Market Update - February 2022

2022 looks set to be another extremely busy year for ANZCO Foods as we bring you and the world nutrition and good health from New Zealand’s finest beef and lamb. There will be some key themes and issues that will underpin how we operate and what we do in the coming months.

China

For anyone who reads these updates regularly, you will know how important I see China in terms of the long-term success of ANZCO Foods and our sector, and how excited I am about the opportunities that continue to exist in this massive protein market.

One only has to look at China’s results for 2021 to get a sense of how important they are to all of us. China imported 8.6 million MT of pork, poultry, beef and lamb last year, with pork making up more than half of that volume. Beef however was the big mover, with total imports of 2.3 million MT, up 10% year-on-year. China’s protein imports have grown in value from around US$10 billion in 2018 to just on US$29 billion in 2021, and it imports three times the amount of protein than Japan, who is in a very distant second place.

Despite that growth, 2022 will be potentially more challenging in China for exporters and importers. Chinese New Year demand has been very good however the holiday period is expected to be subdued again this year as the government discourages domestic travel to prevent the spread of Covid-19. Currently, there are more than 20 million people in official lockdowns across the country and many of the cities and ports that are our key points of entry are at high alert.

In addition, there is growing unease around the state of the overall Chinese economy, fuelled by ongoing issues in its property market, which is seeing consumption start to falter as the middle class becomes wary of a possible decline in the value of their investments and assets.

Our forward sales programme in China remains solid, however, we are certainly seeing signs of price easing on specific products, thus we will be staying close to our in-market partners to understand how their businesses are faring during the coming month to ensure that we are prepared for any change in demand patterns that may evolve as the wider operating environment deals with this volatility.  

Inflation

I suspect in 2022 ‘Covid-19’ may well be supplanted as the most overused word in the English language by ‘inflation’, which has become a global phenomenon in recent months and has only accelerated during the first few weeks of 2022.

Anecdotally, our sales teams in Belgium and the UK are reporting that household electricity and gas bills are up between four and eight times versus January 2021, and the cost of filling up the car is at a record level. That hurts people’s wallets and forces them to make choices about how they spend their disposable income, how often they go out for dinner, and what they put in their grocery trolley each week. By way of example, in the UK today, lamb legs are being sold in supermarkets at around GBP30 while a whole fresh chicken is on the shelf for just GBP5. While UK consumers were willing to pay for that premium for their Christmas Day lamb during the holiday season, it is now becoming clear that they are pushing back. As a result, retailers are signalling that Easter is likely to be more subdued than in recent years and they are revisiting their traditional promotional activities around the lamb category.

Food inflation is also increasing in relevance in the US market, with recent reports showing a direct correlation between the increase in retail prices for premium chilled beef and a decrease in consumption. The clear message is that consumers are trading down or trading away from the beef category. Interestingly, lamb continues to buck the trend, but retailers and foodservice operators are starting to pull back on purchases due to the current high prices and, as with retailers in the UK, are retreating from planned promotions, which is such an important tool for keeping lamb in the minds of our end-consumers.

It is also worth noting that history shows inflation hurts the developing world far harder than the developed, as it is those poorer nations that consume a higher proportion of their food, such as cereals, oils, dairy, and animal protein, in its raw commodity form as opposed to further processed food products, thus bear the full brunt of those price increases. History also tells us that in such situations it is not just an economic or social issue, but also a political one that can lead to wider volatility within specific regions.

Sustainability

2022 is a big year for New Zealand farmers with an outcome around the He Waka Eke Noa initiative expected. This will shape the dialogue around on-farm emissions and the wider conversation around sustainability as we head into 2023.

For ANZCO Foods, 2022 will also be another important year for our plans around executing a sustainability strategy that ensures we are working proactively to reduce our carbon footprint on the world and also preparing our operating model to be able to manage the impact of a changing climate and environment on our business. I am sure you will see some great initiatives being reported as the year unfolds.

Sustainability is extremely important to consumers globally, however, when those same consumers start to feel pain directly in their wallets due to higher food prices and increasing utility bills, it often leads to a revisiting of short-term priorities, with the purported willingness to pay premiums for claim-based beef or lamb fading, particularly when our products are already fast becoming luxury items even without such additional benefits and premiums. ANZCO Foods will however continue to develop strategies to ensure we are effectively connecting with customers and consumers around these topics, as we do believe they offer considerable upside for the New Zealand industry longer term.  

Covid-19

I have kept this one to last, as I think we are all pretty tired of reading about it. Nonetheless, it cannot be ignored in terms of its impact on our business and yours, as well as its ongoing influence in the global marketplace upon which we are so reliant.

In short, ANZCO Foods and the country will be entering a period of massive uncertainty during the next two to three months. That has the very real potential to impact our already thread-bare labour force, our ability to process animals in line with your expectations and needs, and our capability to get product on trucks and ships to our markets and customers. Keep talking to your ANZCO Foods livestock representative to make sure you are up-to-date with how things are developing in this regard.

Globally, while Omicron appears to have peaked across many parts of Europe, the UK, and the US, we are seeing Japan now facing the same issues and we have China out there as a major unknown in terms of what this variant may do and how the government may react if it does exponentially spread. Foodservice, as we have seen in the past, becomes the main victim of the virus from a business perspective. Right now in Japan, restaurants around the country are being forced to close early and people are proactively staying at home and avoiding public venues. We are going to see that same situation play out in New Zealand in the short term as case numbers grow.

So some headwinds ahead, but challenges often bring with them opportunities, and the team at ANZCO Foods remains passionate and positive about the inherent value of your product and the benefit it offers consumers around the world. We should also reflect on the first month of 2022 that is now in the books. January saw very strong prices in most of our export markets, supported by a favourable exchange rate, so we have definitely got out of the starting blocks in good shape. Now it is about ensuring we are as prepared as possible to weather any storms that may emerge on the horizon and keeping our business and yours moving forward.

Regards,

Rick Walker
General Manager Sales & Marketing