The reopening of China, along with changes in Chinese consumer behaviour that began during the pandemic, is expected to provide opportunities for beef exporters, Rabobank says in a newly-released report.
In its Q1 Global Beef Quarterly, the specialist agribusiness bank says “China’s reopening” will offer business opportunities for beef exporters, but also generate volatility in the global market. In the report, the bank says it expects overall Chinese household consumption will rebound strongly in 2023 from the low base of 2022.
“In 2022, Chinese food and beverage retail sales saw marginal growth and food service sales took a big hit as the country’s ongoing Covid restrictions weighed on consumption. But positive signs of recovery are emerging and in the week-long Spring Festival (in February), retail and food service sales increased by 6.8 percent year-on-year,” the report says.
A surge in savings by Chinese consumers in 2022 – an increase of RMB (renminbi) 17.8 trillion compared with RMB 9.9 trillion in 2021 – is also perceived as fuel for economic growth. However, the bank holds a cautious view about whether the savings will lead to increased spending, as consumer and business confidence may need time to recover.
“After three years living under strict Covid policies, we’re seeing some changes in the behaviour of Chinese consumers and we believe they’re becoming more pragmatic and are spending more money on the products which they perceive to be practical, valuable, and worthy,” Rabobank agricultural analyst Genevieve Steven (pictured) said. “We also anticipate that seeking added value will be more important for consumers.”
The report says weaker economic conditions will have some impact on Chinese beef consumption among lower-income groups, which tend to trade down. “But to other consumer groups, beef is perceived to bring better taste, more health benefits and different eating experiences compared with traditional meats,” Ms Steven said.
“These consumer groups in China – which are mainly the younger generations, middle to high income families and health-conscious people – are increasing their frequency of beef consumption. As consumer groups become more segmented, we see beef experiencing both trading up and trading down. As such, we expect a gradual increase in quality beef consumption, although total consumption may increase more slowly.”
China beef market undergoing significant changes
The Rabobank Beef Quarterly found evolving market channels and consumer behaviour are also influencing the development of China’s beef market. While food service has previously been the main channel for beef consumption, the bank is now seeing rising beef sales via retail channels.
“This trend is supported by the robust growth of new tech cookers and portable ovens. We expect beef retail sales to maintain this rapid growth – supported by new retail modes, such as O2O (online to offline) and community group-buying, though food service will remain the major channel,” Ms Steven said.
“Another trend is the rapidly-growing pre-prepared dish market. These dishes have achieved high double-digit growth in the past two years, and we expect this to continue in the coming five years, although at a slower rate. And these changes will provide new opportunities for New Zealand’s beef exporters to capture more value and focus on premiumisation.”
Rabobank believes beef consumption in China will continue to rise, and beef market size will steadily expand in the coming years despite the headwinds in the overall economy.
“That being said, we do expect a slow-down in beef imports in 1H 2023, as the high inventory of frozen beef will require months to consume. This will impact total import volumes into China in 2023, which may be flat or only slightly higher compared to 2022 (beef imports increased 15 percent year-on-year in 2022),” Ms Steven said.
Ripple effects for global beef trade
China should remain the main export destination for the world’s beef production, the report says.
“However, the announcement last week that an atypical form of BSE (Mad Cow Disease) has been identified in Brazil, and subsequent self-imposed suspension on exports to China, will impact beef trade,” Ms Steven said. “According to the Brazilian Agriculture Minister Carlos Fávaro, the expectation is that the resumption of shipments to China will take place in March, before President Luiz Inácio Lula da Silva’s visit to China on the 28th March. For exports to resume, Chinese officials need to authorise it. In 2021, two atypical forms of BSE were identified in Brazil and resulted in an export suspension that lasted just over three months.
“Whether New Zealand sees any benefit for beef demand and returns will be determined by how long the suspension lasts. High beef inventory levels in China will also have a bearing on any potential upside for New Zealand.”
The report said China became a top three beef export destination for the United States in 2022, but growth in export volumes slowed throughout the year. The US will face continued headwinds into China over the medium-term, as US supplies decline and prices increase. The decline in US volumes should support increased trade from Australia as its volumes lift and prices ease, further supported by the potential increase in demand for chilled product with the growth in China’s retail sales of beef.
New Zealand update
The report says New Zealand beef production declined by four percent in 2022. “This was down to several factors including fewer beef cows being processed due to improved weather conditions, fewer dairy heifers and cows being processed due to strong dairy returns, and lower numbers of dairy beef steers and heifers being processed as a result of fewer calves being retained in the 2019/20 season for the dairy or beef industries,” Ms Steven said.
“The decline in production is reflected in the four per cent lower export volumes for 2022. Whilst overall volumes declined, export earnings rose 20 percent year on year (YOY).
Exports to China and Japan both grew by five percent, whilst volumes to the US contracted 22 percent YOY due to reduced lean trimmings import demand.”
The report says farmgate prices took a plunge in the last quarter of 2022.
“Local beef schedules took a steep dive in Q4 2022, underpinned by weaker demand from China and lower average returns in that market,” Ms Steven said. “The strengthening of the NZD/USD also took the cream off returns for exporters in Q4.
Farmgate returns settled through early 2023, with the AgriHQ North Island bull price holding at NZD 5.65/kg cwt in January. RaboResearch anticipates that the North Island bull price will remain elevated above the five-year average price in Q1.”
Ms Steven said the livestock losses and infrastructure damage as a result of Tropical Cyclone Gabrielle, as well as the flow-on effects, will become more apparent through March.
“Many farmers were carrying higher numbers of stock than usual due to adequate feed levels and, with significant infrastructure damage, some may need to offload animals. Good feed levels across most of the country (apart from the lower South Island) should support the store market,” she said.
“Significant damage to road infrastructure will continue to impact the ability to get staff and livestock to meat-processing plants in the coming weeks and possibly months.
“It is a different picture, however, in the west and southern parts of the South Island, which are unseasonably dry. Overall, the substantial bank of grass across the country will help to support trade cattle prices and is alleviating potential pressure on processors which continue to face staffing challenges.”