Analyst Intel

14 January 2021

PULSE | Rebuild confidence now

By Mel Croad

The rate of decline of sheep farms in recent years has been swift and, in many cases, permanent. At the same time, demand for lamb or mutton in our export markets hasn’t declined. If anything, long-term demand has been on an upward trajectory. Yet that is not translating into increased confidence within the sector. We can’t create more land and those farms being swallowed up by pine trees or urban sprawl will never be returned to pasture.

According to Beef + Lamb New Zealand, breeding ewe numbers have fallen by over 5 million head in 10 years. Productivity gains in lambing percentages have somewhat offset that drop, but ultimately breeding ewes are the victim of declining support for sheep. Many farmers had their chances to capitalise on record returns over the last three years, but some have endured drought while others have had pine trees dangled in front of them. It is warming to see current breeding ewes being purchased for the sole intent to breed from. Is this the start of a longer-term rebuild, or are many just replenishing numbers? 

Some will view lower ewe numbers, and therefore lower lamb numbers, but higher returns as a way of justifying the current state of the sheep industry. This is simply a short-term advantage, but a long-term disadvantage.

China’s taste for mutton has moved up a gear, which on killing sheets is welcome when you can offload a cull ewe and replace it with a young 2th or experienced breeding ewe for not a lot more. It’s a viable way to replenish flocks and improve productivity. But this can only be achieved if replacements are bred. If China’s demand for our sheep meat is stronger than our desire to ensure the survival of our breeding flock, then we are in trouble.

Some will question the industry’s reliance on China – simply put, if China is demanding our products it lifts the game of other key markets. It’s time to start understanding you can only play the short game for so long before there’s no game to play at all and you have to resort to selling your soul to pine trees. If you are game enough, cast an eye across the Tasman to our Australian farming counterparts.

As AgriHQ has reported on frequently, Australian farmers have finally cut a break, and many are enjoying their first decent rain in a very long time. They have no option but to rebuild. The vastness of their continent restricts forestry plantations from springing on up on their best country given the distance to ports. It also puts a nail in the coffin of any subdivision of prime farmland to lifestyle blocks or urban sprawl. Hence their need to continue to farm, to play the long game, to understand that after a few tough years the rains will come, the grass will grow and they will once again farm. Their confidence to rebuild breeding numbers encompasses not only sheep but cattle. Industry forecasts show a depth of rebuild and therefore expanding export volumes beyond what NZ is scheduling.

Returns for NZ lamb and mutton have survived the challenges of covid-19 and 2020 in general. Average export values for both were higher in 2020 than two and three years ago. The recent dip in farm gate prices is partly seasonal but also recoverable. Quality, safe food is one thing that has not been completely ripped apart by covid-19. Consumers still have to eat, and this is supporting our industry as many look to NZ products. However, the rate of decline in confidence from NZ farmers is impacting our ability to see the need to retain productive land and breeding numbers, ensuring Australia will be the one to capitalise on this long-term export demand curve.