NZ meat industry faces challenges as China clears inventory

Meat Industry Association chief executive Sirma Karapeeva.

New Zealand’s meat industry will face challenges over the next nine to 12 months as China - its biggest customer - clears high levels of inventory, the Meat Industry Association (MIA) says.

MIA chief executive Sirma Karapeeva, just back from a week-long tour of China with New Zealand meat company executives, said there were positive signs in the PRC.

“I don’t think its dreadful, but it’s not rosy by any stretch of the imagination,” she told the Herald.

“My sense is that we will probably have to weather the storm for the next nine to 12 months until the Chinese economy picks up.

“They have got very high levels of inventory sitting in cold stores at the moment - across all products.

“We were told that it would take nine to 12 months for that inventory to work its way through the system.

“Once it does, I think that we may start to see a pick up in imports again from around the world, so hopefully that will bolster prices.”

Meat is New Zealand’s second biggest export after dairy.

Karapeeva said while market conditions were tough, there was “a glimmer of positivity” for the future.

“Expectations are that for the longer term, the fundamentals are positive.

“The economy will rebound and we will see an uptick in prices.”

Increased competition in the PRC raised the question as to how New Zealand can differentiate itself in that market.

The Chinese consumer was familiar with grain-fed beef but less so with grass-fed, she said.

Meat is New Zealand's second biggest export. Photo / File

“That’s an area where we need to put some effort into lifting consumers’ awareness and education if we are to maintain our market share,” she said.

When in China, Karapeeva said the delegation was given the impression the economy was somewhere between “middling and in the doldrums”.

Early in the year, China had signalled it expected 5 per cent growth this year, but now expectations are closer to 4 per cent.

“It is clear that there is an economic downturn but it’s such a large economy that even 4 per cent is nothing to be sniffed at.

“Consistently, the message was that the days of double-digit growth rates were well and truly over,” she said.

Generally, consumer confidence was low and this was being reflected in purchasing patterns.

“The post-Covid spending surge has not happened.

“Older consumers are holding on tight to their money - they are saving not spending.

“The flip-side is the young consumers who are not really saving at all and are busy spending on entertainment and eating out.”

Anecdotally, Karapeeva said it looked like the restaurants and cafes were getting busier but were not yet at pre-Covid levels of custom.

China’s agriculture and food industry is growing at 3.3 per cent a year.

“It’s growing, and you can see that in terms of the competition in that market.

“The agriculture and food trade is clearly growing and there is a lot more competition in the Chinese market today than there was previously.”

There are now 42 countries exporting meat to China, and 30 of them are exporting beef.

“Because of that, we are starting to see competition drive down prices for beef and sheep meat.

“And we understand that Australian mutton is going on to the China market in greater volumes than previously, so we are starting to see those downward price pressures come through,” she said.

In its latest analysis of trade data for August, MIA said the New Zealand red meat sector continued to face volatility in world markets.

Red meat exports were worth $730 million in August 2023, a 16 per cent drop on the same month last year.

The main decline was in exports to China, which were down 44 per cent to $213m. In contrast, exports to the US were up 26 per cent to $188m, and exports to Canada were up 136 per cent to $40m.

Karapeeva said the decline in overall exports partly reflects the fact last year was a record for exports in August.

She said the volume of Brazilian and other South American beef on the China market was significant and it was driving down the price overall.

“In the United Kingdom, we are now seeing the benefits of the UK-NZ Free Trade Agreement for beef exporters with an increase in volume and value compared to the same period last year.

“In North America, the United States is emerging from a drought and entering a herd rebuilding phase, which suggests a positive outlook for beef in that market for the future.”

Sheepmeat

Compared to last August, the volume of overall sheepmeat exports increased by six per cent to 25,162 tonnes but the value decreased by 13 per cent to $236m.

The decline in value was mainly due to a decline in the value of exports to China, which were down 25 per cent to $73m, compared to last August.

The average FoB value of exports to China was $5.79/kg in August, the lowest that it has been since March 2018.

Sheepmeat exports to the other two major markets, the US and UK, increased compared to last August, with the US up 22 per cent to $41m and the UK up 20 per cent to $19m.

Beef

The volume of overall beef exports increased by four per cent to 41,466 tonnes but the value decreased by 17 per cent to $340m.

The main decline was in exports to China, which were down 37 per cent by volume to 14,691 tonnes and 56 per cent by value to $101m.

While this was a large drop, it was from a near record export volume and value to China last August.

Exports to the US continue to recover from low levels last year as the US drought eases and US domestic beef production drops. Compared to last August, exports to the US were up 118 per cent by volume to 13,650 tonnes and 82 per cent by value to $117m.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.