Australia to step in

Blessed with lush pastures, New Zealand supplies around 60 percent of the global sheepmeat market, but even though its 31 million sheep population outnumbers humans nearly seven to one, it is struggling to keep up with Chinese demand.

Neighbouring Australia, which supplies 35 percent, is likely to meet the shortfall.

Before China started buying lamb flaps, they were mostly sold to South Pacific islands for around $1 per kilogram, and were blamed for contributing to an obesity epidemic. China now pays $5.60-$5.80 per kg for lamb flaps, meat processors say.

New Zealand and Australia still supply only 3-5 percent of China's sheep and goat meat consumption, industry experts say, with New Zealand reaching the limit of capacity.

"The challenge for the New Zealand industry is that our sheepmeat numbers are in decline, China is already absorbing our production, so where do we go from here?" said Murray Brown, marketing manager at Alliance Group, which processes around 30 percent of the country's lamb production and aims to market more prime lamb into China's high-end hotels and food shops.

Just as demand has jumped, stocks of lamb and mutton in New Zealand have fallen by about a fifth between 2007 and 2012 as farmers converted land into more lucrative dairy farms.

New Zealand enjoys advantages from a free trade agreement with China, but Australian meat processors say they are ready to fill the gap. Australia has already profited from surging goat meat sales to China, often a substitute for lamb. Sales of goat meat to China soared 1,266 percent to 4,736 tonnes last year.

"We have one buyer in China who is struggling to get enough lamb from New Zealand, and he's saying to us, 'tell us how much you want to sell and we will take it'," said Paul Crane, export manager at V&V Walsh, an Australian meat processor.

With prices of these once cheap cuts now approaching those of some middle cuts, some see them having little more room to increase. "We all feel we're getting close to the ceiling," said Kate Eglinton, marketing executive at ANZCO Foods Ltd.

Some meat suppliers are concerned that Chinese buyers could suddenly baulk at the record-high prices for secondary lamb cuts, as British importers did a few years ago after prime lamb prices soared.