Lamb market outlook
- The 2022 lamb crop is forecast higher following growth in the breeding stock.
- Total sheep meat production is forecast to rebound from last year’s low levels, returning to 2020 levels.
- Exports expected to grow 20% compared to 2021 while the recent increase in imports is expected to slow
- Domestic demand is expected to drop in 2022 as consumers face pressure on personal finances
Current market situation
Production and trade figures for the first half of 2022 compare favourably to 2021. This is mostly due to the impact of Brexit on performance in the first half of 2021. Prices have remained at record high levels so far this year, although they have dipped slightly in July from their earlier peak, as supplies remain tight and demand strong at a global level.
The continued inflation in input costs is starting to eat into profitability, and farmers are finding ways to save on expenditure. One of the main impacts of this is that some farms will have reduced fertiliser application rates, with others not using any at all. The recent dry weather has not helped, and grazing has been reduced on many farms due to limited grass growth. Some report that this has led to farmers feeding forage to supplement grazing, choosing not to pay for concentrated feed. This may lead to lower slaughter weights if producers choose to send lambs in earlier to save on purchased feeds.
UK production in 2022
The size of the breeding flock for the 2022 lamb crop increased by 3% to 14.5 million head, according to Defra’s December survey. This was a relatively large increase compared to historic growth, and slightly more than forecast earlier in the year, but in line with expectations. Strong prices, optimism in the industry and a firm global market through 2021 support the recovery in the size of the breeding flock.
Based on long-term lamb survival rates, the 2022 UK lamb crop is now forecast to reach 17.9 million head, including new season lambs killed during H1. This is a small increase on the 17.5 million head forecast at the beginning of the year, lifted by the larger than expected size of the breeding flock.
Defra’s slaughter statistics show 5.6 million lambs have been killed in the first 6 months of the year, in line with our January forecast and 8% more than the same time last year. While this appears to be a large increase, it is believed that the reported slaughter figures for 2021 are lower than actual slaughter numbers. For the remainder of 2022 (Jul-Dec), we forecast 7.3 million lambs to be available for kill. While this appears to be 770,000 head more than in H2 2021, it is believed that the recorded slaughter statistics for Jul-Dec 2021 were 600,000 below actual slaughter, suggesting an actual increase of 110,000 head, equating to an uplift of 2%.
Ewe kill during the first six months of the year totalled 580,000 head, up 60,000 head from the first half of 2022. Recorded ewe kill has been exceptionally low for the past 18 months, and it is thought actual kill has been higher than figures published by Defra. In line with our January forecast, adult kill in H2 is forecast to reach 690,000 head. This equates to a typical kill pattern of 46% in the first half of the year, and 54% in the second half. Full year ewe kill for 2022 is therefore expected to be 1.27 million head. With high, and rising, input costs and historically high pricing, we may see higher ewe kill numbers as farmers adapt culling policies ahead of winter.
UK production in 2023 and 2024
Looking further ahead, supply trends look to remain relatively flat, with a predicted 1% year on year growth. The largest risk factor to continued longer term growth will be the impact of government policy on stocking density and therefore production volumes. BPS payments will be phased out by 2024, and it is not yet clear what the level of uptake of new environmental schemes will be. However, under current proposals, it is unlikely they will promote further growth.
UK sheep meat trade
Export trade in H1 2021 was significantly lower than normal levels due to the ending of the Brexit transition period, combined with disruption to shipping caused by Covid-19. So far this year (Jan-May), UK exports of sheep meat were up 22% year on year. Demand in the key markets of the EU, Asia and the US is forecast to remain firm, providing continued export opportunities. With exports closely linked to production, we expect this trend to carry on for the rest of the year.
Imports for the first five months of 2022 were up by a similar amount (25%). With high prices persisting, and UK consumers looking to economise, we would expect this growth to ease through the remainder of the year. We forecast lower imports through the second half of 2022, at similar levels to 2021.
Although most of the trade friction caused by Brexit has now been overcome, shipping disruption, including delays and higher freight prices, is likely to remain in the short to medium term. Many major ports (air and sea) are struggling with staffing issues and China’s ‘zero covid’ policy has caused full and partial closures. The war in Ukraine has exacerbated fuel price inflation, which will also impact on shipping costs. Looking forwards, price competitiveness, available supply, and consumer demand will continue to be the main drivers for trade.
Asia remains a key market for New Zealand and Australia, despite volumes to China starting to dip, as higher freight prices make markets closer to home retain their appeal. New Zealand’s price competitiveness on the global market has the potential to improve due to rising animal feed costs and a high proportion of their production being grass-fed.
The Australia - UK free trade deal is set to come into force in the autumn. According to AHDB analysis, this could lead to a large increase of Australian lamb into the UK in percentage terms, although from a relatively low base level. While we may see higher lamb volumes arrive from Australia, these are more likely to replace volumes from elsewhere than increase total UK imports.
Overview of price movements
Prices for clean sheep eased in the first half of 2022 compared to 2021 on the back of improved supplies. However, they remained significantly above the 5-year average. Cull ewe pricing has remained above 2021 levels. Tightness in supplies in the EU, our key export market, should continue to keep prices firm. However, high input costs are likely to have an effect on profitability, despite the higher farmgate prices, and any significant reduction in total demand (domestic and export) may put pressure on prices going forward.
Lamb consumption trends
During 2022 consumers have faced significant economic challenges, with the cost-of-living crisis being forefront for many. High food price inflation in both retail and foodservice has resulted in market volumes suffering as inflationary behaviours kick in.
The meat sector has been particularly impacted, being a higher priced food category, with 35% of people who ate less red meat in the past month claiming expense as the reason for cutting back compared to only 16% last year, overtaking environment as a reason, and now on par with health (AHDB/YouGov Tracker, May 2022). Lamb faces further pressures in this area as one of the higher priced proteins available for consumers. Lamb’s average retail price rose 6% year-on-year and while the rate of price growth is slightly lower than chicken (+7%) in actual monetary terms it does reflect the largest increase in price per kilo for consumers across the meat, fish and poultry category. The price of lamb also rose significantly from 2020 to 2021 whereas chicken only rose marginally.
Over the past 12 months retail volumes of lamb have declined 17% year-on-year and are currently 12% below where they stood pre-pandemic (Kantar 52 w/e 12 June 2022 vs 3 years ago). Retail sales of lamb have struggled across all cuts over the past year with roasting joints seeing the largest decline. There were pockets of growth with lamb roasting joints at Christmas 2021 in growth versus 2020 and 2019. However, this did not apply to all seasonal events and Easter 2022 saw inflationary pressure impact sales. Lamb roasting saw the biggest increase in price and the fastest volume losses on this occasion. The performance of roasting joints is critical to the category and lamb roasts remain the most popular lamb dish at special occasions and when treating, providing important opportunities around treating, special events and across seasonal and religious celebrations. For full details see our lamb retail dashboard.
The out-of-home (OOH) channel has performed well. Meat-centred meals, such as roasts and shepherd’s pie, are the most popular lamb dishes when eating out (excluding takeaways), followed by kebabs and Indian dishes. Takeaways have been in growth over the past 3 years, gaining a larger share of lamb consumption from 7% share of total lamb volumes in 2019 to 11% in 2021. Kebabs dominate lamb takeaways with high importance to that segment. AHDB estimates show that takeaway growth has made up for eating-out losses and overall out-of-home volumes are up 7% year-on-year and up 9% on 2019 levels. For full details see our lamb foodservice dashboard.
Consumer spending ability is going to dictate behaviour going forward. This will not only impact retail but will also slow down the foodservice recovery as 36% claim they are planning on eating out less, with money saving being the top reason for this (AHDB/YouGov Tracker, May 2022). In the last recession, the main way shoppers saved money in retail was by switching to cheaper products. Lamb will face pressure as a higher priced protein amid the continued cost of living crisis for consumers.
This is compounded by other longer-term consumer behaviour changes that were impacting lamb prior to the pandemic. These include consumers’ moving away from traditional roast dinners to more dish-based cuisines, and challenges in appealing to the younger generation. These were discussed in more detail in AHDB’s Horizon report that explored opportunities for the sheep sector.
Considering those longer-term trends pre-pandemic, we expect volumes of lamb will continue to decline through retail. Consumer concerns around health and the environment, as well as practical factors like price and convenience, have all impacted purchases of lamb. In the next year, as news coverage of the pandemic is not dominant, media noise around the reputation of the farming industry may begin to increase. For these reasons, in retail, we expect lamb volumes in 2022 to be significantly lower than pre-pandemic. Performance around key seasonal events is critical - for instance strong communication for lamb at Christmas around treating, quality and taste messaging.
While eating-out levels are predicted to be higher in 2022 compared to last year, they still remain behind pre-pandemic levels. We also predict that takeaways will ease back during 2022 but will still compensate for eating-out losses.
As a result, with eating-out not returning to pre-COVID levels and retail sales of lamb coming under increased pressure, overall lamb volumes for 2022 are expected to be down -18% versus 2021 and down -16% versus 2019.
The lamb outlook might be mitigated, if the industry:
- Encourages consumers to treat 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. Promotional tie up opportunities across categories during the year or around seasonal supply of British spring lamb may ease the reliance around the big events.
- Innovates its lamb offerings to appeal to a wider range of occasions, such as BBQs or fake-aways, by offering convenient and tasty options. Transitioning lamb to more world cuisines and flavours could reinvigorate the protein and increase menu space and demand. Communicating on taste, indulgence and quality will continue to be important as well.
- 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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