Strong demand from China, coupled with tight supplies in New Zealand, have been key contributors to the record Australian trade lamb prices in recent weeks.
China is the world’s largest sheepmeat producer, consumer and importer.
The country has been Australia’s single largest sheepmeat export destination by volume for the past couple of years and is second, to the US, by value.
Meat Livestock Australia reports that Australia’s sheepmeat exports to China have seen the largest ever start to the year, swelling 43 per cent year-on-year to an all-time record of almost 55,000 tonnes for the January-July period.
China has a two-track production structure, with a mix of large-scale farms and industrialised processing companies, and small herders with a couple of animals processing batches through local slaughterhouses.
Small herders still represent a significant proportion of producers in China and they principally add volatility to the market, by growing flocks to take advantage of high prices and exiting when prices fall or livestock-rearing conditions deteriorate.
This means that over-production is an ever-present risk and, given domestic production accounts for 95 per cent of consumption, it can have an immediate negative impact on import demand, particularly at the commodity end of the market.
China produces one-third of the world’s sheepmeat, and high prices, growing demand and government support are forecast to underpin growth over the next decade.
Between 2017 and 2027, China’s sheep flocks are forecast to increase 1.1 per cent on a compound annual growth rate and for production to lift 2.1 per cent, according to GIRA.
At the same time, high prices, drought and disease are affecting China’s domestic production, and can potentially result in short-term production surges.
Much of northern China, where the majority of China’s sheep and goat flocks are raised, has been in intermittent drought for some years, with surface and groundwater at record lows in some places.
While production is forecast to increase in coming years, so is consumption.
GIRA is currently anticipating a compound annual growth rate increase in consumption of 2 per cent from 2017 to 2027.
Current estimates suggest that China’s sheepmeat production will continue to fall short of meeting consumption out to 2027.
China’s growing demand for a variety of premium proteins, including lamb, will be driven by significant growth in the number of wealthy urban households with high discretionary incomes.
Consumers are upgrading purchases across many product categories, including meat, which means eating larger quantities and of a wider variety.
Affluent consumers are seeking higher quality, imported chilled meat products, for consumption at home and through foodservic
While China’s 2017 estimated annual per capita sheepmeat consumption is relatively low – 3.4 kg per person in China compared to 8.4 kg in Australia – this is forecast to increase to 4.0 kg by 2027, which is significant for a consumer base of around 1.4 billion, according to GIRA.