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Increased hogg carryover could boost retail market share for domestic product in 2022

In the latest market commentary from Quality Meat Scotland (QMS), it details that an increased carryover of hoggs could provide an opportunity for domestic production to boost its retail market share this Easter.

QMS Senior Economics Analyst, Iain Macdonald, says that lamb prices have started the year a little softer at Scottish marts. 

“In the week to January 12th, hogg prices have averaged 265p/kg, around 3.5% below the 275p/kg average through November and December.

“Although hoggs had spiked to a similar level in early January 2021, they averaged 255p/kg in the month as a whole, and prices are still running around 30% above their five-year average for January.”

Historically high farmgate price levels have been driven by tight supply, caused by reduced domestic production and imports.

“At UK level, Defra reports that sheepmeat production declined by another 10.5% in 2021, having fallen almost 4% in 2020,” says Mr Macdonald.  “Meanwhile, HMRC figures show that import volumes contracted by 16% in the January to October period, having fallen for seven straight calendar years.”

Although reduced exports will have offset some of the decline in total market supply, adjusting production for net trade suggests that overall supply could have fallen by 9% in 2021 and been around 14% below the five-year average. 

In addition to tight supply, firm demand has added to the upwards pressure on farmgate prices, with data from Kantar indicating that GB households spent nearly 3% more buying fresh lamb in the 52 weeks to Boxing Day than a year earlier, despite the stronger return to dining out through the summer and autumn of 2021 plus significant price inflation. Spending was also 12.5% higher than in 2019. Meanwhile, exports recovered as a share of production in the autumn.

While import volumes fell further in 2021, many shoppers will have noticed New Zealand lamb on the shelves, particularly in the run up to Christmas. 

“Looking at the pre-Christmas period, data from Kantar indicates that retail demand rebalances towards leg roasts and that import penetration increases, with retailers looking to meet higher demand for this cut.  It should be noted that if domestic production was to rise to meet this higher level of demand for leg roasts, processors could be left with a significant challenge of carcase balance,” says Mr Macdonald.

UK trade data shows that imports tend to rise seasonally in November and December from an annual low in October, at a time when new season supply is building in the Southern Hemisphere.  In the 2016-20 period, imports in December averaged around 26% of total market supply, slightly above the annual average of 25%.   While well above the annual lows of 16-17% between August and October, it was well below the pre-Easter high of 36-37% in March and April.

However, in 2021, despite rising ahead of Christmas, imports may have struggled to reach 20% of total market supply in December, having dropped as low as 11% of supply in October.

With a free trade agreement between the UK and New Zealand in the final stages, imports from NZ have been a prominent discussion topic over the past year. 

“In 2020, it is estimated that the volume of sheepmeat imported from NZ had fallen to only 38% of the post-EU quota level.  Based on an estimated 11% reduction in imports in carcase weight equivalent during the January to October period, the quota fill-rate may have fallen to as low as 34% in 2021.

“Moving into early 2022, history would suggest that imports may take up a slightly reduced share of the market in January and February, before picking up in March and peaking in April, with Easter falling in mid-April.  Although New Zealand is expected to produce 1% more export lambs this season, strong prices in China mean that there is unlikely to be a recovery in sales to the UK,” says Mr Macdonald.

Mr Macdonald concludes that with the UK lamb crop falling by 1.6% in June 2021, while lamb slaughter declined by 11.4% a year earlier between June and December 2021, an increased carryover of hoggs into 2022 could boost the market share of domestic product this spring.