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Contents
LAMB 23
CONTENTS .............................................................................1 MUTTON 23
FOREWORD ...........................................................................3 BEEF OUTLOOK 2020-21 – OPPORTUNITIES AND CHALLENGES
© 2020 Beef + Lamb New EXECUTIVE SUMMARY – OUTLOOK 2020-21 ..........................4 ............................................................................................ 24
Zealand Limited also OVERVIEW 4 BEEF & VEAL EXPORTS ......................................................... 25
referred to as B+LNZ,
B+LNZ - Economic Service ECONOMIC CONDITIONS 4 BEEF – INTERNATIONAL SITUATION ..................................... 27
and the Economic Service. LAMB AND MUTTON 4 OVERVIEW 27
BEEF 4 CHINA 27
All rights reserved. This
work is covered by
LIVESTOCK NUMBERS 5 UNITED STATES 29
copyright and may not be SHEEP AND BEEF FARMS 5 AUSTRALIA 30
stored, reproduced or ECONOMIC CONDITIONS .......................................................6 SOUTH AMERICA 30
copied without the prior THE GLOBAL ECONOMY 6 CATTLE PRICES – FARM-GATE .............................................. 32
written permission of Beef + NEW ZEALAND 7 BEEF PRODUCTION .............................................................. 33
Lamb New Zealand Limited. CONSUMER PRICES 8 CATTLE SLAUGHTER 33
Beef + Lamb New Zealand INTEREST RATES 9 CATTLE WEIGHTS 33
Limited, its employees and EXCHANGE RATES 9 BEEF PRODUCTION 33
Directors shall not be liable GLOBAL TRADE 10 PRICES 34
for any loss or damage
sustained by any person
TRADE CHALLENGES 10 EXPORTS 34
relying on the forecasts TRADE OPPORTUNITIES 10 WOOL1................................................................................. 34
contained in this document, EXCHANGE RATE SENSITIVITY – 2020-21 .............................. 11 PRODUCTION 35
whatever the cause of such SHEEP 12 SHEARING 35
loss or damage. LIVESTOCK NUMBERS .......................................................... 12 AUTUMN 2020 SUMMARY 36
Beef + Lamb New Zealand BEEF CATTLE 12 CLIMATIC CONDITIONS ........................................................ 36
PO Box 121 DAIRY CATTLE 12 OUTLOOK – AUGUST TO OCTOBER 2020 37
Wellington 6140 SHEEPMEAT OUTLOOK 2020-21 – OPPORTUNITIES AND FARM REVENUE, EXPENDITURE & PROFIT – NEW ZEALAND 38
New Zealand CHALLENGES ........................................................................ 13 REVENUE 38
Phone: 04 473 9150
Fax: 04 474 0800 LAMB 14 EXPENDITURE 38
E-mail: econ@beeflambnz.com LAMB & MUTTON EXPORTS ................................................. 14 FARM PROFIT BEFORE TAX 39
MUTTON 16 FARM REVENUE, EXPENDITURE & PROFIT – REGIONAL ....... 41
Contact:
OVERVIEW 17 EBITRM 41
Andrew Burtt: 04 474 0842
Chief Economist LAMB & MUTTON – INTERNATIONAL SITUATION ................ 17 NORTH ISLAND SUMMARY 41
Rob Davison: 04 471 6034 CHINA 17 SOUTH ISLAND SUMMARY 41
Executive Director AUSTRALIA 18 REGIONAL COMMENT – NORTH ISLAND .............................. 42
Rachel Agnew: EU-27 & UK 19 NORTHLAND–WAIKATO–BAY OF PLENTY 42
027 294 1276 UNITED STATES 20 EAST COAST 43
Senior Agricultural Analyst
James Cho: 04 474 8030
LAMB & SHEEP PRICES – FARM-GATE .................................. 22 TARANAKI–MANAWATU 43
Senior Agricultural Analyst LAMB & MUTTON PRODUCTION.......................................... 23 REGIONAL COMMENT – SOUTH ISLAND .............................. 44
1
MARLBOROUGH–
CANTERBURY 44
OTAGO–SOUTHLAND 44
2Foreword About this report The New Season Outlook 2020-21 presents projections for sheepmeat and beef production, exports, farm-gate prices and on-farm profitability. It also provides an overview of key international markets. It has been prepared at a time of considerable volatility and uncertainty. The outlook is based on market intelligence available until mid-September 2020 and reflects the COVID-19 impact domestically and globally to that point in time. There is little certainty around the continued spread of the virus. The forecasts in this report are subject to the limitations of the uncertainty and the constantly evolving situation. 3
Executive Summary – Outlook 2020-21
Overview Economic Conditions Lamb and Mutton The outlook for mutton in 2020-21 is
also uncertain, driven by the same
Beef and sheepmeat exports face an There are many variables that will For 2020-21, total lamb export factors as for lamb.
uncertain outlook for the 2020-21 influence the outlook for global growth receipts are forecast at $2.94 billion
season as economic disruptions from in the 2020-21 season. These include FOB, down 14.8 per cent on 2019-20. In 2020-21, mutton export production
the COVID-19 pandemic continue to the persistence of the spread of Co-products are forecast to decline a is forecast to decline 10 per cent, as
impact consumer demand. COVID-19, with many countries further 7.9 per cent. farmers maintain their breeding ewe
experiencing second waves, the flocks following the 2020 drought.
Despite this, there are solid underlying Lamb exports are forecast to be down
market fundamentals that will continue duration and reoccurrence of 6.5 per cent to 280,000 tonnes The average FOB value per tonne is
to support demand for New Zealand lockdown restrictions, the subsequent shipped weight, driven by a lower forecast to decline 7 per cent but will
sheep and beef exports. Chinese impact on economic activity and the 2020 lamb crop. still be above the five-year average.
demand for meat protein continues to implementation of fiscal and monetary
policy support in individual countries. Average export returns for the season Total mutton export receipts are
be fuelled by African Swine Fever pork
are forecast to decline 9.3 per cent to forecast to decline 15.6 per cent on
shortages and there is growing On a positive note for the New $9,841 per tonne but remain 3 per 2019-20, to $605 million, dropping
demand for high quality, nutritionally Zealand red meat sector, the primary cent above the five-year average. below the five-year average.
rich proteins. A shifting consumer food sector is expected to show
preference towards food safety will significantly more resilience to the COVID-19 has introduced uncertainty The annual average mutton price for
also support demand for New Zealand pandemic crisis compared to other into the outlook for sheepmeat. the 2020-21 season is forecast at
sheepmeat and beef. sectors. The demand for food Consumer demand has been 415-485 cents per kg with a midpoint
products has been more stable impacted by weaker economic of 447 cents per kg, a decline of
The global meat trading environment
compared to other commodities. conditions and the disruption to the 9 per cent on the 2019-20 estimate of
will face challenges in the 2020-21
foodservice sector will continue to be 490 cents per kg.
season. In addition to COVID-19 The deteriorating trade relationship a challenge for lamb exports in the
disruption, competitive pressure in key between the US and China is a cause 2020-21 season.
export markets is expected to increase of wariness in the global trading
and ongoing uncertainty exists around environment and some believe it has Although, the outlook is uncertain,
key trade negotiations. the potential to jeopardise underlying fundamentals remain solid,
international co-operation. driven by continued pork shortages in
New Zealand sheepmeat and beef
China, increasing demand for high
exports will not be immune to these The New Zealand economy has quality proteins and increasing
challenges, however the premium contracted in the first half of 2020 but disposable income in some Asian
attributes of New Zealand sheepmeat is expected to experience a degree of countries.
and beef make New Zealand products recovery in the second half. The
well positioned to weather the sharp contraction of global economies The weighted average lamb farm-gate
uncertainty. and the continuing closure of the price is forecast to be between 620
border are expected to weigh on the and 715 cents per kg with a midpoint
Total beef, veal and sheepmeat export
economy into the 2020-21 season. of 665 cents per kg, which is down
revenue for the 2020-21 season is
10 per cent on 2019-20. Despite the
forecast at $7.39 billion, down In response to the pandemic crisis, the decline, the midpoint forecast price is
12 per cent or $1 billion, from RBNZ is now expected to introduce a above the above the five-year
2019-20. negative OCR in 2021. average.
4Beef Livestock Numbers Wool Sheep and Beef Farms
Export revenue from beef and veal in The total number of sheep at 30 June Unfortunately, there is little optimism Gross farm revenue for the 2020-21
the 2020-21 season is forecast to be 2020 is estimated at 26.2 million, in the outlook for wool. farming year, which ends on 30 June,
$3.85 billion FOB, down 9 per cent on down 2.3 per cent on the previous is forecast to average $559,300 per
2019-20. June and 55 per cent lower than in The outlook for 2020-21 is for wool farm – down 10 per cent.
1990. exports to decline 2.8 per cent on
Beef and veal exports are forecast to 2019-20. The sheep and cattle revenue
be steady on 2019-20 at 453,000 The number of beef cattle at 30 June accounts, which combined account for
tonnes shipped weight. 2020 is estimated at 3.89 million, Average export receipts at FOB are three-quarters of gross farm revenue,
unchanged on the previous June and expected to decrease 34 per cent to are forecast to decline to levels below
The number of cattle processed for down 15 per cent on 1990-91. The $3,700 per tonne, following an
export in 2020-21 is forecast to 2017-18, while wool is forecast to be
change in the latest year was largely 18 per cent drop the previous year. about 30 per cent lower than in
decline marginally (-0.9%) on 2019-20 driven by little change in the number
and export beef production is forecast Total wool receipts are forecast to 2017-18, clearly reflecting the very
of weaners overall, after there was a challenging circumstances in the wool
to be mainly steady at 661,000 tonnes drop 36 per cent on the previous year
high base of trade cattle and weaners sector, and, revenue from dairy
carcase weight. to an estimated at $276 million.
on hand on 30 June 2019, particularly grazing is forecast to be similar to
Average export returns for the season in the South Island. The estimate for the overall auction 2017-18.
are forecast to decline 9.5 percent to wool price is down 20 per cent on
The number of dairy cattle at 30 June Sheep revenue is forecast to decrease
$7,445 per tonne. 2019-20.
2020 is estimated to have decreased by 14 per cent to average $267,500
The global beef market will face 2.1 per cent to 6.25 million. The per farm for 2020-21.
uncertainty due to COVID-19 in the number of dairy cows in milk is
2020-21 season. Consumer demand estimated to have decreased by a Cattle revenue decreases 5.0 per cent
has been weakened by economic similar percentage (-2.5%). to average $151,600 per farm due to
uncertainty and the disruption to steady international demand for New
foodservice sector demand will also Zealand beef but some easing in
impact beef demand. prices for cattle.
Global beef trade is expected to grow A 24 per cent decrease in wool
increasingly competitive in the 2020- revenue to $25,500 per farm is
21 season. forecast for 2020-21. Wool revenue
accounts for less than five per cent of
At USD0.66, the estimated 2020-21 gross farm revenue, the lowest level
average annual price for P steer/heifer on record.
(270-295kg) is 515 cents per kg. It is
forecast to average 364 cents per kg Dairy grazing revenue is forecast to be
for M cow (170-195kg), which includes almost unchanged (-0.7%) averaging
a large component of cull dairy cows, $28,400 per farm (and five per cent of
and 480 cents per kg for M bull (270- gross farm revenue) in 2020-21.
295kg).
5Economic Conditions
The Global Economy impact on economic activity and the of calendar 2020 declined recession. China’s growth prospects
implementation of fiscal and monetary 3.75 per cent. The full extent of the rely on the ability to stimulate
The COVID-19 pandemic has pushed
policy support in individual countries. impact of COVID-19 on trade in 2020 consumer demand and boost the
the global economy into the deepest service sector, which contributes more
is still unclear, however economists
recession since the Great Depression On a positive note for the New from the World Trade Organisation than 60 per cent to its economic
in the 1930s. Steep declines in Zealand red meat sector, while most growth.
(WTO) have estimated that world
economic growth are being recorded markets are projecting a major global trade could decline between 13 and
in all major economies, excluding economic downturn, the primary food Other key factors impacting China’s
32 per cent.
China, unemployment is soaring, sector is expected to show economic outlook include any
consumer spending has slumped and significantly more resilience to the The outlook is for a swift recovery in resurgence of COVID-19, the
the purchasing power of key New pandemic crisis compared to other 2021 (albeit after a precipitous fall), weakening trade relationship with the
Zealand markets has been restricted. sectors. The demand for food however expectations are that global US, which is discussed later in the
products has been more stable GDP will still remain below report, and recovery from the
There are many variables that will compared to commodities such as oil. pre-COVID-19 levels in 2021. extensive flooding experienced in
influence the outlook for global growth. mid-2020.
These include the persistence of the Global trade contracted through the The global trade environment has
spread of COVID-19, with many first half of 2020, driven by the lack of been marred by rising protectionism, Food security is an evolving issue in
countries experiencing second waves, international tourism and weaker which has been accelerated this year China. The country has endured
the duration and reoccurrence of overall demand. The volume of goods by COVID-19. The escalating months of severe flooding and insect
lockdown restrictions, the subsequent and services traded in the first quarter US-China trade war is also causing infestations, on top of African Swine
increasing wariness in the global Fever (ASF) and COVID-19. There is
Table 1 Economic Growth trading environment, and some growing speculation that the country
Annual Average % Change, March Year believe it has the potential to may be facing a shortage of grain, as
2017 2018 2019 2020e 2021f 2022f jeopardise international co-operation well as pork. This speculation was
and prospects of freer trade. fuelled by an announcement by the
% % % % % %
Chinese government in mid-August of
US +1.8 +2.6 +2.8 +1.7 -6.4 +2.2 China its Clean Plates Campaign, which is
UK +2.0 +1.6 +1.6 +0.5 -13.8 +3.2 China is one of the few economies intended to curb food waste and
Euro zone +1.9 +2.8 +1.6 +0.1 -10.1 +3.0 expected to experience growth this described the problem of food waste
Japan +0.9 +2.0 +0.3 -0.0 -6.8 +0.9 year. China’s economy contracted as “shocking and distressing”. This
sharply in the first quarter of 2020 follows a call for the need to stabilise
China +6.9 +6.9 +6.6 +2.7 +2.7 +6.5
(-10.1%), however economic activity agriculture and ensure the safety of
South Korea +3.0 +3.2 +2.5 +2.0 -1.4 +2.6 rebounded swiftly once lockdown grain and major non-staple foods.
Australia +2.6 +2.7 +2.4 +1.7 -1.7 +1.8 restrictions were lifted, supported by Record import volumes of wheat, rice,
fiscal and monetary policy stimulus. rapeseed, as well as meat, have been
Trading Partners +3.7 +4.2 +3.7 +1.7 -2.7 +3.7 Economic activity recovered in the recorded in 2020, and food prices in
second quarter and the economy grew China rose 10 per cent in the 12
(+11%). months to July 2020.
New Zealand +3.7 +3.2 +3.1 +1.5 -8.2 +4.5
Note: "Euro zone" are 15 Member States: Belgium, Germany, Ireland, Greece, Spain,
Economic recovery in the second half ASF, which is a highly contagious
Cyprus, Malta, France, Italy, Luxembourg, the Netherlands, Austria, Portugal, Finland and of 2020 is expected to be constrained disease in pigs but does not affect
Slovenia. by weaker consumer demand and the humans, continues to adversely
"Trading Partners" account for about 85% of New Zealand's total merchandise trade. continued expectation of a global impact Chinese meat production, and
6
e estimate, f forecast | Source: Statistics New Zealand, NZIER Quarterly Predictionsremains a key driver of demand for pork from other EU countries, Brazil more Chinese consumers to purchase and the economic this may have on
New Zealand sheepmeat and beef and the US. beef and sheepmeat. While the return the economy.
exports in 2020-21. Analysts report to full capacity pork production
that up to 45 per cent of China’s sow Chinese pork production between following recovery from ASF may The outcome of the elections on
herd have been lost to ASF, and while 2018 and 2020 is estimated to have result in Chinese consumers reverting 3 November will be a key point of
herd recovery is underway, pig dropped by just under 40 per cent or to pork as the protein of choice, there focus for the US economy, and
numbers are still expected to only be around 27 million tonnes. The Chinese are increasing signals the more financial markets will focus on this in
at 80 per cent of pre-ASF levels by the Bureau of Statistics shows that affluent consumers may choose beef the lead-up to November.
end of 2021. Chinese pork output for the first six or sheepmeat as a higher quality,
months of 2020 dropped 20 per cent New Zealand
nutritionally rich protein source.
ASF outbreaks continue to be on 2019. The New Zealand economy has faced
reported through 2020, in China as US unprecedented change during 2020.
well as other countries, signalling the Pork is the largest source of meat
The outbreak of COVID-19 has been The COVID-19 pandemic introduced a
continuing relevance of this disease in protein consumed in China. Chinese
severe in the US. Human health and new economic playing field in New
world protein demand. In September pork imports soared through 2019 and
in 2020 in response to the shortage. In economic conditions have met Zealand and across the globe, where
2020, the first case of ASF was unprecedented adversity. The the rules are largely unknown by
confirmed in Germany – in a wild boar. the first six months of 2020, China’s
pork imports rose a staggering pandemic has been slow to release anyone.
Imports of German pork were it’s grip on the US, however, at the
subsequently banned by China and 153 per cent. The New Zealand economy
time of writing in September there was contracted in the first half of 2020, with
several other countries. Germany is The shortage of pork caused prices to evidence of progress in the
the third largest supplier of pork to surge, and alternative meat protein GDP contracting by 12 per cent in the
management of COVID-19, with falling June quarter. The recession was
China following the US and Spain. sources such as beef and sheepmeat fatality rates and rising economic
However, reports indicate that the gap expected by economists, given the
to become more competitive. activity.
left by the absence of German pork in level of disruption from COVID-19.
China is likely to filled adequately by Price and the increasingly important The US economy contracted sharply The focus for the New Zealand
issue of food safety have encouraged in the second quarter of 2020. In economy for the second half of 2020
March and April, more than 20 million will shift to the speed of recovery and
Figure 1 Change in New Zealand Real GDP jobs were lost. Consumer confidence a move from recession. A lack of
was severely shaken, and consumer restrictions and sharp lift in economic
Annual % change March year activity in the third quarter of 2020 will
spending, which is a key driver of the
6.0 economy, was well down. However, support a recovery, however
macroeconomic reveals that April took economists remain wary of the sharp
4.0 the brunt of the impact, and recovery contraction of global economies and
is expected during the third quarter. the fact that the largest impact of the
Annual % change
2.0 border closure is still to be felt as
Employment has rebounded more activity typically peaks between
0.0 rapidly than expected and some
2017 2018 2019 2020e 2021f 2022f October and March.
-2.0 estimates signal that GDP has the
potential to return to the average of While economic shock of COVID-19
-4.0 2019, by the end of 2020. lockdown restrictions are, for now,
behind us, economists warn that the
-6.0 Downside risk remains significant, full impact of the closed border will be
however. The threat of a resurgence felt for many months ahead. The
-8.0 in COVID-19 cases is real, and there absence of international tourism,
is also wariness surrounding the international students and the migrant
-10.0 escalation of the US-China trade war labour force will be felt into the first
e estimate, f forecast
7Source: Beef + Lamb New Zealand Economic Service, NZIER Quarterly PredictionsTable 2 Consumer Prices from meat, dairy and horticulture, The impact of the drought on the New
particularly kiwifruit, have all displayed Zealand economy was overshadowed
Annual Average % Change, March Year resilience so far in 2020. Returns by COVID-19. Sheep and beef farm
2017 2018 2019 2020e 2021f 2022f from forestry fell as log prices revenues will be affected through loss
% % % % % % reflected the effects of reduced global of income and higher expenses. The
US +1.6 +2.1 +2.3 +1.9 +0.7 +1.6 construction demand. The annual impact will be felt most notably on the
merchandise trade balance is East Coast of the North Island. More
UK +1.1 +2.8 +2.3 +1.7 +0.7 +1.3
strengthening, with year-on-year data detail is provided below.
Euro zone +0.7 +1.4 +1.8 +1.1 +0.3 +1.0 signalling 8.6 per cent growth in
Japan -0.1 +0.7 +0.7 +0.5 +0.0 +0.1 exports over a 16 per cent decline in Consumer Prices
China +1.9 +1.8 +2.0 +3.7 +2.6 +2.1 imports. The Consumer Price Index (CPI) for
South Korea +1.3 +1.7 +1.3 +0.5 +0.2 +0.9 the June 2020 quarter dropped
The New Zealand pastoral sector has
Australia +1.5 +1.9 +1.8 +1.8 +0.1 +1.4 0.5 per cent on the March quarter –
had an extremely challenging year,
the first quarterly deflation in over five
with one of the worst, if not the worst,
years.
Trading Partners +3.5 +1.7 +1.7 +1.8 +0.6 +1.4 droughts recorded. On 12 March 2020
the entire North Island, parts of the Transport was the largest contributor
South Island and the Chatham Islands to the decline (-4.9%), driven by a
New Zealand +1.1 +1.6 +1.7 +1.9 +1.0 +1.0
were declared as being in drought by 12 per cent drop in petrol prices for
Note: "Euro zone" are 15 Member States: Belgium, Germany, Ireland, Greece, Spain, Agriculture Minister Damien O’Connor. the quarter, the largest fall since the
Cyprus, Malta, France, Italy, Luxembourg, the Netherlands, Austria, Portugal, Finland and The impact of the 2020 drought was 2008 financial crisis. This reflects the
Slovenia.
felt throughout the entire North Island weak demand for oil during March and
"Trading Partners" account for about 85% of New Zealand's total merchandise trade.
and upper South Island, with the full April as major economies shut down.
e estimate, f forecast | Source: Statistics New Zealand, NZIER Quarterly Predictions
impact hitting the East Coast of the
quarter of 2021, or until border spread of the virus overseas, also North Island.
restrictions are eased. adds to the uncertainty. Policy
The extent of Government fiscal
makers as well as the New Zealand Table 3 Short-term Interest Rates
population were reminded that the
stimulus in the first half of 2020 has risk of further outbreaks is very real.
% p.a., March Year
supported the New Zealand economy 2017 2018 2019 2020e 2021f 2022f
successfully, as indicated by better The overall confidence of New % % % % % %
than expected data from the Zealand consumers and businesses
US 0.5 1.4 2.5 1.6 0.1 0.4
pre-election fiscal update (PREFU) in has been shaken, and caution has
September 2020. However, there is grown. Unemployment is rising, job UK 0.0 0.3 0.7 0.7 0.0 0.0
some wariness surrounding how this security is uncertain for some, and Euro zone -0.4 -0.3 -0.3 -0.4 -0.5 -0.5
stimulus may be sheltering the investment and spending will be Japan 0.1 0.1 0.0 0.0 0.0 0.2
economy and the impact as the down. Australia 1.8 1.8 2.1 0.9 0.1 0.3
support spending of wage subsidies
and COVID-19 relief payments begin The second wave of COVID-19 in
to roll off. These factors all provide New Zealand also resulted in the New Zealand 2.0 1.9 1.9 1.1 0.4 -0.1
uncertainty to the outlook for the New general election being delayed four Note: "Euro zone" are 15 Member States: Belgium, Germany, Ireland, Greece, Spain,
Zealand economy weeks to 17 October 2020. Cyprus, Malta, France, Italy, Luxembourg, the Netherlands, Austria, Portugal, Finland and
New Zealand’s food exports have Slovenia.
The emergence of the second wave of "Trading Partners" account for about 85% of New Zealand's total merchandise trade.
COVID-19 in New Zealand in August performed solidly during the
e estimate, f forecast | Source: Statistics New Zealand, NZIER Quarterly Predictions
2020, combined with the continuing COVID-19 disruption as international
demand for food lifts. Export returns
8Food prices lifted 1.1 per cent, commitment was made to keep it at Figure 3 Meat Exports by Currency of Trade
influenced by a 16 per cent rise in that level for at least 12 months.
vegetable prices, which was driven by Oct 2019 - Aug 2020
disruption to the food production In mid-August 2020, the RBNZ
signalled increasing monetary policy 0% 20% 40% 60% 80% 100%
process during the period of
COVID-19 lockdown. support for the COVID-19-affected
economy, by expressing a preference Beef
Annual inflation was 1.5 per cent in to move to a negative OCR. It also
the year ending June 2020. The key introduced a “funding for lending”
drivers of the increase were higher programme to provide support for Lamb
housing costs (+3.2%), and higher banks in a negative interest rate
food costs (+3.7%). scenario. This programme would lend
money directly to the banks to ensure Mutton
The impact of COVID-19 is expected that a lower benchmark rate would be
to continue to be felt in the medium passed onto customers. Economists
and long term. Projections are for the are now forecasting a move to a Total
CPI to ease as the economic negative OCR in April 2021.
contraction weighs on inflation.
USD EUR CNY GBP Other
Exchange Rates
Interest Rates Source: Beef + Lamb New Zealand Economic Service | New Zealand Customs
Interest rates have dropped to all-time Exchange rate forecasts are
lows in 2020 as the Reserve Bank of challenging even when global markets
weaker NZD through March and April major global economies and the
New Zealand (RBNZ) attempts to are stable. A combination of
provided some support for New deteriorating relationship between the
soften the impact of COVID-19 on the COVID-19 and subsequent economic
Zealand exporters in an otherwise US and China.
New Zealand economy. impacts, and geopolitical tension
disrupted market.
makes a volatile backdrop for foreign The outlook for 2020-21 is for the NZD
All around the world, central banks exchange projections. The rapidly Despite continued easing in monetary to appreciate against the USD by
quickly responded to COVID-19 with changing global and domestic policy by the RBNZ, the NZD began to 3.6 per cent on 2019-20 (Table 4).
expansionary monetary policy environment introduces risk to the lift from May. This partly reflected the
measures. forecasts in this report. success of New Zealand in eliminating For the first eleven months of
the virus as well as ongoing strong 2019-20, 76 per cent of total meat
The initial outbreak of COVID-19 in The NZD depreciated sharply as the export volume was reported as being
New Zealand in March 2020 resulted commodity prices.
impact of the initial wave of COVID-19 traded in USD-denominated contracts.
in the RBNZ making an emergency hit the economy and weakened the The NZD remained strong through The Chinese yuan has maintained its
75 basis points cut to the Official Cash growth outlook. The NZD dropped to mid-2020 with the NZD reaching a position as the next most significant
Rate (OCR) – to 0.25 per cent. A a low of USD0.5670 in March 2020. A 16-month high in September of currency, with 7.4 per cent of New
USD0.6798. The stronger tone was Zealand’s red meat exports traded in
Table 4 New Zealand Dollar Exchange Rates despite signals from the RBNZ of this currency. However, this
Annual Average further cuts to the OCR in early 2021. decreased from 8.1 per cent in the
Sep Year USD GBP EUR Monetary policy measures expected in 2018-19 season, reflecting the
2021 will be a key driver of the disruption in the Chinese market
2018-19 0.67 0.52 0.59 direction of the NZD. during COVID-19. The EUR and GBP
2019-20e 0.64 0.52 0.59 account for 5.9 and 4.4 per cent of red
Global risk is also a factor in the meat exports respectively.
2020-21f 0.66 0.50 0.57
outlook. Economists are monitoring
2020-21f % change +3.6% -4.0% -3.3% closely the spread of COVID-19 in
e estimate, f forecast
9Source: Beef + Lamb New Zealand Economic Service, Reserve Bank of New ZealandGlobal Trade and the UK domestic market becomes eliminated tariffs for a certain number commitments may become less easy
oversupplied. of agricultural products, including beef. to enforce.
Brexit The US now enjoys the same tariffs
The UK's departure from the EU, US-China on beef into Japan as New Zealand Trade opportunities
scheduled for 31 December 2020, is The relationship between the US and and Australia do under the New Zealand is continuing to pursue
one of the most concerning trade China is deteriorating. The two Comprehensive and Progressive new trade arrangements and
issues for New Zealand red meat, countries are engaging in a cycle of Agreement for Trans-Pacific innovative trade policy approaches.
particularly sheep, exporters. retaliation against each other, Partnership (CPTPP). The US New Zealand is currently negotiating
including stepping up sanctions on responded quickly to the lower tariff Free Trade Agreements (FTAs) with
While the UK and EU are currently officials. This escalating situation is rate; Japan’s imports of US beef lifted the EU and the UK, aiming to
negotiating a trade deal that will apply
creating significant risk to the “Phase 8.5 per cent in the first half of 2020. conclude in 2021. As long-established
after departure date, at the time of One” deal, which was struck late in The increased presence of US beef in high-value markets, these FTAs
writing, the outcome did not look 2019 and sought to resolve the US- increased competitive pressure for present important opportunities,
promising. The risk of a “hard Brexit” China tensions. It included an New Zealand. particularly for beef exports, which are
was growing in probability. A “hard
undertaking by China to make very currently constrained by EU and UK
Brexit” would leave the UK with no significant purchases of US agriculture Trade challenges policy settings, but both the EU and
preferential trade access to the EU. exports, including red meat.
For New Zealand, the relevance of Outside of trade negotiations between UK have already signalled a high
this will be the UK’s loss of free trade The deal potentially placed New specific countries, there are other degree of sensitivity around opening
access to the continental EU for UK Zealand exports to China at a headwinds to consider. up their agriculture markets.
sheepmeat exports. While the UK is competitive disadvantage, particularly Rising protectionism has been a Separately, the Regional
seeking new trade avenues with other given China’s stated intention to growing concern for New Zealand Comprehensive Economic Partnership
countries, the outcome of these are loosen restrictions on the use of trade officials over the past three (RCEP) negotiations with a range of
long-term. In the short-term, a “hard hormone growth promotants in years. COVID-19 has accelerated this Asian trading partners and Australia
Brexit” may result in a decline in imported beef. trend, as major economies dispense have concluded, with likely modest
demand for New Zealand sheepmeat support to farmers. Both tariff and improvements in market access, but
exports to the UK as domestic product To date, however, the volumes of US
agricultural exports purchased by non-tariff barriers are a growing India (a big potential market for New
saturates the market. concern for the red-meat industry. Zealand lamb) pulling out of the deal
China have been well below the
New Zealand would be further mandated levels. The magnitude of Non-tariff barriers include subsidies before conclusion. Other negotiations
impacted by a decision from the EU the deficit increases the risk of China and other mechanisms that are in prospect include expansion of the
and UK, as part of the Brexit process, not meeting its commitment, unless it becoming more prevalent such as CPTPP to more trading partners in
to split New Zealand's current makes some unprecedented animal welfare and environmental Asia and potentially the UK and
sheepmeat and goat meat tariff-rate purchases in the second half of the standards. strengthened trade arrangements with
quota (TRQ) access equally between year. That is possible given the main countries in Latin America – but these
The World Trade Organisation (WTO) are likely to have a longer timeframe.
the UK and EU. Currently, the TRQ crop harvest occurs in the second half dispute settlement system is current
applies to the two markets combined. of the year in the US. being destabilised. The appeals
Splitting the TRQ would result in the process is no longer operational as a
loss of flexibility for New Zealand There is growing speculation that
tensions between the two countries result of US blocking new
exporters to shift sheepmeat between appointments to the Appellate Body.
the two markets in response to will be a long-term trend, with phases
of escalation and de-escalation. to appoint the necessary judges,
changing demand and price trends. While New Zealand has signed on to
The impact of this will be even more US-Japan an interim mechanism alongside a
pronounced if UK sheepmeat exports group of other WTO members, long-
In September 2019, Japan and the US
lose preferential access to the EU, established WTO rules and
signed a limited trade deal that
10Exchange Rate Sensitivity – 2020-21
Exchange rate movements have a from late November through to June, mutton and wool and thus farm
significant leveraged effect on which means that the value of the revenue.
farm-gate prices. NZD during this period is crucial to
farmers and export companies.
Table 5 shows farm-gate prices under Exchange rate movements during that
five different exchange rate scenarios. period strongly influence the
This approach provides an indication
season-average prices for beef, lamb,
of the impact of exchange rate
volatility on the prices paid to farmers. Table 5 Exchange Rate Sensitivity
The shaded column represents our NZD Exchange Rates
forecasts of exchange rates for the Exchange Rate Change from USD 0.66
major currencies and the related -10% -5% Forecast +5% +10% to USD 0.6 to USD 0.73
farm-gate prices used to derive the USD 0.60 0.63 0.66 0.69 0.73 -10% +10%
base estimates of export receipts and GBP 0.45 0.48 0.50 0.53 0.55 -10% +10%
farm revenue in this report. The four
other scenarios show the impact on EUR 0.51 0.54 0.57 0.60 0.63 -10% +10%
farm-gate prices of variations of ±5 Farm-Gate Prices Received
and ±10 per cent in the exchange $ / head
rates for the USD, GBP, and EUR.
Lamb 146 135 126 118 110 +15.5% -12.7%
In 2020-21, the NZD is expected to Mutton 137 126 116 107 99 +18.1% -14.8%
strengthen against the USD and ease Steer/Heifer 1,672 1,552 1,445 1,348 1,260 +15.7% -12.8%
against the GBP and EUR. Exchange
rate movement with the USD has the Cow 837 777 723 675 631 +15.7% -12.8%
greatest effect because 75 per cent of Bull 1,677 1,558 1,450 1,353 1,264 +15.7% -12.8%
New Zealand’s red meat exports are All Beef 1,348 1,252 1,165 1,087 1,016 +15.7% -12.8%
traded in this currency (Figure 3). c / kg
1
All other things being equal, a Lamb 768 714 665 621 581 +15.5% -12.7%
1
10 per cent decrease in the NZD Mutton 528 486 447 413 381 +18.1% -14.8%
against the USD – from 0.66 to 0.60 – Steer/Heifer 596 554 515 481 449 +15.7% -12.8%
and the associated cross rates against
Cow 421 391 364 339 317 +15.7% -12.8%
the GBP and the EUR, increases the
average lamb price received by Bull 555 516 480 448 419 +15.7% -12.8%
farmers by 15 per cent. Alternatively, if All Beef 532 494 460 429 401 +15.7% -12.8%
2
the NZD appreciates by 10 per cent – Fine 1,148 1,054 970 894 824 +18.4% -15.0%
from 0.66 to 0.73 against the USD –
Medium2 541 497 457 421 388 +18.4% -15.0%
then the weighted average farm-gate 2
price for lamb for the season would Crossbred 168 154 142 131 121 +18.4% -15.0%
2
decrease by 12 per cent. All Wool 251 230 212 195 180 +18.4% -15.0%
Meat and wool production is seasonal 1 includes wool and skin 2 wool ¢/kg greasy | Source: Beef + Lamb New Zealand Economic Service
with the majority of production sold
11Livestock Numbers
Sheep 2020 and the number of breeding Table 6 Livestock Numbers (million head)
ewes decreased 1.2 per cent.
The total number of sheep at 30 June Breeding Total Beef Dairy
Decreases in the number of breeding
2020 is estimated at 26.2 million, ewes occurred in East Coast (-2.7%) Ewes Hoggets Sheep Cattle Cattle
down 2.3 per cent on the previous and Taranaki-Manawatu (-1.1%) while 30 June 2019 16.85 9.14 26.82 3.89 6.26
June and 55 per cent lower than in there was an increase in Northland-
1990. This is the second year in a row 30 June 2020e 16.86 8.40 26.21 3.89 6.25
Waikato-Bay of Plenty (+1.6%). The
that sheep numbers have been below number of hoggets in the North Island
27 million. Within this, the number of 19-20 to 20-21 % change +0.1% -8.1% -2.3% +0.1% -0.1%
decreased 8.6 per cent with East
breeding ewes was unchanged and Coast estimated to have decreased by
e estimate
the number of hoggets decreased Source: Beef + Lamb New Zealand Economic Service | Statistics New Zealand
12 per cent, primarily in response to
8.1 per cent, which reflects two drought.
factors: carryover trade lambs on hand June 2019 that were processed in the The number of beef breeding cows
at 30 June 2019 that were processed In the South Island, the total number September 2019 quarter. The number decreased 7.8 per cent with the
in the September quarter of 2019, and of sheep decreased 1.1 per cent. This of breeding ewes increased largest decrease in East Coast
underlying changes in the retention of was made up of a small increase of 1.2 per cent after decreasing for many (-11.3%) in response to drought. The
younger animals. less than one per cent in years, due to several factors including magnitude of the change also
Otago/Southland and a larger conversions to dairy farming and the reflected an increase in the number of
In the North Island, the number of decrease in Marlborough (-3.5%), impacts of drought. trade cattle, underpinned by
sheep decreased 3.5 per cent dairy-beef, on hand as at 30 June
which reflected a relatively high After excellent lamb and mutton prices
(-466,000) to 12.7 million at 30 June 2019.
number of trade lambs on hand at 30 underwrote a deeper culling than
Figure 4 Livestock Numbers usual of poorer-performing sheep in In the South Island, the number of
70,000 7,000 2017-18 – partly offset by farmers beef cattle increased 2.5 per cent to
retaining ewe lambs – the younger 1.21 million at 30 June 2020.
breeding flock matured resulting in a
60,000 6,000 The number of beef cows decreased
decrease in the number of hoggets.
3.5 per cent, while the number of other
50,000 5,000 Beef Cattle cattle increased modestly (+1.3%).
Sheep (000)
Cattle (000)
40,000 4,000
The number of beef cattle at 30 June Dairy Cattle
2020 is estimated at 3.89 million,
unchanged on the previous June. This The number of dairy cattle at 30 June
30,000 3,000 was largely driven by little change in 2020 is estimated to have remained
the number of weaners overall (but static (-0.1%) at 6.25 million. The
20,000 2,000 some differences between regions), number of dairy cows in milk is also
and a high base of trade cattle and estimated to remain static (-0.2%).
1990-91
1992-93
1994-95
1996-97
1998-99
2000-01
2002-03
2004-05
2006-07
2008-09
2010-11
2012-13
2014-15
2016-17
2018-19
2020-21e
weaners on hand on 30 June 2019, The South Island contains 39 per cent
particularly in the South Island. of the New Zealand dairy herd, up
from around 35 per cent 10 years
Sheep Beef Dairy In the North Island, the number of beef earlier.
Source: Beef + Lamb New Zealand Economic Service | Statistics New Zealand cattle decreased 1.0 per cent to
2.68 million at 30 June 2020.
12Sheepmeat Outlook 2020-21 – Opportunities and Challenges 13
Lamb & Mutton Exports
Lamb 4 per cent on the same period in Figure 5 New Zealand Lamb Average Export Value
2018-19.
2019-20
A weaker NZD supported export 13,000
The 2019-20 sheepmeat export
Average FOB value ($/tonne)
season has been one of two returns in 2019-20. The annual 12,000
extremes. Exceptionally strong average value of the NZD was
11,000
demand from China, fuelled by the 4 per cent down on the 2018-19.
10,000
ASF-induced pork shortage, drove Export lamb production for the 2019-
record export returns for the first 20 season is expected to be down 9,000
quarter of the season. However, 1.6 per cent on 2018-19. A smaller 8,000
export returns slumped in late lamb crop in spring 2019, the 2020
December as Chinese demand 7,000
drought and COVID-19 have been
slowed following government drivers of export volumes. 6,000
intervention in the protein market. This 5,000
was followed closely by COVID-19 COVID-19 disruption has been the
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
disrupting all New Zealand’s key leading issue in New Zealand’s key
sheepmeat export markets. lamb export markets in 2020. The Prev. 5yr range 2017-2018 2018-2019 2019-2020
sharp decline in foodservice demand Source: Beef + Lamb New Zealand Economic Serv ice | New Zealand Customs
A weaker NZD buffered export returns has impacted the US, China, UK and
from the full impact of the EU-27. While retail demand is steadily The outbreak of COVID-19 has months from October 2019 to August
COVID-19-induced drop in export increasing in some of these markets, weakened the global economic 2020, export volumes to this market
prices in markets, however, the growth is not enough to offset the outlook. Consumers are wary lifted 7 per cent year-on-year and
disruptions to the foodservice sector deterioration in the foodservice trade. regarding emerging new waves of accounted for 45 per cent of total lamb
and weakening economic conditions COVID-19 and deteriorating economic exports, up from 35 per cent just two
have weighed on average export Sales of frozen middle lamb items in conditions. Exporters note that seasons earlier (in 2017-18). In the
values (Figure 5). particular, have been impacted by the consumers are increasingly price same two-year period, the average
decline in foodservice demand. sensitive, and the threat of protein FOB value of exports lifted an
The strong start to the export season
held up total receipts for lamb In the five months from April 2020 to substitution with cheaper pork and impressive 30 per cent, from $6,600
(including co-products) for the August 2020, the average export poultry products will challenge growth per tonne to $8,600. From October
2019-20 season. An increase of value of lamb racks was 21 per cent in demand for lamb. 2019 to August 2020 the average
1.7 per cent is estimated (Table 7). lower than in the same period of export value was 13 per cent higher
Growth in lamb import demand in the than in the same period of 2018-19.
2018-19. In contrast, demand for lamb short term is also being challenged by
Average export returns for 2019-20 sold in the retail trade, or that could be
are estimated to be up 4 per cent on reports of larger than typical volumes COVID-19 has disrupted trade to the
easily transferred to the retail sector, of sheepmeat held in storage. The EU (including UK) this season. From
the previous season, to average a fared much better. Exporters reported
record $10,850 per tonne. Data for decline in foodservice sector sales has October 2019 to August 2020, exports
the volume and value of chilled lamb resulted in key markets accumulating were 5 per cent lower than in 2018-19.
October 2019 to August 2020 sales were maintained and export
provides a solid foundation for this lamb in cool stores. For China, the
statistics show both chilled and frozen During April and May exports were 47
estimate, with approximately 95 per problem was exacerbated by high
legs maintained value in the months and 37 per cent lower than in the
cent of volume exported in this period. imported growth in late 2019.
following the initial outbreak. same months in 2019. Exports
This data shows an average export China continues to be New Zealand’s declined to the UK (-2%), Netherlands
value of $10,815 per tonne - up leading market for lamb. In the eleven (-9%) and France (-3%), but Germany
14Table 7 New Zealand Lamb Exports Lamb exports are forecast to be down
6.5 per cent to 284,000 tonnes
Lamb meat Co-Products Total Lamb Lamb Meat
shipped weight. A lower lamb crop in
Sep Year 000 tonnes $ / tonne $m FOB $m FOB $m FOB %* 2020 is the predominant driver of the
2016-17 295 8,603 2,538 168 2,706 94% decline. Average export returns for the
2017-18 313 10,086 3,156 199 3,355 94% season are forecast to decline
2018-19 305 10,445 3,186 203 3,389 94% 9.3 per cent to $9,841 per tonne.
2019-20e 300 10,850 3,255 190 3,445 94% While the decline is significant,
2020-21f 280 9,841 2,760 175 2,935 94% average export values remain
2020-21f % change -6.5% -9.3% -15.2% -7.9% -14.8% 3 per cent above the five-year average
of $9,500 per tonne. As discussed
* Lamb Meat value as a percentage of the value of Total Lamb exports, including Co-Products above, there are some strong
e estimate, f forecast | Source: Beef + Lamb New Zealand Economic Service, Statistics New Zealand
fundamentals supporting lamb
demand, despite the risk posed by
lifted (+5%). The average value of Of the items included in this category, For 2020-21, total lamb export COVID-19-related market disruption.
lamb exports to the EU lifted there is only good news coming from receipts (including co-products) are First quarter lamb exports will be
5 per cent. Exceptionally strong the tallow and meat-and-bone meal forecast at $2.94 billion FOB, down traded into an uncertain market;
returns in the first quarter of the (MBM). Hides and pelts have suffered 14.8 per cent on 2019-20, and 5 per however, we expect market sentiment
season supported the weaker market a loss in value due to changes in cent below the five-year average. to improve as 2020-21 progresses.
as COVID-19 spread. fashion and a shift in consumer Co-products are forecast to decline a
preferences. further 7.9 per cent. The outlook for Two windows of international demand
Export sales to the US have suffered pelt demand is weak as consumer that will provide insight into the
severely from COVID-19. Export 2020-21 spending remains low. direction export returns might take in
volumes dropped 23 per cent from The outlook is one of uncertainty for the outlook period are the peak buying
October 2019 to August 2020 and the lamb. Underlying fundamentals remain periods of Chinese New Year and
average FOB value of exports strong, driven by continued pork
declined 6 per cent. This market shortages in China, increasing
Figure 6 New Zealand Lamb Exports
remains New Zealand’s third largest, demand for high quality proteins and
accounting for 7 per cent of volumes; Oct to Aug, $m FOB
increasing disposable income in some
down from 8 per cent in 2018-19. Asian countries. EU 27
Exports to the Middle East lifted The economies of most of New UK
significantly (+20%) from October Zealand’s key markets are also
2019 to August 2020, driven by North America
expected to recover rapidly in the
market diversification in response to outlook period. Middle East
the impact of COVID-19.
The challenges for lamb exports North Asia
The value of co-products has been in outlined above, are, however,
decline in recent years, and COVID-19 Pacific
expected to persist in 2020-21.
placed further pressure on this “fifth Sheepmeat inventories in key markets Other
quarter” of the meat industry. The total will need to be shifted and foodservice
value of New Zealand’s exports of sector demand in key markets is still 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
co-products is estimated to decline expected to be below pre-COVID-19 2018-19 2019-20
6 per cent in 2019-20. levels. Source: Beef + Lamb New Zealand Economic Service, New Zealand Customs,
New Zealand Meat Board
15chilled lamb exports to the UK and EU Table 8 New Zealand Mutton Exports
for Christmas. Typically, these
windows of demand drive high export Mutton meat Co-Products Total Mutton Mutton Meat
returns in the first quarter of the Sep Year 000 tonnes $ / tonne $m FOB $m FOB $m FOB %*
processing season. 2016-17 81 5,247 424 120 544 78%
Current market sentiment for both 2017-18 94 6,460 606 154 760 80%
China and the UK/EU is uncertainty 2018-19 84 6,715 564 100 664 85%
around solid price expectations for 2019-20e 83 7,482 625 92 717 87%
these periods. Despite chilled lamb 2020-21f 75 6,948 522 83 605 86%
sales at retail performing well so far
this year, the reduction in consumer 2020-21f % change -10.1% -7.1% -16.5% -9.5% -15.6%
disposable income may impact * Mutton Meat value as a percentage of the value of Total Mutton exports, including Co-Products
demand in the lead into Christmas. e estimate, f forecast | Source: Beef + Lamb New Zealand Economic Service, Statistics New Zealand
The volatility of the Chinese market
means demand could go either way as season on a record high of $7,482 per ASF and the shift towards high quality The average FOB value per tonne is
their peak demand window opens tonne, up 11 per cent on the previous protein are expected to maintain forecast to decline 7 per cent,
from September. Consumer season and 32 per cent up on the five- export returns at historically high however, will still trend 12 per cent
sentiment, however, will need to be year average. Export volumes are prices, however there will be downside above the five-year average.
significantly stimulated to see a lift in estimated to hold steady on 2018-19. risk in the forecast.
Total mutton export receipts (including Total mutton export receipts are
export prices. In 2020-21, mutton export production forecast to decline 15.6 per cent on
co-products) are estimated to lift
The outcome of Brexit will also be a 8 per cent for the season. is forecast to decline 10 per cent as 2019-20. The large drop in export
contributing factor to the export the farmers rebuild breeding ewe production combined with lower
outlook for lamb. This has been A weaker NZD/USD also supported flocks following drought-induced turn- average export values results in 2020-
discussed in detail earlier in the report. mutton returns, with most Chinese off in the autumn 2020. 21 mutton export receipts dropping 5
trade undertaken in US dollars. per cent below the five-year average.
Mutton The impact of COVID-19 has only Figure 7 New Zealand Mutton Exports
2019-20 recently taken its toll on mutton
Mutton was a strong export performer average export values, with values Oct to Aug, $m FOB
in 2019-20, despite COVID-19. The declining year-on-year from June to
August. This has been driven by EU 27
key drivers of the strong performance
were the large decline in Australian weaker sentiment in China as UK
mutton exports and the speed at uncertain economic conditions and
geopolitical tension weigh on demand North America
which the Chinese economy
recovered from COVID-19. for sheepmeat imports. Middle East
For the eleven months from October 2020-21 North Asia
2019 to August 2020, China The outlook for mutton in 2020-21 is Pacific
accounted for 70 per cent of total one of uncertainty. The same drivers
mutton exports. Demand trends in this outlined in the lamb section will Other
market are the sole driver of export underpin the season ahead for
performance. mutton. Economic and political 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
sentiment in China will be key to 2018-19 2019-20
Average export values for mutton are
import demand patterns. Source: Beef + Lamb New Zealand Economic Service, New Zealand Customs,
estimated to finish the 2019-20
New Zealand Meat Board
16Lamb & Mutton – International Situation
Overview sheepmeat prices typically induced by Sheepmeat consumption in China is sheepmeat in the medium to long
tighter supplies. small, making up only 6 per cent of term.
The outlook period for global
total meat consumed in 2019.
sheepmeat trade is one of uncertainty. Brexit uncertainties continue to plague However, the market has experienced ASF continues to drive demand for
Markets have been dramatically the UK and EU-27 markets, however, considerable growth from 2018 due to sheepmeat in the outlook period. As
altered by COVID-19. The disruption have been overshadowed by COVID- ASF and increasing consumer discussed earlier in this report, while
to the foodservice sector has resulted 19. An outcome will become clear significant investment into recovery for
incomes. There is growing demand
in a sharp decline for high-value early in 2021 and current signals from the affluent Chinese consumer the Chinese pork industry is occurring,
frozen lamb cuts. Consumer demand suggest that there is the potential for for high quality, nutritionally rich pork production is not expected to lift
has weakened, and price sensitivity significant disruption for New Zealand protein, and imported sheepmeat is to pre-ASF levels for at least 24
has lifted, driven by deteriorating sheepmeat exporters. months. Given the risks outlined
expected to fill this demand going
economic conditions. The drop in forward. Consumption is expected to earlier, it is unlikely that demand will
consumption has resulted in an Geopolitical tension between the US lift to the ASF-driven highs seen in late
and China is escalating and will be a lift 3 per cent in 2020 and growth rates
increase in protein inventories in some of 1-2 per cent are forecast out to 2019, however prices are expected to
key markets. Trade uncertainties and risk to be monitored during 2020-21. remain at historically high levels.
2025. While there is a risk demand for
geopolitical tension also contribute to China sheepmeat may decline as China
the volatile outlook. The outbreak of COVID-19 in China
China is one of the only major global recovers from ASF, it is thought that resulted in a sharp drop in sheepmeat
Underlying the uncertainty, however, economies forecast to experience there may be a permanent shift by the consumption in the months from April
there remains solid fundamentals to annual growth in 2020. While it is more affluent consumer towards to August 2020. An estimated
support sheepmeat demand. leading the way globally with COVID- higher quality proteins. 60 per cent of Chinese sheepmeat
ASF-induced pork shortages and tight 19 recovery, the market continues to Sheepmeat production in China is consumption occurs in the foodservice
global supplies will be leading demand face challenges in the 2020-21 expected to lift in 2020 and into the sector, and the majority of New
drivers. In addition, there continues to outlook period. Zealand product is destined for this
medium term. The most recent
be growth in middle class incomes sector. While there has been strong
Weaker economic conditions prevail estimates of growth from FAO signal a
across Asia, and a shift in affluent 2 per cent growth in production as growth in on-line and retail sales in the
consumer demand toward high quality post COVID-19. Following years of months following the Chinese COVID-
economic growth, the sharp change record high sheepmeat prices in late
protein sources. 2019 provided incentive for Chinese 19 outbreak, volumes are still minor
has created uncertainty for compared to foodservice sector sales.
World sheepmeat production is consumers. Demand has weakened sheepmeat producers to increase
expected to lift by 1 per cent in 2020, and price sensitivity has lifted. The flocks. Chinese import data for the first six
with most of the growth coming from decline in foodservice demand is also The estimated gains in domestic months of 2020 shows evidence of the
China. World trade of sheepmeat, of concern for sheepmeat demand. In Chinese production remain insufficient challenges COVID-19 has inflicted on
however, is expected to contract in the addition, the escalating tension sheepmeat demand. For the first six
to meet consumption requirements.
2020-21 season, with both Australia between China and the US is a This market will continue to be reliant months, Chinese sheepmeat imports
and New Zealand recovering from growing concern for the Chinese on imports, although the gap between from all countries are down 4 per cent
drought. consumer. the two is shrinking. While there is on 2019 levels. This is in contrast to a
much volatility in Chinese domestic 43 per cent lift in beef imports from all
While tighter sheepmeat supplies will Despite this risk, the underlying
production trends, there is potential for countries.
provide support for demand, factors fundamentals for sheepmeat demand
such as consumer price sensitivity and remain solid, driven by ASF induced increasing domestic production to The COVID-19 outbreak in China
increasing competition from pork and pork shortages and continued growth dampen demand for imported came on the back of a record month of
poultry, will constrain the lift in global in consumer disposable incomes. sheepmeat imports in December
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