Rise in imports of meat and other products sees South American country overtake Australia
Limited domestic output and rising per capita incomes have led to China increasing imports of high-protein, low-fat beef from Brazil.
About a year after recovering from a scare related to mad cow disease, Brazil has supplanted Australia as the Asian nation's biggest supplier of beef.
A production deficit is widening in China, and imports are heading for a record.
Brazil's ample supplies and low prices helped companies including JBS SA, Minerva SA and Marfrig Global Foods SA to boost exports to China by 65 percent in the first half of 2016.
While the Chinese eat far more pork than any other meat, per capita consumption is falling. At the same time, demand for beef is increasing.
Only the United States imports more beef than China. However, rapid economic growth over the past decade has created an expanding middle class in China that can afford more protein in their diets.
At the same time, Brazil has plenty of surplus beef, as domestic demand is stagnant, while its exports have been appealing to buyers since its currency, the real, plunged last year.
China ended a three-year embargo on Brazilian beef imports in May last year, imposed because of a mad cow disease epidemic that hit Brazil in 2012.
"China will have a major impact on the beef trade," says Miguel Gularte, head of JBS' Mercosul beef unit. It's a fantastic market for Brazil, he adds, as the country has "hundreds of millions of people moving to consume red meat".
Per capita consumption of beef in China will reach a record 3.864 kilograms this year compared with 3.029 kg a decade ago, the Organization for Economic Cooperation and Development estimates.
But production has not kept pace, so China's imports this year will jump 22 percent to 1.23 million metric tons, including purchases by Hong Kong, according to the US Department of Agriculture.
That is almost four times the amount in 2012, and imports now account for 36 percent of demand, up from 25 percent last year.
Wang Kai, a professor at Nanjing Agricultural University, says demand for lamb in China's western region, particularly in the Ningxia Hui and Xinjiang Uygur autonomous regions, and Qinghai and Gansu provinces, has quickly grown in the past five years, mainly because it is getting more expensive to raise cattle in western China, where the economy and livestock industry are less developed than in the eastern provinces.
Because of rising feed prices, limited grazing land and the breeding cycle, China's cattle-raising sector lags behind consumer demand, resulting in higher lamb prices in the past five years, according to a report in December by the Chinese Academy of Agricultural Sciences.
"As China has found it impossible to grow all of the food it needs and has consequently formed closer ties with the world food market, demand for beef, mutton, fruit, wine and dairy products will certainly provide many opportunities for major agricultural produce exporters such as Chile, Brazil, Argentina and the US."
Bilateral trade between China and Brazil stood at $71.59 billion last year, making China Brazil's largest export destination and source of imports, data from the General Administration of Customs show.
And it is not only agricultural products. China has purchased large amounts of raw materials from Brazil over the years, and has also invested heavily in infrastructure, including in hydropower facilities, construction machinery and automobile production. Chinese companies had invested $18.94 billion in Brazil by the end of 2014.
Australia had been China's top beef supplier, but its output has declined. That created an opportunity for Brazil, which saw a 33 percent plunge in the real last year due to a recession and political scandals.
Shipments to the Chinese mainland and Hong Kong in the first six months of this year were a combined 265,800 tons, up from 161,000 tons a year earlier, industry data show. Total exports to all countries rose 12 percent to 736,000 tons.
"There's a lot of tailwinds for the Brazilian industry at this moment," Justin Sherrard, an animal protein global strategist at Rabobank, says in a telephone interview from the Netherlands.
Brazil almost missed out. A single positive test for mad cow disease in 2012 led to import bans by China and other countries, including South Korea and Japan.
The case was considered a "negligible risk" based on criteria established by the World Organization for Animal Health, because the animal never made it into the food chain. That meant a quicker path to lifting the ban, which China did in May last year.
While some forms of Brazilian meat are still restricted, like organs or boned meat, China now permits most common meat cuts including steaks and ground beef, although most of the purchases are the low-end cuts used in processed meat products.
With most so-called premium markets including Japan and South Korea still closed to Brazilian beef, most of the country's shipments of prime cuts end up in Europe.
"China is emerging as the first alternative to Europe for Brazil's premium beef," Antonio Camardelli, head of Brazilian beef industry group Abiec, says in a telephone interview from Sao Paulo. "There's still a lot of room to increase exports of gourmet beef to China."
There are signs that demand will slow from China buyers who are "pushing prices down", Gularte at JBS' Mercosul unit says, although he predicts Brazilian shipments to China this year will be twice what they were in 2015.
Asia represented 26 percent of exports for Minerva in the year ended in March, making it the main destination for the Sao Paulo company's exports. That's up from 18 percent a year before.
"There are consumers that are willing to pay a premium for having a differential," Fernando Galletti Queiroz, chief executive officer of Minerva, says. "The price gap to Europe is shrinking."
China is also investing in more manufacturing, financial and infrastructure sectors in Brazil, as well as across Latin America, to boost growth, as the nation adjusts its trade structure and diversifies investment categories under the current global business setting.
China's outbound investment in Latin America's nonfinancial sector reached $21.4 billion last year, up 67 percent year-on-year. Its investment mainly flowed into Brazil, Venezuela, Argentina and Ecuador, data from the Ministry of Commerce show.