Rabobank cuts loan rate
Rabobank New Zealand will reduce the variable base rate on its rural loans by 0.5%, effective from 16 October 2024.
She says for New Zealand sheep production to be a competitive part of the farm system for red meat producers, change is required.
Her comments come in a new report, titled ‘Watering the green shoots in New Zealand sheepmeat’, released last week.
The report notes that NZ sheepmeat values dropped dramatically in the 2023/24 season following two years of strong export returns.
Total average export values dropped from $12.63/kg free on board (FOB) in October 2022 to as low as $8.08/kg FOB in December 2023, dragging farmgate prices down in the process.
“In our assessment, the major factors that caused the cycle to bottom were global macroeconomic and geopolitical factors filtering through to New Zealand’s primary producers, and a fall in New Zealand sheepmeat exports to China.
“This was then made more challenging due to increased competition from Australia,” says Corkran.
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“The timing of this downturn was unseasonal, and the price challenges coincided with high on-farm costs that squeezed margins for both producers and exporters.”
The report identifies three pathways that could help lift sheepmeat returns: focusing on increasing domestic consumption, reassessing trade and diversifying export markets away from China, and investing to boost the competitiveness of New Zealand sheepmeat.
Corkran says the good news is that 2023/24 likely saw the bottom of the cycle and, based on both supply and demand dynamics, lamb projections for 2025 and beyond show upside.
“If the industry takes a strategic approach, our view is that the medium-to-longer-term upside could be greater from 2026.”
The report says the majority of New Zealand lamb is exported, and over the past five years, New Zealand’s domestic consumption has averaged just 5% of total production.
“Obviously, domestic consumption is limited by population size, but at 1.95kg, New Zealand per capita consumption is not even one-third of Australia’s 6.4kg (2023 OECD data),” says Corkran.
“If Kiwis were to increase per capita consumption to Australian levels, it would place the domestic market behind only China in terms of overall consumption of New Zealand sheepmeat. Australia’s much higher domestic consumption adds resilience to the lamb market, as strength in domestic retail trade can help balance out global demand dynamics and associated price volatility.
“What Australia has done well to support domestic consumption is to promote Australian lamb quality and nutritional value. New Zealand has pushed these messages in the past, but opportunity exists for industry bodies to invest in marketing the New Zealand lamb story to reposition lamb in the eyes of local consumers.”
Strategic Trading
In the years ahead, the report says, New Zealand has an opportunity to deeply understand the export markets and consumers it supplies with its valuable sheepmeat.
“Lamb is a small part of global protein consumption, and the number of exporters is limited with Australia and New Zealand dominating global sheepmeat trade. New Zealand should aim to be clever and careful in finding a good balance of trade partners for both commodity and differentiated products in the coming years,” Corkran said.
The report says China, the EU, UK, and US are currently the top export destinations for New Zealand sheepmeat volumes, with China taking nearly half of New Zealand lamb in recent years. “Although exports to China do not have the highest value per kilogram, the market has served New Zealand well in taking volumes of lamb and mutton,” Jen Corkran says.
The main advantage of trade with China is that more of the sheepmeat carcass is utilised, for both mutton and lamb, she says. Although shipments to China have the lowest export value per kilogram of product, the market takes high volumes of lower-value meat, with exports peaking in 2021 at nearly 250,000 tonnes valued at close to $1.43 billion.
“With New Zealand lamb being recognised in China as a high-quality and nutritious product, more work could be done to ensure a foundation for ongoing success when it comes to the value this can gain. Chinese consumers’ growing interest in nutrition and health provides an opportunity to promote how New Zealand lamb fits alongside beef and seafood as a highly nutritious and naturally produced protein.”
While markets that can and will take lower-value carcass sheepmeat cuts like China will remain important for New Zealand, Corkran says that opportunities in the UK, the EU and the US should also be reassessed.
“NZ has historic trade relationships with the UK and EU and must continue to foster relationships to make full use of free trade agreements and tariff-free access. In 2015, New Zealand sent more than a third of total combined sheepmeat exports to these markets, but as exports to China increased, the dial shifted slowly downward,” she says.
With the UK sheep flock in decline and lower production from the UK expected for the medium term, import demand is likely to increase. “Although domestic demand is unlikely to grow in the UK, New Zealand’s share of the pie could.”
