While new post-Brexit trade deals are set to play a key role in determining the future of UK beef imports, local consumer preferences and non-tariff barriers will also heavily influence who supplies beef to this lucrative market in 2021 and beyond, according to a new report by Rabobank.
And with the UK a high-value, albeit small, market for New Zealand beef – and free-trade negotiations between the two countries well advanced – Kiwi producers will be keeping close watch on developments for potential additional export opportunities, says report coauthor Rabobank animal proteins analyst Blake Holgate (pictured).
In its latest Beef Quarterly report, Rabobank says the UK represents a big, high-value market, and once outside the European bloc it is expected to become the fifth or sixth largest beef-importing country.
Holgate said trade negotiations between the EU and UK were intensifying, with more rounds of negotiations being held through to 2nd October, 2020.
“It is difficult to predict the outcome of these negotiations at the present time. Both parties have stated a clear desire to conclude a deal during the transition period which ends on 31 December, but time is short, and there is a long list of issues to resolve,” he said.
Holgate said the result of trade negotiations between the EU and UK would be particularly significant for Irish beef producers.
“Ireland is the major supplier of beef to the UK — representing 70 per cent of total UK beef imports in 2019 — and is currently one of a select number of major beef exporters to the EU-27 who are granted tariff-rate quotas which allow them to import certain quantities of beef at reduced or zero tariff rates,” he said.
“Once the Brexit transition finishes, these quotas will be divided between the EU and the UK, affording existing EU suppliers access to the UK at reduced tariff rates. If however, the EU and the UK fail to agree on future trade terms, it’s likely tariffs will remain high for most imported beef products and this would put Irish beef in a vulnerable position.”
Potential New Zealand opportunity
The report says the threat for Irish producers was further compounded by the UK government pursuing new trade deals with countries outside the EU, including New Zealand and Australia.
“New trade deals could further challenge Ireland’s position in UK imports if it opened the possibility of broader low-tariff or no tariff access to the UK market for other beef exporters.
And Irish producers will also be wary of the fact that New Zealand and Australia supply higher-value products,” Mr Holgate said
The report says although ongoing trade negotiations will be pivotal, these alone will not determine who ultimately supplies the UK beef market.
“Consumer preferences for locally-sourced product and non-tariff barriers – such as entrenched existing market relationships between food retailers and processors and purchasing standards – will also play a major role. And these clearly do work in favour of current Irish suppliers,” Holgate said.
“For example, several UK food retailers have already announced that they will not be changing their current purchasing standards around chicken. Specifically, they have announced they will not accept product from countries that have different food-safety management practices, such as the US, even if such product has access to the UK under a new trade agreement."
For New Zealand, Holgate said this meant the industry had to continue ensuring they can demonstrate that New Zealand beef is produced to the highest food safety, animal welfare and environmental standards.
“If the New Zealand beef industry is able to do this, it is likely to find itself in a privileged positon compared to some of its competitors. However, if it’s unable to maintain these standards, it could find it increasing difficult to get product on UK supermarket shelves.“
New Zealand update
The report says New Zealand cattle prices strengthened over the past three months, recovering from the sharp decline in the previous quarter.
“At the end of July, the North Island bull price was sitting at $5.45/kg cwt and the South Island at $4.70/kg/ cwt, a 12 per cent and eight per cent increase respectively since midMay,” Holgate said.
“Prices in the North Island are largely in line with where they were a year ago, while South Island prices are down 10 per cent to 14 per cent year-on-year.”
Holgate said beef exports performed solidly over the last quarter, largely underpinned by demand from the US for manufactured beef.
“Average export returns from May to July were slightly ahead of the same period last year, however, export data from July shows NZ export returns are starting to feel the impact of challenging market conditions, with average returns for the month down two per cent YOY.
“Export returns for beef exported to China have been weakening consistently since April with average returns from China down 12 percent year-on-year during the month of July. And as a result, NZ exporters are directing increasing volumes of exports into the US market and away from China.”
Holgate said New Zealand processing capacity recovered to normal during May following Covid-19 restrictions.
“Covid-19 restrictions in place during late March/April did cause a backlog of stock to be killed, particularly in the South Island where the seasonal kill wasn’t as advanced as the North Island. That backlog has now largely been worked through, and New Zealand’s season-to-date cattle kill is now marginally ahead of last year’s kill.”