The average value of New Zealand sheepmeat exports to China has improved more significantly over the past eight years, since the signing of the NZ-China free trade agreement (FTA), than in other markets, says the Meat Industry Association (MIA).
MIA analysis of official statistics shows that in 2008, when the free trade agreement was signed, the average value of sheepmeat exports to China was $2.85 per kg. This compares to an average value of $6.45/kg for total NZ sheepmeat exports for the year.
“However, in 2015, the average value of sheepmeat exports to China was $4.77/kg, an increase of 67 percent from 2008. For comparison, the average value of total NZ sheepmeat exports in 2015 was $7.66/kg, an increase of $19 percent from 2008,” says MIA policy analyst Matt Conway.
“So, while the average value of overall New Zealand sheepmeat exports has increased since 2008, the average value of exports to China has increased more significantly.”
The MIA has been working on strengthening the ‘whole of industry’ relationship between New Zealand and China, New Zealand’s largest and most valuable sheepmeat market, and has led two industry trade delegations to China and also hosted two visits from its Chinese industry counterparts in recent years. Individual meat companies also have their own exchange programmes with customers.
Demand for the majority of New Zealand meat exported to China is for ingredients for the manufacture of meat rolls for hot pot dishes that are a delicacy for the 1.4 billion population Asian country. However, in conjunction with their in-market partners, exporters such as Alliance Group and Silver Fern Farms are also starting to develop retail products for sale in the market.
Alliance Group, has been working there for over 22 years. Its general manager marketing Murray Brown describes the market as “still developing and maturing”. Most New Zealand product imported by Chinese customers is frozen and is still processed into rolls, he confirms.
“But retail packs are starting to be introduced progressively.”
The cooperative recently began a collaboration with its in-market partner Grand Farm, China’s Dalian-based single largest importer of sheepmeat. Grand Farm will process the meat it receives from Alliance into lamb rolls, kebabs and finished retail products and, together, they will market the co-branded Pure South-Grand Farm products in China from this year (pictured left). The company is also starting to pack product for direct entry into retail in joint branding from New Zealand.
Turn thinking on head for China
“Basically, you have to turn your thinking on its head when it comes to processing for China,” explains Advance Marketing’s managing director Tim Harrison. His company has also been operating in China for the past two decades, selling initially into the traditional sheepmeat area of North and North East China, home to a large Muslim population. Advance has also now added new customers in other regions to maintain a competitive advantage.
New Zealand doesn’t need to show them how to eat lamb, after all they have a national flock of 250-300,000 animals themselves,” he points out.
Traditionally, they have a very different concept of high value meat, he has found. Cuts such as lamb flaps, which are less valuable for New Zealand in other markets, are the most prized, because the consideration is always meat yield and proximity to the bone, he explains.
“Flaps have a meat yield of 85 percent, for example, as opposed to shoulders which have a 65 percent yield.”
Bones – used in soups – are another important part of any consignment, along with whole lamb shoulders and lamb necks.
Both Brown and Harrison referred to the ‘immaturity’ of the market, in respect to meat trading, compared to Europe or North America. Competition between Chinese importers is fierce and an influx of new players – both importers and government-owned corporations – succeeded in pushing up imported prices, making them higher than domestic prices, which were also rising because of a downturn in supply. New Zealand sheepmeat arriving outside the traditional seasonal consumption period – between November and February – was put into store on arrival to sell later in the year. However, with high prices consumption slowed and the prices eventually collapsed.
“A lot of people lost a lot of money buying at the top end of the market before the bubble burst last year,” says Harrison. The huge stock of imported New Zealand and Australian sheepmeat is now clearing and Harrison believes will be emptied by September 2017.
He saw the value of lamb flaps rise, over the past few years to the “ridiculous’ level of US$6 per kg in mid-2014, but these have now dropped back to US$3.30-3.50 a kg cif, more in tune with domestic supply. This is a premium over Australian product, currently fetching US$2.20-2.50, because New Zealand product is considered superior – plus a further 10 percent because of the NZ-China FTA. However, the Aussies signed their own FTA with the market last December and are catching up, especially with a shift in emphasis away from minerals extraction towards primary produce.
“The New Zealand meat industry has worked in the market since the 1990s and has done well and continued to hold the premium position,” believes Harrison, who says that free trade has already changed his business. “We were a big player in a small market, but now we are a small player in a big market.”
However, he sees competition in the market as being necessary to “keep prices firm,” and that progress is being made in online selling. Also, the bigger New Zealand meat companies, like Alliance and Silver Fern Farms, are now going directly to their customers.
Silver Fern Farms is now 50 percent owned by Chinese company Shanghai Maling and will be processing its retail brand packs of lamb, beef and venison products in New Zealand for sale in China. The company has been involved in online sales projects and is also involved in Shanghai-based Primary Collaboration Ltd, an in-market service agency.
The next year will see more progress being made in the market, despite China’s economic slowdown affecting consumer demand. Another limiting factor will be on the supply-side, with a warning from Brown: “Lower kills out of both New Zealand and Australia will reduce New Zealand volumes and values this season.”
An abridged version of this article appeared in Food NZ magazine (April/May 2016) and is reproduced in full here with permission.