bad deal with China turns suspicion into millionaire loss

Brazilian beef exports to China were suspended, as of this Thursday (23), by decision of the Ministry of Agriculture. The measure complies with an agreement between the countries that provides for the enactment of self-embargo in the face of any suspected case of Bovine Spongiform Encephalopathy (BSE), the well-known “mad cow” disease, which attacks the central nervous system. The mere suspicion interrupts indefinitely – the period will depend on the Chinese – the export of 520,000 animals per month, at an average revenue of US$ 676 million.

Brazil has never had a typical case of the disease, related to the use of poultry litter, meat and bone meal in bovine feed, which is prohibited in the country. Brazil’s risk classification is insignificant, according to the World Organization for Animal Health (OMSA). Despite this, for the third time in five years the beef cattle chain is being shaken by mere suspicion.

As has already happened in 2019 and 2021, the alarm has everything to be false, and it must be an atypical case, that is, one that occurs naturally in older animals, due to a spontaneous mutation. Cases like this do not pose a risk of dissemination in the herd or of transmission to humans.

Draconian agreement in the face of minimal suspicion of BSE

“Imagine a property with 160 heads of cattle being responsible for closing the entire beef market in Brazil”, reacts Fernando Henrique Iglesias, an analyst at Agência Safras & Market, referring to the suspected case on a small property in Marabá (PA).

Lygia Pimentel, Agrifatto’s chief strategist, also laments the repercussions and gigantic losses of a mere suspicion, with clear indications of no seriousness. “The animal in this case has everything to be atypical. He is 9 years old, did not feed on feed, which already greatly eliminates the possibility, and the animals living with him do not show symptoms. The risk is very low,” she assesses.

The biggest problem would be in the terms of the trade agreement between Brazil and China, sewn in 2015, in the government of former president Dilma Rousseff (PT). In an effort to open up the Chinese market, conditions were accepted that are not required of any other Asian trading partner.

“It is a defect in our trade agreement. Perhaps we could have stated that while Brazil’s risk within the OMSA was insignificant, we would continue to export. If the status changed, then we would stop. In this case, it’s not a change of status, it’s a suspicion that already suspends everything. This is the big problem”, evaluates Lygia Pimentel.

The National Confederation of Agriculture and Livestock (CNA) also advocates a review of the terms of the agreement with China. “It is time to review this protocol. That as soon as it is detected that the case is atypical, that is, that there is no risk, there is an automatic resumption of exports. That there is no need for a new health team to come to inspect and everything more. It is a point that we are going to take to the Ministry of Agriculture, so that the producer may not have losses in situations like this”, says Bruno Lucchi, technical director of the CNA.

Suspicion of mad cow has closed the meat market

If suspicions are still in the realm of hypotheses, the same cannot be said about the losses, which are already real. The beef market in the country crashed. Refrigerators suspended slaughter and new purchases. Out there, in competing countries, the climate is also one of expectation with the opportunities that can be generated if Brazil, which supplies 50% of all beef imported by China, stays out of the game for a prolonged period of time.

After the news of the embargo, in Pará, the arroba of the fat ox dropped from R$ 235 to R$ 220. In Mato Grosso, from R$ 250 to R$ 240. But business is at a standstill. A statement by the Minister of Agriculture, Carlos Fávaro, that the Chinese had warned that, this time, normalization should be faster, prevented a greater fall in the futures market.

In the assessment of Leonardo Alencar, head of the Agro sector at XP, the trend will be for a drop in prices on the domestic market in the coming weeks. And the creators will end up losing margin. “The rancher will probably pay part of this bill. He can hold the cattle for a couple of months, we have good pasture conditions. If China returns soon, the market may return. Dependence on China is the issue. It pays better than other markets, but if there is a hiccup there, it is very negative for our slaughterhouses”, he evaluates.

As more than two thirds of the national production of red meat is in the domestic market, the CNA sees no reason for a decrease in the price paid to the producer. China would already be buying less anyway, after the Chinese New Year, and beef was on a downward trend in Brazil. “There is no justification for reducing producer prices at this time, mainly because 72% of what we produce is in the domestic market. And of the 28% exported, between 57% and 60% go to China. We are waiting for the official result, that will leave the laboratory in Canada, and soon after, as soon as it is confirmed that the case is really atypical, we believe that there will be an immediate return of Brazilian exports to this country”, says Bruno Lucchi, technical director of CNA.

There is no deadline for reopening the Chinese market

Under the terms of the trade agreement between Brazil and China, however, there is no forecast for a minimum period for reviewing the embargo. In 2019 everything was back to normal in two weeks; already in 2021 it was almost four months of waiting.

In the assessment of Alcides Torres, an analyst at Scot Consultoria, although the protocols with China are strict, Brazil is not in a position to command the market. “We are bought, not sold. China can buy meat from the United States, Uruguay, Argentina, Australia, Mexico, Europe. They have the entire planet on offer. We haven’t determined how it’s going to go,” he emphasizes.

According to Torres, the Chinese “evidently identified flaws in our sanitary system” and imposed the condition of only importing young animals from Brazil (less than 30 months old) as a precaution, aware of the continental extension of the territory, the dry borders and the infrastructure deficiencies. and control.

“We complied because it was a way to conquer this market. On the other hand, it was even good for Brazilian zootechnics, because it accelerated the entire process of early termination of cattle, which is good for the environment, emits less greenhouse gas. Cattle spend less time on pasture, which increases profitability per hectare”, he assesses.

In the meat market, Brazil is not without China, and vice versa

Leonardo Alencar, from XP, understands that it will not be easy for China, overnight, to find another supplier of red meat. “At the same time that Brazil needs to export to China, China without Brazil cannot fill what remains. There is no country that can fill. The United States and Australia can fill in a little, but without Brazil, the Chinese consumer will pay more”, he emphasizes.

Someone who also doesn’t see much of a way out for the Asian giant is Cesar Castro Alves, agro consultant at Itaú BBA. Brazil accounts for more than 50% of Chinese imports, around 1.24 million tons per year. “It doesn’t make sense for them to take too long. Above all because consumption there is growing. Their currency appreciated a little again and the growth forecast [do PIB] 5% is better than last year. There is a more positive reading that should support the beef scenario. Now there are also political and even commercial issues. Maybe they’ll take the opportunity to put pressure on us, give us a cold one and then resume. But everything is in their hands, ”she notes.

Test results can be released this Friday

What are the chances of changing the terms of the agreement for exporting meat to China? “It will depend on the will of who is buying. And our product is a commodity, it has no brand. They can buy this product from planet Earth”, says Torres, from Scot Consultoria, who sees difficulties in a renegotiation.

Lygia Pimentel, from Agrifatto, believes in the correctness of the protocol, because, after all, it is about bureaucracy. “It is a flaw that leaves the market very volatile. This is not necessarily a health problem that Brazil has. Until you prove that pig snout is not taken, you have to carry out the laboratory test, the counterproof, then you have to write a letter, communicate it to China, they have to receive it, read it, interpret it and only then release it again. It’s a few weeks or months, for sure, we’re going to have a loss, “she says.

According to sources from the Australian portal ABC News, the result of the tests at the WHOA reference laboratory in Canada may come out this Friday. How the Chinese will follow through on the protocol depends specifically on China’s interests.