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Softening demand for sheepmeat in China and Europe should be prompting New Zealand to prioritise getting premium chilled lamb cuts in China, and to also look further afield to new Middle Eastern markets.
Softer overseas demand for New Zealand sheepmeat, particularly from China, had curtailed New Zealand sheepmeat producers' returns in recent months, Rabobank animal protein analyst, Matthew Costello said in his recent report on the New Zealand sheepmeat industry.
While China's imports had ''exploded on to the New Zealand sheepmeat export scene'' in 2013, to become New Zealand's largest sheepmeat trading partner, its own production had since grown to about eight times that of New Zealand.
''In 2014 China accounted for around 40% of our total shipments, on the back of growing per capita consumption and stagnant Chinese sheepmeat production in the seven years to 2013,'' Mr Costello said.
However, China has become the world's largest sheepmeat producer after ramping up its domestic production.
''This, combined with record imports from New Zealand and Australia, have created an oversupply in their market,'' Mr Costello said.
He said in examining the values of different sheepmeat products it was apparent the fall in lamb and mutton prices during the 2014-15 season was largely attributable to weaker Chinese demand for the forequarter cuts, which account for nearly 25% of returns from a carcass.
The European Union, and particularly the United Kingdom, remained a key destination for New Zealand's higher value sheepmeat exports, but ''sluggish consumer demand'' had also hit returns, he said.
Mr Costello said higher UK production, combined with ''stuttering economic growth'' and a stronger British pound compared to the euro, meant UK demand waned, particularly for lamb legs.
''This has had a considerable impact on farm gate returns in New Zealand as leg cuts account for around 32% of the returns generated from the animal,'' he said.
Mr Costello said despite the short term oversupply problem in China, there was growing demand for high quality, safe and traceable lamb and mutton, ensuring it would remain a key destination.
It should now be a priority for the Government and industry to gain access into China for premium chilled lamb.
That would allow the higher volume, lower value cuts to be complemented by higher valued product, destined for high end restaurant and food service channels, he said.
Mr Costello said while New Zealand producers would continue to benefit from the EU's long trade history, and Chinese market opportunities, it was imperative New Zealand industry continued to look for new market opportunities.
''With around three quarters of our exports destined for these two markets, it makes us vulnerable to market variables, particularly as both are large producers of sheepmeat in their own right,'' he said.
Further industry collaboration will be key in exploiting new opportunities and markets such as the Middle East have ''huge potential'' for New Zealand's sheepmeat sector.
Mr Costello has previewed the report's key findings during a series of farming events around the country, attended by more than 1000 farmers.