The global market for New Zealand’s meat exports and exporters is undergoing quite a rapid change, judging by movements in the industry’s latest quota entitlements and market destinations. The differences between exporters and markets over a ten and five year period provide an interesting snapshot of the relative position of the meat companies and the impact of changing market dynamics, writes Allan Barber.
A comparison of quota entitlements over 10 years illustrates some sizeable changes in market share, but also considerable industry rationalisation. A number of smaller exporters have either disappeared or been absorbed by a larger company, but for the most part the same companies still dominate the industry, but with some noticeable changes in share.
The trials endured by Silver Fern Farms are starkly demonstrated by a loss of almost nine percent or 20,000 tonnes of sheepmeat entitlement since 2009, although its beef performance has withstood competitive pressures much better, losing only one percent share over the same period. As stated in Alan Williams’ article in last week’s Farmers Weekly, chairman Rob Hewett acknowledges the impact of the last few years of restructuring and refinancing on the business. However the company has made great progress towards an appropriate processing configuration and a new market focus, culminating in the investment by Shanghai Maling.
The beneficiaries of SFF’s loss of sheepmeat market share are AFFCO, Canterbury Meat Packers, Ovation, Taylor Preston and Crusader Meats with their combined gains equalling the amount lost by SFF. Over the 10 years, Alliance has virtually stood still despite a series of gains in the five years from 2009 after which it reverted to its starting point.
Beef quota changes are less dramatic, although significant gains by Greenlea, AFFCO and Alliance – which bought Levin Meats – offset losses by SFF, Taylor Preston, Wilson Hellaby and Universal Beef Packers, while ANZCO-owned CMP increased its share, partly offsetting losses by Riverlands. Over the period, there was also a change in the value of beef quota which in the earlier years meant market share gains had a tangible value if sold, but this has not been a factor for at least five years.
The last point about the value of quota, or lack of it, is an indication of the greater influence of alternative markets outside the two main traditional destinations of the United States for beef and European Union for sheepmeat. In recent years, diversification has been increasingly possible and profitable for marketing red meat and exporters have taken advantage of the opportunity.
In beef, the US has remained remarkably constant, taking 44 percent of New Zealand exports by value and 49 percent by tonnage, the difference being caused by the overwhelming preponderance of manufacturing beef from cull cows. The annual variation in the cow cull as a result of milk price volatility has had a significant effect on the amount of beef exported from one year to another, but since the 2014/15 season the FOB value of beef has risen from just over $6,000 per tonne to consistently above $7,000 which has been reflected in the higher beef price paid to farmers.
The big mover in beef tonnage and value has been China which over a five-year period has lifted its share from nine percent to 19 percent, with a 27 percent increase in price. The next four most important destinations for NZ beef are Taiwan (six percent by value), Korea (five percent), Japan (five percent) and Canada (four percent), which means the top six markets for beef make up 83 percent of the total value. Unfortunately, the impact of Japan’s free trade agreement with Australia and the level of tariff applied to New Zealand imports has caused a decline of 50 percent in Japan’s share of beef trade over five years. The Philippines is the only other country to have seen a drop in absolute sales value over the period, with even a somewhat volatile market like Indonesia producing a positive movement.
Changes to exports of sheepmeat have been rather more complex during the same period with, surprisingly, China only showing relatively minor movements compared to other important markets. The biggest change, not surprisingly, occurred in the UK’s share of trade with the 2016/17 season seeing a sudden drop, probably as a consequence of uncertainty caused by Brexit. The most significant growth areas in lamb volume and value were Germany, US and the Netherlands followed by Japan, Canada and Jordan.
The average value of sheepmeat exports increased over five years by 21 percent which offset more than half the fall in export tonnage as a result of the decline in the national flock. These statistics suggest the meat exporters have done a good job in compensating for the loss of sheep by earning better prices in the market, while farmers have also clearly responded by increasing productivity through higher lambing percentages and farming methods.
The statistical evidence suggests industry restructuring through capacity rationalisation, ownership changes and capital investment has resulted in a stronger meat industry which is capable of making logical decisions about livestock procurement, processing and international market linkages. This should also give sheep and beef farmers confidence to invest in the future of their industry with confidence.