FCC Ag Economics:
The 2015 Beef Sector Report
FCC Ag Economics:
The 2015 Beef Sector Report
Introduction
Demand for beef is alive and well in Canada.
This may appear inconsistent with the observed
declining trend in Canadian per capita beef
consumption. Yet considering the evolution of retail
prices for beef and competing proteins, as well as
the pattern in disposable income of Canadians,
demand for beef is in fact stronger than might
be expected.
The outlooks for both global exports of beef and
growth in global consumption are also positive, driven
primarily by increasing wealth in emerging market
economies. The Comprehensive Economic Trade
Agreement (CETA) with Europe and the South Korea
trade deal are projected to open up market access. In
2014, Canada was the seventh largest beef exporter
in the world; the growth in both domestic and global
demand for beef suggests that the Canadian sector
can grow as a major supplier to the world.
There are some hurdles to overcome before capitalizing
on these opportunities. Low cattle numbers pose a
challenge to the industry at a time when growth could
yield the greatest gains to profitability down the road.
Competition for land and volatile production costs
combine to challenge herd growth. Labour scarcity
in the agriculture sector makes it hard for businesses
to invest with confidence. And the case of BSE, in
February of this year, demonstrates the potential
volatility of the markets. It’s still too early to tell the
impact to Canada’s exports, but so far, it appears
to be of minimal importance.
According to a recent report developed for the
Canadian beef sector, reinforcing the linkages across
the different levels of the supply chain should be one
of the strategic priorities to unlock Canada’s potential
to supply both domestic and global markets. A National
Beef Strategy further details the outcomes the industry
must achieve to be competitive in the changing world
export landscape:
1. Enhance beef demand.
2. Reduce production cost disadvantages.
3. Increase production efficiency.
4. Connectivity: enhance industry synergies and
connect positively with stakeholders.
This report provides an overview of the demand for
beef, domestically and globally. It details projected
consumption patterns among Canada’s trading
partners, along with a brief list of factors that impact
consumption. It examines the structure of the industry
at the end of 2014 and particularly, the decline in
overall cattle numbers in North America. Last, it
outlines the long-term economic outlook for the
Canadian beef sector.
1
A positive outlook for the
Canadian beef sector
Per capita beef consumption in Canada has trended
down over the last decade. Statistics Canada
estimates that it declined by 12 per cent between
2004 and 2013. Since 1984, Canada’s per capita beef
consumption has decreased 28 per cent (see Figure 4).
Despite this decline, the outlook for the Canadian
beef industry is favourable. That’s because demand
for beef is expected to increase – both domestically
and globally.
Canadians demand beef
“Consumption of beef” and “demand for beef” are
different. Consumption is the result of the interaction
of producer and retailer decisions and market forces
that impact consumers’ behaviour. What gets produced
must eventually disappear (e.g., be consumed or go
to waste, etc.).
“Demand” is the willingness of consumers to pay
specific prices given their tastes, preferences and
budget constraints.
The declining per capita consumption trend may
suggest a negative influence on consumers’ behaviour,
but it says nothing about their demand or preference
for beef. Canadians might decline to buy beef when
the price they pay is deemed too high, but they
still prefer it and are willing to buy it under certain
conditions.
A demand index reflects the strength of consumer
demand for beef after controlling for changes in the
price of beef, pork, chicken, and overall food as well
as variations in income (Figure 1). Accounting for these
relative price movements in the food supply chain,
a picture emerges for Canadian beef demand that
differs from the typical story.
Canadian consumers like beef. The index shows
an increased demand (or a positive shift in the
willingness of consumers to pay for beef) since
the low reached in 2011, even while per capita
consumption trended down.
Canadians might
decline to buy beef
when the price they
pay is deemed too
high, but they still
prefer it and are
willing to buy it under
certain conditions.
FCC Ag Economics:
The 2015 Beef Sector Report
Figure 1: Demand for Canadian beef is strong, despite declining consumption
Source: FCC computation
Beef demand index
Consumption Index
110
105
Index 1999 = 100
100
95
90
85
80
75
1999
2002
2005
And the rest of the world also
demands beef
The best measure of growth in global demand is the
growth of world exports. Joint OECD-FAO projections
call for the world export market for beef to grow from
9.9 million metric tonnes (MMT) in 2014 to 11.9 MMT
in 2023. Growth in the global export market will be
led by emerging economies.
Canada is poised to capture some of that growth.
In 2014, Canada was the world’s 11th largest
producer and seventh largest exporter of beef,
supplying two per cent of world beef and capturing
5.8 per cent of the world export market.
2008
2011
2014
In recent years, Canadian beef exports have found
their way to different destinations, including those
in emerging markets. Such diversification has helped
in the face of declining exports to more traditional
markets such as the United States and Mexico.
3
Canada’s exports reflect a shift
in the importance of emerging
market economies
Canada’s beef exports to the United States have
declined by 16 per cent since 2000. Despite this
decline, the United States remains the most important
destination for Canadian beef and represented
73 per cent of all Canadian beef exports (valued
at $1.2 billion) in 2014.
Diversification of Canadian markets is increasing. In
2000, the United States accounted for 84 per cent
of all Canadian exports. By 2014, the U.S. share had
fallen to 73 per cent of Canada’s total beef exports.
Nonetheless, the United States will remain the most
important market for Canadian beef.
Exports to Mexico, Canada’s second largest export
market until 2012, declined by 10 per cent between
2000 and 2014 and now represent six per cent of
Canada’s beef exports (Figure 2).
In 2014, five of the top 10 importers of Canadian beef
were Asian (Hong Kong, Japan, China, South Korea
and Taiwan). Combined, these five markets represented
19 per cent of Canadian beef exports, with a value
of $314 million. This is a doubling of exports over the
past 15 years. It’s an area of increasing importance to
Canada: negotiations for the Trans Pacific Partnership
(TPP) continue and the Canada-South Korea trade deal
is in its first year of implementation.
In 2013, Hong Kong surpassed Mexico as the
second largest importer of Canadian beef, with a
year over year increase of 82 per cent. At the same
time, Mexican imports of Canadian beef declined by
28 per cent. In 2014, Hong Kong imports continued
to rise (20 per cent), maintaining its status as second
only to the United States, even though Mexico also
increased its beef imports from Canada by 80 per cent.
In fact, Hong Kong was the only Asian market to grow
its imports of Canadian beef throughout the period
of BSE impacted trade (2003 and later). Canadian
exports to Hong Kong were 56 times larger in 2005
than they were in 2004. It was only in 2009 that Japan,
traditionally a much larger export market for Canadian
beef, surpassed Hong Kong’s import values.
The importance of these markets is also illustrated
by the relatively high values of their imports. A 2012
Canadian Agri-food Policy Institute (CAPI) report notes
the per kilogram (kg) value of Canadian beef exports
to various markets:
• U.S. – $3.33
• Mexico – $3.96
• Hong Kong – $4.67
• Japan – $5.08
Emerging markets expected to
drive world consumption growth
As middle class incomes continue to grow in emerging
market economies, consumers’ preferences for beef
will shift. Hong Kong’s consumption appeared to
almost double between 2012 and 2013 (Figure 3).
As that kind of gain in consumption is impossible to
achieve, the disappearance of the imported beef is
more likely the result of importers smuggling beef
into China, through Hong Kong. In China, smuggled
beef may account for as much as 65 per cent of total
imported beef. A large amount of beef from Brazil and
India unofficially flowed into China via Hong Kong.
Hong Kong’s beef imports also increased dramatically
after 2011, suggesting the possibility of future market
growth in Asia outside of Hong Kong.
FCC Ag Economics:
The 2015 Beef Sector Report
Figure 2: Canada’s beef exports to U.S. and Mexico decline; exports to Asia grow, 2000-2014
Source: Industry Canada
2000
2014
United States – 83%
United States – 73%
Hong Kong – 0.2%
Hong Kong – 10%
Mexico – 7%
Mexico – 6%
Japan – 4%
Japan – 5%
China – 0.01%
China – 2%
Others – 6%
Others – 4%
A note on China
China’s traditional preference for pork is not projected
to change in the foreseeable future. Per capita
pork consumption is expected to increase 6.6 kg by
2023/24. The projected increase for beef (0.85 kg) is
relatively small. Yet on the basis of a large population
and expected annual economic growth of 6.6 per cent
until 2019, China is projected to make up 22 per cent
of the increase in world beef consumption between
2013 and 2019.
Beef consumption declining
in developed economies
Beef consumption in OECD countries shrank by
four per cent as consumption in emerging market
economies grew by 22 per cent over the last ten years.
Consumption in emerging market economies is
expected to outpace that of the developed world in
the next 10 years too. According to the joint OECDFAO Outlook, world consumption of beef is projected
to grow by 12 per cent, OECD countries’ consumption
is expected to grow by five per cent and emerging
market economies by 18 per cent.
5
Mexico will drive largest
gains in North American beef
consumption
10 per cent from 2009 to 2014 as a result of a number
of factors:
The United States Department of Agriculture (USDA)
projects that beef consumption in Mexico will increase
seven per cent from 2014-2019 due to rising incomes.
While some of the increased demand will be supplied
by a larger Mexican cattle herd, imports are also
expected to increase by over nine per cent over the
same period.
• Mexican beef prices rose as the peso appreciated
against both the Canadian and U.S. dollars.
• A drought raised the cost of production and
decimated feed sources, forcing cattle producers
to downsize.
• Strong cattle prices in the U.S. market incented
Mexican producers to export live cattle there, limiting
supply in Mexico.
If the USDA is correct, this would reverse the declining
trend in Mexican beef consumption, which decreased
Figure 3: Per capita beef consumption declines in advanced economies, increases elsewhere
Source: World Bank, Mundi Index
United States
Hong Kong
Canada
Japan
Mexico
China
70
60
kg/ person/ year
50
40
30
20
10
0
1984
1988
1992
1996
2000
2004
2008
2012
FCC Ag Economics:
The 2015 Beef Sector Report
Developed markets: the home
of slow growth in beef
consumption
Throughout much of the developed world,
consumption of beef is either growing slowly or
is declining. Canada is no exception (Figure 4).
Between 1984 and 2013, beef consumption declined
by 28 per cent, just slightly more than pork declined
(26 per cent) as consumption of chicken increased
significantly (69 per cent).
Canadian consumption is expected to pick up from
the most recent 10 year trend. Between 2004
and 2013, beef consumption in Canada shrank by
one per cent. Over the next decade, the OECD-FAO
projects growth of four per cent.
Figure 4: Canadian beef and pork consumption fall as chicken consumption increases, 1984-2013
Source: Statistics Canada, CANSIM 002-0010
Beef
Pork
Chicken
Canadian per capita consumption (kg)
40
35
30
25
20
15
1984
1988
1992
1996
2000
2004
2008
2012
7
Why has consumption declined?
Health-related concerns
There are a number of influences on consumption.
Shifting demographics and health-related perceptions
towards different sources of protein have contributed
to the overall decline. The relative price of different
meat is another driver of consumption.
In more advanced economies, technological
advancements have made it possible to lower daily
energy expenditures. Examples of these innovations
include transportation, robotics and mechanization
of manufacturing. As a result, consumers need
less protein in their daily diets.
Canada’s aging population
As people age, their consumption of beef tends
to decline. An American study suggests daily intake
of red meat increases to the age of 49 and peaks at
80 grams a day before falling to 53 grams a day for
those aged 70 and older. The Canadian population
is aging, a phenomenon that is occurring across most
developed economies. In 2011, the median age in
Canada was 40 years, up from 35 years in 1996
and 24 years in 1966, offering one possible reason
for declining domestic consumption.
Immigration patterns change food preferences
Immigration has been an important component of
population growth in Canada. While historically the
majority of immigrants to Canada were from Europe,
this trend has evolved with the majority of immigrants
now coming from Asia. In 1982, a total of 121,331
people emigrated to Canada. Of those, 38 per cent
were from Europe, 28 per cent were from Asian
countries (excluding India) and six per cent were
from India.
In 2012, 257,892 people emigrated to Canada. Of
those, 14 per cent were from Europe, 47 per cent were
from Asian countries (excluding India) and 11 per cent
were from India.
With the shift in immigration in Canada there are also
changes to food preferences. While many immigrants
will incorporate a more western diet that includes
beef, Canadian diets will change to reflect food trends
that favour proteins such as pulse crops, fish, pork
and chicken.
In addition, higher income levels allow for greater
access to a wide variety of protein sources and
information on different dietary programs suggesting
implications to health posed by meat consumption.
This is another potential reason behind the increase
in consumption of poultry and fish at the expense
of red meat.
The role of relative prices as a driver of
consumption
Another driver behind the decline in Canada’s per
capita beef consumption is price. In 2014, Canada’s
inflation rate trended around 2.0 per cent while retail
meat prices increased 13.6 per cent. The increase in
beef prices has exceeded that of all other meat since
1984 (Figure 5). From 1984 to 2013, beef prices
increased a total of 157 per cent versus 107 per cent
and 122 per cent for pork and chicken, respectively.
As the price for one protein (e.g. beef) increases
relative to others, consumers tend to shift to alternative
lower cost proteins (e.g. chicken or pork). As red meat
prices increased between 1984 and 1994, its per capita
consumption fell as chicken climbed - despite a similar
rate of increase in prices. Since 2004, Canadians have
consumed more chicken on a per capita basis than
either beef or pork.
No single reason can explain the decline in beef
consumption in Canada; rather it is due to a
combination of factors and the continued evolution
of food preferences in the country.
FCC Ag Economics:
The 2015 Beef Sector Report
Figure 5: Retail beef prices have increased more than pork and chicken, 1984-2013
Source: Statistics Canada, CANSIM 326-0020
Fresh or frozen beef
Fresh or frozen pork
30%
Fresh or frozen chicken
Change in price, CDN
25%
20%
15%
10%
5%
0%
-5%
1984-1988
1989-1993
1994-1998
The U.S. market likely to see only
modest gains in consumption
The market forces and consumer preferences that have
slowed Canadian consumption have also impacted
the United States, where per capita consumption fell
12.4 kg between 1984 and 2013 (Figure 3). The 2009
recession hit U.S. annual per capita consumption
harder than that in Canada (an eight per cent decrease
vs. a five per cent decrease). This was partly due to the
lower personal disposable income and higher prices for
beef Americans faced during that period. Drought left
1999-2003
2004-2008
2009-2013
American producers with few options but to cull cattle,
and now that the economy and labour markets are
improving, especially in the United States, demand for
beef is increasing, resulting in higher prices.
U.S. retail beef prices are at a record high. But with
meat alternatives also bearing high prices, consumers
have few options to switch proteins. The 2014 OECDFAO Agricultural Outlook projects that American
per capita beef consumption will increase five per
cent between 2014 and 2023, a significant increase
compared to recent contractions in consumption.
9
Can production meet potential
growth in demand?
Most recently, the beef sector has benefited from
record-high cattle and beef prices, lower feed costs,
a weaker Canadian dollar and low interest rates.
Given the positive outlook for domestic and global
beef demand, there exist real opportunities.
In 2013, Canadian farm production was 4.1 million
head. In the past five years, Canada has slaughtered
approximately three-quarters of farm production.
Assuming a similar slaughter rate in 2019, Canadian
producers will need to expand production to 4.3 million
head, a 4.5 per cent increase (less than one per cent
annually).
To take advantage of this growth while maintaining
a 5.8 per cent market share for exports in 2019,
Canada will need to increase overall production
from current levels. Specifically:
Fighting the decline in
beef numbers: Canadian beef
at a crossroads
• Projections call for exports to grow to 636 thousand
metric tonnes (TMT) from estimated 2014 export
volumes, an increase of 65 TMT; or 11.4 per cent
over five years.
The industry faces a number of challenges in its
efforts to grow the herd:
• The OECD-FAO projects that Canadian production
for domestic use will need to increase to 776 TMT
in 2019, an increase of 23 TMT (3.1 per cent) from
2014 levels.
These increases suggest Canada would need to
produce 1.4 million metric tonnes (MMT) of beef
in 2019, an increase of 88 TMT (6.7 per cent) from
estimated 2014 levels in order to meet domestic
use and supply 5.8 per cent of world exports.
If the average annual carcass weights continue
to trend higher as they did from 2009 to 2013
(0.62 per cent), this would contribute 41.3 TMT
of the increase needed by 2019, or approximately
one-half of the total beef needed. The additional
47 TMT must come from increasing herd size.
• Producers are paying down debt and repairing
damage to their balance sheets that occurred during
leaner years before 2014.
• Some producers are exiting the industry. While other
producers are expanding their herd, the result is
roughly no net gain to the industry herd size.
• Land needed to sustain or build herds is perceived
to be cost prohibitive in some parts of the country.
• There has been a re-allocation of grazing lands to
crops or forage given some strong prices for grains
and oilseeds between 2008 and 2013.
• A critical shortage of qualified labour for cattle and
processing operations increases the uncertainty
around investments
FCC Ag Economics:
The 2015 Beef Sector Report
Figure 6: Beef cow herd declines
Source: Statistics Canada, USDA
Canada
U.S. (right)
35
6
34
5.5
5
32
31
4.5
30
4
29
28
3.5
27
3
26
25
2.5
2000
2004
2008
2012
Beef cow herd smallest in two decades
Production expected to falter over the short term
Beef for the Canadian market is supplied almost
exclusively by domestic and U.S. producers. Both
countries have a smaller herd size and slaughter
numbers in 2014 compared to 2006, when cattle
numbers started falling.
U.S. beef production halted in 2004 as American
borders closed to Canadian cattle after BSE was found
in Canada in 2003. With a glut of cattle, Canadian
production spiked. Then, between 2004 and 2008,
U.S. production climbed as Canadian production
shrank. U.S. production has remained relatively flat
since 2009: in 2013, slaughtered cattle were down
one per cent from 2009.
Until 2014, the combination of high feed costs,
reduced demand for by-products and weather events
resulted in significantly smaller Canadian and U.S.
cattle herds and reduced profitability. There was little
to no incentive to keep cattle. In January 2014, the
Canadian beef cow herd was 3.95 million head
(Figure 6), down from the peak of 5.3 million head
in 2005 – the smallest herd since 1994.
Declining Canadian production was virtually inevitable
after the spike. Since 2004, the annual rate of decline
in production averaged four per cent according to
Statistics Canada, and in 2013 total beef production
was the lowest level since 1996 (Figure 7).
U.S. herd (million)
Canadian herd (million)
33
11
Figure 7: Increasing carcass weight helps offset production despite declining herd size
Source: Statistics Canada, USDA
Canada
U.S. (right)
14,000
12,000
1,600
10,000
1,200
8,000
6,000
800
4,000
400
2,000
U.S. production (thousand metric tonnes)
Canadian production (thousand metric tonnes)
2,000
0
0
2000
2004
The decline in Canadian production could have
been larger if not for increasing carcass weights.
From 1981 to 2012, average carcass weights increased
by 2.2 hundredweight (37 per cent) and in 2013,
reached a record high (7.2 hundredweight).
Trade in live cattle
The herd size is an issue south of the border too,
with the U.S. cattle sector’s smallest herd since the
1960’s. The 11 per cent decline (3.63 million head)
between 2005 and 2014 was precipitated by reduced
profitability and consecutive years of drought in key
cattle producing states.
2008
2012
U.S. cattle imports from both Mexico and Canada
have increased in response to the low U.S. herd size.
This has happened despite bottlenecks arising from
Country of Origin Labelling (COOL) requirements.
With U.S. production dependent on Canadian cattle
given their own shrinking herd, that demand is one of
the factors helping to drive the live cattle trade surplus
Canada currently has. Since 2009, Canada’s trade
surplus for live cattle has grown 21 per cent to
$1.34 billion.
Constraints in Canadian slaughter capacity also explain
part of the positive trade surplus in live cattle.
FCC Ag Economics:
The 2015 Beef Sector Report
Trade in beef
The Canadian sector faces a mature domestic beef
market, constrained further by relatively high beef
prices. Yet, as per capita consumption has been
falling, imports of beef into Canada from the U.S.
have increased (Figure 8). As of 2013, Canada had
a $108.6 million trade deficit in beef with the U.S.,
a decline of 130 per cent over the last five years.
In that time, Canada’s exports to the U.S. shrank by
six per cent as imports from the U.S. grew 71 per cent.
Figure 8: Canadian producers fight for declining consumption with American imports
Source: ERS calculations; data from U.S. Department of Commerce, Bureau of the Census
Cattle exports to U.S.
Cattle imports from U.S.
Beef exports to U.S. (right)
Beef imports from U.S. (right)
600
1,800
1,600
Head of cattle (thousands)
400
1,200
1,000
300
800
200
600
400
100
200
0
0
2000
2002
2004
2006
2008
2010
2012
Carcass weight (metric tonnes)
500
1,400
13
Conclusion
Canada’s cattle sector enjoyed great profitability in
2014. Canadian cattle producers are expected to stay
profitable in the near future: the most recent long-term
projections available call for cattle prices to remain
above their five-year average for the foreseeable
future. Feed grain prices are expected to remain
below their five-year average. Low interest rates and
a favourable value for the Canadian dollar relative
to the U.S. dollar should also support the profitability
of cattle operations.
Demand for beef is expected to increase globally.
Slower increases in retail prices would support
consumption domestically, given Canadians’ appetite
for beef. A similar trend in consumption is expected
in the U.S., where a brightening economic future may
help stimulate growth in food markets.
However, the current herd size is an obstacle for
the industry to face squarely. The growth in market
potential is there for Canadian producers, should the
sector overcome roadblocks such as competition for
grazing land, labour challenges, investment costs and
supply chain co-ordination. Identifying successful ways
to achieve expansion will go a long way in determining
the industry’s future.
35084 E 20150501 LP
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