7
Alternative and Emerging Markets

The U.S. sheep industry is in the process of transformation forced by economic necessity following years of decline, growing competition from the sheep and textile industries of other countries, and a number of other factors as documented in the preceding chapters. Although the full extent of the changes taking place in the industry is difficult to determine, sheep and lamb inventories indicate growth in eastern and mid-Atlantic states and in the Midwest, where alternative and emerging markets are particularly important (see Chapters 1 and 2). These alternative or “niche” markets represent a growth area for the industry. New and expanded industries include sheep for dairy, purebred flocks used in shows, club lambs, specialty wools, and hair sheep. The growth of these markets is supported through active producer organizations, local marketing systems, statewide fairs, and new technologies, such as the Internet, that have reduced the costs of exchanging information in the market and facilitate identification of buyers and sellers of the products. In addition, the consumer base now includes new ethnic demand for lamb and other meat products, and a growing consumer market for locally produced and organic products.

Although not well documented, alternative and emerging markets are increasing within the sheep and wool industry, as evidenced by an increasing share of lightweight (23–40 kg) feeder lambs and hair sheep now being purchased for slaughter to meet demand from ethnic groups for lighter-weight and younger lamb carcasses. Producers in areas remote from traditional markets but with access to inspected slaughter plants are venturing into direct marketing. Customers may be local friends and neighbors or local buyers that have interests in “local” products (including restaurant and



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7 Alternative and Emerging Markets T he U.S. sheep industry is in the process of transformation forced by economic necessity following years of decline, growing competition from the sheep and textile industries of other countries, and a number of other factors as documented in the preceding chapters. Although the full extent of the changes taking place in the industry is difficult to determine, sheep and lamb inventories indicate growth in eastern and mid-Atlantic states and in the Midwest, where alternative and emerging markets are particularly important (see Chapters 1 and 2). These alternative or “niche” markets represent a growth area for the industry. New and expanded in- dustries include sheep for dairy, purebred flocks used in shows, club lambs, specialty wools, and hair sheep. The growth of these markets is supported through active producer organizations, local marketing systems, statewide fairs, and new technologies, such as the Internet, that have reduced the costs of exchanging information in the market and facilitate identification of buyers and sellers of the products. In addition, the consumer base now includes new ethnic demand for lamb and other meat products, and a grow- ing consumer market for locally produced and organic products. Although not well documented, alternative and emerging markets are increasing within the sheep and wool industry, as evidenced by an increasing share of lightweight (23–40 kg) feeder lambs and hair sheep now being pur- chased for slaughter to meet demand from ethnic groups for lighter-weight and younger lamb carcasses. Producers in areas remote from traditional markets but with access to inspected slaughter plants are venturing into direct marketing. Customers may be local friends and neighbors or local buyers that have interests in “local” products (including restaurant and 0

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0 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES local retail outlets). Organic or specialty products may also be marketed via the Internet or other direct mail-order approaches that meet demand in a broader market. Individual producers have cultivated retail and restaurant outlets for their lamb. Although the alternative and emerging markets are small relative to the traditional industry, they are sectors that are experienc- ing growth and are creating new markets for lamb. ETHNIC MARKETS U.S. lamb consumption has remained steady at about 0.5 kilograms per capita since the mid-1990s, falling from about 3.0 kilograms per capita since the mid-1940s to its present level. However, the average per capita consumption conceals considerable variation by region of the country. For much of the central United States, lamb is rarely considered in the red meat purchase decisions for home consumption and infrequently found in restaurants. The largest U.S. markets for lamb appear to be the East and West coasts, both as household consumption and as food away from home (see Chapter 4). Even in those regions, however, the consumption of lamb is skewed toward religious and ethnic groups in society and away from that part of the population with origins in northern Europe. For the U.S. population of North European descent, lamb has declined in popularity since World War II (see Chapters 1 and 4). Regaining interest in lamb as an integral part of the diet among this population has proven difficult. Certainly, lamb is slowly entering the restaurant trade, particularly higher-end restaurants. In consumer surveys, restaurants are the primary exposure to lamb for much of this population (ALB, 2007). Nonetheless, the ethnically and culturally diverse character of the East and West coasts appears to be ahead of the American heartland in breaking down this long standing barrier to lamb consumption. For some religious groups, lamb is a major consumption item on a regular basis and for several significant holidays or holy days. In the Jewish faith, lamb (kosher) is a regular item in the diet. Similarly, lamb is a regular dietary item for Greek and Eastern Orthodox groups and the preferred meat for the celebration of Easter, with the Orthodox Easter occurring at the same time as the Jewish Passover. In the Muslim faith, lamb (halal) is the preferred meat during Ramadan and the Eidu al-fitr holiday at the end of Ramadan. As well, lamb is a preferred meat for the Eidu al-adha holiday. Several ethnic groups within the United States regularly consume lamb, particularly those of Middle Eastern, North African, Caribbean, southern European, and South Asian origins. Within these groups, lamb consumption on a regular basis seems to persist from generation to generation, following the first-generation immigration to the United States (see, e.g., Larson and Thompson, Undated; USDA, 2006a). Hair sheep lambs are well suited to

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 ALTERNATIVE AND EMERGING MARKETS the ethnic markets because of their smaller carcass size, presence of a tail, and lower likelihood of feedlot finishing. The changing ethnic backgrounds of major U.S. cities away from the New York and California coasts are expanding the populations from these ethnic groups and their associated ethnic markets into areas such as Chicago, Detroit, and Houston. Seasonal Consumption and Religious/Ethnic Effects For many U.S. ethnic groups, lamb is consumed on a regular basis throughout the year. In other words, for these groups there is no particular seasonal pattern to their lamb consumption. Although lamb is consumed throughout the year by various religious groups (which often overlap the ethnic groups noted above), lamb is the preferred meat for specific religious holidays. Muslim, Greek, and Eastern Orthodox populations are the only significant ethnic groups that, because of religion, consume lamb during specific periods of the year. In the Muslim calendar (Alnaseej, 2007), two major periods are as- sociated with lamb consumption. The first is the month of Ramadan (the ninth month of the Hijri calendar). Then, Eidu al-fitr is celebrated on the first day of the month immediately following Ramadan. The second period is the Eidu al-adha, which occurs on the 10th day of Dhul Hijjah, the last month of the Islamic calendar, celebrating the end of the annual Hajj. Eidu al-adha is the most important Moslem holy period for the consumption of lamb. Because the Hijri calendar does not contain the same number of days as the Gregorian calendar, the holy periods for Muslims change each year, advancing 9 to 12 days annually, taking 31 to 33 years to return to the same month in the Gregorian calendar. For Muslims, the consumption is mostly lamb, although some older ovine animals also enter this market. Because of the Eastern and Greek Orthodox population, as well as a large and growing U.S. Muslim population, the question is whether these holy periods affect the seasonal consumption or disappearance of lamb in the United States. The U.S. Census is prevented by law from collecting information regard- ing religious affiliation. As a result, little information on religious affiliation is available on a consistent annual basis. One source is a study of religious affiliation in the adult population comparing 1990 and 2001 (USCB, 2007). By telephone survey, adults were asked to indicate their religion, without prompt or verification, or membership in a religious group. The results for the Jewish population indicated 3.1 million adults for 1990 and 2.8 mil- lion adults for 2001 (1.8 percent and 1.4 percent, respectively, of the adult population). For Muslims, there were 527,000 adults in 1990 and 1.1 mil- lion adults in 2001 (0.3 percent and 0.5 percent of the adult population, respectively). Although Eastern Orthodox groups made up only 0.3 percent of the U.S. population in 1990, their growth rate was about 2.7 percent an-

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 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES nually. Whereas the total Jewish population is declining both as a percentage of the U.S. population and in absolute numbers, the Muslim population is growing in numbers as well as a percentage of the total U.S. population. While kosher foods have been widely available in North America for several years, the availability of halal foods has increased substantially over the past two or three decades. As a result, it is much easier today for Mus- lims to find or access the products they want than in earlier years. For this reason, a trend toward greater use of lamb in Muslim holy periods today than earlier should be apparent. As well, generally in North America, Mus- lims have become more conscious of their own religious rites and stricter in eating habits over the past several years. For both these reasons, as well as the growth in the Muslim population, a trend toward greater consump- tion of lamb during Muslim holy periods over time should be evident in the published data. Because there is relatively little information on the importance of the ethnic lamb market, an analysis of the effects of ethnic markets on aggregate (national level) U.S. lamb demand was conducted as a part of this study. The methodology used for the analysis, including the econometric models and data, are presented in the appendix to this chapter. For the analysis, monthly data over the 1970–2006 period were assembled to explore the impact of Orthodox and Muslim holy periods on lamb slaughter. The data represented head (thousands) of lambs and yearlings slaughtered each month, including both federally inspected slaughter and non-federally inspected slaughter. One feature of the slaughter data is the strong, downward trend over the years. U.S. domestic lamb and yearling slaughter stood at nearly 10 million head in 1970 and at 2.6 million head in 2006. Because of the religious nature of lamb demand, particularly in certain periods of the year, price is likely to be far less of a factor affecting demand during those periods than would be the case generally for lamb. Also, the substitution of lamb for other meats is likely to have little effect on demand during the religious periods. The data were used to evaluate long-term average seasonal trends (by month) that are presumed to occur because of the religious holy days. The Orthodox Easter holiday and Muslim holy days of Ramadan and Eidu al-fitr occur at varying times (though specific dates) during the year. A question of primary interest was whether the impact of Muslim and Christian/Or- thodox religious events has grown stronger over time. The analysis of the monthly data supports the premise that religious holy days, both Christian and Orthodox Easter and Muslim religious events, affect the national lamb market. These holidays lead to additional slaughter of lambs and yearlings. The same was the case for the Eidu al-adha holiday. The effect of both the Muslim religious events and Christian/Orthodox Easter periods is consid- erably larger after the 1990 period than before. Purchases of lamb were

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 ALTERNATIVE AND EMERGING MARKETS found to be sensitive to price, even during the holiday periods for the ethnic periods examined. The primary conclusions of the analysis of the slaughter data, therefore, are that Muslim holiday periods and Christian and Orthodox Easter affect slaughter levels of lamb and yearlings and that the impact of these holidays appears to be increasing with time. The increases estimated are on the order of 7 to 8 percent of the monthly lamb slaughter and 1.6 to 1.7 percent of annual disappearance. To the extent that some lamb is purchased directly from farms and not recorded in official tallies of slaughter, these results could underestimate the impact of these religious periods. Other ethnic markets of growing importance in some regions of the country include Hispanic, Italian, and Greek communities. A survey con- ducted in the Reno, Nevada area, found 25 percent of Asian and Hispanic households purchased lamb during a one-month period, compared to 1 percent of white, Caucasian households (Lotterman, 1993). Another recent study of consumer preferences in the southern U.S. market for goat meat found that Hispanic consumers and those buying lamb are more likely to purchase goat meat (Knight et al., 2006). Supply and Marketing Channels While virtually all major food retail chains offer lamb cuts on a con- tinuous basis at the meat counter, purchases of lamb in many ethnic and religious market segments are largely from individually owned, local butcher shops, operated in most cases by families from the ethnic or religious popu- lation these stores serve. Family, friendship, and community relationships are a significant part of the rationale for purchases from these stores. These operations typically purchase whole lamb carcasses for breaking into retail portions for sale to meet the expectations of the local market they serve. The lamb carcasses often come from small, local, single-site packing plants, specifically serving these market outlets. With the growth of the ethnic and specialty markets, verification of marketing claims and traceability systems in marketing channels are becoming increasingly important in the market for lamb and lamb products (e.g., organic production, halal slaughter, or “naturally raised” claims). In general, the ranges in live weight of lambs preferred in the ethnic markets may vary both by regional and ethnic markets. The differences in preferred weights influence the retail price. Kosher markets in the Northeast favor 45–57 kg lambs, while the Muslim market favors 27–40 kg lambs (O’dell et al., 2003). A study conducted on the market for West Virginia lamb found the price spread in lighter-weight lambs (32–39 kg feeder lambs) compared to heavier-weight slaughter lambs (45–57 kg) to have increased

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 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES over the 1996 to 2001 period, from 1 percent higher to 16 percent higher at the end of the period (O’dell et al., 2003). A detailed study of pricing and market attributes in eastern states in- dicates the importance of period of time and type of lamb in markets with growing ethnic populations (Singh-Knights et al., 2005). The study used sales transaction data from auction markets in Virginia, Pennsylvania, and West Virginia for the period 1994–2003 in combination with hedonic pric- ing estimation methods. Their results showed a significant break in pricing relationships across the period. The study also concluded that lighter-weight slaughter lambs and all weight classes of feeder lambs were sold at signifi- cant price discounts during the earlier part of the study period (1994–1997). For the later period of the analysis (1998–2003), the study found that premiums were paid for the lighter-weight lambs and lower premiums for heavier-weight lambs. The period of year was also important, with premi- ums paid for sales during the first two quarters of the year. Lamb and other sheep products, such as sheep milk cheese and yogurt, can also be found in farmers’ markets within large metropolitan areas. In- terestingly, the large packing plants for lamb appear to serve the large chain retail outlets almost exclusively with little or no penetration into the single family meat outlets. As well, the sheep cheese and yogurt industry products are rarely supplied through the large retail chains, with most sales through on-site stores, farmers’ markets, and small individually owned outlets. Another source of lamb and mutton for ethnic and religious markets is direct purchases of live animals for immediate slaughter on the farm where they are purchased in many instances. Unlike meat derived from livestock and sold to consumers, which must be inspected and passed at a state or federally inspected facility, animals for direct purchase and on-farm slaugh- ter are sold as live animals to consumers and, therefore, do not require state or federal inspection. Animals are selected live and killed on-site by the purchasers to meet specific religious or ethnic requirements. This practice appears common in the areas surrounding large urban centers. Long-term relationships in these markets are often established between buyer and seller, with the initial contact for the seller identified through family and friends within the ethnic or religious grouping. Even though lamb is available from foreign as well as domestic sources, there is no tariff line specifically identifying kosher or halal lamb and lamb product imports. As a result, there is no information on the proportion of imported lamb that meets halal or kosher requirements, even though lamb is imported and labeled for these markets. For many in the Jewish and Muslim communities, freshly killed lamb under kosher and halal conditions, respectively, is the product of choice for the religious periods. As a result, the expectation is that the demand for lamb during these religious periods is expressed predominantly for domestically sourced product. However, it

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 ALTERNATIVE AND EMERGING MARKETS should be noted that slaughter plants in Australia and New Zealand that cater to the export trade meet halal requirements. Effective market trade in halal products, as is the case for other process claims, requires certification systems or verification of product claims. As an example for halal products, Islamic Food and Nutrition Council of America (IFANCA) is a globally recognized halal certification program that currently certifies a wide range of food products including meat products (IFANCA, 2008). Certification programs such as this are important to both domestic and internationally traded products and are of growing importance in some ethnic and niche markets. As evidence of the growing importance of the ethnic and religious mar- kets and the associated practice of on-farm slaughter, a number of sites and sources provide instructions for humane (halal) on-farm slaughter methods (e.g., Grandin, 2007; Schoenian et al., 2007). In this, practice, the animals are harvested in the name of Allah (God) without being stunned. ADDITIONAL ALTERNATIVE MARKETS A number of other alternative markets for the sheep and lamb industry have emerged, especially in the last 10 years. These product markets offer the opportunity for higher prices and profit to producers through special- ized value-added products, such as organic production, specialty cheeses, fine wool, and specialty products valued by consumers as locally produced, organic, gourmet, or having other unique qualities. The availability of web-based resources has expanded information on marketing sheep and goat products for both producers and consumers. One major effort, for example, is SheepGoatMarketing.info, a joint project of the University of Maryland and Cornell University (Schoenian et al., 2007). The web project originated from the Northeast Sheep and Goat Market- ing Project, a USDA-funded effort to improve the marketing infrastructure for sheep and goat producers in the 12 northeastern states. Although the website identifies sellers for wool products (fleece, roving, yarn, and pelts), cheese, milk, and animals for vegetation control, the major market target of the website is ethnic and religious markets for sheep and goat meat. A review of the processors listed as handling lamb and goats on the website shows more than 150 livestock processors who buy live animals (sheep, lambs, and goats) and process them for resale to wholesale and retail businesses. Many advertise that they buy in small quantity and do custom slaughter. The firms listed are primarily in the Northeast and mid-Atlantic states.

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 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES Organic Lamb Market The rate of growth for certified organic sheep and lambs has out- paced that of other livestock, growing nearly six-fold during the period of 1997–2002 according to USDA (2007a). Nevertheless, the total number of certified organic livestock is still relatively small, although different sources report different numbers. The USDA (2007a) reported that there were 4,471 certified sheep and lambs in 2005, just over 2 percent of all total certified organic livestock. Geisler (2007) reported that there were 5,347 organically certified sheep and lambs in 2005, up from 4,561 in 2003. Although the industry grew rapidly in the period 1997–2002, USDA data indicate little growth in the number of animals being raised in certified organic production systems in recent years (Figure 7-1). Today, most of the organic sheep and lamb livestock are located in the West and Midwest (USDA, 2007a). As required by USDA standards for organic food implemented in 2002 and administered through the USDA Agricultural Marketing Service (AMS), lamb product sold, labeled, or represented as organic must be under contin- uous organic management from the last third of gestation forward (USDA, 2007b). Except for approved feed supplements and additives, the total feed ration for the animals must be composed of agricultural products, including pasture and forage that are organically produced. The organic production methods require minimal use of off-farm inputs. Lambs are raised without 6,000 5,000 4,000 Number 3,000 2,000 1,000 1992 1993 1994 1995 1997 2000 2001 2002 2003 2004 2005 Year Fig 7-1.eps FIGURE 7-1 Inventory of certified organic sheep and lambs in the United States, 1992–2005. Source: USDA (2007a).

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 ALTERNATIVE AND EMERGING MARKETS the use of antibiotics or drugs or hormones to promote growth and in production systems that maintain conditions that provide for freedom of movement, reduce stress, and promote animal welfare. These conditions are well suited to lamb production. Lambs certified as organic must be harvested and processed without ar- tificial ingredients or preservatives, and by processors who maintain systems that prevent contact of product with any substance that is not approved. In practice, this requires that the processors are able to keep harvest and processing of organic animals separate from production lines for conven- tional product, and limits processing to plants certified as organic. In some areas of the country, including California and other western states, there is sufficient volume of organic lamb so that companies with product under contract may own their own harvest and processing facilities, or operate them under contract. However, in many areas of the country, the volume is not sufficient and organic lambs are custom processed. Effective in 2005, producers and marketers that operate under a Na- tional Organic Program-approved organic system plan and that produce and market only commodities eligible for a “100 percent organic” label are exempt from the assessment for market research and promotion (USDA, 2005). Although the rules and regulation of organic product claims fall clearly under USDA organic standards, other production or processing claims are less well understood or verified in the market. Marketing claims for “lo- cally grown” or “naturally raised” may well compete directly with organic market claims for some consumers. However, such claims are less well documented and would also require some voluntary certification or audit programs to verify the accuracy and meaning of such claims. The USDA AMS is currently considering a voluntary standard for naturally raised livestock and meat (USDA, 2007c). Direct Marketing Many individual lamb producers are taking proactive approaches to sell their own products directly to customers and foodservice operators and bypass traditional marketing channels. The number of individual sheep and lamb producer websites on the Internet has expanded sharply and is evidence of the growing sales through suppliers identified through Internet listings. Lamb sold directly from producer to retail consumers is especially important in some markets, including some large urban markets. Although the specific number of animals sold through direct, private negotiations is not available, evidence based on the growing number of lamb and sheep inventories in some areas of the country where there are few large processors that handle lamb attest to the growing (though poorly

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 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES documented) importance of the lamb trade through direct, private party sales. In direct marketing, lambs may be sold as live animals directly to con- sumers, to custom processors who may custom process the animals for the owners, or to retail grocery or foodservice outlets through state or federally inspected processing facilities. Lamb sold directly to the freezer market is another growing direct marketing method. In this market, lambs are sold live to customers and arrangements made with a custom slaughter facility for processing and packaging. Exhibition Animals and Specialty Lamb and Wool Production Sheep exhibitions and livestock shows were originally designed for pro- ducers to exhibit prize animals. Today, the exhibitions and shows continue, and have developed into a segment of the industry that caters to the public partly as a form of entertainment. Many segments of the population see more sheep through exhibitions and livestock shows than they do on the open range or on the farm flocks in rural America. Some producers who participate in these events fit the classic definition of purebred breeders for the development of superior seedstock in the sheep industry. Others are hobbyists who produce and exhibit sheep as a form of recreation. Prices for animals in this arena are high relative to the national norm of commercial lamb and sheep prices and may be inflated by the belief that superior breed- ing stock should command a premium. An area that has progressively increased in size and scope and is also in the public eye as a form of entertainment is the Junior Club lamb (market lambs) shows and exhibitions. As with other niche areas, exact numbers are difficult to obtain. W. S. Ramsey (personal communication, 2007) estimated that 4-H and Future Farmers of America (FFA) sheep projects in Texas involve over 40,000 sheep and lambs. Youth who belong to organizations catering to those interested in animal agriculture, such as 4-H and FFA, are allowed to exhibit livestock at county fairs and at regional, state, and national exhibitions. Like the purebred breeders mentioned earlier, sales of lambs and sheep to these markets offer opportunities for producers to cater to a specialty clientele that intend to exhibit their animals in a public arena. Purebred producers, club lamb producers, and breeders who cater to the specialty wool market all have an established niche in the sheep, lamb, and wool industry. Although the size of this market is not a main driver in the sheep, lamb, and wool industry, the availability of specialized marketing opportunities for these animals adds value (significant in some cases) to producers and is available to small- and large-scale producers.

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 ALTERNATIVE AND EMERGING MARKETS Specialty Wool Markets Small wool mills, often called mini-mills, produce wool yarn for spe- cialty markets and, in some cases, produce wool fabrics and finished products. A mini-mill may process from 20 to 100 tonnes of scoured wool. One mill purchased approximately 2.3 tonnes of finer raw wool from a western producer at a 40 percent premium over current market price and spun the wool into high-quality fine wool yarn that sold for over $45/kg. Some producers sell their raw wool, often naturally colored wools, to hand spinners that may result in sales of as much as $50–$100 of wool per ewe per year. The number of small retail outlets and hand spinners listed on the Internet is rapidly increasing. Internet-based resources, targeted to cot- tage industries, offer opportunities to small, niche producers. This includes naturally colored wool and spinning fibers. Although the specialty wool market continues to be an important one for select buyers and sellers, the size of the market is difficult to measure because of the use of Internet and private party sales. MAJOR ACCOMPLISHMENTS, OPPORTUNITIES, AND CHALLENGES OF ALTERNATIVE AND EMERGING MARKETS The production of alternative lamb and sheep products represents growing value to the U.S. sheep and lamb industry. The exact value of the various segments is difficult to measure, but its worth is larger than that captured by sales at the auction markets. For example, an addition to the value of lamb sales in live animal markets would be the value of animals sold through direct, private negotiations arranged through Internet, local marketing areas, and neighbor transactions. Major Accomplishments in Alternative and Emerging Markets The ability to raise sheep on relatively small farms and the availability of marketing opportunities through the Internet support the growth of these types of informal markets. At the same time and to a limited extent, producer groups and processors handling animals on a larger scale are look- ing at opportunities to dedicate plant capacity to processing animals for ethnic (e.g., halal) and specialized (e.g., organic) markets. The growth and success of alternative and emerging markets, including specialized trade for ethnic markets, organic markets, dairy, wool, and club lambs, indicate how resourceful the industry has become in adjusting to changes taking place in the traditional markets. However, without better data on the numbers of animals in various segments of the industry, it is difficult to monitor and assess the full scope of industry value.

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 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES these markets, the value chains, and product pathways make it quite difficult to determine market opportunity, size, and characteristics required for con- siderable growth. Regulatory systems, either by government or as industry- established standards, could prove very useful in market development. The major challenges facing alternative and emerging markets include the following: • Measuring the size of the market. Anecdotal evidence, marketing information (listed on various Internet-based websites such as SheepGoat- Marketing.info), and presentations to the committee as part of this study all suggest that a small but significant amount of lamb marketed in the United States, and especially during religious holidays, is sourced directly from farms or small abattoirs. Lamb marketed in this way is not necessarily inspected through federally or state-inspected facilities, nor recorded in the official USDA slaughter data. As a result, using the USDA-published data on number of head slaughtered may not accurately portray the full extent of meat consumed or the demand occasioned by these religious periods. One implication is that estimates of changes in seasonal demand attributed to religious holidays may be understated. To the extent this segment of the industry continues to grow, the official data will continue to register an industry in decline rather than an industry in transition. • Potential barriers to growth of the certified organic market. Devel- opment of the organic market for lamb is spread throughout the United States. Because sheep production often occurs in forage and field locations, the production of animals is well suited to transition to organic production, although some parasite control may become a larger issue as more lambs are finished on grass and producers seek to fill the growing demand for natural, grass-fed, and organic food. The leveling-off of growth in certified organic sheep numbers suggests that there may be barriers to growth of this market. One possibility is that the lack of processing facilities certified to process organic sheep has hampered the growth of organic production. Without use of certified processing methods, the final product cannot be sold as certified organic and fully capture the premium associated with organic production methods. Another possibility is that increasing consumer interest in locally pro- duced meats or meats produced by “family-owned” farms may have allowed producers to take advantage of higher premiums for local production or “sustainably produced” attributes without needing to fully transition their production practices to organic methods. Consumers have expressed strong interest in “natural” products, and it is easier to meet the natural require- ments than to be certified organic. Lamb is well suited for natural production because lambs usually do not receive growth promotants or antibiotics. One

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 ALTERNATIVE AND EMERGING MARKETS major distributor of quality, “high-end” meats (Niman Ranch) for specialty stores and for freezer-ready and restaurant sales, for example, promotes the lamb served as raised on “environmentally sustainable” ranches with no antibiotics or added growth hormones. However, the distributor makes no specific claims of “certified organic” production methods. Measures of the high-end market producing “environmentally sustainable,” “naturally raised” lamb product may capture much of the potential organic market. Documenting the size of this segment of the industry is difficult. Some, though not all, transactions take place in direct marketing, and the total number of producers and distributors is small. Voluntary industry standards will help producers distinguish their products in the marketplace and cap- ture added value from some of the production (and processing) practices preferred by some consumers (USDA, 2007c). • Marketing challenges for specialty products. A major challenge for the development of alternative markets is managing growth and size. Pro- viding product to restaurants, national distributors, or even successful local distribution channels requires the ability to meet the demand for product that may, at times, exceed existing capacity. Newly emerging areas of the industry—including producers catering to local or ethnic markets, organic producers, and dairy producers—involve different participants than the traditional industry players. Dairy sheep cheese may require input from imported product or frozen stocks; delivery to restaurant buyers may require the capacity to deliver minimum level of supply; supplies of halal-processed meat have seasonal demands that require delivery of lamb to market. New information technology has been very useful to the development of alterna- tive and emerging markets for the lamb and sheep industry. The ability to identify buyers and sellers through Internet-based resources allows access to local and national markets for specialty products. This new technology widens market access. Successful efforts are often started through public support (federal grants or state extension). Without some university or public support, it may be difficult to sustain the information base and infrastructure. Good data on the size of the market are critical to better understand the emerging industries related to the production of sheep and lamb and to promote its development. • Identifying the effects of ethnic change on future demand. Although based on a simple model of the U.S. demand for lamb in selected periods of the year, the analysis of ethnic demand for lamb reported in this chapter suggests that the U.S. lamb market is clearly undergoing considerably more change in recent years than the persistent decline in sheep and lamb inven- tories would suggest. Based on the consistency of the findings, the results point to an identified need for substantially more research using more pow- erful methodologies to explore the reshaping of lamb demand in the United

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 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES States. However, in addition to use of more sophisticated model structure, a key component to better understanding the changes in lamb demand rests on having better data. Although some part of the ethnic market may shift to more tractable market channels (processing and retail) as the sector matures, the omission of many direct sales and transactions that may characterize the lamb market proportionately more than other meats indicates the need to look closely at methods for collecting better data on the segment of the industry that serves growing ethnic markets. • An integrated approach to addressing research needs. Research in- volving all industry segments from production through live animal market- ing, processing, distribution, and merchandising to meet consumer needs for these niche markets for lamb should be given priority. An integrated approach to including nontraditional segments of the industry, and value- added production and processing opportunities should be included in re- search on production and marketing of lamb products. REFERENCES Alnaseej, W. 2007. Islamic finder. Online at: http://www.islamicfinder.org/. Accessed April 18, 2008. ALB (American Lamb Board). 2007. American lamb attitude and usage study 2006: Foodser- vice evaluation. Jeffrey B. Gross Marketing Research. http://www.americanlambboard. org/. Accessed April 18, 2008. Geisler, M. 2007. Organic lamb profile. Agricultural Marketing Resource Center. Iowa State University. Ames, February. Online at: http://www.agmrc.org/agmrc/commodity/livestock/ lamb/organiclambprofile.htm. Accessed April 18, 2008. Grandin, T. 2007. Recommended ritual slaughter practices. Department of Animal Science, Colorado State University. Online at: http://www.grandin.com/ritual/rec.ritual.slaughter. html. Accessed June 15, 2007. Knight, E., L. House, M. C. Nelson, and R. Degner. 2006. An evaluation of consumer prefer- ences regarding goat meat in the South. J. Food Distrib. Res. 37:88–96. IFANCA (Islamic Food and Nutrition Council of America). 2008. Halal food certification. Online at: http://www.ifanca.org/index.php. Accessed March 13, 2008. Larson, A., and E. Thompson. Undated. Direct marketing of lamb in niche and ethnic markets. University of Illinois Extension publication, Initiative for the Development of Entrepre- neurs in Agriculture, College of Agriculture, Consumer and Environmental Sciences. Online at: http://web.extension.uiuc.edu/iidea/PDF/lambfactsheet.pdf. Accessed April 18, 2008. LMIC (Livestock Marketing Information Center). 2007. Weekly, monthly live lamb prices: File 3MKTLAMB.xls. Online at (subscription required): http://www.lmic.info/tac/ spreadsheets/spreadsheets.html. Accessed May 1, 2007. Lotterman, E. 1993. Out like a lamb: The decline of the sheep industry offers case study for other sectors. Fedgazette. Federal Reserve Bank of Minneapolis, July. Online at: http:// www.minneapolisfed.org/pubs/fedgaz/93-07/sheep.cfm. Accessed April 18, 2008. O’dell, D., D. J. Marsh, D. Singh, G. F. Plaugher, P. E. Lewis, E. K. Inskeep, and D. Smith. 2003. Final report: West Virginia lamb marketing information project. Marketing and Development Division, West Virginia Department of Agriculture. Charleston. March.

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 ALTERNATIVE AND EMERGING MARKETS Radwin, M. J. 2007. hebcal.com: Jewish calendar tools. Hebrew date converter. Online at: http://www.hebcal.com/converter/. Accessed April 18, 2008. Schoenian, S. M., L. Thonney, and T. L. Stanton. 2007. SheepGoatMarketing.info. Joint project of the University of Maryland and Cornell University. Online at: http://sheepgoatmarketing. info/index.cfm. Accessed June 17, 2007. Singh-Knights, D., D. K. Smith, and M. Knights. 2005. A hedonic analysis of sheep and goat prices in a changing environment: The role of consumers and implications for manage- ment. Selected paper, American Agricultural Economics Association Annual Meeting, Providence, RI. July. USCB (U.S. Census Bureau). 2007. The 2007 statistical abstract, Washington, DC. Online at: http://www.census.gov/compendia/statab/tables/07s0073.xls. USDA (U.S. Department of Agriculture). 2005. 2002 Farm Bill Provisions: Organic ex- emption. Agricultural Marketing Service. Online at: http://www.ams.usda.gov/ 2002farmbill/organicexempt/. USDA. 2006a. Sheep and Wool: Background. Economic Research Service. Washington, DC. November. Online at: http://www.ers.usda.gov/Briefing/Sheep/ background.htm. Accessed April 18, 2008. USDA. 2006b. Red Meat Yearbook. Economic Research Service. Washington, DC. Online at: http://usda.mannlib.cornell.edu/usda/ers/94006/livestockprices.xls. Accessed April 18, 2008. USDA. 2007a. Data Sets: Organic Production. Economic Research Service, Washington, DC. July. Online at: http://www.ers.usda.gov/Data/Organic/. Accessed April 18, 2008. USDA. 2007b. The National Organic Program. Agricultural Marketing Service, Washington, DC. August. Online at: http://www.ams.usda.gov/nop/indexNet.htm. Accessed April 18, 2008. USDA. 2007c. United States Standards for Livestock and Meat Marketing Claims, Natu- rally Raised Claim for Livestock and the Meat and Meat Products Derived From Such Livestock. Federal Register, Vol. 72, No. 228, Wednesday, November 28, 2007. Docket No. AMS-LS-07-0131; LS-07-16. Online at: http://www.ams.usda.gov/lsg/stand/ NRnotice1107.pdf. Accessed April 18, 2008.

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 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES APPENDIX This appendix describes an initial analysis conducted to examine the effects of ethnic markets on U.S. lamb demand, specifically, the impact of Christian, Orthodox, and Muslim holy periods on lamb slaughter. The slaughter data for commercial lamb and yearlings by month were assembled for the period 1970–2004. The data represented head (thousands) of lambs and yearlings slaughtered each month, including both federally inspected slaughter and non-federally inspected slaughter. Data Issues An immediate difficulty is that U.S. domestic lamb and yearling slaugh- ter stood at nearly 10 million head in 1970 with a strong downward trend to 2.6 million head in 2004. To remove the time trend effect in lamb and yearling slaughter, a monthly index of slaughter was calculated for each month for each year so that the sum of the 12 monthly indexes in each year summed to 1200. These indexes were then used to calculate the slaughter level in each month as a prediction, based on the average seasonality by month in the data for the entire period. The difference between the actual and predicted slaughter levels was then used as the dependent variable in the regressions. Effectively, the dependent variable displays any variation from the long-term average seasonal trends by month in the data, presumed to occur because of the religious holy days. Because the data on slaughter are available for the Gregorian calendar months, the dates for Orthodox and the Muslim holy days needed to be converted to Gregorian dates. The Hijri calendar commonly used within North America was used for the Muslim date conversions. Similarly, the dates for Orthodox Easter were calculated by converting the Hebrew cal- endar dates to Gregorian dates.1 For the Orthodox and Christian Easter, a dummy variable was constructed with a value of 1 for the month in which the 9 days prior to the two Easter dates occurred, and 0 otherwise. When the two 9-day periods stretched over 2 months, the dummy variable was assigned the proportion of days falling in each of the 2 months. In all cases, the dummy variable summed to 1 for the 2 months. Several lead times other than 9 days were examined, ranging from 4 to 15 days. Based on R2 and F- values for the regressions, 9 days was selected, giving nearly identical results with an 8-day lead time. Little difference in the coefficients was found over the various lead times although the R2, F-values, and t-tests were highest using a 9-day lead. 1Orthodox Easter follows the Hebrew calendar, falling on the same day as Jewish Passover. For date conversion from Hijri to Gregorian calendars, see Alnaseej (2007). For Gregorian and Hebrew date conversions, see Radwin (2007).

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 ALTERNATIVE AND EMERGING MARKETS For Ramadan, a dummy variable was constructed with a value of zero for months with no days during Ramadan and Eidu al-fitr and a sum of 1 for months in which Ramadan occurred. Since Ramadan usually falls across two Gregorian months, the proportion of days of Ramadan plus Eidu al-fitr in the Gregorian month was used for the dummy variable. That is, if 20 days of Ramadan occurred in May, then the dummy for May would be 20 divided by 29, where 29 is the number of days from the beginning of Ramadan to the end of Eidu al-fitr. Similarly, June would have the remainder of the Ra- madan period with a dummy variable value of 9 divided by 29. The month in which Eidu al-adha fell was assigned a value of 1 and zero otherwise. As well, the datasets were divided into two parts, before 1991 and af- ter 1990 for the Easter, Eidu al-adha, and Ramadan-Eidu al-adha dummy variables. Dummy variables were constructed for each of the Easter, Eidu al-adha, and Ramadan-Eidu al-adha variables, the first for all months before January 1991 and the second for all months from January 1991 to the end of the dataset, December 2004. The purpose was to determine if the impact of these events was growing stronger over time. The issue is whether there is a growing trend to consume lamb during these holy periods. One of the difficulties in examining the data is that while Passover remains within the period of March–April each year, Ramadan advances several days per year over the entire year. Whenever Ramadan and Passover coincide in the same months, separating the effects of each is problematic. As a result, two additional Ramadan dummy variables were constructed. The first of these (Ramadan outside Passover) was for the months in which Ramadan and Passover did not overlap and the second (Ramadan Passover overlap) was for those months when the two periods overlapped. Because of the religious nature of the demand for lamb during these religious holidays, price was expected to be far less of a factor affecting demand during those periods than is the case generally for lamb. As well, substitution of lamb for other meats is not considered. To the extent that income or price play a role in the additional demand during these religious periods, they may be expressed in the quality and source of the cuts pur- chased, limiting the impact of price during these periods. Nonetheless, the USDA price series for slaughter lambs was included in all of the equations (USDA, 2006b). Model Four equations were formulated and estimated using OLSL: Zij = α + γPij + β1D1ij + β2D2ij + β3D3ij + β4D4ij + β5D5ij + β6D6ij + ε ij (1) Zij = α + γPij + β1D1ij + β2D2ij +

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 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES β3D3ij + β4D4ij + β5D5ij + β7D7ij + β8D8ij +ε ij (2) Zij = α + γPij + β1D1ij + β2D2ij + β3D3ij + β4D4ij + β5D5ij + β9D9ij + β10D10ij +ε ij (3) Zij = α + γPij + β1D1ij + β2D2ij + β3D3ij + β4D4ij + β5D5ij + β9D9ij + ε ij (4) where: Yij = number of head (thousands) slaughtered in month i and year j, for i = 1,2,3,…,12 and j = 1970, 1971, 1972,…,2004. Yj = 12 = number of head (thousands) slaughtered ∑Yij in year j i= 1 Yi = = number of head (thousands) slaughtered ∑Y in month i for all years. ij j (Yij/Yj )*1200 = Iij for all i and j = monthly index of slaughter head numbers such that: = 1200 for all j. 12 ∑I ij i=1 Iij * Yj /1200 = calculated number of head (thousands) of lambs and yearlings slaughtered, based on long term seasonal/ monthly slaughter patterns. Zij = Yij – Iij * Yj /1200 which equals the difference between actual and calculated slaughter by month. Pij = USDA monthly price series for slaughter lambs. D1ij = dummy variable, 1 for any month in which the nine days prior to Orthodox and Christian Easter occurs for the years 1970 to 1990, 0 otherwise; where the nine days falls across two months, the proportion of days in each month is used. D2ij = dummy variable, 1 for any month in which the nine days prior to Orthodox and Christian Easter occurs for the years 1991 to 2004, 0 otherwise; when the nine days falls across two months, the proportion of days in each month is used. D3ij = dummy variable, 1 for any month in which Eidu

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 ALTERNATIVE AND EMERGING MARKETS al-adha occurs for the years 1970 to 1990, 0 otherwise. D4ij = dummy variable, 1 for any month in which Eidu al-adha occurs for the years 1991 to 2004, 0 otherwise. D5ij = dummy variable, the proportion of days of the month within Ramadan plus Eidu al-fitr, 0 otherwise. D6ij = dummy variable, the proportion of days of the month within Ramadan plus Eidu al-fitr for the years 1970 to 2004, 0 otherwise. D7ij = dummy variable, the proportion of days of the month within Ramadan plus Eidu al-fitr for the years after 1990, 0 otherwise. D8ij = dummy variable, the proportion of days of the month within Ramadan plus Eidu al-fitr when Ramadan plus Eidu al-fitr does not occur during the same month as Orthodox and Christian Easter, 0 otherwise. D9ij = dummy variable, the proportion of days of the month within Ramadan plus Eidu al-fitr, 0 when Ramadan plus Eidu al-fitr occurs during the same month as Orthodox and Christian Easter, 0 otherwise. Three price series were used with each of the equations with the excep- tion of equation (2) in the case of the Sioux Falls price series. Since the price series began in 1990, equations (1) and (2) were virtually identical. In no case was the coefficient β7 significant in equation (3). As a result, equation (4) was included without the D7ij dummy variable. The results of selected regressions are shown in Table 7A-1. Results The price coefficients across all equations are highly significant in all cases and all within a very narrow range of –0.192 to –0.219. This indicates that purchases of lamb are quite sensitive to price for the holy events. This result was somewhat unexpected as noted earlier. The consequence is that considerably more research needs to be done to explore the substitutability of lamb with other meats during these periods as one means of determining price strategies for distributors. Similarly, the complementarity of lamb with other foods also needs further exploration. For the Easter variables (D1ij and D2ij), the results show that the effect of Easter is insignificant in the earlier period (1970 to 1990) but highly significant and much larger in the later period (1991 to 2004) across all four equations. As well, the coefficients for the later period are considerably

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0 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES TABLE 7A-1 Regression Results of Religious Holidays on Lamb Disappearance Equation (1) Equation (2) Standard Standard Variable Coefficient Error t-Value Coefficient Error t-Value Intercept 9.88 5.58 1.77 10.80 5.68 1.90 USDA Price –0.20 0.08 –2.43 –0.22 0.09 –2.56 Easter 1970–1990 1.94 7.63 0.25 2.30 7.64 0.30 Easter 1991–2004 42.84 9.19 4.66 42.23 9.22 4.58 Eidu al-adha 1970–1990 3.34 6.67 0.50 3.20 6.67 0.48 Eidu al-adha 1991–2004 18.67 8.38 2.23 19.00 8.39 2.26 Ramadan 8.67 6.56 1.32 Ramadan 1970–1990 4.10 8.28 0.50 Ramadan 1991–2004 15.58 10.08 1.55 Ramadan Outside Easter Ramadan Easter Overlap Multiple R 0.28 0.28 R2 0.08 0.08 Adjusted R2 0.06 0.06 Standard Error 29.92 29.93 F 5.89 5.16 Observations 420 420 larger and statistically different from the coefficients for the earlier period. This pattern of insignificance for the period 1970 to 1990 and greater sig- nificance for the period 1991 to 2004 was also found for the coefficients for Ramadan and Eidu al-adha (D3ij and D4ij). In the case of the Ramadan coefficients, these were only statistically significant for periods when Easter and Ramadan did not overlap in time. For equation (3), the coefficient for “Ramadan Easter overlap” is un- expectedly negative although insignificant. As a result, this variable was dropped from the equation and reestimated as equation (4). The coefficient for Ramadan outside the Easter period is nearly identical to the coefficient in equation (3) and highly significant in both cases. For the Easter period after 1990, the results suggest that an additional 42,000 to 46,000 head of lambs are consumed because of Easter. This repre- sents about 8 percent of the average disappearance in March and April and about 1.7 percent of annual disappearance based on harvest levels in 2004. Similarly, there appears to be an additional demand for 18,000 to 19,000 lambs in the months when Eidu al-adha occurs after 1990, representing about 7 percent of average monthly disappearance. In the case of Rama- dan for the period 1991–2004, there is an additional demand of 16,700 to

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 ALTERNATIVE AND EMERGING MARKETS Equation (3) Equation (4) Standard Standard Coefficient Error t-Value Coefficient Error t-Value 8.88 5.56 1.60 9.06 5.57 1.63 –0.19 0.08 –2.30 –0.20 0.08 –2.39 4.69 7.66 0.61 3.39 7.62 0.44 46.34 9.24 5.01 44.38 9.17 4.84 3.71 6.63 0.56 3.96 6.64 0.60 18.03 8.33 2.16 18.87 8.33 2.27 16.74 7.28 2.30 17.23 7.29 2.36 –20.35 13.40 –1.52 0.30 0.30 0.09 0.09 0.08 0.07 29.74 29.79 5.99 6.58 420 420 17,250 lambs, about 7 percent of average monthly disappearance, whenever Ramadan and Easter do not occur in the same months. Across all equations, the R2 is low as expected because of the construc- tion of the independent variable. Nonetheless, the F-value is consistently significant in all cases. In general, there appears to be a discernable impact of the Muslim holiday periods and the Christian and Orthodox Easter holiday periods on the disappearance levels of lamb and yearlings. As well, the impact of these holidays appears to be increasing with time. To the extent that some lamb is purchased directly from farms and not recorded in official tallies of slaughter, these results underestimate the impact of these religious periods. As well, because of the construction of the independent variable, there will also be some (minor) underestimation of the religious event impacts. Other datasets were examined as well using the above methodology, although the results are not shown here. Prices for slaughter lambs from the San Angelo, Texas, and Sioux Falls, South Dakota markets were substituted for the USDA price in the equations. These price datasets were constructed from price series obtained through the courtesy of the Livestock Market- ing Information Center (LMIC, 2007). In these cases, coefficients and their significance levels were quite similar to those reported above.

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