New Zealand sheepmeat values dropped dramatically in the 2023/24 season following two years of strong export returns. Photo / Alan Gibson
New Zealand sheepmeat values dropped dramatically in the 2023/24 season following two years of strong export returns. Photo / Alan Gibson
A new report suggests New Zealand’s sheepmeat sector should consider increasing domestic consumption, as one of three pathways to deliver stronger returns.
The Rabobank report, Watering the green shoots in New Zealand sheepmeat, said while the long-term outlook remained positive, the current industry “down cycle” meant change was required to create more consistency in earnings along the supply chain.
Report author, senior animal proteins analyst Jen Corkran, said New Zealand sheepmeat values dropped dramatically in the 2023/24 season following two years of strong export returns.
“Total average export values dropped from $12.63/kg free on board (FOB) in October 2022 to as low as $8.08/kg FOB in December 2023.”
Corkran said this had dragged farmgate prices down in the process.
“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 embrace the change needed to deliver stronger and more consistent returns year-on-year.
The new report identified three pathways Rabobank believed could help lift sheepmeat returns:
Focusing on increasing domestic consumption
Reassessing trade and diversifying export markets away from China
Investing to boost the competitiveness of New Zealand sheepmeat.
Corkran said things were looking up for lamb next year and beyond - if the industry adapted its strategy.
“The good news is that 2023/24 likely saw 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.”
More lamb on Kiwis’ dinner plates
The report said most New Zealand lamb was exported, and over the past five years, domestic consumption averaged just 5% of total production.
Corkran said this was limited by population size, but, according to 2023 OECD data, at 1.95kg, New Zealand’s per capita consumption wasn’t even a third of Australia’s 6.4kg.
“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 much higher domestic consumption added resilience to the lamb market, as strength in domestic retail trade could help balance global demand dynamics and associated price volatility, she said.
“What Australia has done well to support domestic consumption is to promote Australian lamb quality and nutritional value.
“New Zealand has pushed these messages in the past, but opportunity exists for industry bodies to invest in marketing the New Zealand lamb story to reposition lamb in the eyes of local consumers.”
Rabobank senior analyst in animal proteins Jen Corkran on the farm. Photo / Rabobank /Chris Hillock
Strategic approach to trade
The report said in the years ahead New Zealand had an opportunity to deeply understand the export markets and consumers it supplied.
“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,” Corkran said.
“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.”
The report said China, the EU, the United Kingdom, and the United States were currently the top export destinations for New Zealand sheepmeat volumes, with China taking nearly half of New Zealand lamb in recent years.
“Although exports to China do not have the highest value per kilogram, the market has served New Zealand well in taking volumes of lamb and mutton.”
Corkran said the main advantage of trade with China was that more of the sheepmeat carcass was utilised for mutton and lamb.
“Although shipments to China have the lowest export value per kilogram of product, the market takes high volumes of lower-value meat, with exports peaking in 2021 at nearly 250,000 tonnes valued at close to $1.43 billion.”
She said Chinese consumers’ growing interest in nutrition and health also provided an opportunity to promote how New Zealand lamb fit alongside beef and seafood as a highly nutritious and naturally produced protein.
Opportunities in the UK, the EU and the US should also be reassessed, Corkran said.
She said New Zealand had historic trade relationships with the UK and EU and must continue to make full use of free-trade agreements and tariff-free access.
“In 2015, New Zealand sent more than a third of total combined sheepmeat exports to these markets, but as exports to China increased, the dial shifted slowly downward.”
Corkran said import demand was likely to increase, with the declining UK sheep flock and lower production expected for the medium term.
“Although domestic demand is unlikely to grow in the UK, New Zealand’s share of the pie could.
“New Zealand lamb is a seasonal favourite in UK retail and is often promoted for holidays like Easter.”
As for the US market, Corkran said New Zealand lamb’s value was fully realised, via consumers’ willingness to pay for higher-value frenched racks.
However, she said sheepmeat was a small part of retail in the US and New Zealand needed to find a way to add to existing inventory in the retail space or, alternatively, turn focus to just food service.
“This won’t be easy, but there is scope for incremental gains.”
The report said sending the right cuts and carcasses to the highest paying markets and leveraging the nature-positive attributes of New Zealand’s sheep farming systems were further factors that should be considered as part of the sector’s overall approach to optimising export markets.
The report said technological advances that can add efficiency and reduce cost were worthy of research and development (R&D) spending to help future-proof the sheepmeat industry.
Corkran said this could mean accelerating the rollout of R&D programmes that looked at genetics on-farm for efficiency in live-weight gains, as well as efficiency in animal production around total feed eaten, fertility and disease risks.
“Investing in potential opportunities around value-added products from parts of the sheepmeat carcass, for example, blood or offal for future high-value pharmaceutical products could also add to export income.”
She said Government and industry bodies would be wise to invest in research into all technology areas, as they 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.”
