Hard to see where $150 will come from for a few years

Although the T150 call from Bruce Wills, Federated Farmers Meat and Fibre Chairman, is notable for its optimism more than its reality, you have to admire the sentiment behind the campaign. He knows it will be a hard target to achieve within the five year timeframe, but he says it’s necessary to instil confidence in the prospects for sheep farming among sheep farmers, otherwise more and more will get out, whether into dairy farming, dairy grazing or by selling out.


Bruce Wills sees improved returns coming from both supply chain efficiencies and increasing the percentage share of the retail value of a lamb. These comments, while taking a positive approach to a seemingly insoluble problem, won’t actually make any difference on their own without concerted action by everybody in the industry to process and market lamb a lot more effectively than has been the case in the past.


There are signs this is happening in spite of the on again off again nature of processor ownership and capacity rationalisation. So far the only real progress here has been Silver Fern Farms’ (SFF) plant closures and Alliance’s acquisition of Levin Meats, but these won’t be the last moves once the reality of lower sheep numbers bites next year and beyond.


The largest market for sheepmeat is the EU where the NZ’s quota entitlement guarantees the best available price structure for the largest volume of product. However there is a constant belief, from farmers at least, it could and should be so much better, because either the exporters are selling too much frozen and too little chilled, selling at the wrong weight or allowing the supermarkets to keep too much of the final retail price. It’s a fact of life chilled lamb only constitutes 20-25% of exports and if we tried to increase this to 50%, the market would collapse or the political reaction would kill our quota entitlement.


Our sheep numbers have always produced too many lambs crammed into too short a season, which means large volumes of frozen product when production is at its peak. The prized chilled market opportunities inevitably come when northern hemisphere lambs aren’t available, but that’s too early for most South Island producers and only achievable on good country further north. But the industry’s capacity has had to be configured to process the peak autumn lamb kill which, especially in a drought, results in a desperate search for killing space with a logical impact on the price to farmers.


Perhaps the sharp reduction of sheep numbers to 34 million for this season will enable a better balance between supply and demand, so market prices will hold up on the back of less available product. There’s continual pressure on exporters to develop new markets, but it’s unrealistic to expect exporters to accept a discount from the EU price while they divert product to emerging, lower paying markets. However they are already moving legs from UK and Europe and racks from the USA to other destinations.


New Zealand already exports substantial quantities of sheep meat to China, Japan and Korea, but most of it tends to be lower priced items like mutton flaps. The constructive work going on with co-operative marketing programmes in North Asia and other company initiatives, for example AFFCO’s efforts to open up sales to Russia, offer some hope the main exporters will succeed in introducing larger volumes of higher quality lamb to top end restaurants and delicatessens serving the tourist markets and increasingly affluent middle classes.


It’s also important to remember the opportunity to improve the value of the animal by extracting the maximum value from the by products. The decline of wool as a valuable contributor to lamb profitability from 20% to less than 5% is easy to forget, but it’s a major factor. Then there are the offals and ancillary parts of the animal able in many cases to be turned into high value medical products for which overseas pharmaceutical companies are prepared to pay a premium. The difficulty here is the cost of saving these products which not every processor is willing or able to do, unless the off take justifies it. Then there’s the question of how much the farmer should expect to receive from these hard to recover, but valuable by products.


There are glimmers of light on the horizon for sheep farming from a position which in recent years has appeared pretty hopeless, particularly the higher demand potential for a product which is getting scarcer. It will need a combination of market development, planning and co-operation between farmer and processor.


Lastly, at the risk of stirring up a hornet’s nest, I still firmly believe traceability for all species, even mob ID for sheep, is the best way of maintaining a premium for our product and our best insurance for maintaining New Zealand’s market access in the event of a disease outbreak. Federated Farmers need to come to grips with this linkage.


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