Friday, March 29, 2024

PULSE: Lamb trumps beef in China

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New Zealand is reliant on China to absorb a hefty portion of our red meat exports. In recent years, growth in China’s protein demand has lifted our reliance even further, driven by Chinese asking prices that are generally more competitive than other markets. This has certainly been the case for lamb and mutton.
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In the 12 months to February, China accounted for 50% of our lamb exports and 76% of our mutton exports, a combined total of 226,000 tonnes. This result represents a 36,000t lift in the preceding 12 months and was achieved during the covid-19 global lockdowns and subsequent disruptions to market access and demand.

Market conditions in China are becoming increasingly positive. This is favouring NZ lamb and mutton export returns with prices showing some impressive upside. The background to this lies with a couple of factors. Latest economic data out of China shows a substantial recovery in retail sales of consumer goods, with a notable growth in high ticket items. It seems that Chinese consumers have regained their confidence as the Chinese economy rebounds. Industrial output, investment and foreign trade are also showing remarkable recoveries.

Commodity prices are following the general strengthening of the economy.

Domestic raw milk prices in China have hit record levels for February and NZ forestry exports have seen substantial price lifts. Indications of another protein shortage due to African Swine Fever outbreaks in large piggeries in China, albeit on a smaller scale  than in 2019, are also helping to fuel demand for imported protein. Early pork trade data suggests that China is still importing elevated volumes of pork from its usual trading partners. But this is well back on year ago volumes as Chinese pig stocks rebuild.

This strong economic activity within China and a possible protein shortage bodes well for NZ lamb exports. NZ lamb is first in line when it comes to supplying China’s lamb needs, with very few competitors to worry about. Australian lamb exports have grown in recent years, but China only absorbs 25% of their total lamb export volume. Lamb production within Australia continues to be hamstrung due to flock rebuilding efforts.

In the first two months of 2021, the drop in lamb slaughter led to a 34% year-on-year decline in total Australian lamb exports, providing greater opportunity for NZ lamb to bridge any supply gaps.

The same, unfortunately, cannot yet be said for beef.

The beef market in China is a competitive environment and well-serviced by several large market players. If China’s beef demands increase, there are plenty of options to increase supply but not necessarily price – due to the many market players involved. This is one of the key reasons why NZ lamb and mutton export prices perform better in China than NZ beef and react faster to changes in demand patterns.

NZ is a small but competitive player, however, China’s beef demands are far greater than NZ can meet.

Our beef exports to China in the past 12 months only equated to 36% of our total volume shipped. South American export powerhouses Brazil and Argentina dominate the Chinese beef market through their ability to provide consistently high volumes of beef, often at cheaper prices.

Export volumes of South American beef have lost some of their edge in recent months, but the US is only just getting started. After gaining better market access during “phase one” of the China-US trade agreement, US beef exports volumes to China are already over halfway to NZ’s monthly volumes. This adds another level of complexity to the market and, in time, may push NZ further down the beef market share ladder within China.

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