Guy Trafford assesses the impact disruptions in our ag trade with China are having locally, and how long the turmoil might last

For the average New Zealander the impact of the Novel Cronavirus is something that is happening overseas, mostly in China, and so long as it stays there we assume we will be relatively immune from its impacts. On one level this is correct, hopefully our border controls are sound and if it does somehow manage to breach them, then our health systems are more than able to cope. After all, while a ‘nuisance’ the virus to date has proved no more fatal than the average annual influenza.

However, for those involved with food exports and tourism then the impacts are starting to bite.

For the food exporters the virus impacts come at time when the Chinese market (in particular) is already under some pressure. Prior to the outbreak, China was already finding the prices having to be paid for red meat was getting too high. Driven up by the lack of pork availability, prices hit a point where some Chinese customers took a break from imports to let the market cool.

Taylor Preston expected this cooling down period to finish after Chinese New Year was over (24th -30th January) when buying would resume again, presumably at a slightly more subdued level. This explains some of the price declines seen in recent weeks. In the meantime the coronavirus has struck and severely confused the situation. Chinese New Year has been extended an additional 8 days to February 8th, but perhaps more critically due to restrictions on travel within China, containers of products cannot get off the wharves. And any on-shore processing is not being carried out due to having no workers in factories and of course restaurants and the like are shut up partly as there are no customers, as well as no staff. Taylor Preston, who provided much of these market insights, have said they will continue to process but with a focus on stock that are able to be supplied into non-China markets - that is, lamb, cow and bulls.

Mutton has taken the biggest hit falling -50 cents/kg. I cannot recall a cut in the schedule of that magnitude before and all other meat grades have also experienced lesser reductions due to the major price supporter (China) being out of the market. Taylor Preston expect the China market to reopen and recover, the question is when and all this happening when most parts of the country are suffering under the adverse weather conditions. As a result expect to see our meat schedules continue to drop over the next few weeks and perhaps beyond. So it really is "good-bye to the summer wine".

The meat industry is not the only one impacted. The crayfish industry sends almost all its exported product into China and that trade has also come to a screeching halt. Exporters are having urgent conversations with MPI to get the necessary paperwork through to get access to other markets, and in the meantime the clock keeps ticking.

Ditto the log trade.

Dairy products are not immune from the influence; again China is our single largest market (as it is for red meat). Fortunately dairy products are not so vulnerable as they can be stored when processed into powder and added value. But the old adage, China sneezes and we all catch a cold, takes on added meaning. And while the recent ANZ weekly focus takes a reasonably circumspect view of the impacts, in my view the repercussions may continue longer and hit deeper for some sectors than we will be remotely comfortable with. What we can see is that the situation is fast moving in the wrong direction. Five days ago ASB senior economist Nathan Penny said he thought “meat and dairy would hold up well”, but already that is being shown to be wrong.

The SARs virus took about 7-8 months the run its course so if the influence of Corona virus takes as long there well need to be some rapid realigning of markets we send product to and no doubt these will be at discounted prices.

A major change since SARs is the influence of social media and the average person is struggling to separate fact from fiction and so the ‘bad’ news spreads infinitely faster than good and the bad is often incorrect. This is going to make turning around the current situation, which could almost be described as hysteria, more difficult.

A recent occurrence which has me scratching my head and perhaps reflecting the influence of social media is the Auckland Chinese community decision to cancel this year’s Lantern Festival as a mark of sympathy for ongoing situation in China. At his stage, if we believe the Chinese government figures, it is still less fatal than an average year’s influenza outbreak, so this seems somewhat over-the-top as a response. Or does social media have it right and the true number of fatalities is far greater than what is being reported?

If social media is only half-way correct then the market issues will continue or even worsen. Only the passage of time will confirm but in the meantime the festival cancellation will add confirmation to peoples worse fears and as I heard some-one say “the only thing more contagious than the virus is the fear surrounding it”.

Today's GDT results have brought overall drop of -4.7%, a direct influence the influence of Chinese virus. The results were (surprisingly) mitigated by rises for butter (+0.2%) and cheese (+6.0%). The powders, which are normally supported by China, were down -4.2% for SMP and -6.2% for WMP. Volumes were also down -13%.