Sheepmeat Sector – Future of the EuropeanProduction –

European Parliament Report – UECBV Recommendations

1. The EU sheepmeat market – Key figures

The EU sheep flock amounted to some 95.8 million head in December 2006, 87% of which may be found in seven EU Member States.

Sheep flock (x 1,000 head)

EU 27 / UK / ESP / GR / FR / IT / RO / IRL / Others
95,795 / 23,428 / 22,350 / 9,100 / 8,494 / 8,227 / 7,678 / 3,828 / 12,690

Source: Eurostat

Production totalled 1,153,000 tonnes in 2006 and 1,124,000 tonnes in 2007. It reflects aconcentration in numbers. Seven Member States contribute up to 86% of the EU production.

Sheepmeat production (x 1,000 tonnes, carcase equivalent) – Year 2007

EU 27 / UK / ESP / FR / GR / IRL / RO / IT
1,124 / 322 / 250 / 129 / 105 / 67 / 51 / 38

Source: European Commission – DG Agri

The mid-term prospects in terms of numbers and supply indicate a significant downward trend. Side by side with this reduction in the sheep flock is a similar decline in sheep producers and a resultant loss of skill and expertise from this traditional family farm enterprise.

Consumption reached 1,376,000 tonnes last year. It is now in the region of 3.3 kg per capita. Six Member Statestake up 83% of the supply.

Sheepmeat and goatmeat consumption – EU 27 – (x 1,000 tonnes, carcase equivalent)– Year 2007

EU 27* / UK / ESP / FR / GR / IT / RO / Others
1,376 / 378 / 227 / 262 / 126 / 91 / 55 / 237

* Estimate – Source: European Commission – DG Agri

External trade is marked by a net deficit in the trade balance. Exports are modest (some 15,900 tonnes in 2006), whereas imports reached 313,000 tonnes in 2006. Main suppliers are New Zealand(243,000 tonnes),Australia (20,000 tonnes), Uruguay (9,700 tonnes), Argentina (8,100 tonnes) andChile (4,700 tonnes).

2. Main specific features of the EU sheep sector

2.1. Economic features

The EU sheep sector is characterized by an ongoing, significant depletion in terms of numbers, ever since the capping of direct premia payments to producers. This depletionhas accelerated after the 2003 reform, one of the major consequences of which was the decoupling of premiums.

From 2000 to 2006, sheep numbers thus fell by 7.6% in the EU-27 and by 9.8% in the EU-15. Future prospects are alarming. Projections show a decapitalization of at least 6.4% by 2015.

The production deficit has been growing year after year. Self-sufficiency levelshave also deteriorated (80.7% in 2007 in the EU-27), increasing dependency on imports.The consultants, Ernst & Young, that carried out an independent study of the European sheep sector on behalf of the European Parliament, have indicated that failure to take action to reverse the decline in the sector could see EU self-sufficiency fall by another 10-15 percentage points.

Consumption has dropped as a result of lower availability and the relatively high price of the product. Sheepmeat consumers essentially belong to higher age groups, with above-average income. In contrast, the penetration rate of the product and the number of purchases in people below 35 years of age are considerably smaller.

Moreover, the sector is faced with an increase in production costs. By way of example, livestock farms have to comply with requirements regarding identification, genotyping and animal welfare. The sector must also meet requirements about the withdrawal of specifiedrisk materials for destruction. All these requirements are restrictive and costly, particularly as regards the proportion of meat produced per animal.

2.2. Competitiveness

UECBV recognises the role of sheepmeat imports in meeting the Community market deficit in lamb. It is acknowledged that third country lamb imports play an adjusting role in the marketplace. Given that lamb imports will continue to contribute a major part of overall Community supply, efforts must be made to ensure that lamb imports supplement the EU supply without inhibiting the ability of the EU supply to develop. Yet there is no choice but to accept at present that the production costs referred to in 2.1. put EU meat at a disadvantage insofar as the imported product is not confronted with it. The imbalance is all the more obviousgiven thatimports are concentrated mainly in two sensitive periods in the European calendar i.e. Easter and Christmas.

Therefore,the EU meat industry is concerned to ensure that the difference in production costs does not inhibit the ability of the industry to return a viable price to domestic producers.

2.3. Environmental and social features

There is a wide range of livestock farms in the sheep sector, which reflects their adaptation to the great diversity of rural landscapes in the European Union (plains, grassland, pastoral areas).However, in the six Member States with 80% of sheep numbers, the major share of the numbers is found in disadvantaged areas.

UK / ESP / GR / FR / IT / IRL
Numbers x 1,000 head– Year 2006 / 23,428 / 22,350 / 9,100 / 8,494 / 8,227 / 3,828
Percentage in disadvantaged areas / 69% / 82% / 78% / 84% / 70% / 80%

Source: European Parliament study: Future of the sheepmeat and goatmeat sectors in Europe. 2008.

Sheep farming is generally the last activity before letting the land lie fallow. It has therefore no alternative. Consequently, it contributes to maintaining landscapes, preserving the environment and favouring the operation of ecosystems.

In addition, in these disadvantaged areas, sheep farming generates direct and indirect employment. It creates an area of economic activity and creates social benefits, as a complement to environmental benefits. It thus results in a number of positive contributions,beneficial to the public interest.

2.4. Health-related features

Sheep farming is exposed to recurrent diseases such as scrapie and foot-and-mouth disease, but also emerging diseases such as bluetongue.

These diseases have no impact on human health, so they do not tarnish the image of sheepmeat as genuine and true to tradition. However, their collateral damage lastingly affects the revenues of sheep farms and the agro-food industry.

3. Review of the situation

Sheep farming is a paradoxical activity. It has many assets (capacity to adapt, economic and environmental drive, product quality), but it is crippled by heavy handicaps.

It enjoys an excellent image in terms of public opinion, but younger generations of consumers are turning their backs on its products.

Its profitability is low and hence its revenues unattractive for new entrants. And yet, in spite of its natural and economic constraints, sheep farming has been ignored in terms of support under the Common Agricultural Policy.The 2003 reform has had devastating effects, and the decoupling of premiums even more so.

Admittedly, the coupling of premiums is still allowed, but in proportions that are twiceas small as in the cattle sector. A feeling of despondency has thus taken over and there is an increasing number ceasing or converting to more profitable sectors such as the cattle or cereal sectors.

Sheep farming is in the grip of a “vicious circle”, in which the decoupling of aids encourages decapitalization, which induces a drop in production leading to a rise in prices, responsible for putting off consumers.

It is obvious that the sector is in crisis.The EU Member States,their politicians,their administration,the European institutions and therefore the Common Agricultural Policy have not delivered for the sheepmeat sector in Europe. Successive CAP reforms have failed to grasp the specific needs of the sector.

Political awareness-raising is essential for the EU sheep sector to survive, in terms of defending traditional production and the security of supplies.

In that context of an urgent need for a rescue package aiming to halt the erosion of the sector,the recent initiative of the European Parliament comes at a critical time.It provides the opportunity to highlight the problems faced by the sector and to identify appropriate responses in the lead-up to the CAP Health Check.

4.Action plan - UECBV Proposals

UECBV believes that a multi-faceted response is required to address the problems in the sector. In the first instance, an immediate response in the form of additional producer income support is necessary to restore producer confidence and avoid any further exodus. Responses of a more strategic nature must then be considered, with the objective of rejuvenating the sheepmeat sector and setting it on a sustainable development path. These will include measures on labelling, boosting Community preference, promotion and product development/innovation.

4.1 Designated Special Status

Given the clear indications of a downward trend in sheepmeat production across the Community (as highlighted in the Ernst & Young Study) and our falling self-sufficiency standing (now approaching the critical 80% threshold), the EU must answer a question: are we prepared to allow this important, traditional, rural-based and eco-friendly sector to continue on a course of terminal decline?

The UECBV representatives raise the possibility of somehow establishing EU sheepmeat with a Designated Special Status, certainly with reference to supply security orfood sovereignty, its undeniably unique production characteristics and its nature as a traditional rural enterprise.It is important to bear in mind that sheep and goat farmers play a crucial role in the environment maintaining the ecological balance in areas where other livestock species will not survive. Further decreases in sheep numbers may lead to irreversible damage to ecosystems in these marginal areas.

Granting a Designated Special Status to sheepmeat would be recognition of the sensitive nature of the product and would lead to a prioritisation of action, fast-tracking of responses and a clear recognition and acceptance that the future of the sector must be secured.

4.2Producer Income Support

The Common Agricultural Policy must halt the decline in sheepmeat production in the Community and the exodus of farmers. Farm incomes in this sector are the lowest in the agricultural industry while the financial support they receive falls well behind that of other more profitable agricultural sectors.

The European Parliament report should demonstrate how the Common Agricultural Policy has failed the sheepsector and led to a substantial fall in production. The latest CAP reform (‘de-coupling’ package) has had a lasting negative impact on the sheep sector in a manner that was no doubt not intended. UECBV points out that taking into consideration such a negative impact of the decoupling of aids, the European Commission should review its policy (ref. Regulation 1782/2003[1] and Commission Communication COM(2007) 722 Final[2]).

As regards direct support to producers, UECBV would like to highlight the following points:

  • The CAP Health Check must :

+ direct additional support to sheepmeat production,

+ retain the form of a ‘coupled’ payment.

  • Additional funding is vital.
  • It is preferable for the new direct support to be on a Community-wide basis and fall under Pillar I of the CAP.
  • Granting of additional direct support must be linked with criteria to encourage not only quality production but also -and especially- technical improvements at farm level. Improved productivity at farm level must be seen as part of the solution to farm income problems. The major objective is in fact to give a boost to the supply and not to develop niche products. It is essential that the CAP becomes an agricultural production policy again, in particular in the sheep sector.
  • Article 69 of Regulation (EC) No. 1782/2003 could offer some opportunities. However, there is a need to review Article 69, as at the moment it is of no use to the sheep sector and there is no coordination at the EU level.

UECBV is insistent upon the non-discriminatory feature of direct support to farm income.

4.3 Marketing of EU Lamb

UECBV underlines the need to provide financial support to encourage production but if a more sustainable future for the sector is a strategic objective, a number of measures should be adopted to i) increase consumption and ii) promote consumer preference for domestic EU lamb.

Consumption:

Factors such as consumer age profile, consumer perception and price relative to other proteins significantly affect potential levels of lamb consumption. Key to securing a sustainable future for the sheepmeat sector will be strategies aimed at recovering consumption levels across the Community. It is also recognized that there is a clear need for innovation in how the message on sheepmeat is communicated to consumers. Any campaign should target young consumers emphasizing the convenience, quality and health aspects of the product with the core objective of increasing consumption but also adding value to EU lamb.

Significant lessons should be learnt from the existing industry-driven initiative involving a generic lamb promotion campaign in France, funded by the French, British and Irish promotion agencies. This type of programme should be expanded and extended with the assistance of Community promotional funds.

Community Preference:

A key priority for the sector must be the emergence of a preference amongst EU consumers for EU lamb. Domestic EU lamb is produced to the highest standards but also in a high-cost environment which is a burden on the production costs and the cost price. Our promotion strategies must therefore focus on adding value to EU-produced lamb. In order to promote Community preference amongst consumers and also to ensure that EU taxpayers accept the need for substantial support to the promotion/marketing of sheepmeat, they would need to be convinced on the basis of food security, indigenous EU production and traditional methods of production.

UECBV proposes the following strategic measures to tackle the above-mentioned areas:

  • Domestically produced lamb must have access to the EU fund for the promotion of agricultural products. Generic lamb promotion campaigns aimed at encouraging overall lamb consumption, developing consumer preference of domestic EU lamb and adding value to EU lamb must be supported unreservedly. UECBV acknowledges that different Member States have different requirements and needs when it comes to promotion.
  • There is a need for additional EU fundingto be specifically earmarked for actions designed for communication on and promotion of EU sheepmeat. The existing EU fund for promotion of agricultural products therefore needs to be increased.
  • To coordinate a Community-wide promotion campaign for EU lamb, with the help of additional funds, the setting-up of an Interim Implementation Structureshould be considered. This interim structure would coordinate, oversee and administer a five-year promotional campaign for sheepmeat in Europe. It could be chaired by the Commission and include experts from existing promotion agencies in the Member States. This structure could also help develop innovation both with respect to the product and communication with the consumers.
  • In terms of labelling legislation, UECBV supports the requirement for labelling of origin on the basis of EU / non-EU, as this should be clearly identifiable for the consumer. This legislation will regularize existing practices while not impinging on the preferred marketing strategies of some operators/Member States in using country or region of origin to promote lamb.
  • UECBV is opposedto the notion of including date of slaughter as a labelling requirement. This opposition is due to the potential for negative consumer reactions arising from highlighting ‘slaughtering’ and also on the grounds of the additional operational and cost burden that it would impose at industry/distribution levels. Eventually practicability of a “best before” date might come under consideration. For the consumer this would be a more relevant indicator than the date of slaughter.
  • UECBV suggests the development of an EU brand for domestically produced lamb which would be underwritten by a number of criteria, e.g. a quality assurance scheme(duly certified), the aim being to address the demands of the market. The use of this EU brand in marketing lamb could be supplemented with additional promotional parameters on the specificities of the product in question, e.g. region/country of origin, specific rearing method, etc. Again, the objective is to create preference for and add value to EU (local) lamb.

Support for innovation:

Innovation in product development could be the key to making sheepmeat more attractive to younger generations of consumers. It should also focus on the imbalance between the cuts currently demanded by the consumer and the cuts arising from the whole carcase. In the UK, there has been some success towards attracting the younger consumers. This has been achieved through cut versatility, a wider range of portion sizes, packaging and a consistent quality product. UECBV requires specific support for the industry in orderto develop innovation on products, packaging and processes. The support will highlight that lamb should not be abandoned as a lost cause as far as the market is concerned.

Added value:

UECBV points out that raising the value of offals and skins (the so-called fifth quarter)would significantly help improve returns to producers. UECBV suggests that the European Commission might provide assistance in opening export markets such as South Africa, Algeria, Saudi Arabia, China, Mexico. TSE concerns remain the main restriction to accessing these markets and also they increase the burden of processing costs on this sector.

4.4 Electronic Tagging / Traceability

Compulsory electronic tagging is a major issue for the entire sector.In this respect, the voice of industry is not homogeneous.

The system has a number of advantages in terms of traceability of animals, flow management and fight against fraud, as in the case of clandestine slaughtering. Nevertheless, electronic identification (E-ID) means new burdens and new constraints in a sector in crisis. Furthermore, the costs of E-ID in terms of software and equipment are high. It will thus be difficult to implement this system in all flocks.

It is felt that, in most cases, current identification systems deliver the requirements for traceability and animal health.

UECBV believes that electronic tagging requires the utmost caution and wonders about a voluntary approach instead of a compulsory approach. Anyway, no matter which option is chosen, public funds to support it are necessary so that the purchase of equipment, software and training can be covered.

Moreover, UECBV recommends that all existing identification systems operated by Member States under Regulation (EC) No. 21/2004 should be listed, assessed (in particular for differences), and harmonized as much as possible.

4.5 Consistent enforcement of EU legislation

One of the cornerstones of public health protection is the Hygiene Package adopted in 2004 which entered into force in 2006.

There is no doubt that it is the fruit of a complex, demanding approach in terms of human and financial resources. It calls for improvements in the light of experience and scientific developments.

In the immediate future, however, priority should be given to a consistent, rigorous enforcement of EU legislation, particularly in the sheepmeat sector. The objective is to consolidate the image of the product amongst the general public. The sheepmeat production in establishments which are approved in conformity with EU legislation contributes to valorization of the offer and requires to be encouraged.