The Uruguayan cattle sector seems unusually cheerful at the moment. There are good yet complex reasons for this, which we explore here with our team member, Matías Sara. Matías is an agricultural technician with 20 years’ experience in cattle farming and strong expertise in meat market analysis. Formerly based in Argentina, he has now crossed the pond to join us here in Montevideo and is supporting all our agribusiness work. As an economist myself, it has been a delight writing this post to share with you.
“Those currently more cheerful and the ones that could see the opportunities that lay ahead are actually the farmers themselves”, explains Matías. This, he explains, is because producers invested in increasing their own stock at farm level.
One of the main drivers of this situation is the excellent price of cattle in Uruguay, not just now, but in the last couple of years. Another reason why farmers decided to invest in increasing production relates to the trust in the current (pro-countryside) government, led by President Luis Lacalle Pou. Trust is fundamental in making these long-term decisions. In addition to this, we must highlight the well-known, and rather rare for the region, political, social and economic stability of the country. What also helps is that Uruguay has so far excelled at managing the covid-19 pandemic, which means that local abattoirs have been able to continue working much better than their counterparts for example in the US or Brazil.
A further factor that helps sustain high cattle prices relates to live exports, something that in turn relies on Uruguay’s institutional strength, previsibility and long-term policies, no matter what government is in power. This is in sharp context with what happens, for example, in Argentina.
Land value in Uruguay is high and increasing, which means that farmers are optimistic about the farm itself as a real estate investment. That allows them to invest resources in farming.
Exchange rate considerations help, too. The Uruguayan peso has recently devalued compared to the US dollar (most economists here would argue that it was way too overvalued for a long time, mainly to ease inflationary pressures) – giving Uruguay a bit of help increasing global competitiveness (even if we could argue that other competitors have devalued, too, mainly Argentina and Brazil, at least Uruguay has a slightly less overvalued currency right now than a year ago).
This all means that Uruguay is strengthening its international image as a trust-worthy, reliable and dependable supplier. Add to this the focus on traceability (Uruguay is the only country in the world with full cattle traceability) and the constant emphasis on environmental management, which set it apart from competitors like Brazil or Paraguay. Uruguay’s beef is different and demanding markets like the EU and Japan know it well – our beef can command a higher price and has access to very special markets thanks to all the above. The country’s sanitary conditions are remarkable. Animal well being is taken seriously. Also, the strength of the supply chain is second-to-none and the institutions that support the sector work well together and are strong – transparency is also one of Uruguay’s key advantages.
In this context, it is easier to understand why Uruguay has just reached a historic record of 12,153,643 heads and also another hugely important record: 3,112,158 calves. Surpassing 12 million heads and 3 million calves had been the country’s aspiration for a very long time. Adult females are now 4,981,836 – if are in the sector and you do the maths, you can work out how much potential there is for the herd’s productivity to increase. There are many reasons why this hasn’t been done before, but the point is: all the incentives are there now to move in that direction.
Let’s look at two more figures: there are currently 1,037,386 steers 1-2 years old and 623,171 steers 2-3 years old. Both figures are higher than last year (12% and 7% respectively), which implies that the meat industry will have more stock available to process. Slaughterhouses had been complaining of the lack of stock to process in the last two years, which means they hadn’t been working at full capacity, making them less competitive globally.
These numbers are a reflection of everything we’ve just discussed plus the fact that fewer animals were sent to slaughter during the pandemic: farmers decided to hold onto their stock given the lower-than-expected price of beef. A powerful combination of market mechanisms, trust, expectations and productivity gains result today in a historic level of cattle in the country.
As Ignacio Buffa, sub-secretary at the Ministry of Livestock, Agriculture and Fisheries, has declared, we are finally getting to grips with the concept that increasing our stock levels does not equate to lowering prices. Also, Uruguay managed to increase its cattle stock while also increasing its agricultural output, which actually covers the country’s most productive land. Not only that, but Uruguay has managed to increase its cattle stock while increasing its forestry production, which advanced in the less productive lands.
Therefore, from now on, all production increases in cattle will have to come about as a result of increases in productivity. Basically, there is hardly any land available to grow in any other way. In order to increase productivity, farmers in Uruguay will have to invest in processes, technologies, products and installations – opening up opportunities to companies from overseas that can offer this to an already very globally-minded, knowledgeable, advanced and competitive market. And remember there are also opportunities beyond the farmgate: in industry and logistics, for example. While the sector demands from a receptive government measures to help it increase its competitiveness and access more markets, it is clearly prepared to do its bit, too.
Data released relates to cattle (meat + dairy, all bovine) although our analysis here has focused on beef cattle. Data has also recently been released for ovines, which is a lot less optimistic. We will soon be blogging about the dairy industry in Uruguay (including production). If you’d like us to cover any specific topics or have any doubts, feel free to get in touch.
We also consult our specialised press regularly: we recommend El País (Rurales) and El Observador (Agro).
Next month we will be visiting ExpoPrado, Uruguay’s largest sector show (focusing more on livestock than agriculture), supporting companies from different countries interested in doing business here. There will be a British pavilion as well as presence from other countries such as the US. You can sign up to our newsletter not to miss out on forthcoming sector posts – we’ll also be tweeting from the show (Matías: @contalito, Gaby: @uklatinamerica).