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Thursday, November 16, 2017

A non-GM price advantage for SA producers – oh really?

By Matt Dalgleish  |  Source: MLA, NLRS, ACA

Key points

  • SA Trade Lamb and Mutton markets share a strong correlation to their respective Victorian markets, making them a perfect comparison to check the claim that the non-GM moratorium in SA provides a price benefit to SA producers over other states.
  • Victorian to SA Trade Lamb spread runs at a long-term premium of 3% in favour of Victoria and has been expanding.
  • Victorian to SA Mutton spread runs at a premium of 9% in favour of Victoria and is also widening.

2017-11-16 Sheep Fig 1

2017-11-16 Sheep Fig 2

2017-11-16 Sheep Fig 3

2017-11-16 Sheep Fig 4

Last month the SA Greens issued a statement on the extension of the GM moratorium, with the claim that their clean and green image provides SA farmers with a marketing and price advantage over the other states. Recently the Mecardo team had a look at the supposed non-GM premium on canola, which highlighted a lack of premium being enjoyed by SA canola producers, but perhaps the Greens claim was inferring a flow on effect for other SA products – we thought we would take a look at what the data on sheep and lamb shows.

Click here to read the SA Greens statement and here to see the analysis based on genetically modified Canola.

The two most correlated markets for SA Trade Lamb and SA Mutton are their Victorian counterparts, so we thought that was a good place to start to investigate if the price data showed a premium being obtained by SA producers over the long term when compared to their Victorian cousins.

Figures 1 and 2 highlight that on an average monthly basis price changes between both SA Trade Lamb and Mutton share a very strong correlation with Victoria with Trade Lambs scoring an r2 of 0.7867 and Mutton posting an even higher r2 of 0.8057, both indicative of strong price interdependence between these respective markets.

Analysis of the Trade Lamb spread since 2011 shows that over the long term Victorian producers have been enjoying a 3% price premium, as highlighted by the grey dotted line in figure 3. Interestingly, in recent times the spread has widened in favour of Victoria, such that the recent price premiums have been closer to 4%, as indicated by the upward sloping spread trend line, displayed in orange.

Similarly, the long term historic spread pattern for mutton shows a price advantage to Victorian producers over SA too. Indeed, the average premium is even more pronounced at 9% since 2011 – dotted grey line as per figure 4. As was the case with Trade Lambs, the spread for Mutton has been widening in favour of Victoria such that in more recent years the spread has moved toward a 10% premium.

What does this mean?

If claims are made by the SA Greens that the non-GM moratorium has “provided a significant price premium for our State’s farmers compared to other States” then this needs to be followed up with evidence.

Furthermore, just for the record I’d like to make it clear that this analyst is not an advocate of an anti-green agenda. Indeed, I’m a supporter of renewable technology, have built a passive solar home and acknowledge that some of my political views align with the Australian Greens – although I am very much a swing voter.

It’s just that so far in our investigation the evidence doesn’t seem to support the claim that non-GM provides any price benefit to SA producers for canola nor sheepmeat – perhaps they mean in cattle markets?

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 


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