World meat industry news

A slowdown in growth in China, weak commodity prices, low bond yields, weak global trade and a fall in the oil price have combined to create uncertainty in global financial markets and an increase volatility.

China’s growth has slowed as it attempts to transition from a state-led investment and manufacturing economy to one more dependent on consumption and services. This was widely predicted and should have come as no surprise to the markets. However, it has been the pace of the slowdown that has made investors nervous. It is also widely accepted that China’s official figures may overstate growth, making the slowdown even sharper than reported.

This drive to a more consumption-led economy may present more beef and lamb trade opportunities with China. There has already been a significant increase in the amount of product exported to China in recent years. Many Chinese consumers are showing a preference for imported meat, amidst several domestic health scares. So a push towards a more consumer-led society with a predilection for imported products over domestic could be an opportunity for the UK beef and lamb sectors in the future.

China has enjoyed a prolonged period of growth, with huge government-funded infrastructure projects fuelling demand for oil, steel and other commodities. These have been hard hit by the slowdown, meaning a drop in commodity prices. Along with weak industrial output, this has resulted in a slowdown in global trade. Combined with an OPEC decision not to control the supply of oil, but maintain its market share, driving higher cost producers out of the industry, oil prices have dropped dramatically, reaching lows of $27 a barrel.

There has historically been a link between oil prices and global food prices. With the oil price falling over the past two years, the food price index has followed the same trend. Whilst this means that as producers have received lower prices for their product, to some extent this has been mitigated by lower input costs. Feed costs in particular have reduced significantly over the last three years and there have also been lower costs for fuel, heating and lighting.

The lower price of oil for transport, heating and lighting should have given households an unexpected boost in their real incomes, with cash freed up to spend on other goods and services. With this benefitting the least well off the most, economic theory would suggest that this would boost consumption. However, for this to happen, all other things should remain equal. In reality, with interest rates at historic lows and share prices tumbling, consumers everywhere have been very cautious about any increases in spending.

In the UK, the prospect of Brexit has compounded uncertainty on the markets, affecting the exchange rate. Sterling has weakened against the euro since mid-January and also lost ground against the US dollar, as the Federal Reserve announced an interest rate rise and investors looked for “safe” options amidst market volatility. However, the weakening of the pound against the euro has come as some welcome news for beef and lamb producers. It has helped to make UK product more competitive, both domestically and abroad.