According to the latest European Commission’s Short Term Outlook for arable crops, meat and dairy, sheep and goat numbers continued to decline in 2012 although at a slower pace than in previous years (- 0.3% against a previous -1.9%) and will result in a 1.6% reduction in production in 2013. This pattern is expected to continue in 2014, with a further contraction of -3.5%. However, some markets, such as Ireland, are seeing a growth in flock numbers and bucking the trend.
The EC’s Outlook also predicts that the tight supply in the internal market, due to decreasing EU production and the recovery in New Zealand's production, will result in higher sheep and goat imports in 2013 (4%). Exports are estimated to reach 27,000 tonnes in 2013, a reduction of 4,000 tonnes. EU consumption is projected to decline by -1% in both 2013 and 2014, and per capita consumption to stagnate at 2.1kg.
In 2012, prices of sheep meat in the EU were volatile with low prices affecting confidence within the sector. Margins for sheep farmers have been put under pressure due to a disrupted marketing season. This was brought on by the weather and the challenge of cheap imports. The future remains unclear in the face of weakened prices and CAP reform.
The EU is only 70% self-sufficient and with production falling across most EU Member States. With a recent decline of EU imports from the so called third countries, proven export opportunities exist for European lamb producing countries for intra-EU trade, as well as to outside the EU.
With the UK accounting for over a third of the EU’s total production, the overall position of the UK as the largest supplier of sheep meat within the EU remains strong. This is especially true given that a number of producing nations on the Continent, notably Spain, France and Germany, are reducing their flocks. Despite seeing a drop of 2% in volume in 2012 due to falling production levels in the UK over the past year, a higher proportion of production is now sent to the export market.
France is by far the most dominant market for UK sheep meat accounting for some 55% of shipments, the majority of product being chilled carcases, although exports dropped by 9% in 2012. Other key markets include Germany, Ireland, Italy and Belgium within the EU. The emerging trend of recent years are the increased shipments being sent outside of the EU which has offset the decline within the EU. This comes as a large number of new markets such as Hong Kong, the UAE and Oman have been opened up and are now looking to the UK for supplies. Significant growth has also been seen in Canada, South Africa and Norway.
France has historically been the world’s largest sheep meat importer, but was overtaken for the first time in 2012 by China with 124,000 tonnes. In value terms, it is still the largest market and valued at €525m. Its main trading partner is the UK and other key suppliers include New Zealand, Ireland and Spain.
The UK, Ireland and New Zealand typically have much lower production costs which allows them to out compete French domestic production. The price of French lamb has increased and is sold domestically as a premium product. French sheep numbers are expected to continue to decline due to high feed prices. The reduction in production may not be met by an increase in imported products due to continued high prices resulting in a reduction in consumption in the future.
Ireland has been able to take advantage of the volatile market situation to boost exports and is an important supplier within the EU. Domestic consumption is low therefore large volumes are exported. 44% of all Irish exports are destined for France which saw a growth of 7% in 2012, as well as double digit percentage growth to Sweden, Germany, Belgium and Italy. Sales outside the EU were up 88% compared to 2011. The outlook for the sector remains positive in terms of exports given the fact that its production volumes are on the increase.
Another key player in the EU sector is Spain. It has the second largest flock in Europe, but it has dropped by a third since its peak in 2003. This decline has been more significant since 2011 due to higher production costs, as result of an increase in cereal prices. Domestic consumption is down by 9% in 2012 due to a squeezing of budgets and rising unemployment. Spanish imports have dropped and exports increased, in particular to France, given the fact thatSpanish prices have fallen considerably. Exports have also grown to the UK and Portugal.
As far as external competition is concerned, New Zealand remains the dominant trading partner of the EU. Continued growth in New Zealand lamb production and the expectation that this (production) will remain competitively priced is likely to increase imported sheep into the EU, although EU sheep meat import quotas for third countries fell well short of the allocation for another year in 2012. This is due, not least, to a decrease in overall demand in Europe, due to tightened budgets as a result of poor economic performance in some EU markets.
With continued uncertainly in the € zone, it is increasingly important for EU sheep meat exporters to explore and open up new markets. With an increasingly affluent and growing population in many developing countries in China, the Middle East and parts of Africa, there are still plentiful opportunities to access for go ahead farmers and exporters. What is required is a competitive product, good export skills and market understanding, a consistent approach to product quality and the whole process of export market development. Clearly, good generic marketing campaigns can help too, but an in-depth understanding of how consumer and customer behaviour is just as, if not more important, as well as lobbying from relevant authorities to break down the necessary technical and commercial barriers that often exist in these markets.
Jayne Hunt is a Consultant with Promar International, the value chain consulting arm of Genus plc and can be contacted on the following email: Wnlar.email@example.com