BETTER LOWLANDFLOCKSUNABLE TODISPELGLOOM
BETTER LOWLANDFLOCKSUNABLE TODISPELGLOOM
Exeter Universitys recently published five yearly survey of the
economics of lowland sheep production for 1999 shows an industry
under severe economic pressure. Marianne Curtis reports
With net losses of more than £33/ewe, lowland sheep production is often used to farm land with few alternative uses, says Mark Fogerty.
A SURVEY on the 1999 lowland lamb crop reveals a dismal average net loss of £33.19/ewe. Individually, however, some flocks are doing better with superior technical performance and a focussed marketing strategy contributing to their success.
The study, conducted by Mark Fogerty of Exeter University, involved 360 non-LFA lowland flocks and a total of 139,500 breeding ewes. "Studies of this nature are conducted for all agricultural enterprises at about five-yearly intervals. Resulting information is used to update MAFF information and produce standard gross margins."
Total value of UK sheepmeat production peaked in 1995 at £1.3m but has declined in every subsequent year. The provisional 1999 figure of £1m is similar to a decade earlier, says Mr Fogerty.
"This study showed the most significant reduction in margins for many years, coinciding with a marked reversal in the long established trend towards more intensive production systems." (see table)
Stocking rates continued to rise throughout the 1980s and early 1990s but have fallen markedly from 13.2 ewes/forage ha (5.3/acre) in 1994 to 9.8 ewes/forage ha (3.9/acre) in 1999. This trend was unexpected and anecdotal evidence suggests the fall is linked to declining beef profitability in the wake of the BSE crisis, explains Mr Fogerty.
"In many cases, beef enterprises have disappeared or contracted, but farms tended to have a fixed area of grassland which is now only used by sheep. This also helps explain the 18% reduction in nitrogen use to 88kg/ha between 1994 and 1999."
Extensive systems
Despite a move towards more extensive production systems, also partly driven by extensification subsidy payments, the study highlighted an increase in the proportion of lambs finished on farm from 62% in 1994 to 81% in 1999.
"This reflects the severe pressure on income. If there is any margin to be had from lambs, breeders want it rather than diluting it by selling lambs as stores."
Of flocks participating in the study, 19% sold lambs as stores, 48% were sold finished at auction marts with 21% going directly to an abattoir. The remainder were sold via electronic auctions, marketing groups or to local butchers. Larger flocks were more likely to use deadweight outlets, according to Mr Fogerty.
"Due to foot-and-mouth there is pressure to reduce movement and mixing of sheep which may result in increasing numbers of lambs going directly to abattoirs. This could decrease market transparency and make setting of prices more difficult."
Low lamb prices in 1999 account for a £9/ewe reduction in lamb output, compared with 1994, and fixed and overhead costs have risen substantially, says Mr Fogerty. "The 1999 year was a particularly poor one for lowland sheep production. Although lamb prices improved in 2000, sheep premium was less and feed and fertiliser costs increased, so gross margins were similar."
The survey shows higher labour costs are the main component of increasing fixed costs. "Agricultural wages will continue to increase and many lowland sheep enterprises survival is heavily dependent on low-cost family labour."
Welfare expectations
High fixed costs bring pressure to increase flock size, but there are limits, he warns. "In countries such as New Zealand, one person looks after thousands of ewes but their welfare expectations are different from ours. Paying more for UK lamb produced to higher welfare standards would require a large mindset change from reluctant supermarkets."
He believes high cost and low returns may cause lowland producers to question their future in sheep production. "Sheep enterprises are typically subsidiary and used as an effective way of farming off-lying or marginal land with few viable alternative uses. When deciding on viability, it is best to look at contribution to farm profits, gross margin, enterprise profit or occupiers income as measures of income."
Although the outlook may appear gloomy, with an average net loss of £33.19/ewe in 1999, some flocks do better. "Better flocks achieved a gross margin/ha of double the national average, or a net margin – though still negative – four-fifths better."
To some extent, these differences reflect flock size but that is not the whole story, he adds. "Better flocks have a higher stocking rate, lower concentrate use, a lower flock maintenance rate and higher proportion of finished lambs sold."
They are also able to secure higher market prices. "This is possible through focussing closely on market specifications. Niche marketing also helps, but is not an option for everyone.
"In the UK, joints of lamb are perceived as being for the over 40s, so the work being done by organisations such as MLC, to promote it to a younger audience will become increasingly important if exports take time to resume." *
LOWLANDSHEEPMARGINS
• Net margin -£33/ewe.
• Improve technical performance.
• Satisfy market requirements.
Margins from lowland lamb production in England and Wales £/ewe
1994 1999 2000 (est)
Output 67.37 56.71 57.9
Variable costs 25.30 24.36 25.5
Gross margin 42.07 32.35 32.4
Fixed costs (excl overheads) 38.33 49.25 50
Margin before overheads 3.74 -16.90 -17.6
Overheads 12.63 16.28 16.6
Net margin -8.89 -33.19 -34.2
Other measures of income
Enterprise profit (before interest) 15.74 5.86 5.6
Occupiers income (before interest) 13.02 1.48 1.2
Family income (before interest) 10.21 -2.22 -2.2
Source: Exeter University.