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Saturday 21 May 2022

Snarled supply chain, falling dairy – the impact of China’s lockdown on NZ F&B, agri

10th May 2022 By Paul Yandall | | @foodtickernz

Disruptions to freight logistics, dairy demand, and hog pricing have been identified as four specific impacts of China’s current strict Covid-19 lockdowns on New Zealand, according to Rabobank.

Fonterra is the world’s biggest exporter of dairy products.

Speaking on a podcast, What’s the impact of China’s lockdown wave?, RaboResearch general manager for Australia and New Zealand, Stefan Vogel, said outlined what he said were increasing ramifications for China’s trading partners, including Aotearoa.

Massive delays around Shanghai port have made an already-stressed global container logistics situation even more complicated – and costly, Vogel warned.

“The dry container index, which tracks average prices paid for the transport of dry bulk materials across more than 20 international routes, increased five-fold through 2021 as a result of Covid lockdowns in different parts of the world,” he said.

“While the index has since declined and is down 16% since early March and 25% down from the September 2021 highs, it looks likely that the massive ongoing Covid lockdowns in China will add to continued container logistics issues and keep container freight prices well above historic levels for 2022 and also likely to remain elevated well into 2023.”

As well as increasing costs pressures, delays at the port have also disrupted exporters such as Zespri, which has established a second port at Taizhou, around 300km south of Shanghai, to get its kiwifruit crop into the country, as well as rescheduling delivery.

The spread of the Omicron variant and China’s “dynamic zero-Covid” policy were also bringing strong headwinds to dairy consumption, particularly in the country’s food service sector, Vogel said.

This was playing out in reduced dairy demand he added.

“Dairy demand in food service is slowing in China while, according to our calculations, dairy products in China produced from imported Oceania whole milk powder are now more expensive than those from locally-produced dairy for the first time in eight years,” he said.

“After a record-breaking 2021 in milk powder imports by China, the demand uncertainty from Covid restrictions is likely to dampen the ‘dragon’s’ import appetite slightly in 2022.”

In its annual results in released in September, Fonterra said it wanted to grow the value of its foodservice business Anchor Food Professionals from $3bn to $5bn, largely by focusing on expanding in Greater China.

The foodservice shut down could also hit sales of New Zealand beef and lamb in China.

Vogel said the closure of hospitality has resulted in a big drop in foodservice sales of meat products as well as supply chain disruption, and Chinese hog producers responded by liquidating herds to avoid further losses.

This has put further downward pressure on Chinese pork prices and could result in consumer demand moving away from pricey New Zealand beef and lamb in favour of cheaper pork.

“Retail prices in China for both beef and lamb are currently at record highs, and New Zealand exporters will be keeping a close eye on how demand for these products holds up as consumers potentially look to trade down to pork and other cheaper animal proteins alternatives.”



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