IT BECAME obvious that Brazilian beef giant Minerva might be in the mood to establish a foothold in the Australian beef supply chain when senior executive and former JBS Australia CEO Iain Mars made two recent visits to Australia in rapid succession.
Beef Central managed to catch up with Mr Mars for a cup of coffee during one of his recent visits, and it quickly became evident that the company was in an acquisitive mood.
As reported yesterday, Minerva has this week subsequently bought well known Brisbane-based non-packer exporter, IMTP Pty Ltd, which has a strong export presence in Asia and other parts of the world.
While our discussion with Mr Mars obviously pre-dated this week’s announcement, some of his comments reported below provide some insight as to what might lie ahead.
Mr Mars pointed out that Minerva was much more reliant on export than most other large Brazilian meat processing companies.
“At times the export portion of our production is as high as 80 percent, and given the recent situation in Brazil with this year’s economic and political crises, that strategy has served us well,” he said.
While prices had come back in many international beef markets over the past six months or so, some export markets serviced by Minerva had remained relatively firm.
“We do a lot of business out of South America into Iran and the Middle East, for example, which have remained at relatively stable levels. Generally, the export price pressure has been seen more on the commodity side, and that’s been reflected in the US for trim and grinding beef, which earlier this year came back quite a deal from prices seen in 2015.”
Asked whether the price adjustments might help arrest some of the consumer resistance around the world to ever-higher beef prices, in favour of much more sharply priced chicken and pork, Mr Mars said he thought equilibrium was now ‘coming back into line.’
“There was clearly a period of adjustment when beef prices got very high, and the product started disappearing off menus and family shopping lists to be replaced by white meats. But I think that’s now starting to come back into line with recent price movements, and it has probably gone far enough.”
Referring to international supply dynamics, and what has happened in Australia this year with dramatically smaller beef kills, Mr Mars said Brazil was now stepping in to fill that gap, with larger exports itself.
“That’s clearly being seen in markets like China, where Brazilian exports now are much larger than Australia’s,” he said.
“China has become a very important market – not just for Brazil, but also Uruguay. Up to 30 percent of all production out of Minerva’s Uruguayan beef plants now goes to China, for example.”
“We see China as a big growth market for our company. What’s surprised us somewhat is that they will take a whole range of cuts. And there are more and more Brazilian plants now gaining approval for export to China.”
At this point, Brazil and Uruguay do not have access for chilled export to China, as Australia does (albeit it limited to just 12 facilities).
“We’d like to have that chilled access, obviously, but at the present time it is not hampering our trade into the market at all.”
“While China is a price sensitive market – as most export markets are these days – it has been a good market for us. Minerva itself has shipped up to 15,000 tonnes a month this year, and that appetite is only likely to grow. It will be a very important market for both South America and Australia in years to come,” Mr Mars said.
While Brazil would continue to be more competitive than Australia in China along commodity beef lines, Australia’s great branding programs, underpinned by MSA and other tools, would deliver an advantage at the higher quality beef end, he said.
“Brazil has high quality beef as well, but Australia focuses very much on that, and those niches are probably where its future lies in China.”
“But while Brazil’s cost of production and cattle purchase price is lower than Australia’s we still want to sell our product for the highest dollar we can get, of course.”
Within Brazil’s domestic market, beef demand was well down because of the poor shape of the economy and the political unrest seen earlier this year.
“Boosted by the devaluation of the Real, that’s pushed a lot more Brazilian product onto the international market. While Minerva has always been export-focussed, some of our South American competitors are also exporting a lot more than they have in the past, because of that.”
On top of that, the Brazilian currency, the Real, at one point got as low as four Real to the US$, making Brazil’s export beef look very cheap in international markets. The currency has since improved somewhat, sitting today at R3.28 to the US$.
“But it’s also been quite good for the Brazilian cattle farmer this year. Cattle prices have been strong, in Real currency terms,” Mr Mars said.
Is Brazil’s export surge part of a cycle?
So is the current surge by Brazilian exports into international markets part of a cycle, or is it the new norm?
“I think it will continue this way,” Mr Mars said. “There will be more Brazilian beef on the international market as a general rule. Brazil’s cattle herd is increasing and is expected to reach about 220 million soon. Beef kills now are consistently 450,000 to 500,000 head per week. So I think we will see exports continue to grow. South America will, in my opinion, become more and more the supplier of protein around the world.”
US market access
Mr Mars acknowledged that there have been a lot of optimistic statements coming out of Brazil over the past 12 months – both government and industry sourced – over prospects for gaining access to the US beef market.
His view is that no key decisions were now likely to be made about such access this side of the US Presidential election, scheduled for November 8.
He suspects that export supply out of Australia next year – or more correctly the lack of it – might be a factor in the US finally giving Brazil the green-light for access for chilled and frozen beef, likely some time early next year.
There was also a common train of thought that once Brazil gained access to the US market, other premium export markets like Japan and Korea, which also currently enforce bans on Brazil, would follow.
“So gaining US access could well be a catalyst for a much bigger change in global beef access,” he said. “It’s something we’re very aware of – especially while Australia’s capacity to export is compromised by the effects of recent drought.”
Minerva’s plans for the future
As outlined in yesterday’s company profile published on Beef Central, Mr Mars explained that Minerva was Brazil’s third largest beef processor. Company founders, the Vilela de Queiroz family, had a livestock transport and cattle production business from the 1960s, before branching into processing in 1992. The company today operates 17 beef plants in Brazil, Paraguay, Uruguay and Colombia.
Just recently, 20pc of the company’s increased share capital was purchased by a Saudi Arabian sovereign fund, Salic, and the Middle East was emerging as a ‘very important market’ for Minerva’s exports.
Asked how the Brazilian industry had viewed such foreign investment in its processing interests, Mr Mars said it had been taken very positively.
“Foreign investment brings capital, it brings new ideas, and often brings marketing opportunity. It’s very good for the industry,” he said.
Within South America, Minerva’s strategy now was to develop its distribution businesses to service existing processing operations. That’s already happening in Chile, Colombia and Paraguay, and the company is looking at also getting into the beef business in Argentina.
“But to this point, it’s fair to say that Minerva’s focus has really been on South America,” Mr Mars said.
All that changed this week following yesterday’s disclosure that the company has made its first Australian meat supply chain investment, buying bought Brisbane based beef and lamb export trading company, IMTP Pty Ltd.
HAVE YOUR SAY