’s beef exports serve as an important case study showing the impact that occurs when agriculture, policy, and economics converge. It is critical that these factors be in balance for an industry to function properly. 

 

You’ve Come A Long Way, Baby

 

Today, Argentina is the sixth largest beef producer in the world, and the second largest in South America. The Argentine government estimates that the country’s cattle herd totaled 53.9 million head in March 2019, with a full third of this population located in the Province of Buenos Aires. Total beef production for the country is estimated to have reached 3.05 million metric tons in carcass weight equivalents (CWE) during 2018, up 7.4% from prior year, according to the United States Department of Agriculture.

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Argentina’s beef industry principally serves the domestic market, where consumption averaged 56.7 kilos per capita in 2018. Consumption has stayed relatively consistent over the last twenty years, shifting only about 10% plus or minus the average, in any given year. This isn’t to say that demand is fixed – of course, domestic demand certainly varies from year to year, reflecting prices and consumers’ willingness to pay.

 

Exports, on the other hand, tell a much more volatile story. According to USDA data, over the last two decades, Argentina’s beef exports have been as low as 164,000 metric tons (in 2012), and as high as 754,000 metric tons (in 2005). Since bottoming out in 2012, beef exports have been gradually expanding. In 2018, Argentina beef exports breached the level of 500,000 metric tons for the first time since 2009.

 

Today, China is unequivocally the largest export market for Argentine beef. Figures from the United Nations show that in 2018, Argentina shipped over 290,000 metric tons of beef to the country, accounting for 57% of all exports in volume terms. Chinese exports have only intensified in 2019, due to the outbreak of African Swine Fever which has sent the Chinese food industry abroad looking to meet the country’s animal protein demands. Other top export destinations include Russia, Chile, Germany, and Israel.

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I’ve Been Up, I’ve Been Down

 

The path of Argentina’s beef exports has been inconsistent, to say the least. I find it helpful to break the export trend into four phases to better understand the dynamics at play which ultimately influenced shipments.

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  • Phase I (Pre 2000) Beginning in 1991 and lasting through 2001, Argentina’s peso was pegged to the dollar. This strategy was implemented by the government in an attempt to restore confidence in the peso after economic crisis plagued the country in the 1980s. However, the artificially supported peso made exports relatively expensive for foreign buyers. As a result, international demand for Argentine beef began to wane.

  • Phase II (2001 – 2005) In 2001, the peso-dollar peg was removed, allowing the peso to float. The peso immediately devalued, igniting a period of severe economic and political turmoil in the country. In spite of the economic strife facing Argentina, exports became once again price competitive and beef exports rose steadily over the next few years. By 2005, Argentina was producing 3.2 million metric tons of beef, exporting nearly a quarter of that volume, and had secured its spot as the world’s third largest exporter of beef.

  • Phase III (2006 – 2015) By 2006, although things were going well for the cattle industry, Argentina’s economy continued to suffer from a lack of competitiveness and high unemployment. In an effort to rein in rising prices, Argentina’s populist president announced a ban on beef exports for 6 months, after which a 15% export tax (or ‘retención’) would be levied on exports. The government introduced other controls as well, such as requiring that slaughterhouses sell a designated proportion of their production to the local market and implementing currency controls. These actions crippled the industry, pushing farmers to sell off their cows and dedicate their land to more profitable forms of farming.

  • Phase IV (2015 – Present) Mauricio Macri assumed the presidency in 2015, ending twelve years of populist rule in Argentina. Within a week of being installed, he repealed the beef export taxes and removed currency controls that had artificially propped up the peso. Beef production in the country began to expand once again and exports rose. Just three years after these policy changes, Argentina’s beef exports were back to levels not seen in a decade.

 

As we trace the rise and fall of Argentina’s beef exports over the last 20 years, several themes emerge. Firstly, it is clear that macroeconomic factors exert significant pressure on export growth. Most obvious is the relative strength of the local currency, in this case the Argentine peso. When the local currency is highly valued, exports become more expensive for foreign buyers. In contrast, when the local currency is inexpensive, it encourages additional exports. Currency movements are complex and touch many parts of the economy at once, but the pressure they exert on exports cannot be understated.

 

Apart from foreign exchange movements, other economic factors also influence agricultural exports. At the production level, cattle farmers rely on a sound economic backdrop to ensure that they can manage their inputs and obtain access to affordable financing. In an industry with long production cycles, such as the beef industry, decisions are made whose outcomes will not be realized until years into the future. As such, a consistent, healthy economic environment is critical to promote sector growth.

 

Though economic elements form a cornerstone of the export environment, history has shown us that poor government policy can do just as much, if not more, damage. In the case of beef exports, government policy was the key driver behind the implosion of the industry between 2006 and 2015. Of course, when it comes to government policy, officials sometimes have to make hard trade-offs. Nonetheless, it is essential that policy implications be comprehensively researched and understood before they are implemented.

 

Even well-meaning government policies can have negative effects. The Kirchner government insisted that its decision to halt exports in 2006 was an attempt to keep a ceiling on rapidly rising consumer prices. While it is a noble endeavor to seek to contain the cost of living, especially for a country’s most vulnerable residents, crippling an industry is never going to be the proper means to achieve that end. And so it was in Argentina. Rather than having the intended effect of keeping domestic beef affordable, the beef industry dried up. As a result, in just five years, beef consumption per capita slipped from 70 kilos each year to about 55 kilos in 2011.

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Exporting necessarily implies participation in global markets. Therefore, it is also critical to recognize the situation created by prevailing supply and demand factors. For example, a growing global population with a larger appetite for animal proteins has helped sustained demand growth for beef. On the competition side, environmental pressures in other major global producing countries is limiting growth potential. These factors are too numerous to explore here in detail, but the point is that they will influence export potential and must be considered as an integral component of any analysis.

 

None of these factors exists in a vacuum. However, striking the proper balance between economic factors, government policy, and the supply and demand dynamics provides the environment in which agricultural exports can flourish.

 

What Lies Ahead

 

For the moment, the future of Argentina’s beef exports seems bright. Farmers are once again investing in their businesses and growing their cattle herds. The government has largely gotten out of the way, creating the opportunity for exporters to capitalize on global demand. In addition, renewed interest in liberalized trade, such as the recent EU-Mercosur agreement, will help to promote additional volumes.

 

These trends don’t mean that the road ahead is going to be easy. Serious challenges still exist for Argentina’s beef industry. The precarious broader economy has driven interest rates up and, in some cases, farmers have had to sell productive young members of their herd to pay their expenses. Presidential elections loom in late October and are casting a shadow of uncertainty over expectations for government policy.

 

The history of Argentina’s beef exports over the last two decades illustrates how economic and policy issues converge to either bolster or undermine an industry. In order to create a stronger tomorrow for global agricultural communities, it is imperative that we take these lessons to heart and strive to consistently nurture the conditions that enable farmers to succeed on the global stage.