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Mosoj ESG provides information, data and analyses relating to South America integrating Environmental, Social and Governance topics to promote sustainable development.
Meat is a juicy business
A nightmare for Brazil’s thriving meat industry could only happen on Friday the 13th. Indeed, it was reported that the Chinese city of Wuhan had detected traces of the coronavirus on the packaging of a batch of Marfrig Global Food S.A, a major Brazilian beef player. This followed the discovery of the virus on Argentinian beef a couple of days earlier.
Given the – growing - importance of China, representing around a quarter of the world’s consumption, it is a significant short-term hit for these two South American economies, at a time when other economic sectors are struggling for survival. It also undermines the trust of their process and products in the eyes of China, who has had its fair share of food-related scandals.
Source: OECD-FAO Agricultural Outlook (Edition 2020)
In the long-run, however, we can expect that China will continue to consume a growing amount of meat. Indeed, Bennett’s law is at work here, whereby as income rises, people change their diets to incorporate increasing amounts of meat, dairy, vegetables and fruits. China has plenty of scope for growth. It is estimated to grow at 2.2% CAGR over the next 10 years according to the latest FAO estimates, while India will grow at an even higher rate.
Source: Euromonitor, Tyson Foods Feb 19, 2020
This is good news for meat producing countries in South America, since on average 76% of their agricultural land is land under permanent meadows and pastures, together amounting to 437.6 million hectares located mostly in Brazil, Argentina, Colombia and Bolivia.
For sure, the growing meat market thus provides a significant opportunity for livestock farmers and meat processors in these countries. Global meat sales stood at over $1tn in 2019 and - by some estimates - is expected to grow to $1.5tn to $2.7tn in the next decades, respectively based on a 2% to 3% CAGR, mostly in developing countries.
As South American countries currently represent just under 14% of global production, this would translate into potential additional sales of $200bn to $361bn, around 80% of which would go to Mercosur countries. In this respect, we can note that Brazil has some of the leading players in the world. JBS had sales of $50 bn in 2019, while BRF’s and Marfrig’s sales stood at respectively $9bn and $12 bn.
There are however key risks to the industry, related to environmental and health concerns, driving investments into alternative solutions, such as plant-based meat. Indeed, over the last ten years, total venture-capital investment in plant-based meat reportedly exceeded $2 bn, led by Impossible Foods, with $700 million in venture funds, and Beyond Meat, which went public in 2019. Of note, the latter’s market capitalization stood at $7.8bn vs Marfrig $10.8bn…
On the environmental issue, although much has been written about the significant contribution to greenhouse emissions of the meat industry, it is interesting to note that agriculture, of which the meat industry is a subset, only accounted for 13% of total greenhouse gas (GHG) emission, and in fact showed very little growth since 1990.
Nevertheless, there does seem to be an established consensus pointing to animal agriculture as a significant contributor to climate change, via its GHG emissions, but also because of deforestation, biodiversity loss and water pollution.
As such, increasing productivity throughout the whole livestock sector is fundamental if the sector is to meet the growing demand while minimizing its impact on the environment and the world’s natural resources. In terms of health concerns, the pandemic has put the spotlight also on the safe processing of meat products as well as on the origins and keeping of livestock, all of which present big challenges as it will force companies to pressure their supply chains into establishing better processes.
Finally, from a pure consumption look, it is important to note the relative meat consumption per capita of several countries. According to the latest FAO Agricultural Outlook, in 2019, China stood at 45.7 kg per capita vs India’s 3.5kg per capita, and a world’s average of 34kg per capita. At the top-end of the spectrum, the US stood at 100kg/capita, while Brazil and Argentina were respectively 78 and 88 kg per capita.
Given its population, China remains a key determinant to the global demand and consumption for meat, but if India started to consume meat on a par to China – the consequences would be dramatic for the world’s forests and/or indeed food prices.
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Colombia’s external debt at 54% of GDP
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Colombian agriculture ministry announces $560 mn in loans for farmers
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