Lamb market outlook

January 2021

  • UK sheep meat production is set to fall by about 4% this year to 285,000 tonnes
  • Overall lamb throughput in 2021 forecast at 12.5 million head, 4% below year earlier levels
  • Imports and exports both expected to contract slightly
  • Limited global supplies may offer some price support
  • Domestic demand unlikely to maintain the growth seen in 2020

Bethan Wilkins

Senior Analyst - Red Meat

Overview

We now have more clarity over the UK’s exit from the EU in the form of an agreement on trade. Logistical difficulties implementing the changes in our trading relationship are proving a challenge, although trade is still flowing. GB finished lamb prices have been strong recently, and as long as exports continue the market is likely to remain supported for a while. Uncertainty lies ahead, as farm support changes.

A more detailed look at the sheep meat production outlook can also be found here.

UK production

UK sheep meat production was 4% lower than year earlier levels in 2020, totalling 296,100 tonnes. Defra June survey figures suggest a 4% decline in the UK breeding flock at this point in the year, compared with 2019. However, based on industry reports, our base assumption is that numbers will remain stable in 2021.

The 2020 lamb crop is estimated as 17.3 million head, similar to 2019 (-1%). This reflects stability in both breeding flock numbers and the lamb rear rate. The lamb crop is expected to be similar again this year, though of course this will depend on weather conditions at lambing time. In the first half of this year, lamb slaughter levels are expected to be tight. A relatively high portion of the 2020 lamb crop was slaughtered as new season lambs last year, meaning a smaller number have been carried over into 2021. Old season lamb slaughter between January and May is forecast at 3.6 million head, 7% lower than last year. However, the number coming through may be affected by retention rates.

Slaughter of new season lambs from the 2021 crop is also expected to be lower this year. The trading uncertainty that drew numbers through earlier in 2020 is no longer present, and it seems unlikely domestic demand will retain the boost seen this year. A more typical annual slaughter profile for the 2021 lamb crop suggests new season lamb slaughter will be 3% lower this year at 8.9 million head.

Overall therefore, lamb throughput in 2021 is forecast at 12.5 million head, 4% below year earlier levels. Cull slaughter fell sharply in 2020, and is forecast to pick up again this year, though it will remain below 2019 levels.

Combining a fall in lamb slaughter with growth in adult sheep culling means UK sheep meat production is set to fall by about 4% this year to 285,000 tonnes.

UK sheep meat trade

Sheep meat imports have been falling for a number of years. The dominant global exporters, Australia and New Zealand, have increasingly focused on the Chinese market and at the same time their supply availability has wavered.

The picture remains similar this year. New Zealand is anticipating a drop in product available for export in the 2020-21 season (Oct 20 - Sep 21) due to a smaller lamb crop and increased retention rate as farmers now seek to recover numbers following the drought. This will restrict supplies available for them to export. Although, global demand dampened by COVID-19 and the possibility that Chinese demand for imported protein in particular could also fall back further, may limit how tight global supplies of sheep meat are this year.

In 2021 we anticipate UK imports will only be able to fall slightly (-2%) compared to the already low 2020 level, totalling about 67,500 tonnes. As exports have been, there remains a risk that imports could be disrupted by new checks and paperwork at the UK-EU border.

Exports typically reflect domestic production trends. Falling production levels this year will limit supplies available to export. We expect UK sheep meat exports to fall by 4% this year, to about 85,600 tonnes. The decline will be biased towards the first half of the year, and particularly quarter one, as exporters work through the new regulations required when exporting to the EU. By the end of the year, some growth may be possible, especially if by then continental foodservice demand is recovering from the coronavirus pandemic.

Lamb consumption trends

Lamb volumes followed a hugely changeable pattern through 2020. At the start of the pandemic in spring, volumes dropped dramatically as Easter plans were cancelled while the UK entered its first national lockdown. However, retail volumes started to gather pace and throughout the second half of the year moved in line with, or even ahead of, total grocery growth. Mince made the greatest contribution to growth, with chops and diced/cubed lamb providing further support. Despite earlier losses for leg roasting joints not being recouped, total lamb retail volumes were up +4% in the year ending 27th Dec 20 (Kantar). This is behind the market average for total food and non-alcoholic drink volumes, which were up 11%. However, it is a significant contrast to the pre-COVID trend, where lamb retail volumes were down -3% (Kantar, 52 w/e 29th Dec 19).

In the out-of-home market, there were mixed fortunes for lamb. Like all categories, eating-out volumes took a hit due to forced closures and lack of confidence, resulting in an estimated reduction of eat-in lamb volumes of 58% (AHDB/Kantar, 52 w/e 27th Dec 20). However, the eat-in market has less of a bearing on total lamb volumes than it does for beef and lamb. Instead, takeaways have greater influence, accounting for approximately 7% of lamb volumes (compared to 3% for beef and 1% for pig meat) in a typical year. Takeaways therefore provided some respite for the out-of-home market for lamb in 2020, with estimates showing that takeaway lamb volumes rose +54% year-on-year, linked to a significant uplift for lamb kebabs.

What next?

The variable fortunes seen for lamb throughout 2020 are expected to be mirrored in 2021.

More households have been buying into the lamb category in retail and this is expected to support volumes throughout the first half of 2020. Restrictions surrounding Easter 2020 created a perfect storm for the lamb category. While some restrictions are still expected in 2021, there is hope that the extreme scenario seen last year will not be present this time round, allowing lamb volumes to bounce back around this key seasonal event.

Lamb’s higher price point, when compared to other proteins, could be a challenge for the category in retail. The full impact of the economic downturn is yet to be felt by consumers but as it materialises, the impact will be polarised. Some will be priced out of the lamb category, leading to a return to overall volume losses in the second half of the year. However, some of this loss will be mitigated by those in higher socioeconomic groups, who have been key to lamb’s growth in 2020 and will likely escape the worst of the downturn.

Increased use of takeaways is likely to be a legacy of the pandemic. New operators have entered the market out of necessity and it has also attracted new consumers. This should help support lamb volumes due to the popularity of kebabs and curries, however it should be noted that the steep increase in volumes seen in 2020 aren’t expected to be replicated this year, resulting in year-on-year declines.

As a result of these anticipated trends, total lamb volumes for the full year 2021 are expected to be down -3% year-on-year. However when we compare back to 2019, being a more typical year, volumes are stand-on.

To mitigate losses:

  • Continue to remind consumers of how versatile lamb can be – using cuts that have proved popular this past year (mince, chops and diced). Consumers could be inspired with dishes that recreate popular out-of-home dishes, such as homemade kebabs
  • Lamb has an older demographic than other categories and should focus on retaining middle-aged (35-54 year old) consumers, who have made the greatest contribution to category growth in 2020. Demonstrate lamb’s relevance to everyday dishes
  • The quality and product benefits of lamb need to be clearly communicated to consumers, to justify its higher price point
  • Address any underlying health concerns by communicating the health benefits of lamb
  • In the longer-term, look to maintain and build consumer trust, demonstrating where farming values (animal welfare, environmental stewardship and expertise) are shared with consumers

For more information on the scenario please click here

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Beef & Lamb: At A Glance

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Gallery: Beef & Lamb at a glance

Click on the thumbnails below for simple visual explanations as to how the beef and lamb markets have performed, according to the latest data. Here we look at GB and international prices, consumption, slaughterings and trade figures.

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