Steady rather than spectacular progress for sheepmeat into Asia
Lifting the lamb price beyond its mediocre level remains a work in progress, but meat processor and exporter Alliance Group is satisfied longer gains will come from visits to China, Malaysia, Japan and Singapore.
Insights into the potential for more sheepmeat value from the markets were made after a 16-day trip by Alliance chairman Murray Taggart, chief executive David Surveyor and director Russell Drummond, returning on Monday.
The main thrust of the trip was to deepen existing ties with processing giant Grand Farm in China, red meat importer Fatric in Malaysia and other companies in the markets. Alliance expects to announce a strengthening relationship with a Singapore partner soon, but is unwilling to release details yet.
Taggart said the relationship building would provide incremental gains to extract more value for farmer shareholders from meat sales and co-products such as sausage casings.
Distributing meat to markets was a challenge and the answer was to work with the companies, he said.
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“The opportunities have been there for some time, but can you take them to another level? We have certainly come back with one or two ideas. They are not game changing in the context [of improving returns] for sheep farmers, but about incremental value.”
In China, the trio visited the large processing plant opened by Grand Farm in Xilinhot, Inner Mongolia. Alliance is New Zealand’s largest lamb exporter to China and has been in the market since the mid-1990s. In that time Grand Farm has grown to own 96 meat shops, operate 260 branded meat counters in hypermarkets and supply more than 10000 hypermarkets in China.
Taggart said Grand Farms wanted to process more imported meat and was pushing more meat to an “up-market” level.
“The way they are growing they could take significantly more than we could produce of the cuts they want. They couldn’t take the high end cuts we produce, but they could take more.”
Taggart said China was continuing to grow at 6 per cent of its GDP on top of a “massive lump of activity”.
He said the co-operative wanted a balance of high and lower value cuts in markets and spread its risk across them to create price tension and limit over-exposure in one country.
Demand would grow for more chilled meat as Asian people got wealthier.
Malaysia remains a challenge because of its halal restrictions but Alliance services this from its Lorneville plant and believes there is potential to grow this as mutton is a key part of its diet.
“There is definitely potential for growth and that’s across the board at the low and high end. It requires commitment to the market and a lot of Asian countries are strong on relationships and you can’t turn up once in a blue moon and think you will win. So this is incremental gain and long term stuff.”
Like other meat companies Alliance is struggling with locking in a lamb price.
Taggart said the price direction was looking “cloudy” because of high volatility in so many markets and exchange rates.
The company was avoiding sending a wrong signal after coming in for criticism last year when “when we weren’t even in coo-ee” with the final price.
“We would probably say we wouldn’t expect it to be worse than the last year, but it would be difficult to argue it would be substantially better.”
Beef had come off its high driven by a United States drought and its herd was beyond a rebuilding phase. Low Indian buffalo numbers were returning and the large beef-producing nation of Brazil was expanding on the back of a low currency and exporting to China.
Domestically, Alliance expected cull cows could be at lower numbers than previously because of the improved milk price. However, the co-operative had a larger sheepmeat ratio than other meat companies.
Taggart said Alliance was making good progress with an internal transformation of the co-operative and although it may not be so obvious to farmers it would be in a better shape by the end of the financial year.