Focus on New Zealand: The great balancing act

New Zealand has faced worrying drops in lamb supply in recent years, with bad weather and a shrinking breeding flock resulting in the country recording its lowest lamb crop for 50 years in the spring of 2010. Improved weather conditions helped boost numbers in 2011, although a 2.5% decrease in the breeding flock meant that supply was still tight.

This season, a big improvement in lambing percentages has helped boost further recovery, with the number of lambs tailed in the spring of 2012 up 5.4% on the previous year to 26.87 million head. “The supply increase of lambs for the 2012-13 meat export year came from a high lambing percentage,”​ explains Rob Davidson, executive director of Beef and Lamb New Zealand (B+LNZ) Economic Service. “A record 123 lambs were born for every 100 ewes in the spring of 2012. This reflected an excellent pastoral farming year and a mild spring with few storms.”​

“Another factor from the excellent 2012 pastoral farming year was the excellent condition of ewes and also hoggets kept as replacements. As a result more hoggets were mated than in the previous spring and lambs from hoggets were up 33% to 1.4 million.”​

However, Davidson points out that these numbers have been slightly offset by further contraction of breeding ewe numbers, which fell 0.8% on the previous year, according to provisional data from Statistics New Zealand.

“Breeding ewe numbers at 30 June 2012 (mid winter) totalled 20.3 million. Five years earlier at 30 June 2007 breeding ewe numbers totalled 26.1 million.  The 5.7 million decrease (-22%) since 2007 was due to the dairy herd expanding out onto the best prime sheep and beef finishing country,”​ he explains.

An increase in the number of lambs to feed and a relatively dry summer has also resulted in a 2.8% decrease in lamb carcase weights, which are expected to average 18.1 kg in 2012-13, compared to 2011-12’s record 18.66 kg. This has meant that while export lamb slaughter is expected to increase 5.4% to 20.1 million head, export lamb production on a carcase weight basis will see a smaller increase of 2.7%  to 9,700 tonnes.

Price corrections​

Supply shortages and strong global demand helped drive a dramatic increase in lamb prices in the 2010-11 season, which averaged at NZ$116 per head in April 2011, up 53% from the NZ$76 seen in the previous April. While these high prices were a welcome turnaround for New Zealand’s sheep farmers, who have seen on-farm costs rocket in recent years, they were met with some resistance by consumers in export markets. High prices continued into the 2011-12 season, reaching a peak of NZ$156 per head ($7.55 per kg) in September 2011, but they have since dropped considerably and at the end of January 2013 they reached around NZ$$82.25 per head ($4.70 per kg).

“Eighteen months ago lamb prices went up significantly and that really impacted on demand,”​ says Heath Milne, general manager at Anzco Foods UK. “There has been a dramatic correction in prices during 2012 because lamb got so expensive that it was removed from people’s shopping lists and menus.”​

Brian Johnston, managing director, New Zealand Farmers Ltd, says that the dramatic correction in prices is also down to processors attempting to regain their margins. “Last year companies were paying over inflated prices at the farmgate, I think more to guarantee capacity in their processing plants, rather than reflecting what prices they were getting on the marketplace,” he explains.

It is expected that lamb prices for 2012-13 will average NZ$85.00 per head, a 25% reduction on the 2011-12 average price of NZ $113.50 per head. This could have an impact on supply going forward, says Stephen Clapham, manager of AFFCO Europe. “The way that prices have come down this season from last season will make some farmers in New Zealand think again about whether sheep production is financially viable.”

Davidson agrees that falling lamb and mutton prices is the “main challenge”​ for New Zealand’s sheep farmers going forward, particularly in the face of rising on-farm costs. According to B+LNZ Economic Service’s ‘Movements in Sheep and Beef Farm Input Prices 2011-12 report’, beef and sheep input prices have gone up 22.3% in the last five years, with big increases in fertiliser, fuel and feed prices.
High costs and low prices have been blamed for the rapid conversion of sheep and beef grazing land to dairy farming, which enjoys better profitability, in recent years.

However, Davidson says that conversions to dairy farming are expected to slow considerably in 2013-14 as a result of milksolids prices falling back from highs of recent years. This should mean that the lamb crop remains relatively stable next year, although early predictions are that weather conditions could mean a slightly lower conception rate and a 2.5% decrease in the lamb crop to 25.8 million.

Beef decline​

New Zealand’s beef herd has also been affected by poor profitability and the expansion of dairy farming into prime grazing land. Provisional estimates for the year to 30 June 2012 show that while total cattle numbers increased 1.8% to 10.20 million, beef catttle numbers declined 2.9% to 3.74 million while dairy cattle increased 4.7% to 6.46 million.

Total cattle slaughter is estimated to be up 8.8% to 2.27 million this season, although this will be partially offset by a 3.3% decrease in carcase weights to an average of 255 kg for the year, so export beef production on a carcase weight basis is expected to increase 5.2% to 578,500 tonnes for 2012-13.  

“Within this the cull cow slaughter is expected to increase 16% on last season’s low slaughter. Cow beef accounts for around 30% of export beef tonnage on a carcase weight basis. Steer beef also accounts for 30%with bull beef accounting for 23%  and heifer beef 17% of export carcase weight production,”​ says Davidson.

Beef prices remained relatively stable in 2011-12, with the average prices for prime steer and heifers down 1% on the previous year. “Drought in North America, growth in emerging markets such as China and India with some offset from continued uncertainty in Europe contributed to this,”​ says Davidson.

Current predicitons for 2012-13 are that the average bull price will increase 2.5% to 417 cents per kilogram, while steer and heifer prices will also increase 2.5% to 425 cents per kilogram. The majority of New Zealand beef exports are traded in US dollars so this is calculated on the 2011-12 average exchange rate, which was USD 0.80 against the NZD.

Strategy for growth​

Although prices continue to fluctuate and on-farm costs continue to rise, the prospects of New Zealand’s beef and sheep sector in the years ahead have been boosted considerably by the launch of a new $65 million project, which aims to accellerate progress across a range of issues affecting livestock farmers. The Collaboration for Sustainable Growth programme will run for for seven years and has been awarded $32.4 million of funding from New Zealand’s Primary Growth Partnership by the Ministry for Primary Industries. Industry participants include AFFCO, Alliance Group Ltd, ANZCO Foods, ANZ Bank, B+LNZ, Blue Sky Meats, Deloitte, Progressive Meats, Rabobank and Silver Fern Farms, who will match MPI’s investment and establish a joint venture entity to undertake the programme.

Farmers will also be asked to contribute to the programme through B+LNZ, although their contribution will only be around 30%, with the remaining 70% coming from government and industry.

Welcoming the government’s commitment to invest in the programme in January 2013, B+LNZ chairman Mike Petersen said “Beef + Lamb New Zealand has been working increasingly closely with meat processors in recent years through our joint venture market development programmes and collectively with processors and exporters via the Meat Industry Association (MIA). This opportunity extends that approach to supporting farmers behind the farm gate to help improve productivity and profitability. That’s very exciting and supports the tighter linkage and better communication across the farm gate that the sector has been looking for.”

He added that the programme would directly address a number of the issues highlighted in the Red Meat Sector Strategy, which was developed by B+LNZ, the MIA and the New Zealand government in 2011 to improve the red meat sector’s profitability and slow down the rapid conversion to dairy farming. "Success in this programme will help farmers to unlock the opportunities identified behind the farm gate for better profitability.”​

With any luck, strong investment in the industry and a slowdown in dairy conversions will help keep sheep and beef production levels stable, despite the challenges faced by New Zealand’s farmers.