SHEEPMEAT. Contents. Australia 1. North America 5. Japan 9. Korea 11. China 13. South East Asia 17. European Union 21 MENA 25 MARKET SNAPSHOT

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1 MARKET SNAPSHOT SHEEPMEAT Contents Australia 1 North America 5 Japan 9 Korea 11 China 13 South East Asia 17 European Union 21 MENA 25 FOR FURTHER INFORMATION VISIT US ONLINE AT: or us at: marketinfo@mla.com.au MLA INDUSTRY INSIGHTS February 217

2 MARKET SNAPSHOT SHEEPMEAT Australia Australian consumers are increasingly cautious and price-sensitive. Disposable income has not kept pace with inflation, with wage growth stagnating. Growth in food sales, including in the meat category, is largely driven by population growth and price inflation. Sheepmeat consumption in Australia is facing some challenges and opportunities: Australians remain the second-largest consumers of meat per capita, and the third-largest consumers of sheepmeat in the world (Source: OECD). Changing demography including increased migrations from Asian countries where pork is the dominant protein, and an aging population who are avoiding red meat for health/functional/price reasons. Increased competition from pork (marketing activity) and chicken (price pressure) will continue to challenge sheepmeat. Social factors such as increased consumer consciousness of environmental impact, animal welfare, health concerns, and increased demand for food integrity provide opportunities to consider in red meat messaging. Lamb value share remains steady as prices increase. Maintaining value share, and limiting decline in volume, remain a challenge. Population Households earning Meat consumption 92.7kg per capita* total meat protein** 24.3 in 25.6 in 22 In million Source: BMI Research, estimate & 22 projection Domestic utilisation/lamb (share of produced volume) US$15+ p.a in in 22 US$35+ p.a in in 22 In million households Source: BMI Research, estimate & 22 projection Retail fresh meat value share kg per capita* Pork Poultry Beef Sheepmeat 22 In million tonnes cwt Source: BMI Research, GIRA, estimate and 22 projection * e per person per year ** excluding fish/seafood Food Industry Growth f Beef 36.7% Beef 36.5% Chicken 26.% Lamb 13.4% Chicken 26.6% Lamb 13.2% Pork 11.9% Pork 11.3% Other 2.1% Other 2.1% Seafood 8.6% Seafood 8.8% Domestic Consumption Exports Turkey.9% Turkey.9% Food sales Food, sales% growth Veal.4% Veal.6% tonnes cwt Meat and Poultry sales Meat and Poultry % growth Source: ABS, MLA forecast f = forecast Source: Nielsen HomeScan MAT to 3/12/ vs. year ago Source: BMI Research f = forecast millions f 217f 218f 219f 22f % Price Sensitivity in Australia (all categories) 5 Australian retail meat price 2 Per Capita Disposable Income Sep- Sep-4 Sep-8 Sep-12 Sep % Beef Lamb Chicken Pork Per capita Source: KANTAR Millward Brown BrandZ 27- Source: ABARES/ABS Source: ABS FOR FURTHER INFORMATION VISIT US ONLINE AT: or us at: marketinfo@mla.com.au MLA INDUSTRY INSIGHTS Australia February 217 1

3 Single person households Australians born overseas Median age in Australia 2.2 million 2.5 million 3. million 24.6% 28.2% of which over ¼ are from Greater China and South-East Asia 34 years 37 years Source: ABS Source: ABS Source: ABS Consumers Consumer demand for lamb is affected by many factors, such as demographic change, and changes in attitudes and beliefs towards food from family, friends, and the media. Consumers are increasingly challenged to cut back on sugar, and eat more natural, fresh and unprocessed foods (Source: IPSOS Food CHATS ). Consumers claim to want to see more food products that are All natural (Source: Nielsen Eliminating the Unnatural ). All natural product claims doubled between 29 and (Source: Mintel, quoted in Australian Food News October ). Regarding animal products, 6% of consumers claim they want to avoid antibiotics/hormones the number one ranked concern (Source: Nielsen, ibid). MLA research has shown that, when consumers are choosing meat, the attributes most closely associated with frequent consumption are that it is a family favourite and that it is easy and convenient to prepare. When consumers are shopping for lamb, the key information they look for on pack relates to freshness and price. What things do consumers look for on pack/on shelf when buying lamb? Colour of meat Price per kg Date packed Freshness What are attributes that are important for Australian consumers? (all protein) Is my/my family s favourite meat Is easy and convenient to prepare Is the most superior meat Tastes delicious Consistent quality Use by date standards Source: MLA Global Consumer Tracker, What key strengths does lamb have? Tastes delicious I am willing to pay a bit more for this meat Guaranteed safe to eat Is the most superior meat Is my/my family s favourite meat Concerns over price are the biggest barrier to red meat consumption, and price is a weakness for lamb. % Main reason for eating less red meat Feb 1 Dec 1 Jun 12 Jun 13 Too expensive Health concerns Concerned about treatment of animals Environmental concerns (any) Other Source: MLA/Pollinate annual tracker 21- Jun 14 Jun 15 Jun 16 Don t like the taste anymore However, lamb is a meat consumers are willing to pay more for, due to its advantages in flavour, safety, and being a family favourite. Consumers generally feel very positive about the sheepmeat industry when asked, 73% couldn t name anything negative about the industry at all (Source: MLA/Pollinate, ). Vegetarianism Vegetarianism is reportedly on the rise, with Roy Morgan reporting in August that 11.2% of the population reported as vegetarian, up from 9.7% in. However, the definition was somewhat flexible, with the actual claim being The food I eat is all, or almost all, vegetarian a group more closely aligned to the term flexitarian. MLA/Pollinate research suggested the number of pure vegetarians is closer to 7%. 13% of current meat eaters claim to have been a vegetarian at some stage in the past. There is some interest in meat substitutes but the market remains small. Protein Image Profiles +/-5 indicates relative strength or weakness Freshness Cheaper High nutritional value The animal is well-cared for The industry is environmentally sustainable Consistent quality standards Tastes delicious Can be used in many different meals Is easy and convenient to prepare Low in fat Guaranteed safe to eat Essential part of a healthy diet for growing children Is my/ my family s favourite meat Is becoming more popular Is the most superior meat I am willing to pay a bit more for this meat Source: MLA Global Consumer Tracker, 2 MLA INDUSTRY INSIGHTS Australia February 217

4 Retail The grocery retail industry is robust, with turnover totalling $123 billion in, forecast to rise 5.7% in 217 (Source: IGD). Food and beverages comprise the majority of grocery sales, however the trend is towards lower growth, with non-food retail sales growth outperforming food sales for the first time in 1 years (Source: Citi Research Looking across the supermarket horizon October ). With the average grocery basket value worth $45, a basket with fresh meat/seafood jumps up to around $8 (Source: Nielsen HomeScan). Shopper research suggests fresh meat is a Hero category for supermarkets a driver of both traffic to store, and extra spend when in store, and also acting as a price beacon category by which shoppers generally judge the level of value provided by a retailer (Source: Shopper Tracker ). Supermarkets are also increasing their ready-to-eat meal range, targeting shoppers looking for a convenient meal option that might otherwise come from foodservice. Grocery retail market shares Major organised retailers Source: IGD Woolworths 36% Wesfarmers (Coles) 26% Aldi 6% Seven & I Holdings 3% Other 28% Where do consumers typically purchase lamb from? Source: MLA Global Consumer Tracker, Supermarket 68% Butcher 31% Online 1% Competition remains aggressive at grocery, especially at the discount end with all retailers engaging in visible price wars, particularly within staple categories. These are set to escalate, with speculation that other discount retailers (e.g. Lidl) may launch in the near future. The changing face of food retail The retail sector is progressively adopting disruptive technology. The major retailers are building online sales, with Coles reporting a 25% increase YOY (Source: IGD ). Fresh Logic forecast that online sales of Australian food & grocery may lift from 3.8% share of the Australian grocery market currently to 7-8% similar to current levels in the UK & US markets (Source: FreshLogic.com.au). Mini-resurgence of independent retail The independent meat retail sector has seen a modest resurgence, with 23% of butchers surveyed in -16 saying their business is Thriving up from 21% in -15 (Source: MLA NFS telephone survey). Place of fresh-meat purchase by average weekly customer spend and market share Place of purchase Average customer spend Value market share ($) Butcher $ % Market/Delicatessen/ Other $34 9.4% Woolworths/Safeway $ % Coles $ % ALDI $22 7.6% IGA $22 5.4% Source: Roy Morgan Jan-Dec, quoted in press release Feb Key things to know about major grocery retailers Competition remains aggressive at grocery, especially at the discount end with all retailers engaging in visible price wars, particularly within staple categories. These are set to escalate, with speculation that other discount retailers (e.g. Lidl) may launch in the near future. Woolworths: Food, liquor and petrol sales were down 1.7% YOY in FY (Source: IGD). Woolworths has been opening new shopfronts, offset by the gradual closure of Thomas Dux outlets. In FY17 they will slow down new store openings to focus on 8+ store refreshes (Source: IGD), potentially including the butcher counters being trialled in some stores now. Citi Research estimate that successful refurbishments can add roughly 1.% to like-for-like sales growth. Coles: Food & liquor sales were up +5.1% YOY in FY (Source: IGD). Coles are continuing with an Every Day Low Price (Source: EDLP) strategy by the end of June, Coles had increased the number of SKU s at Every Day prices to 3,1, up from 2, at the start of (Source: IGD). IGA (Metcash): Experiencing low growth with food & grocery sales up.5% YOY (Source: IGD). Aldi: Rapid expansion, as Aldi has opened 36 stores in (to October), and is forecast to operate 59 stores nationwide by 221 (Source: IGD) % sales YOY in (Source: IGD). Aldi has the highest level of customer satisfaction of any supermarket, according to Roy Morgan (Jan-Dec ). Costco: Continue to announce record sales +5.6% revenue YOY in FY (Source: IGD). Costco are set to launch a new Sydney store in 217 and Melbourne store in 218. The focus is on high quality meat products, often sold in bulk. Non-traditional grocery chains (e.g. Google, Amazon, Uber) may be looking to bring new online grocery shopping solutions to Australians in 217. MLA INDUSTRY INSIGHTS Australia February 217 3

5 Foodservice millions Quarterly turnover in millions & Growth Quarter vs Quarter YA Cafes, restaurants & takeaways % Average number of meals out of home per week by age Gross (LHS) Growth (RHS) Source: ABS. Represents approx.. 75% of the foodservice industry The Australian foodservice sector is large, and competitive, with over 85, places to eat out, dominated Quick Service Restaurants (QSR), cafes, and casual dining restaurants. Australians eat out an average of two to three times a week, spending $45 billion per annum (nearly $1 per household per week) (Source: Intermedia Eating Out in Australia, quoted in press release Nov ). The foodservice channel is highly fragmented, with many individual companies having small market share. Exceptions include QSRs and institutional channels such as hospitals and aged care. Shifting consumer attitudes and behaviour drive innovation and evolution from foodservice providers and these are responsible for some of the volatility seen in the market. Foodservice growth is also impacted by tourism and therefore by international market dynamics, and by the fluctuating Australian dollar. The eating out behaviour of Australian consumers over recent years has seen slower rates of growth, and this is set to continue, with only 17% of Australians saying they are eating out more now than they were a year ago with 36% saying less and only 11% say they are intending to eat out more in future (Source: MLA Domestic Consumer Tracker ). % Favourite international cuisine types Chinese Italian Thai Indian Mexican Japanese 211 Greek Source: Roy Morgan Jan-Dec, quoted in press release May Other Asian Lebanese French -5 Breakfast Lunch Dinner Source: MLA Domestic Consumer Tracker Average number of meals out of home per week by household composition Children in household Breakfast Lunch Dinner Source: MLA Domestic Consumer Tracker No children in the household There are many factors that contribute to the choice to eat out or not, mostly occasion-based i.e. where and when the meal takes place, and with whom. Having children in the household indicates a higher level of eating out, as well as influencing choice of venue and choice of meal. When it comes to where to go, convenience, value and familiarity are key, which partly explains the rise of QSRs, supermarket meals-to-go, and other casual dining options. Other foodservice trends to watch are menu customisation (for example, McDonalds Create Your Taste ) and increased demand for integrity (e.g. Guzman Y Gomez switch to 1% free range chicken). Authentic eating and personalisation are amongst the Top 1 Global Consumer Trends for 217, according to Euromonitor International. % Meats eaten when dining out lunch and dinner A trend to watch for 217: tech-driven food delivery by aggregators such as Deliveroo, Foodora, MenuLog and UberEats Beef Lamb Chicken Dinner Lunch Source: MLA Global Consumer Tracker, Seafood Pork No meat Other 4

6 MARKET SNAPSHOT SHEEPMEAT North America For the majority of US consumers, lamb continues to be an unfamiliar protein resulting in low consumption levels. Lamb is still perceived as a niche product primarily appealing to higher disposable income earners residing on the east coast of North America. Challenges and opportunities in the US for Australian Sheepmeat: In the US, an increase in migration of ethnic populations that have lamb as part of their stable diet is slowly creating further demand for the protein. Households earning a higher income are on the rise creating new market opportunities with an estimated 28.5 million households (income over USD75K pa). This is expected to increase by 17% by 22 (Source: BMI Research). Increasing consumer health concerns poses a threat to red meat consumption. New food package labelling that aims to reflect new scientific information will be a key issue in the US in the coming years. Population Households earning US$15+ p.a. Households earning US$35+ p.a in in 22 in in 22 in in 22 In million In million households In million households Source: BMI Research, estimate & 22 projection Source: BMI Research, estimate & 22 projection Source: BMI Research, estimate & 22 projection exports volume exports value Estimated usage split of Chilled lamb 44% Chilled mutton % Frozen lamb 41% Frozen mutton 15% Lamb 89% Mutton 11% Retail 4% Foodservice 6% Total 64,562 tonnes swt Source: Department of Agriculture and Water Resources (DAWR) Total A$ million Source: ABS/GTA. * = Moving Annual Total (MAT), November to October Source: MLA Australia s share of imports Meat consumption 119.9kg per capita* total meat protein** % Australia Other Countries Pork per capita Poultry Beef Sheepmeat 22 Source: MAT (November to October ). In million tonnes cwt Source: BMI Research, OECD * e per person per year ** excluding fish/seafood FOR FURTHER INFORMATION VISIT US ONLINE AT: or us at: marketinfo@mla.com.au MLA INDUSTRY INSIGHTS North America February 217 5

7 Consumers Lamb is the least consumed protein in the US at an average of.4kg per person per year (Source:OECD-FAO) with 49% of US consumers having never purchased lamb (Source: MLA Global Consumer Tracker, ). The majority of Australian lamb consumers in the US earn over US$9k p.a. However year-olds make up the largest proportion of consumers who dine out on Australian lamb (Source: MLA Global Consumer Tracker, ). % by age of people who choose Australian lamb when eating out 3% (18-24yrs) 45% (25-34yrs) 37% (35-49yrs) 16% (5-64yrs) Source: MLA Global Consumer Tracker, As ethnically diverse millennials in the US seek more ethnically diverse cuisines and more exciting non-traditional flavours, lamb is being recognised as a viable option. Around 15% of people in the US aged 2-34 were born in a foreign country (Source: The Council of Economic Advisers, 15 Economic Facts about Millennials ). Out of the 8 cities surveyed, lamb consumption varied with above national average consumption in Florida and New York City. Past 7 days Australian Lamb Consumption Foodservice The availability of lamb on US restaurant menus has grown steadily over the years, featuring on 42% more menus than 1 years ago (25-). Historically lamb has been more popular in foodservice in the US with a reputation of being a niche product appealing to the higher end consumer. Lamb maintains its position as a core protein at fine dining restaurants however strong growth is occurring in other segments such as QSR/family/casual. Lamb at US Chains & Independents Penetration by segment QSR Midscale Casual Fine Dining Total 7% 17% 2% 25% Source: Datassential Lamb Menu Trends Growth in these segments has been driven by changing demographics and the shift in demand for more convenient and affordable lamb options such as lamb burgers, meatballs and kebabs. Growth by segment 1 year% change (25-) QSR Casual Fine Dining Midscale 23% Source: Datassential Lamb Menu Trends 26% 51% 6% 56% Fastest growing popular lamb cuts and formats on menus Penetration 25 Florida 18% 2 New York Los Angeles Washington DC 13% 12% 12% % 15 1 Boston 11% 5 San Francisco 1% Chicago Houston National Average 12% Source: MLA Global Consumer Tracker, 8% 9% Lamb Chop Rack Of Lamb Ground Lamb Gyro Kebob Shank Burger/Slider Leg Sausage/Merguez Loin What attributes are important for US consumers? (all proteins) Main reasons haven t bought lamb Source: Datassential Lamb Menu Trends Top 1 listed only. Family s favourite Not familiar Most superior Don t know how to cook it Guaranteed safe to eat Don t like the taste Part of healthy diet for kids Consistent quality stands Source: MLA Global Consumer Tracker, 6 MLA INDUSTRY INSIGHTS North America February 217

8 Retail Consumers mainly shop at supermarkets when buying lamb however club warehouse channels such as Costco attracts the young affluent consumer. Where do shoppers go to buy Australian lamb Supermarkets 46% Club Warehouse 33% Butcher 1% Supercentre 5% Online 4% Other 3% Other suppliers Imports make a significant contribution to the lamb and mutton supply in the US. In * imports accounted for approximately 65%** sheepmeat consumed in the US. ** Calculated based on OECD-FAO consumption and total sheepmeat imports sourced from GTA. New Zealand sheepmeat imports to the US decreased by 5.5% during the year ending November compared to the same period in. Conversely, Australian imports increased by 7%. Sheepmeat imports by major supplier 1 Source: MLA Global Consumer Tracker, Where do high income earners shop when purchasing lamb (income over US$9K p.a) 6 5 tonnes swt % YTD* YTD* 1 Costco Whole Foods Market Source: MLA Global Consumer Tracker, Butcher Other Trader Joes What things do consumers look for on lamb retail packs? All Natural/1% natural 46% Colour of meat 43% Date packed 43% Australia NZ Chile Iceland Canada Other Source: GTA * YTD Jan-Nov In * 44% of Australia s sheepmeat to the US was chilled, compared to New Zealand at 32%. % of chilled sheepmeat imports to the US 44% 32% 43% 31% 42% 38% 46% 35% 6% Freshness 4% 46% 33% Use by date 28% Source: MLA Global Consumer Tracker, 2.8% of households purchase fresh lamb at retail and make 2.6 trips a year to buy it, up 7.2% from the previous year. Fresh lamb consumers are premium shoppers, spend more in stores and prefer healthier, home-cooked items (Source: Nielsen shopper behaviour analysis, ). Value share of fresh lamb Australia Source: GTA NZ Lamb Chops 52% Lamb Roasts 22% Leg of Lamb 16% Ground Lamb 7% Lamb Shanks 3% Source: Nielsen, shopper behavior analysis, MLA INDUSTRY INSIGHTS North America February 217 7

9 Market Access Overview Trade agreements Import tariffs Competitors Volume restrictions Technical access Technical access Australia-United States FTA (AUSFTA, EIF* 25) Australia to US % To Canada 1% To Mexico 2.5% New Zealand has a tariff of US.7 cents per kg for lamb and US 2.8 cents per kg for mutton. There are no trade restrictions on Australian lamb and mutton exported to the US. US Issues include point of entry inspection, label approvals and port mark compliance. Mexico No protocol for the export of flat stacked sheep carcases prevent further shipments to Mexico. Best access Major challenges Source: Trade agreements, DFAT, MLA * Entry into force. exports to US summary table volume in tonnes swt % out % out 5 year average (211-) % out change vs 5-yr av. % in tonnes swt by storage by meat type by storage/ meat type value in A$ Total 64, , , ,884 Chilled 28, , , ,577 Frozen 36, , , ,37 Lamb 54, , , ,284 Mutton 1, , , Chilled lamb 28, , , ,75 Chilled mutton Frozen lamb 26, , , ,579 Frozen mutton 1, , , % in A$ Total 666,799* 1 69, , ,344 by meat type Lamb 59,567* , , ,811 Mutton 76,232* 11 92, , ,534 Source: ABS/GTA. * = Moving Annual Total (MAT), November to October. Australian lamb exports to US by major cut (in tonnes swt) % in tonnes swt Carcase 19, , , ,84 Leg 14, , , ,728 Shank 5, ,14 8 3, ,395 Shoulder 4, , , Shortloin 4, ,27 8 4, other 5, , , Total 54, , , ,284 Australian lamb exports to Canada by major cut (in tonnes swt) % in tonnes swt Leg 3, , , Shortloin 1, , , Rack other 2,3 28 2, , Total 7, ,98 1 5, ,646 Australian lamb exports to Mexico by major cut (in tonnes swt) % in tonnes swt Neck Shoulder other Total 1,88 1 1,24 1 1,

10 MARKET SNAPSHOT Japan SHEEPMEAT Sheepmeat is a minor protein in Japan, yet Australia supplies 68% of imports into Japan, making it the largest export market in Asia for Australian chilled lamb. While Genghis Khan sheepmeat barbecue restaurants are the major outlet for sheepmeat overall, there is a trend emerging in modern foodservice to incorporate Australian lamb on menus as a point of difference. Challenges and opportunities in Japan for include: Competition from other proteins remains strong. However, any increase in sheepmeat demand will need to be met by an increase in imports, as the scale of Japan s local sheepmeat industry is limited. There is rising lamb awareness among businesses and consumers but overall awareness remains low compared to other markets. Japan has a highly sophisticated and competitive foodservice sector. In order to demonstrate their point of difference, innovative chefs in Japan are experimenting with Australian lamb in diverse cuisine styles including Italian, middle-eastern, Chinese and Japanese. Population Households earning US$15+ p.a. Households earning US$35+ p.a in in 22 in in 22 in in 22 In million In million households In million households Source: BMI Research, estimate & 22 projection Source: BMI Research, estimate & 22 projection Source: BMI Research, estimate & 22 projection exports volume exports value Reasons not to buy lamb 47% Chilled lamb 4% Frozen lamb 26% Frozen mutton 34% Lamb 71% Mutton 29% 35% 31% Total 13,222 tonnes swt Source: Department of Agriculture and Water Resources (DAWR), CY Total A$ 15.6 million Source: GTA, MAT (Moving Annual Total) November to October Not familiar Can t cook Not available Source: MLA Global Consumer Tracker, Australia s share of imports Meat consumption 48.3kg per capita* total meat protein** % Australia Other Countries Pork g per capita*.2.2 Poultry Beef Sheepmeat 22 Source: Ministry of Finance (Japan), MAT December to November In million tonnes cwt Source: BMI Research, GIRA, estimate and 22 projection * e per person per year ** excluding fish/seafood FOR FURTHER INFORMATION VISIT US ONLINE AT: or us at: marketinfo@mla.com.au MLA INDUSTRY INSIGHTS Japan February 217 9

11 Market Access Overview Trade agreements Import tariffs Competitors Volume restrictions Technical access JAEPA (Japan-Australia Economic Partnership Agreement) NIL (for all countries) NZ (same access conditions as Australia) N/A No major hurdles Best access Major challenges Source: Trade agreements, MOF, MLA exports to Japan summary table volume in tonnes swt % out % out 5 year average (211-) % out change vs 5-yr av. % in tonnes swt by storage by meat type by storage/ meat type value in A$ Total 13, , , Chilled 5, , , Frozen 7, , , Lamb 8, , , Mutton 4, , , Chilled lamb 5, , , Chilled mutton Frozen lamb 3, , , Frozen mutton 4, , , % in A$ Total 15,587* 1 99, , ,29 by meat type Lamb 74,794* 71 72, , ,691 Mutton 3,793* 29 26, , ,338 Source: ABS/GTA. * = Moving Annual Total (MAT), November to October. Australian lamb exports to Japan by major cut (in tonnes swt) % in tonnes swt Shoulder 4, , , Manufacturing 1, , , Rack Leg Carcase other Total 8,64 1 7, , exports to Japan 16 tonnes swt chilled lamb frozen lamb chilled mutton frozen mutton Genghis Khan sheepmeat barbecue 1

12 MARKET SNAPSHOT Korea SHEEPMEAT Urban Korean consumers are developing a taste for, largely driven by Chinese-influenced lamb barbecue (BBQ) /skewer outlets. Seeing increased interest in sheepmeat, Genghis Khan style (tabletop sheepmeat BBQ from Japan) restaurants are also opening up in the market. Challenges and opportunities in Korea for include: Australian lamb exports to Korea grew from only 1,639 tonnes swt in 26, to 8,97 tonnes swt in a decade. Steady growth in demand indicates there is an emerging appreciation for this protein, albeit from a small volume. Sheepmeat is a minor protein in Korea. Growth in demand almost solely depends on lamb skewer outlets with no other significant end-users to build further volume. Increasing lamb awareness and promoting usage by other restaurants, remain a challenge. Population Lamb sales in the retail sector remain largely untapped. A large number of consumers with middle to high incomes, and an appreciation for high quality protein (originating from its domestic Hanwoo beef) provides opportunities for creating demand in this segment. An increase in sheepmeat demand will have to be met by a rise in imports, as the scale of the local sheepmeat industry is limited. Households earning US$15+ p.a. Households earning US$35+ p.a in in 22 in in 22 in in 22 In million In million households In million households Source: BMI Research, estimate & 22 projection Source: BMI Research, estimate & 22 projection Source: BMI Research, estimate & 22 projection exports volume exports value Chilled lamb 17% Frozen lamb 68% Frozen mutton 15% Lamb 87% Mutton 13% Total 1,597 tonnes swt Source: Department of Agriculture and Water Resources (DAWR), CY Total A$ 59.5 million Source: GTA, MAT (Moving Annual Total) November to October Australia s share of imports Meat consumption 7.7kg per capita* total meat protein** % Australia Other Countries Pork g per capita*.1.1 Poultry Beef Sheepmeat 22 Source: GTA, MAT (Moving Annual Total) December to November In million tonnes cwt Source: BMI Research, GIRA * e per person per year ** excluding fish/seafood FOR FURTHER INFORMATION VISIT US ONLINE AT: or us at: marketinfo@mla.com.au MLA INDUSTRY INSIGHTS Korea February

13 Market Access Overview Trade agreements Import tariffs Competitors Volume restrictions Technical access KAFTA Korea-Australia Free Trade Agreement 15.75% in 13.5% in 217 % in 223 Under KAFTA NZ Import tariff 15.75% (217) under NZ-Korea Free Trade Agreement* N/A No major hurdles Best access Major challenges Source: Trade agreements, DFAT, MLA * Under KNZ FTA (Korea-New Zealand Free Trade Agreement), import tariff on NZ sheepmeat will be eliminated in 224 exports to Korea summary table volume in tonnes swt % out % out 5 year average (211-) % out change vs 5-yr av. % in tonnes swt by storage by meat type by storage/ meat type value in A$ Total 1, , , ,452 Chilled 1, ,453 Frozen 8, , , , Lamb 8, , , ,965 Mutton 1, , , Chilled lamb 1, ,453 Chilled mutton Frozen lamb 7, , , ,512 Frozen mutton 1, , , % in A$ Total 59,539* 1 5, , ,656 by meat type Lamb 52,59* 87 42, , ,974 Mutton 7,48* 13 8, , ,682 Source: ABS/GTA. * = Moving Annual Total (MAT), November to October. Australian lamb exports to Korea by major cut (in tonnes swt) % in tonnes swt Shoulder 4, , , ,741 Breast & Flap 2, , ,318 Manufacturing Rack Intercostals other Total 8,97 1 6, , ,965 exports to Korea 12 1 tonnes swt Lamb Mutton 12

14 MARKET SNAPSHOT China SHEEPMEAT China is a large, complex country with significant regional cultural variation, and a mixed demand outlook for imported sheepmeat. A sophisticated market segmentation approach to identifying and developing opportunities for is required. Challenges and opportunities in China for : Despite slowing economic growth, consumer demand for premium imported meat generally is expected to continue to grow, driven by increasing urbanisation, disposable incomes, premiumisation and health awareness. Sheepmeat typically contributes around 3% of dietary protein and most consumers don t yet differentiate between lamb and mutton but consumption is forecast to continue to gradually increase. Sheepmeat is traditionally used in a variety of stew, soup and hot pot dishes, and is a popular street food in the form of spiced grilled kebabs. Population China sheepmeat import demand is strongly impacted by domestic production, particularly at the commodity end of the market. China s retail sector is the largest globally (based on retail sales) but is among the world s most fragmented. Whilst ChAFTA* is reducing tariffs on Australian sheepmeat, improving market access remains a priority, particularly for chilled lamb. * China-Australia Free Trade Agreement Households earning US$15+ p.a. Households earning US$35+ p.a. 1,382 1, in in 22 in in 22 in in 22 In million In million households In million households Source: BMI Research, estimate & 22 projection Source: BMI Research, estimate & 22 projection Source: BMI Research, estimate & 22 projection exports volume exports value Proportion of key cuts Frozen lamb 66% Frozen mutton 34% Lamb 64% Mutton 36% Breast & flap 67% Rack cap 11% Neck 7% other 15% Total 59,449 tonnes swt Source: Department of Agriculture and Water Resources (DAWR), CY Total A$ 233 million Source: GTA, MAT (Moving Annual Total) November to October, CY Australia s share of imports Meat consumption 49.9kg per capita* total meat protein** % Australia Other Countries Pork 3.kg per capita* Poultry Beef Sheepmeat 22 Source: GTA, MAT October to November In million tonnes cwt Source: BMI Research, GIRA, estimate and 22 projection * e per person per year ** excluding fish/seafood Source: FAO-OECD FOR FURTHER INFORMATION VISIT US ONLINE AT: or us at: marketinfo@mla.com.au MLA INDUSTRY INSIGHTS China February

15 Consumers China is a country of great regional cultural diversity and variation in consumption habits and preferences, particularly in the context of discretionary items. Considering cuisine alone, there are at least 8 official Chinese cuisines. Sheepmeat consumption is generally higher in the cooler northern areas of the country and traditionally has a strong seasonality, as it is considered to generate internal heat, with consumption increasing during the cooler months. Consumed in the past year 7 Whilst pork and chicken appeal for their low price, versatility and convenience, lamb is perceived to have strengths in being a superior protein of high nutritional value. Perceptions of lamb vs average of all other proteins The most superior meat Has high nutritional value It's becoming more popular Willing to pay more for it Source: MLA Global Consumer Tracker, +6% +6% +6% +1% % Sheepmeat and sheep offal has traditionally been used in stew, hot pot and soup recipes and is a popular street food in the form of grilled spiced kebabs. The bulk (over 8%) of exports to China are breast and flap, carcase and manufacturing, with rack and loin cuts comprising less than 1%. 1 Foodservice Beijing Shenyang Tianjin Xiamen Shanghai Qingdao Hangzhou Dalian Shenzhen Nanjing Wuhan Chengdu Chongqing Guangzhou Changsha As a less familiar protein, many Chinese consumers are more likely to eat sheepmeat out-of-home than cook it at home themselves. Mutton Lamb Northern Cities Source: MLA/Canadean China Attractive Cities Study, Despite being the most populous country in the world, the proportion of consumers that can afford to regularly buy imported sheepmeat is comparatively small, although their number will double over the next 5 years. Reasons Chinese consumers don t buy lamb Don't buy/cook but eat it out Don't know how to cook Not available at shop 23% 3% 29% Number of households earning >U$35, p.a. Don't like the taste 22% 1 Not familiar 18% 8 Too expensive 12% millions Vietnam Indonesia Taiwan China Australia South Korea Japan Germany USA Too fatty Source: MLA Global Consumer Tracker, Imported Australian lamb can be found on menus in high-end western style restaurants and 5-star hotels. The bulk of is further processed in-market and goes primarily into the hot pot restaurant sector. Some reputable high-end hot pot restaurant chains offer Australian sheepmeat, where it features for its quality. Eating lamb at restaurants is also seen as an opportunity to try different cuisines. 8% 22f Cuisine of last lamb dinner meal eaten out Source: BMI Research In, 21% of consumers surveyed from the four tier 1 cities of Beijing, Shanghai, Guangzhou and Shenzhen said they had never bought lamb. Per capita consumption of sheepmeat in China is small compared to other proteins but is forecast to increase 23% over the next decade from 3.kg in to 3.7kg in 225 (Source: FAO-OECD). Source: MLA Global Consumer Tracker, Local 75% Foreign 25% Unknown/other 1% 14 MLA INDUSTRY INSIGHTS China February 217

16 Retail MLA estimates that currently a very small proportion of is directly sold through retail channels. Whilst Australian lamb does have a presence in some specialist high-end supermarkets that service expatriates and affluent Chinese who have lived overseas, more of it is sold as packaged hot pot rolls, and not necessarily with country-oforigin labelling. Despite its size ranking globally No. 1 in total retail sales (U$1,231.3bn in 217f) China s grocery retail sector is very fragmented (Source: IGD). % Market share grocery retail 217f Vietnam Indonesia Organised retail China South Korea Other Taiwan Japan UAE USA Singapore Australia Other suppliers China has the world s largest sheep flock, estimated at 315 million head in. Domestic sheepmeat production is expected to grow, though moderate, in coming years (Source: GIRA). China is a comparatively small exporter of sheepmeat now, as domestic demand has grown. Imports comprised only around 6% of the sheepmeat consumed in China in. In, Australia supplied around a third of China s total sheepmeat imports. Key competitors: New Zealand has long been China s largest imported sheepmeat supplier, in supplying 11,443 tonnes swt from Jan-Oct. Uruguay and Chile are smaller suppliers. tonnes swt China sheepmeat imports Source: IGD f = forecast 5 E-commerce is a well-developed channel in China, particularly for apparel, personal care and electricals and through which a variety of frozen and manufacturing sheepmeat products are being sold. Challenges with cold chain management remain significant for fresh food, including higher-end lamb product YTD* YTD* NZ Australia Uruguay Other Source: GTA, China Customs *YTD Jan-Oct Trade access Market access work is complex, time-consuming and challenging and is a high priority for Australia. Australia has made some significant market access gains in the China sheepmeat market since. The key issues that remain a priority for Australia to resolve relate to the limited number of plants approved to export to China (particularly for chilled sheepmeat) and restrictions on offal exports. Live exports China has been a significant market for Australian breeder sheep exports. Some 6,456 head were exported in, a significant decline of 61% on (, ABS). MLA INDUSTRY INSIGHTS China February

17 Market Access Overview Trade agreements Import tariffs Competitors Volume restrictions Technical access ChAFTA China-Australia Free Trade Agreement (entered into force 2 December, ) Under ChAFTA: 217: Chilled bone-in/ boneless meat: 1% Chilled carcases/ half-carcases: % Frozen bone-in/ boneless meat: 8-1% Frozen lamb carcases/ half carcases: 1% Frozen mutton carcases/ half carcases: 15.3% Sheep offal % NZ import tariffs: Zero from Jan Uruguay, Chile & Mongolia import tariffs: Frozen bone-in/boneless meat: 12-15% Frozen lamb carcases/ half carcases: 15% Frozen mutton carcases/ half carcases: 23% Frozen sheep offal: 18% N/A Restrictions on the number of approved plants, chilled plants and restrictions on edible offals. 223: Meat: Zero 224: Offal: Zero Best access Major challenges Source: Trade agreements, DFAT, MLA NB: China also applies a 13% VAT on most items (muscle cuts, offal) and 17% on processed exports to China summary table volume in tonnes swt % out % out 5 year average (211-) % out change vs 5-yr av. % in tonnes swt by storage by meat type by storage/ meat type value in A$ Total 59, , , ,297 Chilled Frozen 59, , , ,275 Lamb 39, , , ,5 Mutton 2, , , ,31 Chilled lamb Chilled mutton Frozen lamb 39, , , ,17 Frozen mutton 2, , , ,292 % in A$ Total 232,987* 1 248, , ,5 by meat type Lamb 148,748* , , ,961 Mutton 84,239* 36 17, , ,462 Source: ABS/GTA. * = Moving Annual Total (MAT), November to October. Australian lamb exports to China by major cut (in tonnes swt) % in tonnes swt Breast & Flap 24, , , ,553 Manufacturing 7, , , ,765 Neck 3, , , ,484 other 3, , Total 39, , , ,5 Australian mutton exports to China by major cut (in tonnes swt) % in tonnes swt Breast & Flap 15, , , ,41 Carcase 2,91 1 6, , ,38 Leg 1, , , ,83 other 1, , , ,87 Total 2, , , ,31 16

18 MARKET SNAPSHOT SHEEPMEAT South East Asia (including Indonesia) South East Asia (SEA*) is a diverse region with vast differences in wealth, religion and economy across countries. Meat consumption is steadily rising in line with the region s economic development and population growth. Key sheepmeat importing countries in SEA are Malaysia, Singapore, and Indonesia. Challenges and opportunities in SEA for include: Sheepmeat is a minor protein in the region, and some markets do not distinguish between lamb and mutton. Lamb awareness varies across countries with up to 55% of target consumers being aware of lamb in Malaysia vs only 11% in Thailand. Unlike pork or beef, sheepmeat is consumed across a range of religions an ideal protein for multicultural consumers in SEA, as well as international visitors to the region. The period of strong demand for red meat is Ramadan. Tourism is significant in the region and growing in some areas. High end foodservice tends to follow this growth, which bodes well for chilled lamb growth. * In this report, SEA includes the following countries Indonesia, Malaysia, Thailand, Singapore, the Philippines, and Vietnam, as well as Brunei, Cambodia, Laos and Myanmar. Population Households earning US$15+ p.a. Households earning US$35+ p.a in in 22 in in 22 in in 22 In million In million households In million households Source: BMI Research, estimate & 22 projection, total of 1 countries Source: BMI Research, estimate & 22 projection, total of 7 countries Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam and Cambodia Source: BMI Research, estimate & 22 projection, total of 7 countries Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam and Cambodia exports volume Chilled lamb 3% Chilled mutton 1% Frozen lamb 34% Frozen mutton 62% exports value Lamb 44% Mutton 56% Reason not to buy lamb #1 Don t know how to cook Total 41,262 tonnes swt Total A$ 22.2 million Malaysia, Singapore, Indonesia Source: Department of Agriculture and Water Resources (DAWR), CY Source: GTA, MAT (Moving Annual Total) November to October Source: MLA Global Consumer Tracker, Australia s share of imports Meat consumption 72% Malaysia 99% 9% Singapore Indonesia Pork Poultry Beef Sheepmeat 22 Source: GTA, based on MAT volume of Malaysia, Singapore and Indonesia In million tonnes cwt Source: BMI Research, estimate and 22 projection, total of 6 countries Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam. Singapore data are GIRA & 221 forecasts, sheepmeat data except Singapore are OECD and includes goatmeat FOR FURTHER INFORMATION VISIT US ONLINE AT: or us at: marketinfo@mla.com.au MLA INDUSTRY INSIGHTS South East Asia February

19 Consumers The SEA region is diverse in many aspects, and there is a vast difference in wealth (Singapore s GDP per capita is almost 4 times Cambodia s), in religion (Buddhist, Muslim, Roman Catholic and Hindu) and economic/political systems. Sheepmeat awareness and consumption vary across the markets in the region. In Malaysia and Singapore, sheepmeat is a common part of diets, although consumption volume is still low in comparison with other proteins. Lamb awareness Malaysia 55% Singapore 46% Indonesia 39% Philippines 24% Vietnam 13% Thailand 11% Source: MLA Global Consumer Tracker, In some markets, sheepmeat and goatmeat are not clearly differentiated. Similarly, there is little distinction between lamb and mutton among the majority of consumers in Malaysia, while lamb is an established protein category in markets such as Singapore, Thailand and Indonesia. Lack of knowledge/confidence in cooking is the major obstacle for consumers who haven t bought lamb, rather than taste. % Agreed I don t buy lamb because Don t know how to cook Not familiar Don t buy but eat out Malaysia Singapore Indonesia Source: MLA Global Consumer Tracker, Don t like the taste Not available where I shop Sheepmeat demand surges during festive seasons, including Ramadan month. In Indonesia, serving imported lamb is becoming more popular than local goatmeat. Foodservice Lamb is a minor protein but consumed in a most diverse way in the SEA foodservice sector from western style cuisine, to Malay, Chinese, Indian or Middle Eastern flavoured dishes. In Malaysia, sheepmeat is a popular protein when dining out during the annual Ramadan month banquets. In Singapore, there are over 15 million people who visit the country every year, and more than one third of these visitors come from countries where sheepmeat is commonly consumed such as China, Australia, the US, Europe and the Middle East. Demand from Singapore locals, as well as these international visitors makes indispensable on restaurant menus. Total number of arrivals into Singapore, by country 15.5 million arrivals in * Source: BMI Research, estimate ASEAN Greater China Australia and NZ India US and Canada Europe (inc Russia) Middle East Other In SEA, demand for chilled Australian lamb in the high-end foodservice sector is expected to grow steadily, underpinned by a rising number of tourists into the region. tonnes swt Australian chilled lamb exports to SEA Rack Leg Carcass Shoulder Loins* Other. * Backstrap, shortloin, bone-in and bone-less loins Ramadan dates are based on a lunar calendar, and migrate throughout the seasons. Subsequently, the timing of the demand spike for red meat changes with it every year. Ramadan schedule Year First day Last day 7 Jun 6 Jul May 25 Jun May 14 Jun May 4 Jun Apr 23 May Apr 12 May Apr 2 May Note: Ramadan start day may vary by country as it depends on when the new moon is first sighted 18 MLA INDUSTRY INSIGHTS South East Asia February 217

20 Retail A large proportion of the retail sector in South East Asia is still dominated by traditional and locally owned businesses. That said, the modern retail format is quickly expanding, with imported lamb readily available at supermarkets in Singapore and urban Malaysia. Malaysia Where do consumers in KL buy Australian lamb? When buying lamb, consumers in both countries seek freshness and naturalness cues on a pack. In terms of image, Australian lamb is seen by these consumers to have good taste, consistent quality, and produced in an environmentally sustainable manner (Source: MLA Global Consumer Tracker, ). Singapore Where do consumers buy Australian lamb? Supermarket 46% Hypermarket 46% Butcher 4% Wet market 2% Online % Other 2% Supermarket 69% Hypermarket 17% Butcher 8% Wet market 5% Online % Other 1% Source: MLA Global Consumer Tracker, Source: MLA Global Consumer Tracker, Key retailers Key retailers Supermarket Hypermarket Source: MLA Global Consumer Tracker, Cold Storage, Jaya Grocer Jusco, Tesco Supermarket Butcher Source: MLA Global Consumer Tracker, NTUC FairPrice, Giant, Cold Storage Hubers, Culina What things do consumers look for on lamb retail pack? Freshness 56% All natural 52% Date packed 5% Colour of meat 42% Country of origin 42% What things do consumers look for on lamb retail pack? Freshness 49% All natural 47% Date packed 44% Colour of meat 42% Country of origin 42% Source: MLA Global Consumer Tracker, Source: MLA Global Consumer Tracker, Other suppliers Australia is the largest supplier of sheepmeat to the SEA region, followed by New Zealand. For New Zealand, Malaysia is the 9th largest export destination of sheepmeat (in volume, the 13th in value). New Zealand s export volume to the region has been relatively stable, in comparison to its growth in exports to China. Sheepmeat exports Australia and New Zealand Meat sold at a local market (Vietnam) tonnes swt NZ exports to SEA Australia to SEA NZ to China YTD* Modern retail counter in Malaysia (Maxvalue) Source: GTA. SEA = total of 1 ASEAN countries (Indonesia, Singapore, Malaysia, the Philippines, Thailand, Vietnam, Laoc, Cambodia, Brunei and Myanmar) * YTD Jan-Oct MLA INDUSTRY INSIGHTS South East Asia February

21 Market Access Overview Trade agreements Import tariffs Competitors Volume restrictions Technical access AANZFTA* ASEAN-Australia-New Zealand FTA %** Except Indonesia, Cambodia, Laos and Myanmar NZ Import tariff same as Australia under AANZFTA N/A Indonesia, Malaysia and Brunei maintain import regulations in accordance with Halal Best access Major challenges Source: Trade agreements, DFAT, MLA * Australia also has independent free trade agreements (FTAs) with Singapore, Malaysia and Thailand ** Tariff will be % in Myanmar (22), Cambodia and in Laos (221). Cambodia will maintain 35% tariff on bone-less products. Indonesia = 5% for chilled bone-in and all frozen products, including goatmeat. exports to SEA* summary table volume in tonnes swt % out % out 5 year average (211-) % out change vs 5-yr av. % in tonnes swt Total 41, , , ,745 by storage Chilled 1, , , Frozen 39, , , ,469 by meat type Lamb 15, , , ,176 Mutton 25, , , ,569 Chilled lamb 1, , , by storage/ meat Chilled mutton type Frozen lamb 14, , , ,994 Frozen mutton 25, , , ,474. * Includes SEA 1 countries Indonesia, Malaysia, Singapore, the Philippines, Thailand, Vietnam, Brunei, Laos, Myanmar and Cambodia value in A$ % in A$ Total 22,179* 1 229, , ,917 Lamb 97,161* 44 98, , ,123 by meat type Mutton 123,19* , , ,795 Source: ABS/GTA. * = Moving Annual Total (MAT), November to October. exports to Singapore by major cut (in tonnes swt) % in tonnes swt Leg Lamb Carcase Shoulder other Total Total 2, ,27 1 1, Carcase 5, , , ,19 Mutton Leg 2, , , Manufacturing 1, other Total Total 9, , , ,6 exports to Malaysia by major cut (in tonnes swt) % in tonnes swt Shoulder 7, , , ,941 Lamb Carcase , Leg other 1, Total Total 9, ,91 1 6, ,157 Carcase 8, , , ,864 Mutton Manufacturing 2, , , Shoulder 2, , , other 1, ,26 8 1, Total 14, , , ,717 2

22 MARKET SNAPSHOT SHEEPMEAT European Union The European Union covers 28 European countries with the population size of some far greater than others. Consumption of red meat is expected to increase on the back of slightly improved economic conditions and lower meat prices. Ireland, Greece, Spain, France, Romania and UK accounted for 72% of sheepmeat consumption in EU in. The UK is the largest destination in the EU with sheepmeat exports accounting for approximately 75% of Australia s total exports. The challenges and opportunities in the EU for include: A growing population and an increase in private consumption are expected to continue. Consumer demand for lamb is expected to remain steady driven by lamb consumption within the Muslim community. Tightening supplies are expected to support Australian lamb prices this year with New Zealand sheep meat production also set to slightly decline. Social factors such as health concerns for an ageing European population, animal welfare and environmental issues will be challenges for the red meat industry. Market access restrictions will continue to hinder exports and therefore improving market access remains a priority. This report covers EU28 unless otherwise stated. EU28 Austria, Belgium, Bulgaria, Croatia, Cyprus Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom. Population Households earning US$15+ p.a. Households earning US$35+ p.a in in 22 in in 22 in in 22 In millions In million households In million households Source: BMI Research, estimate & 22 projection includes EU-28 countries Source: BMI Research, estimate & 22 projection includes EU-28 countries Source: BMI Research, estimate & 22 projection includes EU-28 countries exports volume exports value Proportion of key cuts Chilled lamb 31% Chilled mutton % Frozen lamb 39% Frozen mutton 3% Lamb 74% Mutton 26% Leg 58% Manufacturing 15% Shank 15% Chump 7% other 6% Total 16,471 tonnes swt Source: Department of Agriculture and Water Resources (DAWR), Total A$ million Source: GTA, MAT (Moving Annual Total) November to October, CY exports by country Meat consumption United Kingdom 75% France 13% Other 12% Pork Poultry Beef Sheepmeat 22, CY In million tonnes cwt Source: European Commission, Prospects for EU agriculture markets and income -226, OECD-FAO FOR FURTHER INFORMATION VISIT US ONLINE AT: or us at: marketinfo@mla.com.au MLA INDUSTRY INSIGHTS European Union February

23 Consumers There is growing importance of social concerns and the source of origin of meat products among European consumers. Strong interest in lamb from ethical production systems which is raised with a high degree of animal welfare, sustainable carbon footprint and of reliable eating quality is a high priority amongst EU citizens. Sheepmeat consumption in countries such as UK, Ireland and Greece is traditionally linked to production cycle. In other EU countries, purchasing decisions are motivated by consumer demand at culturally significant times and food trends in emerging markets. Total EU meat consumption has shown a recovery since attributed to improved economic conditions and growth in population. tonnes cwe EU meat consumption by meat types ,13 41,913 41,451 41,38 42,59 43,374 43,756 43, Beef & Veal Sheep & Goat Pork Poultry Source: European Commission Sheepmeat is the least consumed protein in the EU (in comparison to Beef, Pork & Poultry) with sheepmeat consumption in some countries greater than others. The protein accounts for only 3% meat consumption at 2.1kg per capita in. EU sheepmeat consumption per capita has declined more rapidly than consumption of other meats, down 26% between 25 and, compared with -1% for beef, -5% for pigmeat and +16% for poultry due to decreased supply and affordability. Among important consumers of sheepmeat, only Romania registered a rise in consumption per capita. (Source: GMC ). Ireland, Greece, Spain, France, Romania and UK accounted for 72% of sheepmeat consumption in EU in (Source: GMC ). Overall sheepmeat consumption in EU is forecast to increase slightly over the next few years. Sheepmeat Consumption 3 f 22f Production The EU produced 929, tonnes of sheepmeat in (Source: European Commission). The United Kingdom remains the largest sheepmeat producer in the region, accounting for over 3% EU sheep production in. EU sheepmeat production registered a slight 1% increase in compared to (Source: European Commission). Increased numbers were processed by France, Romania and Spain whereas poor seasonal conditions affected turnoff from the UK, Ireland and Greece. (Source: GMC ). The EU is not self-sufficient in sheepmeat production as demand outstrips domestic production capabilities. By 226 the EU will require an additional 229, tonnes from overseas markets to meet domestic requirements. In the next five years, the EU sheep flock and production rates are expected to rise marginally with a higher concentration in fewer countries. (Source: GMC ). tonnes cwt EU Sheepmeat Production by country UK 32% France 12% Ireland 6% Romania 1% Spain 14% Greece 1% Other 16% Source: Gira GMC16, Incl. estimated unofficial production EU Sheepmeat Production and Consumption tonnes cwe Australia Ireland Greece Spain France 217 Romania UK Net production Consumption Exports Imports Source: European Commission Prospects for EU agriculture markets and income Source: Gira GMC16, FAO-OECD EU countries include goatmeat. United Kingdom is the biggest consumer of sheepmeat in the EU, consuming 26% of EU s total sheepmeat in. The majority of Australian lamb exported to the United Kingdom primarily goes into foodservice. 22 MLA INDUSTRY INSIGHTS European Union February 217

24 Opportunities European consumer confidence is improving with private consumption* within the EU forecast to increase from USD8.8 billion in to USD9.6 billion in 22, up 9% (Source: BMI Research). Across key member states, economic growth and household spending on meat is expected to increase. USDmn * Private consumption is the sum of all household spending on goods and services within the economy. Annual meat sales, USDmn Australia France Germany Italy Spain UK Market Access Australia s current red meat access is limited by the EU s highly restrictive import regime involving low volume import quotas and high out of quota import tariffs. The EUs regime is in stark contrast to the majority of other Australian export markets. Current trading arrangements between Australia and the EU (including the UK) will remain unchanged for the next two years (until April 219) while Brexit negotiations are carried out. It has been announced that Australia and the EU will begin procedures to secure a closer bilateral trade partnership the precursor to launching formal free trade agreement (FTA) negotiations between the two parties. Sheepmeat quota allocation by country New Zealand Australia Argentina 19,186 23, 228, Uruguay 5,8 Source: BMI Research Macroeconomic variables Country GDP Per capita GDP Per capita 22 % growth Population (millions) Population 22 % growth Germany 42,26 3% 8.7 % UK 4,192 12% % France 37,747 1% % Italy 3,43-1% 59.8 % Spain 26,21 6% 46.1 % Source: BMI Research accessed January 217, estimates Chile Iceland Others 7,6 1,85 1,2 Source: European Commission Other suppliers Australia s sheepmeat competitors have a distinct market access advantage in the EU. New Zealand has the largest share of EU sheepmeat imports under a 228,254 tonne quota. As a consequence of tighter New Zealand meat supplies expected in /217 and the weak pound against the New Zealand dollar, New Zealand sheepmeat exports are likely to be impacted in 217. Imports by major supplier 2 tonnes swt YTD* YTD* New Zealand Australia Chile Macedonia Uruguay Iceland Falkland Islands Argentina Other Source: GTA * YTD Jan-Oct MLA INDUSTRY INSIGHTS European Union February

25 Market Access Overview Trade agreements Import tariffs Competitors Volume restrictions Technical access EU FTA currently being scoped. In quota: %; above quota: 12.8% euro/ 1 kg New Zealand has a quota of 228,254, far greater than Australia s quota. Access remains limited to 19,186 tonne quota (carcase weight equivalent; calendar year). Technical barriers to trade for the sheepmeat in Europe largely derive from Member States differing interpretation of EU legislation. These are not as prevalent barrier to trade as the economic barriers facing Australian sheepmeat exports to the EU. Best access Source: Trade agreements, DFAT, MLA * European Commission also applies a 13% VAT on most items (muscle cuts, offal) and 17% on processed Major challenges exports to EU summary table volume in tonnes swt % out % out 5 year average (211-) % out change vs 5-yr av. % in tonnes swt by storage by meat type by storage/ meat type value in A$ Total 16, , , Chilled 5, , , Frozen 11, , , Lamb 11, , , Mutton 4, , , Chilled lamb 5, , , Chilled mutton Frozen lamb 6, , , Frozen mutton 4, , , % in A$ Total 119,537* 1 14, , ,337 by meat type Lamb 88,315* 74 98, , ,459 Mutton 31,222* 26 41, , Source: ABS/GTA. * = Moving Annual Total (MAT), November to October. Australian lamb exports to EU by major cut (in tonnes swt) % in tonnes swt Leg 6, , , Manufacturing 1, , , Shank 1, , , Chump Boneless Loin other Total 11, , ,

26 MENA (Middle East & North Africa) MENA* (Middle East and North Africa) is a large, complex region with varied consumer markets. Consumer confidence and spending are impacted by factors such as oil & gas prices and conflict but long-term socio-economic drivers bode well for imported sheepmeat demand in a number of countries. Challenges and opportunities in MENA for : Sheepmeat is an important protein in the region, with consumption and import demand forecast to increase in a number of markets, particularly GCC** countries. Whilst imported mutton goes mostly into the lower tier foodservice sector, regional growth drivers of imported lamb demand are: increasing disposable incomes, urbanisation, westernisation, a young population, large expat professional populations and a developing tourism sector. The retail sector remains fragmented, even in GCC countries, but retail development growth is expected to increase, accompanied by growth in chilled red meat sales. Markets with developing tourism sectors are experiencing growth in demand for premium lamb cuts in the high-end foodservice sector. Technical barriers to trade are significant and differ between countries. * Unless otherwise stated, in this report MENA includes 29 countries: (Middle East) Afghanistan, Bahrain, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Pakistan, Palestinian Auto Zone, Qatar, Saudi Arabia, Syria, Turkey, United Arab Emirates, Yemen; (North Africa) Algeria, Ivory Coast, Gambia, Guinea, Liberia, Libya, Morocco, Nigeria, Senegal, Sudan, Tunisia. ** Gulf Cooperation Council countries are highlighted above in blue. MARKET SNAPSHOT SHEEPMEAT Population Households earning US$15+ p.a. Households earning US$35+ p.a in in 22 in in 22 in in 22 In million In million households In million households Source: BMI Research, estimate & 22 projection *Countries: Algeria, Bahrain, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, UAE, West Bank And Gaza, Yemen Source: BMI Research, estimate & 22 projection *Countries: Bahrain, Egypt, Iran, Jordan, Kuwait, Morocco, Qatar, Saudi Arabia, Tunisia, UAE, Israel, Iraq Source: BMI Research, estimate & 22 projection *Countries: Bahrain, Egypt, Iran, Jordan, Kuwait, Morocco, Qatar, Saudi Arabia, Tunisia, UAE, Israel, Iraq exports volume exports value Proportion of key cuts Chilled lamb 47% Chilled mutton 6% Frozen lamb 1% Frozen mutton 37% Lamb 66% Mutton 34% Carcase 67% Leg 15% Shoulder 6% other 12% Total 111,16 tonnes swt Source: Department of Agriculture and Water Resources (DAWR), CY Total A$ million Source: GTA, MAT (Moving Annual Total) November to October, CY Australia s share of imports Meat consumption % Saudi Arabia 69% UAE Poultry Beef Sheepmeat Source: GTA, based on MAT volume per country In million tonnes cwt Source: GIRA, estimate and 22 projection (2 countries: Morocco, Algeria, Tunisia, Libya, Egypt, Saudi Arabia, United Arab Emirates, Bahrain, Kuwait, Qatar, Oman, Yemen, Jordan, Palestine, Lebanon, Israel, Turkey, Syria, Iraq, Iran.) FOR FURTHER INFORMATION VISIT US ONLINE AT: or us at: marketinfo@mla.com.au MLA INDUSTRY INSIGHTS MENA February

27 Consumers Although economic growth prospects in the MENA region are strongly impacted by external factors, such as oil prices and conflict, increasing urbanisation, growing disposable incomes, westernisation, a young population and large expatriate population are key growth drivers for imported red meat demand. Sheepmeat is an important part of MENA diets, though per capita consumption in some countries is higher than others. Per capita sheepmeat consumption, f Foodservice In some markets that are developing their tourism sectors, such as Dubai, Saudi Arabia and Qatar, demand in the high-end foodservice sector is expected to continue to grow for chilled lamb cuts such as boneless loin, rack and shank. The bulk of Australian frozen mutton imports, which are chiefly carcase and leg, is used in the lower-tier catering sector. In Bahrain, lamb carcases go from butchers into the foodservice sector. However, since the lifting of government subsidies from late, mutton has replaced lamb. Australian chilled lamb exports to MENA selected cuts 5 kg/hd/pa tonnes swt Bahrain Qatar Kuwait UAE Oman Jordan Australia Algeria Saudi Arabia Tunisia Libya Israel 211 Shoulder Rack Bone-In Loin Shank Boneless Loin Source: GIRA, FAO-OECD Demand for sheepmeat imports also varies, with greatest demand from Saudi Arabia and UAE, followed by Jordan and Qatar. Australian lamb has a high profile and is wellregarded in these markets. Sheepmeat is the most loved protein in the hearts and minds of Gulf States consumers, although actual consumption is dominated in volume and frequency by chicken due to its price advantage. I feel very positive about Lamb Chicken Beef Saudi Arabia UAE Source: MLA Global Consumer Tracker, 32% 42% 5% 46% 65% 65% Along with a traditional regional preference for lean meat, some consumers are developing a stronger health awareness, which may impact on their meat and lamb consumption. Utilisation of varies somewhat by country. In UAE, our product goes into both retail and foodservice, whilst in Oman and Saudi Arabia, a significant proportion (especially frozen mutton) goes into foodservice, particularly low end catering. In Qatar and Bahrain, carcases go into butchers, where they are cut up for sale to consumers. Trade access For exporters, tariff barriers are generally not onerous but there are significant technical barriers to trade. Those associated with product age and expiry dates have the biggest impact on Australian red meat exports. The majority of exported to MENA is to GCC countries, which generally have zero tariffs on chilled meat and 5% on frozen and processed meat and offal. Some countries (Morocco, Israel, Egypt, Jordan) have more severe tariff barriers for some product categories. Religious slaughter is an official requirement for import of meat and meat products into most MENA countries. There are currently no protocols for green runners (except with Jordan, Bahrain, Egypt and Lebanon), casings (except Lebanon), edible tallow, gelatine and collagen, skins, hides or rendered products for most MENA countries. Key technical barriers to trade: There are regional inconsistencies for shelf life expiry dates. The GSO sets GCC standards for shelf life which limits vacuum packed sheepmeat to 7 days, 21 days for chilled, 9-12 months for frozen meat and 4-9 months for frozen offal. However, UAE and Jordan recognise a 9 day limit for vacuum packed meat. There are onerous document legalisation requirements and inconsistent labelling and packaging requirements across the region. For Jordan, the net weight of sheep carcases must not exceed 2kg. 26 MLA INDUSTRY INSIGHTS MENA February 217

28 Retail MENA lamb product imports are primarily sold through the retail channel, with chilled lamb carcase being most in demand, as well as smaller but significant volumes of leg and shoulder. Small volumes of premium cuts are available in tier 1 retail with demand expected to grow. Apart from the few wealthier GCC markets, the MENA region s mass grocery retail sector is quite fragmented, with only a small proportion classified as organised. Organised retail as a proportion retail, 217f 75 5 Other suppliers Sheepmeat import demand in MENA is expected to continue to grow as urbanisation, desertification and conflict negatively impact domestic sheep rearing. Australia has traditionally been the region s main source of sheepmeat and live sheep, accounting for around two-thirds of imports in (Source: GTA). Other key suppliers: NZ: export significant volumes of lamb, particularly forequarter, mostly to Jordan and Saudi Arabia and smaller quantities of mutton. India and Pakistan: India supplies mostly chilled but also some frozen mutton to carcase UAE, Saudi Arabia, Qatar and Kuwait. % Sheepmeat exports to MENA by supplier Australia Source: IGD Qatar Bahrain UAE Reflecting their differing levels of development and cooking preferences, consumers in Saudi Arabia are more likely to buy lamb from butchers and wet markets, whilst more UAE consumers use hypermarkets. They are also somewhat different in their sheepmeat purchase decision-making. I mainly buy lamb from Oman Israel Saudi Arabia Lebanon Morocco tonnes swt Australia NZ India Other YTD* YTD* Saudi Arabia UAE, GTA *YTD Jan-Sep (NB: Includes Lamb and Mutton; Excludes ovine offal and goat meat) Live exports Hypermarket 4% Wetmarket 3% Butcher 27% Convenience 4% Supermarket 4% Source: MLA Global Consumer Tracker, Influences me when buying lamb Saudi Arabia Hypermarket 52% Wetmarket 26% Butcher 11% Convenience 5% Supermarket 5% Other 1% UAE In, Australia s key live sheep export markets in MENA were Kuwait and Qatar, both seeing significant growth on. Other important markets were Jordan, UAE, Israel and Oman. In, Australia exported just over 1.85 million head of live sheep to the region (, ABS). Live sheep imports generally increase in the second half of the year as an important element in festival celebrations. Australia s key competitors in the live export market are India, Somalia and Sudan, as well as Romania, Georgia and Spain. Display/leaflet in store Friend/relative word of mouth An advert on TV Newspaper, magazine article Radio show/cooking segement TV show/cooking show Celebrity chef endorsement Radio show/cooking segement Friend/relative word of mouth An advert on TV/Radio Source: MLA Global Consumer Tracker, Key food retailers in the region where consumers purchase from include Carrefour, Lulu, Panda and Sultan Centre. In the MENA region, home-cooking of sheepmeat dishes like stews and slow cooking, grilling of cubes for kebabs and mince as a filling for pastries and kofta are widespread. Grilling of prime cuts is also popular in the region. MLA INDUSTRY INSIGHTS MENA February