The sheep-farming retreat will continue despite excellent meat prices, with carbon farming the mega-force.
In recent months, I have written four articles focusing on the sheep and beef industries across New Zealand. My main focus has been to identify the current situation and to document how the situation varies for different classes of land across the country. Here I return to the overall big question: what is the future of the sheep industry?
There are two parts to that question. The first is the market opportunities. The second is about competing land-uses.
Apart from some dry hill and high-country farms lying east of the South Island Main Divide, wool is largely irrelevant. Fine-wool merinos are big contributors on low rainfall South Island farms and I expect that to continue. But elsewhere, wool no longer makes a worthwhile contribution to farm income. We can always live in hope, but that is not the basis on which to make land-use decisions.
I remain an optimist in regard to sheep meats, but there is one big caveat. Without China, we would be in big trouble. If we cannot manage the China relationship, then it will be a disaster for sheep farmers.
According to MPI in their latest ‘State of Primary Industries’ (SOPI) publication, 43% of export lamb income and 80% of mutton earnings in the 12 months ending March 2021 came from China. Quite simply, there are no alternative markets that could take that product.
Neither Europe nor the UK want more sheep-meat products from New Zealand. They will make sure that any free-trade agreements are not actually free when it comes to sheep meats. North American lamb markets have been an industry project for the last 50 years and with considerable success, but further increases will only come slowly.
The biggest potential new markets are in the Middle East with Iran the greatest potential prize. However, the Americans control the global financial system and none of our financial institutions wish to tangle with the Americans in relation to Iran. The financial risks of getting the money from Tehran to New Zealand, without the Americans grabbing it, are too great. So, as long as the Americans say ‘don’t go there’, we snap to attention.
Returning to China, there is huge natural alignment between what we produce and what China wants. Ironically, some of the big users are Chinese Muslim communities including ethnic minorities in the north and west. It is easy to forget that China has something more than 25 million Muslims and they don’t eat pork.
But China does not have to purchase our sheep meats. It will hurt us a lot more than it will hurt them should they close down the trade.
If we upset the Chinese sufficiently, then they will treat us like they are treating our Australian cousins across the Ditch. I heard former Australian Prime Minister Kevin Rudd, who himself speaks Mandarin and in an earlier life was a diplomat based in China, say recently that you can disagree with China but you do need to show respect in how you do it. I thought that summed up the situation rather nicely.
Accordingly, my optimism relies on the belief that we have some wise heads in our Government when it comes to China. But it is a tricky game.
To those who say that we should never have developed the Chinese market for sheep meats in the first place, I say that actually we didn’t. Rather, the Chinese came to us. For the last 10 to 12 years they have offered the best prices, particularly for mutton and the lamb forequarters.
I recall one meat company CEO telling me some ten years ago that his Board put a limit on how much he could sell to China because of the risks of a concentrated market. A few months later he had to tell the Board that unless they raised the limit, he could not be price-competitive in purchasing livestock and the company would have to cease operating.
Forestry is going to be the big competing land-use
The price of carbon is rising and the carbon value of timber is closing in on $50 per tonne. Two years ago it was less than $25. Just a few weeks ago it was around $37. Yes, the world has changed.
Carbon markets are artificial markets controlled by Governments. There lies the risk. However, it would be politically untenable for the Government to allow that market to crash. The big advantage of growing trees for carbon is that you don’t have to wait for the trees to grow and be harvested. The cash flows each year.
I expect we will see farmers increasingly planting pine forests on the steeper North Island hills. It’s simple economics. In the South Island, the plantings will be less but they will still occur. However, I would have considerable reservations if this should also occur on the better country.
For those who think that lumber will always earn big dollars, I say: ‘Be wary!’ Right now, the majority of our logs end up in China where the main use is formwork allowing concrete structures to be built. It won’t always be that way.
Accordingly, it is likely that new forestry is going to be more for carbon sequestration than lumber. That means it won’t be earning foreign exchange. That is a worry.
Most urban New Zealanders have yet to figure out that their lifestyles are dependent on the foreign exchange earned by primary industries. MPI has calculated that in this last year 83% of our merchandise export earnings came from primary industries. The sheep and beef industries alone earn about $10 billion of export income from meat plus by-products such as skins, offal and wool.
That 83% figure is remarkable. The source is MPI. They also say in their SOPI publication that it has been increasing each year for the last nine years. The agricultural sun does not want to set.
Sheep versus beef
This is another of those imponderables. However, it will be the market that will be the determining factor. The calculations are much easier and decisions are more revocable than for forestry. I expect most farmers will work it out OK as to what is best for their own situation. As with most other primary industry products, China is also our biggest beef destination. But the dominance is less than for sheep.
The big leverage for beef is the supply of unused bobby calves from the dairy industry. There are somewhere around two million calves each year that get killed at a few days of age. That is not going to be allowed to continue for much longer. It is all about getting the breeding sorted out for a dual-purpose industry.
Returning to the big picture
The tide is running against the sheep industry. This is ironic given that sheep meat prices are excellent. But I have not given up on sheep. Particularly in the South Island, sheep will often still be the most logical choice. But overall, I see nothing that gives confidence that there will be any turnaround in sheep numbers.
That all leaves me a little sad. I think New Zealand still needs a vibrant sheep industry as one key part of our export-led economy. It can be an amazing meat. New Zealand could be the world-leading marketer of a niche product.
I have enjoyed this series of articles. It is about time that we had a visit from you to Fox.
Did you hear that Dave Gledhill has had a stroke?
All the best
Sent from my iPhone
Hi Keith, Do you still think that there are wise heads in t his Govt after this mornings crack at China by Little? I’m awaiting the fallout with trepidation
If the Govt has evidence then they need to act on that. A relevant question is where within the Chinese Government might this be coming from? Or is it coming from China independent of the Government? Although China has a firewall there are ways to get around it and foreigners in China have no problem in so doing. Any sophisticated criminal IT group would be able to find a way around it.
It would not be disrepectful to ask the Chinese Government to work jointly to rein in the hackers but it would be unwise to accuse the leadership of personally fostering the hacking because that may or may not be true.
I agree Keith. However there ismore than one way to deal with a prickly situation like this one.
Diplomacy deals normally behind the scene, and works out the problem quietly. What weve seen is deliberate grandstanding , to “call out” the offenders, which can demand retaliation , due to its public flag-waving. The Chinese are ,as youll be very aware, extremely clever at diplomacy, and I would think ,be very embarrassed by this cabal of name-callers, and its shirt -fronting approach. So thats why I’m not surprised at their indignation.
Hi Keith, Have you been looking at the CO2 levels [NASA] lately? Interesting . Gone up to 417ppm over the last 12mths. Hard to reconcile , if after the covid PAUSE causing an apparent 19% drop in mans output, that the world level continues its upward trend!!!! Obvious from this that natural output is a lot more overwhelming than we think. Does that mean that we’re pushing shit uphill in trying to make any meaningful dent in this world level? V. Hard to see otherwise. If as the accepted science tells us we’re only responsible for 3-5% total output, how on earth do you leverage any dent in world levels with that? And the cost. Cheers Keith
On Tue, 20 Jul 2021 at 11:45, Posts from Keith Woodford wrote:
> Keith Woodford posted: “The sheep-farming retreat will continue despite > excellent meat prices, with carbon farming the mega-force. In recent > months, I have written four articles focusing on the sheep and beef > industries across New Zealand. My main focus has been to identify t” >