Lamb market outlook

January 2022

  • Increase in number of available lambs to kill in as we shift away from a pre-Brexit kill pattern
  • Lamb imports forecast to remain lower as New Zealand continues to pivot towards China, and shipping costs remain high
  • Imports fall 6% while exports could grow by 5%
  • Demand expected to fall 3%, as restrictions ease, and Easter demand improves, but environmental concerns play a role and lamb has lost some ”menu share”

Current market situation

The UK sheep market recorded some surprising trends in 2021. Prices have been buoyant and reached record breaking levels. Recorded production has been lower. We were expecting lower production during the first half of the year, due to lambs being brought forward earlier ahead of the December 2020 Brexit deadline. What is more unexpected, and less explicable, is the low level of production during the second half of the year. The end of the Brexit transition period brought some new challenges to the export market, and volumes did decline, although they have recovered through the course of the year. Import volumes have continued to fall, reflecting the strong global market which is attracting New Zealand product away from British shores.

Outlook

UK production in H1 of 2022

The number of lambs recorded on the Defra June survey at 1 June 2021 was 16.4 million head, similar to June 2020. Between then and the end of December, 7.5 million of them have been recorded in Defra slaughter statistics, around 600,000 fewer than we would usually expect based upon that size of lamb crop and seasonal kill patterns. It is expected that actual kill was higher than published by Defra, based upon other data sources, market dynamics and industry reports.

Taking all this into account, we forecast the carry-over from 2021 into 2022 to be around 3.9 million head. In addition to this, around 1.8 million new season lambs are forecast to come forwards over the first six-months of the year.

Recorded ewe kill has been exceptionally low for the past 18 months. Due to similar reasons as with the lamb kill, we expect that actual number has been higher through the past 18 months. During H1 2022, we forecast the number of ewes available to kill to total 750,000 head, which would be a marked increase on the figure recorded for H1 2021, but in line with long term averages.

Bar chart showing the forecast UK lamb slaughter for 2022

UK production in H2 of 2022

The size of the breeding flock for the 2022 lamb crop is not yet known, but based on industry reports, high farmgate prices and optimism within the industry, we expect the flock to have grown by around 2%. Compared to historic growth this is very strong increase. Based on long-term lamb survival rates the 2022 UK lamb crop is forecast to be 17.5 million head, which includes those new season lambs killed during H1.

Between July and December, we forecast 7.2 million lambs to be available for kill, this is 600,000 more than were recorded as killed during the same period of 2021. Considering the comments on lamb kill in 2021 above, it would reasonable to suggest lamb availability between the two years may be similar.

Ewe kill during the second half of the year is forecast to be just shy of 700,000 head. Similar to in H1, this would be reflective of long-term average numbers.

Chart showing expects volume of lamb production 2022

UK production in 2023 and 2024

Over the short to medium-term supplies look to remain at a similar level. The largest risk factor is what impact any of the government environmental schemes and government policy have on stocking density, and therefore production volumes. This will depend upon uptake level of the different schemes.

Chart showing likely lamb production volumes for the coming three years

UK sheep meat trade

Brexit and the Covid-19 pandemic have both rocked the boat for trade over the past two years.

Import volumes have been under pressure for over five years now, from lower production in both New Zealand and Australia, and higher demand in Asia. This has then been coupled with the disruption caused by Covid-19, especially the disruption to the shipping industry. The latest indications suggest that higher freight prices and delays to shipping are likely to remain for at least the coming year. This, added to Asia continuing to offer an attractive market, is likely to restrict UK sheep meat import volumes. The UK government recently signed a free-trade agreement with Australia, expected to come into force later this year. This could mean we see an increase in the volume of Australian lamb, but this volume is likely to be at the expense of volumes from other nations.

Exports have struggled against changing demand from Europe during Covid-19 - closures of food service and limits on household gatherings. There has also been a lorry-driver shortage, again due to Covid-19, and the end of the Brexit transition period which brought some trade friction to exports. This friction includes some of the additional paperwork and checks which are now required. However, through 2021 we have seen volumes recover, having dropped initially post the Brexit transition period ending. Moving forwards, we are expecting the historic influencers of price competitiveness, available supply, and consumer demand, to be the dominating drivers behind where UK export volumes go, rather than trade friction between the UK and the EU dominating flows.

Overview of price movements

Overall, there are reasons to suggest the buoyant market will remain. Demand remains solid, although slightly under pressure, and the availability of sheep meat remains tight. For more on demand, read below. With no large movements in either of these factors in the coming year, prices are likely to remain on the stronger side, although they could cool slightly compared to 2021. There is no reason to suggest lamb farmgate prices are likely to drop significantly based upon what we can see ahead today.

Rises in input costs could take a slight edge off any increase in profitability seen due to the higher farmgate prices. Overall though, most likely the increase in farmgate prices compared to the five-year average will more than have covered the rise in input costs.

Lamb consumption trends

Over the past year, lamb sales in retail have continued to be elevated above pre-pandemic levels, with volumes up 1.9% on 2019 (according to Kantar). Compared to 2020, spend is up 1.7% year on year, driven by increases in average price but volumes declined by 2.1% as we compare back to a period with more COVID-19 restrictions. Lamb performed strongly in retail during the first half of 2021 but tailed off during the last quarter.

Retail sales of lamb roasting joints have struggled over the past year, but a roast dinner remains the most popular lamb dish at special occasions and when treating, showing consumers are still turning to lamb as a centre piece. Lamb roasting joints at Christmas were in growth on both last year and 2019.

Steaks and burgers are the two lamb cuts which have seen positive retail volume sales year-on-year as consumers return to quick and convenient meals. The growth in these cuts is coming from existing shoppers buying them more frequently as lamb has struggled to attract new buyers to the category over the last year. A third of consumers claim their household finances have been negatively impacted by the pandemic (AHDB/YouGov, Dec 21) and of those negatively impacted, more than half say they are going to cut back on their weekly food shopping to save money. As lamb is one of the more expensive meats, we have already seen shoppers switching away to cheaper proteins.

Growth in takeaways compared to pre-pandemic has balanced out losses in eating out, meaning overall volumes of lamb through foodservice were up 9.9% in 2021 compared to 2019 levels (AHDB estimates based on Kantar OOH, 52 w/e 26 Dec 21). Takeaways accounted for more than half of lamb volumes in foodservice even before the pandemic – much higher than other proteins – so lamb has been less impacted than other products by the closure of pubs and restaurants. Because of this lamb volumes in foodservice have remained on average above 2019 levels throughout the pandemic.

Kebabs dominate lamb takeaways, accounting for 64% of volumes in the past year and have been the main driver of growth. Much of the growth in takeaway kebabs is coming from shoppers aged over 55. Younger shoppers are also in growth compared with 2019, showing that the closure of nightclubs has not affected their consumption.

While the eating out market has started to make a recovery during 2021, it is still only half what it was in 2019. Meat-centred meals, such as lamb chops and shepherd’s pie, are the most popular lamb dishes when eating out, followed by kebabs and Indian dishes. Restaurants have faced a lot of challenges over the last year which has led to many scaling back the size and variety of menus leading to a decline in lamb dishes on menus of 4.3% (Lumina Intelligence, Spring/Summer 20). Even before the pandemic, lamb struggled to command share of menus and justify its higher price point.

In the past year we believe growth in retail and takeaways, compared to pre-pandemic, has balanced out losses in the eating out market, leading to overall category growth of 2.9% on 2019 levels. However, declines in retail compared to 2020 mean that overall we predict that lamb volumes are down 0.7% year-on-year.

What next?

As we move into 2022, some areas of the UK still have restrictions imposed on the eating-out market and across the country many people are self-isolating due to the omicron variant. These restrictions, combined with increased consumer concern, led to lower than anticipated recovery for the eating-out market towards the end of 2021. We expect this hesitancy and inability to return to the eating-out market will continue into the first half of 2022.

Economic pressures placed on consumers could also impact the eating-out market as consumers cut back spend out-of-home and cook more from scratch. In the last recession, the main way shoppers saved money in retail was by switching to cheaper products.

If we consider the long-term trends before the pandemic, volumes of lamb had been gradually declining through retail. Consumer concerns around health and the environment, as well as practical factors like price and convenience, had all impacted purchases of lamb. In the next year, as news coverage of the pandemic might not be so dominant, media noise around the reputation of the farming industry may begin to increase.

We predict that takeaways will continue to do well for lamb. If kebabs can continue to retain the shoppers they gained over lockdown, it could be an area of growth. However, there are challenges as kebabs are less likely to contain British lamb.

As eating-out begins to recover, transitioning lamb to more world cuisines and flavours could reinvigorate the protein and increase menu space and demand. However, with the increasing price pressures on consumers and restaurants, we do not expect the eating-out market to fully recover to its 2019 levels.

In retail, we expect lamb will return to a similar level to pre-pandemic. Over the past two Easters, there have been high levels of restrictions with limitations on the number of households mixing. If no restrictions are in place this Easter, we could see an uplift for lamb as consumers celebrate the holiday properly for the first time in three years. Reminding consumers of the traditional Easter centrepiece could therefore bring a welcome boost to the lamb category.

Chart showing UK lamb demand

Overall, in 2022 we expect eating-out will not return to pre-COVID levels, retail sales of red meat may start to suffer again but takeaways will continue to see stronger performance. Therefore, we predict total lamb volumes for the full year to be down -3% versus 2021 and slightly behind 2019.

The lamb outlook might be mitigated, if the industry:

  • Encourages consumers back out-of-home.Opportunities in the eating-out market include personalisation, indulgence, quality cues and pushing reputational factors such as health, sustainability and backing British.
  • Encourages shoppers in-store by improving the experience of the meat aisle, find out how here.
  • Continues to tap into seasonal events such as Easter and Christmas, which dominate lamb sales, while also justifying the higher price point of lamb through quality and taste messaging.
  • Innovates its lamb offerings to appeal to a wider range of occasions, such as BBQs or fake-aways, by offering convenient and tasty options.
  • Addresses health concerns by communicating the health benefits of lamb.
  • In the longer term, looks to maintain and build consumer trust, demonstrating where farming values (animal welfare, environmental stewardship and expertise) are shared with consumers. See our consumer reputation landscape hub for more information.

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