The recent removal of Covid restrictions in China opens opportunities for Australian exporters to tap into changes in Chinese beef consumption, Rabobank says in a newly released report.
In its Q1 Global Beef Quarterly, the specialist agribusiness bank says “China’s reopening” will offer business opportunities for beef exporters, but also generate volatility in the global market.
The bank expects overall Chinese household consumption will rebound strongly from the low base of 2022, and, with it, demand for beef is also expected to rise, albeit slowly.
And this may support increased trade from Australia, it says, as Australian beef supply lifts and prices ease while beef production declines in the US, a key supplier of beef to the Chinese market.
In 2022, the report said, Chinese food and beverage retail sales saw marginal growth and food service sales took a big hit, as the country’s ongoing Covid restriction weighed on consumption. But positive signs of recovery are emerging.
“In the week-long Spring Festival (in late January), retail and food service sales increased 6.8 per cent year on year,” the Rabobank report said.
A surge in savings by Chinese consumers in 2022 – an increase of CNY (Chinese Yuan) 17.8 trillion compared with CNY 9.9 trillion in 2021 – is also perceived as fuel for economic growth.
However, the bank holds a cautious view about whether the savings will lead to increased spending, as consumer and business confidence may need time to recover.
But for food and agriculture sectors, including beef, Rabobank believes the change in Chinese purchase and consumption patterns – which should have long-term implications for the supply side – are more important.
“After three years of living under Covid policies, we believe Chinese consumers are becoming more pragmatic, spending more money on the products which they perceive to be practical, valuable, and worthy.
“Seeking added value will be more important for consumers,” the report said.
Rabobank senior animal protein analyst Angus Gidley-Baird said weaker economic conditions would have some impact on Chinese beef consumption among lower-income, which tend to trade down.
“But to other consumer groups, beef is perceived to bring better taste, more health benefits and different eating experiences compared with traditional meats,” he said.
“These consumer groups in China – which are mainly the younger generations, middleto-high-income families and health-conscious people – are increasing their frequency of beef consumption.
“As consumer groups become more segmented, we see beef experiencing both trading up and trading down. As such, we expect a gradual increase in high quality beef consumption, although total consumption may increase more slowly.”
China beef market undergoing significant changes
The Rabobank Beef Quarterly found evolving market channels and consumer behaviour are also influencing the development of China’s beef market.
While food service has previously been the main channel for beef consumption, the bank now sees rising beef sales in retail channels.
“This trend is supported by the robust growth of new tech cookers and portable ovens. We expect beef retail sales to maintain this rapid growth – supported by new retail modes, such as O2O (online to offline) and community group-buying, though food service will remain the major channel,” the report said.
“Another trend is the rapidly-growing pre-prepared dish market. These dishes have achieved high double-digit growth in the past two years, and we expect this to continue in the coming five years, although at a slower rate.”
Rabobank believes beef consumption in China will continue to rise, and beef market size will steadily expand in the coming years despite the headwinds in the overall economy.
“That being said, we do expect a slow-down in beef imports in 1H 2023, as the high inventory of frozen beef will require months to consume. This will impact total import volumes in 2023, which may be flat or only slightly higher compared to 2022 (beef imports increased 15 per cent year-on-year in 2022),” the report said.
Ripple effects for global beef trade
With the expectation of even higher Brazilian beef supply this year, China should remain the main export destination for the world’s beef production, the report said.
However, the bank expects average Chinese import prices in 2023 to be lower than 2022, to accommodate the increase in volumes. And the temporary suspension of Brazil’s exports to China, due to an atypical BSE (bovine spongiform encephalopathy) case, will affect export flow in the first half of 2023.
China became a top three beef export destination for the United States in 2022, the report said, but growth in export volumes slowed throughout the year. The US will face continued headwinds into China over the medium-term, as US supplies decline and prices increase.
“The decline in US volumes should support increased trade from Australia as its volumes lift and prices ease, further supported by the potential increase in demand for chilled product with the growth in China’s retail sales of beef,” the report said.
For Australia, the Global Beef Quarterly said, cattle prices have levelled out after dropping in late 2022. Mr Gidley-Baird said the Australian cattle market took a steep turn downwards in late 2022 as it “appeared the wind had finally blown out of the sails”.
“Prices have been more stable since the start of this year, however, suggesting the market has found a new equilibrium,” he said. “We believe current prices are more sustainable – providing more favourable returns for feedlots and processors – and that they will continue to track around current levels for the first half of 2023.”
Mr Gidley-Baird said good rainfall through Queensland in January and February will help support producer restocking activity in Australia’s largest cattle-producing state and should provide support for younger cattle prices.
Production volumes are starting to show promising signs of recovery, he said, as slaughter volumes increased in late November and through early December to reach the highest levels in 2022.
“Slaughter numbers returned to these levels in early February after the Christmas break, suggesting that increased volumes are starting to become available,” he said.
“At these higher rates – and with the potential of more cattle coming online – processing capacity could be tested. Limitations with labour availability continue to impact the processing sector and resolving these problems is not a short term matter.”
Mr Gidley-Baird said the increased production will lead to a rise in export volumes, “even though word on the street suggests that supply chains are already quite saturated with product”.
“The indications that US production and exports are starting to decline will be welcome news but there remain a few months when congested supply chains may cause softness in prices or build up of stocks. Encouraging signs of a recovery in China are positive, but we will just have to wait to see how much additional volume China takes,” he said.