Friday, March 29, 2024

PULPIT: More to good sheepmeat exports than ASF

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While the impacts of African Swine Fever (ASF) on pork production are benefiting farm-gate prices in New Zealand, our sheepmeat exports are on a solid foundation that underlies the present upheaval – giving cause for optimism once the disruption subsides.
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The outbreak and spread of ASF in China, elsewhere in Asia, and Europe is one of the largest disruptions to global meat trade since the discovery of bovine spongiform encephalopathy (mad cow disease) in North America in 2003.

So, what are the foundations and my optimism built on? Let’s start with China. 

The demand from China is genuine import demand. Their domestic consumption of sheepmeat has outpaced their growth in domestic production. 

New Zealand’s sheepmeat exports to China are perishable and consumed there, which is unlike iron ore or wool that is manufactured to be on-sold to multiple markets, or timber, which can be sourced at scale from other countries when prices lift.

In contrast, New Zealand and Australia are consistently around 80% of the international sheepmeat trade.

Sheepmeat and beef generally occupy the premium segment of the protein market in China, with cheaper poultry and pork a greater proportion of protein consumed. In general, China’s sheepmeat consumers are urban, wealthier, middle aged and dining out. 

Globally, sheepmeat has become what chicken was once to us – a premium meat for special occasions or dining out. Therefore, it’s less suitable as a substitute for pork, which had made up two-thirds of China’s animal protein consumption.

One of the most popular restaurant dishes in China is hot pot that has risen in popularity over the last decade, first in the major centres and then in second-tier cities. Mutton is a central ingredient in many traditional styles of hot pot. 

Strong demand for mutton imports has expanded into purchasing lamb flaps and other value cuts, noticeably since 2016-17. The lift in export value for traditionally lower-priced cuts has complemented other markets that are dominated by cuts such as racks or legs.

In 2018-19, China was our largest red meat export market overtaking the US in the previous season before ASF really took hold. Growth in New Zealand beef exports to China in 2017-18 – particularly processing cuts – helped this country overtake the US. However, China’s dominance in our lamb and mutton trade began earlier.

Export sheepmeat prices began to take-off in the first half of 2017, climbing from the lows in early 2016.

Two general policies have been operating in China to transform their domestic sheep production – grazing restrictions due to conservation of grasslands and the industrialisation of agriculture. 

These general directions have been occurring for a while but in 2016 they were stepped up. Policies were introduced to conserve grasslands – in part by preventing over-grazing, promoting large-scale animal systems to improve food safety and meet demand, and developing feed and fodder production to supply this intensification.

In 2016, a drought in China reduced breeding ewe numbers in grazing systems and, combined with the policy direction, limited recovery of smaller operations. Compared to poultry and pork, it’s more difficult for the backyard farmer to switch into beef and sheepmeat production.

Let us think back to what was happening in our own backyard as the Chinese demand has grown. Broadly, 2015-16’s processing got off to a fast start with dry weather and reductions in breeding ewe numbers early in the season. This was followed by a widespread facial eczema outbreak in the North Island in autumn 2016.

Livestock prices began to strengthen halfway through 2016-17 and by the time 2017-18 arrived they were getting into record territory. Relatively higher sheep prices to high lamb prices drove higher mutton production in 2017-18, while more ewe lambs were carried through as replacements. This tightened New Zealand mutton exports in 2018-19 by 13%. 

At Beef + Lamb New Zealand, our outlook is for the New Zealand flock and production to remain relatively steady in coming seasons, although climatic variation could drive ups and downs around the mean.

Meanwhile, our Australian counterparts have had a torrid time. They’re significant to international trade, but the weather generally hasn’t helped over the period discussed. In the decade to 2010, the Australian sheep flock decreased by over 4%  – from 119 million to 68 million. Then it rose – to 75 million in 2013 – but was back to 68 million in 2016. 

In simple terms, if the weather improves in Australia livestock prices surge as competition for replacements increases, but numbers retract again with next drought. If Australian supply is uncertain or limited, that leaves New Zealand.

As this was happening, the British held a referendum on Brexit in June 2016. In the following season, New Zealand exported 20% less lamb to the UK, largely due to the fall in the value of sterling, which hindered consumer purchasing power. The rise of Chinese demand minimised Brexit’s impact on kiwi farmers.

In the medium-term, New Zealand’s sheepmeat trade is based on fundamentals that are strong, and that is sometimes overlooked given the current ASF disruption.

Who am I?

Ben Hancock is the senior insights analyst at Beef + Lamb New Zealand, a 2019 Nuffield Scholar, has a PhD in Ecology and is still lending a hand on his family’s Martinborough hill country farm.

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