Prospects for global sheep markets &

productionPeter Weeks – economic consultantDRAFT presentation to agri benchmark global forum, Madrid 16 June 2016

Is sheepmeat on a long-term slide? The global sheepmeat price has halved since mid-2011 Economic growth has slowed Population growth has slowed China’s imports of mutton fell 20% & lamb fell 80% in the past year Production is hitting up against land, water & environmental

constraints Competing meats are benefiting from lower feed grain prices

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20

40

60

80

100

120

140

160

2011-0

1201

1-04

2011-0

7201

1-10

2012-0

1201

2-04

2012-0

7201

2-10

2013-0

1201

3-04

2013-0

7201

3-10

2014-0

1201

4-04

2014-0

7201

4-10

2015-0

1201

5-04

2015-0

7201

5-10

2016-0

1

FAO Global Meat price Indices (2011=100)

Sheepmeat

Beef

Pig meatPoultry

On the contrary the future for sheepmeat is bright!Sheepmeat’s unique characteristicsLatest global market demand and supply situation What is the future for sheepmeat?

Issues critical to the futurehttp://www.dailymail.co.uk/news/article-485262/Springtime-lamb-born-October-Ewe-got-joking.html

The role of MLA• MLA is a producer owned, not-for-profit company and not a political body.• MLA is a responsible for research and marketing in the Australian red meat industry • MLA investing in initiatives that contribute to: Producer profitability Sustainability Global competitiveness

• Includes Market Intelligence • Funded by a levy on every animal sold

(1.3% of the price of lambs/0.3% price sheep/0.5% price goats/0.4% price cattle)

Sheepmeat’s unique characteristics• A niche product in the developed world & likely to become more niche• Only 10% of production is traded internationally with only two significant

exporters• The producing and consuming countries are diverse• A widely consumed & sometimes preferred product in the developing world• Sheepmeat production is often tied to other products (wool, skins, milk, crops, cattle)

Sheepmeat has only a small share of world meat consumption2015 total: 311.3 million tonnes

22%

38%

36%

4%

BeefPorkChickenSheepmeat

Source: OECD-FAO (cwe; rtc for chicken)

While sheepmeat consumption has grown its share has declined further

050

100150200250300350 million tonnes

0

2

4

6

8

10% sharepig meat poultry meat beef sheep meat sheep meat share (right)

Source: FAO e = estimate, f = forecast

The largest declines have been in the traditional sheep countries: Australia, EU & Uruguay

Australia

EUUruguay

NZ

Lamb is most salient and bought most in Saudi, UAE and Australia. Less prominent in Japan, Korea, Indonesia and Philippines

CH2. Which types of meat have you bought in the last month to prepare for a meal at home? CH9. How many meals that included the following meats have you eaten in your household in the last 7 days?

Bought in last month (CH2)%

No. of meals in last 7 days (CH9)Mean score

3

7

9

9

13

27

30

35

37

41

59

61

62

Korea

Philippines

Indonesia

Japan

Taiwan

Malaysia

AVERAGE

USA

Canada

China

UAE

Australia

Saudi

0,1

0,1

0,2

0,4

0,5

0,5

0,6

0,7

0,8

0,8

1,3

1,9

2,5

Japan

Korea

Philippines

Indonesia

Canada

Taiwan

Malaysia

USA

Australia

AVERAGE

China

UAE

Saudi

Lamb awareness & purchases LAMB

Countries included

Source: MLA Global Research

a niche product in many countries & regions17,8%

48,9%

30,7%

2,6%EU Beef

PorkChickenSheepmeat

29,8%

24,4%

45,5%

0,3%US

22,8%

43,6%

33,1%

0,4%Japan

36,5%

15,2%

47,4%

0,8%South America

Sheepmeat important in Africa, India, the Middle East, Aust/NZwith small but significant shares in Spain and Asia (including China)

18,1%

33,0%43,5%

5,5%Spain

13,0%

51,0%

29,8%

6,2%Asia

25,9%

23,8%40,8%

9,6%Australia

9,9%0,5%

79,1%

10,5%Saudi Arabia

38,9%

9,2%33,2%

18,7%Africa

BeefPorkChickenSheepmeat

21,4%

6,5%

54,3%

17,9%India

8,3%

65,6%

20,9%5,2%

China

Sheepmeat’s unique supply characteristics

Global sheepmeat production rising only slowly

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4000

6000

8000

10000

12000

14000

16000

19931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015

Million

tonnes

cwt

NorthAmericaLatinAmericaOceaniaEurope AfricaOther Asia India China

1.9%/year

1.5%/year

Source: FAO

Flocks falling through professional sheep farming countries but rising in Asia, Africa & the Middle EastSheep flock % growth 2000 to 2013

Why have sheep flocks been decreasing in many countries – despite high prices?• Competition for land – dairy in NZ, cropping in Australia• Severe droughts on almost every continent

Oceania, Africa, Asia, China, South America, North America & even in Europe, including Spain • High & volatile feed costs• Falling prices for companion products: wool, skins, crops & cattle• Labour costs – challenge for a high labour use enterprise• Environmental constraints & other government policy changes – especially in China• Predators, especially in Africa & Australia• Aging farmers & lack of ‘generational replacement’

The current global sheepmeat market

Spain

Sheepmeat trade prices have risen over timebut have fallen since 2011

050

100150200250300350400450

2000 Jan

2001 Jan

2002 Jan

2003 Jan

2004 Jan

2005 Jan

2006 Jan

2007 Jan

2008 Jan

2009 Jan

2010 Jan

2011 Jan

2012 Jan

2013 Jan

2014 Jan

2015 Jan

2016 Jan

Index 2

000=10

0

Sheepmeat

Beef

Pig meatPoultry

Source: FAO Meat Price Indices

FAO Global Meat Price Indices

Why the major fall in sheepmeat prices?

0,0

50,0

100,0

150,0

200,0

250,0

300,0

350,0

400,0

450,0

500,0

1990-0

1199

1-01

1992-0

1199

3-01

1994-0

1199

5-01

1996-0

1199

7-01

1998-0

1199

9-01

2000-0

1200

1-01

2002-0

1200

3-01

2004-0

1200

5-01

2006-0

1200

7-01

2008-0

1200

9-01

2010-0

1201

1-01

2012-0

1201

3-01

2014-0

1201

5-01

2016-0

1

Index (

2000=1

00)

Sheepmeat

Beef

Pig meat

Poultry

FAO Global Meat price Indices

• Consumer resistance to higher prices

• Lower feed costs have dropped cost of competing meats

• Demand in developed countries flat (30% battling deflation)

• China’s import demand well down in 2015

• Production has risen in Australia & developed world

The fall in prices has been across all regions

Sheepmeat still has a bright future

France Normandy Mont Saint-Michel with sheep in September via Wikimedia

Global sheepmeat still has a bright future1. Steady demand growth Population growth (though slower) and some recovery in income growth

‘Underlying’ growth in sheepmeat consumption 2015-2020 Due to projected population & income growth alone (if no price rise)

-100

0

100

200

300

400

500

600

China SouthCentralAsiaMiddle East South EastAsia SouthAmerica NorthAmerica Australia EU SouthAfrica Russia

‘000 to

nnes cw

t Due to population growth Due to income growth

Source: Weeks Consulting Services

Total ‘potential’ growth 1.7 million tonnes cwt (13% or 2.4%/year)

Global sheepmeat still has a bright future1. Steady demand growth (>2.4%/year) Population growth (though slower) and some recovery in income growthEspecially in developing world led by China & IndiaFaster growth in Muslim & Hispanic populationsExpansion of modern retail, foodservice & cold storage in developing countries The recent easing of import barriers (especially into China)

Can global sheepmeat supply keep up with demand?

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

19931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015201620172018201920202021202220232024

Million

tonnes

cwt

North AmericaLatin AmericaOceaniaEurope AfricaOther Asia India China

Production growth is expected to improve to 1.9%/year(OECD-FAO 2015-2024)

Forecast40% China40% other developing20% developed

Source: OECD-FAO Agricultural Outlook 2015-2024 database

Sheepmeat to grain price ratio to remain high

020406080

100120140160180200

197219741976197819801982198419861988199019921994199619982000200220042006200820102012201420162018202020222024

Index 2

006=10

0

Global sheepmeat to coarse grain price ratio

Source: OECD-FAO Agricultural Outlook 2015-2024 database

forecast

Sheep farms still profitable in 2015

-20%

-10%

0%

10%

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30%

40%

50%

60%

70%

Whole

farm p

rofit %

of rev

enue

Average agri benchmark farms Preliminary

Global sheepmeat still has a bright future1. Steady demand growth (>2.4%/year) Population growth (though slower) and some recovery in income growth Especially in developing world led by China & eventually India too Growth in Muslim & Hispanic populations Expanding modern retail, foodservice & cold storage in developing countries The recent easing of import barriers (especially into China) Price resistance to lower consumption (per person) in developed world2. Improved growth in global sheepmeat supplies (OECD-FAO 1.9%/year) Due to good profitability Productivity growth Only slow production growth in China, and well short of demand rise Resource constraints & environmental restrictions mentioned earlier Modest growth in exports from Australia, and little prospect of significant export expansion from NZ or elsewhere

Sheepmeat prices to remain historically highthough not in real terms

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1.000

2.000

3.000

4.000

5.000

6.000

19901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015201620172018201920202021202220232024

Global

sheepm

eatpric

e US$/

tonne

forecast

sheepmeat price

Source: OECD-FAO Agricultural Outlook 2015-2024 database

Critical issues and threats• Consumer affordability, especially relative to poultry & pork• Climate change

– Is the last 15 years of extremes an aberration or the new norm?• Environmental constraints/restrictions• Food safety and animal health• Political and religious upheavals• The China factor

China imports critical

Sheepmeat’s unique global characteristicsQuestions?

SHEEPMEAT: unique, niche with a bright future