Wednesday, 6 August 2014

Consumers chew over air miles as they consider lamb options

Late last week we were approached by a producer from Farming Today, the Radio 4 early-morning show, to see if we could help them to answer a question which had been put to them by a listener. 

The individual in question had been listening to coverage of the recent farmer protests against Tesco, and as a result decided to head out to his local supermarket to make a point and buy some British lamb.  However, he was surprised to see that New Zealand lamb, which had travelled almost 11,000 miles, was cheaper. 

Therefore his question to Farming Today, which was then put to EBLEX, was: “How can lamb that has travelled 11,000 miles cost less than that which has travelled 50 miles.”

A representative from the Market Intelligence team spoke with the presenter for 15 minutes, explaining about the factors that enable New Zealand to do this, such as difference in flock sizes (average UK size 200 compared to average of 2,000 in New Zealand), hugely lower production, overhead and machinery costs for New Zealand farmers, and lower labour costs per ewe (this very subject was the inspiration for a blog we did just over a year ago). 

Mention was also made of carcase utilisation and the fact that lamb legs, which tend to make up the majority of imported NZ lamb meat, are not generally seen as a high value part of the carcase down under. The question was put to the market intelligence analyst; “what can British farmers do to compete with low-cost imported meat?” and the answer was straightforward enough. Continue to try and cut costs in order to be more competitive.

All-in-all it was a balanced interview that was broadcast on Friday as the larks were rising.  Understandably there were some British farmers listening who, given the many factors involved – not all of which were covered – and the fact that a lengthy interview had to be edited down to just a few minutes, were frustrated with the issue.

But there could be some good news on the horizon in this area, according to the latest EBLEX Outlook for the UK Sheep Market Bulletin.  It is well documented that this year farmers have seen a larger breeding flock and better lambing rates, meaning there is set to be plenty of produce available for the domestic market.  What’s more, in 2013, import volumes were tracking below year-earlier levels by the end of the year, a trend which is expected to continue for much of 2014 as supplies in New Zealand, in particular, are forecast to be tighter due to a combination of factors.

Another element to consider is that, although UK farmgate prices are currently lower than they were last year, largely on the back of increased supplies, the better seasonal conditions should have resulted in lower costs for farmers, especially relating to bought-in feed and home grown forage.

Additionally, with many producers expected to have increased lamb crops compared with last year, it is expected that the current lower prices should be offset by increased numbers to a large extent. With that in mind, overall income from sheep enterprises should remain firm.

Although market conditions are expected to be largely favourable, the price volatility that has characterised the trade in recent years is likely to remain.  This highlights and reinforces the fact that little can be done to control the price received at farmgate and that producers must look to control what they can. This basically means looking at maximising physical performance and minimising costs in order to weather market volatility. More on the cost of production work undertaken by EBLEX can be found on the EBLEX website.