New Zealand sheepmeat maximising the cut
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New Zealand sheepmeat – maximising the cut

September 8, 2015

Softer overseas demand for New Zealand sheepmeat – particularly out of China – which has curtailed New Zealand sheepmeat producers’ returns in recent months, has largely been driven by decline in demand for the forequarter portion of the carcase, says agribusiness specialist Rabobank in a recently-released report.

The report, New Zealand Sheepmeat: Maximising the Cut – Breaking It All Down, says it is important for producers to understand the breakdown of the animal and market demand for specific products as it ultimately determines the farmgate price.

“While farmers are paid on a per head or per kilogramme basis, the price they receive is calculated from the summation of all the products derived from the animal – from the extensive array of cuts, to the offal, co-products, skin and wool,” says report author and animal protein analyst, Matthew Costello.

Mr Costello says that in examining the values of the different sheepmeat products it is apparent the fall in lamb and mutton prices during the 2014/15 season has been largely attributable to weaker Chinese demand for the forequarter cuts – which account for nearly a quarter of returns from the carcase.

Written in close collaboration with several partners of the Red Meat Profit Partnership, Mr Costello previewed the key findings of the report at a series of farming events across New Zealand, attended by more than 1000 farmers.

Breaking it down

The Rabobank report says understanding the demand for different parts of the animal, based on the product and its intrinsic demand is paramount, as it ultimately determines the overall profitability of the sheepmeat sector.

“Not only is it important for the producer to understand the demands of the customer from both a carcase production and by-products viewpoint – so they can supply stock to those market specifications – it is essential that this understanding is held across all sections of the supply chain,” Mr Costello says.

“For example, processors need to communicate transparent pricing signals and market information to producers, while the government needs to continually work in conjunction with producers and processors to capture new markets.”

Key markets

Mr Costello says China exploded onto the New Zealand sheepmeat export scene in 2013, to become New Zealand’s largest sheepmeat trading partner.

“In 2014 China accounted for around 40 per cent of our total shipments, on the back of growing per capita consumption and stagnant Chinese sheepmeat production in the seven years to 2013,” he says.

“However recently, China – the world’s largest sheepmeat producer – have ramped up their domestic production to equate to around eight times that of total New Zealand production,” he says. “And this combined with record imports from New Zealand and Australia have created an oversupply in their market.”

Mr Costello says despite the short-term oversupply problem, growing demand for high-quality, safe and traceable lamb and mutton will ensure China remains a key destination.

In light of this, gaining access for premium chilled lamb cuts in China should be a priority for government and industry in New Zealand, the report says, as it would allow the higher-volume, lower-value cuts to be complemented by higher-valued product destined for the high-end restaurant and food service channels.

The European Union – particularly the United Kingdom – remains a key destination for New Zealand’s higher-valued sheepmeat exports, however sluggish consumer demand has hit returns.

Mr Costello says higher production in the UK, combined with stuttering economic growth and a stronger British pound compared to the euro, has seen demand out of the UK wane – particularly for lamb legs.

“This has had a considerable impact on farmgate returns here in New Zealand as leg cuts account for around 32 per cent of the returns generated from the animal,” he says.

Market opportunities

Mr Costello says while domestic producers will continue to benefit from the long trade history with the EU and market opportunities in China, it is imperative that the New Zealand industry continues to look for new market opportunities.

“With around three-quarters of our exports destined for these two markets, it makes us vulnerable to market variables, particularly as both are large producers of sheepmeat in their own right,” he says.

Further industry collaboration will be key in exploiting new opportunities, Mr Costello says, with markets such as the Middle East having “huge potential for our sheepmeat sector here in New Zealand.

“This is demonstrated in the strong trade the Middle East holds with Australia as the largest export destination for their lamb and mutton.”

Rabobank New Zealand & Australia is a part of the international Rabobank Group, the world's leading specialist in food and agribusiness banking. Rabobank has more than 115 years' experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 41 countries, servicing the needs of approximately 10 million clients worldwide through a network of more than 1600 offices and branches. Rabobank New Zealand & Australia is one of New Zealand's leading rural lenders and a significant provider of business and corporate banking and financial services to the region's food and agribusiness sector. The bank has 94 branches throughout New Zealand & Australia.

Media contacts:
Denise Shaw
Media Relations
Rabobank New Zealand & Australia
Phone: 02 8115 2744 or 0439 603 525 

Jess Webb
Media Relations
Rabobank New Zealand & Australia
Phone: 07 3115 1832 or 0418 216 103
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