IMPLICATIONS FOR AUSTRALIAN EXPORTERS

Australian exporters will benefit from growing demand for sheep meat. Australia is the world’s largest sheep meat exporter. The country has strong trading relationships with high-consumption growth markets.

Recent free trade agreements (FTAs) with the UK and India have improved Australia’s export opportunities. Australia is also seeking improved access to the European Union (EU) through the Australia-EU FTA. This FTA is under negotiation.

FIGURE 2 : TOP THREE GLOBAL SHEEP MEAT EXPORTERS (2021)

OUTLOOK FOR GLOBAL SHEEP MEAT TRADE

Between 2019 and 2021, sheep meat accounted for 1.5% of the 120.8 MT of global meat consumption. China and the US are the largest consumers of sheep meat. Australia exported an average of US$3.2 billion of sheep meat each year, accounting for 37% of global exports. New Zealand (US$2.9 billion, 33% of world total) and the UK (US$0.6 billion, 7% of world total) are the other major sheep meat exporters.

The OECD-FAO expects sheep meat consumption to increase by 15% over the next decade to 18.1 MT, up from 15.9 MT in 2021. Countries in Africa are driving consumption growth, where domestic production will meet most of the demand. Consumption is also increasing in Asia and North America, where imports will be more important.

Australia is expected to meet a large share of the growing global demand for sheep meat. The OECD-FAO predicts Australian sheep meat production will increase 19% by 2031 to 806,000 t. This is up from 692,400 t in 2021.

SHEEP MEAT TO BENEFIT FROM GLOBAL INCREASE IN MEAT CONSUMPTION

As countries get wealthier, meat consumption tends to increase. Wealthy consumers in Asia are the main drivers behind increased global meat consumption. The OECD-FAO expects sheep meat consumption in China (+13%) and Malaysia (+11%) to rise over the next decade. China and Malaysia are important markets for Australian mutton exports (sheep older than one year). Mutton is usually less expensive than lamb, which makes it attractive to less wealthy consumers.

SHEEP MEAT CONSUMPTION TO RISE IN DEVELOPED COUNTRIES

Once GDP per person reaches approximately US$40,000, meat consumption tends to plateau. However, sheep meat remains relatively unfamiliar to many global consumers. As familiarity increases, sheep meat has the potential to take a larger share of meat consumption in wealthy countries, even if overall meat consumption remains stable.

Wealthy countries, such as the US, are more likely to prefer lamb. The value of Australian lamb exports to the US increased by 56% to A$1.16 billion in 2021–22, relative to the 2018–19 to 2020–21 average.

PRICES FOR SHEEP MEAT TO RISE QUICKER THAN OTHER MEATS

The OECD-FAO has forecast a 48% increase in producer price for Australian sheep meat over the next decade. The producer price represents the amount farmers receive when sheep leave the farm, excluding transport and processing costs. In comparison, the producer price for beef is expected to be relatively flat.

Increased producer prices are partly explained by an expected increase in the proportion of lamb, rather than mutton, in Australia’s sheep meat production mix. According to data from Meat and Livestock Australia, in 2021–22 the saleyard price of lamb was 36% higher per kilogram than older sheep. This means that as the proportion of lamb increases, the average price received by the producer also increases.

AUSTRALIAN EXPORTS TO BENEFIT FROM REDUCED TARIFFS

Recent FTAs with the UK and India include improved import conditions for Australian sheep meat.

On entry into force, the Australia-UK FTA will almost triple the amount of Australian sheep meat that can be exported to the UK tariff-free.

Under an existing World Trade Organization (WTO) quota, Australia has tariff-free access for over 13,000 t of sheep meat exports to the UK. Once this limit is reached, tariffs increase to 12% + A$2.50 per kilogram. As of 31 October 2022, Australia has shipped 96% of the current sheep meat quota.

Once the Australia-UK FTA enters into force, Australia can export an additional 25,000 t of sheep meat to the UK. This is on top of the existing WTO quota before tariffs are imposed. Australia’s quota will increase each year before reaching 75,000 t by year 10 (total 88,000 t, including the WTO quota).

Under the Australia-India Economic Cooperation and Trade Agreement, the tariff on Australian sheep meat exports to India will drop from 30% to zero.

Australia is also seeking improved access for sheep meat as part of the Australia-EU FTA negotiations. As of 31 October, Australia has shipped 94% of the current sheepmeat quota (5,900 t) to the EU.

FIGURE 3 : AUSTRALIAN SHEEP MEAT EXPORTS BY COUNTRY (2017-2018 TO 2021-2022)

Earlier trade agreements with the US and China, Australia’s 2 major sheep meat markets (Figure 3), also continue to provide benefits.

Australian sheep meat has tariff-free access to the US under the Australia-United States Free Trade Agreement. In 2021–22, Australian exported A$1.2 billion of sheep meat to the US.

Tariffs on Australian sheep meat exports to China are steadily declining under the China-Australia Free Trade Agreement. Since entry into force in December 2015, tariffs on Australian sheep meat have fallen from as high as 23% to between 1.3% and 2.6%. In 2023, the rate reduces to zero. In 2021–22, Australia exported A$1.1 billion of sheep meat to China.

POTENTIAL DISRUPTIONS TO FUTURE SHEEP MEAT DEMAND

Demand for sheep meat could be affected by reduced economic growth, particularly in countries that are large sheep meat consumers, such as the US and China (Source: ABARES 2022). Slowing economic growth will reduce consumer incomes, which could lead to reduced meat consumption, or slower meat consumption growth.

Sheep meat production is concentrated in Australia and New Zealand. Two factors will have a substantial impact on global sheep meat supplies:

• Maintenance of favorable biosecurity conditions in both countries.
• The ability of farmers to adapt to changing weather patterns.

BACKGROUND ON OECD-FAO AGRICULTURAL OUTLOOK

Each year, the Organisation for Economic Co-operation and Development (OECD) and Food and Agriculture Organisation (FAO) publishes the AGRICULTURAL OUTLOOK. The outlook assesses world food supply and demand expectations. It highlights the economic and social trends driving global agricultural commodity markets.

Cambodia’s exports to the US were mostly garments and included goods such as footwear, bicycles and furniture. The Kingdom imports include automobiles, machinery, electrical appliances and electronics.

The Kingdom imported $250.7 million worth of goods from the US during the period, a year-on-year decrease of 2.5 percent, read the report.

According to the GDCE, Cambodia exported $17. 2 billion in the three quarter period, a 22.1 percent increase over the same period last year.

The agreement will boost exports, increase gross domestic product, raise employment opportunities and help speed up the recovery of the two economies affected by Covid-19. The countries can expand trade liberalisation markets in addition to the ASEAN-Korea Free Trade Agreement (AKFTA) and the Regional Comprehensive Economic Partnership Agreement (RCEP).

Vice President of the Cambodia Chamber of Commerce Lim Heng said on Wednesday that the close relationship of two governments and economic ties had built confidence in investors from South Korea to Cambodia, which helped increase the bilateral trade.

The CKFTA will be another factor to attract more Korean investors to the Kingdom, Heng said.

“Korea and Cambodia just signed the bilateral FTA, reflecting the positive progress of mutual trade between the two countries,” Heng said.

“Presently, the pact has not yet been put into force, but we have seen the growth of bilateral trade. So, once it is in force, it will attract more investment to Cambodia from South Korea,” Heng said.

Cambodia mainly exported footwear and other apparel, travel products, beverages, electrical and electronic components, rubber, pharmaceuticals and agricultural products to South Korea.

Bilateral trade between Cambodia and South Korea reached $965.132 million last year, a nine per cent surge from $885.3 million in 2020.

In 2021, Cambodian exports to South Korea amounted to $341.503 million, up by 7.353 per cent year-on-year from $318.112 million, while imports clocked in at $623.628 million, rising by 9.947 per cent from $567.210 million in 2020.

It did not give a specific target for trade, which fell in 2015, only aiming for “a steady rise in import and export volumes” and “a basic balance in international payments”.

It also pledged “further reductions in the release of major pollutants”.

“In setting a projected growth rate of between 6.5% and 7% we have taken into consideration the need to finish building a moderately prosperous society in all respects and the need to advance structural reform,” said the speech text, distributed to journalists at the Great Hall of the People in Beijing.

“It will also help guide market expectations and keep them stable.”

Li’s speech pledged that authorities would make much-needed cuts to overcapacity in the steel, coal, and “other industries facing difficulties”.

The country’s leaders have sought to reassure jittery global markets in recent weeks with a unified message that authorities still have monetary and fiscal policy tools in their arsenal to keep the economy from further slowdown.

The text of the speech projected a government deficit for 2016 of 2.18 trillion yuan, reaching a deficit-to-GDP ratio of 3%, which would be the highest since the founding of the People’s Republic in 1949.

A budget report given to parliament after Li’s speech showed China will raise its defence spending by 7.6%, a smaller increase than past years as it seeks a more efficient military.

It was the “lowest defence budget increase in six years”, adding it came “in the wake of rising economic headwinds and last year’s massive draw-down of service people”.