The substantial lift in 2011 farm gate prices gave the country's sheepmeat producers a level of buoyancy not seen for nearly a decade and that was likely to continue into the coming year, Rabobank's recent Global Focus report, "New Zealand sheepmeat - how long will the fairytale last?" said.
As the "fairytale" 2010-11 season drew to a close, the future continued to look bright, the report's author, Rabobank analyst Rebecca Redmond, said.
"Even at higher prices, overall demand for New Zealand sheepmeat has been holding steady in developed markets.
"Although some consumers are struggling to pay the higher prices, there are those that continue to enjoy lamb and the lift in revenue is balancing the fall in consumption," Ms Redmond said.
Rabobank expected demand to soften slightly in developed markets with only limited increases in price. However, that neutral outlook was balanced by emerging market demand, such as China, which was expected to rise with income growth and the modernisation of supply chains, she said.
Increasing affluence in China was leading to an increase in demand for meat. Coupled with declining domestic production there, imports had been rising in volume and value.
"In 2010, a Chinese consumer in the top 20% of the income bracket consumed 1.5kg of sheep meat per year, while a consumer in the bottom 20% of the income bracket consumed 1kg of sheep meat, on average."
A decade of shortening of supply from key sheepmeat exporters including New Zealand, Australia and the United Kingdom, and a decline in China's domestic flock reflected the changing dynamic around sheepmeat production.
"This limited supply is a key driver of the high prices. The reason these pressures haven't always been apparent to New Zealand producers through farm gate price increases has been due to the lifts in production volumes during extended periods of drought, such as in Australia, and changes in land use increasing production from the reduction in capital stock across the globe," Ms Redmond said.
Production recovery from New Zealand was likely to remain limited for the next few seasons because of higher-than-average mutton slaughter in 2011, lower lamb numbers in 2010-11 and some ewe losses after the September 2010 storms.
