Bayleys Real Estate Country magazine included an article on the outlook for New Zealand’s agricultural sector which was written by NZX Agrifax.
With regard to the Dairy Industry the effect of the drought in the latter part of 2012/13 season slowed production. This was also the case with other countries as the domestic market seems to have absorbed their output. So this lack of supply combined with a steady growth on demand has resulted in high dairy prices for a sustained period of time. With prices remaining high there is now the chance that milk production will increase especially in the US where their elasticity of supply of milk is fairly elastic. New Zealand is forecast to have a good milk production season as pastures have recovered from the drought. See graph below for forecasted milk prices.
The recovery in lamb prices has mainly been down to the increasing demand from the Chinese market. During the first 10 months of the season, over 80,000 tonnes of lamb was exported there which accounts for 29% of NZ’s total lamb exports. That’s up from 44,000 tonnes over the same period last year. There has been in particular an increase in demand for higher value items such as legs and shoulders. This led to an increase in price as supplies to traditional markets was now reduced.
Foreign Policy magazine ran a column on the lamb industry and stated that the U.N. Food and Agriculture Organization is forecasting a 300,000-ton shortage in the global lamb supply over the next five years. This is good news for long-struggling farmers in Australia and New Zealand, the world’s two largest sheep producers. Below is an explanation of the supply and demand pressures.
Several factors account for the global sheep shortage. Farmers in the United States have largely gotten out of the ovine game, and the country’s stock has fallen from 64 million sheep to just 6 million since the end of World War II. British farmers have also cut back on sheep production since the 2001 hoof-and-mouth scare. In Australia, falling wool prices in the 1990s and crippling droughts hit the industry hard.
At the same time, global demand for sheep meat has grown with the increase in the standard of living in Asian economies – especially India and China. However, Saudi Arabia and Kuwait alone now account for more than half of Australia’s sheep exports.
Australia and New Zealand still dominate the world sheep trade, though China is gaining quickly. But because sheep can take years to raise and are expensive to maintain, the global market is unlikely to respond to the increased demand anytime soon. The future, for these countries, is looking mighty woolly.