The “sheep is back”, according to a recently-released report, with demand for Australia’s sheep products – meat and wool – set to remain strong. However, the strength of this demand hinges on the industry’s ability to tap into new segments of the market.
Identifying the “millennial” consumer as the market offering some of the greatest opportunities for value growth, the report by agribusiness banking specialist, The Sheep is back – tapping into new value markets, says the sheep industry is already “in one of the best positions to capitalise” on this market.
Report author, Rabobank commodity analyst Georgia Twomey says not only are millennials rapidly becoming the largest consumer base in the market, but many of their purchasing behaviours (driven by their preference for quality, authenticity and transparency) are characteristics inherent to lamb and wool.
“Sheep products already operate in a relatively niche market,” she says, “making lamb and wool unique in the protein and fibre space.
“With millennials willing to try new products, and in some cases pay more for them, there is real opportunity for those in the sheep industry to leverage the existing characteristics of their product and capitalise on this new demand.”
That said, selling to this new customer will not be without its challenges and competition will be strong, she warns, particularly from alternative products actively targeting this social and environmentally-conscious consumer.
Demand growth set to continue
The run of “three very good years”, with record high prices for lamb and wool, begs the question as to whether this can be sustained. Addressing this, the report says, “Rabobank’s view is the demand outlook for the coming five years remains strong for the Australian sheep industry and that growth will continue”.
Citing strong demand in global markets as the driver for higher prices and strong returns for Australian sheep producers (with per unit export values of wool and lamb, 42 and 23 per cent, respectively, above the five-year average), Ms Twomey says supply-side impacts will also influence prices and producers’ ability to capture increased demand.
“While this report focusses on the growth prospects for demand, the supply of wool and lamb – both locally and globally – is expected to remain constrained, which will also help with supporting prices in the medium-term,” she says.
Looking forward, Ms Twomey says demand growth will be driven by two key components – with “traditional” consumer markets providing the platform for strong volume growth, while the new “millennial” consumer group will drive the high value growth for products.
“Meat and wool have slightly different traditional consumer bases, but both share the common trait of being longstanding, established markets,” she says. “For sheepmeat, the traditional consumer tends to be a particular geographic location or ethnicity – namely, the Middle East, China, US and the EU – while apparel wool has traditionally been targeted at high-income consumers in the northern hemisphere, with China the world’s largest processor, textile exporter and, due to the scale of population, user of wool at retail.
Millennials to drive future demand
The real opportunities, however, lie with the millennial consumer (aged between 18 and 38 years), with Ms Twomey saying this generation exhibits characteristics in the way they shop and consume that the sheep industry is well positioned to meet.
“Representing nearly a third of the population in countries such as the US and China, millennials are not only becoming the largest consumer base but their influence is set to grow as they move further into the workforce and their purchasing power increases,” she says.
“Desire for quality is one of the key purchasing drivers of this age group, along with authenticity, uniqueness and transparency in the production process. While other factors include their willingness to try new things, convenience, the higher tendency to eat out of home, and, in recognition of quality, the willingness to pay more.”
Ms Twomey says wool is moving into new product ranges to capture this new consumer, citing activewear as an example. “This is a huge and growing market, and the headway merino wool is making with its growing range of innovative products, such as the Allbirds merino sneaker, highlights the opportunity for this fibre in less price-sensitive markets.”
In the lamb market, the report looks at the US, with recent growth in the fast, casual and quick service restaurant trade. “Lamb not only taps into the growing trend to eat out of home, as a unique item on the menu, but also lends itself as a protein of choice in the ready-prepared meal kits,” she says.
“That said, the competition from alternative proteins and fibres is set to increase, making it increasingly important for wool and lamb to justify their value proposition to users.”
This applies particularly to lamb, Ms Twomey says, where competition is not only from other proteins such as poultry, pork and beef but also from alternatives such as plant-based proteins, insect proteins or lab-grown meats.
“In light of this, sheep producers need to keep abreast of what is driving consumer trends and continually look at ways to position their product to capitalise on this new demand,” she says.
“For example, striving for greater transparency through the supply chain to not only guarantee specific quality attributes, but also social, animal welfare and environmental standards, is one way to position for future growth. Another is remaining flexible and ready to adapt to changing consumer demands through maintaining some diversity in marketing options and forging closer relationships along the supply chain.”
Rabobank Australia & New Zealand Group is a part of the global Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has nearly 120 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 38 countries, servicing the needs of approximately 8.4 million clients worldwide through a network of more than 1000 offices and branches. Rabobank Australia & New Zealand Group is one of Australasia’s leading agricultural lenders and a significant provider of business and corporate banking and financial services to the region’s food and agribusiness sector. The bank has 94 branches throughout Australia and New Zealand.
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