China trade won’t rebound quickly, Rabobank says as businesses and consumers face Covid-19 hangover

China’s re-opening after strict pandemic restrictions is unlikely to translate to a return of booming trade amid fragile business and consumer confidence, Rabobank warns.

Rabobank expects a slow-down in beef imports in the first half of this year, citing China’s stocks of frozen beef. Picture: Zoe Phillips

The re-opening of China’s economy as it emerges from strict pandemic restrictions is unlikely to fuel a strong rebound in trade with Australia, Rabobank warns, citing a dramatic change in the spending habits of Chinese consumers.

The re-opening has been generally hailed a positive step, creating opportunities for exporters - particularly for beef producers - amid a thawing of relations between Beijing and Canberra.

But Rabobank expects trade to remain volatile. In a new report, the bank said that Chinese business and consumer confidence will take some time to recover after being subject to strict pandemic restrictions as part of Beijing’s zero Covid-19 policy.

“After three years of living under Covid policies, we believe Chinese consumers are becoming more pragmatic, spending more money on the products which they perceive to be practical, valuable, and worthy. Seeking added value will be more important for consumers,” the report said.

Meanwhile, Rabobank senior animal protein analyst Angus Gidley-Baird said weaker economic conditions would have some impact on Chinese beef consumption among lower-income households, which “tend to trade down”.

Rabobank senior animal protein analyst Angus Gidley-Baird.

“But to other consumer groups, beef is perceived to bring better taste, more health benefits and different eating experiences compared with traditional meats,” he said.

“These consumer groups in China – which are mainly the younger generations, middle-to-high-income families and health-conscious people – are increasing their frequency of beef consumption. As consumer groups become more segmented, we see beef experiencing both trading up and trading down.

“As such, we expect a gradual increase in high quality beef consumption, although total consumption may increase more slowly.”

It comes after Brazil - the biggest beef exporter to China - suspended shipments last week after the South American country confirmed a case of mad cow disease.

It is not known how long the suspension will last, but it is expected to dent beef supplies in China, given Brazil exporters more than 40 per cent - or 2.7 million tonnes - of beef to China last year.

This compares with Australia - which was subject to trade bans across key farm commodities - exporting just over 175,000 tonnes of beef to China last year.

But China’s Global Times - considered a mouthpiece of the ruling Communist party - quoted an employee of the China Cattle Industry Association called “Zhao” saying that Australian beef may prove popular again in China.

“After the export halt of Brazilian beef, Australian beef exports may see some rebound,” Zhao told The Global Times.

But Rabobank said while beef consumption in China will continue to rise, and beef market size will “steadily expand” it expected a slow-down in beef imports in the first half of this year, citing China’s stocks of frozen beef.

“The high inventory of frozen beef will require months to consume. This will impact total import volumes in 2023, which may be flat or only slightly higher compared to 2022 - beef imports increased 15 per cent year-on-year in 2022,” the Rabobank report said.

Dave Harris, chief executive of Australian Agricultural Company, welcomed a thawing of China/Australia trade relations but said late last year China’s zero Covid-19 policy remained a key challenge.

“The challenge for China is they’re still locked up with Covid, so that’s difficult. The market from a volume perspective is pretty suppressed at the moment from a demand side of things. But any market that is looking to value brands and pay better money for brands is a positive thing for AACo,” Mr Harris said in November.

He also said that AACo had diverted some products initially earmarked for China to other countries, including the US and Korea.

In Australia, Rabobank said domestic beef prices had levelled after dropping late last year.

“Prices have been more stable since the start of this year, however, suggesting the market has found a new equilibrium,” Mr Gidley-Baird said.

“We believe current prices are more sustainable – providing more favourable returns for feedlots and processors – and that they will continue to track around current levels for the first half of 2023.”