Mecardo Analysis - WA farmers lose and animal welfare standards drop

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By Matt Dalgleish | Source: MLA, Mecardo

Key points

· The live export sheep moratorium was extended from September 1st to September 22nd in early August.

· The extension of the moratorium coincided with a sharp drop in WA trade lamb prices during August, particularly when compared to east coast price movements.

· WA Mutton also displays a significant widening of discounts to east coast markets during the moratorium period.

The live sheep export moratorium during the northern hemisphere summer is nearing an end for the 2019 season. Although an extension to the period of the ban announced by the Department of Agriculture in August 2019 saw prices react unfavourably in WA markets. This analysis looks at the impact of the ban on prices in WA, compared to the east coast for trade lamb and mutton over the last few seasons.

The live sheep moratorium was originally scheduled to run from June 1st to September 1st. However, in early August the Department of Agriculture extended the hiatus in the trade until September 22nd. The fortnight that followed the announcement to extend the ban a further three weeks saw WA trade lamb prices tumble from 840¢ to 662¢/kg cwt.

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Whilst prices for trade lamb in the east eased over the same period, the magnitude of the fall was far less. Indeed, the Eastern States Trade Lamb Indicator (ESTLI) dropped 4.6% compared to the 21.2% decline in the Western Australian Trade Lamb Indicator (WATLI), to see the spread between the two to widen from a 29¢ discount to a 167¢ discount – Figure 1. A similar dramatic widening of the discount occurred between east coast and west coast trade lamb markets during the live sheep trade suspension last season.

Trade lamb markets in WA weren't the only categories to feel the impact of the trade suspension. A comparison of price spreads between WA Mutton and the ESTLI during the 2016 and 2017 season (when the live sheep trade was operating throughout the year) shows that spreads generally remained within the 100-300¢ discount region – Figure 2.

In contrast, the last two seasons when the live sheep trade suspension has been in place during the northern hemisphere summer has seen the discount spread between WA Mutton to the ESTLI deteriorate significantly between June to September, with the discount widening as much as 500¢ in 2019 – Figure 3.

Historically, WA send around 1.5 million head of sheep annually into the live export channel, which represents around 30% of their turnoff. Anecdotal reports from WA producers suggest that the heavy discounting of WA sheep and lamb during the live export trade suspension is the result of the lack of buyer competition.

What does this mean?

In worrying news last week, a spokesperson for Rural Export and Trading WA (RETWA) confirmed that their Kuwaiti live sheep importer had decided to source from South Africa during September instead of Australia.

Earlier during the moratorium supply avenues had been organised via Somalia and Romania. This shows that Middle Eastern customers are prepared to source live sheep from alternative countries than Australia rather than switch to boxed product.

These alternative source countries don't require the stringent animal welfare standards that are required to be followed along the entire supply chain and insisted upon by Australian participants, as part of the Exporter Supply Chain Assurance System (ESCAS) and the Livestock Global Assurance Program (LGAP). Bypassing Australia looks to be a lose – lose situation. Both for our farmers and animal welfare standards across the live sheep export industry globally.

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