Price Indices from the Producer's Perspective - An Alternative to the FAO Meat Price Indices

The agri benchmark Network Beef and Sheep developed global price indices for bovine and ovine meat, representing the prices received by producers at the farm level. A short explanation of the results is presented in the following. A more detailed paper will be produced separately and published on the agri benchmark website.

The current FAO Meat Price Indices are measures of the international meat prices weighted with the average export shares for 2002-2004. Thus, they are rather exporter reference prices than reference for the price being received by producers. The agri benchmark database is ideally placed to provide a global producer output price index representing the prices received by producers for cattle, sheep and lambs produced at the farm level based on the multi-country agri benchmark price time series.

Thus, the agri benchmark producer index could help to

1. reflect the structure of beef prices in beef and sheep producing countries which are not within of the main exporters such as China,
2. represent what the medium and small producer countries actually produce and
3. reflect country-specific drivers of prices such as policy interventions and supply / demand changes in major producing and consuming countries.

1       Finished Cattle Price Index     

The average agri benchmark finished cattle prices are weighted by production shares of all network countries for 2002-2004. For each of the network countries, the animal category that represents the bulk of each country’s beef output was selected (Figure 1).

As shown in Figure 1, agri benchmark Finished Cattle Price Index has been on a slightly higher level compared to the FAO Bovine Meat Price Index since 2007. This is due to the considerable proportion of beef production for China (about 14 percent during the observed period) which significantly impacted the weighted beef prices. Therefore, the high price levels in China (two to three times higher than that in Australia, Brazil and the US) resulted in a higher price index. 

2       Sheep Price Index

The FAO Ovine Meat Price Index considers only the price of New Zealand export lambs of 17.5 kg carcass weight. The limitation to lamb prices only can be attributed to the importance of lamb as the superior item, rather than mutton, for the global sheep meat trade. However, given the data availability of lamb and sheep prices, agri benchmark created two sheep meat price indices: a) Lambs Price Index and b) Lambs and Sheep Price Index.

a       Lambs Price Index

The average agri benchmark lamb prices are weighted by production shares of the network countries using the average of the years 2002-2004 (Figure 2). 

The New Zealand sheep crop has dropped by about 20 percent over the last decade as enterprises have moved away from sheep and beef to dairy, leading to a reduction in lamb exports by about 16 percent, but with higher prices. Furthermore, lamb export volumes from New Zealand were hurt by the harsh weather conditions in 2010 and decreased to reach the lowest level in 2011. These unfavourable production conditions may have extremely impacted the New Zealand export prices more than the global farm gate prices – explaining the higher level for the FAO index since 2011 compared to the agri benchmark index.

Among the network countries, New Zealand’s production share decreased from 28 percent in 2008 to 23 percent in 2018 allowing the Australian production share to reach a proportion of 32 percent. Therefore, the agri benchmark Lambs Price Index became more influenced by the Australian lamb prices which are expected to keep increasing due to the severe drought as well as the rising export demand.  

The agri benchmark Lambs Price Index is less volatile than the FAO Ovine Meat Price Index, as is to be expected being based on a weighting of lamb and sheep prices from seven countries whereas the FAO index is just one lamb category in NZ. Also, NZ (and Australian prices also) would tend to be more volatile than prices of the other five countries used, being dependent on a ‘thin’ export market (only 9 percnt of global sheep meat production is traded internationally).

b       Lambs and Sheep Price Index

This index considers the prices of lambs and sheep within each of the network countries weighted by production shares for 2002-2004.

Figure 3, the left chart, shows a huge difference between the agri benchmark Lambs and Sheep Price Index and the FAO Ovine Meat Price Index. This is mainly due to the high proportion of China in production (44 and 67 percent) in combination with the high domestic prices.

The agri benchmark index in the left chart clearly reflects the domestic price increase in China where the prices per kg CW jumped from USD 2.21 in 2006 to USD 6.15 in 2011 and then reaching their historic high in 2014 at USD 10.65.

To get a better insight on how sheep meat prices from the other network countries are reflected in the index, Figure 3 (the right chart) shows the index after excluding the Chinese prices.

As shown in the right chart, the agri benchmark index still remains at a higher level than the FAO index since 2005. This can be attributed to the Algerian and Iranian sheep market where the prices are three to four times higher compared to Australia and New Zealand with considerable production share (both together about a quarter of the total production represented by the participating countries of the network).

All graphs are based on:
FAO Meat Price Index, 2018 and agri benchmark database, 2019

Contact:

Dr. Mohamad Isam Almadani