The sheep sector has recorded a largely positive 12-month period of production, with a marked increase in farmgate returns providing a much needed boost to the sector.
Farmgate prices have been trending at a higher level for the last 12 to 18 months but it is the performance in the year to date that has really set the tone for greater optimism and a sense of belief that significantly higher prices can be sustained into the future.
Figure 1 details the average farmgate lamb/hogget price over the last 10 years and the five-year rolling average price.
As can be seen, the average lamb price increased in 2018 by in the region of 20c/kg on previous years. This was driven by tight supplies in the first half of the year underpinning higher prices, with this increase at a level capable of lifting the yearly average before easing back to the more normal level of previous years in 2019.
It is not surprising therefore that many feared and believed the record prices charted at the start of 2021 would also likely follow a similar fate. After all, hogget throughput fell by in excess of 90,000 head.
While prices did follow a seasonal decline they have held at a much higher price point with farmgate returns at the start of September running €1/kg above the corresponding period in 2020.
This is despite the lamb and ewe/ram kill recording similar throughput proving that it is not just tight domestic supplies that has underpinned improved market performance.
Overall, sheep prices for the year to date are running in the region of €1.45/kg above 2020 levels.
The sheepmeat sector is one of a minority of commodities to actually benefit from the coronavirus pandemic.
We bemoan the fact that in many European countries sheepmeat does not feature strongly on foodservice menus but this lessened the blow endured by other meat proteins such as beef when the foodservice sector entered into lock down on numerous occasions. The fact that consumers had more time on their hands to cook actually increased consumption.
This occurred against a backdrop of falling production across Europe with the volume of sheepmeat produced in 2020 dropping by 3.4%.
Sheepmeat production fell in every European country except for Ireland, Germany and the Netherlands with the latter a small player in terms of sheepmeat production.
Of particular note are significant reductions in the sheep-producing powerhouses of the UK and Spain (Figure 2) with production falling by as much as 6%.
Lower New Zealand imports
The other major factor, which has allowed Irish processors to gain a greater foothold in higher-value markets such as Germany, Belgium, the Netherlands, Switzerland and Scandinavian markets is the demise of New Zealand sheepmeat exports to the European market.
Figure 3 shows the scale of this reduction over the last decade with New Zealand filling just 46% of its tariff-free quota of some 228,254t in 2020. This situation is likely to continue for at least the immediate future with New Zealand diverting an increasing share of its exports to China and production falling on an annual basis.
There is one cloud hanging over this prediction of less sheepmeat in the European market and that is the UK’s free trade agreement with Australia, which was agreed in principle in June this year.
Once this comes into effect, it provides Australia with immediate access to a tariff-free quota of 25,000t of sheepmeat which will increase in equal instalments over the next 10 years to 75,000t. Meat and Livestock Australia (MLA) is forecasting rapid growth in Australia’s sheep flock following years of damaging weather events.
MLA forecasts that after reaching an all-time low of 64m ewes in 2020 Australia’s sheep flock will increase to 68m ewes in 2021 and some 75m head in 2023. Whether this materialises will be influenced strongly by weather events in the coming years.
The UK-Australia free trade agreement does serve as a warning, however, that the Irish sheepmeat sector cannot rest on its laurels.
The Irish Government has been trying to advance access for Irish sheepmeat to both the Chinese and US markets for a number of years at this stage. We can see with Irish beef trying to regain access to the Chinese market how difficult it is to do business with China, while access for sheepmeat to the US is said to be stifled by trade negotiations between the US and the EU.
Gaining access to the Chinese market would provide a better balance to demand for all carcase components while Irish processors are optimistic that the US market could be a successful high-value market. As such, the Department of Agriculture and Irish Government need to keep the pressure on to finally secure access.
Policy drives production
While input prices are increasing rapidly and eroding the recent gains in stronger market performance, the increase in farmgate prices will help to sustain sheep numbers and create positivity in the sector.
Of equal importance, however, is a well-designed CAP programme, which is veering further and further away from supporting food production and becoming more focused on climate and environmental measures.
Direct payments contribute in excess of 100% to family farm income on many farms, which highlights their importance.
Proposed changes under the CAP Strategic Plan 2023-2027 are discussed earlier in the Plough On supplement from pages 22 to 24, so I won’t go into detail on the contentious aspects of them here again, other than to say that the proposals are as divisive for sheep farmers as they are for other sectors despite the opinion that some commentators have that the sheep sector will be a big beneficiary.
By their nature, sheep farmers do not have large entitlement values but as many operate mixed-farming systems they will be hit hard by the changes.
Sheep farmers are ideally suited to protecting high nature value farmland and returning a significant environmental benefit.
It is important that eco schemes and programmes such as the proposed sheep improvement scheme are designed in a manner that allows all farmers to participate and receive a worthwhile reward for completing certain measures.
The future Agri-Environment Carbon Measure will be equally important in this regard, while sheep farming would easily lend itself to contributing to the EU’s lofty target in growing the area farmed organically as discussed on pages 10 and 11.
This is provided, of course, that markets can be developed to generate a worthwhile premium with a considerable percentage of organic sheepmeat currently traded in to conventional markets.
Attracting younger farmers into the sector while providing the mechanisms to facilitate older farmers being comfortable in taking a step back is a growing challenge.
With the right support measures, there is huge potential to safeguard the national flock and also achieve growth.
On the latter point of safeguarding the national flock, swift progress is required on determining the carbon footprint of sheep production so that the sheep sector can stand up to a growing anti-farming narrative with clear scientific research.