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NZ red meat sector can develop winning formula in China

Lessons from dairy can help NZ red meat sector develop winning formula in China

New Zealand’s red meat sector should draw on the experiences of the dairy sector to help formulate its strategy for continued growth in the Chinese market, according to RaboResearch General Manager Tim Hunt.

Speaking at the Red Meat Sector conference in Napier last week, Mr Hunt said the Chinese market offered significant growth potential for New Zealand’s red meat sector and there was much the industry could learn from New Zealand dairy.

“New Zealand dairy product and companies have had a strong presence in the Chinese market for almost a decade and there is a great deal the red meat sector can learn from their experience over this period,” he said.

Mr Hunt said by heeding the lessons from New Zealand dairy’s history in China – including seizing first-mover advantage, preparing for volatility and capitalising on growing Chinese consumer demand for safe and environmentally-friendly produce - the red meat industry had the potential to develop a winning formula that would maximise export earnings.

“We think there is a tremendous opportunity for New Zealand’s red meat sector in China. But it will only be realised if the sector adopts the right strategies and carefully manages the risks of what remains a very tricky market.”

China opportunity

Mr Hunt said the opportunity the Chinese market offers New Zealand’s red meat sector starts with three crucial factors.

“Firstly, China is poor in arable land and water relative to its population, so as it gets richer, it knows it has to import more of its food. Secondly, this is a country that remembers food embargoes and famine, so those resources it does have will be prioritised for use in staple crops like rice and wheat – with local red meat production far less supported. And thirdly, the melamine crisis of 2008 transformed the willingness of Chinese consumers to pay for safe food, often from aboard,” he said.

Together, these three factors ensure that as red meat consumption grows in China, much of it will be met by imported product – with New Zealand well placed to win a share of that opportunity, Mr Hunt said.

“Official beef imports into China increased more than tenfold in the five years to 2017/18, and were up by another 32 per cent year on year in quarter one of 2018,” he said.

“We also expect to see China import more sheep meat and, given strong demand in China for offal and secondary cuts, this provides the added benefit to New Zealand of increased sales into a market where it receives good value for the whole sheep, rather than just premium cuts.”

Lessons from dairy

Mr Hunt said one of the key lessons from the New Zealand dairy sector’s experience in China was the importance of capitalising on first-mover advantage.

“New Zealand’s dairy industry established early access to the Chinese market and managed to entrench a preference for the product lines it produced and for the characteristics of New Zealand made dairy. This early work put it in good stead to defend its position as the competition started to arrive with Australia gaining an FTA, the US building WMP (whole milk powder) plants and the EU looking to build its brands in China in recent years.”

Another lesson New Zealand dairy companies had learned, the hard way, Mr Hunt said, was the tendency for imports to wear the brunt of market adjustment.

“In 2004 and 2015 the New Zealand dairy industry learned that outside suppliers wear the volatility of Chinese market demands, with Chinese buyers slashing their imports while they continued to buy more expensive Chinese milk.

“You can make your sales to China stickier by establishing points of differentiation, value adding or building strong in market relationships. But volatility is likely to still be a feature of supplying this market.”

Mr Hunt said other lessons the New Zealand red meat sector could draw from the experience of their dairy counterparts included the opportunity to re-write the sector’s value-add story (due to the value the Chinese place on New Zealand’s environment and safe supply chain) and the benefits and complexities of partnering with locals.

“There is also the tendency for unforeseen regulatory shifts in China and the potential for ‘Icarus moments’” as suppliers get burned by the sun, with sales sometimes expanding so rapidly that companies build capacity and inventory to keep up, only to be hurt by the evaporation of this growth as market conditions or regulations shift,” he said.

Winning formula

With these lessons in mind, Mr Hunt identified seven key considerations for New Zealand red meat to develop a winning formula in China:

• a focus on market access and product development

• thorough due diligence on the market and key players

• partnerships with carefully-selected local players

• developing high-quality/differentiated product

• putting appropriate capital at risk

• market diversification

• maintaining a robust production sector.

“New Zealand’s sheep and beef industry is as well placed as any in the world to capitalise on the opportunities China is presenting. But success will be hard won, and learning from the experience of other sectors in this complex market presents some rare low-hanging fruit as it seeks to keep ahead of the pack,” he said.


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