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.