Image source: Ariana Prestes on Unsplash
Sheep farmers in New Zealand are facing some of the toughest economic conditions in decades, and Beef + Lamb NZ’s (B+LNZ) September report for the 2024-2025 season offers little to be optimistic about. “Farm profitability in 2023-24 was worse than forecast and 2024-25 is looking just as challenging,” the report reads. A combination of weak global demand, especially from China, plummeting lamb and mutton prices, and persistently high input costs has put immense financial strain on farmers. The challenges are particularly acute for Southern farmers who rely heavily on sheep revenue and have been hit hardest by these economic pressures.
Farm profitability is forecast to decrease by 7.4%, with an average farm profit before tax of NZD 45,200. While cattle prices are expected to provide some relief, sheep prices remain weak, especially mutton, which is 46% below the five-year average.
New Zealand’s overall red meat production is expected to decline, with lamb and cattle processing down 7.2% and 3.3%, respectively. Drought conditions in New Zealand, coupled with fewer livestock, contribute to this decline.
Global demand is forecast to slightly improve for the 2024-25 season. Beef prices are expected to remain robust, particularly due to the low cattle herd in the United States and drought in North America. However, sheep prices, especially for lamb, are predicted to stay low due to continued sluggish demand from China. Europe and North America will remain key markets for both beef and lamb.
Read the full B+LNZ report here.
The Chinese market has traditionally been a key destination for New Zealand’s mutton and lamb exports, but economic stagnation in China has led to reduced demand. Australian meat exports have also flooded global markets, outcompeting New Zealand exports in key markets such as China. While demand from Europe and the U.S. has remained relatively strong, it has not been enough to offset the slump in Chinese demand.
The earlier March B+LNZ report, adjusting its forecast for lamb and mutton prices in response to these global dynamics, forecast the average price for lamb to fall to $125 per head, 12% lower than last season and 13% below the five-year average. Mutton prices were forecast to drop to $63 per head – 34% decline from last year and 49% below the five-year average.
The financial woes of New Zealand sheep farmers are further compounded by rising on-farm costs. Farm input costs, driven by inflation and rising interest rates, have climbed by 20% over the past two years, squeezing already thin profit margins.. Farmers have worked hard to cut costs, but certain expenses, particularly insurance and rates, remain stubbornly high. Wairarapa sheep farmer Roger Barton highlighted earlier this year the burden of increased local government rates, which in his region were set to rise by 15.3%. Many farmers are also facing skyrocketing insurance bills; Barton has seen his premiums quadruple over the past eight years.
Interest rates have emerged as another major issue for farmers, with no clear sign of relief on the horizon. While there is speculation that interest rates may fall in the coming seasons, the uncertainty around when and how much rates will drop has left many farmers struggling to manage their debt.
South Island sheep farmers, particularly those in High Country, Hard Hill Country, and South Island Hill Country, have been hit hardest by the economic downturn. In Otago and Southland, where the profitability outlook is the bleakest, many farmers are struggling to break even, let alone make a profit. Sam McIvor, B+LNZ chief executive, said in March, “Input costs remain stubbornly high, we know farmers are feeling it, many have already worked hard on cutting costs and my conversations indicate they’re leaving no stone unturned to find additional savings. This is especially true for farmers with relatively high debt levels.”
Cyclone Gabrielle and ongoing wet weather on the East Coast have further exacerbated the challenges for farmers in these regions. The cyclone, along with El Niño’s predicted drought conditions, is contributing to a bleak outlook for many sheep farmers across the country.
With profits plummeting and costs continuing to rise, many sheep farmers are exploring new ways to increase revenue or reduce expenses. Some farmers have looked into alternative income sources, such as wool production. However, wool prices have collapsed in recent decades, with shearing now often a net cost for farmers. Otago farmer David Botting explains, “The wool industry is in dire straits. In the late 1980s, we were getting $7 a kilo … today we’re lucky to get $2 a kilo.”
Some farmers are experimenting with selling value-added products or shifting to other livestock, such as cattle, which currently has more stable market demand. Beef prices, driven by strong demand from the U.S., have remained relatively resilient, providing some relief for those able to diversify their operations. However, for many, diversification into beef is just simply unfeasible.
What’s Next?
Despite the current hardships, there are signs of optimism for the longer term. Global demand for red meat, particularly in Europe and North America, remains strong, and the fundamentals of New Zealand’s grass-fed, hormone-free, and environmentally sustainable meat products are expected to support future growth in demand.
In the short term, however, many sheep farmers will need to continue tightening their belts. B+LNZ and other agricultural organisations are offering resources and workshops to help farmers manage their businesses more efficiently during this tough period. Farmers are being encouraged to work closely with accountants and banks to manage cash flow while looking for ways to increase efficiency and cut unnecessary costs.
Ultimately, while the 2023-24 season has been one of the most challenging in recent memory for New Zealand’s sheep farmers, the sector has weathered tough times before. Federated Farmers’ confidence survey earlier this year found that there has been an improvement in rural mood since last year when confidence reached its lowest point in 15 years. However, Federated Farmers president stressed that the improvement is slight, saying, “I wouldn’t say farmers are feeling more confident yet, they’re just feeling less unconfident.”
