Double-edged sword

Well they have been quiet for a while, but now those sheep merchants from the other side of the world are back. UK ads from New Zealand in the 1980s featured flying shots taken from helicopters over deep lakes and soaring mountains. "We've got a great landscape as well as nice lamb folks," they told us and we bought it. Now, as short nights turn into longer spring days, roadside posters are appearing and glossy magazines are running the strapline 'A National Obsession', as sturdy New Zealand chaps watch over their flocks with just a tad too much concern.

Yet before we comment on the Kiwi idea of tongue-in-cheek humour, there's a new exporter on the global market. "Mountains, valleys and weather, which all combine to make a special and unique environment" and "rich green grass benefits from plentiful rain" is how the marketing blurb for this particular brand of sheep meat reads. Who are we talking about? British lamb farmers now the third-biggest exporters of lamb in the world, with a market value of 312m. Last year, 30% of British lamb went overseas, according to the Agriculture & Horticulture Development Board (AHDB) Market Intelligence. And Welsh marketing body Hybu Cig Cymru (HCC) Meat Promotion Wales, which provided those choice descriptions on its website, is at the heart of it.

According to Rees Roberts, chairman of HCC: "Our aim is to continue marketing Welsh lamb as a global brand, making it an attractive proposition for established markets in Europe, as well as the emerging markets of the Middle and Far East, so that as producers, we have another positive year in 2010.

"The positive feedback we are getting from customers across the world is that they recognise the unique qualities of the Welsh Lamb brand and are willing to pay for it."

Export sales of Welsh Lamb rose by 11% last year, thanks to such marketing, but also a ready audience. Lamb production has fallen significantly in North Africa and the Middle East, as well as in Australia and New Zealand, where it has halved in the past 40 years. Numbers are also falling in Spain, down 20%, and France, down 7% between 2007 and 2008 (Eurostat). "UK sheep farmers have now seen two years of high prices and are in a good position to benefit from positive international market conditions for 2010," says Jean-Pierre Garnier, Bpex/Eblex export manager.

knock-on effect

Yet as producers triumphantly reach new markets across the globe, which need British lamb to fill the gap in their own supplies, and branding in Wales attains new heights, there has been a knock-on effect that is not quite so positive. The great marketing push would be fine, if it were happening against a backdrop of growing production in the UK, but the number of lambs is actually falling. The recent cold snap has meant a particular drop in numbers, with an increase in the culling of hill ewes. And predictions are for a further fall, from 305,000t last year to 294,000t by the end of 2010.

The impact on the domestic market of this double whammy of growing exports and falling production has been significant. During 2009, the amount charged wholesale for lamb rose by 7%, more than any other sector in the meat market. Prices soared yet again in the two weeks to 6 February, up by 11.1p/kg to 424.3p/kg for an R3L grade (the top specification, frequently used for retail supply), according to the AHDB's latest UK market survey. It is natural for prices to jump around this time, with the availability of lambs dropping off prior to Easter and only a few spring lambs on the market. But even taking this common scarcity into account, the 22% increase on last January is unusual. "Prices are at an historic level," a spokesperson at AHDB admitted.

Not surprisingly, many lamb farmers are delighted. NFU livestock chairman Alistair Mackintosh says: "Prices are high and we should keep them that way. Livestock incomes are the lowest of all farming. The profitability is very low, so farmers have to take advantage of what's happening right now. It used to be that if we wanted to sell more to a processor, we had to lower the price, but that's not the case any more."

One sheep farmer, who refused to be named, put it more bluntly: "Processors and retailers used to treat me like scum. They'd come and pat my lambs and then demand rock-bottom prices. But it's a different game now; we can set the ground rules."

Yet something in all this does not make sense. A basic economic principle is that new entrants to the market take advantage of high prices and, eventually, lower the price it is called supply and demand and this pattern ought to be working here to balance out the market.

That the situation is not like this is down to the unusual state of the lamb industry. Farmers have been leaving the sector in droves, due to changes to CAP payments and, from December 2009, the electronic tagging system for sheep (EID), both of which have detracted from profitability. Farmers have also been holding back ewes to increase breeding numbers and make even more money out of the current high prices. Furthermore, prices were extremely low in 2007, so any new entrants would hardly have time to be a major player yet.

So the situation is not quite as rosy as farmers would have us believe, and despite such price hikes, the overall value of the market has fallen. Last year, lamb sales were down by 2% overall, hiding large volume falls of 9% as well. By contrast, beef, pork and poultry sales were all up in terms of expenditure, the latter by 6% (Bpex Market Update). Furthermore, consumption is forecast to drop to around 328,000t by the end of 2010 (Eblex Sheep Market Outlook). Put simply, people are showing signs that they are simply not willing to pay high prices for lamb.

John Mettrick, a butcher in Glossop, Derbyshire a region with a strong tradition in lamb farming says his lamb sales are holding up, but only because he is charging less. "We're fortunate that our suppliers haven't followed the market as hard as they could. Many have been with us for 20-30 years. But even so, we've taken a hit on margin to secure lamb sales for the future," Mettrick says. "We don't want to go back to the days when the RSPCA was being phoned to take lambs that weren't selling, but the prices being quoted now are ridiculous. We need to see around 70 for a whole lamb, not 100." Mettrick has even been quoted 130 and heard of a whole lamb going for 200 before Christmas. "Prices like that are really damaging. Some farmers might lynch me, but I have to sell meat to pay my wages, and I cannot keep stocking meat that doesn't sell."

January saw unusually high prices, as processors tried to entice farmers to deliver the meat from snowbound areas. "They are not as high as then, but retailers are still being asked to be pay amounts they simply cannot pass on to the consumer," says Mettrick. According to Eblex's Sheep Market Outlook, last year, the price charged by lamb farmers went up by 20%, while the retail price only rose by 8% creating quite a hit for butchers.

Arguably, producers could just ignore the UK, because overseas sales could be increased yet further. "Exports are forecast to continue growing in 2010," says Eblex senior analyst Mark Topliff, "and sterling is assumed to remain relatively weak."

perilous path

Yet farmers should be wary. The gap between the pound and the euro is already closing, as question marks over some of Europe's weaker economies force the euro in the other direction. Wholesale prices in France are already easing albeit they are still 15-20% up on last year (AHDB figures).

Presumably, farmers would then look to re-enter the domestic market, offering people the chance to eat British lamb again. But the market is changing. Sales of lamb chops were down by 19% last year (Eblex Sheep Market Outlook) and mince dropped by 16%. Even though it is more profitable to sell a bone-in leg than one that is butterflied or portioned, butchers now have to sell parts of leg, such as middle leg, to make them affordable. And cheaper cuts, such as round neck, are moving better.

And consumers could make even bigger changes, buying other types of lamb on the UK market, such as the frozen and chilled products that come in from New Zealand. At least this would keep the meat front of mind for consumers. But the latest prices show another pattern: falling production on the other side of the world, as well as the weak pound, are resulting in high prices for New Zealand lamb, too. Cutlet chops, for example, were recently 12.54 compared to the British equivalent of 12.36 in the latest national retail price survey (AHDB). So many butchers would have no reason to start stocking New Zealand lamb on the basis of these prices.

It has come to the point where any lamb, even from New Zealand, would benefit the British trade. According to Harry Coates, owner of a butcher's shop in Durham: "I used to have vibrant sales in this meat and now they are virtually zero. If the current situation goes on much longer, then people could get out of the habit of eating lamb altogether." And is that really what the industry wants?

An exceptional lamb market

In the first seven weeks of 2010 in Great Britain, the deadweight (SQQ) lamb price averaged 420p/kg, a rise of 20% on the same period in 2009 (Agriculture & Horticulture Development Board figures). This also represents a 72% increase on 2008. Latest figures, to 6 March, show an average price of 408p/kg.
The higher prices can be largely attributed to markedly reduced lamb throughputs. Sheep and lamb slaughterings during January were 23% lower than January 2009, and a third lower than the same month in 2008. February saw around 20% fewer slaughterings.
According to Debbie Marshall, market analyst at the AHDB, "Since the start of this year, short supply of lamb, both domestically and globally has continued to keep prices at unusually high levels".
Old season lamb is up by 21% compared to the corresponding period in 2009, and is up by 73% since January 2008.

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