Quote_left

It is estimated that every dollar of agriculture export value generates an additional $1.48 in supporting industries, roughly $171 billion in added value last year alone.

Analysis - India's buffalo industry looks to expand its global footprint with China in its sights.

Date: 11/24/2019

Water_buffalo

Simon Quilty

Recently I was fortunate enough to visit four meat processing plants across India on behalf of a customer where I was able to have a first hand look at India's buffalo industry that has progressively got larger in recent years and now ranks in the top four global exporters of bovine in the world.

Any competitor outside of India who is complacent about India's role in global meat markets need to re-evaluate there thoughts as I believe India's presence both in terms of quality and volume is likely to grow from here, particularly in the supply of lean meat globally.

Summary of India's meat industry

  • Herd size 310 million head + 69.4 million calves
  • Slaughterings = 39 million head/year
  • Production 4.3 million tonnes (CW)
  • Exports 1.7 million tonnes (CW)
  • Buffalo is 40% of production which is almost entirely exported.
  • Cow production is illegal to export due to religious reasons.

One of the key drivers to expand India's global bovine export footprint is the eradication of foot-and-mouth disease which would open up markets like China, this I believe would see the value of India's exports almost double overnight if this should be achieved.

India's foot-and-mouth eradication - National Animal Control Program

In September this year India launched the National Animal Control Program that is aimed at eradicating foot-and-mouth disease and brucellosis in India's livestock sector by 2030. To achieve this goal one billion doses of vaccination per year for 300 million cows (and buffalo's), 200 million sheep/goats and 10 million pigs is required.

This is not the first time India has sought to remove foot-and-mouth disease but the progress has been slow for many years with the previous annual rate of dosage being only half at 500 million doses per year - the proposed elevation to one billion doses per year has many industry participants believing that eradication could come much sooner within 3-5 years.

One of the challenges has been the cost of the vaccines and as a result the government has appointed an expert industry committee to investigate the establishment of a National List of Essential Medicines (NLEM) for veterinary medicines that will make drugs both affordable and available at all times - it is proposed that both the FMD and Brucellosis vaccines both be part of the NLEM list.

This year India has submitted to the OIE (World Organisation for Animal Health) two proposed FMD Free Zones through vaccination, these being; Zone 1/ Telengana and Andhra Pradesh and Zone 2/ Maharashtra in accordance with OIE guidelines.

It should be noted that 85% of India's buffalo population are situated in eight states with Uttar Pradesh the largest with 28.2% of the population in this state alone.

How important is it to be foot and mouth disease free?

The need to be FMD free is one of the crucial stumbling blocks of global trade for India, and in particular for access into China. The last time India exported directly into China was in 2012/13 when 1,745 tonnes was shipped - since then there has been no direct buffalo exports allowed.

The other key advantages of being FMD and brucellosis free is that it gives India's buffalo access to many markets for not only beef but also milk and milk products. Brucellosis has its own complications and can be transferred to farm workers, livestock owners, it reduces milk output and causes infertility - by eradicating both diseases would see India's bovine productivity and market access improve dramatically.

Its the lack of access to these key markets such as China that has seen Indian export prices fall in value in the last 18 months - this has been particularly evident in Vietnam. I would estimate that the cost of FMD to India is in the range of $1.50 to $2.00 USD per KG and over a year this would equate to close to $3.4 billion USD in lost potential revenue.

Religious beliefs within India and the role of government in the meat sector

In India 20 states out of 29 states currently have laws that impact the sale and slaughter of cows - It is important to note that 85% of India is Hindu, 15% Muslim and the remaining 5% is made up of smaller religions such as Buddhism and Christianity etc.

Hindu's believe the cow is sacred and as a result the slaughtering of cows and buffalo's in certain states of India is banned and no cow meat can be exported - only buffalo.

During 2017 there was considerable disruption to India's meat industry as both federal and state Indian governments looked to shut down illegal slaughter houses - estimates were as high as 30,000 illegal facilities existed in India - since then the Modi Government has shown a commitment to tidy up India's meat industry closing down many of these illegal slaughter establishments and they have tackled the issue of animal diseases within India as displayed by the National Animal Control Program.

Recent visits by Prime Minister Modi to China has seen trade relations strengthen with 120 MOU's (memorandum of understanding) recently being signed which included sugar, fish, plastics, chemicals, pharmaceuticals and fertilisers - buffalo exports still remain banned from direct selling into China due to FMD.

The recent slow down of buffalo exports through Vietnam's grey trade has industry participants wondering whether the strict China penalties on smugglers will be eased as the impact of African Swine Fever takes hold - so far it would seem that all indications are that this is unlikely. The stop and start nature of this grey trade has seen small windows open of product being accepted and then suddenly close which has led to a difficult period of exports. The once broad range of products that were once sold into the grey trade is now restricted to the items most sort after such as shank meat.

India's prices due to the restrictions into Vietnam have seen there overall global prices fall - I would expect that as more and more South American meat goes to China over the next 3-5 years India will back-fill the markets that South America once filled - this I am confident will result in Indian buffalo prices improve during 2020 as protein supplies tighten globally.

Key global buffalo markets for India

India's current key markets for buffalo exports are Vietnam, Philippines, Malaysia, Iraq, Egypt and Indonesia - when focusing on regions Asia is by far the biggest destination for buffalo with over 800,000 tonnes going there annually and a quarter of this going into the Middle East.

In recent months as stated, there has been a steady decline of exports to Vietnam, which has seen India's number one market fall in volume dramatically due to the clamping down by China's custom authorities on the grey trade flow - three years ago almost 60% of India's buffalo exports went to China via Vietnam and today this percentage of shipments is dwindling fast to 35% as the penalties for smugglers been caught have ramped up and the cost to smuggle meat is now five times greater.

The diminishing role of China's grey trade

Vietnam has not only been a key market for India but I believe has played a key role in helping to transform China into a beef eating nation.

In 2017 the grey trade dominated China's total bovine imports making up 78% of the import market - India's contribution that year was 771,000 tonnes via Vietnam which was almost 70% of the grey trade that year and 50% of the estimated total bovine imports (grey trade + direct imports) into China.

In 2020, it is looking like a very different story - I am estimating that the role of the grey trade will have diminished to 20% of total bovine imports (as stated it was once 78%) and India's role will be less than 10% of total import needs.

Yet without India's enormous volume of exports during 2014-2018 period I don't think the enormous appetite we are seeing for beef today in China would be there if it had not been for India and the significant volumes of affordable bovine they have supplied in the last five years. In short, I believe India has paved the way in terms of introducing the Chinese consumer to bovine at an affordable price and today other beef export countries are reaping the benefits.

The decline in India's role in the grey trade has been replaced with direct imports of cow meat from Australia, New Zealand and beef from Brazil and Argentina - I have estimated that 480,000 tonnes is the difference between next years reduced buffalo grey trade import forecast and the enormous Indian buffalo quantities imported in 2017 - this void has been filled by the cow meat from other countries and explains to me much of the increased demand for beef imports into China this year - I do not see this trend changing soon. Total beef imports into China in 2020 I am estimating to be close to 2.5 million tonnes almost double China's direct beef imports of 2017.

Conclusion

Access to China is driving India's push for FMD free status - and the recent submission to the OIE for three states to be granted FMD Free Zone status will be closely watched both within India and around the world. If access is given this would enable close to 18-20 million head of buffalo to be processed and exported into markets like China.

Brazil in the past has set the precedent on obtaining FMD free status through vaccination and those who were involved with Brazil's approval process point to the challenges of border control and see within India this being one of the biggest challenges to overcome to convince the OIE that FMD will not re-enter into the designated FMD Free Zones from surrounding contaminated states.

Having spent ten days looking at four plants across India I was impressed with what I saw - to me the best processing facilities in India are a match to anything I have seen in Australia, New Zealand and the US. Should competing countries think that India does not have what it takes to compete in FMD free markets globally I would say - 'more you the fool for thinking that' - India's best will match the best in all countries with regards to the lean end of the market for processing procedures, packaging, presentation and shipments.

It is the lean end of the market that I see the greatest demand globally over the next 3-5 years due to the ongoing issue of African swine fever. India's role in supplying lean meat globally will become much greater as they look to expand their global meat footprint - should India obtain FMD free status either in part or as an entire nation then that greater role might be here sooner than we all realise.

Any feedback is always appreciated.

Regards

Simon

Quote_left

It is estimated that every dollar of agriculture export value generates an additional $1.48 in supporting industries, roughly $171 billion in added value last year alone.