The red meat sector needs to add $3.2 billion over the coming 12 years to its bottom line, if it is to meet the target it set itself under the Red Meat Sector Strategy (RMSS).
The target for 2025, without inflation, is for the sector’s value to grow to $11.4 billion. This is from a base of $8 million set when the RMSS was developed in 2009-2010, Andrew Burtt, Beef + Lamb NZ’s chief economist told delegates attending last week’s Red Meat Sector Conference.
The sector’s value grew to about $8.3 billion in 2010-2011 (see figure 1 right), but dropped away again by 3.2 percent in the following 2011-2012 year. This was primarily due to weaker sheepmeat and beef and veal prices, but was offset by an increase in the value of other animal products, Burtt explained.
Analysis of the share of retail price of New Zealand lamb sold in Britain shows that currently, the New Zealand part of the chain from farmgate till export from New Zealand (‘free on board’ or FOB) receives the lion’s share (56 percent) of the retail price (see figure two, right).
Seeking market access, vital
Establishing and nuturing market access is important to achieving the overall RMSS target, Burtt said. The Free Trade Agreement (FTA) signed with China few years ago, has facilitated New Zealand’s ability to respond to huge demand for meat in that market. In addition, there are a number of other FTAs currently under negotiation including the Trans-Pacific Partnership (TPP), Korea, Chinese Taipei, Russia and India. Future focus will be on the European Union and the new Regional Comprehensive Economic Partnership (RCEP), and other are EU and non-EU Europe, Latin America, North Africa and Middle East. Indonesia is another important potential market where there are a few access problems, he said.
New Zealand lamb, followed by Australian product, is a dominant player in world exports. For beef, however, New Zealand is the fifth largest beef exporter on the world table and India dominates the international trade, with Australia, Brazil and the US making up the top four export countries.
To the year-end March 2013, the established British market is still the top earning market for New Zealand lamb ($504 million), “providing 20 cents out of every dollar New Zealand earns,” and reflecting the deep personal and commercial relationships that have been developed over many years, said Burtt.
“Exports to the UK are no longer heavily dominated by carcases – that was over 30 years ago. Now, there is a pretty even split between chilled and frozen lamb and it’s almost all lamb cuts. Carcases only make up a tiny proportion.”
However, China is snapping at its heels. That market has risen from the number 10 spot in 2005-2006, when the FTA was signed, to number two worth $343 million in the last 2012-2013 year. It has been taking lower value items like flaps, but it is moving towards higher-valued cuts. The top five highest earning markets per tonne are mainly European: Switzerland returns over $23,000 per tonne to New Zealand, Belgium ($15,612), the Netherlands ($13,474), Germany ($13,425) and the United States ($12,753).
For beef, half of every dollar earned comes from the US, which takes about 200,000 tonnes last year and is the top earning market for New Zealand (just over $1 billion). China didn’t feature at all in 2004-2006, but has leapt up to number four on the table this season and is now worth $121 million in the year-to-end March 2013.
In China, one of New Zealand’s emerging markets, New Zealand dominates lamb imports, with Australia not far behind – though they are paying extra tariffs, having not yet signed an FTA with China – and Uruguay with much smaller amounts. In beef, New Zealand competes against the dominant importer Australia, Uruguay, Canada, Brazil and others. Brazil’s position in the market has declined over the years (as Richard said).
He compared this to the US, an established beef market for this country, which imports frozen beef from New Zealand and Australia, primarily for the ground beef industry. Chilled beef is dominated by Canadian imports because of its proximity, he noted.
Fewer red meat farms, but productivity up
Competition for land-use continues, with the area of land used for red meat production (sheep, beef, venison and goat) declining by 3.5 million hectares (down 28 percent) since 1990-1991. The land has been taken by dairy operations (0.9 million hectares), with the remaining 2.5 million hectares being used for forestry, reversion, conservation and urbanisation.
“New Zealand’s human population has grown about 30 percent in the same time,” noted Burtt.
Numbers of hill country farms have declined, as has the average farm size, and there has been a substantial decline in sheep and beef numbers since 1990-91. However, Burtt commented that there have been a number of significant productivity gains in the same period. Lambing percentages are up to 123 percent (or up 23 percentage points), average lamb carcase weights are up 25 percent and steer weights by four percent, the amount of lamb sold per ewe has gone up 85 percent and wool production is up three percent.
“This all reflects a whole range of technologies and improvements – genetic improvements, better feeding, better nutrition and better management.”
Room for processing improvement?
In the meat processing sector, 16 companies with 36 plants process sheep and will provisionally put through around 25 million lamb equivalents in the 2012-2013 year. The maximum weekly potential to slaughter, which takes the average of the top week for each plant, is 1.2 million head. The highest volume was 979,000 head driven by the drought situation, the figures showed.
For beef, there were 13 companies slaughtering 2.3 million cattle in 24 plants over the 2012-2013 year. The highest week saw 835,000 head.
Both sets of figures showed the number of weeks involved if industry ran at the rate of the highest week. They suggest that all stock could be slaughtered in half the season, commented Burtt. However, this is “simply put’ he said, adding that there are other issues for the processing businesses to contend with, such as seasonal matters, employment and ability to service customers.
“These figures, however, show the sorts of challenges faced by the sector.”
Forecasts showing 2013-2014 will be tight
Barring natural disasters, forecasts are showing a tighter year ahead for the New Zealand meat industry. While export lamb and beef cattle slaughter was higher in the 2012-2013 (year-ending September), due to the drought, the prediction for the 2013-2014 season is for lower lamb production (around 18.2 million head) and beef production (2.25 million).
B+LNZ’s Economic Service is predicting that the average export lamb price for the 2013-2014 season will be around $98, while the export bull price will be maybe 20 cents a kg higher than the 2012-2013 figure of around 415 cents a kg, said Burtt.
While, the recession will continue in Europe,there are signs of recovery in the US and Japan and emerging markets are growing very rapidly, Burtt says, adding that he wonders what the post-drought environment for NZ, Australia and US will mean for herd rebuilding, being sustainably profitable, accepting and managing volatility and outlook “and doing it all efficiently.
“Overall, the RMSS has measures in place designed to track progress. But the measures provide a basis for developing thinking and actions for the longer term,” said Burtt.
With additional productivity improvements, reform of the processing sector, enhanced market access – including the explosion of trade to China and a newly inked FTA with Taiwan – plus the four red meat sector PGP programmes aiming to add $3 billion to sector returns over the next decade or so, we might be on track to get to that 11.4 billion target. I wonder what the figures will look like next year?