View archived sheep meat and wool industry profiles at the Industry Profile Archive

Key points

• This Sheep Meat and Wool Industry Profile provides an overview of the location, structure and financial performance of Victoria’s sheep meat and wool industry.
• The sheep meat industry is Victoria’s fourth largest agricultural industry by value, with a gross value of agricultural production of around $1,092 million in 2010-11. The gross value of wool production in Victoria was $682.4 million in 2010-11.
• Victorian sheep and lamb numbers rose by 7 per cent to 15.38 million head in 2010-11. This is one of the smallest flocks since 1946.
• Victorian, wool production has declined from 216 million kilograms in 1990 to 78 million kilograms in 2010-11¹.
• The low sheep numbers have seen processors paying high prices for mutton and lamb as farmers continue to restock due to favourable seasonal and market conditions.
• Lamb producers are currently experiencing higher profitability than wool or beef businesses².
• The value of Victoria’s wool exports increased from $550.8 million in 2008-09 to $1.266 billion in 2010-11, a rise of 130 per cent.
• Victoria is one of the world’s largest suppliers of sheep meat (lamb & mutton), exporting around 108,800 tonnes in 2010-11, worth $586 million.

 

Figure 1: Victoria’s sheep meat and wool growing regions³
 

Location of Victoria’s sheep meat and wool growing farms

Sheep meat and wool production occurs across all regions of Victoria, but is concentrated in the Western District (33.7 per cent of the flock), Wimmera (17.2 per cent) and Central Highlands (12.2 per cent).

Structure of Victoria’s sheep meat and wool growing industry

In 2009-10, there were 11,184 farms that recorded some form of sheep production on their properties⁴. Victorian sheep farms are generally small and many have an estimated value of agricultural operations (EVAO) of less than $100,000⁵. In 2009-10 approximately 51 per cent of specialised sheep farmers had an EVAO of less than $100,000 and only 3.5 per cent had an EVAO of $500,000 and above⁶.

In 2010-11, Victoria’s sheep flock was 15.38 million head⁷. The composition of the flock reflects a strong focus on the production of sheep meat, although wool and live exports are also important sectors.

There has been significant adjustment in the industry over the last twenty years, with both the flock size and the number of sheep farms falling by around 50 per cent. Sheep farm numbers have almost halved from around 22,000 in the mid-1980’s. The Victorian flock has seen sustained decline, falling by more than 18.3 million since its high of 33.7 million in 1971.

The decreasing farm and sheep numbers have been caused primarily by low returns to wool and adverse seasonal conditions. At the same time there has been a gradual shift towards sheep meat production, particularly prime lambs.

Victoria’s sheep meat and wool production

Victorian wool production fell from 216 million kilograms in 1989-90 to 74 million kilograms in 2009-10⁸. The decline in wool production in Victoria has generally been attributed to falling/low prices, low profitability, poor seasons and relatively better returns from alternative enterprises such as prime lamb production and cropping⁹.

During 2010-11 Victorian wool production increased for the first time in twenty years up from 74 million kilograms in 2009-10 to 78 million kilograms. Most of this increase has been due to improved seasonal conditions and improved fleece weights.

While wool production has generally been declining, sheep meat (lamb and mutton) production has steadily increased. Since 1988-89 sheep meat production in Victoria has increased by 15.3 per cent. However in recent year’s, both lamb and mutton production has fallen. Victoria is currently Australia’s largest lamb and mutton producing state.

In 2010-11, Victoria produced 161,600 tonnes carcase weight (cwt) of lamb, accounting for 41.3 per cent of Australian lamb production. Victoria also produced 42,900 tonnes (cwt) of mutton, accounting for 34.8 per cent of Australian mutton production¹⁰.

Seasonal improvements over 2008-09 and 2009-10 impacted on lamb and sheep slaughtering rates with farmers holding and buying stock to rebuild their flocks. This placed increased pressure on processors to source stock and led to reduced lamb and sheep meat production over the past three years.

The limited supply of sheep and lamb available for slaughter from 2008-09 to 2010-11 contributed to an increase in sheep and lamb prices in Victoria. These prices encouraged the movement of around 1 million sheep from drought affected Western Australia (WA) to eastern states – primarily South Australia, Victoria and New South Wales during 2010 and early 2011. Since mid 2011 however, lamb and mutton prices in Victoria have eased back to previous years levels.

The preliminary gross value of production of Victoria’s sheep industry (including both wool and meat production) in 2010-11 was $1.77 billion or 17.7 per cent of the total gross value of agricultural production in Victoria.

 

Figure 2: Victorian lamb production and shorn wool production

 Source: MLA Statistical Review July 2010 – June 2011 and Australian Wool Exchange

Domestic and export demand for Victorian sheep meat and wool products

The domestic Australian market is important for sheep meat producers and around $2.3 billion is spent on sheep meat annually by consumers. Average per capita consumption of sheep meat in Australia is 12.2 kilograms per year¹¹.

The key export markets for fresh, frozen and chilled sheep meat have progressively changed from Europe to the Middle East and the United States of America (USA). The key markets for Victorian exporters are now the USA, Japan, Indonesia and Dubai. In 2010-11, around 108,800 tonnes (shipped weight) of sheep meat was exported with an estimated value of $586 million. The US Free Trade Agreement opened access to this market for much of Victoria’s produce (the largest for lamb) and exporters now have a sound basis to develop market share.

Between 2009-10 and 2010-11, the volume of wool exports increased by 17 per cent from 153.3 million kilograms to 179.5 million kilograms. The value of wool exports in this period increased by 43.4 per cent from $883.9 million to $1.26 billion. Exports of wool from Victoria include some wool produced in New South Wales and South Australia.

The largest market for Victorian wool exports is China, which accounted 66.7 per cent of the value of Victoria’s wool production in 2011. In 2011, Victoria exported $845 million worth of wool to China.

Most of Australia’s wool is exported in greasy, unprocessed form (84 per cent), with the remaining 16 per cent early stage processed and exported to manufacturers in China, India or Italy.

Live sheep exports from Victoria in 2010-11 account for 3.2 per cent of the Victorian sheep flock. 2010-11 exports were 494,089 head, worth $66 million. This was an increase in value of 13.7 per cent. Victoria contributed around one sixth of Australia’s live sheep exports in 2010-11. Major markets for Victorian live sheep exports are Bahrain, Kuwait and Oman, with Portland or Geelong the ports of shipment.

In 2009-10 the value of Victorian sheep meat exports (including live animals) exceeded the value of beef exports. In 2010-11 sheep meat exports were worth $652 million compared with the value of beef exports (including live animals) which were approximately $676 million.

Figure 3: Eastern Market Indicator (EMI) and Victorian Wool Production

Source: Australian Wool Exchange

Figure 4: Victorian trade lamb price vs lamb production

 Source: MLA Statistical Review July 2010 – June 2011 and MLA Market Statistics Database

Prices

The recent increase in world demand for sheep meat and improvements in seasonal conditions over the past two years has led to increased prices for producers, as processors and re-stockers compete for tight supplies. This has resulted in record prices for sheep meat; with the Victorian trade lamb (18-22 kg cwt) indicator averaging 549.2c/kg for the 12 months to June 2011 an increase of 18.9 per cent on the 12 month average to June 2010. The Victorian mutton (18-22 kg cwt) indicator averaged 449.5c/kg for the same period, up 29.1 per cent on average for the 12 months to June 2010.

Although lamb and mutton prices remain strong, in recent months trade lamb prices have dropped to below 500c/kg and Victorian mutton prices have eased significantly dropping below 350c/kg.

Australian wool prices are at a 23 year high. At the end of November 2011, the Eastern Market Indicator (EMI) for wool was 1,192 cents per kilogram clean - 13.8 per cent lower than at the end of May 2010, when the EMI was 1,383 cents per kilogram.

Total Factor Productivity

Between the 1950s and the early 1990s, annual productivity growth rates for sheep related enterprises on a national or state level were estimated to be between 2-3 per cent¹² . Recent estimates show that total factor productivity growth for sheep specialists in Victoria has declined to less than 1 per cent per annum. Over the 16 years from 1993-94 to 2008-09 productivity growth averaged 0.5 per cent per annum¹³.

The decline in productivity growth has been caused primarily by prolonged and recurring droughts, below average seasonal conditions, low rates of technology adoption, reduced investment in research and development and the large number of relatively small farms in Victoria¹⁴.

More recently, in response to improved pastures and higher prices, productivity amongst Victorian prime lamb enterprises is expected to increase in the short term¹⁵.

Employment on Victoria’s sheep farms

In 2006, the Census of Population and Housing estimated the number of Victorians employed on sheep, sheep-beef cattle, grain-sheep and grain-beef farms to be approximately 14,480. Of these, 5,487 were estimated to be employed in the sheep farming industry¹⁶.

The sheep industry also has one of the oldest workforces in the agricultural sector with a median age of 55 in 2006.

Financial Performance of the Victorian Sheep and Wool Industry

Table 1 contains average profit indicators for the prime lamb and wool industry from the Department of Primary Industries Livestock Farm Monitor Project for the years 2008-09 and 2009-10. The monitor reports farm level production and profitability data for a mixture of wool and prime lamb producers in three regions in Victoria.

The sheep industry experienced improved conditions from 2008-09 to 2009-10 with better rainfall across most of Victoria, good pasture and crop growth and increased wool and prime lamb prices. Farm profitability for the sheep industry over this period improved substantially, with increases in farm profit for wool and prime lamb producers across all regions. The most profitable lamb and wool producers across all regions generally displayed a combination of higher productivity, lower cost of production and higher prices received.

Wool producers in the south west reported an average profit (excluding interest and lease costs) of $80 per hectare for 2009-10 compared with -$28 per hectare in 2008-09; partly because of lower supplementary feeding costs, higher sheep sale prices and an increase in the proportion of gross income from sheep trading.

Lamb producers obtained stronger average profits than wool producers during 2008-09 and 2009-10, reflecting higher lamb prices. During 2009-10 average profit (excluding interest and lease costs) for prime lamb producers in the South West was $278 per hectare, a difference of $198 per hectare compared to wool producers in the same area.

Government policy/regulation influences

DPI has committed $5 million over four years in research and infrastructure capability for lamb production systems in Victoria.

On 1 August 2011, the Department of Primary Industries launched ‘DPI’s services to beef and sheep producers’. This document outlines DPI’s operating context and describes the 10 key services it provides to beef and sheep producers.

 

Table 1: Average wool and sheep farm performance 2008-09 to 2009-10*

			Gippsland		North East		South West
			2008-09	2009-10	2008-09	2009-10	2008-09	2009-10
Wool Sheep	Net Wool Income	$/kg Clean	8.84	9.83	9.41	9.81	9.96	10.40
	Sheep trading Profit	$/kg Clean	1.92	3.42	3.72	7.83	2.62	5.11
	Cost of Production	$/kg Clean	15.51	15.57	14.25	13.60	12.89	12.78
	Enterprise costs	$/kg Clean	8.61	7.10	7.44	6.24	7.58	7.38
	Profit Excl. Int/Lease	$/EHA	-113	-20.27	-25	66.12	-28	80
Prime lamb	Lamb price received	$/kg CWT	3.84	4.71	3.66	4.36	3.92	4.43
	Other income	$/kg CWT	0.98	1.07	1.61	0.19	2.08	2.31
	Cost of Production	$/kg CWT	4.84	4.30	6.76	3.90	4.63	3.71
	Enterprise costs	$/kg CWT	2.37	1.78	1.96	1.33	2.49	2.01
	Profit Excl. Int/Lease	$/EHA	3.13	124	12.23	67.07	85.88	278

Source: Livestock Farm Monitor Project, Appendices 2008/09 to 2009/10, Department of Primary Industries. * EHA refers to effective hectares which is total hectares minus that area of land which is of little or no value for livestock or crop production (eg. house and shed area).

Notes:

¹ Australian Wool Production Forecast Report - October 2011, Australian Wool Innovation Production Forecasting Committee.

² Livestock Farm Monitor Project: Results 2010/11 - Appendices.

³ ABS: Based on 2006 Mesh Block Boundaries. Number of sheep and lambs sourced from the 2006 Agricultural Census. This map was produced using coordinate system: Lat/Long GDA94 © Commonwealth of Australia, 2010.

⁴  Agricultural Commodities, Australia, 2009-10, Australian Bureau of Statistics (Cat. No. 7121.0DO004).

⁵ Neil Barr, "The changing social landscape of rural Victoria", Department of Primary Industries, 2005.

⁶ Agricultural Commodities Australia, State/Territory and SD Estimates: Year Ending 30 June 2010 (Cat. No. 7121.0DO002).

⁷  Principal Agricultural Commodities, Australia, Preliminary, 2010-11, Australian Bureau of Statistics (Cat. No. 71110DO001).

⁸ Australian Wool Production Forecast Report - October 2011, Australian Wool Innovation Production Forecasting Committee.

⁹ ABARE, Australian commodities, vol 17 no 1 , March quarter 2010.

¹⁰ Meat and Livestock Australia Statistical Review July 2010 - June 2011.

¹¹ Per capita consumption figures from MLA sheep industry projections 2010.

¹² Productivity Change in the Australian Sheep Industry Revisited. Renato Villano, Euan Fleming, Terence Farrell and Pauline Fleming School of Economics, University of New England Abstract, 2006.

¹³ ABARE, Unpublished Total Factor Productivity data for the years 1977-78 to 2008-09.

¹⁴ DPI services to beef and sheep producers, Discussion draft, April 2010, Department of Primary Industries.

¹⁵ Prime lamb situation analysis. June 2010, MLA.

¹⁶ ABS Census Data, (Cat. no. 2604.0 - CDATA Online), Australian Bureau of Statistics.