Emerging markets offer most promising growth

Emerging markets offer most promising growth opportunities for NZ meat exports – Rabobank report

Emerging market economies – such as China and the Middle East – will provide the most promising export growth opportunities for New Zealand’s red meat industries, according to a recently-released industry report.

In its report New Zealand meat – prospects after the financial crisis, specialist food and agribusiness bank Rabobank says as world economies begin to recover, the global financial crisis has increased the reliance on emerging markets for meat consumption growth.

While consumers in high-value markets such as the EU and the United States – New Zealand’s largest export destinations – have traded down to cheaper meat cuts and per capita consumption of red meat has eased, emerging markets are the “engine rooms” driving growth in world meat consumption.

“Increasing consumption in populous emerging markets is expected to result in 21 per cent more sheepmeat and almost 15 per cent more beef being consumed globally in 2019, compared to 2009. Advanced economies contribute little to this growth outlook; in fact, annual sheepmeat consumption in OECD countries is expected to decline by 6.5 per cent over this forecast period,” the report says.

Capitalising on emerging market growth

Report author, Rabobank senior analyst Hayley Moynihan says capitalising on emerging market growth will require the New Zealand red meat industries to employ targeted market segmentation and distribution channels to reach the consumers who desire and can afford high quality meat.

With a direct relationship between per capita protein consumption and Gross Domestic Product (GDP), the report highlights that emerging markets for meat consumption growth will be led by the fastest-growing economies.

The report says both China and India are expected to enjoy GDP growth in excess of eight per cent per annum to 2015, followed closely by the ASEAN 5 countries (Indonesia, Malaysia, the Philippines, Singapore and Thailand) growing at more than five per cent per annum, and the Middle East and the North Africa region growing by more than four per cent per annum.

“Selecting those segments of emerging markets with the most potential for New Zealand exports is the key challenge for the industry, and matching markets with the characteristics of New Zealand’s export product composition is also a key consideration,” Ms Moynihan said. Media Release August 17, 2010 2

“For example, an increasing proportion of New Zealand beef production originates from the dairy herd, lifting manufacturing beef volumes. The majority of this product is unlikely to meet the needs of high-value consumers seeking prime cuts, but would suit cooking styles in emerging markets, such as tangines, curries, hot pots and slow cooking techniques.”

Changed purchasing behaviour in developed markets

The Rabobank report also notes that while emerging markets are providing the growth in meat consumption, traditional high per capita consumption nations, such as the US and Europe, have altered their purchasing requirements in the wake of the financial crisis and economic downturn. “The need for tighter control of their wallets has resulted in changes to total meat consumption volumes, where consumers purchase their meat products, the type of meat purchased, and in some cases a downgrading of the cut or product consumed,” Ms Moynihan said.

Nonetheless, the report shows US consumers have been unwilling to sacrifice food consumption away from home despite pressure on family budgets. “The strength of takeaway sales through the recession highlights that some trends are indeed almost unstoppable,” Ms Moynihan said.

From New Zealand’s perspective, Ms Moynihan predicts such trends are expected to favour key meat exports into the US market over the medium term. She said while estimated US per capita beef consumption fell by four per cent between 2008 and 2010 (USDA), a slow improvement in overall consumption volume is anticipated.

But more importantly, New Zealand manufacturing beef is largely sold through takeaway or food service outlets and most New Zealand lamb cuts reaching US shores are ultimately destined for the restaurant and food service trade – both of which are expected to experience more robust growth than grocery retail sales, according to the report.

Adjustment required in NZ industry

Ms Moynihan advises that New Zealand producers won’t automatically capitalise on this generally positive market for red meat. She says capturing higher returns, translating them back into on-farm profitability and surviving a more volatile market is going to require some adjustment. Media Release August 17, 2010 3

The report identifies four key areas for change:

The need to build increased market knowledge of where product is going and what factors are likely to influence or disrupt market returns;

Improved two-way communication with other industry participants, including buyers, processors and exporters – to ensure clear market signals are provided for supply availability, quality, and price from all parties;

Greater strategic planning to avoid short-term decision making that could compromise long-term market gains and

Increased industry investment – lower stock numbers translate into less funding for industry activities, marketing, research and development. In particular, the New Zealand sheepmeat industry faces the important, but difficult, challenge to increase investment along the value chain to rebuild production efficiencies, consumer awareness and demand in the face of a shrinking national flock and inconsistent financial returns for both producers and processors

The world’s leading food and agribusiness bank, Rabobank is one of Australia and New Zealand’s largest rural banks and a major provider of corporate financial services to the region’s food and agribusiness sector.

ENDS

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