Change is required in the New Zealand sheepmeat industry if it is to create more consistent farmer returns, a Rabobank report says.
New Zealand sheepmeat values dropped dramatically in the 2023/24 season following two years of strong export returns, falling from $12.63/kg free on board (FOB) in October 2022 to as low as $8.08/kg FOB in December 2023, the report, Watering the Green Shoots in New Zealand Sheepmeat, says.
Report author and senior animal proteins analyst Jen Corkran said the major factors that caused the cycle to bottom were global macroeconomic and geopolitical factors filtering through to New Zealand’s primary producers, and a fall in New Zealand sheepmeat exports to China.
This was made more challenging due to increased competition from Australia.
“The timing of this downturn was unseasonal, and the price challenges coincided with high on-farm costs that squeezed margins for both producers and exporters.”
Corkran said New Zealand’s sheepmeat sector would be wise to reflect and learn from the downturn and to embrace the change needed to deliver stronger and more consistent returns year on year.
“For New Zealand sheep production to be a competitive part of the farm system for red meat producers, change is required,” she said.
“And in this new report, we identify three pathways that we believe could help lift sheepmeat returns moving forward: focusing on increasing domestic consumption; reassessing trade and diversifying export markets away from China; and investing to boost the competitiveness of New Zealand sheepmeat.”
Corkran said 2023-2024 is likely to be the bottom of the cycle and, based on both supply and demand dynamics, lamb projections for 2025 and beyond show upside.
“If the industry takes a strategic approach, our view is that the medium-to-longer-term upside could be greater from 2026.”
The majority of New Zealand lamb is exported, and over the past five years, New Zealand’s domestic consumption has averaged just 5% of total production. While domestic consumption is limited by population size, New Zealand per capita consumption of 1.95kg a year is not even one-third of Australia’s 6.4kg, Corkran said.
“If Kiwis were to increase per capita consumption to Australian levels, it would place the domestic market behind only China in terms of overall consumption of New Zealand sheepmeat.”
Australia’s higher domestic consumption added resilience to the lamb market, as strength in domestic retail trade can help balance out global demand dynamics and associated price volatility.
Globally, lamb is a small part of global protein consumption, and the number of exporters is limited with Australia and New Zealand dominating global sheepmeat trade.
New Zealand should aim to be clever and careful in finding a good balance of trade partners for both commodity and differentiated products in the coming years, Corkran said.
China, the European Union, United Kingdom, and United States are currently the top export destinations for New Zealand sheepmeat volumes, with China taking nearly half of New Zealand lamb in recent years.
“The main advantage of trade with China is that more of the sheepmeat carcase is used, for both mutton and lamb.
More work could be done to ensure a foundation for ongoing success when it comes to the value this can gain, with New Zealand lamb being recognised in China as a high-quality and nutritious product, she said.
Opportunities in the UK, the EU and the US should also be reassessed. NZ has historic trade relationships with the UK and EU and must continue to foster relationships to make full use of free trade agreements and tariff-free access.
Corkran said further opportunities also exist in the US market where the value of New Zealand lamb is fully realised via consumers’ willingness to pay for higher-value frenched racks.
Sheepmeat is a small part of retail in the US and as a result, New Zealand needs to find a way to add to existing inventory in the retail space or, alternatively, turn focus to just foodservice
“This won’t be easy, but there is scope for incremental gains.”
Technological advances that can add efficiency and reduce cost are worthy of research and development spending to help future-proof the sheepmeat industry, she said.
“Investing in potential opportunities around value-added products from parts of the sheepmeat carcase, for example blood or offal for future high-value pharmaceutical products, could also add to export income.
“The government and industry bodies would be wise to invest in research into all areas of technology, as technologies and innovation will only increase in the future. Sectors and businesses that invest in R&D can stay ahead of the curve, and New Zealand will need to do the same to keep up with the rest of the world.”
