Factors that influence export marketing margins of New Zealand lamb by grade : A preliminary analysis : A dissertation submitted in partial fulfillment of the requirements for the degree of Bachelor of Agricultural Science with honours

Abstract

Lamb producers are usually in business to try and maximise profits, and want to know what grades of lamb to produce in order to do this. They want to know what type of lamb will be in most demand in the foreseeable future, what the target market is in terms of carcass composition and weight, and which company is likely to offer the highest prices for each grade of lamb.

Producers normally have to rely on price differentials in grading schedules as a stimulant to change, but the extent to which schedule price differentials indicate differences in market demand for different lamb grades is not clear. Price differentials are often confused and weakened by many factors in the marketing chain. Consequently, they may fall short in getting a clear message about consumer requirements to the producer in order to stimulate change.

Recently there have been numerous articles printed in New Zealand farming magazines stating that farmers don't know what grade of lamb the exporter wants, including those by Shadbolt et al. (1985), Butler (1986), and Cross (1986). Lamb schedule prices may change during the season and farmers may try and keep stock on the property in order to finish them at a heavier weight or better grade, and therefore obtain a higher price, only to find that the schedule price has dropped by the time the lambs are slaughtered. Many farmers are calling for meat exporters to make their schedules available earlier in the season, however in most cases this is not occurring.

Inefficiencies in the pricing mechanism inhibit the rapid and accurate transmission of changes in supply and demand from one market level to another. The failure of exporters to set schedule prices that accurately depict the demand for lamb, leads to production decisions being made by producers that result in misallocation of resources, and a subsequent loss of economic efficiency. There have been few attempts to study the nature of price transmissions, and no previous research has examined if the schedule price paid to farmers, are indicative of the prices received by exporters for a specified grade of lamb.

The purpose of this paper is to study the marketing margins for different export grades of lamb in order to determine if schedule prices paid to producers give an adequate representation of the export prices received by exporters. This will be achieved by reviewing the recent history of the New Zealand lamb industry and the lamb grading system in order to gain a better understanding of the current New Zealand situation. Marketing margins will then be discussed and relevant previous research examined. An attempt will be made to develop an econometric model for various lamb grade margins, in order to examine hypotheses proposed about their behaviour. Results will be reported and interpreted, and their implications discussed.