Argentina's meat trade: A cut above the rest (factoring advice)

In 2020, Argentina produced over 5.7 million tons of meat. Approximately 20% of this reached 112 countries worldwide [1]. From June 2020 to May 2021, Argentina exported close to 929 000 tons of beef for a value close to $2.7 million (USD) [2]. This made Argentina the world's fifth largest Exporter of beef. 

While Argentina does not export as much pork - 18 000 tons - approximately two-thirds of the country's beef, chicken and pork are exported to China. 

In May 2021, beef exports to China accounted for approximately 83% of all shipments [3]. Other major destinations include the US, EU, South Africa, Chile, Israel, Canada and Russia [4]. 

How Covid-19 is impacting the meat industry

Luckily, the flow of Argentine meat did not suffer a massive slowdown during Covid-19.  Despite the global pandemic, the country shipped 870 000 tons of meat to China alone in 2020. 

Four main factors are influencing exports in 2021: 

1. Chinese demand; 
2. the post-Covid-19 market;
3. the efforts of the Argentine government to control domestic inflation; and 
4. the evolution of Argentina's beef supply chain in the post-pandemic environment. 

The EU often imports Argentine beef under the Hilton Quota Agreement*. Of the approximately $231.5 million (USD) earned by beef exports in May 2021, about 23.4% originated from chilled boneless cuts, including the Hilton cuts [5]. 

The Argentine government announced a restriction regime which limited 50% of the average monthly volumes of beef exported from July to December 2020. However, this does not apply to:

• 'High-quality' cuts exported to the EU under the Hilton Quota and 481 Quota.
• The 20 000-ton limit to the US.
• The 800-ton limit to Colombia.

In 2021, the Argentine poultry industry hopes to increase exports to the UK, Mexico, Canada and Chile. Industry leaders already see strong opportunities in key growth markets like the US, which is expected to fill the current tariff rate quota of 20 000 tons by mid-summer. Another key market is Mexico which recently ended a 20-year shipment hiatus (imposed after a foot-and-mouth disease outbreak in Argentina in 2001).

Defending against Covid-19 and inflation while positioning for meat trade growth

Since the pandemic began, many large poultry companies have been trying to keep up with production with 20% fewer workers. They are also battling high export and VAT taxes and factories' increased labour and electricity costs. According to a USDA report, these are curtailing export growth. 

In the past, animal-related diseases have disrupted poultry, beef and other livestock markets. These diseases are unpredictable and difficult to account for ahead of time. 

Consumer behaviour is changing. Many people are adopting vegetarian or vegan lifestyles because of meat's environmental impact. 

The Argentine government estimates that every 100 000 tons of meat exported translates into 10 000 jobs [6], helping to position the industry for medium-term growth. Exports are expected to continue flourishing, mainly stimulated by China [7]. Indeed, in the first four months of 2021, 28.8% of the beef produced in Argentina was exported, with 76.6% going to China [8]. 

The Argentine government also plans to tackle domestic inflation. Reuters reports that Inflation is expected to reach 50% in 2021. For the next six months, beef cut exports will be limited to control domestic food price inflation [9].  

In the past, Argentina's beef sector was divided between large Exporters and small local plants. Rising export demand has also seen many medium-scale plants entering the export market. Going forward, Argentinian meat Exporters will focus on expansion in niche US markets (e.g. kosher, grain-fed, grass-fed and organic).

By June 2021, 34 775 tons of beef were sent abroad. This represents a fall of 41% compared to June 2020 when 60 000 tons were shipped. The government is expected to make the beef trade more flexible by the end of August. This will help exports to resume their upward trend. 

Future for argentine meat exporters

Argentine meat exports are set to grow by 17% through 2025. Global beef production will continue to grow over 2020-2029, particularly in Argentina, Brazil and the US. Developing countries are projected to account for 81% of additional beef produced by 2029, compared to the base period. Despite the export tax on beef, Argentina should be a key country in this expansion. Brazil, China, Pakistan, Sub-Saharan Africa, and Turkey should also see similar results [10].

Stenn launched the fast financing programme Made in Argentina! to help Argentinian meat manufacturers and Exporters overcome the post-Covid crisis.

The programme helps companies to unfreeze working capital and avoid deferred payments with pending invoices. The programme is supported by a pool of world-known investors with a reserve of $500 million (USD).

Fuelling export growth via innovative invoice financing 

Many Exporters (not just those in the meat industry) are now trading without their banks' help. The WTO recently reported that banks reject approximately half of SME financing requests. As a result, more small Exporters are turning to FinTechs for financial assistance.

The Asian Development Bank estimates the current trade financing gap to be $1.5 trillion (USD). Stenn is committed to filling this gap by providing invoice finance that releases working capital where it's most needed. Stenn has supported Exporters of Argentine meat, Mexican furniture and European coffee, to name a few.

Latin American SMEs are no longer restricted to tried-and-tested bank processes and regulations. FinTechs like Stenn provide faster, more flexible, more secure and more cost-effective finance.

Sources:

[1]  El Agrario,Argentina, 2020

[2] IPCVA, Argentina, May 2021

[3] IPCVA, Argentina, May 2021

[4] La Nación, Argentina, Feb 2021

[5] IPCVA, Argentina, May 2021

[6] La Nación, Argentina, July 2020

[7] fleischwirtschaft.com, July 2020

[8] OECD, 2019

[9] Just Food.com, June 2021

[10] OECD, 2019

* The 'Hilton Quota' is another name for the High Quality Beef (HQB) Tariff Rate Quota, whereby almost 67,000 tons of carcass weight equivalent can be imported into the EU at a 20% tariff.

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