[This post was first published in the Fairfax NZ Sunday Star Times on 19 October 2014]
With so much focus on the current dairy downturn, it is easy to miss the rising star of beef. This year beef prices have been hitting record highs, both in US and NZ dollars. Young steers and bulls are fetching anywhere between $1100 and $1600 at slaughter, depending on weight and category.
The key driver has been demand for hamburger beef from the United States. Demand from China has also been increasing.
The New Zealand Meat Industry Association has reported beef exports of 380,000 tonnes earning $2.2 billion dollars for the year ending June 2014. Since 2001, these exports have fluctuated between about 325,000 tonnes and just over 400,000 tonnes with no clear trend. Cull cows from the dairy industry have been contributing an increasing proportion of total production.
In 2014, the North American market took close to 50% of New Zealand’s exports both by weight and value. This has been our number one market for many years. The American demand is for hamburger ‘grinding beef’. The key attributes are that it is lean, with a preference for 95% ‘chemical lean’ (CL), and that it meets food safety standards. Breed and tenderness are irrelevant.
The reason that the Americans are so keen on our lean beef is that they can mix it with their feedlot beef to keep the overall fat content at desirable levels.
North Asia took some 30% by both weight and value in 2014. Within this market, Chinese and Taiwanese demand has been increasing. In contrast, Japanese demand has been in decline. The tonnage exported to Korea in 2014 also declined, but this was more than compensated by the price increase.
The big players on the world market are Brazil, India, Australia and the United States.
Brazil has been No 1 by tonnage for about 10 years but is effectively cut out from the lucrative American and Chinese markets by health regulations. Brazil’s biggest market is Russia. The New Zealand Meat Industry Association notes in their 2014 report, without further comment, that Brazil last year exported 229,000 tonnes to Hong Kong. We can be confident that Hong Kong was not the final destination. It is called the grey trade.
Australia exports large quantities both to China and the United States. It is easily the largest supplier of beef to China.
India has cultural restrictions on beef consumption, but manages to export well over a million tonnes per annum. Foot and mouth disease is endemic in India, and this restricts the trade away from many parts of the world.
The US has always been in the curious situation of being both a large exporter and importer. Their exports are largely of top quality table beef to Japan and Korea, whereas the imports are of cheaper grinding beef. The US has struggled over the last decade with North Asian trade restrictions linked to historical outbreaks of BSE (‘mad cow’ disease) but is now rebuilding its markets.
There are multiple forces influencing current prices for New Zealand beef, but the dominant factor is the American demand for grinding beef. America’s own cattle herds are at their lowest levels for more than 60 years. The immediate factor has been drought. The longer term issue is declining productivity on the American grasslands, with nutrients removed through sale of animals without compensating fertiliser applied.
There are signs that more heifers (young females) are now starting to be retained as breeders, particularly in the American Midwest, where feed conditions are good. But for the next two to three years this will only exacerbate the shortage of local beef. Each animal retained is one less animal that goes to slaughter.
The strong American outlook, combined with increasing Chinese demand, creates clear opportunities for New Zealand beef. But the economics of the traditional New Zealand beef breeding system remain challenging.
The fundamental problem is that nature has designed these cows to have only one calf each year. In these systems, up to half the total feed is used to maintain the cow. Since 1995, New Zealand’s specialist beef breeding herd has declined from 1.4 million to 0.99 million cows.
If New Zealand is to increase its beef production it will be through making better use of surplus calves from the dairy industry. Dairy cows produce a calf each year but less than a third of these are retained as dairy replacements. This leaves more than three million calves that could be raised for beef. Currently only about 450,000 of these are raised each year. The remainder are slaughtered at just a few days of age.
If more dairy-beef animals are grown out, then this will replace another class of pastoral animal. This is because total pasture production is not increasing. On some farms, increased beef production will replace dairy support activities, but in the main it will be at the expense of sheep numbers.