A series of non-technological factors such as the prevailing climate, water availability, land availability, density of pigs per area and cost of labor favored Brazil in the competitive landscape of pork production. Among technological factors we can cite the chain organization, which is growing, changes in the type of production, knowledge acquired and adopted, productivity of the grains that are raw materials, genetics used, negative status for Porcine Respiratory and Reproductive Syndrome, availability and use of ractopamine and immunocastration. Access to capital and positive Foot and Mouth Disease status are strong limiting factors for Brazil´s Pork Industry to achieve premium markets. Among future likely consequences exists the possibility that Brazil, along with the United States, will polarize the leadership of pig production worldwide in volume. That could force traditional pork producers like Canada and Mexico to find new alternatives for their production like high added value cuts and niche markets. Differences between nations that export pork will persist in the near future. There will be a great demand for animal protein. The market share will change periodically. We also need to start to think about competing with beef and chicken, which may become in the future, real pork chain enemies.
Brazilian swine production is experiencing a change of position in international trade in recent years, from a mere adjunct to a great player. Several factors have contributed to it. The purpose of this review is to comment on some of the non-technological, technological, and limiting factors involved in this process and the likely consequences of it coming, which will probably impact on the swine industry in North America.
Differences between Brazil and the North American continent make producers and farm staff prioritize differently the management of the environment. The facilities in Brazil are almost entirely naturally ventilated without the need for artificial lighting (Piva, 2007). Also, the climate provides for the practice of two crops per year of corn and soybeans, which are the basis of the diet of pigs in the country (Wikipedia a).
Our planet consists of 71% water and 29% land. However, 97.24% of the water is salted water (oceans) and cannot be drunk by man or animals, as it is. Fresh water is just 2.76% of the remaining water in the planet. However, not all of it is available, as 2.14% is in the glaciers. What is left, and this is not much, is water stored underground (0.61%), and in rivers, lakes, moisture in the soil and in the atmosphere (0.01%). There are a few countries which have the privilege of having abundant fresh water. Thus, water availability is an essential and limiting factor to pig production. Regions with higher water availability have better conditions of producing, not only swine, but also other raw materials, like grains, essential to their feeding (Roppa, 2008). Brazil also has more water. According to the United Nation´s World Water Assessment Report of 2009, Brazil has more than 8,000 billion cubic kilometres of renewable water each year, easily more than any other country. Brazil alone (population: 190 million) has as much renewable water as the whole of Asia (population: 4 billion). And again, this is not mainly because of the Amazon. Piauí is one of the country´s driest areas but still gets a third more water than America´s corn belt (The Economist, 2010).
One of the greatest limitations for the growth of swine production is waste. A pig defecates the equivalent that 2.5 people do, and the use or storage of this waste is becoming a serious problem in large farms. One way of using waste is as fertilizer. Therefore, countries which have large extensions of land and adequate climate will have the advantage of using the waste as fertilizer in crops and of producing grains for feeding the pigs at a lower cost. When we look around our planet for available areas for grain crops, we can see that there are just a few, and decreasing every year (Roppa, 2008). Between now and 2050 the world´s population will rise from 7 billion to 9 billion. Its income is likely to rise by more than that and the total urban population will roughly double, changing diets as well as overall demand because city dwellers tend to eat more meat. The United Nation´s Food and Agriculture Organization (FAO) reckons grain output will have to rise by around half but meat output will have to double by 2050. This will be hard to achieve because, in the past decade, the growth in agricultural yields has stalled and water has become a greater constraint. By one estimate, only 40% of the increase in world grain output now comes from rises in yields and 60% comes from taking more land under cultivation. In the 1960s just a quarter came from more land and three-quarters came from higher yields. So the sort of food producer that will matter most in the next 40 years will be one that has boosted output a lot and looks capable of continuing to do so; one with land and water in reserve; one able to sustain a large cattle herd (it does not necessarily have to be efficient, but capable of improvement); one that is productive without massive state subsidies; and maybe one with lots of savannah. The biggest single agricultural failure in the world during past decades has been tropical Africa, and anything that might help Africans grow more food would be especially valuable. These features match with Brazil. Brazil has more spare farmland than any other country. The FAO puts its total potential arable land at over 400 million hectares; only 50 million is being used. Brazilian official figures put the available land somewhat lower, at 300 million hectares. Either way, it is a vast amount. On the FAO´s figures, Brazil has as much spare farmland as the next two countries together (Russia and America). It is often accused of leveling the rainforest to create its farms, but hardly any of this new land lies in Amazonia; most is cerrado (The Economist, 2010).
We can have a better understanding of the positive perspective of growth in swine production in Brazil by comparing with the characteristics of other countries. Brazil has only 4.0 pigs per square kilometer, compared for example to 37.2 for the European Economic Community´s 27 pig producing countries, or 6.0 pigs per square kilometer for United States. Availability of land added with this low density clearly demonstrates the possibilities of pig production expansion (Roppa, 2008).
Low labor costs benefit the Brazilian industry both at the farm and the slaughter levels, making profit in the entire pork chain competitive with that in other major production countries (Weydmann and Foster, 2003). The gross annual wage in International dollars for Brazil, Canada, Mexico and United States is: 4,261.77; 16,710.00; 1,753.00; and 15,080.00; respectively (Wikipedia b).
The production of live pigs in Brazil is mainly performed in a system of integration between producers and companies and to a lesser extent, by independent producers. Integrated production used by private companies and cooperatives alike, follows different models of relationship between the producer and integrator, with the older traditional models and the most recent partnership, with or without the lending of livestock or other assets. In traditional model farmers have committed to sell the animals to the integrator and, if only finishing is performed, piglets must be acquired from a farm also integrated. Producers may or may not be animal owners and have freedom for purchase feed, genetics and technical assistance outside of the integration. In a partnership, pork producers come with the facilities and manpower and all the inputs, including feed, genetics, technical assistance, etc. are provided by the integrator. The producers are rewarded with values based on criteria established in the contract with the integrator. In general, agribusiness companies lead the integration and coordination of all operations of production and perform the animal slaughter, industrialization and commercialization of products (Miele and Waquil, 2007).
Production growth is being supported by significant investments by local meat companies and international agribusiness conglomerates. Many of the major pork processors in Brazil are also poultry processors, which allow them to better utilize the infrastructure, customer relationships and marketing expenditures. The industry is also highly integrated, with approximately 75% of production coming from integrated systems (Boal, 2008a).
Over the last five years Brazil pig meat production increased by 21.8%. Not all types of production have grown, however. Expansion of industrially produced pork grew by 36.7%, while subsistence production, which results in the excess entering the market, declined by 34.1%. This points to an increasing professionalization of the sector. Total slaughter in the country between 2004 and 2009 increased by 27.6%. Those that were carried out in compliance with the Ministry of Agriculture´s Federal Inspection Service (SIF) grew by 38.4%, while those operating under other systems declined by 3.4%. Some industrial plants that operated with state certification now have federal certification. SIF-compliant slaughter now account for 83.1% of all pig meat produced, up from 77.7%, which gives a greater guarantee of the quality of Brazilian pork meat. Subsistence production fell to some 17% of the total. This area of production is not subject to traceability measures and so, with its gradual decline, the health risks to consumers in the country have also declined (Clements, 2010).
Much of the technical expertise fueling Brazil´s rising pork production is being transferred from North America and Western Europe (Weydmann and Foster, 2003). As the industry matures, leaders communicate and travel outside the country more to learn from the experiences of other pig farms and industries. They seek out developing trends and significant advances in genetics, health, environment, animal husbandry, nutrition and pig flow (Piva, 2007).
Productivity of Crops
In addition to expanding the area being cultivated, Brazil has significantly increased the productivity of key raw materials for the production of pigs, which are soybeans and corn. For corn, Brazil´s average yield, harvested in metric tons per hectare was 2.48 in 1999, 3.80 in 2010 and will be 4.30 in 2019. For soybeans, Brazil´s average yield, harvested in metric tons per hectare was 2.41 in 1999, 2.84 in 2010 and will be 3.05 in 2019. The expansion of land used for agriculture associated with the increase in productivity of grains is generating a visible growth in the domestic availability of such raw materials (FAPRI 2010 U.S. and World Agricultural Outlook Database).
Many of the leading providers of seed stock with greater global penetration have structure with farms having great-grandparents for providing animals in Brazil. The product offering consists of grandparents and breeding lines of male and female, available both in Brazil and in other countries, customizable locally on-demand or unique to the internal market. As these programs have, as a general rule, international scope, considering herds of various places under monitoring, the performance in various animal traits becomes identical or with a minimal gap between countries. There are also breeding programs developed by government research entities or national private companies.
Porcine Respiratory and Reproductive Syndrome (PRRS) Status
Although the disease is widespread in swine herds worldwide, as yet there are no reports of PRRS in Brazil. Diagnostic tests have been performed in Brazilian herds since 1995. Since 1997 the Brazilian importers adopted rigid rules for importing animals or semen, due to concerns in relation to risk of introduction of PRRS in Brazil. Fortunately importers, despite having completed their own quarantine protocols, acted correctly and on time to prevent the introduction of PRRS in Brazil as occurred in Chile, for example (Zanella, 2006).
Since its use was permitted in 1996 in Brazil ractopamine hydrochloride has been widely adopted by the intensive pig industry. The consistent benefits on the performance parameters in the field and in the slaughterhouse have sustained its use, considering different strategies varying doses and days of consumption. Currently there are four different providers for this tool. Doses vary from 5 to 10 parts per million and duration of use, 21 to 28 days in most cases.
Starting with its launch in 2007 several of the largest producers of pigs tested and are adopting immunocastration as a routine practice for a portion of production or all of the males at finishing phase. Besides the appeal of animal welfare, the tool confers benefits on livestock indicators and/ or improves yield of high value cuts at slaughterhouse.
Access to capital is a requirement for any business. There are understandably huge disparities between the costs of capital across countries. A farmer in Brazil would be faced with a higher peso denominated interest rate when seeking finance for a new hog operation than an integrator in Canada, who would be able to finance a similar capital project at a much lower dollar denominated rate (Boal, 2008b). Using as base the interest rate of reference of national central banks, we have the following status: 11.25% for Brazil, 1.00% for Canada, 0.25% for the United States and 4.5% for Mexico. Brazil and Canada have a tendency to raise the interest rate (Global-Rates.com, 2011). Brazil has the bronze medal in the contest of the greatest interest in the world. The country has the third highest rate base on the planet. The first place is Venezuela, with interest at 18.10% per annum, and second place Pakistan, with 14%. Brazil becomes the first one if considering inflation. The difference is that in Venezuela and Pakistan, the inflation is much higher (CNEWS.com, 2011).
Foot and Mouth Disease Status
Brazil, as a country, continues to struggle with disease constraints, particularly Foot and Mouth Disease, which in turn limits market access, particularly to the highly sought-after markets such as Western Europe and Japan. Brazil remains dependent on Russia for export sales, but the major packers are making a concerted effort to diversify their customer base and export higher valued products (Boal, 2008a).
IMPLICATIONS FOR NORTH AMERICA
In a study based on a survey, 70 world pork business leaders, with representation from over 15 countries, were asked to rate their respective countries on three dimensions: Structural Factors; Social & Political; Production Cost for Competitiveness. For Structural Factors, issues involved the following topics: corn prices, land availability, labor efficiency, farm productivity, local demand for pork, modern processing industry and pork quality standards. For Political and Social Factors, issues involved the following topics: pork in country´s food strategy, government subsidies, local food safety regulation, level of environmental laws, welfare and pressure and the country´s animal disease control. For cost competitiveness, issues involved the following topics: level of cost of production, % feed cost / total cost and cost per sow in a new project (Bobadilla et al., 2010). Reflections about the main countries for Pork Production in North America will follow in the next paragraphs.
Concerning Structural factors versus Political & Social Factors only Canada and Brazil are classified as with great competitiveness; both have more land available for growth and have high production efficiency. At the same time there are relatively large differences. Brazil has access to more competitive grains and there is a reduced pressure on production practices from animal welfare concerns. The Canadian industry exports about 50% of production, which enabled them to develop a program of safety of meat, a high international standard, together with higher requirements in terms of the quality of meat offered to the market. Both Brazil and Canada have lost some international competitiveness because of having strong exchange rates. This situation may change in the medium term, product of a necessary economic adjustment in the economy of Europe and China that finally further revalue more to the dollar against other currencies like the Real and Canadian Dollar. As an alternative Canada could do what the big players can not do, to be flexible and work for adding value to pork cuts that can not be developed in Brazil and United States. Moreover, attacking niche products that would be difficult to produce by big competitors could be another option (Bobadilla et al., 2010).
In the last ten years the United States has become the dominator of global exports of pork. The industry consolidation has led to an efficient vertical integration in all links. Production has managed to contain the challenges of animal health and increasing productivity gains has meant reducing production costs dramatically. Most processing plants that have a capacity larger than 10,000 pigs have specialized day and processes for value addition. The limits to growth are on the environmental side, where in states like North Carolina production continues to decline. On the welfare side, the trend tells that the cost of production will rise and will require further investment on adaptation of new production systems. The recent crisis of profitability of the industry determines the reduction of about 600,000 sows that will not recover easily. The target is to focus on productivity with the same or even fewer females. It is not ruled out further expansion of American companies producing in other markets such as Mexico or China. Clearly the United States and Brazil will dominate world trade in pig meat. The United States has learned that to achieve a price that involves profitability for the industry must be at least: (1) A supply of pork according to domestic demand and a volume of 20% for export, so thus avoiding over-production cycles; (2) A degree of promotion that will enhance export and good and lasting business relationships with its export destinations, such as Russia, China and South Korea (Bobadilla et al., 2010).
The country has great advantages beyond access to United States grains, surface to expand the industry and low restrictions of animal welfare. The pig is the fourth choice in animal protein, poultry by far in the first place with over 30 kilos, 22 kilos per capita for eggs in the second place, third is beef with about 16-18 kilos and finally pork with a little over 16 kilos. In reviewing the state consumption we see that certain areas have twice the per capita consumption than the national average, which means a significant growth potential. The main barrier to competitiveness is the control and the prevention of diseases of high economic impact. This is where the sector has to work together with the authorities and incentive schemes to control and/ or eradicate certain diseases. The country has two poles of export, Sonora and Yucatán, that have access to major markets of the world´s pork and other states could join when a program of effective disease control could be structured. Like Canada, Mexico could try to be flexible and work for adding value to pork cuts that cannot be developed in Brazil and United States, attacking niche products that would be difficult to produce for their big competitors. (Bobadilla et al., 2010).
There are large differences between nations that export pork and this reality will persist in the near future. As the world´s population will not stop growing and there is an expectation of reducing poverty by economic growth in developing countries, there will be a great demand for animal protein. The skills and limitations of each country will make the market share change periodically. Perhaps, in addition to having concerns with the dispute between the nations we also need to start to think about competing with beef and chicken, which may become in the future the real pork chain enemies.
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This paper was presented at the London Swine Conference- Exploring the Future. March 30-31, 2011. Engormix.com thanks for this huge contribution.