Uruguayan beef has returned to the key Japanese market after a 19-year break but Meat and Livestock Australia says local producers shouldn't get too worried.
Japan is Australia's most valuable export beef markets in value and volume terms and a destination for our high-price cuts.
However, the MLA says supply constraints, pull from China and price will limit Uruguay from challenging the dominance of Australia and the US in the market.
After Japan and Uruguay signed an agreement in December to resume two-way beef trade, 16 Uruguayan plants were approved to export chilled and frozen beef to Japan with first shipments being reported in February.
Prior to the ban, Japan imports of Uruguayan beef peaked at 6900 tonnes in 2000, virtually all of which was frozen. An outbreak of foot and moth disease then halted the trade.
MLA said Uruguay had some of the best sanitary standards, traceability and product integrity in South America. In addition, a predominantly Bos taurus herd base and investment in genetics underpinned their ability to supply quality beef.
However, the country remained dominated by grassfed production systems - a major constraint to pursuing the premium grainfed market in Japan.
According to the USDA, about 15 per cent of Uruguayan cattle slaughter was finished on grain, most of which was destined for export markets such as the EU.
Grassfed beef opportunities, however, may lie in frozen manufacturing trim for further processing and food service channels, in addition to higher value offal items such as tongue.
Regardless, land and pasture availability remain primary constraints to supply expansion. Production has hovered between 500,000-600,000 tonnes over the past decade and the USDA is forecasting a contraction in 2019 due to a modest herd expansion and live export demand diverting supply away from slaughter.
While production may have flat lined, exports have expanded during the past five years at the expense of the domestic market.
China has been the principal driver behind this export pull as other traditional markets, such as Russia, have contracted, the MLA said.
However, pulling product from the domestic market to fuel export growth was not sustainable. As such, new buyers would have to contend with an expanding China market, which accounted for 56pc of Uruguayan beef exports in 2018.
A strong currency, in contrast to the other major exporters in South America, and limited supply availability have kept pressure on cattle prices in Uruguay - so far in March, the Uruguay finished steer indicator has averaged a 25pc premium to Brazil, a 47pc premium to Argentina and has ever surpassed similar indicators in Australia on a currency adjusted basis.
Uruguay also doesn't have a Free Trade Agreement with Japan and will sit on the same tariff schedule as the US - that is 38.5pc, compared to the 26.6pc on beef from Trans Pacific Partnership (TPP) members, including Australia, from April 1. Without a pre-existing customer base and broad consumer loyalty, Uruguay will need to be very price competitive to carve out market share - a challenge under current conditions.
While a significant player in China, a lack of supply means Australian beef rarely competes directly with Uruguayan product in major markets.
To put Uruguayan exports into perspective, the entire 2018 volume shipped to all markets (325,000 tonnes) was comparable to what Australia shipped to Japan alone (316,000 tonnes) and just 29pc of total Australia exports.
Over time Uruguay may grow its feedlot industry to better target premium grainfed markets but will remain reliant on imported feed grain from neighbouring countries.
In addition, Uruguay may need to find a new home for grainfed product currently entering the EU if the US was to dissolve the HQB global grainfed quota - a matter which remains unresolved.
