FEED Business Worldwide - July 2012

 

New Zealand beef: High end producer, low end exports and the marketing challenge ahead 

 

by Eric J. BROOKS

 

 

Although they are oceans apart, New Zealand beef exports are caught in the same trap as their Canadian competitors: They are far too dependent on the United States. Moreover, while America is a large market, it is very slow growing compared to developing countries in New Zealand's own Asia Pacific neighbourhood. Granted, with 80% of its output exported, New Zealand's beef sector is more export-oriented than Canada's, which the USDA estimates only export 38% of its production.

 

 

 

The difference is that while the Canadian beef sector's dependence on US exports is visibly lessening, New Zealand reliance on Uncle Sam remains high. Even though it is America's next door neighbour, the share of Canadian beef exports going to the United States fell from 44% in 2005 to 31% in 2011.

 

Even though New Zealand is on the other side of the world, America absorbed 49% of its 2011 beef exports. According to a study by Deloitte ("Red Meat Sector Strategy Report, March 2011), despite their abundant domestic production, the United States and Canada collectively absorbed 56% of New Zealand's beef exports in 2010.

 

The New Zealand Meat Industry Association's (MIA) most recent annual report states that this proportion fell to 49% in 2011. While this superficially appears to be an improvement, the fall in the market share going to North America did not reflect higher exports to Asia but lower exports to North America itself. –And even exports to fast growing Asia fell.

 

Compared to 2010, 2011 beef shipments to North America fell by 7.1% or 13,000 tonnes, to 170,739 tonnes. This is partly due to the New Zealand dollar, which has risen by 40% in value against the Canadian and US dollars since mid 2009. This was partly offset by higher international beef prices, which made the value of beef exports to North America rise 8.3%, from NZ$831 million (US$ 644 million) to NZ$900 million (US$ 698 million).

 

 

 

With the lion's share of beef exports going to faraway North America, the nearby, fast growing and red meat deficient Asia Pacific region only takes in 38% of New Zealand beef shipments, a smaller proportion than it did in 2005. While Canada mostly offset falling sales of beef to the US through higher exports to Asia, New Zealand's exports to Asia actually declined in volume terms.

 

According to MIA, at 135,033 tonnes, combined exports to North Asia and Southeast Asia fell 5.9% or 8,496 tonnes, from 2010's 143,539 tonnes. Most of this decline was concentrated in Southeast Asia, where shipments fell by 7,686 tonnes. Even in markets such as Japan and South Korea where exports rose, market share was lost to surging US beef exports, which increased by a far faster amount. How did New Zealand lose its own export backyard?

 

New Zealand beef's Asian market penetration shot up after America's 2003 mad cow disease crisis and fell back from the late 2000s, when US exports to large East Asian markets resumed. As the rise in US beef exports coincided with a higher value for the New Zealand dollar, this put high-end New Zealand beef at a disadvantage in fast growing but cost-conscious Asian markets. 

 

Moreover, its terms of trade are not as favourable as they should be. Much of New Zealand's North American exports consist of lean ground beef. On one hand, it is mostly purchased by large food processors. Unlike consumers, North American food processors' demand for beef continues to grow steadily. This will especially be the case this year, when the US media's exposure of domestic American beef's use of lean finely textured beef (called 'pink slime' in America's press) boosted medium term demand for safe, imported beef –and New Zealand beef does have a high reputation for being safe.

 

On the other hand, Deloitte's study also estimates that over 50% of the beef New Zealand exports to America undergoes further processing in the United States itself. This gives US meat processors a higher, value-added driven return on New Zealand beef than what the country's own farmers enjoy.

 

Going forward, the USDA projects a confluence of factors producing upward bounce in New Zealand's beef output and exports over the coming year. With La Nina creating moist, ideal grass growing weather,  the last year significantly increased the amount of pasture forage and feeding available per animal.

 

This enabled them to be grown to larger finishing weights prior to being released to market. Beef production (including veal) will therefore rise 6.5%, total 652,000 tonnes, with domestic consumption of 120,000 tonnes. This is in marked contrast to the previous season, when unseasonably dry conditions led to lower finishing weights and exports. As this is merely a recovery after a bad cattle growing year, total beef and veal production and exports are up by only 1.2% and 2.6% respectively from 2010, when there was another wet pasture growing season.

 

 

 

But these short-term forecasts do not address longer-term concerns: According to Deloitte, New Zealand beef cattle, "is a sector currently under threat from competing land uses that offer better returns." Low returns suffered by New Zealand's beef sector has resulted in, "beef [cattle raising] land being transferred to other uses including dairy farming, forestry, urban sprawl and the conservation estate."

 

As a result, New Zealand economic service statistics show that from 1990/91 to 2011/12, the number of beef cattle fell 10% while the dairy cattle inventories rose by 67%, with many of them grazing on pasture land once used to grow beef. It also reports that from 1990/91 to 2010/11, the land devoted to dairy pasturing increased 59% while that used for beef cattle grazing fell 25.