The Situation and Outlook for Sheep 2002/03

Sheepmeat Market

The EU have predicted a 3% rise in total EU sheepmeat production in 2002. This would be an increase of 31,000 tonnes to bring the total for 2002 to 1.1 million tonnes. EU consumption is forecast to increase by over 3% to 1.35 million tonnes. The main contributor to this increase is the UK where production in 2002 is likely to be 13% up on 2001 levels as sheep numbers increase following the Foot and Mouth Disease outbreak. However UK sheepmeat production in 2002 is still forecast to be 20% lower than the pre-FMD level of 2000. Irish production is forecast to decline by 16% in 2002 following high disposals in 2001 and a lower lamb crop in 2002 as breeding flock is still on the decline. France, Italy and Germany also forecast small decreases in sheepmeat production. On the demand side French consumption is forecast to increase by 13% in 2002 and this combined with lower production results in buoyant demand from France. This increased French import requirement will probably be supplied by the UK and New Zealand. UK exports to France in 2002 are likely to be double those of 2001 but still one third lower than their pre-FMD levels. New Zealand is expected to fill its 226,700 tonne EU quota, having supplied 87% of the quota in the first 9 months of 2002. The UK remains the main destination for New Zealand sheepmeat accounting for 41% in the first nine months. New Zealand exports to France also increased in 2002 and this was mainly in the chilled form.

Sheepmeat Prices

In the year to early November 2002 Irish lamb prices had declined by 11% from the extremely high prices of 2001. However if the first quarter of 2002 is excluded as applicable mainly to lambs carried over from 2001, then the price received for lambs born in 2002 declined by 18%. Lamb supplies to November 2002 have declined by 22% on the comparable period for 2001. However 2001 was an exceptional year with very high disposals resulting in a lower carryover to the spring of 2002.

Sheep and Flock Numbers

Source: Department of Agriculture and Food; ¹Estimate

Flock numbers declined by 2,467 in 2002 with ewe numbers also down by 366,000 head compared to 2001 (Table 3.1). This is the eight year in which ewe and flock numbers have fallen since the McSharry Reform of the CAP in 1992. There are now 16,885 fewer sheep farmers and 1.5 million less breeding ewes than in 1993. A number of reasons can be put forward for this huge exodus from the Irish sheep sector but the predominant reasons are the decline in profitability relative to cattle and cereal enterprises due to changes in CAP and secondly the problems, either perceived or real, with higher labour requirements in sheep production.

The outlook for 2003 is that ewe numbers will continue to decline and could reach 2001 level as sale of cull ewes to November 2002 was only 5% under the levels of 2001 and 290,000 head.

Direct Payments

The annual sheep premium is shown in Table 3.2 from 1999 to 2002. Following on a review of EU sheep policy in 2000 and 2001, the link between EU lamb price and the support premium was removed and a fixed ewe premium introduced instead. The ewe premium was introduced at €21 per ewe with €1.20 extra to be paid from the National Envelope in 2002. In addition the Rural World Premium of €7 per ewe is to be paid in Disadvantaged Areas.

Source: Department of Agriculture and Food

The extra revenue arising from the ewe premium in 2002 was €11.91 per ewe plus an additional €1.20 from the National Envelope giving a total increase of €13.21 per ewe. In disadvantaged areas farmers received an additional €0.36 per ewe to the Rural World Scheme in 2002.

Sheep Margins

Gross margin data for the main sheep systems are shown in Table 3.3 based on Teagasc National Farm Survey data. Actual margins are presented in 2000 and 2001 with an estimate for 2002 and a forecast for 2003. The lowland systems are based on data from sheep flocks on the better soils with a wide use range.

Source: Teagasc National Farm Survey
¹Estimate, ²Forecast

The increase of €12 per ewe in the ewe premium compensated for the reduced return from the market place. However margins for the lowland systems declined in 2002 due to fall in prices of 14% and 18% for early lamb and mid-season lamb respectively. Costs of production also increased as higher levels of concentrate were fed due to high rainfall and reduced productivity from grass in late spring and the early summer period. The number of farmers involved in early lamb production has been on the decline over the last decade as it is an intensive, high labour system, which necessitates high prices for lamb to compensate producers. The difference in lamb prices for the early market and the mid-season market has tightened over the years and also the higher prices are available for a shorter period. Farmers have reacted by changing to mid-season production. The outlook for 2003 is a further decline in margins, as it is likely that supply of UK lamb on export markets will be higher.

The predominant system of lowland sheep production is mid-season lamb and the trend in profitability of this system is shown in Table 3.4

Source: Teagasc National Farm Survey
¹Estimate, ²Forecast

The 2001 year was one of the best years recorded for sheep producers with a margin of €89 per ewe. It should also be pointed out that headage payments on ewes are not included in this gross margin for the first time since introduced in the 1970s, as headage was paid on an area basis in 2001 and therefore no longer forms part of enterprise output. It is now recorded as an overall farm subsidy and treated the same as REPS payments. This change in allocation of subsidy has a more serious reducing effect on the gross margins of the Blackface Mountain system where headage was paid on all ewes up to a maximum of 200 at the rate of €12.70 per ewe in the 1990s. This is one of the main reasons for the decline in gross margin per ewe for the Blackface Mountain System from €38 in 2000 to €24 in 2002. It should be emphasised that hill sheep farmers still get headage payments paid under the Disadvantaged Area Compensatory Allowance Scheme. This subsidy will no longer form part of gross margin but rather will be included in net farm income.

The French proposal on removal of the spinal-cord from all carcasses over 6 months has been put back on the agenda and if this is enforced in 2003, it will have a negative effect on lamb prices. The forecast for 2003 is that the gross margin for mid-season lambs will drop by €4 per ewe due to increased pressure on lamb prices.

The trend in output, costs and gross margins per ha for the main lowland system is shown in Table 3.5.

Source: National Farm Survey; ¹Estimate; ²Forecast

The actual gross margin per ha increased from €590 per ha to €855 per ha from 2000 to 2001 an increase of 45 per cent. Overhead costs per ha were also estimated for this system and the resulting net margin was €467 per ha in 2001 compared to €302 in 2000. As already stated headage payments are no longer included in the gross margins arising from sheep but are included as overall farm subsidies. Following the review of sheep policy in 2000/01 and the introduction of the fixed ewe premium it is unlikely that there will be further changes to policy until the mid-term review has been completed.