“The underlying demand is still there but this is not being reflected in the prices being offered by some buyers,” Deer Industry New Zealand chief executive Dan Coup said.
Some Chinese buyers had import permits carried over from last season and they were buying.
It was estimated residual quota could be up to about 100 tonnes of velvet in total.
There were reports of increased inquiry from Korean customers who were exhausting their inventory in anticipation of a new round of tariff cuts from the Korea-NZ free-trade agreement on January 1.
In October, at the start of each velvet season, there was always quite a bit of posturing between buyers and sellers over price, Coup said.
But in each of the past six years prices had firmed on the season before.
Last year’s average farmgate price for A-grade velvet was $125 a kilogram.
This season had been different.
“With a deterioration in our currency position, a softening of some market niches and some pretty wild speculation and rumour about increases in production volumes, overseas buyers have been pretty determined that prices needed a major correction,” Coup said.
On top of that, China had initiated some major regulatory changes designed to improve the safety of its food and traditional pharmaceutical supply chains.
“This meant that our customers in China, who had previously imported velvet as an agricultural by-product, needed to get a pharmaceutical processing or trading licence before they could import velvet.
“To the best of our knowledge, no buyers have managed to do this so far. New regulatory systems, regardless of the country, always take time to bed-in.”
There were two main end markets for NZ velvet, Korea at 60% and China, 30%, but about half the velvet consumed in Korea had in recent times been processed in China.
Chinese firms processing velvet in free-trade zones for Korean customers were also affected by the regulatory changes.
“It is not the role of DINZ to advise farmers on their commercial decisions but it is important for both buyers and sellers to understand that demand for NZ velvet at a consumer level is continuing to grow.
“Also, production last year was around 605 tonnes, up only slightly from 585 tonnes the year before.”
A similar small increase was expected this season.
Coup said the only specific market change that DINZ was aware of was a decline in demand for velvet tips, traditionally bought in China as a luxury gift – a category adversely affected by China’s anti-graft drive.
The slow start to the season was frustrating for farmers, especially those relying on velvet for a large part of their income.
“It will be of little comfort to farmers who are in a cash squeeze or to customers who desperately need supply but China’s moves to improve food safety and supply chain integrity will be positive in the long-term.
“We share a common interest with China in having a transparent, high-integrity path to market,” Coup said.
PGG Wrightson velvet manager Tony Cochrane said sales were yet to start because of the gap between buyer and seller price expectations.
Reports of weaker, small sales in the field by opposition had not yet been able to establish a level that was sustainable or acceptable.
“Our support for the industry’s stability and profitability are first and foremost whilst we make every effort to find a reasonable starting price,” Cochrane said.
China grades accounted for 30% of NZ production and for the balance of Korean grades they had no issues apart from ever present market pressures such as cheaper competing velvet, currency and stocks.
“This puts the Korean market in the driving seat to buy direct from NZ instead of via China. In the long term both markets will become more transparent and assist onshore processing,” Cochrane said.
