According to the ASB Regional Economic Scoreboard for the quarter ending June, Gisborne’s economy, which has been lagging most other regions in New Zealand, could soon be improving because of increasing beef prices.
Chief economist for ASB, Nick Tuffley, said Gisborne remained under pressure from low population growth and, by association, a “muted” housing market.
“However, surging beef prices may be boosting incomes in the region and contributing to solid employment growth in the Gisborne-Hawke’s Bay area,” he said.
“Those factors, combined with strong retail spending growth, non-residential construction and confidence, point to ongoing improvement in the region this year.”
Peter Andrew, consultant of AgFirst, said beef made up 50 per cent or more of the farming sector in Gisborne and was going through “a good patch”.
He agreed with the ASB scoreboard and said it is now a time when beef farmers will be spending money on improvements and maintenance.
The downturn in the Chinese economy has not impacted in this context because the US tends to be the driver in the market and US stock has decreased as a result of drought. This too has been the case in Australia, where farmers have had to reduce their herds because of drought.
The high prices are simply due to demand outstripping supply in the world beef market, according to Beef+Lamb CEO, Rod Slater.
The significant fall in the value of the kiwi dollar in recent months has further assisted beef farmers.
“We’re an exporting nation of our beef and lamb and when the price goes up offshore we have to pay the same price and, conversely, when it comes down, the NZ consumer gets the benefit,” pointed out Slater.
Andrew added that beef and sheep farming is quite profitable in general terms.
Beef export returns for the first six months of the season, which began in October, reached a record of $1.6 billion, which is more than 40 per cent above the previous year, Beef and Lamb NZ, said.
The US and China are the two major markets.
Locally, the average prices for blade, porterhouse/sirloin steak and mince have risen since 2012. These prices peaked at $28.95/kg in April for sirloin and $16.73/kg for blade steak and $13.40/kg for mince in May. Since then, prices have eased to $26.36 for sirloin, $16.16/kg for blade steak and $13.25 for mince. This is according to Statistics NZ data.
There is only a small markup by retailers on beef because of the highly competitive nature of the meat industry. It has squeezed margins on retailers, despite the duopoly of NZ’s two main supermarkets Foodstuffs and Progressive Enterprises, which are in direct competition with each other.
“It’s a very competitive industry. It’s the duopoly of those two, but you have also got your Mad Butcher’s, which is very aggressive on price,” Slater added.
There is concern that high prices could turn consumers off beef in favour of cheaper meat such as poultry or pork, but experience shows that consumers are attached to beef and lamb.