Required Report - public distribution

**Date:** 8/25/2004

**GAIN Report Number:** NZ4014

NZ4014

**New Zealand**

**Livestock and Products**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)David Rosenbloom

U.S. Embassy

**Prepared by:**

Alastair Patterson

**Report Highlights:**

New Zealand's beef export volume in 2005 is forecast to fall 14 percent
to 507,000 tons. A 12 percent reduction in animal slaughter is
anticipated due to herd rebuilding and markedly lower numbers of
maturing bull beef. The New Zealand ban on imports of U.S. live cattle
and beef products continues. The New Zealand Food Safety Authority,
however, is assessing import applications for U.S. beef products on a
case-by-case basis.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Wellington \[NZ1\]

\[NZ\]

SECTION I. SITUATION AND OUTLOOK

New Zealand's beef slaughter in 2005 is forecast to decline 12 percent
to 617,000 tons (CWE), as farmers rebuild herd levels following a large
beef kill in both 2003 and 2004. The reduced slaughter will result in a
14 percent drop in New Zealand's beef export volume in 2005 to 507,000
tons (CWE). Exports to the U.S. market in 2005 will mirror the lower
total export volume. New Zealand beef prices are projected to ease
slightly in 2005, but will remain well above the average of the last
five years. New Zealand beef prices may face additional downward
pressure if the New Zealand dollar continues to appreciate against the
U.S. dollar. New Zealand's higher quality cuts sold to Asian markets are
now enjoying excellent demand and strong price levels. Beef prices for
New Zealand product shipped to these markets during 2005 will gain
strength from a reduction in exportable beef volumes in Australia
resulting from stock rebuilding following drought conditions in the past
two years.

Beef exports to the United States increased 5 percent to 148,000 tons
during the first 6 months of 2004, compared with the same period a year
earlier. Exports to Korea, Japan, and Taiwan rose 110 percent, 76
percent and 41 percent, respectively. Demand for New Zealand beef in
Asian markets increased followed the discovery of a BSE infected cow in
the United States. Strong beef prices prompted a higher beef kill in
2004 for New Zealand, resulting in a 4 percent drop in beef cattle
numbers. New Zealand's beef cattle population continues to trend
downward as farmers convert to more profitable land use options,
particularly sheep and dairy farming.

New Zealand initiated a ban on imports of U.S. live cattle, beef,
variety meats and processed foods containing beef following the December
2003 announcement of bovine spongiform encephalopathy (BSE) in the
United States. The U.S. beef industry was not significantly affected by
the import restrictions. Almost all beef consumed in New Zealand is
locally produced. The New Zealand Food Safety Authority, however, is
reviewing import applications for U.S. beef products on a case-by-case
basis. It recently granted an import request for a range of U.S. canned
beef products.

New Zealand implemented interim guidelines for its beef exports that
adhere to new U.S. regulations for meat consumed in the United States
(both domestic and imported) enacted following the BSE detection. New
Zealand seeks to modify the application of these rules for New
Zealand\'s beef on the basis of an equivalency program. The New Zealand
government emphasizes that it is a BSE-free country and achieving
compliance with the new guidelines has placed significant additional
costs on its beef exports to the United States without providing
additional food safety to U.S. consumers.

China ceased issuing import permits for New Zealand beef in June 2004
from all processing facilities not previously approved by Chinese
inspectors. New Zealand incorrectly thought that it had successfully
completed negotiations for an equivalence agreement with China, similar
to a protocol existing with the EU. Resolution of this trade issue is
moving forward following a visit of Chinese officials in early August.
China is expected to issue a report regarding the export status of New
Zealand meat plants in early October. New Zealand and China are now
working on a bilateral free trade agreement with a target date for
completion in 2005.

SECTION II. PS&D TABLES

+----------------+--------+--------+--------+--------+--------+--------+
| New Zealand    |        |        |        |        |        |        |
|                |        |        |        |        |        |        |
| Animal         |        |        |        |        |        |        |
| Numbers,       |        |        |        |        |        |        |
| Cattle         |        |        |        |        |        |        |
+----------------+--------+--------+--------+--------+--------+--------+
|                |        |        |        |        | (1000  |        |
|                |        |        |        |        | HEAD)  |        |
+----------------+--------+--------+--------+--------+--------+--------+
|                | 2003   | R      | 2004   | Es     | 2005   | Fo     |
|                |        | evised |        | timate |        | recast |
+----------------+--------+--------+--------+--------+--------+--------+
|                | USDA   | Post   | USDA   | Post   | USDA   | Post   |
|                | Of     | Es     | Of     | Es     | Of     | Es     |
|                | ficial | timate | ficial | timate | ficial | timate |
|                | \      | \      | \      | \      | \      | \      |
|                | [Old\] | [New\] | [Old\] | [New\] | [Old\] | [New\] |
+----------------+--------+--------+--------+--------+--------+--------+
| Market Year    |        | 0      |        | 0      |        | 0      |
| Begin          |        | 1/2003 |        | 1/2004 |        | 1/2005 |
+----------------+--------+--------+--------+--------+--------+--------+
| Total Cattle   | 9760   | 9760   | 9720   | 9540   | 9860   | 9425   |
| Beg. Stks      |        |        |        |        |        |        |
+----------------+--------+--------+--------+--------+--------+--------+
| Dairy Cows     | 3927   | 3927   | 3966   | 3966   | 0      | 4005   |
| Beg. Stks      |        |        |        |        |        |        |
+----------------+--------+--------+--------+--------+--------+--------+
| Beef Cows Beg. | 1280   | 1280   | 1271   | 1230   | 0      | 1180   |
| Stocks         |        |        |        |        |        |        |
+----------------+--------+--------+--------+--------+--------+--------+
| Production     | 4478   | 4475   | 4550   | 4470   | 0      | 4460   |
| (Calf Crop)    |        |        |        |        |        |        |
+----------------+--------+--------+--------+--------+--------+--------+
| Intra EC       | 0      | 0      | 0      | 0      | 0      | 0      |
| Imports        |        |        |        |        |        |        |
+----------------+--------+--------+--------+--------+--------+--------+
| Total Imports  | 0      | 0      | 0      | 0      | 0      | 0      |
+----------------+--------+--------+--------+--------+--------+--------+
| TOTAL Imports  | 0      | 0      | 0      | 0      | 0      | 0      |
+----------------+--------+--------+--------+--------+--------+--------+
| TOTAL SUPPLY   | 14238  | 14235  | 14270  | 14010  | 9860   | 13885  |
+----------------+--------+--------+--------+--------+--------+--------+
| Intra EC       | 0      | 0      | 0      | 0      | 0      | 0      |
| Exports        |        |        |        |        |        |        |
+----------------+--------+--------+--------+--------+--------+--------+
| Total Exports  | 18     | 15     | 10     | 50     | 0      | 50     |
+----------------+--------+--------+--------+--------+--------+--------+
| TOTAL Exports  | 18     | 15     | 10     | 50     | 0      | 50     |
+----------------+--------+--------+--------+--------+--------+--------+
| Cow Slaughter  | 1384   | 900    | 1300   | 900    | 0      | 780    |
+----------------+--------+--------+--------+--------+--------+--------+
| Calf Slaughter | 1596   | 1560   | 1570   | 1400   | 0      | 1450   |
+----------------+--------+--------+--------+--------+--------+--------+
| Other          | 1260   | 1780   | 1270   | 1800   | 0      | 1600   |
| Slaughter      |        |        |        |        |        |        |
+----------------+--------+--------+--------+--------+--------+--------+
| Total          | 4240   | 4240   | 4140   | 4100   | 0      | 3830   |
| Slaughter      |        |        |        |        |        |        |
+----------------+--------+--------+--------+--------+--------+--------+
| Loss           | 260    | 440    | 260    | 435    | 0      | 430    |
+----------------+--------+--------+--------+--------+--------+--------+
| Ending         | 9720   | 9540   | 9860   | 9425   | 0      | 9575   |
| Inventories    |        |        |        |        |        |        |
+----------------+--------+--------+--------+--------+--------+--------+
| TOTAL          | 14238  | 14235  | 14270  | 14010  | 0      | 13885  |
| DISTRIBUTION   |        |        |        |        |        |        |
+----------------+--------+--------+--------+--------+--------+--------+
| Calendar Yr.   | 0      | 0      | 0      | 0      | 0      | 0      |
| Imp. from U.S. |        |        |        |        |        |        |
+----------------+--------+--------+--------+--------+--------+--------+
| Calendar Yr.   | 0      | 0      | 0      | 0      | 0      | 0      |
| Exp. to U.S.   |        |        |        |        |        |        |
+----------------+--------+--------+--------+--------+--------+--------+

+--------------+--------+--------+--------+--------+--------+--------+
| New Zealand  |        |        |        |        |        |        |
|              |        |        |        |        |        |        |
| Meat, Beef   |        |        |        |        |        |        |
| and Veal     |        |        |        |        |        |        |
+--------------+--------+--------+--------+--------+--------+--------+
|              |        |        |        |        | (1000  |        |
|              |        |        |        |        | MT     |        |
|              |        |        |        |        | CWE    |        |
|              |        |        |        |        | )(1000 |        |
|              |        |        |        |        | HEAD)  |        |
+--------------+--------+--------+--------+--------+--------+--------+
|              | 2003   | R      | 2004   | Es     | 2005   | Fo     |
|              |        | evised |        | timate |        | recast |
+--------------+--------+--------+--------+--------+--------+--------+
|              | USDA   | Post   | USDA   | Post   | USDA   | Post   |
|              | Of     | Es     | Of     | Es     | Of     | Es     |
|              | ficial | timate | ficial | timate | ficial | timate |
|              | \      | \      | \      | \      | \      | \      |
|              | [Old\] | [New\] | [Old\] | [New\] | [Old\] | [New\] |
+--------------+--------+--------+--------+--------+--------+--------+
| Market Year  |        | 0      |        | 0      |        | 0      |
| Begin        |        | 1/2003 |        | 1/2004 |        | 1/2005 |
+--------------+--------+--------+--------+--------+--------+--------+
| Slaughter    | 4240   | 4240   | 4140   | 4100   | 0      | 3830   |
| (Reference)  |        |        |        |        |        |        |
+--------------+--------+--------+--------+--------+--------+--------+
| Beginning    | 0      | 0      | 0      | 0      | 0      | 0      |
| Stocks       |        |        |        |        |        |        |
+--------------+--------+--------+--------+--------+--------+--------+
| Production   | 665    | 693    | 660    | 700    | 0      | 617    |
+--------------+--------+--------+--------+--------+--------+--------+
| Intra EC     | 0      | 0      | 0      | 0      | 0      | 0      |
| Imports      |        |        |        |        |        |        |
+--------------+--------+--------+--------+--------+--------+--------+
| Total        | 14     | 13     | 11     | 10     | 0      | 10     |
| Imports      |        |        |        |        |        |        |
+--------------+--------+--------+--------+--------+--------+--------+
| TOTAL        | 14     | 13     | 11     | 10     | 0      | 10     |
| Imports      |        |        |        |        |        |        |
+--------------+--------+--------+--------+--------+--------+--------+
| TOTAL SUPPLY | 679    | 706    | 671    | 710    | 0      | 627    |
+--------------+--------+--------+--------+--------+--------+--------+
| Intra EC     | 0      | 0      | 0      | 0      | 0      | 0      |
| Exports      |        |        |        |        |        |        |
+--------------+--------+--------+--------+--------+--------+--------+
| Total        | 578    | 585    | 560    | 590    | 0      | 507    |
| Exports      |        |        |        |        |        |        |
+--------------+--------+--------+--------+--------+--------+--------+
| TOTAL        | 578    | 585    | 560    | 590    | 0      | 507    |
| Exports      |        |        |        |        |        |        |
+--------------+--------+--------+--------+--------+--------+--------+
| Human Dom.   | 101    | 121    | 111    | 120    | 0      | 120    |
| Consumption  |        |        |        |        |        |        |
+--------------+--------+--------+--------+--------+--------+--------+
| Other Use,   | 0      | 0      | 0      | 0      | 0      | 0      |
| Losses       |        |        |        |        |        |        |
+--------------+--------+--------+--------+--------+--------+--------+
| TOTAL Dom.   | 101    | 121    | 111    | 120    | 0      | 120    |
| Consumption  |        |        |        |        |        |        |
+--------------+--------+--------+--------+--------+--------+--------+
| Ending       | 0      | 0      | 0      | 0      | 0      | 0      |
| Stocks       |        |        |        |        |        |        |
+--------------+--------+--------+--------+--------+--------+--------+
| TOTAL        | 679    | 706    | 671    | 710    | 0      | 627    |
| DISTRIBUTION |        |        |        |        |        |        |
+--------------+--------+--------+--------+--------+--------+--------+
| Calendar Yr. | 0      | 0      | 0      | 0      | 0      | 0      |
| Imp. from    |        |        |        |        |        |        |
| U.S.         |        |        |        |        |        |        |
+--------------+--------+--------+--------+--------+--------+--------+
| Calendar Yr. | 300    | 300    | 305    | 305    | 0      | 270    |
| Exp. to U.S. |        |        |        |        |        |        |
+--------------+--------+--------+--------+--------+--------+--------+

TRADE MATRIX -- BEEF EXPORTS

+--------------------+-----------+-----------+-----------+-----------+
| ###### Tr          |           |           |           |           |
| ade Matrix, New Ze |           |           |           |           |
| aland Beef Exports |           |           |           |           |
+--------------------+-----------+-----------+-----------+-----------+
|                    | Calendar  |           | Jan --    |           |
|                    | Year      |           | June      |           |
+--------------------+-----------+-----------+-----------+-----------+
| Country            | 2002      | 2003      | 2003      | 2004      |
+--------------------+-----------+-----------+-----------+-----------+
| United States      | 208,110   | 227,990   | 140,663   | 148,230   |
+--------------------+-----------+-----------+-----------+-----------+
| Canada             | 43,037    | 42,966    | 34,659    | 20,135    |
+--------------------+-----------+-----------+-----------+-----------+
| Korea, South       | 19,832    | 28,717    | 16,446    | 34,628    |
+--------------------+-----------+-----------+-----------+-----------+
| Taiwan             | 15,482    | 23,134    | 13,524    | 19,117    |
+--------------------+-----------+-----------+-----------+-----------+
| Japan              | 20,203    | 22,139    | 12,380    | 21,842    |
+--------------------+-----------+-----------+-----------+-----------+
| Other              | 45,304    | 59,776    | 30,866    | 36,685    |
+--------------------+-----------+-----------+-----------+-----------+
| Total              | 351,969   | 404,721   | 248,538   | 280,636   |
+--------------------+-----------+-----------+-----------+-----------+

SECTION III. SUPPLY AND DEMAND, POLICY AND MARKETING

BEEF AND VEAL PRODUCTION

2005 Outlook

New Zealand's total cattle slaughter is forecast to decline 12 percent
to 617,000 tons (CWE) in 2005 due to a reduction in cull numbers of
adult cattle. This will reduce beef exports by 14 percent to 507,000
tons (CWE). Adult slaughter numbers will be further reduced by lower
retention rates of bull dairy calves for beef production in 2003, as
these animals take two years to reach mature weight levels. New
Zealand's calf cull is forecast to remain the similar to 2004. Fewer
bull calves will be retained for beef production in 2005, but more
heifer calves are expected to be retained for herd rebuilding.

New Zealand's capacity to take advantage of supply shortages in Asian
markets is limited by the fact that it produces mainly grass-fed beef.
New Zealand exporters are working hard to educate Asian purchasers of
the benefits of grass-fed beef, but grain-fed is still strongly
preferred by the high-end segment of the market. Exports to the U.S.
market were only moderately affected by the increased demand for New
Zealand beef cuts in Asian markets since the United States purchases
primarily mixing beef and secondary cuts, rather than primary cuts.
Exports to the U.S. market in 2005 will reflect New Zealand's 14 percent
decrease in total export volume.

Current uncertainty surrounding international beef markets has made it
difficult for New Zealand's beef industry to accurately forecast what
will happen in 2005. New Zealand's beef industry is a price taker, and
will respond to sales conditions in the U.S. market as well as the
re-entry of U.S. and Canadian beef into Asian markets. Export revenue
generated by strong price levels generated on sales to the U.S. market
will be partly offset by the anticipated strength of the New Zealand
dollar in 2005. Assuming, however, that restrictions on the importation
of U.S. and Canadian beef into Asian markets remain in place, New
Zealand's beef industry will continue to benefit from strong export
prices for its higher quality cuts of beef. Australian production is
forecast to decline in 2005 as Australian producers rebuild stock
numbers following drought conditions during the past two years. New
Zealand exporters are not likely to be able to take full advantage of
the anticipated strength in export demand, as the high slaughter levels
of 2003 and 2004 will create a need for herd rebuilding in 2005.

2003-2004 Review

New Zealand beef prices between July 2003 and June 2004 generally
strengthened, mirroring those in the United States. Annual New Zealand
beef exports for the first half of 2004 were 13 percent above the same
period a year earlier thanks to heavier export shipments to Asian
countries. New Zealand's beef kill is expected to decline in the second
half of 2004, finishing only slightly ahead of 2003 for the year as a
whole. Farmers will strive to strike a balance between slaughtering as
many animals as possible to take advantage of high prices while still
retaining adequate stock for herd rebuilding.

The first half of 2004 was generally unpredictable for New Zealand's
beef industry and altered the structure of New Zealand exports to a
minor extent. New Zealand exporters benefited from strong export demand
and higher prices in the U.S. market following the discovery of BSE in
December 2003. Beef exports to the United States reached 148,000 tons
during the first half of 2004, 6 percent above the same period a year
earlier. Exports to Canada, however, dropped significantly during the
same period. New Zealand beef enters Canada under an annual import quota
of 27,600 tons. Under normal market conditions, Canada usually adjusts
the import quota level upward. This, however, has not occurred this
year. Canada is usually New Zealand's second most important export
destination (in tonnage terms), but has fallen to fourth this year
behind the United States, South Korea and Japan. New Zealand exporters
are not significantly troubled by the lower sales to Canada because
market conditions have created better returns in Asia.

Exports to Korea, Japan and Taiwan during the first half of calendar
2004 increased 110 percent, 76 percent and 41 percent, respectively.
This follows large sales gains recorded to these three markets in 2002
and 2003, following the relaxation of non-tariff import barriers in
these countries and their economic recovery from the Asian financial
crisis. The exclusion of both Canadian and the U.S. beef from key Asian
markets has increased demand and price levels received for New Zealand
beef, more than offsetting price and quantity reductions on sales to the
Canadian market. New Zealand's beef industry is attempting to educate
Asian buyers and consumers about grass-fed beef. New Zealand exporters
are benefiting from Australia's inability to fully meet import demand in
Asian markets.

The re-entry of U.S. and Canadian beef into Asian markets will have a
negative impact on New Zealand beef exports to these markets. Once
Canada and the United States re-enter the market, much of the market
share that New Zealand has gained will be lost. New Zealand's beef
industry hopes that re-entry will be gradual, reflecting a currently
buoyant U.S. market and the possibility of a staged, rather than
immediate, relaxation of Asian country import restrictions.

Beef Demand

With more than 80 percent of New Zealand's beef production marketed in
export channels, world markets heavily influence New Zealand beef prices
and producer returns. The U.S. market accepts 50 percent of New
Zealand's beef production, accounting for nearly two-thirds of export
shipments. New Zealand beef prices generally follow those in the United
States. The remainder of New Zealand's export supply is shared primarily
amongst (in descending order of market size) Canada, South Korea, Taiwan
and Japan. Although the Asian markets generally take New Zealand's
higher value cuts of meat, their relatively small size minimizes the
impact that they have on the overall profitability of New Zealand beef
farmers. New Zealand beef earns few price premiums in most export
markets because it is grass-fed. Limited export volumes in comparison to
Australia, Canada and the United States, relegates New Zealand to being
a price taker in its main export markets.

A large proportion of New Zealand's beef production is used as
manufacturing-grade processed meat. The U.S. market receives 75 percent
of New Zealand's ingredient beef production, which is mixed with
American ground beef (hamburger) to reduce the fat percentage of the
resulting product. New Zealand traditionally has sold two-thirds of its
secondary beef production to the U.S. for use in items such as pastrami.
This is an important market for New Zealand because it provides an
outlet for its lower value beef cuts that are difficult to sell in other
markets. Opportunities for expansion in the U.S. market are limited by
New Zealand's export quota of 213,402 tons (product weight) annually.
Although not filled every year, the quota was filled during 2003 and is
likely to be filled again in 2004.

STOCK NUMBERS

Total beef cattle numbers in New Zealand continue to trend downward, as
beef farmers convert to more profitable land use options, particularly
sheep and dairy farming. Strong beef prices in 2004 kept New Zealand's
beef kill high, resulting in a 4 percent decline in beef cattle numbers.
Strong beef prices will motivate farmers to retain bull calves for beef
production, lowering the calf cull in 2004. Slaughter of adult cattle
will increase slightly. Although New Zealand's beef kill is now running
slightly ahead of last year, it is expected to ease towards the end of
the year. Live cattle exports increased significantly in 2004 due to
strong Chinese demand for New Zealand bred Friesian dairy cows with
specific attributes.

Beef prices are forecast to ease in 2005, but still remain relatively
strong. Because of the large beef kill in 2003 and 2004, farmers will be
motivated to begin rebuilding their beef herds next year. This will
greatly reduce the availability of stock for slaughter. Calf retentions
will remain high, although the lower beef prices will result in lower
retentions of bull calves for beef production. The slaughter of adult
cattle will be further reduced in 2005 as the flow-on effect of farmers
retaining fewer bull calves for beef production in 2003 is felt. Beef
breeding cow numbers are forecast to decrease 4 percent during 2004,
while dairy cow numbers are forecast to grow no more than 1 percent as
the rate of growth of New Zealand's dairy herd has slowed considerably.

New Zealand annual slaughter numbers were revised following receipt of
more accurate data. See
[www.nzmeatstats.co.nz](http://www.nzmeatstats.co.nz/) for more
information. A trade matrix for animal imports and exports has not been
included due to the small size of this trade.

POLICY

BSE

New Zealand initiated a ban on imports of U.S. live cattle, beef,
variety meats and processed foods containing beef following the December
2003 announcement of bovine spongiform encephalopathy (BSE) in the
United States. The U.S. beef industry is not significantly affected by
the import restrictions, as almost all beef consumed in New Zealand is
locally produced. The New Zealand Government is demonstrating some
flexibility in implementing its regulatory guidelines regarding imports
of U.S. beef. The New Zealand Food Safety Authority has indicated that
it is willing to review import applications for U.S. beef products on a
case-by-case basis. It recently granted an import request for a range of
U.S. canned beef products. Frozen [bovine
semen](http://www.maf.govt.nz/biosecurity/imports/animals/standards/bovsemic.usa.htm)
and frozen in-vivo fertilized [bovine
embryos](http://www.maf.govt.nz/biosecurity/imports/animals/standards/bovembic.usa.htm)
from the United States remain eligible for importation into New Zealand.

See
<http://www.maf.govt.nz/biosecurity/imports/animals/standards/index.htm>
for more information.

Due to the importance of maintaining access to the U.S. market, New
Zealand implemented interim guidelines for its beef exports that adhere
to new U.S. regulations for meat consumed in the United States enacted
following the BSE detection. This has required regulatory and marketing
adjustments for New Zealand. New Zealand seeks to modify the application
of these rules for its beef entering the United States on the basis of
an equivalency program. New Zealand takes the view that because it is
recognized as a BSE-free country, the new guidelines have placed
significant additional costs on its beef exports to the United States
without providing additional food safety to U.S. consumers. See
[NZ4002](http://www.fas.usda.gov/gainfiles/200402/146105326.pdf) for
further information on New Zealand's stance.

Meat and Wool Industry Restructuring

The New Zealand meat and wool industries have now completed significant
restructuring (see
[NZ4002](http://www.fas.usda.gov/gainfiles/200402/146105326.pdf)). The
Meat Board Restructuring Bill, introduced by the Government in late
2003, was passed in June 2004. The Bill restricts the regulatory
authority of New Zealand's Meat Board to managing export quota
allocations given to New Zealand by other countries. The Meat Board will
continue as a statutory body. This guarantees that the quota management
function will remain viable in the event that farmers decide to
discontinue paying levies to fund industry-good activity. Activities
previously managed or implemented by the Meat and the Wool Boards that
are identified as 'industry good' have been turned over to a new joint
industry organization called Meat and Wool New Zealand (MWNZ). MWNZ was
approved by a farmer referendum held in August 2003. Meat and Wool New
Zealand will have the power to levy farmers under the terms of the
Commodities Levies Act 1991 (CLA). Beef farmers will contribute NZ\$ 8.7
million of MWNZ's total operating budget estimated at NZ\$ 32.6 million
in the 2004/05 year. Funds will be allocated according to how farmers
voted, with half of the budget going towards research and development,
and the remainder spent on trade access, information and economic
analysis, skills and education, administration and statutory costs.

Under the CLA, a producer referendum allows farmers to determine what
type of activities will be funded through producer levies collected by
Meat and Wool New Zealand and to set future producer levy rates that
will be in force for a period of 5 years. Industry Good activity is a
broad categorization that includes market development efforts, market
access, and research and development. MWNZ, as the new industry-good
organization, must demonstrate to farmers a positive return on their
levy investment in each of the key activity areas.

China

In June 2004, China refused to issue new import permits for New Zealand
beef not produced by plants that were previously approved by Chinese
inspectors. New Zealand officials hope to reach an equivalence agreement
with China accepting New Zealand's food safety system in similar fashion
to the EU. A visit of Chinese government officials in early August is
expected to lead to resolution of the problem. China is expected to
issue a report on the export status of New Zealand meat plants in early
October.

Discussions on the trade and economic framework for a free trade
agreement (FTA) between New Zealand and China were initiated in January
2004. This will be followed by a study on the feasibility of a FTA and
then possibly negotiations on a trade deal. Both countries have
expressed a desire to conclude a FTA in 2005. New Zealand's efforts to
reach a trade accord with China are boosted by its willingness to meet
China's demand to be recognized as a market economy, which will provide
China with relief from anti-dumping provisions that it accepted when it
joined the WTO.

EU Quota

New Zealand beef exports to the EU have to date been negatively affected
by the EU's expansion to 25 countries. The EU's import quota for New
Zealand beef prior to EU expansion was 300 tons. This is less than the
1,000 tons annually exported to Cyprus and Malta before they joined the
EU. New Zealand hopes to meet with EU officials to resolve this trade
issue before the beef import quota for New Zealand is set on July 1,
2005.

MARKETING

Meat and Wool New Zealand Marketing

MWNZ will continue funding market development activity to promote meat
sales and consumption in both the domestic and export markets.
Approximately 60 percent of the NZ\$ 9.1 million producer funds
allocated by MWNZ for market development activities to promote export
sales of New Zealand's red meat will be allocated to beef, with the 40
percent remainder directed to sheep meat. These proportions represent
producer levy contributions. Beef promotional activity will focus on the
restaurant and food service trade in Asia, particularly in key North
Asian markets such as Japan, Hong Kong, Korea, and Taiwan. MWNZ
promotional funds will be directed to generic marketing activities
jointly undertaken with New Zealand exporters and foreign importers.
Individual New Zealand exporters also will conduct their own branded
promotional activities in export markets.

Although two-thirds of New Zealand's beef exports are sold to the United
States, Meat and Wool New Zealand does not plan to allocate any of its
promotional funds to North America. This is due to the ease that New
Zealand fills its export quota to the United States and because of the
type of beef that is exported to this market. Sales to the United States
consist largely of lower value, manufacturing grade beef used as a
blending ingredient with U.S. product to produce ground meat. The New
Zealand industry is attempting to expand its sales to other markets,
which will reduce its reliance on sales to the United States. New
Zealand beef entering the United States contributes funds to generic
beef promotion through USDA's check-off program.

Further Information

Ministry of Agriculture and Forestry

[www.maf.govt.nz](http://www.maf.govt.nz/)

Meat and Wool New Zealand

[www.meatnz.co.nz](http://www.meatnz.co.nz/)

Meat and Wool New Zealand statistics

[www.nzmeatstats.co.nz](http://www.nzmeatstats.co.nz/)