AFFCO
FARMERS’ UPDATE
FEBRUARY 2022
FARMER UPDATE
A MESSAGE FROM OUR CEO & NATIONAL LIVESTOCK MANAGER
As we write this, we are heading into further uncertain times. The Omicrom variant of COVID is spreading quickly throughout New Zealand, and it is very likely it will cause disruption across the supply chain all the way from the farmgate through to export markets. It is unknown as to how this will ultimately affect the processing industry, but AFFCO has processes and systems in place to manage this risk as best we can. Amongst other things, we are currently putting in place a Rapid Antigen Testing (RAT) programme so that vaccinated workers who are ‘close contacts’, and who test negative on a daily basis, can continue working in line with the governments recently announced Phase 2 rules. AFFCO has the advantage of an extensive network of multi-species plants spread across the country, so is better placed than many other processors to handle any potential disruption. We have included in this update how stock pick ups will be handled on farms where there are confirmed COVID infections or close contacts, and we would encourage you to familiarise yourself with these protocols. On the positive side of things, both Islands have received some well needed rain, and are in good shape for the middle of February. The grass that is being grown now will enable us to smooth livestock volumes across the processing season and take the pressure off suppliers, who up until recently were facing severe drought conditions in some areas. Prices for red meat and co-products remain strong globally and this is reflected in very strong summer Schedule pricing. We hope you will find our attached market update informative. Unfortunately, the gloss is being taken off export market returns by continued international shipping and supply chain disruption, which is causing delays and additional costs getting our products to export markets. To reduce our reliance on international shipping lines, and to assist in easing this pressure, we have continued our programme of non-containerised conventional vessels, which are being chartered directly by AFFCO to take our products to North America – more on this in our market update.
From a labour perspective, an absence of foreign labour due to border restrictions is creating a shortage of workers across all primary industries. The meat industry and AFFCO are not immune to this, and we currently face immense pressure given our heavy reliance on process workers to staff the chains and keep the stock flowing through our plants. Despite being short of well in excess of 300 workers, our Operations team and employees continue to do a fantastic job under the circumstances. To aid recruitment and retention of employees, we have recently increased our pay rates, and implemented a weekly bonus system for processing workers who attend work for the full working week without absence. We would like to thank all our suppliers for their patience, as most of you understand the challenging situation that the industry currently faces. We continue to prioritize direct business over third-party supply, with direct business enabling us to work with suppliers on a year around supply volume relationship, and to reward loyalty. Despite all the current challenges, the feedback we are receiving is that current market returns are translating into kill sheets which suppliers are very happy with, which is great to hear - at the end of the day our aim is to get the best market returns and pass those back to suppliers. We are hopeful this season will see a more normal autumn, and we can head into winter with good feed levels. As mentioned earlier, demand for red meat has never been stronger, so while other parts of the economy such as hospitality and retail have really been struggling, we remain in a very positive sector, continuing to provide a high quality product that the world wants. All the best,
Globally, markets are struggling with supply shortages of food, and meat is no exception. A number of factors continue to impact the supply chain for meat products, such as over-booked shipping lines, critical congestion at most major container ports, and lack of production from large producers. All of this stems from the COVID-19 pandemic, and in particular the Omicron variant, which has resulted in major labour shortages in factories, ports and trucking providers alike. The uptick of this is that demand continues to be strong for NZ meat products, due to the supply-shortages from our traditional competitors such as Australia and South America. However, getting product to market is proving exceptionally difficult and costly. Additionally, we have the increasing likelihood of Omicron impacting our own production capacities (on top of the existing seasonal workforce shortage created through closed boarders) as it has elsewhere already, which is of great concern to suppliers and customers alike. China and the USA continue to lead the charge for Beef products. With Brazil, Argentina and Australia having limited capacity, these markets remain extremely active. There was some concern that China demand could slow in the wake of Brazil’s re-entry and speculation of the impact of the Evergrande construction company default. These concerns have proved unfounded at time of writing. Brazil supply continues to be short and expensive while Beef has remained the preferred import red meat protein for Chinese consumers. Bull and Manufacturing Cow grinding meat supply is being hugely affected by US West Coast port congestion. Long Beach container terminal (Los Angeles) is in such bad shape - due to labour shortages and the continued COVID-driven consumer demand for goods – that some container vessels are forced to anchor for more than 35 days before being allowed to dock and unload. This has driven prices up, but likewise significantly impacted processor’s ability to complete sales and capture these prices (see Shipping commentary below). For several weeks, just prior to CNY, lamb pricing to China was under pressure, however this has improved. Buyers are concerned about forward supply and increasingly interested in securing inventory – likely a valid concern as labour and supply chain challenges make the coming months look difficult. Traditional lamb products in the US, such as Racks, are short and pricing is near all-time highs. As per beef, delivering product to market remains the key challenge to capturing these prices
At time of writing, AFFCO have just completed loading of our third charter vessel for the USA. These charter vessels are conventional reefer ships – large under-deck refrigerated holds – and as such do not require containers. More importantly, they are not required to call into container port terminals, therefore bypassing the backlog of container ships at ports like Long Beach. AFFCO initiated chartering vessels in 2021 when we foresaw the impending shipping crisis. While these conventional reefer ships have become extremely expensive to charter, we saw this initiative as critical to supporting our factories and farmer suppliers alike. The latest charter vessel, the Cool Expreso, is our largest vessel chartered to date. She is capable of holding over 5,000MT of cargo in her hold – equivalent to almost three hundred 20’ containers – and will unload on the West Coast of the USA and return for a repeat voyage in late March. For the Cool Expreso charter, AFFCO offered both Silver Fern Farms and ANZCO space in the hold and it has been great to see a willingness by everyone to work together. The Cool Expreso loaded product in Lyttleton, New Plymouth and Tauranga with a mix of product for CostCo as well as inventory for AFFCO USA - AFFCO’s USA Sales & Distribution business.
AFFCO FINDING SOLUTIONS TO THE SHIPPING CRISIS
AFFCO have just completed loading of our third charter vessel for the USA. These charter vessels are conventional reefer ships – large under-deck refrigerated holds – and as such do not require containers. More importantly, they are not required to call into container port terminals, therefore bypassing the backlog of container ships at ports like Long Beach. See the Market Update for more. Pictured above from left;t; The Cool Expreso being loaded at dock in Tauranga, Middle; (L-R) Brian Shee, (Vessel Superintendent, Oceanic Navigation), Sandra Rostron (Sales Coordinator, AFFCO), Geoff Whitburn (Group Inventory Manager, AFFCO) stand in front of the last truckload of meat being loaded on the Cool Expreso, Right; The very last pallet, out of a total of 3,227 pallets to be loaded, is drop-stowed in just prior to the last hatch being closed.
STOCK PICK UPS DURING RED ALERT LEVEL New Zealand has done well to control covid infection rates until this point. We are all preparing now for the impact of Omicron and face the reality that at any time we could be asked to self-isolate, either having been infected, or as a family member or close contact of someone with the virus. If anyone is self-isolating on your farm under Ministry of Health guidelines, AFFCO can still draft and pick up your livestock. In this situation we need to adhere to the following: 1. Early communication will make planning a lot easier. Please let your livestock buyer know immediately when anyone on your property is self-isolating. 2. When stock is ready to go, talk with your buyer to arrange times for drafting and pickup. We’ll have a few extra questions to ask about who in your team will be present during drafting and pickup. If everyone in your team is needing to self-isolate we will organize a contactless service. We’ll also liaise with your carrier to work within their health and safety requirements. 3. During drafting/pickup anyone who is required to self-isolate cannot be present. 4.If you haven’t already, you will need to arrange with the carrier about a contactless collection of the ASD form. Better yet, all AFFCO sites can accept eASDs. Register here if you haven’t already: eASD Animal Status Declaration Even if you don’t have anyone on farm impacted, our existing policy about coming on farm (as per Ministry of Health guidelines) remains:
Maintain a safe distance of 2 meters apart, masks must be worn and ensure hands are thoroughly washed. Ministry of Health recommendations around masks have changed recently: Types of face masks . AFFCO recommend the use of P2 or N95 masks, but we appreciate they are currently difficult to obtain. If at any point the rules above cannot be adhered to, our buyer or carrier will be forced to cancel the pick-up. There is also the possible situation where your buyer or truck driver may be a close contact but still able to work. As announced on the 10th of February workers who are a ‘bubble of one’ or are a critical service can apply to continue working. Under this situation: • Workers must be vaccinated and asymptomatic • Suppliers must be informed of the buyer’s/driver’s status before they arrive on property • Mask and distance rules apply as above, however it is strongly recommended that any drafting or pickups in this situation are contactless. Note: This applies to close contacts only, not workers who have contracted Covid AFFCO are committed to processing your livestock, but we face an unpredictable situation and even with the best planning disruptions may still occur. Finally, we know our suppliers are used to being self-sufficient, but now is the time to plan for what might happen if you need to self-isolate. Beef+Lamb have a great checklist to ensure you’re ready: Covid 19 on-farm - Farmer Checklist
CANCELLATION OF REGIONAL FIELD DAYS Unsurprisingly, the upcoming Regional Field Days and Wanaka Show are no longer going ahead due to the current COVID red light setting. We will keep our fingers crossed for National Fieldays in June. AFFCO will be at the East Coast Farming Expo 23rd and 24th of February.
ONE MONTH EXTENSION TO TIMING FOR CONSULTATION ON AGRICULTURAL GREEN HOUSE GAS EMISSIONS The Government has agreed to an extension to the timeframe for consultation and recommendations on agricultural emissions pricing options. Consultation will now close in late March and the He Waka Eke Noa Partnership will report its recommendations to Ministers by 31 May 2022 (rather than 30 April 2022). The current legislation requires agriculture to be included in the New Zealand Emissions Trading Scheme (NZ ETS) by 1 January 2025 unless an alternative is agreed and implemented before that date. Meetings with farmers are continuing during the red light traffic setting, and there will also be more online opportunities for farmers, growers and others in the primary sector to discuss options and feed back. Both Beef + Lamb New Zealand and DairyNZ are running webinars and events. Please click on the links to find out more.
WHAT HAPPENS ONCE YOU ‘KNOW YOUR NUMBER’ You will be aware of the big push from the industry to ‘know your number’ for greenhouse gas emissions on farm. Once you have the number most farmers are asking what next? At the end of last year, AFFCO partnered with Beef+Lamb New Zealand to run a series of online Climate Change Action Plan workshops. These were a great tool to help understand your on-farm emissions, the tools available to mitigate them and how to develop a farm plan to manage these going forward. In case you missed them, here is a recording on one of our sessions. WATCH HERE
LEO BABE It is with sadness we announce the passing of Leo Babe, aged 79, a well respected and loved member of the AFFCO Livestock Buying team. Leo was part of the AFFCO team for over 40 years retiring in 2020, on retirement he had been in the industry for over 57 years. Our thoughts are with his family at this time.