The price of lamb has soared 200% since the 90s – now the drought is sending it even higher

One of the sharpest aspects of droughts is that the impacts are pretty immediate.

In an industry where seasons mean everything, the lack of rain is not something that can be hidden. Yes farmers can eat into their savings or go into more debt, but they can’t reduce their inventories in the same way other businesses can.

Last year’s lambs are not able to be stored just in case you need to help boost supply this year.

It is why looking at the production of lamb is a very good indicator for monitoring the severity of a drought.

The latest figures, released on Wednesday by the Australian Bureau of Statistics, showed that in September the fewest numbers of lambs were slaughtered in any month since April 2012:

The 1.65 million lambs slaughtered in September was 18% down on the record number achieved in May 2018.

As expected this drop has been accompanied by a similar fall in the “lamb production” (ie the amount of lamb). Thirteen of the past 15 months have seen production below what it was a year earlier.

This is a far cry from the 2012-15 period where production constantly grew off the back of good weather conditions:

And with this drop in supply the market forces have well and truly kicked in.

In the past year, if we exclude tobacco (which is always has the biggest price jumps due to increases in government excise), the item with the biggest price increase was lamb.

Of the top 10 biggest price increases, six were related to agriculture:

This is a standard occurrence and if we look at the annual price growth of lamb compared with overall inflation over the past 25 years, it is clear when we have been in drought:

Fortunately the overall drought conditions have not been as brutal as the early 2000s, when lamb prices on average grew by nearly 30% in 2001. But the big spike in prices since the end of last year shows the impact has well and truly hit the markets.

But these periods of drought have also had a cumulative effect on what we choose to eat.

When I was growing up in country South Australia, lamb was very much a staple meal; now it is a luxury.

Households now consume a lot more chicken than in the past and a lot less lamb. Somewhat interestingly we still spend similar proportions of our weekly shopping on lamb and chicken.

The big fall occurred in the 1980s when the ABS estimated household went from spending on average 0.46% of their money each year on lamb to 0.36% by 1992. It now sits at 0.29%.

By contrast our spending on poultry has remained steady at around 0.4%.

There has also been a massive drop in the level of money we spend on beef each week – clearly as much due to cultural and health factors as anything.

In the 1980s not too many people were worried about red meat consumption in the way it now influences our eating habits:

But the lamb and chicken levels seem a bit counterintuitive – after all, if we are consuming more chicken, why are we not spending a bigger percentage of our money on it?

The reason is price.

We are still spending about the same per cent of our money on chicken and slightly less on lamb, but what we get for that money has greatly changed.

The price of lamb has increased over the past 25 years out of all proportion to other meats.

By contrast, to get the same amount of lamb that cost you $10 in 1994, you would now need to outlay $32.26 – a 222% increase.

No other food item has risen by that much over the past 25 years, and the only item that has risen by less than poultry is breakfast cereal.

That makes for a profound change in eating habits.

In the late 1980s and early 1990s, we spent nearly double the amount each week on beef as we did on chicken; now it is almost the same. But with the price of rump steak rarely below $20/kg while you can get a packet of chicken drumsticks for around $6/kg, that means we are eating a lot more chicken.

And we are certainly eating a lot less lamb.

When droughts hit, the price impacts flow through to the grocery aisle, but we don’t just keep buying the same amount of food – we adjust. But that does not mean we return once the impact of the drought passes.

Indeed, with the number of droughts over the past quarter of a century, the price of lamb has risen dramatically but then barely fallen during good times.

And with the growing export market furthering the increase level of demand and thus prices, lamb is one case where the drought has meant farmers have seen record prices.

But this has seen households move steadily away from choosing lamb to serve up at dinner time to a point where chicken is closer to our traditional meal.



Article credit – Article by Greg Jericho writes on economics for Guardian Australia


Photo credit – ‘The production of lamb is a very good indicator for monitoring the severity of a drought.’ Photograph: Dan Peled/AAP