Shifts in Australia’s lamb trade

Over the period October 2015 to March 2016, Australia’s lamb exports were almost the same as the corresponding period one year earlier – just 2% higher, at 124,637 tonnes shipped weight (swt).

The composition of shipments, however, in terms of destination countries, did not reflect steady global markets, with vast differences in trade in various regions from one year to the next.

Looking at which countries have become larger or smaller destinations can provide a clue towards the strength of the global lamb marketplace. Average unit price for lamb exports to various countries adds another dimension to this analysis. Over this period, the average Australian lamb export unit price (globally) decreased 6%, to A$6.75/kg FOB. Export volumes are from the Department of Agriculture and Water Resources, and values come from Global Trade Atlas.

This article focusses on markets with changes in trade volume greater than 1,000 tonnes swt.

Expanding markets

The largest growth market for Australian lamb exports over October to March was Australia’s main export destination – the US. Exports jumped 5,002 tonnes swt (20%), to 29,904 tonnes swt. This is a very positive result – as well as being the largest market by volume, the US is one of Australia’s most valuable, on a per kg basis. Partly offsetting the volume growth, however, was a 10% fall in the unit value of Australian lamb exports.

Three more relatively high value markets to record good volume growth were Korea (up 1,331 tonnes swt, or 49%, to 4,034 tonnes swt), Qatar (up 1,252 tonnes swt, or 23%, to 6,794 tonnes swt), and the UAE (up 1,204 tonnes swt, or 13%, to 10,686 tonnes swt). Of these markets, the UAE was the only one to increase in average unit values, up 2%, while the unit value of lamb exports to Qatar fell 4%, and to Korea fell 9%. These numbers suggest that these three markets have been relatively strong performers for Australian exporters in recent months.

There was also very strong volume growth to a couple of Australia’s lower value lamb markets over this period. Exports to PNG jumped 2,387 tonnes swt, or 37%, to 8,916 tonnes swt, and shipments to South Africa increased 1,109 tonnes swt, or 188%, to 1,700 tonnes swt. By themselves, the numbers look good, but the average value of exports to these two markets – already low last year, fell even further. Australian lamb exports to South Africa were worth an average of A$1.52/kg FOB, down 54% on last year, while they dropped 26%, to A$2.93/kg FOB, to PNG. The large increases in trade to these two markets, at significantly lower values than the previous year, indicates exporters have had some difficulties moving lamb to other, higher value markets.

Contracting markets

There were three countries with falls in Australian lamb exports greater than 1,000 tonnes swt over the October to March period – Hong Kong, Bahrain and the UK. Shipments to Hong Kong dropped 3,789 tonnes swt, or 85%, to 648 tonnes swt, and there was a similar change to Bahrain, falling 3,539 tonnes swt, or 87%, to 507 tonnes swt. The key reason for the large decline in trade to Bahrain was the removal of the government subsidy for Australian lamb carcases, suggesting consumers were not willing, at that time, to meet the full market price. Hong Kong has been impacted by weak demand for sheepmeat over the past 1.5 years from China due to an oversupply of domestic product and wholesale mutton prices trending down over this period.

The UK is the other significant market to record a large drop in volume, falling 1,049 tonnes swt, or 20%, to 4,096 tonnes swt. This was largely due to greater local production this season and a 5% year-on-year increase in New Zealand lamb in the market (37,939 tonnes swt for March to October).

These three markets are also reasonably high value on a per kg basis, but only one – Hong Kong – had an increase in unit value to offset the decline in volume. Lamb exported to Hong Kong from October to March averaged A$11.02/kg FOB, 115% higher than last year, while values to the UK were down 5%, to A$7.84/kg FOB, and to Bahrain were down 18%, to A$5.30/kg FOB.

Impacts on Australian lamb prices

Up until recent weeks, the Australian lamb indicators had struggled to make the usual autumnal price rise, and (along with the dry conditions) was partially the result of the lower values Australian lamb was exported at.

Additionally, the declining values weren’t helped by the strengthening A$ over the same period of this analysis.

Rainfall of recent weeks across some of the key lamb producing regions of Australia was indeed the catalyst to the sudden lamb price jump – the longevity though will hinge on sustained end user strength, indicated by export unit values and destinations.