According to the Rabobank Global Focus Report on beef, after a three year Bovine Spongiform Encephalopathy (BSE) triggered ban, competition from the US in Korea and Japan will continue to increase. At the same time, increased beef demand from other markets, including developing countries, will see New Zealand exporters seek new customers the report said.

Report author, Rabobank senior Food and Agribusiness Research unit analyst, Hayley Moynihan said that an increase in carcass weights was more than offset by falling slaughter numbers in 2006, as production declined for the third consecutive year.

According to the report, the dairy industry has exerted the greatest influence on beef production levels, Ms Moynihan saying that dairy industry trends will continue to significantly influence beef supply in the coming years.

“While 2007 is expected to see an increase in production due to calves reared over the past two years and an increase in cull dairy cows, 2008 and beyond is likely to be negatively impacted by the current strong outlook for dairy,” Ms Moynihan said, adding that the supply of manufacturing beef will decrease if the number of dairy conversions and rate of herd expansion increases as a result of the buoyant international market.

US market outlook

The North American market outlook is positive for New Zealand, according to the report, which cites higher US protein and domestic fed cattle prices as key factors increasing the competitiveness of imported product.

Despite the fall in New Zealand manufacturing beef exports to its traditional US destination over the last five years, this market is expected to strengthen over coming years, according to the report.

The second half of 2006 saw the US experience drought in many of the cow-calf producing areas, resulting in an increased slaughter of cows and reduced domestic manufacturing beef prices.

“The increased slaughter of 2006-07 in the US due to drought, combined with increased feed grain prices, is expected to restrict herd and beef production growth in the US in the medium term,” Ms Moynihan said. Increased US beef prices and an easing of demand for New Zealand beef in Japan and Korea should see exports to the US increase over the medium term,” Ms Moynihan said.

“To what extent New Zealand can take advantage of this market will depend on a number of factors, including the level of exports from Uruguay, whether the US permits imports of Canadian cattle and boxed beef from animals over 30 months of age, and if Argentina can eventually gain access to the US market,” she said.

Developing markets

According to the report, developing countries are experiencing rapid growth in meat consumption, primarily pork and chicken but also beef, as incomes and population continue to grow.

Referring to the OECD – FAO Agricultural Outlook 2006-2015, the report said that developing countries, particularly those in the Asia-Pacific and Latin America, will see a compound annual growth rate (CAGR) for beef consumption over the next decade of 2.78 percent, compared to 0.49 percent for developed nations. “This would see consumption of beef in developing countries reach around 48.4 million tonnes by 2015 compared to 28.3 million tonnes in developed countries,” Ms Moynihan said.

And although the OECD-FAO report also expects growth in supply from low-cost producers to these countries, according to the Rabobank report there is a growing middle to high income group willing to pay for what they consider a “quality” product. This segment, the report says, presents an opportunity for New Zealand beef producers.

“Over recent years exporters have found it difficult to justify the investment of time, money and product into these markets. But with the prospect of increased US beef exports to North Asia looming, interest and effort put into developing alternative markets should begin to grow,” Ms Moynihan said.

New competitors

As increased market access for US beef in North Asia squeezes the market share gained in Japan and Korea since 2003, New Zealand exporters are expected to expand shipments into alternative markets, many of which are also open to beef from South America, including Brazil - the world’s largest exporter of beef in 2006.

While an increase in the value of the Brazilian currency, the real, and internal competition for land and capital resources means that Brazil is not expected to match the incredible rate of growth witnessed over the past decade, Brazilian production and exports will continue to grow.

“Despite its current exclusion from New Zealand’s key beef markets, New Zealand must continue to closely monitor the Brazilian beef industry,” Ms Moynihan said, adding that New Zealand has the difficult task of reacting to market events and issues impacting competitors, rather than exerting any primary influence on the world beef market itself.

“Balancing opportunities in new markets with growing competition in existing markets will be critical to the success of New Zealand beef exporters. Assessing the value proposition that non-traditional markets represent, in comparison to protecting an established position, will be the key challenge to maximising returns,” Ms Moynihan said.

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 100 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank has a AAA credit rating and is rated one of the world’s safest bank by Global Finance magazine.

Rabobank operates in 42 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1500 offices and branches. Rabobank is one of New Zealand’s leading rural lenders and a significant provider of business and corporate banking and financial services to the country’s food and agribusiness sector. The bank has 29 branches throughout New Zealand

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