by Erin Borror, USMEF Economist
I was recently part of a USMEF research team charged with conducting in-depth research on Paraguay’s growing beef industry. Members of the team also included USMEF Technical Services Manager Cheyenne Dixon and Jessica Julca, USMEF South America representative. The Paraguayan beef industry has seen several setbacks related to foot-and-mouth disease (FMD) and faces significant transportation challenges that come with being a landlocked nation. But despite these obstacles, the country’s beef industry is thriving and it is a rising star on the export front.
Paraguay is a nation of nearly 7 million people. Agriculture makes up a significant portion of the country’s economy, with beef and soybeans being its leading exports. The country is home to approximately 12 to 14 million head of cattle that often have a Brahman or British breed influence. The goal is to have 20 million head by 2020. Though the industry is primarily grass-fed, the high level of cross-breeding means the cattle perform well in the feedlot system. Paraguay’s feedlots are often packer-owned, providing the plants with captive supplies of cattle, especially during the dry season. Feed availability can be a challenge, with long transportation distances, but feedlot rations generally include sugarcane byproduct, soybean meal and hulls, ground corn, corn silage, urea and even DDGs. Cattle are generally on feed for 70 to 120 days.
The Paraguayan industry is heavily focused on exports with less than 20 percent of production consumed locally; primarily bone-in flanks sold in small butcher shops and at mainstream retail. Through the first three quarters of 2014, Paraguay’s exports are on a record pace, up 16 percent from a year ago to 224,535 metric tons. Export value over the same period is up 26 percent to $993.1 million. Paraguay recently surpassed Argentina for eighth place among the world’s largest beef exports – a development that would have been unthinkable back when Argentina was considered an export powerhouse. Paraguay is expected to overtake Uruguay for seventh place in the near future, perhaps as early as 2015.
Reflecting strong export demand and seasonally tight supplies, cattle prices were hitting records during our visit, at $1.67 per pound carcass basis. Prices have eased in recent weeks, partly reflecting greater cattle availability as South America moves out of the dry season, but were still up 9 percent from last year.
Unlike Argentina, the Paraguayan government supports a very free market approach to agriculture which is conducive to exporting beef. Beef exports are viewed as a valuable economic engine for the country, rather than a “competitor” that drives up costs for domestic consumers.
Paraguay’s largest export market is Russia, which currently takes about 52 percent of its beef export volume. But exports to Chile are also recovering quickly from an FMD-related market closure that began in late 2011 and lasted through 2012. Other key destinations for Paraguayan beef include Hong Kong, Brazil and Israel. Eleven Paraguayan packing plants are currently killing for export, processing about 1.8 million head per year, but additional large plants are currently under construction.
Because the country is landlocked, Paraguayan beef has to travel significant distances to reach an ocean port. Buenos Aires used to be a primary port for Paraguayan beef exports, but political challenges within Argentina have changed that dynamic. Now ocean-bound beef is shipped by river barge to the port of Montevideo, Uruguay. The other primary transportation option for exports is to ship product by truck to Chile and Brazil, which is also quite expensive. In fact, the cost of trucking beef to Chile can often be every bit as high as shipping it by ocean freight all the way to Russia.
Paraguayan beef does not currently have access to either the European Union or the United States because of its struggles with FMD. Based on our conversations in the country, the Paraguayan government is focused on obtaining reentry into the EU market before it turns its attention toward the United States. It is difficult to assess the likelihood or the timeline for Paraguayan beef regaining access to the EU, but latest press suggests 2015 at the earliest. Paraguay has a national traceability system, necessary for animal tracking since they are still not completely FMD-free. Another top market access priority is Hong Kong, already a leading market for Paraguay, but currently product cannot enter Hong Kong, as it has only access for ship stores.
As earlier noted, Paraguayan beef was also banned from Chile in late 2011 because of FMD concerns, but regained access last year. This market closure helped U.S. beef gain a foothold in the Chilean market, and it is the leading South American destination for U.S. beef. Through August, U.S. exports to Chile totaled 8,097 mt valued at $44.9 million. The good news is that the reentry of Paraguayan beef into the Chilean market does not appear to have a significant impact on the success of U.S. beef. U.S. exports to Chile are typically higher-quality, grain-fed cuts, while Paraguay supplies this market with very lean, grass-fed beef. Paraguayan beef has a very positive image in Chile, with a wide range of chilled cuts shipped there. But the rebound in exports has mostly displaced Brazilian beef, rather than U.S. product.
The heavy Brazilian investment in Paraguay’s cattle and beef industry is another sign of the country’s potential. Brazilian producers are bringing expertise and capital into the country, as well as their Nelore cattle and some production practices. For example, Paraguayan cattle used to be castrated, but now it is more common to see young bulls in the feedlots and plants. Like Brazil, Paraguay does not allow hormonal growth implants or beta agonists, so not castrating cattle helps with efficiency. Cattle herd growth is mainly in the Chaco region, or the forested northern half of the country, where there is less competition from crops for agricultural land. Thus processing companies are also investing in packing plants closer to the cattle.
In summary, our team came away quite impressed with the progress the Paraguayan beef industry has made in recent years and its ability to compete on the world stage. While still rather small compared to the world’s largest exporters, the industry appears well-positioned for continued growth.