- The 2002/03 season
- Fig 13: Sheep meat export volume by product
- Fig 14: Main export markets for lamb by value
- Outlook for 2003/04 to 2006/07
- Table 5: Sheep meat situation and outlook
- Fig 15: Lamb production and prices
- Longer term outlook - a possible scenario
Sheep meat
- The downward trend in the size of the breeding flock is projected to continue, as land continues to shift into deer, forestry, and dairy cattle. However, sheep meat production will be sustained by increasing productivity in terms of lambs tailed per ewe and rising lamb carcass weights.
- The all grades average lamb schedule price for September years 2004 to 2007 is expected to average $60.20. This compares with an average of $66.10 for years 2001 to 2003 and an average of $43.80 for years 1997 to 2000.
The 2002/03 season
Production
The total number of sheep as at June 2002 was 39.5 million with a breeding flock (mated ewes and ewe hoggets) of 29.1 million. Sheep numbers have been falling since the early 1980s because of land use changes in favour of deer, forestry and dairy (particularly in the South Island), and are expected to continue declining in the future, but at much slower rates than over the past 10 years. Sheep productivity has been increasing, particularly in terms of lambing percentages and lamb carcass weights, as a consequence of genetic and management improvements.
Low rainfall resulted in significantly drier than average soil moisture over some sheep producing areas. A 1 in 30-year drought occurred in western districts of the lower North Island from January to March. Drought conditions over New Zealand broke in April, but there was insufficient rainfall to restore average soil moisture conditions from April to June. July was colder than average, but overall the winter was mild.
Inspected lamb production from export licensed and abattoir licensed premises for the year ended September 2003 was 431 000 tonnes carcass weight (cw), up 4 percent on the previous season. This rise was due to a larger number of lambs killed following a record lambing percentage of 114 percent (mated ewe and ewe hogget basis). There was a marked peak kill in March owing to dry conditions, but the average lamb carcass weight for the year ended September 2003 was up only 0.5 percent, to 16.9 kg. Inspected mutton production was 113 000 tonnes cw, up 5 percent because of higher kill numbers following the dry conditions in many parts of New Zealand in late summer and autumn.
Lamb is processed predominately into frozen bone-in cuts for export to 95 countries. Export licensed meat processing in New Zealand has been dominated by four companies: AFFCO and Richmond in the North Island, and Alliance and PPCS in the South Island. In recent months, PPCS has sought a controlling interest in Richmond (this process has been characterised by litigation) and Alliance has purchased a processing plant in the North Island. The two companies have expanded into the North Island to secure year-round livestock supply.
Domestic consumption accounts for about 18 percent of sheep meat production. This meat comes from abattoirs without export licences and from companies with export licensed premises. Livestock owners can slaughter animals for their own consumption legally, either on-farm or through butchery services. Formal records of this activity are not kept, but it is estimated to amount to around 24 000 tonnes cw per year. Imports of sheep meat are around 6800 tonnes carcass weight equivalent (cwe) per year.
Exports, markets and prices
In the year ended September 2003, exports of lamb were provisionally 359 000 tonnes cwe, up 2 percent on last year, and exports of mutton were 88 500 tonnes cwe, up 8 percent. On an export value basis, lamb generated $1.98 billion and mutton $256 million. Exports of sheep meat were less seasonal than in earlier years. Exporters manage their year-round supply through inventory management and price premiums. Lamb exports in product weight (pw) terms comprised carcasses at 7 percent, bone-in cuts at 79 percent and boneless cuts at 14 percent. These percentages are the same as the previous year and the export trend away from carcasses to cuts appears to have stabilised. Five years ago, carcasses made up 17 percent of exports. In the year to September 2003, the export of higher value chilled lamb products increased by 4 percent from the previous year to 51 100 tonnes pw. Chilled lamb products generated $513 million or 26 percent of total lamb export revenue, coming from the equivalent of 18 percent of lambs processed and exported. In the year to September 2003, lamb was exported to 95 countries and mutton to 67 countries. Figure 13 shows export volumes by product type.
Fig 13: Sheep meat export volume by product
Year ended September 2003
The main markets for lamb are in the European Union (EU), which accounts for 51 percent of export volume and 62 percent of export value. On a country basis, the top destinations for lamb exports by value are shown in Figure 14. However, on a volume basis, the top five destinations were the United Kingdom (UK) (22 percent), France (9 percent), The People's Republic of China (China) (9 percent), the United States (US) (8 percent), and Germany (7 percent). China and the US have each moved up one rank from the previous year. China has emerged in the last three years as a significant buyer of lower priced lamb products; hence it accounted for only 3 percent of export value. Export volume to China rose 14 percent on the previous year. The 11 percent rise in volume to the US demonstrates the continuing benefit to New Zealand from the US lifting its tariff-quota protection measures on sheep meat imports on 17 November 2001. This followed a World Trade Organisation (WTO) Panel ruling that the measures were inconsistent with the WTO Safeguards Agreement.
Fig 14: Main export markets for lamb by value
Year ended September 2003; Total value; $1.98 bil
The UK meat market is used for MAF's forecasting purposes. The mean London wholesale price for PM grade lamb carcasses for the year ended September 2003 was 215 UK pence per kg (p per kg), up 4 percent on the previous year, and an historic high. Supply was limited by lower UK production in the wake of the 2001 foot-and-mouth-disease (FMD) outbreak, and prohibitive above-quota tariffs on product from non-EU exporters, including New Zealand. Prices are expected to fall in the year ending September 2004 as UK sheep meat production continues to recover in the aftermath of the FMD outbreak. The quantity of PM grade lamb carcasses sold to the UK in 2002/03 was only 872 tonnes. However, prices for PM grade carcasses tend to mirror the price trends of other lamb products sold in the UK, France and Germany.
New Zealand has a country specific tariff-free quota of 227 600 tonnes cwe, on a calendar year basis, to the EU. Out of quota access is limited by the tariffs applied to sheep meat of 12.8 percent plus a specific duty ranging between Euro 90.20 per 100 kg to Euro 311.80 per 100 kg depending on the product type. In practice, the tariff and duty together equate to at least 60 percent of the value of the product imported. Meat New Zealand reports that the quota is 88 percent full for the nine months to September 2003, which is similar to last year.
The New Zealand dollar (NZD) averaged 0.343 United Kingdom pounds (UKP) for the year ending September 2002, a 14 percent appreciation on the average rate for the previous year. The NZD also appreciated 5 percent against the Euro over the same period. Combined with a 24 percent appreciation against the United States dollar (USD), these exchange rate movements had a negative impact on prices to New Zealand lamb exporters.
Schedule prices
The all grades average lamb price (to producers) for the year ended September 2003 is estimated at $64.00 per head, down 9 percent on the previous year. The lamb price includes an estimated $5.05 for slipe wool and pelt, which fell 8 percent because of the NZD's appreciation. The all grades average mutton price for the year ended September 2003 is estimated at $47.00 per head, down 10 percent, and consistent with the movement in lamb prices.
Industry reform
On 1 July 2002 Meat and Wool Innovation Ltd (MWIL) was established as a joint venture between the New Zealand Meat Board (Meat New Zealand) and the New Zealand Wool Board. MWIL was formed to provide the technology and services needed to foster the long-term prosperity of beef, sheep and goat farming. It brought together the following organisations:
- The Economic Service, the meat and wool industries' economic analyst and commentator, formerly jointly owned by the Meat and Wool Boards;
- Meat New Zealand's research and development division;
- WoolPro, the on-farm technology, training, market information and quality services arm of the Wool Board; and
- Sheep Improvement Limited, the sheep industry's leading-edge genetic database, formerly owned by the Meat and Wool Boards.
The disestablishment of the New Zealand Wool Board in September 2003 saw the transfer of WoolPro to a new organisation, called Tectra Ltd, a subsidiary of Wool Equities Ltd.
While the wool industry reforms are nearing completion with the passing of the Wool Industry Restructuring Bill, a Bill restructuring the New Zealand Meat Board is likely to be introduced in Parliament in December 2003, with a completion date of the middle of 2004. This reform has given the meat and wool industries the opportunity to combine their industry-good functions. In August 2003, livestock farmers supported a proposal to bring the meat and wool industry-good functions together under the provisions of the Commodity Levies Act 1990. An application for levies on meat and wool to be paid to a single industry-good organisation has been submitted to the Minister of Agriculture. The decision to combine the meat and wool industry-good functions may impact on the governance, structure, and operational aspects of MWIL.
Outlook for 2003/04 to 2006/07
Production
Sheep numbers are expected to continue their long-term fall over the forecast period owing to land use shifts to production of deer, forestry and dairy. The breeding flock is estimated to have fallen slightly to 28.9 million as at June 2003. However, lamb production remains profitable. The number of lambs marked in spring 2003 is estimated at 31.5 million, down 5 percent on last year because of poorer mating conditions in autumn and localised adverse lambing conditions in spring. While spring has been colder and wetter than last year, the year to June 2004 is expected to be around average in terms of soil moisture conditions.
For the year ending September 2004, inspected lamb production is expected to fall to 408 000 tonnes cw, reflecting poorer mating conditions in autumn 2003 and localised adverse lambing conditions in spring 2003. Mutton production for the same period is expected to decrease to 101 000 tonnes cw, reflecting a more normal slaughter. By year ending September 2007, lamb and mutton production volumes are projected at 445 000 tonnes cw and 103 000 tonnes cw, respectively. This reflects rising productivity in terms of lambs born per ewe, hogget mating and lamb carcass weights, partially offset by a continuing fall in the sheep breeding flock.
Exports, markets and prices
In the year ending September 2004, exports of lamb and mutton are estimated at 343 000 tonnes cwe and 74 000 tonnes cwe, respectively. The 4 percent fall in lamb exports reflects the lower numbers of lambs marked in spring. Exports out to 2007 reflect rising productivity from a declining national sheep flock.
The New Zealand lamb carcass is currently processed into 33 product cuts. This enables lamb products to be marketed into a wide range of markets, from developed countries offering high value returns to less developed countries, which offer outlets for lower value products. As incomes in less developed countries rise, the industry will seek opportunities for adding value to exports of New Zealand lamb cuts.
It is predicted that there will always be a market for export carcasses to retail butchers in developed countries, particularly in the UK. However, the upward trend in the export of higher value chilled products is expected to continue as they compete very effectively with fresh domestic lamb products. Growth of exports to the higher value German and French markets are expected to continue and, given a fixed annual quota of 226 700 tonnes cwe to the EU, the share of exports to the UK will continue to fall.
The London wholesale price for PM lamb is projected to decrease to 190 p per kg for the year ending September 2007. Assumptions underpinning the projections for years ending September 2004 to 2007 are:
- a rebuilding of the UK sheep flock following FMD eradication, though there is considerable uncertainty about the extent of recovery;
- UK sheep meat production rising in line with flock rebuilding; and
- EU beef and pork prices reflecting those forecast by the OECD (OECD, 2003), in which beef and pork prices are both projected to be higher than levels in 2002 and 2003.
Schedule prices
For the reasons outlined previously, and assuming that the annual average value of the NZD remains higher than its average level in the years 2000 to 2002, the all grades average lamb schedule price is forecast to fall to $61.70 per head for the year ending September 2004. It is projected to fall slightly further, to $60.00 per head, in the year ending September 2007. This downward trend reflects increasing average carcass weights and decreasing prices per kilogram of carcass weight. All grades mutton schedule prices are assumed to move in line with the trend in lamb prices, falling to a forecast value of $40.00 per head in 2006/07.
Reference:
OECD (2003) OECD Agricultural Outlook
Other sources:
MWIES; Meat New Zealand; Statistics New Zealand; World Trade Atlas.
Table 5: Sheep meat situation and outlook
September year |
Units |
2002 |
2003e |
2004f |
2005z |
2006z |
2007z |
Lamb |
|||||||
Average weight |
kg/hd |
16.8 |
16.9 |
17.0 |
17.1 |
17.2 |
17.3 |
Production1 |
000 t |
414 |
431 |
408 |
428 |
433 |
445 |
Exports2 |
000 t |
350 |
359 |
343 |
362 |
367 |
377 |
UK price3 |
UK p/kg |
206 |
215 |
207 |
197 |
191 |
190 |
NZ FOB4 |
c/kg |
577 |
520 |
512 |
495 |
493 |
495 |
Schedule price5 |
c/kg |
419 |
378 |
363 |
348 |
346 |
348 |
All grades average5 |
$/hd |
70.73 |
64.00 |
61.70 |
59.40 |
59.50 |
60.00 |
Mutton |
|||||||
Production1 |
000 t |
107 |
113 |
101 |
99.3 |
105 |
103 |
Export2 |
000 t |
81.9 |
88.5 |
74.0 |
72.3 |
77.2 |
74.9 |
Schedule price5 |
c/kg |
223 |
200 |
181 |
172 |
171 |
170 |
All grades average5 |
$/hd |
51.80 |
47.00 |
42.50 |
40.30 |
40.10 |
40.00 |
Sources: MLC, MWIES, Statistics New Zealand and MAF
Figures may not add or reconcile due to rounding.
1 Carcass weight.
2 Carcass weight equivalent.
3 PM grade carcass, London Central Markets as reported by the MLC for 2002, thereafter MAF estimate, forecast and projections.
4 Average FOB price per kg of carcass weight equivalent.
5 MWIES for 2002 and thereafter MAF estimate, forecast and projections.
Fig 15: Lamb production and prices
Longer term outlook - a possible scenario
World sheep numbers in 2002 were 1.03 billion, having fallen by an average of 1.3 percent per year since 1990. This is a result of contrasting trends over that period: developed countries saw a decline in sheep numbers of 3.8 percent per year, while in developing countries numbers rose by 0.5 percent per year. Sheep in developing countries made up 64 percent of the world sheep population in 2002. Productivity per sheep has been increasing since 1990, with carcass weights rising by 0.5 percent per year in developed countries and 0.3 percent per year in developing countries.
The trends in sheep numbers and productivity outlined above are expected to continue. Rising incomes in developing countries are leading to increasing meat consumption. Currently, data on developing countries suggest that they rely on imports of sheep and goat meat from developed countries. For New Zealand, this is evident from the expanding export volumes of low priced lamb cuts to China, which also produces 26 percent of world sheep meat production. As China's economic growth continues, New Zealand exporters will be able to lift prices in the long term. The bulk of New Zealand's lamb and mutton export trade will remain solidly in the higher value markets of the developed countries and in particular, in the EU and the US.
The demand for lamb products in developed countries comes from middle-aged to older people on higher-than-average incomes, and from people of Middle Eastern extraction. In the longer term marketers will face the challenge of targeting a wider range of age groups. There will also be scope to expand sales in higher price niche markets in developing countries.
New Zealand and Australia, as the dominant sheep meat exporting countries, will benefit from multilateral trade negotiations in favour of freer trade. There is likely to be a net price gain from lower tariffs together with higher quotas (or the scrapping of quotas altogether) raising exporter prices, partially offset by price reductions caused by higher import volumes.
It is crucial that New Zealand remains vigilant in order to prevent the establishment of exotic diseases (such as foot-and-mouth disease). There is always a risk of an exotic disease outbreak because New Zealand is a trading nation and has a high ratio of passenger arrivals per capita - currently around 0.9. The major review of biosecurity policy and structure that is currently being undertaken should benefit the economy over the long term. First, because minimising the risks of outbreaks avoids potentially large short- to medium-term economic shocks. Second, because reduced risks provide a comparative advantage to New Zealand exporters, especially in the freer trading environment likely to emerge from successful multilateral trade talks.
New Zealand lamb and mutton is produced by a relatively low cost, outdoor and grass-fed system, which gives it a comparative advantage over many of its competitors. There is scope to increase productivity through application of research results and technology: this is being amply demonstrated by Meat New Zealand's monitoring farm programme. Productivity gains in lamb and mutton processing will inevitably lead to increased capital and technology intensity with lower labour employment than at present.
The sheep industry is likely to avoid much of the controversy surrounding genetic modification (GM), as concerns about GM are centred more on food crops for human consumption. Scientific research and understanding is expected to make giant strides in the next 10 years in respect to the application of GM to animal production. The industry will be cautious in regard to GM and remain responsive to consumer preferences in overseas (and domestic) markets.
Organic lamb production in New Zealand is likely to be more significant in 10 years' time than at present, but will probably remain a niche market opportunity in both New Zealand and in some wealthier developed countries, particularly in Europe. At present, there is no official information system to monitor organic sheep meat exports, but this should change in the long term. Currently, the UK is the third biggest organic food market in the world, having grown at 10 percent in the year to March 2003. While there is an increasing consumer preference for locally grown organic products, the UK's reliance on imported organic food will remain in the long term. New Zealand's current large quota for exports into the EU, and the eventual raising or scrapping of quota in the long term, offer New Zealand the possibility of significantly expanding its organic exports.
References:
Agra Europe (2003) Organic food sales booming in UK Agra Europe, 7 November.
Boniface, Linley (2003) Gene genie. The Dominion Post, 13 September.
Cutt, John (2003) Yield technology trialed at A and P. The Southland Times, 29 January.
Dykes, Meryyn (2003) Meryyn Dykes' GE features - Part 2 and Part 3 (final). The Evening Standard, 8 October.
Keene, Howard (2003) New technology to hit red meat processing. The Press, 18 July.
McCarthy, John (2003) Natural foods are New Zealand's point of difference. New Zealand Herald, 18 July.
McCullough, Ross (2003) 78 workers face uncertainty after Richmond lay-off. Dargaville News, 4 September.
McIvor, Sam (2003) We need to get fundamentals right. The Southland Times, 28 October.
Morgan, Jon (2003) Upheaval not over, says meat chief. The Dominion Post, 12 July.
Smale, Aaron (2003) One step ahead. Evening Standard, 16 September.
Ruth, Jenny (2003) Rosier future for Scott Technology. New Zealand Herald, 17 January.
Williams, Alan (2002) Rob, can you cut meat... The Dominion Post, 7 November.
Other sources:
FAO statistics database (FAOSTATS); Meat New Zealand.
Contact for Enquiries
Contact for Enquiries
Rod ForbesSenior Policy Analyst
Innovation and Research Policy
MAF Policy
PO Box 2526
Wellington
NEW ZEALAND
Phone: +64 4 894 0635
Fax: +64 4 894 0741
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