Hard to see where sheepmeat solution will come from

Not surprisingly farmers are dissatisfied with the state of the sheepmeat market. The impact of drought has brought about a near 20% increase in the kill for the first quarter in a season where the full year lamb kill is forecast to be 1.7 million lambs below last year.


Consequently this season, already characterised by a falling schedule, will come to an early finish. Meat processors will need to manage their capacity and seasonal plant closures very carefully if they are to avoid incurring unwanted costs. From the farmers’ point of view, uneconomic prices for lambs are accompanied by a lack of killing space for ewes, of which there are plenty waiting for capacity to free up.


Unfortunately the beef market is also on the way down due to lack of demand from the USA, although there is a more positive feeling about the New Year. Firstly the present schedule, although well down on last season, is still historically quite high and there is expectation the Australian cattle kill will decline substantially from last year’s level. We have also started a new quota year.


But, as Rick Powdrell pointed out last week (Farmers Weekly 19 January), none of this provides any hope the market will recover in the immediate future. He rightly says the sheep industry is under threat now, not in five years time, and something has to be done to change the sector’s inevitable cycle of occasional boom and regular tendency towards bust.


Powdrell’s suggestions included getting closer to the British industry in an attempt to build demand, rather than slagging each other off. His heartfelt plea was for the New Zealand industry to stop sitting on its hands continuing to do the same thing year after year with the inevitable result that nothing fundamentally changes. He wants to see “bold leaders emerge from the shadows.”


I sympathise with his frustration, but it’s very hard to see where the improvements are going to come from. After all, bold (or at least new) leaders have emerged at the two largest meat companies; but the global economic situation is fragile, with no confidence China has yet avoided a hard landing; Europe is still locked in nil growth; traditional retail, notably Tesco and other supporters of New Zealand lamb, are losing business to discounters like Aldi; and finally New Zealand farmers are still bound by the dictates of the weather, the seasons and the grass cycle. It is difficult to see how this last factor will change without serious scientific innovation.


Rather than wringing its hands and, in MIE’s case, persisting in the belief merging the two cooperatives will bring about a miracle, the industry should pray for a dramatic increase in immigration. In contrast to Australia, our main problem is the 85-90% of meat production that must find a market overseas. If 50% of the market was domestic, the whole price situation would be much easier to influence, even control.


There are only two main times of year when exporting large quantities of chilled product is possible – the narrow windows for the European Christmas and Easter trade. There are opportunities for chilled lamb and prime beef to other, mainly food service, markets at other times of the year; but the harsh reality is, apart from domestic consumption and niche market opportunities, New Zealand product must be frozen. If looked at from a domestic consumer’s perspective, frozen product is less desirable than fresh, so small wonder the price is not always at a premium.


It is lucky there is such constant demand from the USA for lean hamburger beef, all shipped frozen; otherwise beef exports would only be a fraction of what they have been for decades. Much of that beef comes from the dairy industry, but miraculously the prime beef schedule is always consistently within 10 cents a kilo of the bull schedule. That one fact drives the whole beef market, both store and prime. What would happen if the Americans suddenly developed an urge to lose weight and stopped eating hamburgers is too dreadful to contemplate.


Unfortunately the sheepmeat market has nothing that resembles the popular demand for beef, whether in North America or the rest of the world, particularly China.


Therefore the root of the sheep industry’s problem is its enormous success ever since the first shipment of lamb to the UK in 1882. The availability of a temperate climate and an eager market for our lamb throughout the next 80 years, much of it processed and exported by British companies for sale in British butchers, was supplemented by demand for wool which peaked in the early 1950s. A false sense of security, induced by SMPs and Meat Board price setting, meant sheep farming continued much as before until the mid 1980s.


Since the removal of subsidies New Zealand sheep farmers and exporters have done a superb job of improving productivity, weights and quality, while developing new markets for the industry’s output. But a permanent solution to the problem of variable and mostly inadequate farmer returns has proved elusive. The debate about how to solve it has focused on the damage caused by procurement competition as a result of too much processing capacity and a belief farmer ownership of the industry will enable control of the value chain.


There is no evidence farmer ownership on its own would improve or even maintain the present unsatisfactory situation. Massive investment in research, new product development and new ways of reaching consumers is necessary, but it won’t come cheap and may not succeed.


Farmers must either rely on the present imperfect industry structure or discover a new business model to capture greater returns from the global market.


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One Response to “Hard to see where sheepmeat solution will come from”

  1. Rural round-up | Homepaddock Says:

    […] Hard to see where sheepmeat solution will come from – Allan Barber: […]

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