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Thursday, July 16, 2015

Global sheep flock – what happened and where to now?

By Roberto Cardellino, DELTA Consultants (Uruguay)  |  Source: Poimena, IWTO, ICS, BLNZ, Cape Wools, FLA, ABARES, IRI

Key points

  • Sheep industries in key wool producing countries have contracted since the 1990s.
  • Contraction has ranged from 67% in Uruguay to just 3% in South Africa.
  • China bucked the trend, up 25%.
  • Australia’s sheep flock has contracted 56% since 1990, although has now stabilised.
  • Global contraction strongly influenced by appearance of alternative and more profitable farming enterprises.

Table 1

Figure 1

Over the last 20 years, the sheep industries of the main wool producing countries have contracted strongly. The most intense period of flock liquidation occurred between 1990 and 2010, with numbers stabilising since then. The drivers of this generalized trend are not necessarily the same among different countries. However, the large body of anecdotal evidence points to some common patterns at the global level, which warrant further analysis.

Although the reduction in sheep numbers globally between 1990 and 2013 is around 5.3%, this is misleading as there are plenty of countries with subsistence production (ie sheep produced for own consumption). When looking closer, the reduction in sheep numbers in just the main wool producing countries has been remarkable.

Uruguay fell the most, with a drop of 67.2% between 1990 and 2013, followed by Argentina and Australia, with 58.5 and 56.4% respectively. In contrast, China’s sheep flock increased 24.6% during the same period (table 1).

What has caused the reduction in sheep numbers?

Generally, the key strategic decisions impacting production and the sheep industry in individual countries (i.e. merinos vs crossbreds, stock retention vs liquidation, etc) are dependent almost exclusively on farmers’ attitudes toward their businesses. This is based on the assessment of several variables, which are not necessarily the same for different countries. Read the full report for detailed information on individual countries.

In addition, while the depressed wool prices following the collapse of the Reserve Price Scheme (RPS) in Australia has taken the blame as the main trigger for the selloff of sheep globally since 1990, this should be looked jointly with other factors rather than in isolation.  In fact, despite the increasing volatility in global wool markets since 1990, the overall price trend has been a positive one (figure 1).

While differences between countries exist, the reduction in the global sheep numbers has been greatly influenced by the “appearance” of alternative and more profitable farming activities.

Overall, the “macro” arguments used by governments, the sheep industry and R&D organizations, such as the social importance of the sheep industry for the country, indirect impact on other industries, employment and job creation are all pertinent. However, they are not validated, nor managed, at the “micro” level by farmers in their decisions.

That said, this does not exempt those organisations (particularly those that receive their income from taxes/levies from producers) from their responsibility towards the sheep industry at a national level. To an extent, together with individuals, they are part of the problem. Furthermore, it is also clear that the rising sheepmeat prices in recent years was not capable of halting the ongoing reduction in sheep numbers at the world level.

Read the full report here

What does this mean?

The demise in sheep numbers has been sustained, not only in Australia but in all sheep producing countries. This is a result of the constant “fight for acres”; the battle competing enterprises have for the available acres. Dairy, cropping and beef cattle have been the winners. Usually, the winner can be explained economically; the most profitable enterprise rises to the top. In the case of sheep, there are other factors also (labour availability, predators etc.)

The contrarian (and positive) view would be that we are on the cusp of a golden age for sheep & wool; recent increases in demand and record low production should provide a fertile backdrop for strong demand and sustained prices for sheep meat & wool. The pessimistic view is that wool prices don’t have the capacity to meet costs into the future; wool is a discretionary spend and other consumer purchases will take precedence.

The future appears to be a combination of the two products; wool and meat. Meat demand (and price) will continue to encourage producers towards meat production at the expense of fine wool production. This will cause the continued growth in medium wool production at the expense of fine wool. Coincidently, this will probably mean rising fine wool prices also.

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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