Saturday, March 30, 2024

Chinese demand provides cushion

Neal Wallace
Reviving demand in China is providing primary sector exporters with some cushioning from covid-19 fallout as other countries start slipping into recession. Having earlier this year weathered the virtual shutdown of China as it battled to contain covid-19, meat companies are seeing improved demand as life there slowly returns to normal. Government restrictions confined people at home, preventing them working, shopping or eating at restaurants but they are slowly being lifted.
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Citing data for January and February from China’s National Statistics Bureau a Rabobank analysis says online sales rose 9% in China compared to a year earlier but year-on-year food retail sales fell 6% and food service 43%.

Demand from China for dairy rose 43% at the latest Global Dairy Trade auction compared to recent sales but given the ongoing effects of covid-19 a build-up of global milk powder stocks and a lift in Chinese production, Rabobank is forecasting Chinese imports to fall 19% this year.

The bank expects pressure on dairy prices from rising global surpluses but countering that is an 8% fall in the value of the New Zealand dollar since January and an expected 1% drop in NZ milk production.

Dairy Companies Association chief executive Kimberly Crewther says dairy processing and exports have not experienced significant disruption from the covid-19 response, evident by preliminary Statistics NZ data for February showing exports to China were up $100 million.

“A Chinese Government focus on maintaining the food basket and the shelf-stable nature of most NZ dairy exports were contributors to lack of disruption experienced by dairy to date.”

Crewther says that as governments respond to the crisis they minimise disruption to food supply chains.

“The experience from the global financial crisis was that trade in core food items, such as dairy, generally continued with lower levels of disruption than that experienced by some other sectors,” she says.

In a notice to suppliers Silver Fern Farms chief executive Simon Limmer says it has been working to capacity since October and is now refocusing trade with China as that market recovers.

Limmer says SFF’s partnership with Kotahi Logistics allowed it to divert product to other markets when China closed down by giving access to shipping space and refrigerated shipping containers.

With the killing peak now past, pressure for killing space has eased. 

Meat for the Easter trade is already being shipped.

A similar briefing from Alliance chief executive David Surveyor says plants are operating as normal and it does not have issues with inventory levels or freezer space.

He described global and domestic markets as volatile and challenging and likely to remain so for some time, which will put pressure on prices.

Meat Industry Association chief executive Tim Ritchie says the industry has shown resilience in dealing with fallout form covid-19 as well as the North Island drought but he warns against complacency.

“These are very extraordinary times and it would not be sensible to be complacent.”

The impact of China’s shutdown has been quantified in provisional data from Statistics NZ, which compared primary sector exports to China for the month to February 23 with the corresponding period in 2019.

Sales were worth $1.1 billion, $100m less than a year earlier but $300m less than projected with meat exports worth $170m, down from $280m a year earlier because volumes halved from 40,000 tonnes to 20,000 tonnes.

Forestry logging has virtually come to a standstill with exports worth $180m over that period, down from almost $250m a year earlier, forcing a third of logging crews to be stood down and 1000 workers laid off. 

Forestry Contractors Association chief executive Prue Younger says there are tentative signs of life in the log trade but the last thing the sector needs is for harvesting to rapidly ramp up.

“As an industry we have got to change the way we manage export sales so we don’t get these boom and bust cycles.”

The sector’s biggest concern is the loss of skilled staff when the market recovers.

Zespri’s chief global supply officer Blair Hamill says all ports in key markets in Japan, Korea and Europe are functioning.

“We’re seeing positive signs in China in terms of the improving consumer metrics and we expect our charter reefer vessels to run as planned.”

Exports can be adjusted according to changes in demand or disruption.

Apples and Pears chief executive Alan Pollard says with 40% of the apple crop picked and about 20% of the expected export crop shipped, prices so far are similar to last year.

He says governments are prioritising access to healthy food as they combat covid-19.

“At the moment there does not seem to be too much interruption for us getting to markets.” 

Prime Minister Jacinda Ardern has ruled out for now a Federated Farmers request for a moratorium on legislation that will change the Emissions Trading Scheme and implementation of the Zero Carbon Bill and freshwater legislation.

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