Presidents Notes -- Portrait of the International Sheep Industry

Editor's Note: The following presentation was made by ASI President Guy Flora at the 7th World Sheep & Wool Congress, held July 17-23 in Quebec City, Canada. Watch for additional coverage of this international event in the September 2004 edition of Sheep Industry News.

August, 2004 - My remarks are being made from my point of view of our world industry as the president of the American Sheep Industry Association, the editor of The Shepherd Magazine, but most of all as an American sheep farmer who has had an opportunity to observe and monitor the world sheep industry. By training I am not an economist, an animal scientist or an expert on the world's political scene. I am an American farmer whose lifelong livestock preference has been sheep, both purebred and commercial. My remarks will also be colored by the fact that the United States is one of the highest-valued lamb markets in the world and, as such, attracts lamb shipments from around the globe. We are also an excellent market for high value woolen goods. Imports of both commodities, lamb and wool, at certain times tend to destabilize our domestic markets. This creates for our ranchers, farmers and manufacturers an extremely unstable and volatile market situation.

In the second half of the 20th century we have seen a gradual downsizing of the sheep industry across the traditional world sheep powers. As land has become more valuable and labor more expensive, it has become difficult to make a profit. Sheep numbers are down all over the world. Even Australia and New Zealand are at their lowest numbers since the late 1940s.

On a recent trip to New Zealand, I visited a large dairy which was, at that time, milking 3,000 cows. It was located on a large property that had formerly run sheep. I also visited a 15,000 steer feedlot built on a former sheep farm. Farms on the Canterbury plains that once raised "Canterbury lamb" now raise maize silage under contract to dairies and feedlots.

It is true that the New Zealand farmers are compensating for the loss of flocks by increasing their lambing percentages and carcass weights. But the sheep farms are rapidly being converted to vineyards, forestry and dairies or to tourism and hiking.

In Australia, numbers have declined for similar reasons along with the conditions caused by a long-term drought. They have started to move away from the traditional wool-type sheep and into the production of what they refer to as "prime lamb," a crossbreed lamb of a heavier weight produced for the export market. They are also grazing lambs over the winter or feeding concentrates to reach heavier export weights. Labor problems are also an issue. There is now a shortage of sheep shearers in Australia. Young men are not entering the profession and some, after learning the skill, go to countries where wages are higher.

The cost of labor and land has had a tremendous effect on the wool processing sector of our industry. European processors are moving plants to Eastern Europe and Asia to take advantage of lax environmental rules and less expensive labor. It is easier to move a plant than it is to comply with new environmental rules, pay high land taxes or high wages.

The new world power in the wool market is China. It now controls a majority of the processing capacity in the world. With few, if any, environmental regulations, low labor costs, government assistance and cheap energy, it has a distinct advantage in the marketplace. It has become the world sheep colossus with the largest sheep flock in the world, cheap grazing in the northwestern part of the country and an extensive labor pool.

China has now entered the world lamb market. Last December a Chinese company called Eternal Technologies produced and sold to the Middle East more than 2,000 tons of lamb meat. The company processed more than 140,000 lambs to meet its contract. Eternal Technologies is basically a genetic research company, so the lambs may have been a part of that research. So, despite the reduction in sheep numbers in other countries, China has continued to expand its numbers and entered new markets situations.

The world lamb market trade is dominated by Australia and New Zealand. New Zealand ships about 80 percent of its lamb to Europe, where it has controlled the European quota for lamb for decades. Australia markets much of its export lamb to Southeast Asia and the Mid-East. In the last 20 years, however, Australia has sent more and more lamb to the United States. The United States is, in fact, the single largest market for Australian lamb in the world.

As an American sheep farmer I have watched both our wool and lamb industries decimated by imports. I have watched farmers go out of business and textile factories close. I thought we must be doing something wrong. Were other farmers more efficient than I was? Were other countries' farmers receiving some secret subsidy?

Then I began to discover that some countries' money was cheaper than mine, which gave them a competitive advantage in the world marketplace. I found that Canada has a similar problem. Half or more of the lamb consumed in Canada was imported. At the same time though, 15-20 percent of Canada's lamb production was exported to the United States.

A friend of mine explained to me how international money exchange rates worked. With the New Zealand dollar at 45 cents American and the U.S. dollar at 100 cents, I was fighting a losing battle. My production efficiency was fine. It was my money that was the problem.

When I began to ask questions of foreign officials and diplomats, I quickly ran into a mantra call "free trade." Lamb in the United States has been freely traded for more than 40 years, with the exception of a 2-? year period from 1999 thru 2001. There are no quotas on lamb -- never have been.

The U.S. lamb industry can serve as a "canary in a coal mine" for all of us in the world sheep industry. All of our countries are being pushed to sign free trade agreements. We need to look at what they do to our industry. What did the Mexican sheep producer gain when an FTA was signed with Uruguay? An opportunity to compete with cheaper lamb from Uruguay? What did the Australia lamb producer get from the Australian FTA with the United States? Nothing! Lamb was already freely traded. What about Australian wool? Most comes to us as finished cloth not covered by the FTA. So for the Australian producer, the American FTA is "?full of sound and fury, signifying nothing."

Free trade agreements are not the answer to declining sheep numbers. As we watched consumption of lamb and the use of wool decline in the United States, and in the world, along with sheep numbers, it became clear that the cheaper prices of a commodity style product do not stimulate demand. The call for "free trade" becomes a race to the bottom to see who can sell at the cheapest price. This destroys established lamb and wool production systems and puts farmers and ranchers out of work. Instead, we need a worldwide sheep industry that stimulates demand for lamb, wool and sheep milk products.

We need to understand that we are a global industry and when, through world trade, we damage another country's sheep industry, we have damaged ourselves. Some claim that real competition is not other sheep-producing countries, but instead is the other red meats from beef to ostrich, protein sources from tofu to synthetic cheese and manmade fibers.

We need to understand that in the modern business world we may not be able to maintain our 'independence.' We will have to forge business alliances with former competitors. We may have to become supply 'contractors' in a business chain.

We may have to change the product we produce. Genetically, we have wool breeds of sheep, meat breeds and milk breeds. One breed does not do all things well. Dr. Claire Terrill once catalogued more than 450 breeds of sheep in the world. To succeed, we need our products to be consistent, and consistency does not come from hundreds of breeds.

The consumer rules and we must produce what they want. They are guided by past experience and by advertising. If their sweater was scratchy, they remember. If the lamb chops were fat little "micro-minis," they remember. If the cheese was foul, they remember.

Our consumers need to be told we have green, environmentally friendly, renewable products based on grass and sunlight. (Remember, most concentrates come from cultivated grasses.) Especially our fiber customers need to know many fibers today come from petrol chemicals and production of them may terminally pollute the environment.

To accomplish these things, our countries and our breed associations need to spend their energy and resources to find consumer preferences for our products. Much of this has been done, but we need to act on the basic research. Our breed associations need to produce animals with genetics that will produce consumer-desired lamb and wool.

Lamb and wool consumers don't care about show-ring wins. They like leanness, good taste and consistency of size. They want a smooth-textured garment that does not pill or shrink or scratch. As sheep breeders, we should be producing animals that can produce these products economically for the commercial shepherd. If our breeds of sheep cannot do this, then we are engaged in a hobby -- not agricultural industry.

We need to fund basic disease research along with plans to eliminate them. There is no reason for foot rot to exist in any of our flocks. Scrapie, Johne's, Ovine progressive pneumonia must all be eliminated. The public has become much more aware of zoonotic diseases. They now know what BSE is. Some recognize terms like TSE and lenta virus. Before any of these diseases have a chance to disrupt our industry, they must be destroyed.

Elimination of disease must be done scientifically not bureaucratically. We don't want artificial trade barriers based on pseudo-science. In an attempt to eradicate scrapie, the United States and other countries tests thousands of animals a year. Still, some countries claim to be scrapie free without testing any animals at all. We need some worldwide agreement on disease control so we all follow the same rules without disruption of trade.

We need some in-depth genetic research into lamb flavor. Do some breeds taste better? Are some more tender? Chicken, turkey, beef and pork are far down this road already. We will need the help of our breed associations here because there will be some differences and some of us will not be happy with the results.

But we will all be unhappy with the results if we do not fund genetic research, if we do not eliminate pseudo-scientific restraints of trade, if we advocate free trade rather than fair trade, and if we don't pay attention to what our consumers want. We have an opportunity here at the World Congress to discuss our problems and our opportunities. If we do so, this World Congress can be a stepping stone to free, fair and open world trade in sheep and sheep products.

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