Global wrap

In positive news for Australia’s red meat industry, the Australian Government on Friday signed a Free Trade Agreement (FTA) with Peru.  The Peru-Australia Free Trade Agreement (PAFTA) offers new export opportunities for Australian beef, goatmeat and sheepmeat.

PAFTA will see the current tariffs of 11 -17% on beef being eliminated either on entry into force of the agreement or within five years; the 9% tariff on sheepmeat/goatmeat being eliminated on entry into force; tariff applicable to live animal exports and edible offals bound at 0% and the elimination of tariffs for further processed meat products either entry into force or within five years.

While the elimination of tariffs is most welcome, protocols/certification still need to be established with Peru in order for trade to flow.  This process is currently underway with dialogue between Australian and Peruvian government authorities to establish the required import protocols for Australian red meat.

The liberalisation of the Peruvian import regime achieved via PAFTA potentially provides an opportunity for industry to access a new export market.  With Peru forecast to triple its beef consumption by 2020 and its sheepmeat consumption by 20% by 2025, industry will be in a position, pending the finalisation of the certification arrangements, to respond to future inquiries from Peru’s retail and foodservice sectors – with a Peruvian supermarket chain previously expressing interest in sourcing Australian product.

PAFTA will also provide a useful stepping stone to securing closer economic relations with the Pacific Alliance group of countries (Chile, Columbia, Mexico and Peru) and thereby help expand industry’s engagement in Latin America.

Australian lamb exports

Australian lamb exports have had a stellar run over the past 10 years, growing by 50% (161,037 tonnes swt in 2007 to 242,285 tonnes swt in 2016), and continue to have a positive outlook. Record export volumes were recorded in 2016, and despite tighter suppliers, 2017 is predicted to see only a 3% drop with 235,000 tonnes swt expected to be exported.  While current supplies remain tight, placing pressure on price for overseas customers, the long-term fundamentals remain positive for the Australian sheepmeat industry, especially in some key export markets.

US

The US was the main export destination for Australian lamb in 2016–17 in volume and value terms. Despite this, lamb is the least consumed protein in the US, with 0.4 kg per person/year. Lamb remains a niche and somewhat unfamiliar protein to US consumers, with 39% of consumers never having bought lamb. While this is primarily driven by a lack of familiarity, some taste concerns and limited knowledge of how to prepare it, there are opportunities to expand lamb consumption, particularly high-value, high-quality cuts appealing mostly to variety-seeking consumers with high disposable income.

MLA estimates that 60% of total lamb imports are consumed in the foodservice channel. Lamb has been popular in foodservice due to its reputation of being a niche product appealing to higher-end consumers. Lamb maintains its position as a core protein at fine dining restaurants, however, strong growth is occurring in other foodservice segments such as quick service restaurants and family and casual dining. Growth in these segments has been driven by some changing demographics and the shift in demand for more convenient and affordable lamb options such as lamb burgers, meatballs and kebabs.

China

China is the largest sheepmeat producer in the world. While per capita consumption is low (with 3.1 kg cwt), it is forecast to continue to gradually increase. Imports comprise a very small proportion of sheepmeat consumed and it is generally a very price-sensitive market influenced heavily by local supply factors based on the commodity nature of the product. Chinese lamb is particularly competitive on price, freshness and availability for consumers.  In 2016–17, China was Australia’s largest sheepmeat destination by volume, with a growing share of lamb, as mutton supplies continue to tighten. Australia exports predominantly breast and flap, used in further manufacturing and hotpot rolls for traditional hotpot restaurants.

Chinese consumers perceive lamb to be a superior protein of high nutritional value, however, consumers find it less versatile, less convenient and more difficult to prepare and cook compared to pork and chicken. Due to this it is mostly eaten out with a large proportion of Australian exported lamb consumed in the foodservice sector, particularly in hot pot restaurants.

China remains a key market for Australian sheepmeat, however, growth will be dependent on ongoing market access challenges and the need for improved cold chain infrastructure outside first tier cities.

Middle East

The Middle East represents a significant market for the Australian sheepmeat industry.  In 2016-17, 56% of the exports to the region from Australian sheepmeat were lamb. The key markets in the region are the UAE, Saudi Arabia, Qatar, Jordan, Kuwait, Bahrain and Oman. Sheepmeat is a traditional dish in the region with consumption at 9.9 kg per person/year. In many countries in the region lamb is seen as the family favourite and the preferred meat of choice.

There are a number of factors that are expected to help drive the underlying growth and demand for imported products in the region, including urbanisation, westernisation and growth in a number of wealthy households, a young population, large expat professional populations, forecast low inflation and a developing tourism sector.

Australia has a strong, well regarded position in the market and dominates import supplies. With the improvement in cold chain handling infrastructure over recent years in many countries in the region, we have seen increases in chilled export volumes. This, as well as the increased number of daily flights into the region by the major airlines, has helped develop the chilled airfreight business, which now sees fresh Australian lamb carcases shipped to the market and into some retail space within 48 hours from processing in Australia. Chilled sheepmeat exports now make up 53% of volume shipped, in a region that was traditionally dominated by frozen shipments.

The MENA region is also the largest market for Australian live sheep shipments.

Opportunities in the region remain positive, however there are a number of market access irritants that challenge the market. The reliance on oil and gas export revenues and the presence of conflict contribute to raised levels of political and operational risk in the MENA region.

More information

Michael Finucan,
MLA General Manager – International Markets
mfinucan@mla.com.au