Sunday, December 3, 2023

MEATY MATTERS: Brexit impact to drag on and on

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Any hopes Brexit will be sorted this year are receding further into the distance with every new twist and there’s a strong chance the situation will have changed again by the time you read this.
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For obvious reasons, I won’t make firm predictions about the likely outcome because it’s impossible to predict which of several will eventuate but it is possible to assess the long- and short-term risk factors for New Zealand exporters who must get on regardless with securing orders and satisfying customers.

Unsurprisingly, it is hard to get too much information from exporters about their shipping programmes for the Christmas chilled trade because they are in the middle of negotiations with their key customers and they are also reluctant to upset them by disclosing confidential details in print. 

Silver Fern Farms’ position remains much as was conveyed to suppliers at the beginning of the year – essentially no immediate disruption is expected with United Kingdom customs authorities accepting shipments that have European Union documentation for six months after Brexit, whenever that might be. 

SFF’s latest position states “Given the continued high levels of political uncertainty surrounding the UK’s political dynamics we are retaining a watching brief regards the UK market at an industry level and directly with our customers.”

Anzco sales and marketing general manager Rick Walker confirms it is business as usual for chilled shipment planning and access to the UK, with assurances the quota split will enable clearance of non-EU shipments into the UK through Felixstowe and London Gateway, the main ports for NZ origin containers. 

In the increasingly unlikely event of a no-deal Brexit on October 31 there is a possibility of delays as a result of resources being reallocated from those ports to handle problems at other entry points like Dover.

Affco sales and marketing group manager Mark de Lautour says it is a critical time for Christmas and Easter chilled contract negotiations. Affco is still in the initial stages of discussions though retailers have indicated they will be placing orders and will expect NZ exporters to be ready to supply. 

That said, under the unprecedented political conditions, retail customers appear naturally cautious to commit and will likely look to minimise their risk exposure where possible. 

In a similar fashion, company policy sees Affco actively looking to manage its own risk-exposure to commercial factors it can’t control while at the same time maintaining strategic relationships.  

With overall lamb cut returns from Chinese buyers surging ahead of expected chilled lamb prices from the UK there are options available if needed.

Meat Industry Association chief executive Tim Ritchie makes the point NZ exporters will not want to walk away from the traditionally valuable UK chilled market but will need to keep other options on the table as a risk management strategy. 

He also says it is far easier for UK retailers to make flexible arrangements than it is for NZ exporters who face a five-week shipping time. 

While there are concerns about the potential quota split when Brexit finally happens, recent years haven’t seen shipments approaching the total access entitlement of 228,000 tonnes of sheep meat or more than 50% of that figure to either the UK or rest of the EU. That is because of declining volumes here and relative prices obtainable elsewhere.

The impact of Brexit, whether now or at some point in the future, won’t necessarily be felt immediately because of the agreement on customs clearance. 

The main effect will become evident when large quantities of English, Welsh and Scottish lamb no longer have a ready EU customer base and will inevitably flood the UK market. 

Another concern will be the impact of Brexit combined with global trade conditions on the British and EU economies, which might result in seriously reduced demand for imported products.

Had Brexit been a factor even three years ago it is worth remembering trade with China wouldn’t have been sufficient to provide a viable alternative market. 

Therefore, close attention needs to be paid to the sustainability of the trade with China from the crucial perspectives of continued access, competitors and consequently price and volume. 

While there is understandable nervousness about the increasing proportion of NZ production being shipped to a single market there are, as yet, no signs of that particular tap being suddenly turned off. 

The growth of the Chinese middle class provides confidence demand will continue to increase for both sheep meat and beef but it will become much more important in the future for NZ exporters to understand the fast-changing dynamics and trends in the Chinese market. 

Finding the right distribution and retail partners is essential, as is total commitment to the use of social media and digital technology to connect consumers to the NZ or individual company brands. Embracing new technology will build brand awareness and loyalty that will protect NZ against loss of market share to its competitors.

Whatever the immediate result of the Brexit negotiations – no deal, extension, general election, second referendum or an agreement – there’s no doubt it will be months if not years before we know the final outcome. 

Meantime, trading relationships will be fraught with uncertainty and NZ exporters must make their own individual decisions on the level of risk they are willing to accept. 

We must keep our fingers crossed NZ’s relationship with China remains strong.

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