Defending our Korean market share

Each month since January volume has dropped on the corresponding month the year before to the point that for the six months to June, trade has fallen by 21pc.

Looking back, Korea stands out as quite the exception in 2016 when it is considered that Australian beef exports that year to the United States fell by over 40pc, China by 37pc and Japan by 8pc.

It is timely therefore that MLA has just last month released an in-depth analysis of the Korean beef market from an Australian perspective.

Authors Tim Ryan and Adam Cheetham have looked at the drivers which have made Korea the largest per capita consumer of beef in Asia and the third most valuable beef export market for Australia.

As well, the report outlines the implications of a rising and aging Korean population, falling tariffs on beef imports from all major suppliers, a recovering Korean cattle herd and the re-emergence of the US as Australia’s major competitor.

In essence they forecast continuing growth in beef consumption in Korea albeit at a slower pace towards 2030.

As this growth takes place they see a range of challenges and opportunities that will underpin Australia’s ability to defend its market share.

Declining economic growth and a transitioning population will have a steadying influence.

Since 1961 Korean Gross Domestic Product (GDP) grew at an annual average rate of 7.3pc (double that of Australia) to elevate the Korean economy to the fourth largest in Asia.

But since the Global Financial Crisis (GFC), GDP growth has fallen and is forecast to average just 3.3pc per annum to 2025.

On the back of that growth came a shift towards livestock protein as incomes increased.

From 1960 to 2016, per capita animal protein consumption grew at an average rate of 3.9pc per year but the beef component of the mix grew at 6.3pc. Not only has the size of the pie grown but it also now features more beef.

However the economy and population is now maturing and total meat consumption is expected to plateau.

Switching between meats will therefore become an issue and the continuing affinity of the Korean consumer with pork and the relative price differential between beef and pork will influence beef consumption going forward.

One important factor in the beef/pork rivalry will be the decline in import beef tariffs.

For the existing set of four major suppliers (99pc of 2016 import volume) all beef import tariffs will be reduced to zero by 2029.

This should make imported beef more price competitive with pork.

Domestic production accounts for about half of total beef consumption and as such is another important consideration in the overall outlook for beef in Korea.

After several years of herd contraction, positive signs are emerging for herd growth in the premium Hanwoo sector.

By 2026, MLA expects domestic beef production is to reach a new record of 355,000 tonnes (cwt) but an even more optimistic forecast is offered by OECD-FAO of 377,000t by 2025.

Both volume and price are important considerations as it was the high price of Hanwoo in 2016 from tight domestic supply that emboldened Korean traders in their purchase of Australian product that year.

But a problem of unknown proportions has emerged for high-end Hanwoo beef demand in the form of recently introduced anti-graft laws.

These laws were introduced to stop corruption surrounding the offering of gifts and meals to civil servants and government workers. They will impact the upper end of retail and foodservice where expensive Hanwoo is implicated and thus exposed to a significant degree to the legislative changes.

In the final analysis, demand for imported beef is forecast to remain around existing levels for the next 10 years before expanding.

The report concludes that Korea will remain a significant market but Australian may not be able to grow its share in the short term.

Strong brand recognition and consumer penetration are strengths but limited supply from a diminished cattle herd, FTA safeguard limitations and growing US competition are dynamics that will be difficult to contend with.

If Australia is able to defend its market share, this will place exports at around 180,000-200,000t over the next decade with prospects of 230,000t by 2030.

THE ink was hardly dry on the above story when news popped up on my computer screen of USDA’s July 1 Cattle Inventory and June Cattle on Feed reports.

The cattle-on-feed report prompted an immediate fall in live cattle futures as placements in June totalled 1.77 million head, 16pc above 2016.

According to US red-meat processing media site Meatingplace, a pre-report survey expected placements to be up by less than 6pc. The immediate implication is increased US beef production in the near term. But the inventory report has a similarly important message for the longer run.

USDA estimates the 2017 calf crop at 36.3 million head, the largest in the last 10 years. According to Meatingplace, this represents a 3.5pc increase over last year’s calf crop and a 6.5pc increase on the year before.

This implies increasing beef production in 2018 and out to 2019 at least and the resultant increase in supply available for export  puts some perspective around what MLA refers to as growing US competition for Australia in the Korean and Japanese markets.

Meanwhile closer to home it’s more of the same this week in the over-the-hooks market. In Southern Queensland ox are still attracting 515c and 450c for cow. National (eastern states) slaughter last week was down 2pc according to MLA at 133,600 head with South Australia responsible for the biggest part of the fall.

Queensland, NSW and Victoria were all within 1-2pc of the previous week.