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COVID-19: impacts on markets

15 September 2020

The unprecedented and unpredictable nature of COVID-19 makes it very difficult to report on the complete range of impacts to Australian red meat and livestock industry in an accurate and timely manner. Globally, case numbers continue to rise, and as impacts are still felt globally and social distancing restrictions remain, this will continue to disrupt the consumption of Australian red meat, both domestically and internationally.

Here’s a summary of some consistent impacts seen in global markets:

Consumer demand

Concerns about financial security, the impact of COVID-19 on the economy and increasing pressure on household budgets have been the key drivers behind consumption and changes in purchasing behaviour for Australians.

More than two in five consumers globally are spending more time cooking and preparing food at home. While approaches to recipe and cuisine experimentation vary, familiarity remains key at this time.

MLA commissioned consumer research in China which confirms that consumers in a crisis gravitate to brands they trust. Australian beef and lamb have gained that trust over decades of combined industry efforts.

Foodservice sales

Globally, the foodservice sector continues to be one of the worst affected industries, with widescale shutdowns and restrictions across most countries. GlobalData’s latest forecasts show a decline of 29.5% in profit sector operator sales for 2020 relative to the baseline forecast, equivalent to a $1 trillion loss in revenue. The foodservice sector in key Australian markets, such as China, Japan and Taiwan, is recovering but still faces a number of challenges before returning to normal. Operators in the foodservice sector that have been able to pivot to focus on takeaway or delivery models have been able to weather the COVID-19 storm more successfully, as consumers continue to pursue convenience.

Retail sales

Retail meat sales continue to perform strongly on the back of declining foodservice sales and an increase in cooking from home. According to recent data from the Australian Bureau of Statistics (ABS), the average retail price of beef in Australia for 2019 was a new record at $20.64/kg, up 6.3% on 2018 prices. For the first half of 2020, this increased further to $21.91, an increase of 8% on year-ago levels. Lamb data reveals a similar story, with the average price of the first half of 2020 increasing 4.9% on last year’s record.

Demand has been strongest for staple items such as mince and sausages, which were key contributors to the growth this year.

There are some early signs that consumer behaviour may change across areas such as:

  • Increased channel share for online grocery, as changed channel behaviour potentially sticks
  • Increased focus on quality & safety, as consumers seek out trusted products
  • Price sensitivity, as consumers have potentially restricted household and disposable income
  • Preference for cooking at home, as social distancing measures continue

Processing

A second wave of COVID-19 continues to cause disruptions in Victoria, with ongoing restrictions being imposed on the state. As part of these restrictions, it was announced on 7 August that processor workforce capacity in Victoria would be scaled back for six weeks, creating logistical pressures along the supply chain. On 7 September, The Victorian government announced that the state’s red meat processors will stay under current COVID-19 workforce restrictions for ‘the foreseeable future’ despite several regional processors maintaining virus-free workplaces in areas with no or very low virus case numbers.

The impact of workforce capacities being dialled back will likely be felt along the supply chain, but will be somewhat mitigated by the seasonally low turnoff of sheep during the winter months and potential opportunities for neighbouring states to take on some of the processing load.

Competitors

Global competitor supplies have been impacted by COVID-19, and fast-shifting supply and demand from international markets is likely to see the global competitive landscape remain unpredictable for months to come.

In the US, the processing situation has rapidly improved. Beef exports for the calendar year-to-July were back 8%, underpinned by a decline in volume to Mexico. Beef exports from the US in the coming months are, however, likely to run above year-ago levels as processors work their way through a backlog of cattle unable to be processed at the height of shutdowns.

Beef exports from New Zealand are up 1% for the calendar year-to-July, with the US being the top destination for beef. Volumes to China, however, have declined sharply, now back 24% on 2019 levels.

Cattle slaughter in Brazil is back 9% in 2020 on 2019 levels, however, for the calendar year-to-July exports are up 17%, representing slow demand from the domestic market and a favourable exchange rate. China remains the key destination for Brazilian beef.

For the calendar year-to-July, Argentine beef exports are up 20% on 2019 levels, with 327,804 tonnes of beef shipped. China is the leading destination for Argentine beef, with a 74.7% share.

Australian red meat exports

Red meat exports in August have been affected by tight slaughter levels in Australia on the back of significantly reduced livestock turnoff.

Australian beef exports in August totalled 78,000 tonnes swt, to now sit 9% back on year-ago levels. Mutton exports, on the other hand, have bounced back after eight months of decline, totalling 8,900 tonnes swt in August. Lamb exports in August lifted 9% on the same month last year to 19,200 tonnes swt, the result of a good supply of early season lambs.

Growing export prices pushed the value of Australian red meat exports up by 20% year-on-year in the first quarter of 2020. This has been driven by rising livestock prices triggered by recent rainfall that has increased restocker demand and tightened supply, as well as favourable exchange rate movements in the first few months of the year.

Japan has been the top market for Australian beef exports in 2020 so far, receiving 178,000 tonnes swt, an 8% decline on 2019 levels. Tighter volumes are likely due to a combination of supply and demand factors, with mid-range eateries in Japan that use Australian beef suffering from the fallout of social distancing rules, shortened business hours and a loss of tourist/business functions.

Although China recently temporarily suspended beef exports from several Australian processing plants, it still remains a key market for Australian red meat. Beef exports to China for the calendar-year-to-August are now 145,000 tonnes, a 16% decline on 2019 levels. Exports of lamb are more positive, sitting at 44,000 tonnes swt for the calendar year-to-August, representing only a 1% decline on 2019 levels.

Beef exports to the US for the calendar year-to-August are now at 154,000 tonnes swt, a 6% decline on 2019 levels. Sheepmeat exports have increased by 1% on 2019 levels for the calendar year-to-August at 39,000 tonnes swt. US export volumes are set to slow as beef production in the US ramps up on the back of their rapid recovery. Increased demand for sheepmeat in the US means it is quickly closing the gap on China as the top destination for exports.

Exports to Korea for the calendar-year-to-August are now at 103,000 tonnes swt, a 4% decline on 2019 levels.

Goatmeat exports in August were 1,000 tonnes swt, with year-to-August volumes now back 39% on 2019. The US remains the main destination for  exports, accounting for 59% in 2020.

Australian livestock exports

Live cattle exports were reported at 66,950 head in July, the lowest reported monthly total in 2020. Lower live cattle shipments in July were likely amplified by the stronger volumes exported in June. However, the month of July also represents a crossover period in the north, before second-round musters typically commence in August.

In August, Australian cattle exports recorded the lowest August level for more than five years with 77,559 cattle exported for the month. January to August shipments totalled 743,722 head, which is back on the 823,170 head exported in the same period in 2019.

Impacts on MLA’s marketing activities

MLA staff remain in constant contact with trade partners to gauge market impacts and are looking to implement a number of surveys to gauge potential impacts of COVID-19 on consumer behaviours and attitudes, feeding adjustments to marketing activities.

MLA’s marketing programs are being adapted to a ‘lockdown and adaption’ phase that has seen a shift to meals consumed at home. MLA’s consumer marketing objectives in this phase aim to mitigate food safety risks through correct storage of beef and lamb products, ensure the availability of practical cooking information with a focus on high value cuts and emphasise the nutritional value of red meat as part of healthy meals.

Despite the global disruptions caused by COVID-19, MLA is committed to delivering marketing communications via digital platforms – see how MLA’s Simply Spring campaign in the US has been modified to leverage digital platforms. MLA is also exploring ways to deliver business development activities using digital formats such as webinars.

MLA is working closely with the Australian Olympic Committee and Paralympics Australia regarding the Australian Beef partnerships to align them with the new Games period. MLA intends to retain its Olympian and Paralympian Australian Beef Ambassadors and will continue to use these Ambassadors across 2020 and 2021 activities.

Impacts on MLA’s research, development and adoption activities

MLA has been able to progress many of its research, development and adoption activities as intended. However, in some instances MLA has been required to make some adjustments to project milestones and timelines. Travel restrictions have caused the most disruption where MLA and researchers have been prevented access to certain locations where projects are – and projects with international partners have been especially impacted.