Destocking takes hold despite better prices

The lack of confidence threatens to cause further decline, thanks to shortages causing even higher prices and putting consumers off British lamb. Shoppers are already paying 20 percent more for it than a year ago.

The destocking problem is most acute on the uplands, which traditionally produce young ewes and lambs for fattening on lower ground.

Changes in funding and conservationist pressures have added to the disillusion of ageing farmers confronted with the complications of compulsory electronic ID for their stock.

Defra figures for December 2009 show both lamb production and breeding ewe populations down significantly on the year before, despite 12 months of rising returns. And Marks & Spencer, which was criticised by the NFU for stocking less English lamb this Easter than last year, says it simply could not buy enough.

Possibly for the first time for two decades, sheep farmers in all layers of the business have been able to make a profit for a whole year without taking the value of subsidies into the equation. The prices have encouraged culling of older ewes for the mutton market. But the animals have not been replaced, as market theory would expect.

One factor is the reform of Common Agricultural Policy, which removed the last links between productivity and the main remaining farm subsidy, known as Single Farm Payment. Another is the government conservation agency Natural England, which encourages farmers to destock for the sake of the environment and take money for 'stewardship' instead – especially on the hills and moors.

But the heart of the problem, according to experts, is the older farmer who has seen too many bad years to take heart from one good one – and does not want to be bothered with EID. Recent demand has been driven largely by the weakness of the pound, which makes British lamb a bargain in the Euro-zone, and nobody is sure the situation will not reverse.

Jeremy Eaton, general manager of Craven Cattle Marts at Skipton, said: "Our farmers would argue they are now about where they should have been years ago. Yes, their prices are up, but so are their overheads. Meanwhile, the bad years, and the CAP reforms, have generated a tendency to sit on the Single Farm Payment and reduce livestock numbers."

Older farmers were tending to give up breeding and settle for finishing animals through the summer months, he said.

And the EID requirements, which are less onerous for sheep going to slaughter within 12 months of birth, would encourage that tendency.

Mr Eaton added: "There is absolutely no doubt there is a direct link to the management schemes being promoted in upland areas. Our September sales of mule gimmer lambs (young breeding ewes from the hills) was oversubscribed 10 years ago at a maximum entry of 12,000 head. This year we will struggle to get 6,500."

Derek Tyson, who did 20 years as an auctioneer at Northallerton and has lately been working at Thirsk, said: "There is a tendency for older farmers to get out of cattle and into sheep, because those big Continental cattle can be a problem if you are not quick on your feet and because of all the passports and traceability involved with cattle.

"But the paperwork has been coming into the sheep business and now there is EID too. And you can add the pressure of conservationist policies to all that."

Mark Topliff, senior analyst for the English Beef & Lamb Executive, said there were indications in recent slaughter figures that the decline was over and farmers were rebuilding their ewe stocks.