Thursday, July 7, 2022

Sunlight on other side of globe

Despite images of rioting Greeks and depressed Brits, Beef + Lamb New Zealand chairman Mike Petersen has seen some light in EU markets that should give sheep farmers some hope for stable, if lowered returns this season. Richard Rennie investigates.

OPTIMISTIC: Sales of lamb up for the last quarter and beef prices at record highs have Beef + Lamb NZ chairman Mike Petersen optimistic about the coming season.

As Beef + Lamb New Zealand chair Mike Petersen shakes off 20,000km of jet lag this weekend, a level of optimism will at least help burn off the fatigue of distance and travel.

Speaking last week from Brussels, Petersen was upbeat about the outlook for lamb in recession-struck EU and British markets and the general sense of positivity among farmers in the Northern Hemisphere.

Visiting the traditional markets on what has become an established round of meetings to build relationships at a market and producer level, Petersen fully expected to stumble into a depressed, morose arena of discontent.

“The crisis is still well in the headlines and tensions are still high, particularly among Germans who are bankrolling the southern states,” he said.

However, he was “pleasantly surprised” at the general optimism for the coming season.

“Sales of lamb in the last quarter are up and beef prices are at record highs as production in the EU is dropping quickly for beef.”

By way of example he pointed to 400kg live weaner steers being shipped out of Ireland to Italy for grain finishing for €1000, or 320kg steers fetching €1200-€1300 on local trade.

“There is a willingness of processors and retailers to work with producers; they have never been so keen to engage with farmers as they are now.”

He noted feed costs are pushing the price differential between poultry-pork and lamb closer. Aggressive retailing promotion was helping re-establish lamb on shopping lists and it could now be bought at retail prices as competitive as £5 for 350g.

The biggest shift Petersen noticed was in farmer thinking. The previous tension between New Zealand producers and EU farmers was waning. This was partly thanks to better and regular dialogue, but also to farmers taking a broader, longer term view of their role in supplying food.

“There has been more coverage, including through the BBC, on food production and how to produce more food, and better soil and water use.”

He said profitability was a reality for sheep and beef farmers even without subsidies, and pointed to the United Kingdom Farmer of the Year who turned a £78,000 profit off a 250ha property, excluding farm subsidies.

The single farm subsidy programme meant farmers were no longer paid on production and had gone a long way to removing the gluts of the Common Agricultural Policy (CAP) subsidies seen up until the late 90s.

However, farmer lobbying remained intense to retain subsidies, effectively paid to help keep rural aesthetics and environment in shape.

“Last Monday in Dublin 20,000 farmers protested about keeping that protection in place. They are a very networked group of farmers, with the National Farming Union having 950 branches and 80,000 members.”

Big debates are being held over the future of CAP subsidies which claim 40% of the EU budget and average €35,000 a farm.

“But these subsidies are not an issue for NZ. If EU politicians want to collect taxes to help keep the environment clean, that is a domestic issue. The important thing is they have decoupled the payments, they are more related to the environment and biodiversity than production.”

NZ will once again struggle to meet its 227,500t sheep meat quota to Europe, also undersupplying last year by around 40,000t.

“We have been very open about our low lamb crop, but also that while it is a critical market for some cuts, there are also other markets prepared to pay more for those cuts.”

This includes China which is steadily growing its demand for frozen product to become NZ’s largest customer for frozen lamb, with retail prices up 20% on a year ago.

B+LNZ economist Rob Davison said estimates remained firm around an average of $95 a head on lambs for this season, down on last year’s $113, but still among the top three prices “in a long time”.

He painted a very long road to EU recovery, estimating the region was only in year four of a 12 year recovery cycle. That recession would continue to temper higher value activities including eating out.

He noted the impact of higher oil prices starting to feed through into food prices, as oil was now over US$100 a barrel, compared to only US$25 during the 2008 recession.

Given the link to petro-chemically sourced fertiliser, now two to three times the cost it was in 2005, he expected food costs as a percentage of income would finally move up from what has been traditionally a low level.

“Those costs are now building into the feed chain, leaving NZ in a strong position, and increased prices will push marginal producers out of pig and poultry, further tightening supply.”

Petersen believed the biggest biosecurity challenge that needed immediate address was the United Kingdom’s Tb issue.

It was almost endemic in the western UK. Lack of movement controls and quarantine was threatening the whole country and whispers of markets using it to close borders to UK product were afoot.

A recent court injunction ruling in favour of the Badger Trust brought a proposed culling of the disease vector to a halt.

“We understand Tb is starting to hit areas with stud stock. With saleyards still a key to stock movement, the ability to spread the disease is real.”

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