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China’s decline-hit mutton market shows signs of recovery

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Oscar Rousseau

By Oscar Rousseau+

17-May-2017
Last updated on 18-May-2017 at 14:48 GMT2017-05-18T14:48:44Z

An end to uncertainty in China could be a key benefit for Australia and New Zealand
An end to uncertainty in China could be a key benefit for Australia and New Zealand

After a price collapse three years ago led to bankruptcy and protest, China’s mutton market is now starting to stabilise, according to an independent analyst. 

China is one of the world’s largest sheepmeat importers, supplied primarily by New Zealand and Australia. In 2014, the price of Chinese mutton collapsed due to a combination of factors, including oversupply and disease, leading to years of price decline.

But the dramatic falls of yesteryear could be changing, according to Zi Yang, an independent analyst on Chinese affairs.

In his report on the Chinese mutton market , sent exclusively to GlobalMeatNews, Yang, who studied at US-based Georgetown University, said the industry was rebalancing after “three years of continuous decline”.

Revenue gains

The market may not experience the price boom that China’s mutton market saw between 2012 and 2014 – the boom years before the fall. But a stabilisation in mutton prices symbolises what Yang said could be the “start of a new, steady growth phase”.

This would be significant for Australia and New Zealand, both of whom made millions of dollars in revenue by exporting mutton to China. In 2015, New Zealand supplied around 68% of China’s mutton imports, according to the Observatory of Economic Complexity (OEC). Australia supplied around 30% of the mutton that year too, according to OEC data referenced by Yang.

Stability in this key market would be welcome for the two countries, after several years of price volatility. In 2013, Yang explained that the price for a live market sheep in Inner Mongolia, an autonomous Chinese region, was around $169. In 2016, the price was nearly 60% lower at $69.

Protests

With a low price, farmers who had historically built up their sheep herds, were now losing money. But it was a complex combination of factors that created what Yang dubbed the “Chinese mutton collapse”.

Its origin can be traced back to 2010 when the Chinese government introduced a state subsidiary scheme to encourage large-scale sheep farming, leading to a boom in productivity.

An outbreak of the viral disease peste des petits ruminants in 2014 put upward pressure on price . But when mutton returned to the Chinese market in large volumes towards the end of the year, prices fell again.

Yang said this led to a three-year decline, which saw Chinese farmers cull their ewes to mitigate for falling prices. Times were so hard that some left the business entirely. There was bankruptcy and even protests outside state-owned slaughterhouses, which were reportedly paying below-market prices for sheep.

But this period of “depression” in China’s mutton market could be over and may be replaced with “resurgence” and stable growth , according to Yang. It may be the end of market uncertainty , which may have a big positive outcome for Australia and New Zealand.

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