Rabobank senior analyst in animal proteins Jen Corkran on the farm. Photo: Supplied / Rabobank
A new report is telling sheepmeat farmers it is only up from the bottom for the sector grappling with low prices.
The new Rabobank report entitled Watering the green shoots in New Zealand sheepmeat said sheepmeat export values dropped dramatically in the 2023-2024 season after two years of strong export returns.
It said farmgate prices were dragged down by a fall in total average export values dropping from $12.63 a kilogram (FOB) in October 2022 to as low as $8.08 a kilo in December 2023 - driven by global geopolitical and macroeconomic factors, depressed Chinese export demand and greater competition from Australia.
Earlier this month, Beef and Lamb New Zealand's new season outlook showed making profits in the 2024-25 season was [https://www.rnz.co.nz/news/country/527452/sheep-farm-profitability-for-next-season-sobering-beef-a-green-shoot-blnz
expected to be challenging] - with farm profitability forecast to decrease 7.4 percent from 2023-24 to $45,200 per farm.
But Rabobank senior analyst in animal proteins Jen Corkran said market signals indicated healthy lamb projections for next year - but the industry had to adapt its strategy to capitalise on it.
"The good news is that 2023/24 likely saw the bottom of the cycle and, based on both supply and demand dynamics, lamb projections for 2025 and beyond show upside," Corkran said.
"If the industry takes a strategic approach, our view is that the medium-to-longer-term upside could be greater from 2026."
The report highlighted three pathways to improving returns, including growing the domestic market for sheepmeat in Aotearoa, diversifying export markets and deepening investment into sheepmeat research and development to boost competitiveness.
It said New Zealand exported about 95 percent of sheepmeat produced here in 2023 - half of those 296,000 tonnes of lamb exports went to China - and only 5 percent was sold in Aotearoa.
Whereas for Tasman neighbour Australia, it was far less reliant on export, with 37 percent of the lamb it produced going to straight onto Australian dinner tables.
Corkran said marketing aspects of sheepmeat like its health benefits and how to cook it could help drum up demand for it in Aotearoa - but the current retail value was a challenge.
"Sheepmeat is a premium product in New Zealand, lamb is too, so it's not the cheapest red meat protein that you can you can buy at the supermarket.
"So whether or not we can increase the competitiveness of it so it can be a little bit more affordable and whether that's worth it for our supply chain as there's of course a conversation to be had."
She said while domestic consumption was limited by population size, New Zealand's per capita consumption was not even one-third of Australia's rate.
"Australia's much higher domestic consumption adds resilience to the lamb market, as strength in domestic retail trade can help balance out global demand dynamics and associated price volatility."
Top markets China, the European Union, United Kingdom and the United States should also be re-assessed for opportunities, the report said.
"New Zealand should aim to be clever and careful in finding a good balance of trade partners for both commodity and differentiated products in the coming years."
It said New Zealand could increase higher-value chilled volumes to the United Kingdom and it was also well-posed to fill a gap in supply as a result of the declining UK flock size.
Corkran added there were further opportunities in the US market where there consumers were willingness to pay for higher-value frenched racks.
"But sheepmeat is a small part of retail in the US and, in order to maximise shelf inventory, New Zealand needs to find a way to add to existing inventory in the retail space or, alternatively, turn focus to just foodservice.
"This won't be easy, but there is scope for incremental gains."
Corkran said investing in potential opportunities around value-added products from parts of the sheepmeat carcass, for example blood or offal for future high-value pharmaceutical products could also add to export income.