Photo: Carlos Lopes.

To work in any sector, one of the first things an entrepreneur or entrepreneur needs is to know the market and the environment in which it is inserted. It is necessary to understand the Value Chain and analyze the forces that influence the activities developed and the prices of commodities. Let’s understand the Beef Production Chain.

Bargaining Power of Suppliers

It is the size of your dependence on your suppliers. It is how much your suppliers can influence the price of your raw material. Example: imagine the Petroleum Production Chain, where there are a few raw material suppliers. These have tremendous power to control supply. At the other extreme, agricultural commodities tend to be. Because of the large number of producers, they are not in a position to control the market. Therefore, prices are influenced by Supply and Demand.

Buyers Bargaining Power

Some chains have few buyers, so they can easily control prices when buying and selling. We can mention here the concentration of retail in the world. The five largest retail chains sell between 60% and 70% of beef in Brazil in beef alone. In the USA, the 3 largest slaughterhouses slaughter 60 to 70% of the animals.

Barriers of Entry to New Competitors

These barriers are characterized by the difficulty or ease of entering a particular sector. High investments, high technology, and high concentration in a given link are factors that hinder the entry of competitors. For example, the oil industry is characterized by concentration in the sector and high investments.

The Threat of Substitute Products

Here are similar products that the buyer can choose when making their purchase. For example: in the meat production chain, we can mention chicken, pork, fish, and cattle as substitute animal proteins.

Rivalry between Competitors

The rivalry is characterized by the number of competitors that a given link has. The more significant, the greater the competition. For example small restaurants have a large number of competitors. Thus, they need to specialize in individual characteristics (prices, service, quality) to differentiate themselves.

It understands the Beef Production Chain and its strengths.

If we define producers as the central link in the figure in the beef production chain, we could say that it links with the intense rivalry between its competitors due to the number of existing producers. According to the IBGE, we have more than 3,000 properties operating in Brazil. With a herd of more than 180 million heads.

In the world market, we are among the largest exporters. However, 70% of world exports are in the 5 largest exporters (Brazil, USA, Australia, India, Argentina).

Some countries have competitive advantages in price and quality (Australia, USA, Argentina, and Uruguay), others only in price (India).

The Bargaining Power of Buyers also not high. The 3 largest industries in the sector acquire something close to 43% of animal purchases. However, there are some regions where specific industries are more concentrated—with more than 70% of the slaughter among the 3 most massive, resulting in greater bargaining power. In 2018, according to the IBGE, Brazil presented 1,109 plants registered among municipal, state, and federal slaughterhouses.

In meat imports, there is also a tendency of concentration towards exports from China.

As for the Bargaining Power of Suppliers, we can mention the high competitiveness installed in this industry. In addition to the great diversity of inputs, these, for the most part, do not have a large share of costs. Even if there were a concentration in a given input, there would be no significant impact on production cost.

A peripheral threat to watch for is the supplementation industry, which represents one of the relevant production costs and has been concentrated in the last decade. However, today this is a very competitive industry with advantages because it benefits the country with new technologies that we have not yet found here.

This link is also characterized by not having a significant barrier of entry for new competitors. Since small and large farms can produce beef cattle. Investments to enter the sector are not large, just as the technology to become a producer is not high.

India has emerged as a new competitor in the world meat market. Due to its large stock of animals and changes in culture and its regulations, in less than a decade, the country has become one of the world’s largest exporters. The most significant competitive advantage is in its logistics and prices. However, it has disadvantages in terms of quality, genetics, and technologies in Brazil.

Beef is one of the most consumed animal proteins in the world, behind pork and chicken. We find several Threats of Substitute Products; however, these are the most direct. As mentioned above, the most consumed meat globally is pork and has been threatened by the rapid growth in chicken consumption—culture influences this consumption, as in India, a vegan culture and non-consumption of beef. Recently, we have seen an increase in the number of vegans in the world. Therefore, this trend becomes a threat to meat consumption.

The competitiveness of these meats in terms of costs and production efficiency also poses a constant threat to beef.

What would be the main trends in the beef production chain?

To understand the trends in a chain, we must work on several aspects, such as:

  • technological trends
  • regulatory trends
  • social and cultural trends
  • socioeconomic trends.

We will address each of them.

Technological Trends

The main technological trends are related to the intensification of the sector, management tools, and increased productivity within the gate. Many external forces have been pushing livestock to acquire technologies. Among them, we can mention the best land use, environmental and economic pressures.

We observed an increase in agricultural activity regarding land use, which, by intensifying land use, increased profitability. In this way, livestock has two options to yield to agriculture or to intensify with greater productivity per area and animal.

There is tremendous pressure to reduce carbon emissions and avoid opening up new areas on the environmental side. Both take the producer to intensify.

We must also look at the technological threats coming to the sector, such as laboratory meats, and attempts to create vegan meat.

The management tools are also bringing a new business perspective to the producer. With better access to the internet in the field, several technological tools are reaching the sector like robots that touch cattle, drones that count cattle and assess the state of pastures, even tools that help the producer better market his production. An example is the Livestock of Decision, which, through analysis of the chain’s information, helps the producer find the appropriate moments to sell the products or buy its inputs.

With the reduction of labor and its low quality, producers need to adopt technologies that improve their production efficiency and the use of labor.

Regulatory Trends

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The opening of markets and more significant world trade also pose challenges for Productive Chains. We now have to respect the rules of other countries, in addition to those that regulate our market.

Here we can mention the environmental and health regulations. Many global retail industries are already demanding the origin of products from regions where there is no deforestation. This demand has led many industries to demand certificates of origin from the producer.

In China, given the high risk of contamination and the population’s fear of intoxication, several surveys have indicated that meat safety issues come first in consumer demands. Suppliers that present more information about the origin will have a preference and better price conditions.

Socioeconomic Trends

Socioeconomic trends can also bring risks or threats to the productive chain. According to FAO, lower world growth and slowing population growth have reduced the rate of growth in demand for beef from 1.7% in the last decade to 1.2% in the next decade.

The chart below, from M&C, also shows that per capita income and culture define the trends in meat consumption in the world.

Social and Cultural Trends

Cultural trends can also strongly affect a productive chain. As we mentioned above, India and some regions that are growing in the world have cultural issues regarding the consumption of beef. Between 1994 and 2012, only 29 Indian states reduced vegetarians by more than 10 percentage points and many states banned the slaughter and sale of cattle.

China, on the other hand, is the largest meat market for the coming decades, despite the slow growth in demand.

As noted in the chart below, from the same work from M&C mentioned above, there is a need to build strategies to capture the growth in this demand.

Conclusion

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The Brazilian beef production chain is exceptionally competitive in the world. According to FAO, the world meat trade is expected to grow 30% in the next decade, with a large part of this demand from developing and emerging countries (China). We must, together with India, representing 2 / 3 of these exports.

However, there are significant challenges to be solved in the environmental, regulatory, sanitary, logistical, tax, and bureaucratic areas to conquer a larger share of the market.

With the growth of world trade, the producer will have to participate more and more in these discussions. These issues will not be resolved without your effective participation in the Productive Chain. For this, the development of strong institutions is increasingly necessary for the discussions to be useful in the Beef Production Chain.

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