KEY POINTS:
New Zealand beef exports to North Asia have soared, following a ban on US beef in the region because of mad cow disease.
Taiwan, Japan and Korea banned US beef imports in 2003 for fear of BSE.
As a result, Kiwi exports to North Asia - comprising Japan, Korea, Taiwan, Hong Kong and China - have jumped from 15 per cent of total export volume before the BSE-related ban in 2002/2003 to 27 per cent in 2006/2007.
That's a rise in value of beef export receipts from $347 million to $540 million.
In December 2005 Japan lifted its ban on US beef, only to renew it two months later after spinal cord was found in a shipment.
Meat & Wool New Zealand economic service executive director Rob Davison says North American beef shipments to the region are now limited to small amounts.
However signs of progress in resolving the trade dispute have emerged from South Korea.
New South Korean President Lee Myung-bak will make a visit to Washington for talks with his US counterpart, while Foreign Minister Yu Myung-Hwan says the issue will hopefully be sorted out soon.
The possibility of a US-Korean free trade agreement is the big carrot dangling in front of both parties, with the chance of any deal unlikely while the US beef industry sits stewing on the sidelines.
New Zealand beef exporters will be in for a scrap when US shipments do eventually get going again, with price likely to be a tool for re-establishing the US market position.
Davison is expecting an orderly growth in competition.
"When shipments do resume it's going to probably not be a sudden burst," Davison says.
"I actually think it's going to be as consumers start accepting it back in the market."
The New Zealand sector would be looking to maintain a biggish in-road into that market, he says.
New Zealand's grass-fed animals provide a "much differentiated product from the grain-fed industrial farmed beef", he says.
Meat & Wool chairman Mike Petersen says the industry is better positioned to defend its turf.
"The gains that we've made have really been in convincing consumers about the taste and the attributes of our grass-fed product and that's been a big move."
The advantage potentially gained by US exporters from a free trade agreement depends on the terms of a deal but would likely involve a reduction in tariff and/or an increase in quota.
New Zealand beef exporters to South Korea face a tariff of 40 per cent.
"It hasn't been an issue up until now, but clearly we're pushing our government to say that if there's a free trade agreement between America and South Korea and other countries then we need to get our act into gear."
Petersen says in this situation New Zealand would need to get an FTA as quickly as possible, or risk being disadvantaged by better access from not only America but countries like Australia - who he believes is next in line.
* * *
Food and agribusiness bank Rabobank says the international market conditions for local meat producers are largely favourable, and should offer opportunities for greater profitability in the medium to long-term.
But increasingly complex consumer demands and dynamic agricultural conditions in New Zealand mean the industry needs to adapt.
Rabobank senior analyst Hayley Moynihan says consumers in premium export markets want enhanced attributes from products, although demand is growing fastest in the lower value meat product markets.
"With lower New Zealand production levels, the industry will face increasing pressure to choose between a focus on high-value markets or expanding exports into new emerging markets for commodity proteins," Moynihan says.
"The dilemma for New Zealand's meat industry in positioning and marketing its products is how to best exploit the opportunities available in increasingly distinct markets."
The advantage gained by the country's pasture-based system from the uplift in the agricultural commodity price cycle is likely to be tempered by dealing with "third millennium" issues, including traceability, disease-free status, fair trade, animal welfare, sustainable production methods, and food miles.
"New Zealand's agricultural exports already enjoy a positive reputation with consumers internationally," Moynihan says.
"However, many third millennium issues will challenge that reputation unless consumers are well informed and New Zealand continues to ensure that it leads the way in meeting consumer requirements."
The cost and responsibility for implementing standards and procedures for third millennium issues will fall close to the farm gate, she says.
Demand for New Zealand meat is rising, although only about 77 per cent of the US beef quota is filled because of supply constraints and available economic returns, and the falling European sheep flock is also an opportunity.
"With demand relatively steady, the gap in sheepmeat availability will largely be filled by New Zealand within the constraints of the existing quota."
Meanwhile, record lamb production in Australia is expected to ease and flocks to be rebuilt as the country moves away from drought conditions.
Despite the rising demand for New Zealand meat Rabobank expects export volumes to drop in 2008 and 2009.
"Volume is still important for international trade," Moynihan says. "New Zealand has always punched above its weight in agricultural export markets and will need to continue to do this."
* * *
The Government last week confirmed special support payments are available for rural families in drought stricken areas. Acting Minister of Agriculture Damien O'Connor says farmers are eligible irrespective of whether a drought has been officially declared by the local authority.
Rural assistance payments are set at 75 per cent of the applicable rate of unemployment benefit, with farmers needing to meet an income and personal asset test on non-farm assets and a cash asset test.
Minister of Social Development and Employment Ruth Dyson says other assistance is available including special needs grants and emergency benefits.
"This year's drought, and last year's drought on the East Coast of the North Island, will have long-term pain for farmers and their families," Dyson says. "These things are there to help, and people should feel no shame about taking them up."
Meat & Wool chairman Mike Petersen says the government has to be congratulated for its drought effort.
"This is a serious issue now for New Zealand and certainly the national drought committee and the weekly reporting that's happening is providing a much better up to date view of exactly what the conditions are like and what response is needed," Petersen says.
The impact of the drought will have far reaching effects for the next two to three years, while the Reserve Bank has underestimated the impact on the economy, he says.
"I think they'll get a real fright just how much productivity and production's going to drop over the next 12 months."
Fonterra says the drought could wipe half a billion dollars off farmer payouts by the end of the season, but Petersen says he understands " it'll be much higher than that and could be close to a billion dollars".
Talk of special support will likely generate criticism from people who will not want farmers to get any help.
The fuller criticism will probably include phrases like "money-grabbing" and "polluters", plus a reference to a retail price of cheese. The business of farming seems to generate some of the most emotive responses from the public of any economic sector.
And yet we have long done away with subsidies, farmers stand or fall on their own efforts and the Government support announced last week comes with restrictions .
Farmers understand that the weather is a factor that they as businessmen based on the land must plan for and deal with. Quite right.
But if an extreme event, say an earthquake or flood, hit a city central business district or industrialised zone potentially putting companies and workers on the scrap heap and wreaking havoc on the economy, would we begrudge the Government helping out?
Probably not.
