Mecardo Analysis - Live sheep export phase out and its impact upon the East (Part 2)

By: "Farm Tender" News
Ag Tech News
May 08, 2019
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By Matt Dalgleish | Source: MLA, ABS, DAWR, BOM, IMF, Mecardo.

This article is bought to you by Loadshift.

Last week we demonstrated that the live sheep export trade underpinned sheep prices in West Australia, without which, the prices would be significantly discounted to the east. However, we also showed that when the price differential between the west and east coast was wide enough, sheep started getting shipped across the Nullarbor. This analysis models the impact on east coast mutton prices should large sheep numbers arrive from the west if the trade is phased out.

Click here to read part one of this analysis.

The bulk of sheep exported live from WA are Merino wethers. Assuming a closure of the live export trade and significant discounting of west coast sheep prices compared to the eastern markets, WA Merino wethers would be encouraged to ship across to the east.

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The modelling in Figure 1 shows the impact of a worst-case scenario whereby all the annual flow of WA live export sheep is transported to eastern markets for slaughter. This scenario would result in around a 10% decline in east coast mutton prices over the next few years.

Clearly, the likelihood of all the WA live export sheep making their way to the east is unrealistic. However, the modelling indicates that for every 100,000 head of sheep transported from west to east there would be a 3¢ reduction on east coast mutton prices.

Supporters of a ban on live sheep exports often claim that expanded offshore markets for boxed product could be used to offset the impact of increased domestic slaughter which a phase-out of the live trade would bring.

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The Mecardo mutton price modelling was able to incorporate a transitional increase in offshore demand for Australian chilled and frozen mutton. This shows that the impact of a phase-out on the east coast (even accounting for a worst-case scenario impact) could be significantly lessened by expanding offshore markets (Figure 2).

2019-05-07 Sheep 1

Key points

* For every 100,000 head of sheep transported from west to east for slaughter, modeling shows that mutton prices in the east decline by 3¢/kg cwt.

* Increased offshore demand for mutton could offset the mutton price decline in the east caused by an influx of Western Australian sheep.

* The impact of a ban on the live sheep trade in the east appears limited, but it would be a disaster for western producers, the live sheep export supply chain and regional communities in Western Australia.

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What does this mean?

The mutton price table in Figure 3 outlines the impact on east coast mutton prices assuming a worst-case scenario of increased slaughter due to an annual influx of WA sheep while the market adjusts to a phase-out. A scenario of both increased slaughter and expanding offshore demand is also included.

2019-05-07 Sheep 3

While the impact on the east coast mutton market appears minimal, unless large numbers of sheep cross the Nullarbor, previous modelling undertaken by Mecardo on the impact of a phase-out of the live trade on WA demonstrated that producers there would face an 18-35% decline in saleyard prices.

Furthermore, the closure of the live sheep industry would also have a significant impact upon supply chain participants in WA, such as transport operators, fodder suppliers, vets, livestock agents, livestock exporters and other members of the regional communities that rely on the trade.

www.mecardo.com.au