Decide how to meet growing world appetite for meat

Media Release August 3, 2009

NZ producers must decide how to meet growing world appetite for meat – industry report

New Zealand is one of few countries potentially able to help satisfy the world's growing appetite for high-quality meat products which will inevitably follow global economic recovery, according to a recently-released industry report.

In its report Global Focus New Zealand Meat, specialist food and agribusiness bank Rabobank says New Zealand's ability to capitalise on this growth over the longer-term, however, will depend on future production levels and the strategy adopted by industry participants to grasp the increasing market opportunities.

While the impact of the global financial crisis – alongside higher retail prices – has seen a slowing in demand growth for meat among consumers in many countries, the report says the world's appetite for meat protein is expected to recover alongside an improvement in economic growth.

However, with New Zealand's meat production volumes falling in recent years, the industry will need to be increasingly strategic in choosing which opportunities to pursue, says the report's author, Rabobank senior analyst Hayley Moynihan.

“Globally meat demand will continue to grow, albeit at a slower pace in the short-term,” she says. “And while New Zealand could fulfil part of this growth, it may be more appropriate to adopt a value-oriented, rather than volume-oriented, approach or to target specific markets where New Zealand product is more competitive longer-term than obtaining supply from local sources or other export producers.”

Global production under pressure

Ms Moynihan says pressure on world meat production levels is evident, with key markets, such as the US, seeing production volumes contract.

“Global pressures on the meat sector from weaker demand growth, rising production costs and increased concerns about animal welfare, food safety and trade regulations have led to relatively static production growth,” she says.

“In some key regions production is actually falling, or at least resulting in a lower surplus available for export.”

In the short term, this tightening supply – particularly in lamb and venison – has had a positive impact for the industry, with prices firming, says Ms Moynihan. But longer-term, it raises the challenge of “who will meet the world's demand for meat when better economic times return?”.

Caught flat-footed

Ms Moynihan says this is particularly a challenge in beef and sheep meat production, which is characterised by a relatively long production cycle, with considerable time involved in re-building stock numbers and bringing meat to market.

The Rabobank report says there is potential for producers to be caught „flat-footed' in the event of a strong economic recovery.

“With high levels of uncertainty prevailing, most producers globally are understandably adopting a cautious approach. However, for those who are optimistic, opportunistic and price competitive, fortune may favour the brave, as few are well positioned to provide the additional protein that global consumers will demand over the medium and longer-term,” Ms Moynihan says.

Leveraging New Zealand’s established advantage

New Zealand – along with a small number of other countries – is well placed to position its meat industries to ride this recovery, the report says.

And with 80 to 90 per cent of the country's meat production (by sales) destined for offshore markets, New Zealand has much to gain from capitalising on these export growth opportunities.

Ms Moynihan says New Zealand's established advantage in producing high quality, relatively low-cost meat products should enable it to both weather the current market storms and determine how best to grow in the future.

Achieving this will be reliant however on the industry's participants managing risks well, taking a longer-term view of their supply chain and being prepared to invest in and commit to an appropriate strategy.

“New Zealand's ability to capitalise on demand in new and existing markets over the longer term will be driven by future production levels and the willingness to invest in marketing, relationship building and promotional activities,” she says.

“With high market uncertainty, New Zealand producers will need to consider their approach to future growth opportunities, reconsider their approach to risk management and seek to build greater cash profitability within their farming businesses.”

The report says New Zealand processors and producers will need to make the conscious choice of whether to follow the market or position themselves to benefit from longer-term trends.

“The most important aspect will be communicating which option is being pursued for each species and destination market to ensure that price signals and consequently investment decisions are made appropriately,” it says.

ENDS

Rabobank New Zealand is a part of the international Rabobank Group, the world's leading specialist in food and agribusiness banking. Rabobank has more than 110 years' experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and has a AAA credit rating from Moody’s and Standard & Poor’s. Rabobank operates in 45 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1600 offices and branches. Rabobank New Zealand is one of the leading rural lenders and a significant provider of business and corporate banking and financial services to the New Zealand food and agribusiness sector. The bank has 30 branches throughout New Zealand.

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