How are global and Australian sheepmeat producers performing? · Global agri benchmark network...

How are global and Australian sheepmeat producers performing? Global agri benchmark network results 2016

Written by Karl Behrendt (Charles Sturt University) and Peter Weeks (Weeks Consulting Services) Commissioned by Meat & Livestock Australia

January 2017

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MLA Market Information Report – How are global and Australian sheepmeat producers performing?

Page i – Global agri benchmark network results 2016 – SHEEPMEAT

ContentsHighlights – Sheepmeat .....................................................1Introduction .........................................................................1What is agri benchmark?................................................... 2Global price and cost trends ............................................. 4

Food and meat prices ................................................................ 4Global sheep price trends .......................................................... 4Sheep price forecasts ................................................................. 5World sheepmeat supply ............................................................ 5Sheepmeat consumption ............................................................ 6Sheepmeat trade ......................................................................... 6

Global performance of sheep farms ................................ 8Whole farm profitability .............................................................. 8Sheep flock costs, returns and profitability ............................. 8

How e�cient are Australian sheepmeat producers? ... 10Total returns .................................................................................10

Total liveweight sold per ewe .................................................................... 11Losses of ewes (annual) and lambs (birth to weaning) ........................... 11Weaned lambs per 100 ewes per year ..................................................... 12Lamb growth rates – birth to weaning and/or slaughter ....................... 12Cash and total costs of meat production ................................................. 13Labour costs and productivity ................................................................... 13Total costs5 of meat production ................................................................ 14

In comparison... Australian sheep systems have: ..................14

Global agri benchmark network results 2016 – SHEEPMEAT – Page 1


HighlightsSheepmeat

• Sheepmeat prices remain comparatively high, due to rising global demand (especially in China and the Middle East) – since peaking in 2011, prices have declined and are expected to continue declining over the next few years as supplies respond.

• Sheepmeat production is expected to continue to grow globally, with the exception of New Zealand, with Australia expected to grow its share of global export growth and become the leading exporter of sheepmeat.

• Sheepmeat consumption will continue to grow slowly in developed countries by 2% per annum and 12% per annum in developing countries, with 94% of total consumption growth in Asia and Africa.

• Sheep farms globally continue to make profits at the whole farm level, and in some countries this is related to the level of diversification or government support.

• Australian and New Zealand sheep farms are the most profitable in the medium-term, although profit levels have declined slightly from 2014 levels.

• In 2015, all of the typical sheep flocks analysed in Australia covered short- and medium-term costs at the enterprise level, with three of them also covering long-term costs, with the remainder contributing to, but not fully covering, opportunity costs.

• Sheep farms globally have generally experienced declining costs (in USD) since 2013, especially for feed grains and fuel, which in part reflects exchange rate movements against the USD.

• In Australia, total returns to the sheep enterprise only (not counting returns from other outputs of the farm such as crops or cattle) for the eastern typical farms had more mixed results, with nearly all farms experiencing decreased returns across most categories in comparison to 2013 and 2014.

• Australia tends to have similar ewe and lamb losses to most other regions of the world, with the exception of South Africa, Brazil and France.

• Australian farms tend to have lower weaning rates than European countries, and maintain similar weaning rates to more rangeland or less-developed production systems where nutrition and/or genetics may be constraints.

• Australian systems generally maintain above average growth rates for animals being sold or slaughtered at weaning, which is comparable to most global regions, including Europe and NZ.

• All Australian systems achieve cash costs of <USD2/kg lwt of sheepmeat produced. Globally, only farms from Uruguay, South Africa, Namibia, Brazil and NZ have total costs <USD2/kg lwt. Extensive grazing systems are the least expensive for producing sheepmeat.

• Australian labour costs are 10 times higher than China, African and South American countries, and 50% higher than NZ and European countries. This is counteracted by Australian sheep systems producing 5-10 times more sheepmeat per hour of labour input than the rest of the world.

• Australian farms maintain a low total cost of sheepmeat production, with New Zealand, Uruguay, and some farms in China, Brazil, Namibia and South Africa also maintaining low total costs.

How are global & Australian beef producers performing?

Global agri benchmark network results 2016

IntroductionThis report presents the agri benchmark network’s perspectives on recent global sheepmeat developments, the economics and drivers facing producers around the world, farm profitability (globally and in network countries) and views on likely future developments and challenges.

It then asks the question ‘how competitive are Australian sheepmeat producers and what are the main areas where our productivity differs from other countries?’

The analysis and perspectives are as of mid-2016, though farm data is for the 2015 year.

Global agri benchmark network results 2016 – SHEEPMEAT


The farm-level results in this report are drawn from the collection of ‘typical farm’ data in each country, and subsequent analysis and research efforts of all member countries culminating in the 14th annual agri benchmark conference in Córdoba, Spain, 8-16 June 2016.

‘Typical farms’ are farms ‘engineered’ by local producers and experts to be typical of a country’s main sheep production systems, using annual data drawn from farms in the key production regions. In Australia data is collected for seven typical sheep farms across NSW, Victoria and WA.

Table 1: Australian agri benchmark typical cattle farms

Sold (ewes) Farm make-up

AU 1200 (1250 ewes) – NSW slopes; Border Leicester X Merino, Dorset; sheep + crops

AU 1600s NSW Northern Tablelands; Merino, Dorset Merino; sheep + wool + cattle

AU 1500s NSW south western plains; Merino, White Suffolk; sheep + crops

AU 2000s WA low rainfall; Merino, Merino and Poll Dorset; sheep + crops

AU 3000 Western VIC; Coopworth X Dorset

AU 4800s WA medium rainfall; Merino, Merino and Poll Dorset; sheep + crops

AU 7800s WA high rainfall; Merino, Merino and Poll Dorset; sheep + crops

Figure 2: Location of Australian agri benchmark typical sheep farms and sheep density

HOBART

AU-1250sADELAIDE

SYDNEY

CANBERRA

BRISBANE

PERTH

DARWIN

MELBOURNE

Kilometres

250 500 750 1,0000

N

AU-1500s

AU-1600s/AU-1050s

AU-3000s

>301

201 - 300

101 - 200

21 - 100

0 - 20

Legend - sheep per sq km

AU-7800s

AU-4800s

AU-2000sWA

In comparison…Australian cow-calf systems have:• More diversified whole farm systems (maintaining both cow-calf and finishing sys-

tems within the same business)

• Moderate-to-low weaning rates and moderate-to-low productivity per cow, especially in northern systems which have comparatively low reproductive rates, extended gen-eration intervals, lower growth rates and turn-off weights.

• Lower revenues due to significantly lower weaner prices (30% lower than South America and only a third of prices received in North America) and cull cow prices, although there has been a 30% improvement in total returns from 2014 to 2015.

• Australian systems have continued to reduce, year-on-year, the cost of cow/calf pro-duction, which is in part due to exchange rate movements.

• 2015 was the most profitable year since 2006, with all Australian systems achieving good short- and medium-term profits during 2015, and all but 2 systems achieving long-term profitability, which has been a year-on-year improvement since 2013.

• High labour productivity (kg lwt produced per hour of labour input) to compen-sate for high wage rates (although the differences in the cost of wages are reducing, which is in part due to exchange rate movements).

Countries with beef and sheep farm data

Countries with beef data only

Countries with sheep data only

2016 Countries Farms

Cow-calf 27 66

Beef finishing 32 83

Sheep 18 38

What is agri benchmark?1

agri benchmark is a global, non-profit and non-political network of agricultural economists, advisors, producers and specialists in key sectors of agricultural value chains. The cattle and sheep network has over 30 member countries, covering 90% of world beef production and 55% of sheepmeat production and has been producing the results of comparative analysis over the last 14 years.

The core competence of the network is in analysing production systems, their economics, drivers and perspectives.

agri benchmark aims to assist:

• producers and their organisations to better align future production through analysis of comparative performance and positioning;

• non-profit organisations (governments, NGOs, international organisations) to monitor global agricultural challenges; and

• agri-businesses to operate successfully through in-depth understanding of markets and customers.

agri benchmark has branches covering beef cattle and sheep, dairy, pigs, cash crops, horticulture and organic farming. Within sheep, it covers breeding and finishing enterprises (ewes and lamb/sheep finishing). It is also unique in being able to separately measure the performance of the breeding and finishing operations even on joint breeding/finishing farms. Furthermore, it measures sheep enterprise performance separately from (and together with) other outputs where the farm business is diversified (in Australia typically with some cropping, but often also other enterprises such as cattle).

Figure 1: Countries in the agri benchmark beef and sheep network

1 See http://www.agribenchmark.org/home.html

Australia



The farm-level results in this report are drawn from the collection of ‘typical farm’ data in each country, and subsequent analysis and research efforts of all member countries culminating in the 14th annual agri benchmark conference in Córdoba, Spain, 8-16 June 2016.

‘Typical farms’ are farms ‘engineered’ by local producers and experts to be typical of a country’s main sheep production systems, using annual data drawn from farms in the key production regions. In Australia data is collected for seven typical sheep farms across NSW, Victoria and WA.

Table 1: Australian agri benchmark typical cattle farms

Sold (ewes) Farm make-up

AU 1200 (1250 ewes) – NSW slopes; Border Leicester X Merino, Dorset; sheep + crops

AU 1600s NSW Northern Tablelands; Merino, Dorset Merino; sheep + wool + cattle

AU 1500s NSW south western plains; Merino, White Suffolk; sheep + crops

AU 2000s WA low rainfall; Merino, Merino and Poll Dorset; sheep + crops

AU 3000 Western VIC; Coopworth X Dorset

AU 4800s WA medium rainfall; Merino, Merino and Poll Dorset; sheep + crops

AU 7800s WA high rainfall; Merino, Merino and Poll Dorset; sheep + crops

Figure 2: Location of Australian agri benchmark typical sheep farms and sheep density

HOBART

AU-1250sADELAIDE

SYDNEY

CANBERRA

BRISBANE

PERTH

DARWIN

MELBOURNE

Kilometres

250 500 750 1,0000

N

AU-1500s

AU-1600s/AU-1050s

AU-3000s

>301

201 - 300

101 - 200

21 - 100

0 - 20

Legend - sheep per sq km

AU-7800s

AU-4800s

AU-2000sWA

In comparison…Australian cow-calf systems have:• More diversified whole farm systems (maintaining both cow-calf and finishing sys-

tems within the same business)

• Moderate-to-low weaning rates and moderate-to-low productivity per cow, especially in northern systems which have comparatively low reproductive rates, extended gen-eration intervals, lower growth rates and turn-off weights.

• Lower revenues due to significantly lower weaner prices (30% lower than South America and only a third of prices received in North America) and cull cow prices, although there has been a 30% improvement in total returns from 2014 to 2015.

• Australian systems have continued to reduce, year-on-year, the cost of cow/calf pro-duction, which is in part due to exchange rate movements.

• 2015 was the most profitable year since 2006, with all Australian systems achieving good short- and medium-term profits during 2015, and all but 2 systems achieving long-term profitability, which has been a year-on-year improvement since 2013.

• High labour productivity (kg lwt produced per hour of labour input) to compen-sate for high wage rates (although the differences in the cost of wages are reducing, which is in part due to exchange rate movements).



0

50

100

150

200

250

Price indices (2002-2004 = 100)

Food

1996

1998

20002002

20042006

20082010

20122014

2016

Meat Cereals Dairy

1990

1992

1994

300

Source: FAO

0

50

100

150

200

250Price indices (2002-2004 = 100)

Bovine meat

1996

1998

20002002

20042006

20082010

20122014

2016

Meat price index Poultry meat Pig meat

1990

1992

1994

Ovine meat

Source: FAO

-20

100120140160180

% change on 2009 prices

United Kingdom

20112012

20132014

2015

Australia Brazil

20092010

Germany

Source: agri benchmark

80604020

0

New Zealand Tunisia

China

JordanSouth Africa

0

10

20

30

40% change

Source: agri benchmark Result Data Base

-40

-20

-10

Alge

ria

Ger

man

y

Fran

ce

Spai

n

Irela

nd UK

Ukr

aine

Mor

occo

Mex

ico

Uru

guay

Braz

il

Colu

mbi

a

Chin

a

Jord

an

Nam

ibia

New

Zea

land

Sout

h Af

rica

Tuni

sia

US$ sheepmeatNational currency sheepmeat

-30

Aus

tral

ia

Global price and cost trends

Figure 3 FAO monthly cereal, meat and food price indices

Food and meat prices • Global food prices in USD doubled in the 10 years

to 2011, but have been highly volatile over the past 15 years (see Figure 3). Currency volatility, especially the USD, has played a significant part in this, as has fluctuating crop harvests (and inventories) and growth in food demand and imports in developing countries, led by China.

• Food prices peaked in 2011, corresponding to the high in cereal prices, with dairy product and meat price peaks typically lagged by 2-3 years (as livestock production takes time to adjust to changes in grain input costs) – peaking in 2013 and 2014, respectively.

• Even after the fall from 2011 to 2016, food prices remain 50% higher than prior to 2004.

• With the falls in grain costs commencing in 2012, and subsequent falls in other costs, led by fuel, fertiliser and interest, plus a sharp rise in the USD, meat prices began to decline significantly in 2015 (in USD terms), with further falls in 2016.

• The 23% decline in global meat prices (in USD) since 2014 (first eight months of 2016) has been led by pig meat and sheepmeat with 28% declines, followed by poultry 23% and beef 18%.

Global sheep price trends• Sheep prices in USD terms also fell in recent years,

having peaked in 2011 in most countries. The main exceptions were in China, the Middle East and some African countries.

• However, as with cattle, sheep prices in local currency terms have generally risen further in the last few years for most countries (see Figure 6). The exceptions here are China, Algeria, New Zealand and the UK, which have generally fallen, even in local currencies.

Figure 4 FAO monthly meat price indices

Figure 5: Sheep prices in USD: agri benchmark farms

Figure 6: Sheepmeat price changes in USD and national currency from 2014 to 2015New Zealand



0

1,000

2,000

3,000

4,000

5,000

USD/tonne

Beef price forcasts

1996

1998

20002002

20042006

20082010

20122014

2016

Sheepmeat price Sheepmeat price forecasts Beef price

1990

1992

1994

6,000

Source: OECD-FAO Agricultural outlook database 2016-20252018

20202022

20242016

2 OECD FAO Agricultural Outlook 2016-2025, http://www.oecd.org/publications/oecd-fao-agricultural-outlook-19991142.htm

Sheep price forecasts• The July 2016, OECD-FAO forecasts for world sheepmeat prices have prices in USD falling a little further in 2017

before a steady recovery (see Figure 7). The short-term decline is based on forecast rises in sheepmeat supplies in China and Australia, lower prices for beef and other competing meats, a rising USD, low grain costs and softer import demand in China and the Middle East.

• In the medium- to long-term, world sheepmeat prices are expected to resume their upward trend due to rising import demand (especially in China, the Middle East and South America) fuelled by population and income growth. Supply growth is likely to be highly constrained by land, feed and water constraints and environmental restrictions.

Figure 7: OECD-FAO world sheepmeat & beef price projections to 2025

• This forecast price pattern is similar to that predicted for world beef prices (see Figure 7).

• Even after the forecast 37% fall in global sheepmeat price between 2012 and 2017, prices for the 2016-2025 period are projected to be over 50% above those in the 2000-2010 decade (prior to the extraordinary 2011-2012 peak).

• Like beef, these OECD-FAO projections released in July 2016 have been lowered 15% on those released in 2015. This revision has been attributed to a larger supply response to recent high meat prices and low grain costs than had previously been anticipated, as evidenced by the rise in supplies in 2015 and subsequent reduction in sheepmeat prices.

World sheepmeat supply• Despite recent falls in sheepmeat prices from their peaks in the 2011-2013 period, sheepmeat is in growing

demand globally and production remains a profitable pursuit. Hence, most major suppliers (except New Zealand and parts of Europe) are expecting sheep flocks to expand and production to keep increasing. The OECD-FAO is projecting a 22% growth in global sheepmeat supply in the next 10 years, up from 15% growth in the past 10 years and 20% in the 1995 to 2005 period.

• Developing countries lead the charge, especially Asia and Africa. Growth in Chinese production is forecast to be similar to the previous decade, at 30%, while growth in Africa is also forecast to be 33%, similar to the 35% growth in each of the preceding two decades.

• Developed countries are only expected to rise a small 7%, up from 1% in the previous 10 years and a fall of 9% in the 1995 to 2005 period.

• Australian production is predicted to rise 19% in the 10 years to 2025, up from only 2% and 1% in the preceding two 10 year periods. New Zealand’s sheepmeat production is predicted to fall a further 9%, the same as in the 2005-2015 period – as competition for land restricts production.

Figure 8: Forecast sheepmeat production growth 2015-2025

-400

0

Growth ‘000 tonnes cwt1,600

Source: OECD-FAO Agricultural Outlook Database 2016-2025

China

Turkey

Kazak

hstan

Pakist

anIndiaIra

n

North A

merica

Latin

Americ

a

Australi

a

New Zealand

Sub Sahara

Afric

a

North A

frica

Banglad

esh

South Afric

a

IndonesiaEU-28

400

1,200

-10

0

10

30

-200 -5

% change

20

40

800

% changeSheepmeat production change1,400

200

1,000

600

5

25

15

35



Sheepmeat consumption• World per person consumption of sheepmeat has recovered in the past four years, back to the peak reached

in 2007, before the extraordinary prices dropped consumption around 2011. OECD-FAO expects this growth to continue in the next 10 years, with a 10% rise, led by Asia.

• While China continues to dominate growth (with 27% growth in the past 10 years and 26% forecast in the next 10 years), other countries in Asia are also on the rise.

• Per person consumption in developed countries is expected to rise 2% in the next 10 years (after falls of 13%

Figure 9: Forecast sheepmeat consumption growth 2015 to 2025

and 14% in the previous two 10 year periods) and developing countries to rise 12% (up from 8% in the preceding 10 years). The notable falls, both in the past and forecast for the coming 10 years, are in the US, Japan, Australia and New Zealand (the latter two due to high export demand).

• Africa is expected to continue its slow growth in per person consumption of sheepmeats, up 5%, the same as the past two 10 year periods.

• In total, sheepmeat consumption is forecast to grow by 3.2mt or 22% in the coming 10 years, up from 16% in the 2005-2015 period and 19% between 1995 and 2005.

• Of this growth in sheepmeat consumption in the next 10 years, 94% is expected to be in Asia (70% of this in China) and Africa (84% in Sub-Sahara Africa).

Sheepmeat trade• The world sheepmeat trade also continues to expand, with the OECD-FAO forecasting another decade of growth

close to 200kt (15%) between 2015 and 2025 (after 212kt growth in the 2005-2015 period).

• The world sheepmeat trade is dominated by exports from Australia and New Zealand, principally to Asia (especially China), the Middle East, the EU and the US.

Figure 10: World sheepmeat export shares (excluding Europe)

-400

0

Growth ‘000 tonnes cwt1,600


ChinaEgyp

tOther

Saudi A

rabia

Russian

Federation

Latin

Americ

a

Australi

a

Sub Sahara

Afric

a

North A

frica

Europe

Other Asia

400

1,200

-40

0

40

120

-200 -20

% change

80

160

800

% changeSheepmeat consuption change1,400

200

1,000

600

20

100

60

140

Forecast world consumption growth = 2.2mt or 22%

Sheepmeat exports 1.2mt

Source: OECD-FAO Agricultural Outlook Database July 2016

1995-2005Sheepmeat exports 1.3mt

2005-2015Sheepmeat exports 1.4mt

2015-2025

Australia

New Zealand

Sub Sahara Africa

Asia

Other

Australia

New Zealand

Sub Sahara Africa

Asia

Other

Australia

New Zealand

Sub Sahara Africa

Asia

Other



• In the coming 10 years, Australia is expected to dominate export growth with a 126kt or 25% rise (up from 77kt and 53kt in the previous two 10 year periods). In contrast, New Zealand exports are forecast to decline 41kt or 9% (after rising 31kt and 13kt in the previous two 10 year periods).

• This would lift Australia’s share of world trade in sheepmeat (excluding exports by European countries as it is principally internal trade) from 37% in 2015 to 46% in 2025. New Zealand’s share would fall from 36.5% in 2015 (almost equal to Australia’s 37%) to 31%.

• Nor are other potential sheepmeat competitors expected to expand exports – with exports from Sub-Sahara Africa lifting only 14kt (as against 48kt and 26kt in the previous 10 year periods), a fall in exports by India and no growth from Latin America.

• The principal growth market is again expected to be Asia (up 178kt or 21%), though growth in China’s imports is forecast to be only 50kt or 20% (down from 209kt in the 2005-2015 period).

• Sheepmeat imports by the Middle East is also expected to expand further, with Saudi Arabia forecast to rise 31kt or 15% (compared with 44kt in the 2005-2015 period).

• Imports by the EU are forecast to recover around half the quantity lost when New Zealand diverted shipments to the expanding China market – up 32kt or 17% (after falling 77kt in the 2005-2015 period).

• The UK’s exit from the EU could see a renegotiation of both import quotas into the UK and the EU for both Australian and New Zealand.

• Sheepmeat imports into the US are expected to fall in the next 10 years – down 22kt or 23% (after growth of 12kt and 53kt the previous two 10-year periods).

Figure 11 Forecast sheepmeat import growth 2015 to 2025

-50

0

Growth ‘000 tonnes cwt200


ChinaIra

n

Canad

a

Saudi A

rabia

United Stat

es

Latin

Americ

aJa

pan

Sub Sahara

Afric

a

North A

frica

EU-28Asia

(except C

hina)

50

150

-50

0

50

150

% change

100

200

100

% changeSheepmeat import change

Forecast world sheepmeat import growth = 200kt or 15%

China



Global performance of sheep farms

Whole farm profitability (‘000 USD) All but 3 of the 38 typical farming systems (across 18 countries) managed to make a profit at the whole farm level in 2015, although this is partly dependent on other enterprises or non-farm returns (coupled and non-coupled government payments).

On a whole-farm profit basis (medium-term profitability), Australia’s ‘typical’ sheep farms were the most profitable (in USD terms), in part due to their scale and incomes received from other enterprises (crops and beef). In absolute terms, and similar to 2014, the most profitable farms globally were from Western Australia (AU-7800, and AU-4800), followed by the New Zealand farm (NZ-3500) and south western NSW farm (AU-1500).

Australian sheep farms generally maintain higher levels of profitability due to the diversification of the typical mixed farming systems and their scale. In 2015, cropping returns in particular, especially in the WA systems, were generally above average due to favourable yields. Notably, AU-2000, although being the only Australian typical farm to produce a loss in 2014, has achieved significant profits in 2015.

On average, European farms achieved a net loss of 55% without government payments in 2015, but with government payments achieved an average net profit margin of 24%, whereas Australian farms averaged 31%. Globally, this represents a small improvement in EU profitability and a small decline in Australian farm profitability when compared to 2014 (except for AU-2000).

Sheep flock costs, returns and profitability (USD/100kg lwt)

When the 2015 profitability of the sheep flock is examined, without taking into account returns from other enterprises on the same farm or government payments, the global financial performance is generally positive (better than for beef cattle) and in marginal terms, similar to that achieved in both 2013 and 2014.

Many countries, even with significant government payments (excludes de-coupled payments), are not profitable in the long-term. The exception to this is Uruguay, New Zealand, China, Colombia, Jordon and some systems in Australia and Africa. The 2015 profitability of sheep flocks in many other parts of the world was marginally higher than that achieved in 2012, 2013 and 2014, although total returns still failed to, or only just covered, short-term cash costs in many European countries.

Figure 12: Whole sheep farm profitability (‘000 USD)

AUSTRALIA

1,000

1,200

1,600USD '000 per farm


0

600

800

400

200

Total cost from P & L account Market returns

Farm Identification indicates number of ewes

Market returns + coupled + decoupled payments payments

1,400

Ger

man

y 60

0G

erm

any

1200

Spai

n 80

0Sp

ain

900

Spai

n 97

0

Fran

ce 4

60Fr

ance

470

Fran

ce 5

00Fr

ance

750

Fran

ce 8

60

Irela

nd 2

30

UK

400

UK

450

UK

500

Mex

ico

300

Braz

il 35

Braz

il 15

0

Col

ombi

a 38

0

Uru

guay

600

Chi

na 3

40C

hina

400

NSW

1250

NSW

1500

NSW

1600

Vic

300

0W

A 2

000

WA

480

0W

A 7

800

NZ

3200

Alg

eria

300

Jord

on 10

0

Mor

occo

300

Tuni

sia

40

Nam

ibia

1000

Nam

ibia

300

0

S A

frica

850

S A

frica

1500

S A

frica

1800

Profit



In 2015, all of the typical sheep flocks analysed in Australia covered short- and medium-term costs (includes depreciation), with three of them (NSW-1500, NSW-1250, and VIC-3000) covering long-term costs (opportunity costs), with the remainder contributing to, but not fully covering, opportunity costs. For the majority of Australian systems (excluding WA-4800 and WA-7800) this has improved from 2011 to 2015.

Two farms from WA (AU-4800 and AU-7800) and the Uruguayan farm (UY-600) had higher costs in 2015 than in 2013 and 2014. In WA this was due to drier seasonal conditions.

All other farms globally have generally experienced declining costs since 2013, which in part reflects exchange rate movements against the USD.

At the same time, and following the price and exchange rate developments, the total returns of the farms were also lower.

Profitability is analysed by comparing total returns with three cost levels – cash costs (short-term), then adding depreciation (medium-term) and then adding opportunity costs (long-term)2. Medium-term profitability was in 2015 lower than the year before in one German farm, two French ones, Ireland, Uruguay, China (after a dramatic increase in 2014, it is now achieving the lowest levels of profitability since 2013), four Australian farms, New Zealand, one Namibian farm and two of the South African farms.

2 Short-term profit is where returns (from sales and coupled government payments) covers all cash costs (including interest and family wages), medium-term profit allows additionally for depreciation, and long-term profit allows for the opportunity costs of land and other capital invested. Opportunity costs on capital such as land, is calculated using a market leasing rate in each country.

Figure 13 Time series of flock costs, returns and profitability 2013-2015 (USD/100kg lwt)

AUSTRALIA

1,000

1,200

1,400Cash and non-cash cost, total returns and profitability (USD per 100 kg lwt)


0

600

800

400

200

Cash cost Total returnsDepreciation Opportunity cost

DE-

600

DE-

1200

ES-8

00

ES-9

00

ES-9

50

FR-4

60

FR-4

70

FR-5

00

FR-7

50

FR-8

60

IE-2

30

UK-

450

UK-

500

MX

-300

BR-

35

BR-

150

CO

-380

UY-

600

CN

-340

AU

-125

0

AU

-150

0

AU

-160

0

AU

-300

0

AU

-200

0

AU

-480

0

AU

-780

0

NZ-

3200

DZ-

300

JO-1

00

MA

-300

TN-4

0

NA

-100

0

NA

-300

0

ZA-8

50

ZA-1

500

ZA-1

800

Spain



How e�cient are Australian sheepmeat producers?

Total returns (USD/100kg lwt)Australian sheep systems are diversified in comparison to the rest of the world, with wool and cropping being major sources of additional income. The majority of Australian systems are in mixed farming zones, which also represent areas of highest sheep production and flock sizes. In terms of sheep enterprise returns, wool returns, which have increased from 2013 levels, is only a significant contributor to enterprise returns in Australia, NZ, China, Uruguay and South Africa. Other countries, like the UK, NZ and Uruguay, also commonly maintain diversification with cattle enterprises.

Australian and NZ typical sheep farms are the largest by global standards, having from 2 to 8 times higher total returns (revenue) from the business.

There is large global variation in total returns (revenue) per 100kg lwt sold. Countries like Germany, Spain, Ireland, UK and France (EU countries) receive significant amounts of government payments. These are either Whole-farm Payments (United Kingdom), Livestock Payments or a combination of the two (all other EU countries).

In Australia, the 2015 total sheep enterprise returns for the eastern typical farms had mixed results, with all farms experiencing decreased returns across most categories in comparison to 2013 and 2014. The exception was AU-4800, which experienced a slight increase, mainly as a result of increased receipts for wool and slaughter animals due to change in flock structure (change to producing first cross lambs). For the Australian Merino dominant typical farms (AU-1600, AU-2000, AU-4800 and AU-7800) wool returns made up 40-50% of total returns, which is only matched by the South African farms.

Figure 14: Total sheep enterprise returns (USD/100kg lwt) – 2015

AUSTRALIA

500

600

1,000USD/100kg lwt


0

300

400

200

100

Government payment


800

Ger

man

y 60

0G

erm

any

1200

Spai

n 80

0Sp

ain

900

Spai

n 97

0

Fran

ce 4

60Fr

ance

470

Fran

ce 5

00Fr

ance

750

Fran

ce 8

60

Irela

nd 2

30

UK

400

UK

450

UK

500

Mex

ico

300

Braz

il 35

Braz

il 15

0

Col

ombi

a 38

0

Uru

guay

600

Chi

na 3

40C

hina

400

NSW

1250

NSW

1500

NSW

1600

Vic

300

0W

A 2

000

WA

480

0W

A 7

800

NZ

3200

Alg

eria

300

Jord

on 10

0

Mor

occo

300

Tuni

sia

40

Nam

ibia

1000

Nam

ibia

300

0

S A

frica

850

S A

frica

1500

S A

frica

1800

900

700

Other returnsWool and skin market receiptsWeaned lamb and transfer to lamb finishing receipts

Breeding livestock receiptsCull receipts Slaughter animals receipts

United Kingdom



3 Total liveweight sold per ewe is generally dominated by the sale of slaughter lambs in most production systems, although a few exceptions exist where there are well established finishing systems (UK, Algeria and Tunisia).

Total liveweight sold per ewe (kg lwt per ewe)3

Generally, Australian systems produce above-average amounts of liveweight per ewe, with the exception of AU-1600, which is predominantly based on a fine wool Merino flock. The highest production per ewe came from NSW 1500 (AU-1500), which is a Merino ewe and First Cross ewe based flock producing mostly first cross and some second cross lambs. This was closely followed by two dedicated lamb producing flocks, AU-1250 and AU-3000, which are comparable to the highest meat producing flocks in Europe.

Low levels of production per hectare tend to come from regions with lower rainfall and rangelands environments (China, Brazil, Jordon, Namibia, South Africa and some parts of WA). Moderate to high productivity occurs in higher rainfall regions across Europe, Australia and NZ. Very high land productivity occurs in systems in Mexico and Tunisia, where animals are housed.

Comparatively, Australian farms found in lower rainfall zones of WA are also similar to Uruguay, China, Morocco and also parts of Europe (Spain and Germany). The higher rainfall farms found in south west WA, western Victoria and central NSW have comparable land productivity to European, UK and NZ systems.

Figure 15: Total liveweight sold per ewe (kg)

Losses of ewes (annual) and lambs (birth to weaning)

Australia tends to have similar ewe and lamb losses to most other regions of the world, with the exception of South Africa, Brazil and France. In South Africa, this is predominantly caused by predators, particularly the jackal, Brazil the rangelands systems under which they run, and in France, due to their intensive multiple lambing systems, high proportions of multiple births, and a shift in focus on to meat production with reduced emphasis on mothering ability. Ewe losses globally tends to vary between 1% and 7%, while lamb losses varies from 1%-17%, with Australian systems maintaining ewe and lamb losses at around 6% or less.

AUSTRALIA

500

600

800Total liveweight sold per ewe (kg)


0

300

400

200

100

Adults sold/going to finishing


Ger

man

y 60

0G

erm

any

1200

Spai

n 80

0Sp

ain

900

Spai

n 97

0

Fran

ce 4

60Fr

ance

470

Fran

ce 5

00Fr

ance

750

Fran

ce 8

60

Irela

nd 2

30

UK

400

UK

450

UK

500

Mex

ico

300

Braz

il 35

Braz

il 15

0

Col

ombi

a 38

0

Uru

guay

600

Chi

na 3

40C

hina

400

NSW

1250

NSW

1500

NSW

1600

Vic

300

0W

A 2

000

WA

480

0W

A 7

800

NZ

3200

Alg

eria

300

Jord

on 10

0

Mor

occo

300

Tuni

sia

40

Nam

ibia

1000

700

Lambs sold/going to finishing Breeding animalsCull animals Slaughter lambs



Weaned lambs per 100 ewes per year

European farms tend to have higher weaning rates than Australian farms, primarily due to more prolific breeds in addition to nutrition (supplementary feeding) or, as occurs in France and Spain, multiple lambings.

Australian farms tend to maintain similar weaning rates to more rangeland or less-developed production systems where nutrition and/or genetics may be constraints. This, more than likely, presents the area of greatest opportunity for Australian production systems, depending on the cost-effectiveness of increasing weaning rates, although flocks from higher rainfall regions (AU-3000 in western Vic) or flocks designed for lamb production (AU-1500 and AU-1250) achieve comparable weaning rates to the representative European and NZ systems.

Figure 16: Weaned lambs per 100 ewes per year

AUSTRALIA

100

120

180Lambs weaned per 100 ewes per year


0

60

80

40

20


140

Ger

man

y 60

0G

erm

any

1200

Spai

n 80

0Sp

ain

900

Spai

n 97

0

Fran

ce 4

60Fr

ance

470

Fran

ce 5

00Fr

ance

750

Fran

ce 8

60

Irela

nd 2

30

UK

400

UK

450

UK

500

Mex

ico

300

Braz

il 35

Braz

il 15

0

Col

ombi

a 38

0

Uru

guay

600

Chi

na 3

40C

hina

400

NSW

1250

NSW

1500

NSW

1600

Vic

300

0W

A 2

000

WA

480

0W

A 7

800

NZ

3200

Alg

eria

300

Jord

on 10

0

Mor

occo

300

Tuni

sia

40

Nam

ibia

1000

Nam

ibia

300

0

S A

frica

850

S A

frica

1500

S A

frica

1800

160

AUSTRALIA

250

300

450Lamb growth rates (grams per day)


0

150

200

100

50


350

Ger

man

y 60

0G

erm

any

1200

Spai

n 80

0Sp

ain

900

Spai

n 97

0

Fran

ce 4

60Fr

ance

470

Fran

ce 5

00Fr

ance

750

Fran

ce 8

60

Irela

nd 2

30

UK

400

UK

450

UK

500

Mex

ico

300

Braz

il 35

Braz

il 15

0

Col

ombi

a 38

0

Uru

guay

600

Chi

na 3

40C

hina

400

NSW

1250

NSW

1500

NSW

1600

Vic

300

0W

A 2

000

WA

480

0W

A 7

800

NZ

3200

Alg

eria

300

Jord

on 10

0

Mor

occo

300

Tuni

sia

40

Nam

ibia

1000

Nam

ibia

300

0

S A

frica

850

S A

frica

1500

S A

frica

1800

400

Store lambs - birth to weaning Slaughter at weaning - birth to slaughter Slaughter later - birth to slaughter

Lamb growth rates – birth to weaning and/or slaughter (grams lwt/day)

Lamb growth rates on typical Australian farms vary significantly, though Australian systems generally maintain above average growth rates for animals being sold or slaughtered at weaning – comparable to most global regions, including Europe and NZ.

However, for lambs grown out beyond weaning (slaughtered later), Australian growth rates are mixed but still average above those in NZ, Brazil and Colombia (but below those in the more intensive European meat lamb production systems). Feed quality (and quantity) and genotype also strongly influence growth rates, which is highlighted when comparing average lamb growth rates across different categories of sheep production systems. Generally, China, and the African and South American countries have the lowest lamb growth rates.

Overall, mean global weaning age was around 90-150 days, with values ranging from 45-60 in Spain, Mexico (due to very light slaughter weight markets), Jordon and Algeria (due to lamb finishing systems); and up to 180 days in Germany (due to on-farm lamb finishing) and Namibia (nutritional and management constraints).

Figure 17: Growth rates for store and slaughter lambs: birth to weaning or slaughter (g lwt/day)



Cash and total costs4 of meat production (USD/100kg lwt)

It is noticeable that many countries have well over USD2/kg lwt cash costs. All Australian systems achieve cash costs of <USD2/kg lwt. Globally, only farms from Uruguay, South Africa, Namibia, Brazil and NZ have total costs <USD2/kg lwt. Notably, the only systems that achieve cash costs of <USD2/kg lwt are based on extensive grazing systems, with all other systems (based on Grains and forages) being more expensive to producing sheepmeat.

The changes in total costs of sheepmeat production across the world from 2013 to 2015 were mixed. Costs generally fell in Australia (by 14% on 2014 levels), China, Europe and across MENA countries by 11%, Mexico by 18% and South Africa by 26%, whereas in NZ and Uruguay costs rose by 10% to 18%. This is, in part, due to rising non-factor, labour, land and feeding costs.

Figure 18: Cash and total long-run costs of sheepmeat production under different production systems (USD/100kg lwt)

Labour costs and productivity

Labour costs in Australia are amongst the highest in the world, but have declined since 2013 in US dollar terms. Australia’s average wages paid for employed staff is around USD23/hr, with the opportunity cost of family labour around USD28/hr. China and European countries averaged USD2/hr and USD13/hr, respectively, whereas South American and African countries averaged USD3/hr. New Zealand’s labour costs have also declined to around USD16/hr.

Taking into account the productivity of the labour, the contribution of labour costs to the costs of producing sheepmeat in Australian sheep systems is amongst the lowest in the world, even when compared to countries with very low hourly labour costs. In terms of labour productivity, Australian sheep systems produced 50-85kg liveweight per hour of input, compared to around 10kg lwt/hr for European systems and less than 10kg lwt/hr for most South American, African and Chinese systems.

4 The cash or non-factor costs represent largely variable costs directly associated with the enterprise. Feed and machinery are the dominant non-factor costs in Europe, with feed costs predominating everywhere else, except Australia, NZ, China, Uruguay and Namibia. Other inputs to ewe enterprises are directly allocated cash costs, such as enterprise specific wages (shearing, marking etc), and these represent major costs to Australian systems. Animal purchase costs are also important in AU-1250 due to being a non-self-replacing system (i.e. buys replacement ewes). Total long-run costs allow for depreciation and opportunity costs (including labour, land and capital).

500

600

1,000Costs of production (USD / 100kg Liveweight)


0

300

400

200

100

Total costs


700

800

Mex

ico

300

Mor

occo

300

Spai

n 90

0

Fran

ce 4

70

Spai

n 80

0

Alg

eria

300

Tuni

sia

40

Uru

guay

600

S A

fric

a 18

00

NZ

3200

Vic

300

0

Nam

ibia

300

0

Braz

il 15

0

NSW

1250

NSW

1500

Nam

ibia

1000

Col

ombi

a 38

0

WA

780

0

Chi

na 4

00

WA

200

0

Braz

il 35

WA

480

0

S A

fric

a 15

00

Chi

na 3

40

NSW

1600

Irela

nd 2

30

UK

500

S A

fric

a 85

0

UK

450

Fran

ce 8

60 Ger

man

y 12

00

Fran

ce 4

60

Ger

man

y 60

0

UK

400

Jord

on 1

00

Fran

ce 7

50

Spai

n 97

0

Fran

ce 5

00

900

Forages Grains.conc & forages Grazing - extensive Grazing

& forages

Cash costs

Colombia



5 In Total costs include all allocated whole farm costs, as well as opportunity costs for labour (family labour), land and capital used. This represents a long-run cost of production. For capital, land and labour costs it includes opportunity costs of land, non-land assets and family labour. 6 In China, land cost is difficult to estimate due to farmers maintaining only the right of use for 30 years, whereas renting usually only occurs for 12 months at a time.

Total costs5 of meat production (USD/100kg lwt)

Overall, Australian farms maintain a low total cost of meat production, with non-factor costs being the largest contributor to total costs. New Zealand, Uruguay, and some farms in China6, Brazil, Namibia and South Africa also maintain low total costs.

In most countries, 50%-60% are the non-factor costs or the operational costs of running the enterprise. Feed, machinery and fuel represent the largest non-factor costs in European and some South African systems, with feed being the predominant cost in Spain and MENA countries. Animal purchases are the main non-factor costs in some Chinese and Australian systems. It is quite mixed for all other parts of the world.

Figure 19: Total costs of sheepmeat production (USD/100kg lwt)

In comparison... Australian sheep systems have:• Moderate losses, mortalities and wastage in the system

• Moderate to high meat production efficiency

• Moderate to low reproductive efficiency – with potential for further improvement through nutritional management and genetics – if economic to do so

• Above average growth rates for animals sold or slaughtered at weaning

• High labour costs, but maintain excellent labour productivity which makes Australia competitive in terms of economic labour efficiency

• Comparably low to moderate sheep returns (revenues), which have decreased from 2013 and 2014 levels, and maintain low total costs of production which have tended to decline year-on-year since 2013, with exchange rate movements against the USD having played a role

• Continuing good sheep enterprise profitability across most Australian systems, which is in alignment with global trends

• Top whole-farm profitability globally due to diversification and scale

AUSTRALIA

500

600

900Total Costs (USD/100 kg lwt sold)


0

300

400

200

100

Total capital coast


Ger

man

y 60

0G

erm

any

1200

Spai

n 80

0Sp

ain

900

Spai

n 97

0

Fran

ce 4

60Fr

ance

470

Fran

ce 5

00Fr

ance

750

Fran

ce 8

60

Irela

nd 2

30

UK

400

UK

450

UK

500

Mex

ico

300

Braz

il 35

Braz

il 15

0

Col

ombi

a 38

0

Uru

guay

600

Chi

na 3

40C

hina

400

NSW

1250

NSW

1500

NSW

1600

Vic

300

0W

A 2

000

WA

480

0W

A 7

800

NZ

3200

Alg

eria

300

Jord

on 10

0

Mor

occo

300

Tuni

sia

40N

amib

ia 10

00

700

Total land costTotal labour cost Non-factor costs

800

S A

frica

850

S A

frica

1500

S A

frica

1800

Nam

ibia

300

0

How are global and Australian sheepmeat producers performing? · Global agri benchmark network...

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