Market Update - October 2023

Over recent weeks I have had the chance to travel, spending time with the ANZCO sales teams and our customers in the UK, Europe and China. Following are some insights from those trips that I thought might be of interest and relevance to you.

In the UK I received consistent messaging on two fronts from our UK retail partners. Firstly, that the lamb category in general continues to struggle. Consumption is well down on past years as UK consumers deal with the ongoing economic challenges and the rising cost of living brought on by a combination of Brexit, the war in Ukraine, and the lingering hangover from COVID-19. Conversely, UK retailers made it clear that their consumers do still value lamb as a source of protein and recognise its quality and taste. This has been evidenced by the strong in-store sales our retail partners have enjoyed during the key promotional periods of Christmas and Easter over the past year. They are therefore optimistic that Christmas 2023 and Easter 2024 will also be bumper sales periods for the lamb category and our forward sales into the UK reflect that optimism. I've mentioned before in these reports that discounting by UK retailers for lamb is an unfortunate but necessary part of doing business in this part of the world. It is certainly not ideal from a New Zealand farmers’ perspective or from our own, and does not fit with our goal to promote the high quality of our product, but rest assured it is not necessarily a reflection of the value we get from our UK retailers. Indeed, UK prices for frozen and chilled legs remain consistently the best across our global sales network. Another reason for my visit to the UK was to get a better feel for the opportunity that has opened up for beef thanks to the Free Trade Agreement outcome. I walked away from my meetings very optimistic about what that opportunity may mean for us in the future. Our focus will be on niche, premium, branded offerings and the partners we are looking to work with were very complimentary of our product and keen to work with us to develop this market. This is a great example of how important it is for New Zealand to continue to look for bilateral trading partnerships, and how meaningful new access can be if it is of sufficient quality and targeted in the right areas.

China is always a fascinating market to visit. On my recent trip the key takeaways included the reality that China's economic recovery, and by implication the recovery of beef and sheepmeat markets, will be a slow burn. All our customers commented on the continued high level of in-market inventory for frozen beef. Coupled with poorer than expected consumption, this will impact market sentiment for frozen beef as we head into 2024. On sheepmeat, while consumption in the foodservice sector continues to struggle, customers noted that inventory levels are well under control. Hence, if consumer confidence does return, we may well see a quicker recovery in demand for our product in 2024 then potentially feared prior to my visit. My China trip also presented the chance to get an updated view on what is happening on retail shelves and with our end consumers. Grass-fed beef appears to be well recognised for its quality and nutritional value, which fits well with the story that ANZCO Foods is trying to communicate to consumers in New Zealand and around the world regarding nutrition and good health. Conversely, New Zealand’s clean green image and excellent environmental credentials are not necessarily as valued by Chinese consumers as perhaps we naturally think they are sitting back here in New Zealand. There are certainly opportunities for ANZCO Foods to develop brands for both grass-fed beef and lamb in China, and we are very lucky to have excellent partners on the ground that are keen to work with us on this front as we look to add value rather than volume from our largest and most important market.

This month in Europe the ANZCO sales and marketing team had its first formal presence at the massive Anuga food show in Germany. This was a great opportunity for us to reconnect with existing and potential customers from across the continent at what was the first Anuga show post-Covid. It was also perfectly timed for our reintroduction of the Ocean Beef brand to Europe following an enforced six-month break, and the feedback was fantastic. Stony River Black Angus is another brand that we have launched in Europe in 2023, and Anuga offered a great opportunity to educate chefs and potential customers around the story behind that brand and for them to experience the quality of the product. In both instances, the sales job became even easier for our European sales team at Anuga thanks to the six World Steak Challenge medals (including five Golds!) that these two brands won, and was a great recognition of the quality of ANZCO's beef in general. Overall, European customers visiting Anuga remain cautious about the short to medium term market outlook. The European summer was a very good one with regards to tourist numbers, and the foodservice sector benefited from that, but there is a concern that those numbers aren't necessarily repeatable in 2024, and as the war in Ukraine drags on for another year and the economic conditions in the EU remain difficult, consumer confidence is unlikely to drive a recovery in demand.

Outside of Europe, China and the UK, the major market we are following closely is North America. In previous reports, I have referenced the growing impact of Australian product on the North American lamb market as Australian farmers look to liquidate because of dry weather conditions. Unfortunately, that has not got any better. Of greater concern are the early signs that Australian beef farmers are now heading down the exact same path.  This development on the supply side could not have come at a worse time as we look ahead to new season bull coming through and as we have started to see meaningful signs that the long-awaited tightening of US domestic beef supply is now hitting our customers and their interest in imported raw material is on the rise. A sudden increase in Australian production will only serve to keep a lid on any price increases that we may have expected in the coming months. This will be one to watch closely as we come to the end of 2023 and look ahead to what we expect to be a challenging 2024, with the North American beef market seen as one of the few real bright lights in the short to medium term.

Finally, hopefully you will have seen news this month around ANZCO’s step-up in our partnership with IRONMAN New Zealand. We believe that this provides us with an excellent opportunity to better share our story around nutrition and good health and to make sure we are proactively countering the view that beef and lamb is not good for our people or planet. Partnering with world class athletes such as Hannah Berry and Braden Currie – who finished 11^th and 16^th respectively at the recent IRONMAN World Championships in Hawaii and France – allows them to reinforce that positive story on our behalf, given their recognition of the important role beef and lamb can play in their ongoing success. We are looking forward to communicating more broadly in the months leading up to the first ANZCO Foods IRONMAN New Zealand race in March 2024, so keep an eye out in the Kia Ora magazine from November if you are doing any domestic travel. I hope that you will also help us share that nutrition and good health story to your networks. It is one that we will all ultimately benefit from.

Rick Walker
ANZCO Foods General Manager Sales and Marketing