Sheep farmers cash in on boom

By LIAM DANN primary industries editor

The latest ANZ Commodity Index has confirmed what sheep farmers must have suspected for some time - lamb prices are approaching historical highs.

Lamb prices rose 1.1 per cent last month and are at their highest in the 18-year history of the index, apart from a four-month period in late 1996 and early 1997 when they spiked after Britain's mad cow disease scare.

The seasonal forces of supply and demand in Europe remain a short-term driver of price but the figures paint a fantastic picture of an export product that has shed its low-value commodity image.

Lamb now looks increasingly secure as a product that can maintain good farm-gate prices regardless of international supply issues and the fluctuations of the currency.

Meat New Zealand chairman Jeff Grant and Federated Farmers meat and fibre producers chairman Ian Corney attended an international lamb forum in the US last month. They have returned fired up about lamb's success and its future.

Several factors are contributing to the booming lamb price, Grant says.

It has in part been driven by the quality of the New Zealand product, he says.

Over the past 10 years the average weight of a lamb has risen from 14.5 kg to more than 17kg. "The band of weight range is 15.5kg to 18.5kg," he says. "It gives you a far superior product to cut up."

Remarkably, while sheep numbers have fallen by 32 per cent since 1990, increasing lambing percentages and higher weights have led to an 11 per cent growth in export volumes over the same period.

There have also been enormous improvements on the processing side. "Look at the proportion of product that now goes out as processed cuts as opposed to carcasses," Grant says.

"It has changed from 90 per cent carcasses in the mid-1980s to about 90 per cent in cuts now."

A similar trend is emerging with the amount of chilled lamb exported.

In the mid-90s, New Zealand exported about 10,000 tonnes of chilled lamb into Europe, Grant says. That had increased to about 35,000 tonnes this year.

New Zealand's lamb quota to Europe is 227,000 tonnes, so chilled exports are still the area with the biggest growth potential over the next five to 10 years.

Boosting the proportion is partly a processing challenge and partly a marketing challenge, Grant says.

"As consumers, and more importantly the restaurant trade, get to understand the qualities of chilled versus frozen lamb the volumes will increase."

Even if it went to 40,000 or 50,000 tonnes of chilled it would represent a significant boost to farmers.

If chilled sales were carefully managed they could put another $3 per lamb back into farmers' pockets, he says.

One of the highlights of the US visit for Ian Corney was getting into supermarkets and seeing how lamb is packaged and presented. "It looks good," he says. "It stands out on the shelf. It's becoming more of a brand."

Good marketing by both Meat New Zealand and the processing companies have been a big factor in the rise of the lamb price, Corney says.

It has helped make the product one of the most currency-proof exports in the sector. Grant agrees. The currency woes now hurting dairy farmers are not as serious for lamb exporters.

That is partly because with more product being sold in euros, the sector is less vulnerable to the volatility of the US dollar.

But mostly it comes down to lamb's position as a premium product.

Lamb looks good to maintain its premium prices for the next three to five years at least, Grant says.

There are limits, of course.

The gap between the lamb price and the price of pork and chicken can only go so high and, in Europe, it is probably getting near the upper end, he says.

Despite that, Europe will be the focus of Meat NZ's next big marketing push. It hopes to convince consumers that there is more to a leg of lamb than a Sunday roast.

The aim is to produce smaller, higher value cuts that are more suited to modern household size, Grant says.

The US is seen as a long-term prospect and marketing will be left largely up to the processing companies.

That market has the advantage of no quotas but sheep meat still suffers negative perceptions gained when US soldiers were fed on greasy canned mutton during World War II.

At the lamb forum in Washington, industry representatives from New Zealand, Australia and the US agreed all three groups could work together to increase consumption in the US.