Wednesday, May 15, 2024

Shepherding a sector back to health

Neal Wallace
The sheep industry is in trouble – but ideas abound on how to turn things around, says Neal Wallace.
Reading Time: 2 minutes

To those with an abundance of grey hair or receding hairlines, the current downturn in the sheep industry is not new.

The reasons for and the scale of the sudden decline in sheepmeat prices have been well traversed by Farmers Weekly and will not come as a surprise to some.

That is not to diminish the effect on individuals squeezed by low returns, rising input prices and debt servicing, but as our investigation this week reveals, it comes after several consecutive years of once-in-a-lifetime returns for lamb, driven by insatiable global demand for protein.

A market correction was expected after the heights reached following the outbreak of African swine fever in China and the changes in consumer behaviour during covid.

Noted ram breeder Derek Daniell calculates demand from China alone added about $40 a head to lamb, but that has now largely disappeared as Chinese consumers stop spending amid economic uncertainty.

Farmers are reacting as any business would, by cutting costs and looking at what pays the bills. One ram breeder noted his clients were cutting ewe numbers back between 5-10% and replacing them with cattle.

There is another sense of inevitability about this correction.

For too long we have relied solely on income from meat to carry the fortunes of sheep and it has finally proven unsustainable.

We need to turn around the fortunes of crossbred wool so sheep can once again become a true dual purpose animal.

Beef + Lamb New Zealand Economic Service data reveals that since 2015-16 wool prices have eased 44%, but in the same period shearing charges have increased 46% per kg of wool.

The proliferation of cottage industries is commendable, but change will only come when we find a user of large volumes of crossbred wool.

There has been much talk about differentiating NZ sheepmeat in markets by using the attributes of our environmental, production and animal welfare standards to target wealthy discerning consumers.

Most meat exporters are doing this at some scale, and while it is a slow and expensive process, it is not without precedent. Think Mercedes-Benz, French Champagne and Bluff oysters, all commanding premium prices due to their attributes of quality, differentiation and terroir.

NZ farming has that in abundance.

Another idea, floated by Alliance Group chief executive Willie Wiese, is for meat companies to co-operate to reduce costs and return more value back to suppliers.

He has had a mixed response, a benefit of the new crop of meat sector executives coming from outside the industry.

They do not have inherent company tribalism, which gives them freedom of thought, something we need if we are to get the sector on a more solid footing.

The advice to farmers outlined in this week’s Farmers Weekly is to maintain their production and quality, plan for the long term and, above all, retain their faith in sheep.

Significantly, lamb returns have been relatively stable for most of this calendar year and the consensus is that lamb will recover after this market correction.

Unfortunately, that may not happen until next year.

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