NZ economy – sapped by Covid-19 – gets a lift from exports helped by kiwifruit

The Covid-19 pandemic has savaged   several   of  New Zealand’s major  foreign exchange  earners,  particularly  tourism.  Even those still  trading  into  markets  that have   held up  well   face  an uncertain  outlook.

Yet the red  meat industry, whose exports earned NZ $9bn last year, and  the  $3bn  kiwifruit   industry  look as if they will be up there with the dairy  industry  as vital  props  underpinning  the  NZ  economy over coming years.

For  meat  producers, after the significant drop at the beginning of the year from the combined effect of Chinese New Year and Covid-19,  the return of China to the market, has been a positive factor compensating for the pandemic-led disruption to traditional European and North American markets.

The impact of African swine fever on Chinese pork stocks drove global consumer demand for protein and countered any downside effects from Brexit and USA-China trade issues.  It  led  customers in China  to seek  beef and lamb  to fill some of the void left by the culling of pigs,  creating a benchmark for other markets to follow.

Meanwhile  for  kiwifruit growers, the  export   season  is  off to a  record   start, with  Zespri  chairman  Bruce  Cameron  reporting  buoyant sales in  China and  Japan.

The amount of  crop picked,  packed  and  shipped has   surpassed   other  seasons.  Where  the  final orchard gate returns for the 2019 selling season were  $6.46 per tray for green fruit and $11.71 for gold fruit,

Zespri  has forecast prices of $4 to $6 for green for the 2020 season and $7.50 to $11 for gold. The broader than usual range on forecast orchard gate returns reflects the potential risks Covid-19 poses, the greatest of which would be widespread disruption across the company’s global supply chain.

Zespri’s  board  says  it is  likely to pay a dividend  to growers  this   season,

“ … based  on  what it knew now  and how it  saw the season  progressing”.

Further  good  news  comes from those  in the grape-growing regions   harvesting this season’s   crop. One of the  country’s biggest winemakers, Delegat Group, says  it has finished the 2020 harvest which amounted to 38,129 tonnes, up 7% on the 2019 vintage.

For  meat producers, returns  are holding up remarkably well at such an uncertain time, (though  with the proviso they can obtain space at the works) .  While prices are down from their pre-Christmas peak,  they are still good by historical standards.

Processing is under severe constraints during the Covid-19 lockdown, although meat companies  have been  working hard as an essential service,to keep key export markets  supplied.  The meat processing industry  employs 25,000 people, many from regional and rural communities.

In a newsletter to staff and suppliers, AFFCO said that as a result of processing restrictions in maintaining a minimum distance between employees,  sheepmeat capacity is running at 50% of normal, and beef capacity is close to 65%.  This comes at the peak of the season, exacerbated by drought in several regions, particularly the top half of the North Island.

Down   in the   south, Blue Sky Meats CEO Todd Grave  reports  the situation is dynamic  and  the  company’s  management t team is meeting daily to be able to respond to challenges as they arise.

Blue Sky is continuing to operate at full capacity but would adjust its livestock schedule as needed to reflect changing market conditions.

“We have adequate cold storage space available and current inventory levels are below the same time last year,”.

A   major   industry  player, Silver  Fern Farms  chimed in, reporting an after tax profit of almost $71m for the 2019 financial year, it’s strongest annual result in more than a decade.

CEO Simon Limmer said the company’s 2019 performance was positive, given the new operating environment.  The achievements in 2019 set it up well to meet today’s challenges.

The impact of African Swine Fever on Chinese pork stocks drove global consumer demand for alternative proteins in 2019.

SFF Ltd was robust enough to withstand the global disruption caused by the coronavirus outbreak and its 7000 staff would be fundamental to the recovery, Limmer said.

Silver Fern Farms Co-operative, which owns half of SFF Ltd, reported an after tax profit of $34.9m for the financial year. The result is a significant improvement on the previous year when SFF Ltd had a profit of $5.8m and the co-op reported a $900,000 profit.

Co-op chairman Richard Young said the results provided stability for both the co-op and the operating company.

The  decision  in  2016  to bring  in Shanghai Maling  as a  partner  in the  SFF Ltd  enterprise,  much  criticised  at  the  time,  now looks  to  have  been a  masterstroke. Shanghai Maling’s $260m injection of cash was used to pay off $203m of debt, with the balance of $57m paid to a new co-op structure.

For the 2019 year, SFF Ltd recorded revenue of $2.6bn, ebitda including share of associate earnings of $124.3m, and net profit after tax of $70.7m.  Capital spending increased by $3m to $32m and total shareholder equity was at $571m, up from $501m at the end 2018.

Limmer said SFF Ltd started 2019 in an uncertain international geo-political and trade environment but the year became “a China story”.

Analysis from the Meat Industry Association shows NZ sheepmeat and beef exports jumped 6% to $9.1bn in 2019.  The growth was largely driven by a surge in overall exports to China, which increased by 57% to reach $3.7bn.

Sheepmeat exports to China grew by 40% to $1.6bnn for the year and beef exports by 113% to $1.7bn.

As  Limmer  said, while global market conditions and domestic challenges move by the day in 2020,  SFF  Ltd’s  achievements in 2019 set   it up well to meet today’s challenges.

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