INDIAN buffalo meat prices have fallen off a cliff, creating waves of change in the global beef market as Brazil is forced to compete head-to-head in secondary markets.
International meat market expert Simon Quilty says a two-tier global beef market of extreme high and low prices is emerging.
The ramifications for Australia are likely to be felt the most in the live export sector, as demand is subdued in south-east Asian countries that have access to big flows of cheaper Brazilian product and Indian buffalo through 2022.
Demand for boxed beef exports from Australia, New Zealand and the United States may also be affected - even though it is a distinctly different product to India's. Australia sent solid volumes of boxed beef to Indonesia this year, as overall consumption in that market grew.
Mr Quilty also believes Australian imported values to the US could be affected by the flush of cheap Brazilian meat in the first half of next year but says the South American beef giant's quota will likely fill by May, after which heavy tariffs will be incurred.
"The strange phenomenon is that at the same time that oversupply and lower prices are unfolding in Australia's secondary markets, our primary markets of Japan, the US, South Korea and China will likely remain tight, with higher prices in 2022," Mr Quilty said.
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Power of access
Lack of access to China via traditional grey channels through Vietnam and Hong Kong is what has subdued demand for Indian buffalo and driven the price down.
Exports have dropped from 1.5 million tonnes in 2015 to just over 1m tonnes this year, according to the latest figures from the Indian Government.
Political tension between China and Vietnam saw that back door slammed shut around six months ago, and the grey trade switched to a Hong Kong pathway.
However, that government has now cracked down on the trade and effectively brought it to a standstill.
Global Agritrends' data shows in 2017 more than 50 per cent of Indian buffalo went into China via grey channels but today that trade is tiny.
Of interest is the widening gap between US beef export values and Indian buffalo, Mr Quilty said.
It's now more than three times greater than at any other time in recent history and speaks to the power of market access, he said.
"The US has access to everywhere. India doesn't, in particular China, Korea, Japan and the US itself (due to foot and mouth disease)," he said.
"And unless Brazil regains access to China, the value of Brazilian beef will fall dramatically next year because they will have to compete with India in the second-tier markets."
The recent agreement by Russia to allow 200,000 tonnes of Brazilian beef at zero duty for six months would seem, on the surface, a critical step to help Brazil diversify away from China, Mr Quilty said.
But in reality, it will do very little to alleviate the pain for Brazil, as Russia's pricing is 25pc below China's pricing.
Indian buffalo meat has been redirected into the Middle East, where rising oil prices have paved the way for greater buying ability.
A year ago, barely 25pc of India's exports went this way but today it sits at 52pc, Global Agritrends' data shows.
However, the Middle East is paying significantly lower prices than China.
The bottom line, according to Mr Quilty, is the price spread will get more significant between low-grade and high-grade beef, with the rich paying higher prices for high-end beef and the poor paying less and less for lower-grade meat.
"The lack of market access for both Brazil and India is why this price spread has become so large," he said.
"Without access to China, which for India came via the grey trade, this gap is likely to get even wider for both it and Brazil."
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