An increase in the amount of sheepmeat imported into the UK looks set to hamper finished lamb prices in the coming months according to a new report from Quality Meat Scotland.

While prime lamb values are traditionally at their lowest in the second half of the year, prices could fall more than in previous years due to increased production in New Zealand and a change in their market supply chains.

Last year's sheepmeat imports of 47,200t were almost half the average of 91,000t between 2011 and 2016. However, the latest figures from HMRC data for the first five months of 2022, show a 22% increase on the year in volume.

“An important place to look for potential reasons behind this rebound is New Zealand. Its lamb production volumes surged by 18% year-on-year in the second quarter, following a 19% reduction in the first quarter," said QMS market intelligence manager, Iain Macdonald.

“This volatility in quarterly production reflected labour shortages in processing due to a covid-19 wave in the early months of the year, at a time when good weather meant that farmers had enough grass to prolong grazing.

"As a result of delayed production, its export activity is likely to have picked up relative to normal moving into summer,” said Mr Macdonald.

He added that New Zealand has also faced challenges with its export markets in China due to the various covid lockdowns and subsequent reduced demand. The net result has been a rebalancing of NZ sheepmeat exports away from China.

As well as the rise in trade with the UK, the EU imported 18% more from NZ than a year earlier in the first five months.

With many shipping containers stuck or delayed in Chinese ports, backlogs have also built at ports in NZ, making it more risky for exporters to ship fresh lamb overseas. As a result, exporters have favoured shipping frozen product, and this has shown up in the UK and EU import data.

“UK import data points to a 50:50 split in the first five months of 2021 shifting to an 80:20 split in favour of frozen sheepmeat in the same period this year”, highlights Mr Macdonald.

Despite a shift towards frozen imports, the overall average UK import price from NZ in the January to May period rose by 23%, with separate rises of 28% for fresh sheepmeat and a rise of 32% for frozen.

“With NZ farmgate prices averaging 23.5% above 2021 between January and May in sterling, it appears that a tight UK market allowed NZ exporters to pass through higher lamb prices while also raising volumes,” said Mr Macdonald.

Since the end of May, farmgate prices have picked up in NZ, reaching around £4.75/kg dwt in the last week of July but the year-on-year increases have slowed sharply, ending July at 6%. At this level, NZ prices continued to run well below the GB deadweight price, with a gap of around 20% in late July.

GB exports also compete against Irish lamb in the EU market and there has been a much smaller farmgate price gap between GB and Ireland than between GB and NZ, working out at a 3% higher GB price in the final week of July. An indicator of continuing firm import demand in France is that prices for GB lamb carcases at Rungis market in Paris were still around 15% higher than a year earlier in the first week of August.

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Competition in the home and EU market with lamb from Australia is currently more limited due to the small level of tariff-free quota access available to Australia’s exporters. Nevertheless, there were large rebounds in import volumes to the UK and EU in the first five months of 2022, albeit from relatively low base levels.

“In part, this rise is likely to reflect challenges for Australia’s exporters in China and the Middle East, but it has also been supported by a recovery in production as Australia’s sheep farmers rebuild flocks following the drought of 2018 and 2019. This recovery in availability appears to now be dampening lamb prices in Australia, which fell sharply in the second half of July. Although they have rebounded into August, they were still down 17% year-on-year on August 8th, working out at around £4.15/kg.

While Australia’s sheepmeat production is expected to expand in the coming years, and a trade deal with the UK will improve its market access, there will be other outlets for Australia’s exporters to target. At global level, the OECD/FAO World Agricultural Outlook is projecting a rise in global sheepmeat consumption of nearly 12% between 2022 and 2031, on the back of a lift of 22% between 2012 and 2022, providing continued demand-side support,” concluded Mr Macdonald.