NZ Beef Industry
Competitive position:
The NZ beef sector is driven by events in world markets and still relies heavily on commodity markets, competing on price and, where possible, service. The NZ beef export sector, with less than 2 percent of world trade, does not have the scale competitive advantage enjoyed by the dairy and sheepmeat sectors and supply is susceptible to seasonal fluctuations.
Over the past 10 years prices (in real terms) are tending down, and future prospects are uncertain. The industry is volatile and NZ has little influence over leading markets.
The following outline areas of competitive position 'vis a vis' major competitors, (Australia, Argentina, Canada, the USA and Uruguay):
- Low cost pasture forage systems
- Advanced on-farm management systems in the areas of breeding, stock management and animal health
- A widespread and growing use of technology tools on-farm
- High-tech, efficient stock processing plants with an abundant labour force
- An ability to compete on service in terms of niche products
- Potential to develop in specialist areas e.g. organic production
- An internationally recognised and respected food safety system (the NZ MAF brand)
- An efficient transport, communications and administrative infrastructure.
Production & Marketing Trends
- An expected 7 percent increase in beef slaughter levels in 2001 is attributed to increased dairy beef retentions in spring 1999.
- Cattle slaughter weights fluctuate according to climatic conditions and the very favourable conditions that prevailed in the season ending September 2000 partly resulted in a 4.4 percent increase in the average carcase weight.
- The influence of the NZ dairy industry on NZ beef production levels has always been strong and it is increasing with the expansion in dairy production. Increased cull cow and calf supplies for processing for manufacturing beef markets mirror the overall growth in the dairy sector. The profitability (and therefore popularity) of bull beef farm operations has resulted in a dramatic increase in supply in recent years with bull slaughter levels up 25 percent in the year ending September 2000 to 479,000 making up 27 percent of the kill mix and also contributing to the increased average carcase weight.
- Cows made up 37 percent of the slaughtered animals, down 12 percent - a reflection of the optimism in the beef sector.
- Combining the two classes of stock provides 64 percent of the total slaughter, illustrating New Zealand's dependence on the limited markets for manufacturing beef.
- The US cattle cycle is the major factor impacting on the world beef trade. The US is now coming to the end of a four-year liquidation phase that resulted in record slaughter and production levels.
- The USDA is forecasting a 5 percent reduction in US beef production in 2001. Heifers on feedlots are up 11 and 19 percent respectively on the previous two years suggesting the rebuilding phase could be lengthened.
- Australia is undergoing a herd-rebuilding phase however, the currently weak currency is improving its competitiveness on world markets. Australia's leading markets are Japan and the USA however the two attract a very different range of beef products. The recovery in the Japanese and other Asian economies, the strength of the US economy, and the favourable trading conditions are all positive factors for the Australian beef producer.
- In South America, Brazil is expected to increase beef production by 3 percent in 2000 as its economy recovers, while Argentina is expected to see a 1.5 percent decline as it faces increased competition from arable crops. FMD has had a significant impact with Uruguay and Argentina competing head to head with NZ in the past year. The recent outbreaks of FMD in the past 2 months have seriously jeopardised their plans to develop greater market presence in North American (particularly Canada) and Asian markets.
Price Trends
- Prices in real terms have been trending down over the past 10 years
- US beef industry analysts Sparks Companies Inc. expect the average US price for beef trimmings in the anticipated herd rebuilding phase to be 20 percent below the highest average point in the previous beef cycle in the early 1990's. Slaughter levels, while declining through the rebuilding phase are expected to be higher and carcase weights heavier when compared with the previous cycle.
Prospects
The short/medium term prospects are reasonably bright with:
- recovery in Asian economies and ongoing strength in the US economy.
- The USDA is forecasting a 3-5 percent reduction in US cattle supplies in 2001 as producers rebuild herds. When the rebuilding phase is underway, US domestic cow meat supplies are expected to tighten considerably.
- USDA is forecasting beef prices to be up 3-7 percent in 2001 in response to lower supplies with price increases more likely in the later part of the year.
- US beef exports enjoyed major growth in 2000, however lower supplies of US beef are expected on world markets in the medium term as the US herd rebuilds. The expectation is that the rebuilding phase could be longer than the 2-3 years in previous cycles. Also, there is a view held by US analysts that numbers may not reach the 103.5 million head at the peak of the previous cycle.
- In the US, the development of Lean Finely Textured Beef (LFTB) from 50CL domestic trimmings poses a threat to the NZ lean manufacturing product that makes up the majority of NZ's beef exports to the US. The market uptake of this (LFTB) will be crucial to future profitability for the bulk of NZ beef exports.
- favourable climatic conditions in NZ throughout the past year have resulted in above average pasture supplies.
- average NZ farmgate beef prices per head were up 25 percent to $732/head (year on year) in the recently completed 1999/2000 season. Some of the increased returns has been re-invested (fertiliser, property improvements) in search of future productivity gains.
- Over the longer term, the prospects for NZ beef are uncertain as NZ exporters are forced to follow, rather than influence or dictate, the market.
- The prospects for beef in the next 2-3 years are the best they have been since the last trough in the US cattle cycle (1992), due to the US beef supply situation and economic growth conditions in that market. However, the medium/long term prospects appear uncertain at best.
- In relation to other pastoral land use options, beef operations are inherently more risky and volatile than dairy, lamb and to a lesser extent venison markets. We have few real competitive advantages in our beef industry.
- The growth in the NZ dairy sector will increase the supply of manufacturing grade product from cull cows and bull products.
- Beef is expected to be more volatile over the longer term as it has less brand strength, greater competition and fewer points of differentiation with competition, relative to NZ dairy and lamb. NZ also has an unhealthy reliance on one export market (North America) for approximately 60 percent of its export graded boneless beef mainly from the dairy industry.
- In general the Economic Farm Surplus (EFS) from cattle policies are at the lower end of the scale.
- As a general principle, if beef cattle are needed as a management tool, then the emphasis needs to be on the lowest possible ratio of cattle to other livestock to achieve this pasture quality.
- Returns from cattle polices tend to fluctuate widely (greater than 100 percent) which makes budgeting for long term sustainable profits more difficult.
Contact for Enquiries
MAF Information Services
Pastoral House
25 The Terrace
PO Box 2526
Wellington, NEW ZEALAND
Fax: +64 4 894 0721
Contact this person
