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Sheep
The U.S. lamb and sheep industry continued to contract, due in part to increased competition from Australia and New Zealand. The domestic industry reacted to the surge in imports by seeking relief under Section 201 of the Trade Act of 1974.
Overview
On January 1, 1999, sheep and goat inventories for the countries covered in this report are expected to increase 1.6 percent from 1998 to 869.2 million head. China's 10-percent increase in sheep and goat inventories more than offset losses in other regions of the world. In the year 2000, sheep and goat inventories are forecast to increase 2.8 percent as a result of China's growing sheep and goat inventory. Sheep and goat inventories for most other regions of the world are forecast to decrease slightly.
United States
In the last decade, many factors have contributed to the decline of the U.S. lamb and sheep industry. On December 31, 1995, growers received their last payment from the National Wool Act, and an important source of income was lost. This forced producers to adopt measures to maximize profits. Many producers began to replace their wool-producing sheep with meat-producing sheep. Wool prices fell and wool stocks rose, prompting other producers to favor meat-producing sheep.
Similar economic factors also affected sheep producers in Australia and New Zealand, and caused the number of meat-producing sheep in these countries to rise. Increased sheep meat production in Australia and New Zealand prompted these countries to develop marketing channels in the U.S. lamb meat market. Therefore, as U.S. producers increasingly depended on income generated from sheep meat, imported lamb meat rose.
Over the last 10 years, the U.S. sheep inventory plummeted 40 percent, from 12.1 million head in 1990 to 7.2 million head in 1999. During the same period, sheep meat production decreased 36 percent, from 165,000 tons to 107,000 tons. In the year 2000, the sheep inventory is forecast to total 7.0 million head, and sheep meat production is forecast to total 97,000 tons.
The sharp decrease in the U.S. sheep inventory, and therefore sheep meat production, has been balanced by a combination of decreased consumption and increased imports. Total domestic consumption has fallen from 185,000 tons in 1990 to a forecast 146,000 tons in the year 2000, while imports have increased from 21,000 tons to a forecast 52,000 tons.
Over the last five years, lamb meat imports from Australia and New Zealand increased at such a rapid pace that the domestic industry successfully gained import relief through Section 201 of the Trade Act of 1974 (see Section 201 Import Relief for Lamb Meat article).
In response to the domestic industry's efforts to gain a temporary Tariff Rate Quota (TRQ) for imported lamb meat, imports from Australia and New Zealand entered the United States at a record level. Between January and August 1999, imports totaled 24,012 tons, an 18-percent increase over the same period last year. Imports from Australian increased 33 percent mainly in reaction to an expected 6-percent increase in Australian lamb slaughter. Imports from New Zealand are forecast to increased a modest 4 percent in reaction to an expected 6-percent decrease in lamb slaughter.
The composition of lamb meat imports changed as a result of the pending Section 201 action. In anticipation of the 9-percent ad valorem tariff that began July 22, 1999, Australia and New Zealand exported more high-valued fresh/chilled lamb meat to the United States. Between January and August 1999, Australia's fresh/chilled lamb meat exports increased 47 percent and New Zealand's fresh/chilled lamb meat exports increased 30 percent. This shift caused the value of lamb meat imports to rise 21 percent to $110.9 million.
Australia
Currently, Australia has 117.8 million head of sheep, down from 170.3 million head in 1990. In the year 2000, the sheep inventory is forecast to drop less than one percent to 116.9 million head. Sheep numbers fell precipitously when wool stockpiles reached 4.7 million bales in 1991, causing the suspension of the wool reserve price scheme. In reaction, many producers combining sheep and wool production with other enterprises stopped raising sheep. Remaining sheep producers changed their flock composition to include a higher percentage of meat breeds.
The Australian lamb crop is an estimated 45.3 million head in 1999 and is forecast to decline slightly to 45.0 million head in the year 2000. Lamb slaughter levels are expected to increase 3 percent to 16.0 million head in 1999 and reach 16.3 million head in 2000. Sheep slaughter levels are estimated to reach 15.6 million head in 1999 before falling slightly to 15.5 million head in the year 2000, due to an increase in live sheep exports and a modest start to flock building. The percentage of meat breeds is forecast to continue to trend upwards.
In September 1999, the Australian Government announced an assistance package in response to the three-year tariff-rate quota in the United States. The package includes refunding the equivalent of half the transaction levy paid on lamb sales for up to two years and the establishment of a Lamb Industry Development Program worth up to A$3 million per year.
This grant-based program will be available to individual processors and to groups of producers. These initiatives aim to enhance industry performance, improve lamb quality, build demand for lamb, develop an infrastructure (including parts of the lamb processing sector), and to encourage on-farm productivity and innovation.
In addition to increasing lamb and mutton exports to the United States, Australia's exports have diversified to include a wide variety of markets. For example, in 1998, a total of 10,159 tons of Australian lamb meat were shipped to Papua New Guinea. The majority of this trade was low-value brisket and flap product. Exports to South Africa increased 4 percent during 1998, more than doubling since 1995. This reflects a shortage of domestic stock in South Africa due to flock rebuilding, and growth in local consumption due to increasing incomes in poor areas. These export markets have allowed Australia (and New Zealand) to sell the low-value cuts.
Although Australia's exports to South Africa have increased, growth has been limited to low-value cuts. The 40-percent tariff on all South African red meat imports has been a major limiting factor to increasing sales. Exports to the European Union (EU) are constrained by the annual sheep meat quota of 18,650 tons. However, the proportion of lamb meat in this quota has increased from 34 percent in 1995 to 47 percent in 1998 and is expected to continue.
New Zealand
Currently, New Zealand has 46.2 million head of sheep, down 2 percent from 1998. During the 1998/1999 season, farmers faced a second year of La Niņa drought conditions, which put severe pressure on feed supplies and reduced inventories. For the year 2000, the New Zealand sheep inventory is forecast to increase one percent to 46.5 million head as forage conditions improve.
The 1999 lamb crop is forecast at 34.8 million head and the average lambing rate is an estimated 107 percent, down from last season's lambing rate of 113 percent. The year 2000 lamb crop is forecast at 35.8 million head with a lambing rate of 110 percent as forage conditions improve. Breeding ewes are expected to remain stable at 32.5 million head in 2000. Over the next three to five years, sheep numbers are forecast to decline less than one percent each year.
In 1999, lamb slaughter is forecast to fall 6 percent to 24.96 million head, reflecting the lower breeding ewe numbers in 1998. Also, more farmers retained lambs in an effort to increase their herd size from the 1998 drought. Lamb slaughter weights are expected to increase 1.2 percent to 15.66 kg (carcass weight equivalent) compared to last season's 14.47 kg per head. Lamb production in 1999 is expected to decline 4.85 percent to 390,000 tons, compared to 410,800 tons in 1998. Total sheep meat production in 1999 is expected to decline 5.8 percent to 499,000 tons compared to 530,000 tons in 1998.
As a result of static ewe numbers and an estimated lambing ratio of 107 percent, the 2000 forecast for the lamb slaughter is 25.2 million head. Average lamb slaughter weights are forecast to increase one percent to 15.81 kg. while total lamb production is forecast to increase 1.8 percent to 397,940 tons. Total sheep meat production in the year 2000 is forecast to increase 2.4 percent to 510,000 tons.
New Zealand exporters will continue to market lamb products in the United States despite the implementation of the TRQ, because of high returns. Average returns for lamb exports to the United States in 1998 were $4,038/ton due to higher valued products being traded such as legs, racks, and loins. Average returns for lamb exports to the EU in 1998 were $3,195/ton while other countries averaged $1,426/ton. New Zealand's ability to export lamb meat to many markets has allowed producers to market the entire carcass.
In addition to offering excellent returns, New Zealand exporters believe the U.S. market could grow to $104 million in five years. Meat exporters have made significant investment in the North American region in recent years, including building costly distribution networks. Industry analysts believe most companies will continue to market New Zealand lamb based on the longer-term prospects for the U.S. market.
Saudi Arabia
On May 24, 1999, the Saudi Arabian Ministry of Agriculture and Water lifted a 16-month ban on imports of livestock from Somalia, Ethiopia, Kenya, Tanzania, Zimbabwe, Djibouti and Yemen.
The bans were the result of reports from the World Health Organization (WHO), citing the presence of Rift Valley Disease in these countries. Ministry officials said its decision to lift the restrictions was based on recent WHO announcements declaring these countries free of the disease. Somalia was the most hurt by the ban, having been the leading supplier of live sheep to Saudi Arabia for several years. After the ban was lifted, Somalia quickly resumed trade, a move that caused a decrease in Saudi Arabian wholesale and retail prices.
Australia is the largest supplier of sheep and lamb meat to Saudi Arabia, followed closely by New Zealand. Based on customs data from Australia and New Zealand, Australia exported 20,031 tons and New Zealand at 15,827 tons, respectively, to Saudi Arabia in 1998. Saudi Arabia's imports are forecast to increase 8 percent in 1999 as well as in the year 2000. The country's high population growth rate of 3.75 percent is a contributing factor to the growing demand. Also, there is no duty on lamb, mutton, or live sheep.
During the Muslim Holy month of Ramadan, an estimated 1.7 million pilgrims flocked to religious centers in Saudi Arabia to perform Haj rites. During this period, more than 3 million sheep are slaughtered, with one-third being slaughtered by Pilgrims performing Haj. Prices increase by as much as 40 percent during Ramadan as does the volume of imports. For example, an agreement was reached between Saudi Arabian importers and Sudanese livestock traders in August to import 300,000 live sheep from Sudan in order to meet the requirements of the Ramadan period.
For further information, contact Tony Halstead, (202) 720-4185.
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