Despite market disruption as a result of COVID-19, the sector’s exports have continued, surpassing NZ$1billion in March – a record for monthly exports. This robust performance has been underpinned by strong trade networks and customer relationships, enabling products to be shifted to other markets when supply chains have been interrupted. These strong results have helped offset the increased costs that farmers and companies have faced domestically as a result of the COVID-19 restrictions.
The sector is underpinned by strong fundamentals and is therefore well placed to get through this period of volatility. The sector produces a high-quality product, sought after by customers globally. Built into its business model is also the resilience, innovation, customer relationships and market diversification that will allow the sector to get through the immediate challenges of COVID-19 and ensure that it can take advantage of the opportunities that this crisis may present.
Impacts on Trade
The sector’s exporters have faced two main challenges in global trade. Supply chains have been impacted due to congestion at ports, disruption to air and sea freight as well as distribution networks in market (including for example trucking and cold storage). Demand has also been impacted as lockdown measures globally have largely closed the food service industry.
Initially, the impacts were felt in the China market where we saw the value of exports to China drop by 45 percent to $175 million compared to February 2019. Despite these disruptions, export data shows successful market diversification with increases in exports to other markets, including North America, North Asia (Japan and Taiwan), Malaysia, Middle East and the UK.
However, as China flattened the COVID-19 curve and began to tentatively re-open the economy, we have seen some recovery in demand and consequently our exports. Export volumes of lamb to China lifted 105 percent in March following a large drop in February, and beef exports to China during April lifted 54 percent month on month.
Unfortunately, as COVID-19 has spread around the world, the sector’s exporters have experienced similar challenges in other key markets, for example the US, where ports have been impacted by the workforce contracting COVID-19. Over the next couple of months, we expect to see the China market continue to cautiously recover while demand and supply chain issues may impact exports to other large trading partners l such as the EU, the UK and the US. We have already begun to see this play out with EU sheepmeat imports within quota from New Zealand down by 28 percent in April as compared to the same period last year.
- Download COVID-19 trade FAQs (PDF, 892KB)
Challenges affecting the meat processing industry
At home, New Zealand meat companies have faced several challenges including impacts on labour and processing capacity as they adjusted protocols under Level 4 to ensure staff safety. Under level three capacity has improved and we acknowledge the huge amount of work that has gone into ensuring companies could continue to process throughout this crisis.
Similarly, the meat processing industry globally has faced significant capacity challenges. In countries that have not implemented robust protocols, plants have had to close as workers contracted the virus. The US has been particularly affected, the National Cattlemen’s Beef Association reports that from the beginning of April, production is down around 23 percent compared to the same period last year. If reduced capacity is sustained this could have significant impacts on global supply and prices. A recent study published by Oklahoma State University estimated the financial impact of COVID-19 on the beef industry to fall in the range of US$13-14 billion. The US sheep industry has also been hard hit, with its second largest processing company filing for bankruptcy in March.
In response the US Government recently announced its plan to purchase “milk and meat from US farmers” which will be funded through the US$16 billion relief package to the tune of US$3 billion. Purchases made under this relief package will be redistributed through “food boxes” to food banks, community and faith-based organizations, and other non-profit entities.
Demand globally has softened but also shifted as food service has largely shut and retail demand picked up. Consequently, the type of product in demand has changed significantly. Product destined for the food service industry is an important part of the carcass balance and to ensure profitability, companies worldwide have had to pivot quickly to adapt product to find other market channels. For example reconfiguring product destined for food service into retail ready packs.
COVID-19 has highlighted food trade as essential for food security globally. Unfortunately, some countries have introduced protectionist measures such as export prohibitions and restrictions creating additional complications and uncertainty in the trading environment. Ironically, this protectionism creates volatility and adversely impacts supply, prices and food availability. To date, these measures have focused on other food staples such as wheat and rice and our sector has not faced additional trade barriers, but it is something we are watching very closely.
Working together to respond to COVID-19
B+LNZ have been working with international partners to strengthen the global trading environment. B+LNZ is a part of the International Beef Alliance (IBA) comprised of the cattle producer organisations from Australia, Brazil, Canada, Mexico, New Zealand, Paraguay and the United StatesUS, accounting for 64 percent% of the world’s beef exports. The IBA is committed to pursuing collaborative trade facilitation initiatives and seeks to keep markets open, and for greater trade liberalization by advocating for further trade reform via the elimination of both tariff and non-tariff barriers (NTBs). The IBA is supporting the World Trade Organization (WTO) statement: Responding to the COVID-19 Pandemic with open and Predictable Trade in Agriculture and Food producers. Read IBA’s full statement here.
B+LNZ has been working together with the Meat Industry Association (MIA) and with the New Zealand government to ensure that we are sharing the latest information, insights and developments so that we can both make informed decision. The MIA worked quickly with government to understand and implement the guidelines that ensured processing could continue under Level 4 and Level 3 lockdown.
Our representatives offshore have been particularly valuable resources. For example, our representative in Washington, Jason Frost, has provided us with information and insights into port disruption, market dynamics and policy updates as the crisis has evolved. He has also been able to pass on information to companies and connect them to officials or port representatives where appropriate.
The sector has welcomed the government’s leadership in combating trade protectionism and seeking commitments from trading partners to ensure trade remains open. Minister of Trade, David Parker, has issued a number of joint statements supporting open and predictable trade and also penned an article with his counterparts from the Australia, Singapore, and the United Kingdom on the importance of trade at this time. You can read the full article here.
The government also moved quickly to ensure air freight services have remained open and available to our exporters. Some meat companies have taken advantage of this service. More information is available here.