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COVID-19: impacts on markets

22 May 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. It is clear that even though China appears to be emerging from COVID-19 shutdown, the crisis is continuing across the rest of the world and will continue to disrupt consumption of Australian red meat 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 recently 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

There has been a significant drop in sales at foodservice in most global markets, creating carcase imbalances. Typically, higher value loin cuts make their way into foodservice, balancing out the overall value of the carcase for Australian processors. With loin sales down, it will remain a constant challenge for the industry to move the entire carcase while minimising the impact to overall value of the carcase.

Retail sales

As foodservice channels slow, demand for meat through retail, particularly online, has lifted, as more consumers are forced to eat more meals at home. Domestic market retail value growth is over 20% for the twelve weeks leading up to 19 April, with more than 130,000 new households purchasing beef.

Demand has been strongest for staple items such as mince and sausages, which were key contributors to recent spikes in fresh meat sales in the domestic market.

A shift to ‘localism’ has also occurred as more Australians are buying food and drinks from local businesses out of convenience and to ‘support local’. This has contributed to domestic butcher sales surging by about 39% for beef in the last twelve weeks.

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

Adaption will be key to overcome implications created by these shifts.

Competitors

Global competitor supplies have slowed due to COVID-19, as outbreaks and distancing restrictions lead to a drop in processing speeds and, in some cases, temporary plant closures.

Inconsistent supply and shifting demand from international markets is likely to see the global competitive landscape remain unpredictable for months to come.

Supply issues have escalated rapidly within the US as the number of COVID-19 cases increases, with large disparities emerging between live cattle prices and wholesale beef prices. Capacity cuts to US cattle slaughter have caused disruptions up and down the supply chain, as processing plants have been forced to slow chains or temporarily close.

The situation has eased, with Steiner Consulting estimating a reduction of 23% in beef processing across the country (compared to 40% a few weeks ago), but it is still unpredictable when plants will return to full capacity given absenteeism and the threat of re-infection. On the back of this US feedlot numbers have dwindled, and exports have contracted due to the supply shortages and domestic customers being prioritised.

Australian red meat exports

Red meat exports in April have been shaped by COVID-19 as global markets continue to be impacted. Australian beef exports in April totalled 92,476 tonnes swt, 6% lower than a year earlier. Lamb exports also fell by 18% in April year-on-year, reaching 22,643 swt.

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.

Some beef offal prices have improved, as offshore demand for lower value red meat products remains strong, however more premium offal products such as tongue and thickskirt have failed to find support. Hide prices remain flat as suppliers wait on end markets and tanneries to reopen.

China recently suspended beef exports from four Australian processing plants. While China represents an important and valued market accounting from 24% of exports in 2019, Australia’s diverse spread of export markets continues to be a strength of the red meat industry, with no single market representing more than 25% of red meat exports.

Korea has appeared as a potential new market for Australian tenderloin cuts. Already Australia’s fourth largest beef export market, Korea’s rapid and successful response to containing COVID-19 and rebuilding its economy has presented the opportunity to introduce high-value cuts to consumers.

Eleven of Australia’s top fifteen most valuable red meat export markets are expected to enter recession in 2020, creating a range of factors that are expected to impact red meat sales.

Australian livestock exports

Australian’s largest cattle export market, Indonesia, has been hit by significant social restrictions that have suppressed sales and dropped prices as demand is impacted. For the calendar year-to-April, live exports to Indonesia were 144,000 head, back 22% on the same time last year.

Shipments to Australia’s second largest cattle export market, Vietnam for the calendar year-to-April were up 55% on year-ago levels, totalling 108,000 head. Vietnam’s outbreak of African Swine Fever has been impacting local meat supplies and is supporting demand for Australian cattle.

After a very slow January and February, Australian live sheep exports picked up substantially in March and remained strong in April. However, in the calendar year-to-April, exports are 19% back on 2019 numbers to 429,000 head.

For the calendar year-to-April, live sheep exports to Qatar were back 38%, Kuwait was up 8% and Jordan decreased 36%. Over the next month, both Jordan and Qatar will likely take more shipments before the summer prohibition.

Australian livestock markets

Online livestock sales have risen, saleyards have adjusted to video streaming sales and implemented strict entry protocols to conform with social distancing requirements.

As Australian exporters compete with global suppliers, this has created pressure on domestic prices, with grainfed cattle price indicators dropping sharply in recent weeks as the foodservice sector continues to suffer. Widespread rainfall supporting restocker intentions has also triggered a decline in cattle on feed numbers from record highs.

MLA has recently released revised cattle projections for 2020, which are forecasting a further tightening of supply as improved conditions help initiate a national herd rebuild.

The National Livestock Reporting Service also adjusted market reporting services to support COVID-19 containment efforts. A series of CV-19 indicators have been devised to keep stakeholders best informed in the current environment. Read the latest market news here.

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.

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