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China resumes economic activity

Thursday, 19 March 2020

By Rebecca Wright

After two months of shut down, China has begun to cautiously relax measures brought in to control the spread of coronavirus, although some areas have stricter protocols than others. School and colleges are beginning to resume classes, factories and ports are starting to operate again.

While economic activity is now picking up, it is reported consumers are still cautious about attending crowded places, such as shopping malls and restaurants. Wet market attendance is also expected to be reduced, with more consumers using western style supermarkets instead. This, in turn, favours frozen imported foods as does the decreased frequency of shopping.

Although factories have reopened, reports suggest they are operating at around 50% capacity. Some of this is driven by demand – with other countries now putting measures in place to control Covid19, reducing orders from China. Many labourers have not yet returned to work because they are stranded in rural areas, or because of fear of new infections. As a result, cash strapped families may be reluctant to spend, further limiting economic recovery speed in China.

The clearing of the backlog at the ports does bring some good news with ship and container availability increasing. Such was the congestion around Chinese ports, that shipping companies were adding extra charges to cover the cost of waiting off the coast of China. Based upon average shipping charges between the UK and China, this could have increased the price by as much as 50%. Chinese cold stores at port side were still reported as being full at the start of March, although more recent reports suggest there is some movement. Unfortunately the congestion now appears to have moved to the Chinese warehouses instead. Expectation is that this stock will start to clear over the coming weeks, although much will depend on end product demand.

Looking towards recovery timescales, some studies and reports suggest this could take several months for China to be back at full economic activity. Other reports fear a second wave of coronavirus later in the year could halt progress once more.

The news that the shipping industry is beginning to move and that China is beginning to take products again may bring some relief to UK farmers. There had been concern by some sheep farmers that imports from New Zealand and Australia would increase as these countries redirected product originally intended for China. Early data suggests any re-direction to the UK has been limited.

For the pig industry the news that China is resuming economic activity brings equally good news. There was optimism in the industry that disruption to pork imports would be temporary, and that the significant import demand created by African Swine Fever in China, would resume. Reports indicate EU and UK processors have been storing product for export, but there are practical limitations to this. A recovery in real export demand will ultimately be important for maintaining pig prices.

*At the time of writing, UK trade data only covers up until the end of January, and therefore does not cover the time period of when the Chinese ports were congested. HMRC releases each month’s trade data around 6 weeks after the end of the month. As soon as the data becomes available, AHDB will analysis and report on them.

Rebecca Wright

Analyst - Red Meat

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