Summary - Markets for sheep meat have improved considerably, overwhelming the weak recovery in wool prices that began in early 1995. As a result, movement of flocks from wool production to meat production can be expected to continue. This improvement in markets for sheep meat is a reflection of both the long-term decline in sheep numbers, and of the sudden jump in sheep meat consumption in the EU following the Bovine Spongiform Encephalopathy (BSE) scare.
World sheep numbers are forecast to increase slightly during 1996 and 1997 after seven years of uninterrupted decline. Continued growth in the immense Chinese herd as well as the limited recovery forecast for Australia, more than offset the continued decline seen in many other countries. The structural nature of decline in many of these countries, indicates that sheep flocks are unlikely to expand rapidly in response to the improved market for sheep meat. This, in turn, should keep the market strong for longer than otherwise might be expected. Other positive signs include the continued decline in the size of Australia's wool reserve, the existence of which has kept markets for wool depressed since 1990.
Sheep numbers have continued their uninterrupted decline, and are forecast to set new record lows in 1996 and 1997. The rate of decline is forecast to slow however, in response to improved markets for sheep meat. A sharp jump in the import of live sheep from Canada during 1995 and early 1996 has accompanied the decline in exports that began with the devaluation of the Mexican peso, giving further evidence of tight domestic markets.
In keeping with declining flock numbers, domestic production of sheep meat is projected to fall by nearly 7 percent in 1996 and by slightly over 3 percent in 1997. Imports of sheep meat are forecast to fall slightly during 1996, then more rapidly in 1997 as continued tight supplies in New Zealand and Australia limit their ability to export into the United States. Imports of Australian mutton, which jumped dramatically during 1995, have fallen significantly during the first half of 1996, while fresh/chilled lamb imports have picked up considerably. U.S. exports of sheep meat have fallen during the first half of 1996 as compared to the previous year, with sales values falling even more quickly. Declines were especially sharp in exports to such high-value markets as the EU, the Middle East and Canada. Exports to Latin America improved somewhat, but not enough to offset declining sales elsewhere.
Despite economic stagnation and a forecast decline in total sheep meat consumption, total stocks of sheep are projected to grow during 1996. A continued, gradual economic recovery is forecast to result in increasing consumption during 1997, spurring further growth in production.
This has provided some good news for U.S. sheep and goat producers, as 1996 Mexican imports of live sheep and goats are now projected to show some improvement over 1995's dismal figures, moving from roughly 230 thousand head in 1995 to 300 thousand in 1996, and increasing further to a forecast 350 thousand in 1997. This is still well below the 820 thousand head imported in 1994, prior to the peso devaluation. U.S. trade data for the first seven months of 1996 indicate that exporters of live goats have been the primary beneficiary of the increased trade.
The ability of Mexican producers to expand production quickly to meet growing demand is limited by the nature of production in that country. Sheep herds are widely dispersed throughout the country, and a large portion of production is either consumed on-farm or sold in local butcher shops. As a result, the sheep sector is poorly organized. Marketing channels are inconsistent and erratic, and research and technical assistance efforts are poorly coordinated.
Argentina's herd continued to dwindle during 1995, a trend that is forecast to continue through 1996,and moderating slightly during 1997. This will leave sheep numbers at their lowest level during this century. The primary cause for this decline has been the extremely poor market for wool, which had a particularly sharp effect on Argentina's wool-oriented sheep flock. Hard times have led to some restructuring of the industry, as a number of small producers have gone out of business or been absorbed by larger concerns. The slowing rate of decline forecast for 1997 reflects growing optimism within the industry, borne of improvements in wool prices along with the expected recognition of foot-and-mouth disease free status from the United States.
Domestic consumption remains relatively low, as Argentines favor beef and, increasingly, poultry over sheep meat. Government sponsored campaigns to promote domestic consumption of sheepmeat were initially successful, but have since been stymied by short supplies. Likewise, Australia's continuing problems in the shipment of live sheep to Saudi Arabia have created a potential opening for Argentine exporters, but tight domestic supplies have prevented them from taking advantage of the opportunity.
Sheep numbers have continued to dwindle despite strong markets for sheep meat and recognition of foot-and-mouth disease (FMD) free status from the United States. This trend is forecast to continue through 1996 and 1997, despite considerable optimism on the part of producers. As with New Zealand, the reason behind this apparent paradox is the superior returns from other pursuits that continue to draw producers away. In this case, it is the production of beef cattle which, having also benefitted from FMD-free status, continues to produce superior returns. As a result, sheep numbers are forecast to continue falling through 1996 and 1997.Sheep meat exports, having fallen in 1995, are forecast to continue declining throughout 1996 and into 1997 as meat production continues to fall in tandem with animal numbers. Though exporters are eager to use Uruguay's foot-and-mouth disease free status to expand their markets, limited supplies will continue to make this difficult--a situation that is unlikely to change without a significant shift in the profitability of sheep relative to cattle.
Having declined at a rapid pace for the past 6 years, Australian sheep numbers are forecast to expand slightly during both 1996 and 1997. This long period of decline was the direct result of the collapse of wool prices and accumulation of massive surplus wool stocks by the Australian government beginning in 1989. Though wool prices improved somewhat during 1994/1995 marketing year, they fell again during 1995/1996. Australian sources expect that wool prices will remain low through the next year as increased production (due largely to improved weather conditions) and growing private stocks keep prices down.
The partial recovery in Australian sheep numbers forecast for 1996 and 1997 is linked to strong world markets for sheep meat rather than any improvement in the outlook for wool. As a result, Australian sources expect production to shift increasingly from wool to the production of fat lambs. Lamb slaughter is projected to reach a record low during 1996 and improve only slightly during 1997, as a result of herd rebuilding efforts. By keeping supplies of sheepmeat low, low slaughter levels should help to reinforce the strong markets for sheep meat for the next two years.
Exports of live sheep jumped by 8 percent in 1995 and are forecast to remain at this level through 1996 and 1997. Continuing disputes with the Saudi Arabian government over animal health and import protocols have resulted in yet another discontinuation of shipments of live sheep to that market, and led exporters to focus their efforts on the United Arab Emirates, which continues to be the largest market for Australian live sheep. While Kuwait remained the second largest market, Jordan's imports tripled during 1995, making it Australia's third most important export market for live sheep.
Depressed sheep slaughter forecast for 1996 and 1997 is expected to affect production of sheep and goat meat adversely. Increased slaughter weights should more than offset this however, as good weather has improved pasture conditions. Domestic consumption is projected to dip slightly during 1996 due to high prices, particularly for lamb.
Exports of sheep meat are forecast to rise slightly during 1996 and level off in 1997. This is in comparison to the exceptionally low export figure for 1995. Mutton exports fell by 18% during 1995. The absence of Iran from the market combined with decreased exports to South Africa to account for most of the decline. Sales to the United States reached record levels as a result of the repeal of the U.S. Meat Import Law, though sales into this market have fallen slightly during the first half of 1996.
Lamb exports fell by 17% in 1995, again due to limited exportable supplies. Papua New Guinea emerged as the number one market for Australian lamb, with the U.S. falling to second. This reflects the continuing trend toward diversification in Australia's export markets for lamb, developing markets outside the United States and Europe. Though total exports of sheep meat to the United States have declined slightly, exports of fresh/chilled and value added lamb increased by 33%. On a more ominous note, Japanese sources indicate that Japanese imports of sheepmeat have declined during the first half of 1996 as a result of consumer fears relating to the relationship between BSE and the sheep disease scrapie. Though not a major market for Australia, this is the first one in which BSE concerns regarding beef have had a negative effect on consumption of sheep meat as well.
The long decline in sheep numbers that has gone uninterrupted since 1989 is projected to continue through 1996, slowing down somewhat during 1997 in response to this year's strong market for sheep meat. This decline is the result of long-term changes in land use from sheep to dairy, forestry and deer,and is expected to continue through the end of the decade. Live sheep exports in 1996 and 1997 are forecast to recover slightly over the dismal level posted in 1995, but not to the levels seen in the early '90's. Tight supplies and weak demand in Saudi Arabia are the major factors behind continued low levels of live exports. The long-term picture for live exports is somewhat better, as increasing quantities of the Awassi breed of sheep preferred in Arab markets are becoming available for export.
The BSE scare in the European Union has resulted in a significant increase in sheep meat consumption in that region. As the primary foreign supplier of sheepmeat to the EU, New Zealand has benefitted handsomely. This, combined with the overall decline in sheep numbers has resulted in a boom in prices for New Zealand sheep meat. In a market that relies heavily on forward-contracting, the sudden jump in demand brought about short term price increases as high as 30 percent as exporters scrambled to find additional product to ship.
Though prices are forecast to stabilize at more reasonable levels, herd rebuilding efforts through 1996 and 1997 will keep meat production low and help to keep prices high. As a result, total exports for 1996 are projected to jump by roughly 10 percent, falling back somewhat during 1997 as demand and prices stabilize. Proving that every silver lining comes with a cloud, New Zealand's European markets for sheep offal have suffered as a result of the BSE scare, despite the fact that this country is free of both BSE and scrapie. Particularly hard hit have been exports of sheep's brain, of which some 51 percent is typically shipped to France.
The European Union continued to dominate New Zealand's export markets for sheep meat in 1995, taking some 51 percent of all exports. The EU also constitutes one of New Zealand's strongest value markets, taking large quantities of fresh/chilled lamb. New Zealand's capacity to expand exports to this market is limited by market access restrictions that limit the total quantity of sheep meat that the EU will accept. This access level is set to expand by 5% in 1996 as a result of EU enlargement. 1995 also saw exports to Russia jump to 10,795 metric tons as compared to 2,043 tons the year before, most of it mutton. Though Russian sources expect imports to continue, forecast high prices for sheep meat make the prospects for continued high import quantities uncertain.
European Union
U.K. - A change in the eligibility definitions for domestic subsidies on sheep led to increased ewe slaughter during 1995 and a subsequent decline in overall sheep numbers. This trend is forecast to stabilize in 1996 as both ewe slaughter and live exports are forecast to drop dramatically in the face of growing domestic demand.
The BSE scare has had a positive impact on sheep meat consumption as UK consumers shift from beef to alternative sources of meat. What effect the decision to ban specified sheep offal from the food chain will have on overall sheep meat consumption is, as yet, unknown. This increase in sheep meat consumption is likely to be supported by a combination of decreased exports and increased imports, particularly from New Zealand. Growth in domestic consumption is forecast to top out in 1997 as consumer confidence in beef begins to recover and limited importable supplies result in an increase in prices. As a result, a partial recovery in exports of both live sheep and sheep meat is forecast for 1997.
Ireland - Domestic sheep numbers have continued the long declining trend that began with the introduction of the ewe premium in 1993, and are forecast to continue falling throughout 1996 and 1997. The BSE scare has provided a short-term boost to Irish producers, as both domestic and export demand have increased, leading to a substantial increase in prices. Both production and exports of sheep meat are projected to increase in 1996 as a result, though exports are forecast to fall back to 1995 levels in 1997 as the effects of the scare wear off. Sheep meat production is forecast to slip during 1997, as increased slaughter in 1996 reduced inventories. Ireland's primary export market for sheep meat continues to be France, though Irish exporters have increased their sales into Germany and Italy by roughly 50% in the past year.
France - The French sheep herd has remained steady from 1995 to 1996, and is expected to remain so into 1997. Slaughter is projected to increase during 1996 and into 1997, offsetting the effects of increased live imports and improvements in ewe productivity. Although overall live imports are forecast to increase, imports from the U.K. are expected to fall, with the Netherlands and Ireland taking up most of the slack. Live exports are forecast to remain stable at 1995 levels through 1997, with Spain and Italy remaining the primary markets.
In line with increased slaughter, French sheep meat production is forecast to post marginal gains through 1996 and 1997. Imports of sheep meat are projected to fall substantially during 1996, largely as the result of declining shipments from the U.K. as supplies in that country are diverted to supply growing domestic demand. This sharp drop will likely be cushioned by a similar sharp increase in imports from New Zealand, jumping by some 15% to 30% in 1996, with a smaller increase projected for 1997. Overall consumption is expected to remain constant through 1997 as the BSE scare does not appear to have affected sheep meat consumption in France.
Germany - After bottoming out in 1994, overall herd numbers in Germany have increased in 1995 and 1996, and are forecast to hold steady in 1997. This is the result of increased profitability from the production of lamb meat as overall EU sheep stocks continue to decline. Exports of live animals are projected to jump briefly during 1996 while imports decline, as the U.K.'s reduced exports create markets for German lambs. Imports are forecast to remain at this lower level during 1997, while exports fall slightly. The bulk of Germany's exports of live sheep are destined for Italy and Belgium/Luxembourg, while most of its imports come from the UK, the Netherlands and Poland.
As with many other countries in the EU, consumption of sheep meat in Germany has benefited from the BSE scare, though not to the same extent as pork and poultry. Both imports and production of sheep meat are projected to increase slightly in 1996, with further gains forecast for 1997. Over half of Germany's total consumption of sheep meat is supplied by imports, the vast bulk of which originate in New Zealand.
Italy - Italian sheep numbers stabilized at 12 million head during 1995, and are expected to remain stable through 1996 and 1997. Imports of live sheep dropped during 1995 as the result of devaluation of the Lira, and are forecast to remain low as domestic production stabilizes. Several factors are helping to stabilize the Italian sheep industry. Favorable markets for sheep's milk have long proved the saving grace of the Italian sheep industry, which is heavily geared to milk production. This has been strengthened by the effects of the BSE scare, which has helped to improved markets for sheep meat.
Spain - Total stocks fell during 1995, largely as a result of a decline in imports, reflecting low domestic prices and high lamb slaughter that year. Improved prices are forecast to result in increased imports during 1996 and 1997, while consumption drops slightly, again in response to rising prices. Live exports are forecast to increase again during 1997 after falling during 1996, as sheep numbers begin to pick up. Total production of sheep meat is expected to fall slightly during 1996 due to low slaughter levels.
Portugal - EU subsidies helped to trigger a small increase in sheep numbers during 1995, but this gain will be more than offset by the severe winter losses suffered in early 1996. Strong markets for both lamb meat and sheep's milk are forecast to result in a recovery in numbers during 1997. (Dairy sheep account for roughly 25 percent of the national herd). Live exports are projected to drop and imports increase in 1996 as a result of herd rebuilding efforts, with the trend forecast to reverse in 1997 as herd numbers rebound. Domestic consumption is forecast to increase in both 1996 and 1997. With sheep meat production forecast to remain steady, increased consumption will be supplied by imports.
Greece - The Greek sheep herd is forecast to continue the long declining trend that began in 1989. In addition to declining producer prices (particularly in relation to inflation) and high feed costs, the bulk of Greek production occurs in marginal, mountainous regions, and animals must be transported to lowland areas during the winter. Although subsidies are available, they only cover part of the cost. Both domestic consumption and imports are expected to remain stable through 1996, though reduced supplies are forecast to result in a slight decline in consumption during 1997.
A number of forces have conspired over the past two decades to bring about a continuous decline in the Turkish sheep herd, which is forecast to continue declining through 1996 and 1997, despite improved markets for sheep meat. The first of these is the nature of Turkish production, which is small-scale and heavily reliant of domestic breeds which, though better adapted to the harsh climate of eastern Turkey, are much less productive than western breeds. More important in the short term, is the fact that roughly half the national herd is located in eastern Turkey, where continuing unrest has made animal husbandry in general difficult. These conditions have created a situation in which improved prices have actually provided an incentive to producers to increase slaughter in order to cash in, rather than withholding sheep to rebuild herd numbers.
Attractive domestic prices brought about a decline in live sheep exports during 1995. Improved export markets are forecast to bring about in a slight increase in live exports during 1996, holding steady through 1997. The primary market for Turkish sheep is Saudi Arabia. Though official statistics show imports of live sheep increasing during the past 5 years, these numbers are somewhat deceptive. In the past, industry sources have estimated that unregistered imports ran as into the hundreds of thousands of head. Improved security in the border regions is believed to have cut the number of unregistered imports substantially, while resulting in an increased in registered imports. Exports of sheep meat are forecast to remain low, due to strong domestic markets.
Having dwindled each year since 1993, Egypt's sheep herd is projected to grow during 1996 before resuming the declining trend during 1997. This growth is attributable to a ban on live sheep exports to the Gulf States, due to the presence of Rift Valley Fever in Egypt. Live exports are expected to resume during 1997, though at a somewhat lower level. The temporary loss of these export markets is forecast to result in increased domestic slaughter and a jump in domestic consumption during both 1996 and 1997, as increased supplies become available to the domestic market. Though tight grain markets will limit the expansion of large-scale sheep production in the near future, long-term prospects for live sheep exports remain good, given the preference of customers in the Gulf States for Egyptian fat-tailed lambs, and the continued efforts of larger producers to improve their production practices.
Long term growth in the Saudi herd is expected to continue , with growth rates forecast at roughly 1.6 and 1.7 percent for 1996 and 1997, respectively. These moderate overall growth rates mask the extremely fast growth experienced by commercial farms, a trend that is expected to continue as commercial production assumes a greater relative importance in comparison with traditional production, which currently accounts for some 80 percent of Saudi Arabia's production.
Despite growth in domestic production, live imports are forecast to increase slightly during 1996 and 1997 after lagging somewhat during 1995. This reflects the growing number of pilgrims traveling to Mecca for Haj. (Approximately 1 million sheep are slaughtered by pilgrims during the Haj season). At present some 40 percent of Saudi Arabia's demand for live sheep is provided by imports, a trade pattern that is expected to continue for the foreseeable future. In the absence of Australia and Egypt from this market in 1996, imports from Somalia, Sudan, Jordan and China are projected to increase. Imports from Turkey and New Zealand are forecast to decline slightly as a result of tight supplies in those countries. Egypt and Somalia are typically the largest suppliers of live sheep to the Saudi Kingdom, followed by Turkey, New Zealand and Syria.
Overall consumption of sheep meat is forecast to increase in both 1996 and 1997 as consumers, concerned about BSE, switch from beef to lamb. This increase will be sufficient to overtake increased meat production, leading to a slight increase in imports. Australia is expected to remain the largest exporter to this market in 1996, with exports posting an increase over the relatively weak levels seen in 1995. Large amounts of sheep meat are also imported from other Gulf States, who import slaughter sheep from Australia then process and re-export the meat to Saudi Arabia.
Though sheep numbers in India remain stable, steady growth in the goat population has resulted in a steady, slow rate of growth in the overall herd. Of the total 166 million head population forecast for the total sheep and goat population in 1997, an estimated 44.9 percent are sheep and 121.1 million goats. Goat production has benefitted from a combination of relatively high reproductive rates, greater capacity to utilize marginal land, greater disease resistance and higher prices for goat meat as compared to mutton. This trend is expected to continue as more grazing areas are converted to production of cash crops, pushing grazing into increasingly marginal areas. Sheep and goats are raised primarily for meat, resulting in relatively high slaughter rates. Domestic demand is forecast to continue growing through 1997 as sheep and goat meat are favored across a much wider cross section of India's population than beef or pork. Trade in live animals occurs on a very small scale, largely with Nepal, though the Indian government occasionally imports sheep for breeding purposes. Although India exports sheep and goat meat, quantities remain relatively small owing to strong domestic demand.
Poland - After declining by nearly 21 percent during 1995, sheep numbers are forecast to stabilize, declining by less than 2 percent in 1996 and actually increasing by the end of 1997. Both the decline and the subsequent partial recovery are the result of the ongoing restructuring of the Polish herd. Low demand for Polish textiles have resulted in extremely poor markets for wool, traditionally the primary product of the Polish sheep sector. As a result, wool flocks have experienced widespread liquidation since 1989. In the past few years however, strong demand for live lambs exported to the EU has created a new source of demand. Improved prospects for the live trade, particularly in the wake of the BSE scare, are in turn forecast to produce at least a slight turnaround in overall numbers.
Bulgaria - After ticking upward slightly in 1995, the slow decline in the Bulgarian sheep flock is projected to continue through 1996 and 1997. This is due largely to lower availability of feed, which has in turn resulted in lower reproductive rates. An outbreak of measles, traced to live sheep imports from Turkey, has resulted in a ban on live exports to other Balkan countries and the EU. Strong domestic demand combined with declining numbers has helped to keep domestic prices for sheep meat relatively high in spite of the loss of these live export markets.
Romania - Prospects for sheep production in Romania are reasonably good, as this is considered to be one of the more profitable livestock ventures. Total sheep numbers fell 5 percent during 1995, but are projected to remain nearly even during 1996 and pick up slightly in 1997. These shifts in inventory mask the widespread restructuring that is taking place in the Romanian industry as growth in private sector operations has finally begun to offset the declines in production by the state sector. Declines in the state sector have resulted from the return of some grazing land to its original owners as well as the growing financial difficulties faced by many state farms.
Russia - Between 1990 and 1996, the Russian sheep herd fell by 57 percent. This declining trend is expected to continue through 1996 and 1997, with declines of 15 percent forecast for both years. Like the Polish herd, the Russian sheep herd is oriented toward wool production, and has suffered from declining government purchases of wool. Wool production declined from 224,000 MT to 94,100 MT in 1995, and is forecast to drop roughly 50 percent in 1996. With no obvious alternatives like those available to Polish producers, prospects for the Russian sheep industry are grim. Though the Ministry of Agriculture has developed a stabilization and development program for the sheep sector, it is doubtful given current budget constraints, that this will be successfully implemented. Hard times are driving a change in the structure of Russian production, as production continues to shift to the private sector.
While consumption has declined along with production, the rate of decline has been much slower, opening the door to imports of sheepmeat. In 1995, imports of mutton nearly doubled, with most of the increase coming from New Zealand and Kazakhstan. Given the current strong market for sheepmeat, it remains uncertain whether Russia will be able to continue importing such large quantities.
Last modified:Friday, 22-Nov-1996