Higher prices and export wins for sheep meat market

In a previous outlook article for the sector, I described some positive trends emerging for the world sheep industry. At the time, sheepmeat production was rising in response to strong international demand from China as well as from the Middle East, and longer-term projections by FAO/OECD indicated that global production over the next 10 years would rise at a faster rate than beef or pork.

In the UK, the breeding flock had increased for two consecutive years and good export prospects seemed to be partially offsetting the continuing downward trend in consumption in our domestic market. Even the world wool price had recovered from the low point of 2021. With sheepmeat being mainly produced in developing countries where most of the growth in meat consumption was expected to occur in the coming decade, there was a decidedly positive feel about the industry.

However, despite these projections, last year wasn’t such a positive year for the sheep industry after all. This article assesses the implications of this for the industry worldwide as well as for the UK.

Marked drop in sheepmeat prices in 2023

Table One highlights the development in world market prices, comparing the situation for the different meat categories. For all meat, there was a 2% price reduction since the beginning of 2023; however, in the case of sheepmeat, the decline was as much as 22%.

The countries most dramatically affected by these price declines were the two major exporting countries, Australia and New Zealand. A report from New Zealand in late 2023 quoted a North Island farmer who talks about the adverse income implications for farmers facing price levels not experienced for six years “taking 20% off sheep farmers’ incomes – the situation is scary, and most farm budgets are in the red.”

Table One: World Meat Price Changes (US$)
Dec 2023 compared to Dec 2022
	%
All Meat	-2
Beef	+3
Pork	-1
Poultry	-8
Sheep Meat	-22

Four key factors in this price reduction

What were the key reasons for the change in the market situation? There were four factors to note, including:

1. A major increase in supplies from Australia. Production levels and export volumes rose significantly in 2023 with further increases forecast for 2024 (see Table Two). The key reason behind this has been the favourable climatic conditions – in particular, the plentiful rainfall over the past two years.
2. Developments within the Chinese market. China is the world’s major import market for sheepmeat, accounting for 38% of all world mutton and lamb trade. Although it took an extra 70,000 tonnes in 2023, its import prices dropped partly due to reported weaker import demand linked to slower economic growth – but also because of increases of almost 200,000 tonnes in Chinese production.
3. Reduced import demand from the US. US imports of sheepmeat have been increasing in recent years and amounted to 165,000 tonnes in 2022; however, there was an unexpected decline of over 15% in 2023 despite the reducing world price levels.
4. The global economic climate. Sheepmeat is one of the more expensive meat categories and the minimal economic growth in many countries coupled with cost pressures for consumers is reported to have been a crucial factor impacting demand.

Table Two: Australian Sheepmeat Production and Trade Forecasts (000 tonnes)
	% change
	2022	2023 (a)	2024 (b)	2023/2022	2024/2022
Mutton & Lamb Production	708	737	765	+4	+8
Sheepmeat Exports of which: mutton	178	195	220	+13	+27
Sheepmeat Exports of which: lamb	342	367	373	+7	+9

Some world price recovery in early 2024

Despite a continuation of some of these factors, world sheepmeat production is likely to rise by a further 1% in 2024; an additional increase in trade is also anticipated. This is particularly because of additional availability for export from Australia together with the forecast by USDA of a recovery in US imports. There are also signs of an uplift in imports into the MENA (Middle East and North African) countries. From late 2023 there has also been a marked rise in Australian lamb export prices with reports of increased volumes being sent to the Chinese and other markets. New Zealand lamb prices are also experiencing a steady rise.

UK sheep producer uncertainty about the future…

The UK sheep breeding flock is declining at the moment following growth in the previous two years. AHDB suggests that the December census might show a decline of about 1% with a further 0.5% reduction in 2024.

One of the key reasons for the decline is the uncertainty about future farm support levels. The announcement by Steve Barclay, Defra Secretary of State, at the Oxford Farming Conference on higher rates and simplifications to the Sustainable Farming Incentive (SFI) and the Countryside Stewardship scheme will have provided some encouragement to English sheep producers. However, Phil Stocker, chief executive of the National Sheep Association, has outlined “deep concerns” about the Welsh Sustainable Farming Scheme (SFS) proposals. Quoting an impact assessment, Stocker said that the scheme would result in a significant reduction in the Welsh national flock.

Watching the speed with which recent farming unrest in a number of EU countries has resulted in such significant concessions in Brussels, one wonders if some improvement in the bargaining power of the agriculture sector might result in more sympathy for Government support in a climate of growing global food insecurity concerns.

…despite high price levels and favourable import and export trends

In saying all of this, UK producers will have had some benefit from current market prices. In contrast to the world price trends quoted earlier, the domestic producer sheep prices in the UK have been relatively high in recent months, with AHDB’s latest deadweight price in early February as much as 30% up on the five-year average.

UK trade figures in 2023 will also have provided some encouragement to the domestic industry. Imports were 13% down in the first 11 months of 2023. The figures also show some interesting changes in the composition of sheepmeat imports; the share of Australia in total imports has risen from 11% in 2019 to 23% in 2023, whereas New Zealand’s share dropped from 65% to 56% in the same period.

Exports by contrast grew by 11% in the first 11 months of 2023, with a higher proportion being sent to France. It will be important that there are no hindrances for UK exporters to the EU when the full Border Target Operating Model is fully operational later this year.

Of continuing concern, though, is the decline in domestic lamb consumption; AHDB estimates show that consumption levels in 2023 were 14% less than in 2019. Perhaps a crumb of comfort, though, comes from the fact that the rate of decline is slowing down.

Can the current sheep industry size be sustained?

With fluctuating trends on world markets together with some of the uncertainties at home, what prospects are there for the UK sheep industry to sustain its current size? It is, after all, Europe’s largest sheep industry and at the top end of European efficiency and productivity levels. There seem to be four critical conditions for making progress:

• Maintaining good access to European export markets and developing some further profitable business outside Europe.
• Halting, or at least, minimising the decline in lamb consumption.
• Securing Government policies that command greater industry confidence.
• Producing sound environmental and sustainability arguments to counteract some of the extreme calls to cut back UK sheep production in the hills and upland.