Coronavirus: Impacts on NZ’s food and agribusiness sector

RaboResearch released a comprehensive update on February 12 on the Coronavirus and its current and potential impacts on New Zealand food and agribusiness sector. INTRO

 

RaboResearch’s update begins by outlining that the new Coronavirus (same family as SARs and MERs) broke out in China on the cusp of 2020.

“As at 12 February, the virus is now thought to have infected more than 42,000 people in China and killed more than 1,000 with limited cases being discovered in a wide range of countries (mainly in people who were infected in China then travelled elsewhere).

It says the relevant responses of Chinese authorities have included:

  • Restricting travel within China, particularly in the Hubei province – the epi centre of the outbreak.
  • Discouraging large gatherings.
  • Extending the national new year holiday by 10 or so days (ending Feb 9 or 10 depending on city or region).

RaboResarch notes too that outside of China many governments have now banned travel to and from China, including New Zealand.

“This in turn has resulted in:

  • Factories closing for longer than usual during the period.
  • Restaurants and food service chains closing many outlets (e.g. Starbucks reported it has closed half its outlets in China).
  • Disruption to internal logistics within China.
  • Several US and European airlines reducing or cancelling flights to China.

The report from RaboResearch asks if we have been here before.

“The closest thing we have seen before appears to be the SARs crisis of 2003. In that case, 5,327 people were infected in China (349 died), 1,755 in HK and 1,014 in other countries around the world.

“SARs reduced annual Chinese economic growth from 11.1 percent in Q1 2003 to 9.1 percent in Q2 2003. The economy recovered soon after – but the Chinese economy was in much better health at the time than it is now and external economic conditions were more favourable. It is hard to find evidence that consumption of F&A products fell in China in 2003. There is no evidence that imports of food and ag products fell on an annual level (but China was less reliant of F&A imports at that time).”

RaboResearch says there are at least two important differences between the current events and SARs:

1.       This Coronavirus seems to have already spread more widely than SARs.

2.        NZ F&A is far more exposed to China in 2020 than we were at the time of SARs.

  • NZ sent under five percent of its ag exports to China in 2002: in 2019 it was around 31 percent (with a similar extension of the products sent).
  • The links between our domestic economies and China are now clearly also much stronger (via exports, tourism, education, investment etc).

So, what are the likely impacts of this Coronavirus on NZ F&A?

It says the first round impact of the Coronavirus will be felt by any business that relies heavily on the food service channel in China, especially if product is perishable and requires quick distribution to and within China:

  • We know that rock lobster shipments to China from NZ have all but ceased in recent weeks (see mitigating factors below).
  • Chilled meat shipments for food service is a risk category.
  • NZ mutton shipments have already been heavily impacted. These are predominantly sold frozen, but much of the product goes into the food service industry including many hot pot restaurants.
  • While wine is less perishable, clearly sales will be low right now for anyone focused on Chinese food service.
  • Anything that relies on air freight to China in the hold of passenger planes is also susceptible given the termination of flights to China from NZ.

“In the first round, we are unlikely to see consumption of meat, dairy etc. fall. People are still eating, and reductions in eating out are offset by increased eating at home. Our China team have also noted that the rise of internet shopping in China since SARs means that sales of food are somewhat less reliant on leaving the home,” the update says.

“If the virus continued for many months to come, then we would likely see second round impacts start to hit our F&A industry.

  • Incomes may fall in China if the virus is extensive and enduring (due to disruptions to the Chinese economy).
  • We may eventually see less growth in sales of premium food and beverage products.
  • There may be an impact eventually on sales on meat, dairy, grain etc.

 RaboResearch says that an important ‘stabiliser’ for our F&A industry in the event that Coronavirus did start to have these second round effects, is that the NZ dollar would likely depreciate significantly as the market responded to slowing economic growth and rising risk concerns. “This would offset somewhat any fall in global commodity prices when expressed in our local currency terms,” it says.

 

For specific commodity comments see https://www.rabobank.co.nz/media-releases/2020/200212-coronavirus-impacts-on-new-zealands-food-and-agribusiness-sector/

 

Visited 4 times, 1 visit(s) today

Comments are closed.

So, you want to be a CEO?

If you have aspirations of becoming a CEO or senior leader, one of the most important things, according to a former US President, is just to learn how to get

Read More »
Close Search Window