At the end of a positive 2015 for the New Zealand red meat sector, particularly for beef, we look ahead at what is coming up in 2016.
Given New Zealand’s pasture-based sheep and beef production systems, the weather is likely to continue to shape production and supply to market.
Continuing drought on certain parts of the east coast of New Zealand, exacerbated by the El Niño weather pattern, is leading industry commentators to predict that a tightening supply of sheepmeat is on the cards as the season progresses.
Beef + Lamb New Zealand (B+LNZ)’s Economic Service recently forecast that the lamb crop for 2015/16 will be the lowest in nearly 60 years, with an 8.1% decrease in export lamb slaughter, some 1.72 million fewer lambs.
Meat Industry Association (MIA) chief executive Tim Ritchie, notes that with early season lamb processing being well ahead of last year, this significantly lower overall lamb crop means that market supply will tighten as the season progresses.
ANZ’s Agri-Focus December 2015 newsletter reinforces this view, noting that right now lambs are being sent off earlier than usual at lighter weights, “… it shows farmers taking a deeper cut at weaning to reduce feed demand during the summer period. A lower lamb crop and high early season turn-off suggests a substantial tightening in supply come autumn/winter,” it says.
As New Zealand is one of the major global sheepmeat exporters, this tightening supply will have an impact on the international market later in the season.
China has rapidly grown to become a major sheepmeat importer and, while New Zealand’s exports to China declined in 2014/15, Ritchie notes that the long term demand trend in China remains positive, with reports that in-market stocks, built up during that year mainly are now moving through and clearing the system.
“China remains our largest single market for frozen lamb and mutton and will continue to grow, particularly in response to increasing demand for safe and high quality meat.”
Tighter beef supplies as well
Industry commentators, including Rabobank (Global Beef Quarterly Q4), are also pointing to tight supply globally for beef in 2016.
While US beef production is recovering, it will be countered by lower supply from Australia, where the very high levels of cattle being slaughtered in recent seasons as a result of drought have slowed as herd re-building takes place.
The B+LNZ Economic Service is also forecasting that there will be some tightening of New Zealand’s beef supply with fewer cattle being slaughtered in 2015/16 compared to the very high slaughter levels, particularly of cull dairy cows, in 2014/15.
The US has continued to dominate as New Zealand’s number one beef market, taking more than half the beef by volume and value in the year ending September 2015.The high volume of exports during 2015 means that New Zealand will be constrained by its annual beef quota to the US for the first time in a decade.
“This is a clear indication of the strong demand for New Zealand product in the US,” says Ritchie.
China, which according to Rabobank continues to play a critical role in the global beef market, has also been a major growth market for New Zealand beef exports, taking 54 percent more New Zealand beef in 2014/15 compared to 2013/14.
“China now imports some NZ$1.5 billion of New Zealand meat a year, an extraordinary rise since the free trade agreement was signed in 2008,” says Ritchie.
Reducing trade barriers for red meat in key markets
Apart from these general supply and demand trends, there has also been significant progress in a number of trade negotiations in 2015, which look set to benefit the industry.
The most immediate benefit will come from the NZ-Korea Free Trade Agreement (FTA), which was recently ratified by the Korean parliament, a move which was welcomed by the meat industry.
With an immediate tariff-rate cut which will come into force on 20 December, followed by more cuts on 1 January 2016, this means New Zealand’s red meat exporters are able to maintain their competitive position against Australian and US competitors, both of which had a tariff advantage through their own FTAs with the country, comments Ritchie.
“It’s a significant step towards reducing the tariffs paid on New Zealand red meat exports, which will stem the recent loss in market share” he says.
“Tariffs of almost $323 million were paid on New Zealand red meat exports in 2014. A significant proportion of those tariffs were paid in Korea ($64 million) – where tariffs are 40 percent on New Zealand beef imports. The FTA is critical for New Zealand farmers and meat exporters, ensuring New Zealand remains competitive in this key market.”
The conclusion of the Trans-Pacific Partnership (TPP) negotiations this year was also a significant milestone for the industry. When ratified by all the parties, the TPP will, over time, eliminate – or substantially reduce – the tariffs on exports into major markets such as the US and Japan allowing New Zealand to be competitive with a level playing field.
The MIA is also looking forward to progress in the talks with the European Union (EU) for a FTA.
“New Zealand is only one of a small number of countries that do not have a preferential trade agreement with the EU, although it is a very significant export market for New Zealand red meat products, worth nearly $1.9 billion for the year ended December 2014. It is New Zealand’s largest market region for sheepmeat exports and second-largest for chilled beef exports. Securing an FTA with the European Union is the logical next step in strengthening our trade relationship.”
Aside from progress on these trade agreements, there are also recent indications that Indonesia, previously a major market for New Zealand beef, could be relaxing some of the current restrictions for 2016, which would restore an important market for New Zealand exporters.
Overall, the underlying supply and demand fundamentals for New Zealand beef and sheepmeat remain favourable as we go into 2016, says Ritchie.