High prices over the past decade and government subsidies for breeders are a key reason for oversupply, according to a statement from the China Animal Husbandry Association, a government body, which says numbers surged since 2010, particularly in poorer north-western provinces like Gansu, Inner Mongolia and Ningxia.
"The slaughter rate increased significantly, so by the second half of 2014 we were nearing oversupply," said an official at the Inner Mongolia Bureau, who also works on the organisation’s overseas liaison sheep committee. He says farmers new to the sheep sector have little knowledge of the cyclical nature of prices. "They have little confidence and slaughtered all their stock, further depressing prices," said the official, who did not wish to be named.
Low prices have been welcomed by Chinese processors. "We have cut our costs and improved our margins, it’s a good thing," explained Hu Yulin, chairman of Meng Tuo Meat Co, a processor supplying retailers with frozen kebab sticks and slices of lamb for hot-pot, which it distributes through local outlets of Walmart and Carrefour. The firm, based in Inner Mongolia, is now paying an average RMB40,000 per ton compared to between RMB48,000 and RMB50,000 in 2013, according to Hu. He says the firm will use its improved profitability to invest in expanding the range of processed products from its factories, which process 450,000 head of sheep per year.
The Animal Husbandry Association also blames a fall in high-end food and beverage consumption due to government anti-corruption drives, which has also had an impact. Meanwhile, comparatively low pork prices in 2014 and early 2015 prevented the emergence of lamb as a substitute, even during scandals surrounding pork meat, added the official.
Lamb and mutton prices may be subdued for some time, given the continued incentives for breeders: payments of RMB100 per head per year apply to flocks of at least 200 sheep with RMB50 per animal for flocks of 100 head and above in Inner Mongolia. Provinces such as Inner Mongolia have encouraged sheep numbers as a means of eliminating rural poverty, by providing subsidies to small-scale farmers to purchase ewes and rams.
Some Chinese farmers are blaming an influx of frozen supply (most of China’s lamb and mutton is still sold fresh) from Australia and Mongolia, where production costs are lower than in China for putting pressure on domestic lamb prices. However, in May, China’s imports of lamb from Australia, at 2,512 tons, were down 7.1% month-on-month and 34.8% year-on-year. Chinese imports of Australian mutton, meanwhile, fell 42.3% on April’s figure and 53.6% year-on-year.