Intergovernmental Group on Meat and Dairy Products
Rome, 27-29 August 2002
SYMPOSIUM ON ORGANIC MARKETS FOR MEAT AND DAIRY PRODUCTS: TRADE OPPORTUNITIES FOR DEVELOPING COUNTRIES
Comparative advantages for the production of organic meat in Uruguay
Costs and incomes of the program for organic meat production.
The exports of organic meat to the European Union
A glance into the future
Since the beginning of the 90´s decade there has been a consensus between the actors of the Uruguayan meat sector regarding the fact that it would be impossible to sustain the profitability of selling products not differentiated, into the commodities market.
Beef represents a 20% of the country´s exports, with 250.000 ton. carcass weight (cwe) and u$s 470 millions in the year 2000.
In the majority of the of the cases, our meat loses completely its identity before reaching the consumer, who exceptionally knows he is eating Uruguayan meat, and nothing about the differential characteristics of the productive process of such meat.
The changes of the attitude of the consumer's demand in developed countries, specially the greater participation of " non economic" factors at the time of purchasing food, have shown the need for a differentiation of our meat products based on the production processes which characterize our Country, and to the existing relationship between such processes, the absence of residues, the preservation of the biodiversity, a clean environment and animal welfare.
In Uruguay, since the mid 80´s an internal market for organic food has been timidly developing ,based mainly in the notorious difference in flavors and odors of some fruits and vegetables produced organically. Such market has reached a level of one million US dollars per year (2).
The exports of organic honey to Germany is the only product that falls out of that internal market.
Meat does not integrate the list of organic products in our Country´s domestic market and it is difficult to forsee its incorporation, even in the long run. With an annual per capita consumption of beef of more than 60 kg.,and a life expectative of 73 years of age, it is quite difficult to imagine that Uruguayan consumers will ever think in relating the locally produced meat of animals raised under extensive natural pastures, with the possible presence of agrotoxic residues or contamination of any kind.
The Regional market acts in the same way. A trial done by Brazilian supermarkets with our organic products, did not find a response from the consumers in spite of the low (5%) overprice.compared to conventional meat.
Based on these comparative advantages as well as the certitude that we should not lose them accepting the offers of short term "technological packages" which maximize intensification and forget biological sustainability, we saw the opportunity of obtaining the certification of Organic Products in 1998, as one of the alternatives for the differentiation of the project.
Productores Unidos Limitada (PUL) is a Cooperative started en 1981 by beef farmers which are the owners since 1991 of a slaughterhouse in the North East of the Country, one of the main extensive beef cattle zones of Uruguay.
It is integrated by more the 600 members who sell their cattle to their own industry which, during the last five years has became the main exporter from the Meat Sector of the Country.
The information received by this farmers on the animals slaughtered and the markets for their products together with the transparency in the economic-financial management of the Cooperative, has been the main factor for the establishment of reliable relations and sustain that permit to share the risks and therefore the growth.
It was due to this type of vertical integration between the farmers and their Industry that it was possible to organize a structure of enterprises disposed to perform the technological changes and the investments that a Certified organic process would demand.
Due to the inexistence of an internal market for organic meat, the economic expectations could only be founded on the exports which, being our first experience, could hardly offer more than promises on the basis of an optimistic market information.
On analyzing the risks of such enterprise it appeared clearly that "the market´s risk" was the most important. The demand studied is concentrated in the EU which is the market with higher levels of protection that we know.
On the other hand, a small number of organic certified farmers would have made impossible the export on compromising the source of animals for business that, "a priori", should have to face the selectivity of the purchases of the EU (for example: the shipping of an 11Ton. container of rump&loin needs 600 to 650 steers of more than 240 carcass weight to provide the cuts).
The characteristics of the extensive grazing beef production, its low productivity per unit of area and its low extraction rate from the herd, made it necessary to create a structure of many certified producers before facing the exports.
Slides 7 & 8.
This complicated process of gathering the producers, transference of information on technological changes, widening the basis of our National Herd Traceability System (DICOSE) to individual traceability, performing inspections, improving data, correct observations and going through the periods of conversion of farms and animals, generated the need for technical and financial aid to continue with the development of the project.
In July 2000 we could arrange an agreement with the National Institute for Rural Research (INIA) (3) which in this first working plans developed the following items:
During the year 2000 a program designed by the Uruguayan Government through the Ministry of Agriculture and Fisheries (MGAP) and the Bank for Interamerican Development Bank (BID) started a "Pilot Scheme for the increasing in the Competitivity of Uruguayan Livestock Industry " ,which in its component II included the Vertical Associations between producers and Farm Industries.
The objectives were to assist producers groups that would propose an innovative business plan in the articulation of the productive chain of cattle and sheep.
Our "Project for Production and Export of Organic Meat" was chosen and will be partially financed since February 2002 in a non returnable way (subsidized) with a credit from the BID, until November 2003.
This project will make that all the experiences generated in this development will be of public dominium at the end of two years, providing the Meat Sector with information of prime importance as a result of the subside obtained.
The following slides resume the main agro- ecological advantages of the production system and the social development of the Meat Sector that our Country has for the production of organic meat.
The Uruguayan Meat Sector reaches a socio-economical and educational level that permits the backing up of investments and the development of projects for enterprises such as the organic production. On the other hand, there are indicators such as emigration to the cities during the last thirty years, and a level of poverty in 30% of the cattle farms that makes unavoidable the promotion of economical development projects in some areas of this Sector.
In the extensive grazing systems with low utilization of technological inputs ( seeds, fertilizers, fuel, machinery etc.) and high utilization of process technology (adjustment of animal stock, nutritional management differentiated according to categories, seasonal adjustment of parturitions, weaning etc.) the profitability is more related with the product´s prices (correlation coefficient =0,70) than with the system´s productivity.
Primary production of both natural and improved pastures depend of the climate(temperature and rainfall) and explains inter-annual differences in productivity which nullify the effect of the application of technological inputs ( forage reserves).
As a difference to what happens in the intensive systems, the adoption of a system for organic production does no deteriorate the productivity levels, already low in the extensive systems. The most important technological substitution is that of the phosphatic fertilizers obtained through synthesis, by natural phosphorite for the implantation of leguminoses. This lowers the cost of fertilizers, although it increases the transport and distribution costs, resulting in a slightly positive or neutral economic balance.
The decision of the Cooperative has been to assume all the direct costs of the program for organic production and to distribute the profits to the farmers as an overprice per carcass kilo sent during the year, with a previous deduction of costs.
The estimations of costs and incomes show that the ways to make this business a sustainable one, pass through the improvement of the percent sold of each certified animal and / or increasing the price differential obtained. Both things are fasible if we maintain the presence in the market and we improve the mechanisms for the exports to the UE.
The subside obtained for the MGAP-BID project enables the sustainability of economic- financial aspects until November 2003.
The "market risk" was considered a bottle neck since the start of this enterprise.
The difficulties that appeared for the access of organic products to the EU were beyond our previsions.
UE normative number 2092/91 in its article 11 par 6 establishes the mechanisms for the import of organic products that our Cooperative had to adopt.
Uruguay tried, in 1994 to be included in the list of "third countries" accepted for the export to the EU but did not succeed, and no other intents were made.
According to par.6 of article 11 our production must be inspected and certified by an Organism accredited by the UE Commission. Such Organism will certify that the products to be imported have been produced, inspected and labeled according to the normative of the EU (nº 2092/91 and 1804/99)
Since year 1999 we started contacts with an International Certifier accredited by the EU and member of IFOAM. This Organization started the inspections and released the first certificate two years later.
Since then we have tried to export to different countries which are not the country of origin of this Organization and the results have been disappointing. The importers should first present a submission for the accreditation of the Certifiers by the competent organisms of the country of destination, which in some cases has been delayed for fifteen to eighteen months. This
Proceeding has consisted in sending the last inspection report and an exchange of questions and answers through different ways which are addressed through the importer to the Certifier and to us. The majority of such questions are not referred to the normative of the EU (nº 1804/99) but to internal regulations of each member Country.
The result is that although fulfilling the EU normative (nº2092/91 and 1804/99) you can only get access to the country of origin of the Certifier Organism chosen and hardly to others, at least to the present time.
Finally, the exports end working as a bilateral agreement with the country of origin of the Certifier and eventually will require of several certifications or co-certifications to enter other EU countries.
Being perishable products (refrigerated) it is not sufficient to make a sale to be able to produce the certified products, it is necessary to obtain that the importer can overcome the barriers to get the import authorization for one year. Even then, the products are also included in the available HILTON or GATT quotas.
This type of barriers, the costs in time and money included, leave us in a very bad position at the time of trying to sell a greater percent of the cuts of the certified animals or to pretend a higher price for the products.
The size of the market does not permit us to work with a single country of destination and one local Certifier of this country to overcome such barriers. The alternative of a multiple certification accepting the increased in costs, as it is happening in other farm products, is being considered.
In any cases it is not enough to fulfill the EU regulations but it will be necessary to adequate to the regulations of each Member country, or directly auto-excluding from certain countries.
Probably these inconvenients are the results of our own inexperience and we are the first to try to export organic meat according to the mechanism of exception of article 11 par.6.
As far as we kno ,the only exports of organic meat from Latin America to the EU have been done by Argentina who integrates the list of "third countries" and has the biggest HILTON
quota given by the EU to any country.
Some forecasts on the market of the EU for organic food (1) even though they preview an important growth that indicates a tendency for lowering of the prices getting near to the conventional products.
Domestic consumption of meat seems to be recovering the levels previous 1996, after the strong fall caused by the diffusion of BSE cases; some importers are of the opinion that the consumption of organic meat was conjunctural, more an emotional demand than a rational one and that will not be sustainable in the time.
The EU will have some limitations for the production of organic meat (4):
For us, the efforts and investments in the differentiation of our meat on the basis of their process of production is only begining . We have many work to be made aimed to raise restrictions, promote products and make our comparative advantages known.
These regions of the World, with production systems of great stability and ecological maturity, which use the biodiversity of its pastures conserving them, that are also a reserve of drinkable water, native fauna and flora, which resuming, have their natural resources yet intact, are also supporters of a rural society that day after day is facing a deterioration of its economy through the lowering of value of their animal production.
As a difference from Europe which must legislate and subsidize to try to de-contaminate the environment, the production of food without dangerous residues and the de-intensification of the production ,we have to increase the number of farmers keeping the actual production systems and trying to prevent that economical deterioration would induce them to "intensify" their production.
Organic production is one of the possible ways.
FiBL, Research Institute of Organic Agriculture "Marketing Approaches for Organic Products in Supermarkets". January 2001.