Returns to sheep farmers seem to be defying the normal rules of supply and demand.
Sheep numbers have dropped and the demand for lamb is high which ought to mean good returns to farmers but although they’re not as bad as they were they’re not as good as they ought, and need, to be.
The relatively high exchange rate and dismal returns from wool, pelts, tallow and other by-products are partly to blame. Other factors include over capacity in the meat industry and changes in eating and cooking trends.
The result is a difference between profits of $600 a hectare from sheep farming and $3,500 to $4,000 for dairying which is encouraging more dairy conversions.
However, not every sheep farm is suitable for conversion and not all farmers who could change to dairy want to. They’ll be hoping that the meat sector strategy delivers.
The initiation of the meat sector strategy is a critical step towards improved profitability within the sector, according to project Co-chairs Meat Industry Association (MIA) Chairman, Bill Falconer and Beef + Lamb New Zealand (B+LNZ) Chairman, Mike Petersen.
Mr Petersen says the concept of developing an overarching strategy for the meat sector was championed by the organisation previously known as Meat & Wool New Zealand during last year’s referendum debate, when farmers expressed frustration at volatile and marginal profitability.
“We are delighted that through the Meat Industry Association, the processor/exporter part of the sector also sees the need to do this, and is prepared to work alongside farmers in identifying the opportunities for step-change improvement.”
B+LNZ, MIA, New Zealand Trade and Enterprise and MAF have agreed terms of reference and funding for Phase one of a two stage strategy process, which entails an overarching ‘umbrella’ study of the issues and opportunities across the sector from market to farm. Mr Petersen and Mr Falconer are optimistic that there will be a number of ‘quick-wins’ identified from that Phase one process.
In Phase two, willing industry participants will collaborate to adopt and implement initiatives to drive change. These may include research & innovation, market development or whole of supply-chain initiatives.
Mr Falconer expects Phase one to be complete in the first quarter of 2011.
Federated Farmers is backing the strategy:
“There’s a hell of a lot hinging on the meat industry strategy for New Zealand’s meat farmers,” says Bruce Wills, Federated Farmers Meat & Fibre chairperson.
“The really important thing is that farmers and the marketers are both seeing the highest ever in-market prices for Kiwi lamb, but they’re not benefiting from those prices.
“The meat companies tell me they could sell double the lambs we currently produce and at these record prices too, but that’s where a massive disconnect between ‘there’ and ‘here’ kicks in.
“On-farm, sheep farmers are exiting the industry because there’s little or no profitability. Sheep farmers are voting with their business plans in order to survive.
“We’ve now got a consensus among farmers and the processors that the industry is broken and it needs shape and form to go forward.
B+LNZ is forecasting a lamb crop of only 21 million – two million fewer than forecast last December.
That’s not only concerning for farmers because the meat industry still plays an important role in the eocnomy:
The New Zealand meat industry (lamb, beef, mutton, veal and co-products) is unique in the world with the great majority of production exported to overseas markets (more than 90 per cent of lamb and over 80 per cent of beef exported).
The New Zealand meat industry generated $5.8 billion in export revenue in 2009 – 15 per cent of New Zealand’s merchandise exports.
In 2009, New Zealand meat products were exported to 119 different countries.
Total meat production (on a bone-in basis) was 1.2 million tonnes for year ended 30 September 2009.
Total labour employed in the New Zealand meat industry is 72,000, which is 5 per cent of the total labour force (according to New Zealand’s 2006 Census).
It’s very unlikely we’ll get back to the days at the height of subsidies when we had 70 million sheep, but if the strategy succeeds we could look forward to modest improvements in the sheep population.
That will come on the back of better returns for farmers which will in turn help those who service and support them, people involved in processing and the wider economy.