Lamb prices are high but industry remains buffeted by big crosswinds
The sheep industry in Zealand has been getting smaller ever since 1982 when sheep numbers reached 70 million. The latest numbers are 26 million in 2021, having dropped from 32.6 million in 2010. Yet sheep still earn over $4 billion of annual export income.
In recent months I have had plenty to say about both greenhouse gas policy and forestry as they are affecting and will affect all New Zealand agriculture. Here, I focus specifically on sheep farming to seek answers as to where the industry might head.
Focusing first on market returns, the last two decades have brought lots of good news. Lamb and mutton prices have risen faster than other pastoral products, including dairy, and at a considerably higher rate than general inflation. Yet somehow it has not been enough to stem the decline.
The key factors driving the decline have changed over time. Initially, it was the huge rural decline of the 1980s and the removal of the distorting subsidies of the Muldoon Government. Quite simply, those Muldoon policies, with payments for each extra animal carried, led to skinny underperforming sheep.
During the 1990s, the key driver was the march of pine trees across the North Island, but that stopped in about 1998 with declining timber prices.
Then there was the dairy boom, already under way in the late 1990s, and then continuing through to the middle of the last decade. Availability of irrigation together with new irrigation technologies were very important in Canterbury. Further south it was a diverse range of technologies that drove change. Despite lamb prices being good, wool prices were terrible, and the call of dairying was very strong.
Right now, those forces have changed again. There is zero conversion now occurring of sheep land to dairy, owing in large part to new regulations. However, the call of forestry is once again strong. Also, there is great concern about greenhouse gas levies, mainly methane but also nitrous oxide.
The forestry situation is complex and some might say crazy. As I write this, the Government is giving serious consideration to pulling so-called permanent pine forests from the Emission Trading Scheme. If this happens, all new pine forests will be for short-cycle production forests, typically of 28 years or in some cases a few more years. The irony is that this will encourage tree planting on the softer country which is easier to harvest and with a preference for land that is well-located relative to ports. Yet it is on hard erosion-prone hard hill country, far from ports, where land should be going into long-term pine forests.
Assuming that the Government sticks to its latest proposals, pine-production forests will stay within the ETS, but with carbon credits limited to the first 16 years. Depending on location, these credits will, at current carbon prices, be worth about $30,000 per hectare on most North Island farms but less in most parts of the South Island. That is enough to blow sheep farming away on most of the better sheep farming land. Of course, if the price of carbon rises much higher as the Government has said it wants to happen, then these returns will further increase. But it’s a game where the Government sets the rules and those rules can change.
The greenhouse gas story is also complex. A typical sheep emits about 12 kg of methane per annum, which may not sound much. It only stays in the atmosphere for about 12 years, but while it is there it does have a big effect.
One of the remarkable things about New Zealand sheep farming systems is that huge efficiencies have been made in relation to methane emissions. The emissions are in direct proportion to the amount of feed eaten. Remarkable improvements in productivity mean that a much greater proportion of the feed is now used to generate production, rather than simply maintaining bodyweight. This change has largely been driven by higher twinning rates and much higher lamb carcass weights.
According to industry body Beef+Lamb, each kg of lamb meat is now associated with 31 percent less emissions than was the situation 30 years ago. There has been very little publicity about this.
Linked to these changes, the invisible atmospheric cloud of methane sourced from New Zealand sheep has actually been declining, with the methane historically emitted by sheep now leaving the atmosphere faster than new sheep-sourced methane is entering the atmosphere.
The counter-balancing fact is that each newly emitted molecule of methane still causes warming that would not occur if it were not emitted. Accordingly, methane emissions from sheep cannot be simply ignored. We do need to continue the search for further reductions in emissions per unit of meat.
As I have said many times, nothing is simple when it comes to agriculture’s effects on climate. And anyone who thinks the issues are simple, does not understand the problem.
Currently, sheep farmers are nervous about what will come out of the current debate about whether agriculture will enter the ETS or whether the Government will accept the alternative proposals about to be submitted to Government by He Waka Eke Noa. Many farmers don’t like either option.
I have written elsewhere about those issues and so I won’t repeat that here. But those issues aren’t going away. What I will say here is that if agriculture does go into the ETS based on the greatly flawed concept of CO2 equivalence, then by the mid-2030s the sheep industry could well have been destroyed. We need to think carefully about that.
Let there be no doubt, sheep farming is the pastoral industry most at risk from misguided greenhouse gas taxes. The first to be destroyed will not be dairy; it will be sheep.
Somehow there has to be a reworking of basic thinking, The aim has to be to focus not on a methane tax which will destroy sheep faming, but on the funding of a methane levy to be invested in future development of emission efficiencies.
If hill-country sheep farming is destroyed, then it is a real puzzle as to what the hill country will be used for. It won’t be beef cattle because they face the same or even more environmental constraints as sheep. It won’t be dairy because, among the other factors, the topography is unsuitable. It certainly won’t be cropping. Will it be pine forests?
Returning to the markets, the long-term future for lamb looks particularly strong. New Zealand and Australia are the only big international traders. Sheep meat is highly regarded spanning a broad arc of countries from the Middle-East across much of Central Asia and through to Western and Northern China. All of those countries are constrained by their own ability to increase production.
If it was a simple case of aligning the supply of sheep-meats with all of the potential consumers, without politics getting in the way, then it would indeed be simple.
One of the big challenges right now is that New Zealand’s urban population does not understand how agri-food systems, from consumers right back to inputs on the farm, are what underpins the New Zealand economy. It is not just about what happens on the farm, but what happens along a value chain leading back from consumers through marketers, processors and farmers to the suppliers of fam inputs.
As I have said many times, New Zealand has an export-led economy. Without exports we have no money for imports. More than 80 percent of merchandise exports come from primary industries, with no obvious alternatives.
Currently, New Zealand is running big deficits on its external current account of about $20 billion per annum. It must be balanced by incoming capital. That is not sustainable. Either exports have to increase or imports have to decline. Given that situation, getting rid of the sheep industry does not seem to be the right way to go.
Hi Keith, regarding “the long-term future for lamb looks particularly strong”. Can we be so confident? Many scientists around the world are saying we need to greatly reduce meat consumption, and/or switch to vat grown meat for our proteins, or even insects (!!). Emissions accounting in most other countries does not split out short- and long-lived gases, and methane is considered a serious problem. It seems likely that future generations won’t want our animal exports (especially as most our lamb ends up in the UK, which is one of the most progressive countries in tackling emissions)
My own analysis is that consumer demand for lamb, which is essentially a niche product in some markets (like NZ) but a traditional staple in some other parts of the world (the Middle East and Central Asia), will withstand the forces you refer to.
I don’t see our pastoral lands being used either for lab grown meat or insect husbandry.
Economies globally are not in good shape as energy constraints start to bite. Simply put, we cannot expect to have infinite growth on a finite planet. With this in mind, might it be time to start moving away from the ‘export to import’ economic paradigm and to look at how NZ can become more self sufficient in all things? Perhaps lots of smaller mixed regenerative farms supplying local food and timber needs? This would mean a huge, unwelcome change – but we must somehow try to prepare for what lies ahead,
The latest post from economist Tim Morgan is worth referencing:
Thank you Kate for your reference. We are in our 5th year of a regenerating grazing trial with zero imported nutrients onto the farm with their associated high energy requirements. Results are pleasing after many in situ lessons learned along the way only open minds will see. Words decide outcomes first is the conclusion and separating residual from rest to recovery are key to succeeding. Keeping it simple is key to compounding gains and setting 10% of resources aside to continually innovate before adversity forces change, makes for healthy curiosity, entertaining and enjoyable place to work.
How will NZ become self sufficient in pharmaceuticals, computers, and machines of all types?
Some machinery used to be manufactured here, before outsourcing became more cost effective, and some pharmaceuticals are being made here now. Both fields could be further developed. But as for computers…It depends how much of a life-and-death situation we see approaching. Energy crises are the ones to watch, even more than emissions.
Wool was NZ’s no 1 export up until the 1960’s, now look at it today in regard to our land management. ‘balance’ that we have. The prevailing winds of money shuffling at the expense of production has hit our wool manufacturing industry really hard here in NZ. The desire to import cheaper goods and substitute fibres has tipped the livestock balance to the detriment of our environment, let alone dealing a ‘foot and mouth’ event to all those skilled people manufacturing. A few dollars on the wool price in the 1990’s would have seen a different outcome but no, the race to the bottom continues, just as the demand for cheaper food and more dollar printing drives producers to over tax their land. Then the regulators expanded and the paper shuffling blossomed. There are no short cuts to quality and value lasting from durability that denies landfills over filling. Quality takes extra time, extra effort and rebuilding from the bottom up with trust and integrity. It takes asking of those whose wisdom has been earnt in their world of expertise. Herein lies the major cause of the oscillating decision making at higher levels beyond our shores that our coerced politician cartel to. There is theory and there is practice. Too much of either, we all lose. Dirty fingernails seem to have no seats at the higher tables. Maybe too much reality for a virtual world? Some humility would go a long way.
An excellent article Keith. The key question you pose is one for policy-makers: i.e. whether NZ’s sheep sector export revenues ($4bn) are important enough to be protected from current economic incentives to convert hill country to lower/zero export revenue generating activities like pine plantations in pursuit of carbon-zero targets. Setting aside questions over the logic of ETS pine plantations, could your next post set out the arithmetic and the possible shape of support/policy now needed to retain hill-country farming as a preferred land-use?
Elsewhere I have suggested that allowing up to 20% of any hill country farm to be converted to non-harvested pines with long-terms carbon credits, and similar unrestricted permission for steep erosion-prone Class 7 land, would be a good solution. Any other large-scale conversion would require comprehensive consenting approval.
1) Go a long way to making the combination of sheep farming + carbon farming financially profitable
2) Satisfy multiple ecological criteria
3) Underpin the 2050 ETS criteria
4) Generate export returns.
Keith – This 20% cap per farm, would also prevent our rural communities from being gradually destroyed by a gradual erosion of employment opportuities (due to blanket carbon forestry), as the core farming business or at least 80% of it (probably more given the worst area of the farm would be planted)-would remain. It would also reduce the freshwater problems and biodiversity loss from massive exotic afforestation of areas, as the woodlots would be less concentrated into certain catchments. Why is this solution of a 20%cap per farm not being publicly promoted by our so-called farming leadership? I can see no downside….
Keith I understand the challenges faced by competing land use but feel that there are plenty of challenges from within existing farms. Sheep are generally more labor intensive and the skill level required is greater than other forms of livestock farming. Animal health susceptibility mean that they are seldom farmed as a sole species adding complexity. The capital required for infrastructure is greater than for cattle. Perversely the only light I can see for the sheep industry is through the fresh water regulations
I think one part of the path forward is self-shedding sheep.
Here is one website.
Specialization verses not having all the eggs in one basket. Changing a breed is a five to ten year process with a significant risk that markets have shifted. Strong wool sheep were once a dual purpose enterprise. I have just reread your post on wool’s Eldorado and assume that there may still be a dim light at the end of the tunnel. If farmers like myself cling to straws we will still be trying to do the same thing for ever. Has the species versatility contributed to it’s decline?