Uruguay: Small Country, Big Beef

05 August 2016

The early Portuguese and Spanish colonizers who claimed vast resource-rich territories in South America neglected a small patch of land between present-day Brazil and Argentina. This land, Uruguay, lacking in gold or silver, became home to wild cattle descended from those brought by the Spanish before the land was even settled. Under these circumstances, the beef industry cemented itself early on as a pillar of the country’s identity and its economy. 

With a population of only 3.4 million, Uruguay is now known for its premium English breed of cattle that roam uninhibited in one of the best preserved pastures in the world. Gauchos (i.e. cowboys) clad in ponchos, swinging bolas, facos dangling down their leather belts, dot the middle plains. If gauchos hold a romantic place in popular imagination of Uruguay, so does the meat from the cattle they masterfully herd in bucolic plains and low-mountain ranges. Beef holds such a special place in Uruguayan culture that when the populist former president José Alberto "Pepe" Mujica ran the Ministry of Agriculture, he won the hearts of many Uruguayans with cheap access to assado, beef rib grilled over an open fire.

Today, Uruguay’s economy benefits from sizable exports of premium beef to the EU, the US, and most recently to China. In 2015, beef exports generated $1.5 billion in revenues and comprised 16 percent of the nation’s exports. The story of how this land, half the size of Germany with four times as many cattle as people, managed to whittle its way out of competition with its two giant neighbors, provides an insight into the astounding nature of the challenges that small nations face in achieving global prominence and testifies to the level of ingenuity and resourcefulness that policy makers and farmers have to resort to in order to succeed. 

Background

Uruguay’s large flatlands, adequate soil quality, and small population size ensured that the cattle industry would remain an economic and cultural feature of the small country into the present day. As ranching became more established in the 19th and 20th centuries, producers laid the foundation for a quality-focused industry by importing English Hereford cattle, a breed renowned for its high-quality beef. Today, the country boasts the largest purebred herd of Herefords anywhere in the world.

The small size of the country, historical and cultural ties to ranching, and low population led to an industry defined by relatively scattered production of grass-fed beef rather than grain-fed, industrialized beef production. Though these conditions don’t allow for intensification, Uruguay fully embraced this limitation and turned it into a valuable asset. Due to the increasingly global and competitive market as well as the cultural significance of beef, the Uruguayan government placed a vested interest in the sector, which allowed for effective branding, widespread investment in pastureland, and rapid, sector-wide responses to calamities.

Uruguay has the lowest percentage of permanent cropland among any of its neighbors, as 78 percent of its land is devoted to pasture

Challenges met with innovation

The Uruguayan government learned the necessity of proactively managing its high-end beef industry after weathering disaster. In 2001 an epidemic of Foot and Mouth Diseases (FMD) wiped out 6,900 animals. This came not long after Uruguay had worked hard to achieve the coveted “FMD Free Without Vaccination” status from the World Organization for Animal Health (OIE). All beef-exporting countries seek to obtain the “FMD Free Without Vaccination” status from OIE because it guarantees access to high-value markets such as in North America. But this is a gamble; a small outbreak in a neighboring country or one part of the country could spell disaster, as it did in 2001. (Uruguay still doesn’t hold this status.) 

Authorities acted quickly and abated what would have turned out to be a disastrous outcome by implementing stringent laws on how beef production is managed. This paved the way for the adoption of an advanced tracking technology to better monitor and react to disasters. Since 2006, Uruguay has one of the most sophisticated supply chain tracing technologies in the world. Every calf raised in Uruguay is electronically tagged, and every player in the beef value chain player is obligated to subscribe to this system by law. This technology allows both consumers and authorities, home and abroad, to pin every morsel of meat to a particular animal and a particular lot. It also helps the authorities to check and audit the movement of all cattle across lots and slaughterhouses and acts as a central repository of information by which transparency is established and quality certifications are carried out.

Certifications

Today, access to some of the highest-value markets for any food products comes from organic certification, a distinction created in various countries during the 1990s. In the United States, for example, the Organic Foods Production Act of 1990 authorized the creation of a National Organic Program (NOP) to consolidate fragmented organic state-by-state regulation dating back to the 1970s. By 2000, the NOP was finally established. In principle, organic certification aims to indicate which food products are safe, nutritious, and environmentally friendly. However, for individual cattle producers, obtaining a USDA organic certification could take up to three years and thousands of dollars in fees. Uruguayan beef, which markets itself as high-quality, wanted the international recognition, but organic certifications were simply too expensive and time-consuming to implement industry-wide. 

As an alternative, Uruguay expedited the process by introducing the Certified Natural Meat Program, launched in 2001, in which voluntary ranchers and packers certify their produce to meet phytosanitary, quality and environmental standards according to a protocol administered by the National Meat Institute (INAC). Accreditation is carried out by international certifying firms.

This country-wide process not only allows its farmers access to high-end, international markets, but also functions as its own form of branding. Uruguay markets its beef as “Uruguay Certified Natural,” which in 2004 the USDA announced was “Process Verified,” essentially giving Uruguay’s certification an international stamp of legitimacy. “Natural” means that the cattle from which the beef comes is not injected with antibiotics or growth hormones and exclusively eats grass. In the beef market, grass-fed is valued highly for being tastier and healthier than its grain-fed equivalent.

Uruguayan beef's certifications have allowed it to command higher prices, leading export revenue to grow much faster than production

Comprising only 3 to 6 percent of the total demand for beef in the US, grass-fed beef is certainly a niche market, but it’s expanding rapidly. Forbes has estimated that the market has grown by 25 to 30 percent each year for the past decade.

Uruguayan beef’s certification scheme and sophisticated production and supply chain management system also allows preferred access to fill European quotas for high-quality beef and access to new North American certifications. Uruguay is one of a handful of nations covered under two EU tariff quotas for premium beef, Quota 418 and the “Hilton” quota, and the first non-US country to hold the USDA’s “Never Ever 3” certification. The “Never Ever 3” certification indicates that the cattle were never given antibiotics, hormones, or animal protein; this status gives Uruguayan beef a new niche that it currently can monopolize in the US market. European quotas allow select countries to export their high-quality product to the EU duty free. This immense advantage over competitors makes Uruguay’s product only more desirable. Uruguay's aggressive reforms ensure that the country stays ahead of the competition and that it can capitalize on the quota and certification systems created by high-end Western markets.

Branding

These certifications play an important role in establishing brand value in this rapidly growing market. According to Quarterra, an agricultural consulting firm based in Argentina, while the term “natural” itself may not mean much legally speaking, “for the customer to 'buy' the concept of grass-fed beef from a certain place they need to associate the region with large tracts of grassland,” and Uruguay holds a comparative advantage in this front thanks to its well-reserved green pastures. In fact, Quarterra attributes much of Uruguay's success to effective marketing strategy as opposed to an “inherent difference in product quality.” According to Uruguay’s INAC, however, there is still a fundamental difference between Uruguayan and Brazilian beef: Uruguay’s beef comes almost entirely of English Hereford and Angus breeds while most of Brazil’s are from Zebu variety.

Even the use of the name “Uruguay” itself is an additional form of branding known as Geographic Indications (GI). Widely used in the EU to market products unique to a country or region, these indications can convey quality and give a country a monopoly on the product sold. Uruguay’s universal regulations on its beef industry allow the country to use this form of branding to the benefit of all its beef producers. 

However, as environmental concerns become more pressing for consumers, some believe that the Uruguayan ‘brand’ may become tarnished due to the questions raised about the environmental sustainability of grass-fed beef, which requires a great deal more land than grain-fed beef. In fact, 80 percent of greenhouse gas (GHG) emissions from Uruguay come from cattle. Professor Walter Baethgen, Senior Research Scientist and Director of Regional and Sectoral Research at Columbia University’s International Research for Climate and Society and a native of Uruguay, downplays isolated GHG measurements: “If one looks at the carbon footprint of a kilo of beef produced in a feedlot, it is lower than a kilo produced in a natural grassland, but there is a lot of things that are happening such as water contamination and animal welfare issues in feedlots.” Baethgen believes that measuring the integrated environmental impact of cattle production, including the important role grasslands play in preserving biodiversity is where the focus ought to be. Fortunately, Uruguay is one of the few countries in the world where both the farmers and the environmentalists agree on preserving the natural grasslands. 

Conclusion

Uruguay is a small country, and its excellence in beef production and marketing represents the exception for small countries rather than the norm. Uruguay’s investment in cutting-edge technology, strict adherence quality control and marketing, however, is relevant to nations with historical ties to one particular product that rely heavily on niche markets. 

The South American country is not alone in pursuing a strategy that is highly adapted to its unique situation. Cuban hand-rolled cigars have become synonymous with luxury and wealth worldwide, and the small island nation has relied heavily on its rolled tobacco exports for its for it foreign currency earnings. Similarly, Latvia has established itself as one of the leading exporters of wood pellets and wood to the European Union owing to significant (over 50 percent of total land) timber coverage, slow population growth, and aggressive protection of forests by government. Uruguay’s example, along with Cuba’s and Latvia’s, suggests that specialization is a strong strategy for small countries to compete globally with sector giants.

Uruguay is now the second-largest exporter of beef to China, surpassing Australia. This is a huge shift for Uruguay considering that Europe used to hold that position only three years ago. While the underlying cause of this shift is demand from burgeoning middle-class in China that are increasingly seeking out grass-fed beef, Uruguay’s quick response to this demand is largely attributable to its small and highly integrated supply chain. Niche industries in smaller countries, it would seem, are much more adaptable. 

This adaptation is critical to Uruguay’s success, as it must consistently comply with the evolving tastes and requirements of its old and new buyers. So far, Uruguay’s prescience continues as the USDA has proposed a stricter regulation to amend existing guidelines for how organic certified livestock producers raise their cattle. Key provisions include minimum indoor and outdoor requirements, physical alterations allowed, and treatment of cattle during transport and slaughter. For Uruguayan beef exporters that are already a few steps ahead of the pack in this front, this represents a great marketing opportunity. 

Diversifying the destination of Uruguay’s beef exports will be the important next step in solidifying its global prominence. The niche markets filled by Uruguayan beef could quickly disappear if its purchasing markets face an economic downturn. Fortunately, Uruguay’s movement east has mitigated this danger and ensures continued success into the future.

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