Global demand for red meat protein is on the increase. The global beef price is rising and you would reasonably expect the global sheep price to follow the same path as beef. But it hasn't. By the end of 2012, lamb prices were around 25% down on year-earlier levels.
We have to accept that the general decline in global lamb prices is partly due to some weakening of demand, particularly as a result of strong price resistance on the part of consumers. This seems to be particularly the case in Europe where consumers' budgets are under tremendous pressure stemming from the economic malaise of the Eurozone.
While a number of factors have come together to create these unique conditions, not least the poor weather, a major contributing factor has been a hugely increased New Zealand supply.
In July to November 2012, total New Zealand lamb exports were up 27% on the year, with a 35% rise in volumes destined for the UK. This has gone a long way to alleviating the extremely tight global supply situation that was experienced in 2011, which was a large part of the reason why prices reached record highs in that year.
But as New Zealand and several other countries have tried to shift the increased volumes into what has undoubtedly been a more difficult global trade situation, values have fallen considerably.
The latest figures for November 2012 show that the average unit value of UK imports during the month was a quarter lower compared with November 2011, and down 27% on the value at the start of 2012.
This is on top of the fact that there is a much larger volume of product, with import volumes up 30% in November, and a 26% rise in volumes from New Zealand.
Deals done by New Zealand suppliers to UK processors and supermarkets reflect a parochial attitude. They had more to get rid of so they needed to sell cheaper and did not take into account the global red meat supply and demand situation, particularly the rise in global beef prices. The net impact has been to bring the worldwide price of sheep meat down at a time when red meat prices are rising.
These unnecessarily low prices are not limited to the UK. Prices around the globe are under severe pressure and many markets are witnessing three-to-four-year lows. This is particularly true in Australia, New Zealand and the other main European exporter beside the UK - Ireland.
In this endeavour, New Zealand sellers have done a disservice to their own country in that while they have shifted more volume, they have taken less in value terms. Producers there will tell you they are just not getting a viable return on their production.
The only parties to benefit have been a small handful of meat processors. UK consumers certainly didn't benefit as retail prices remained high throughout the autumn against a background of a falling lamb price.
We would normally expect prices to recover in the coming months, but while retailers can source product at giveaway prices, this is less likely to happen.
Everyone must bear in mind their wider responsibility to support a more stable and sustainable trading situation for all involved in the global lamb supply chain.
Lamb factbox - UK and NZ
- Current average UK producer loss per finished lamb sold - £26 - largest loss since 2006
- Estimated cost of production £91/lamb - up 34% since 2007
- Deadweight lamb price has fallen 25% in past year
- Last time lamb price was this low (dw) – December 2009
- Annual average farmer share of retail price – 2009 - 52%, 2010 - 55%, 2011 - 56%, 2012 - 53%
- However, by December 2012 the producer's share of the retail price of lamb had fallen to 45%, down from 60% in December 2011
- Farmgate price for prime export lamb in New Zealand in week ending 25 Jan 2013 was NZ$4.65/kg (£2.51/kg) - a drop of 37% on a year ago (down 35% in Sterling terms because of stronger NZ$). In same week last year, price was NZ$ 7.35/kg (£3.97/kg)
- NZ lamb prices at the farm gate for the New Zealand export year 2011-12 averaged NZ$113.60/head (£61) and for 2012-13 the forecast is $85/head (£46), down 25%
- Farm profit is estimated to be down 54% to NZ$73,000 a farm for this farming year. Previous year saw a NZ$49,900 gain in profitability
- The two largest farmer co-ops, meat processors and exporters made after-tax losses of NZ$31.1m and NZ$50.8m for the year ended September 2012 but were both profitable in the previous year
- New Zealand shipped 57,551t of lamb to the UK in 2012, a 10% increase on 2011. However, the third quarter of 2012 saw a 31% rise in NZ lamb exports to the UK and in the final quarter, shipments were up 43%.