Lamb farms

Industry overview

The lamb industry makes an important contribution to the Australian economy. In 2017–18 it accounted for around 7 per cent ($4.1 billion) of the gross value of agricultural production (ABS 2019) and around 5 per cent ($2.6 billion) of agricultural export income.

Since the early 1990s the number of farms producing lambs for slaughter has increased, as has the gross value of lamb production in aggregate and on a per farm basis. Many broadacre farms now rely on income from the sale of lambs for slaughter each year, with varying degrees of specialisation across the industry. Australia’s lamb producing regions are concentrated in the south-east of Australia including Tasmania, Victoria, central and southern New South Wales and south-east of South Australia and in south-west Western Australia (see map below).

The results below are for farms included in the Australian Agricultural and Grazing Industries (AAGIS) survey that sold at least 200 lambs for slaughter. The AAGIS is funded by the Department of Agriculture, Meat & Livestock Australia (MLA) and the Grains Research and Development Corporation. MLA commissioned and funded the analysis of lamb industry farm performance.

Australian lamb producing regions

Shows Australian lamb producing regions. Australia’s lamb producing regions are concentrated in the south-east of Australia including Tasmania, Victoria, central and southern New South Wales and south-east of South Australia and in south-west Western Australia.
Source: ABARES

Key drivers of farm income


Farm financial performance

  • Average farm cash income of Australian lamb-producing farms is projected to decrease by 14 per cent in 2018–19 to an average of $226,000 per farm.
  • Lower crop receipts because of drought conditions in south-eastern Australia are projected to be partly offset by higher receipts for lambs, sheep and wool as a result of higher prices.
  • In 2018–19, farm cash income is expected to fall in New South Wales, Victoria and South Australia but increase in Western Australia and Tasmania.

Detailed farm financial performance findings

Frederick Litchfield, James Frilay and Dale Ashton

Farm cash income and profit

Average incomes for lamb-producing farms are projected to decline in 2018–19 despite strong prices and higher receipts for lambs. Many lamb-producing farms have significant cropping enterprises. Because of drought conditions in south-eastern Australia, crop areas and yields are projected to fall significantly and result in lower crop receipts.

Average farm cash income is projected to decrease by 14 per cent in 2018–19 to an average of $226,000 per farm for Australian lamb-producing farms (Table 1). Lower crop receipts are projected to be partly offset by higher receipts for lambs, sheep and wool as a result of higher prices.

Table 1 Farm financial performance, lamb-producing farms, 2016–17 to 2018–19
average per farm
Performance measure Units 2016–17 2017–18p 2018–19y
Australia
Total cash receipts $ 764,020 746,300 688,000
Total cash costs $ 492,750 482,700 462,000
Farm cash income $ 271,260 263,700 226,000
Farm business profit $ 178,880 93,400 63,000
Rate of return a % 4.4 2.4 1.8
New South Wales
Total cash receipts $ 655,480 616,400 506,000
Total cash costs $ 415,430 405,300 382,000
Farm cash income $ 240,050 211,100 124,000
Farm business profit $ 155,610 12,000 –48,000
Rate of return a % 4.1 1.0 0.0
Victoria
Total cash receipts $ 594,600 679,600 630,000
Total cash costs $ 411,940 437,600 409,000
Farm cash income $ 182,670 242,100 221,000
Farm business profit $ 147,210 116,400 75,000
Rate of return a % 4.0 2.9 2.1
South Australia
Total cash receipts $ 947,160 901,700 832,000
Total cash costs $ 587,120 562,300 521,000
Farm cash income $ 360,040 339,400 310,000
Farm business profit $ 234,480 183,200 150,000
Rate of return a % 4.6 3.5 2.8
Western Australia
Total cash receipts $ 1,067,380 1,027,300 1,141,000
Total cash costs $ 688,350 657,700 705,000
Farm cash income $ 379,030 369,500 436,000
Farm business profit $ 208,410 199,700 264,000
Rate of return a % 5.0 4.2 5.2
Tasmania
Total cash receipts $ 575,990 774,500 848,000
Total cash costs $ 420,790 550,900 513,000
Farm cash income $ 155,200 223,600 335,000
Farm business profit $ 93,600 165,100 255,000
Rate of return a % 2.5 3.3 4.5

pPreliminary estimate. y Provisional estimate. a Excluding capital appreciation.
Source: ABARES Australian Agricultural and Grazing Industries Survey

Figure 1 shows farm cash income in 2018–19 is projected to be the fourth highest in over 20 years, an estimated 31 per cent higher than the average from 2000–01 to 2017–18 in real terms.


Despite the drought, average farm cash income in 2018–19 at the national level is in the best 25 per cent of years from 1989–90 to 2018–19 (Figure 2). As a result of high prices for sheep, wool and lambs, farm cash incomes of lamb-producing farms in all states, except New South Wales, is projected to be in the best 25 per cent of years in 2018–19. Lamb-producing farms in Western Australia and Tasmania are projected to have the highest farm cash incomes since 1989–90 as a result of above average cropping seasons in both states.


Farm business profit is a measure of long-term profitability. It accounts for capital depreciation, payments for family labour and changes in inventories of livestock, fodder and grain held on farm.

At the national level, farm business profit decreased by around 48 per cent in 2017–18 and is projected to fall by a further 33 per cent in 2018–19. Changes in projected average farm business profit in 2018–19 are expected to be mixed at state level, increasing in Tasmania and Western Australia and decreasing in New South Wales, Victoria and South Australia.

In 2018–19 the proportion of farms recording negative farm business profit is projected to be around 47 per cent (Figure 3).

Negative farm business profit means a farm has not covered the costs of unpaid family labour or set aside funds to replace depreciating farm assets. Many farms occasionally record negative farm business profits when their income fluctuates. However, ongoing low or negative profits affect long-term viability because farms have reduced capacity to invest in newer and more efficient technologies.

On average 18 per cent of lamb-producing farms recording negative farm business profit in any given year from 2000–01 to 2017–18 have recorded a positive profit in the following year.


Total cash receipts

Most lamb-producing farms operate both livestock and cropping enterprises. In 2017–18, sales of livestock and livestock products made up around 56 per cent of total farm receipts and cropping receipts made up 39 per cent. Receipts from the sale of sheep and lambs contributed around 27 per cent to total receipts, with lambs accounting for around 19 per cent of total cash receipts.

On average, total cash receipts decreased by 2 per cent in 2017–18 (Table 1). Lamb receipts increased by 8 per cent as a result of higher prices and increased turn-off per farm. Receipts from beef and wool rose because of higher turn-off and prices, respectively. Receipts from crops decreased by around 18 per cent in 2017–18 because of reduced crop areas.

In 2018–19, total farm cash receipts are projected to decrease by around 8 per cent to an average of $688,000 per farm. Total crop receipts as a proportion of total cash receipts are projected to decrease from 39 per cent to 36 per cent, reflecting less favourable seasonal conditions in some regions and falls in total crop production. Higher prices are expected to lead to increased receipts from lambs, sheep and wool from 44 per cent to around 48 per cent of total cash receipts. This will be the highest contribution of lambs, sheep and wool to total receipts for lamb producers since 1990–91.

Total cash costs

In 2017–18, average total cash costs of lamb-producing farms fell by 2 per cent to around $482,700 per farm (Table 1). Total cash costs are projected to decline further by around 4 per cent in 2018–19. Fertiliser, repairs and maintenance, hired labour, crop and pasture chemicals, and interest payments accounted for the largest share of total cash costs for lamb producers.

Performance by state and scale of lamb production

The financial performance of lamb-producing farms in 2017–18 and 2018–19 varies across states reflecting differences in exposure to drought (Figure 4). In 2017–18, lamb-producing farms in New South Wales recorded a significant decline in reported seasonal conditions, with 91 per cent of farms reporting below average or drought conditions. Conditions continued to deteriorate into 2018–19 with 98 per cent of lamb-producing farms reporting below average or drought conditions. Reports of drought conditions for lamb-producing farms in Victoria and South Australia also increased in 2018–19.


In 2017–18, lambs accounted for an estimated 26 per cent of total cash receipts in Tasmania, 24 per cent in New South Wales, 21 per cent in Victoria, 17 per cent in South Australia and 11 per cent in Western Australia. Insufficient lamb-producing farms were surveyed in Queensland to produce reliable estimates.

In 2017–18, average farm cash income of lamb-producing farms rose in Victoria and Tasmania, but fell in New South Wales, South Australia and Western Australia due to lower crop receipts (Figure 5). In 2018–19, farm cash income is expected to fall in New South Wales, Victoria and South Australia but increase in Western Australia and Tasmania. Crop receipts are expected to fall in all states except Western Australia, with the greatest percentage decline in New South Wales.


All sizes of lamb-producing farms are expected to have lower total crop receipts in 2018–19 and all except very large-scale farms (by number of lambs sold) are projected to have lower average farm cash income (Table 2 and Figure 6). For very large-scale farms, a fall in total cash receipts from lower crop and beef cattle receipts is projected to be offset by a larger fall in total cash costs for 2018–19. Farm business profit for very large-scale farms decreased by 29 per cent in 2017–18 and is projected to decline by 30 per cent on average in 2018–19 because of a reduction in the stocks of livestock and crops held on farm.

Table 2 Farm financial performance, by scale of lamb production, 2016–17 to 2018–19
average per farm
Performance measure Unit 2016–17 2017–18p 2018–19y
Small-scale farms
(200 to 500 lambs sold)
Farm cash income $ 151,530 149,800 131,000
Farm business profit $ 79,020 21,600 1,000
Rate of return a % 3.4 1.3 0.7
Medium-scale farms
(500 to 2,000 lambs sold)
Farm cash income $ 293,870 300,200 262,000
Farm business profit $ 194,250 119,200 86,000
Rate of return a % 4.3 2.7 2.1
Large-scale farms
(2,000 to 4,000 lambs sold)
Farm cash income $ 619,930 570,300 357,000
Farm business profit $ 462,130 247,900 171,000
Rate of return a % 5.5 3.0 2.2
Very large-scale farms
(More than 4,000 lambs sold)
Farm cash income $ 621,480 644,400 694,000
Farm business profit $ 565,090 402,700 283,000
Rate of return a % 5.5 3.4 2.6

p Preliminary estimate. y Provisional estimate. a Excluding capital appreciation.
Source: ABARES Australian Agricultural and Grazing Industries Survey


Rate of return

In 2017–18, the average rate of return (excluding capital appreciation) for lamb-producing farms fell to 2.4 per cent (Figure 7). In 2018–19, lower average farm cash income is projected to result in the average rate of return falling further to around 1.8 per cent. This decline will mean the average rate of return in 2018–19 is projected to be slightly below the long-term average of around 2.3 per cent per year recorded from 2000–01 to 2018–19.


The performance of lamb-producing farms varied widely in 2017–18 and 2018–19, but was generally positive (Figure 8). In 2017–18, an estimated 75 per cent of lamb-producing farms had positive rates of return excluding capital appreciation. Around 27 per cent of lamb-producing farms had a rate of return of more than 5 per cent, and an estimated 8 per cent recorded a rate of return below –5 per cent.

Financial performance was weaker in 2018–19, but the distribution of lamb-producing farms by rate of return remained skewed towards the positive. An estimated 67 per cent of lamb-producing farms are projected to have a positive rate of return in 2018–19 and 22 per cent will have a return exceeding 5 per cent. An estimated 6 per cent of lamb-producing farms are projected to have a rate of return below –5 per cent in 2018–19.


Variation in rate of return

The long-term performance of farm businesses is determined by the level and variability of profits. Variations in the rate of return reflect changes over time in average seasonal conditions, commodity prices and the cost of farm inputs recorded in each state. Individual farms are likely to have experienced different variations in the rate of return over the period. These are a result of farm-specific factors such as seasonal conditions, prices received, enterprise mix and the skills of the manager.

Tasmania had the smallest range in rate of return over the period (Figure 9), but also recorded the lowest maximum rate of return. Western Australia had the highest median rate of return and the widest distribution.


Farm debt and equity

  • Average farm debt of Australian lamb-producing farms increased slightly to $826,000 in 2017–18 (in real terms) and is projected to increase slightly again in 2018–19.
  • The average equity ratio of lamb-producing farms trended downwards slightly over the 10 years to 2017–18, averaging around 86 per cent.

Detailed farm debt and equity findings

Frederick Litchfield, James Frilay and Dale Ashton

Trends in average debt per farm

Debt is an important source of funds for farm investment and ongoing working capital for many lamb-producing farms. At the national level, from 2000–01 to 2018–19 average debt of lamb-producing farms trended upwards in real terms, mainly resulting from an increase in average farm size and changes in industry mix toward cropping farms that have higher working capital debt than livestock farms (Figure 10). In 2017–18, average debt of lamb-producing farms increased slightly to $825,800 per farm. Average debt is projected to increase further in 2018–19 to $834,000 per farm.


In ABARES farm surveys, debt is recorded by its main purpose. However, because some loans cover a range of purposes, estimates of debt by main purpose provide a guide only.

Over the 3 years to 2017–18, land purchases accounted for the largest proportion of total farm debt, at 41 per cent on average (Figure 11). A further 37 per cent of debt was for working capital. The remaining debt was for a range of purposes such as vehicles, machinery, land development, buildings and structures. As a result of the mixed nature of lamb-producing farms, a significant proportion of working capital debt is for cropping enterprises.


Equity ratio

Average total debt of lamb-producing farms has increased slightly faster than total farm capital over the 10 years to 2017–18. As a consequence, the average equity ratio of lamb-producing farms trended downwards slightly over the period.

An estimated 63 per cent of lamb-producing farms had an equity ratio greater than 90 per cent in 2017–18 (Table 3). On average, lamb-producing farms with higher equity ratios tend to be smaller than farms with lower equity ratios. Lamb receipts as a proportion of total receipts decrease with equity ratio, reflecting a higher level of enterprise diversification among larger farms.

Table 3 Farm performance, by equity ratio, lamb-producing farms, Australia, 2017–18
average per farm
Measure Equity ratio
Units More than 90% 70 to 90% Less than 70%
Proportion of farms % 63 29 8
Total area operated ha 1,943 4,366 4,481
Lambs sold no. 862 1,300 1,597
Lamb receipts $ 112,500 169,900 200,800
Total cash receipts $ 510,000 1,019,400 1,233,700
Total cash costs $ 284,400 704,400 949,200
Farm cash income $ 225,600 314,900 284,600
Lamb receipts as a proportion of total receipts % 22 17 16

Note: Based on preliminary estimates.
Source: ABARES Australian Agricultural and Grazing Industries Survey

Debt-servicing capacity

The long-term viability of a farm is affected by its capacity to service debt. The servicing of debt consists of making interest payments and paying down the principal. The proportion of farm receipts spent on interest payments is a useful indicator of short-term capacity to service debt. National short and long term interest rate data is available in the following table Australian main macroeconomic indicators.

For lamb-producing farms the ratio of interest payments to total cash receipts fell from an average of around 10 per cent in 2009–10 to around 6 per cent in 2018–19 (Figure 12). Increased cash receipts and lower interest rates were the main reasons for this decline.


At the national level, around 47 per cent of lamb-producing farms reduced total debt in 2017–18 (Figure 13). A further 30 per cent increased debt, and 2 per cent had no change in debt. The remaining 21 per cent of lamb-producing farms had no debt at 1 July 2017 and 30 June 2018.


Debt and equity, by size

From 2000–01 to 2018–19, average debt for very large lamb-producing farms (more than 4,000 lambs sold) increased at a faster rate than for the other size groups. Nevertheless, lamb-producing farms of all sizes increased their debt for purchasing land and working capital over the period. In 2017–18, average debt for very large lamb-producing farms rose by 47 per cent from the previous year, this was partly driven by a small number of farms with substantial increases in debt.

From 2000–01 to 2017–18, equity ratios showed little variation across the three smallest size groups, reflecting the mixed nature of most lamb-producing farms and the importance of cropping and other livestock to these farm businesses.

Equity ratios for very large lamb-producing farms trended downwards from 91 per cent in 2000–01 to average 78 per cent from 2015–16 to 2017–18 (Table 4). This can be partly attributed to an increase in the proportion of cropping farms being classed as very large lamb-producing farms over the period, with these farms being larger in size and having lower equity ratios on average.

Table 4 Equity ratio and total farm debt, lamb-producing farms, by size 2015–16 to 2017–18
average per farm
Size Equity ratio (%) Total farm debt ($)
2015–16 2016–17 2017–18p 2015–16 2016–17 2017–18p
Small (200 to 500 lambs sold) 88 89 90 440,160 379,790 392,100
Medium (500 to 2,000 lambs sold) 87 86 87 630,290 828,810 900,000
Large (2,000 to 4,000 lambs sold) 85 84 85 1,353,550 1,797,580 1,760,300
Very large (more than 4,000 lambs sold) 79 79 77 3,255,020 3,432,700 5,041,600

p Preliminary estimate.
Source: ABARES Australian Agricultural and Grazing Industries Survey

Distribution of farms, by debt and equity

Table 5 shows the distribution of lamb-producing farms by debt and equity ratio at 30 June 2018. An estimated 24 per cent of all lamb-producing farms in Australia held no debt at 30 June. A further 16 per cent of farms held less than $100,000 in debt. An estimated 26 per cent of lamb-producing farms had debt exceeding $1 million. Average debt of lamb-producing farms was closely related to the scale of cropping activities.

Table 5 Distribution of farms, by farm business debt and equity ratio, lamb-producing farms, Australia, 30 June 2018
Equity ratio No debt Less than $100,000 $100,000 to less than $250,000 $250,000 to less than $500,000 $500,000 to less than $1m $1m to less than $2m More than $2m Total
Greater than or equal to 90% 24 16 11 6 4 1 0 63
80 to less than 90% 0 0 0 3 5 4 3 16
70 to less than 80% 0 0 2 0 2 5 4 13
60 to less than 70% 0 0 0 0 0 3 2 5
Less than 60% 0 0 0 0 0 1 1 3
Total 24 16 13 9 12 15 11 100

Note: Based on preliminary estimates. Row and column totals may not sum to 100 due to rounding.
Source: ABARES Australian Agricultural and Grazing Industries Survey

Farm capital and investment

  • On average, 67 per cent of lamb-producing farms each year made additions to their total capital over the 10 years to 2017–18.

Detailed farm capital and investment findings

Frederick Litchfield, James Frilay and Dale Ashton

Total farm capital

Investment in farm capital is important for the ongoing development of the Australian lamb industry. Investments in land, fixed improvements, and plant and equipment are key drivers of lamb producers’ capacity to generate farm outputs.

Many lamb-producing farms are operated as mixed enterprises and production systems vary considerably. From 2000–01 to 2017–18, the total number of broadacre farms in Australia declined but the proportion of farms producing lambs increased from around 28 per cent to an estimated 36 per cent (Figure 14). As a result of this increase, the total number of lamb-producing farms remained relatively stable, in contrast to the trend towards lower farm numbers in other broadacre industries. Many of these new entrants to lamb production were larger mixed enterprise or cropping specialist farms that increased their lamb production in response to higher prices for lambs.


Analysis of farm capital on lamb-producing farms is dominated by grain enterprises rather than lamb enterprises. Land accounted for an average of 83 per cent of total capital per farm in 2017–18 (Figure 15). Livestock made up 8 per cent of total capital, plant and equipment a further 8 per cent and trading stocks 1 per cent. The proportion of plant and equipment is higher than might be expected on livestock-producing farms because of the relatively high proportion of lamb-producing farms that also have cropping enterprises.

In 2017–18, plant and equipment made up around 8 per cent of total capital for lamb producers with grain-growing enterprises and around 6 per cent of total capital for lamb producers without grain-growing enterprises. Livestock made up a greater proportion of total capital for lamb producers without grain-growing enterprises (12 per cent), compared to those with grain-growing enterprises (7 per cent).


New farm investment

Most farmers make new investments each year to add to the existing capital stock or to replace capital items that have reached the end of their useful life. Farm investments are usually made with longer-term outcomes in mind and based on expected returns over the life of the investment.

On average, 67 per cent of lamb-producing farms each year made additions to their total capital over the 10 years to 2017–18 (Figure 16). The amount invested each year by those making capital additions fluctuated broadly in line with movements in farm cash incomes. In 2017–18, an estimated 72 per cent of lamb-producing farms made capital additions.


Figure 17 shows the average proportion of lamb-producing farms that made capital additions in 2017–18 and the average capital addition in three categories—land purchases, plant and equipment, and buildings and structures.

Land is the biggest component of capital additions, although only around 7 per cent of lamb producers purchased land in 2017–18. Average expenditure on land for those making purchases was around $1.7 million per farm.

Around 71 per cent of lamb-producing farms made additions to plant and equipment in 2017–18, at an average of around $110,000 per farm. An estimated 11 per cent of farms made additions to buildings and structures, at an average of $60,000 per farm.


Farm management deposits

ABARES farm surveys record the total holdings of farm management deposits (FMDs) held by partners in the farm business (individuals sharing the farm business’s profits) at 1 July and 30 June. The proportion of lamb-producing farms holding FMDs averaged around 26 per cent from 2007–08 to 2013–14 before increasing to around 37 per cent in 2017–18 (Figure 18). From 2007–08 to 2017–18, the average value of FMD holdings per farm increased by around 75 per cent in real terms, to $289,000 per farm.

Lamb-producing farms holding FMDs in 2017–18 recorded superior financial performance on average, including higher farm cash incomes, rates of return and equity ratios than lamb-producing farms that did not hold FMDs (Table 6).



Table 6 Farm performance by FMD holdings, lamb-producing farms, Australia, 2017–18
average per farm

 

Unit

FMDs held at 30 June

No FMDs held at 30 June

Proportion of farms

%

37

63

Farm cash income

$

380,100

195,200

Rate of return a

%

3.5

1.6

Equity ratio

%

82

74

Total farm capital

$

7,300,400

5,844,800

Proportion of farms by state

New South Wales

%

31

69

Victoria

%

37

63

South Australia

%

51

49

Western Australia

%

42

58

Tasmania

%

21

79

a Excluding capital appreciation.
Note: Based on preliminary estimates.
Source: ABARES Australian Agricultural and Grazing Industries Survey

Physical characteristics

  • From 2000–01 to 2017–18, the total number of Australian farms producing lambs for slaughter fell by 10 per cent. Most of this decline was in Victoria (1,700 farms).
  • The number of lambs sold per farm increased by 41 per cent from 1989–90 to 2017–18, as part of a long term shift in production from wool to lambs on lamb-producing farms.

Detailed physical characteristics findings

Frederick Litchfield, James Frilay and Dale Ashton

In 2017–18, around 17,600 Australian farms produced at least 200 lambs for slaughter. An estimated 42 per cent of these lamb-producing farms were in New South Wales, 23 per cent in Victoria, 16 per cent in South Australia, 15 per cent in Western Australia and 2 per cent in both Tasmania and Queensland.

From 2000–01 to 2017–18, the total number of Australian farms producing lambs for slaughter fell by 10 per cent. Most of this decline was in Victoria, while Western Australia was the only state with an increase in the number of lamb-producing farms (Figure 19).


Most lamb-producing farms have a diversified mix of enterprises, typically including a combination of wool, lambs, sheep, beef cattle and crops. The vast majority produce wool as a co-product and only a small proportion of farms have slaughter lambs as their only output. This heavily influences the number and characteristics of lamb-producing farms. From the mid-2000s, the number of larger grain farms producing lambs for slaughter increased but the number of smaller farms focusing on sheep, lambs and wool production decreased.

From 1989–90 to 2017–18, total lamb production increased despite declining Australian sheep numbers. A change in the composition of the national sheep flock resulted from increased use of non-Merino sheep for wool and meat production, with the total number of lambs sold per farm increasing over the period (Figure 20).


Trends in physical characteristics, by state

From 2000–01 to 2017–18, the share of lamb production by state changed slightly. This reflected relative changes in the regional concentration of lamb-producing farms, higher lamb marking rates, a shift from wool production to lamb production, and increases in the number of lambs sold for slaughter. In 2017–18, New South Wales accounted for 44 per cent of the number of lambs sold for slaughter, followed by Victoria (22 per cent), South Australia (17 per cent), Western Australia (14 per cent) and Tasmania (3 per cent).

Changes in flock sizes have not been uniform across all states. From 2000–01 to 2017–18, average flock sizes increased in Victoria and South Australia (Figure 21). In New South Wales and Tasmania, average flock sizes decreased in recent years in response to drought. In Western Australia, the average flock size in 2017–18 was similar to the level in 2000–01.


The demographics of sheep flocks have changed in most states since the 1990s, with fewer wethers and more ewes and lambs on hand at 30 June. The proportion of lambs to total sheep increased in New South Wales, Victoria, Western Australia and Tasmania from 2000–01 to 2017–18 (Figure 22). The increase in the number of lambs on hand at 30 June reflects changes in lambing patterns, including an increase in the proportion of autumn lambing.

Lambing patterns tend to vary by region and producers adjust them to suit the availability of feed. The breed of lamb influences how long an animal is kept and how long it takes to reach a saleable weight. Market conditions also affect flock composition at 30 June because farmers often hold lambs longer when prices are higher to maximise sale weight.


The shift in focus from wool production to lamb production resulted in the lamb marking rate (lambs marked as a proportion of ewes mated) rising from 86 per cent in 2000–01 to 94 per cent in 2017–18 (Figure 23). Meat-sheep breeds such as Border Leicesters have significantly higher rates of twinning than Merino sheep, meaning greater use of meat-sheep breeds produces more offspring per ewe mated on average. Greater reliance on improved pastures and supplementary feeding to enhance ewe fertility rates have also contributed to rising lamb marking rates.


Physical characteristics, by scale of lamb production

From 1989–90 to 2017–18, Australian sheep flock numbers on lamb-producing farms increased on average. The proportion of farms with more than 2,000 sheep increased from 34 percent to 46 per cent over the period.

In 2017–18, medium (500 to 2,000 lambs sold) farms represented 52 per cent of all lamb-producing farms and accounted for 57 per cent of total lamb production (Table 7). Large (2,000 to 4,000 lambs sold) and very large (more than 4,000 lambs sold) farms represented 8 per cent of lamb-producing farms and accounted for 30 per cent of total lambs sold

Table 7 Proportion of farms and lambs sold, lamb-producing farms, by size, 2017–18

Size

Number of farms (no.)

Share of farms (%)

Share of lambs sold (%)

Small (200 to 500 lambs sold)

7,020

40

14

Medium (500 to 2,000 lambs sold)

9,100

52

57

Large (2,000 to 4,000 lambs sold)

1,170

7

19

Very large (More than 4,000 lambs sold)

290

2

11

Total

17,580

100

100

Note: Column totals may not sum to 100 due to rounding. Based on preliminary estimates.
Source: ABARES Australian Agricultural and Grazing Industries Survey

In 2017–18, lamb marking rates ranged from 86 per cent on small farms to 104 per cent on very large farms (Table 8). Larger farms have higher lamb marking rates because they have a greater focus on managing lambs, compared to those with smaller lamb enterprises

Larger lamb-producing farms operate larger areas and have a more diverse enterprise mix on average than smaller farms. Larger farms also have higher turn-on and turn-off rates than smaller lamb-producing farms.

Table 8 Physical characteristics, lamb-producing farms, by size, 2017–18
average per farm

Characteristic

Unit

Small (200 to 500 lambs sold)

Medium (500 to 2,000 lambs sold)

Large (2,000 to 4,000 lambs sold)

Very large (more than 4,000 lambs sold)

Area operated

ha.

2,760

3,790

6,700

9,050

Area sown to crops

ha.

360

680

840

1,540

Beef cattle on hand

no.

90

150

260

380

Sheep at 30 June

no.

1,690

2,860

5,840

11,260

Lambs at 30 June

no.

540

940

1,760

3,170

Adult sheep sold

no.

730

1,670

4,260

8,580

Lambs sold

no.

380

1,190

3,060

7,040

Turn-on rate

%

4

8

10

24

Turn-off rate

%

43

58

70

78

Ewes mated

no.

870

1,640

3,560

6,720

Lambs marked

no.

750

1,560

3,420

6,970

Lamb marking rate

%

86

95

96

104

Wool production

kg

7,140

12,790

28,590

49,800

Note: Based on preliminary estimates.
Source: ABARES Australian Agricultural and Grazing Industries Survey

Cost of production

  • In 2017–18, increase in total costs of sheep production more than offset an increase in prices received for sheep, lambs and wool resulting in average operating margins declining by 4 per cent for sheep producers.
  • Operating margins for slaughter lamb producers declined by 5 per cent as a result of increases in fodder expenditure due to dry seasonal conditions and increased expenditure on sheep purchases and labour. Increased investment by slaughter lamb producers also increased depreciation and finance costs.
  • The average cost of sheep production for slaughter lamb producers increased by 9 per cent in real terms between 2016–17 and 2017–18, from 331 cents per kilogram live weight to 362 cents per kilogram.
  • Over the three years to 2017–18, the total cost of sheep production for sheep producers averaged 351 cents per kilogram live weight, and for slaughter lamb producers 338 cents per kilogram.
  • For slaughter lamb producers, the average cost of production declined as the scale of lamb production increased. The total cost of production for the smallest slaughter lamb producers (selling 200 to 500 lambs) averaged 410 cents per kilogram, compared with 299 cents for the largest slaughter lamb producers (selling more than 2,000 lambs).
  • Slaughter lamb producers across the full range flock sizes, including the smallest slaughter lamb producers, generated revenue sufficient to cover all costs of production, on average, over the three years to 2017–18.

Detailed cost of production findings

Peter Martin

Cost of sheep production

Between 2015–16 and 2017–18 prices for sheep, lambs and wool increased. The cost of sheep production increased by around 8 cents per kilogram live weight between 2015–16 and 2016–17 and increased by around 30 cents between 2016–17 and 2017–18 (in real terms). Nationally, total costs of sheep production averaged 351 cents per kilogram live weight for all sheep producers and 338 cents per kilogram for slaughter lamb producers (Table 9) for the three years to 2017–18.

Box 1 Calculation of the per kilogram live weight cost of sheep production

The Australian Agricultural and Grazing Industries Survey of Australian broadacre farms collects detailed financial, physical and production data. ABARES included additional questions in the 2007–08, 2008–09 and 2012–13 to 2017–18 surveys so it could calculate the per kilogram live weight cost of beef cattle and sheep production.

These additional questions covered the live weight of cattle, calves, sheep and lambs sold or transferred off-farm and the proportion of key variable costs attributable to beef, sheep and cropping enterprises on mixed enterprise farms. Key variable costs included crop and pasture chemicals, fertiliser, fodder, fuel, repairs and maintenance, contracts paid, veterinary and livestock materials, and hired and family labour.

Fixed (overhead) costs such as accountancy, telephone, insurance and capital depreciation were attributed to enterprises on the basis of their share of total farm cash receipts.

ABARES calculated total live weight of sheep production as the total live weight sold and transferred off-farm, adjusting for changes in total live weight of the flock at the beginning and end of each financial year. Total live weight of the flock at the beginning and end of each financial year was calculated by applying average live weights to the categories of sheep on hand (ewes, lambs, wethers and rams) at the beginning and end of each financial year.

Per kilogram live weight costs of production were calculated by dividing the sheep enterprise share of costs by the total live weight of sheep produced. The methodology used did not disaggregate wool production costs from sheep and lamb production costs.

Much of the increase in cost of production between 2016–17 and 2017–18 was the result of increased expenditure on fodder with the onset of dry seasonal conditions in south-eastern Australia. Fodder expenditure increased as a result of both increased usage and higher prices for feed-grains and hay. Slaughter lamb producers increased expenditure on fodder by 130 per cent (11 cents per kilogram liveweight) between 2016–17 and 2017–18 (Figure 24). In addition, expenditure on purchases of sheep and lambs increased as a result of higher sheep and lamb prices. Depreciation and finance costs increased as a result of increased investment and borrowing to finance land and capital purchases.


The on-farm costs of sheep production vary across farm businesses depending on size, enterprise mix, the farm’s location, the quality of farm management and climatic and other production conditions during the year.

In the short term, to continue operating an enterprise, farm businesses need to generate only sufficient receipts to cover cash operating costs. This enables them to avoid drawing on receipts from other enterprises or borrowing or using financial assets to cover cash shortfalls.

Over the longer-term, farm businesses need to replace farm capital (such as vehicles, machinery, plant, sheds and fencing) to maintain productivity as capital wears out. This cost is mostly captured in capital depreciation, but repairs and maintenance included in cash costs also include replacement and upgrade of some farm capital. Farms often vary their expenditure on capital items depending on need, available cashflow and access to finance. In some years, farms invest more than the calculated depreciation and in other years much less. A farm business that continually invests less than the calculated depreciation will lose production capacity over the medium to long term.

ABARES includes the value of unpaid labour in its measurement of farm financial performance. Family-operated farms use a large amount of owner–manager, partner and family labour. These farms generally do not pay wages or salaries to family and partners who provide labour for the farm’s operation. Valuation of this labour input enables ABARES to compare the performance of all farm businesses equally regardless of the (paid or unpaid) labour arrangements in place. Valuation of unpaid labour also captures the requirement for the farm’s operators to receive a fair return for their labour input. ABARES values unpaid labour inputs at standard industry award wage rates.

Revenue from sheep production comes from three sources: adult sheep, lambs and wool. Over the three years to 2017–18, on average, sheep producers generated 433 cents of output per kilogram live weight produced, and slaughter lamb producers 421 cents (Table 9). The proportion of revenue generated from sheep meat production averaged 59 per cent for all sheep producers, 62 per cent for all slaughter lamb producers and 66 per cent for the largest slaughter lamb producers (selling more than 2,000 lambs). The reduced contribution of wool to sheep enterprise revenue for larger slaughter lamb producers is a result of higher average prices for sheep and lambs and lower wool prices (Table 9)

Table 9 Per kilogram live weight cost of sheep production and operating margins for sheep producers, 2015–16 to 2017–18
average per farm
Production unit Slaughter lamb producers All sheep producers
200 to 500 head 500 to 1,000 head 1,000 to 2,000 head more than 2,000 head average
Total live weight of sheep produced tonnes 18 (7) 24 (5) 35 (7) 69 (6) 30 (3) 29 (3)
Total live weight of lambs produced tonnes 18 (6) 32 (3) 66 (3) 153 (3) 50 (2) 40 (3)
Total weight of wool produced tonnes 8 (5) 11 (3) 16 (3) 34 (4) 14 (2) 13 (2)
Receipts per kilogram of live weight produced
Sheep and lambs c/kg 252 (4) 253 (1) 254 (1) 272 (2) 259 (1) 256 (1)
Wool c/kg 214 (5) 177 (3) 149 (3) 139 (4) 162 (2) 177 (2)
Total c/kg 466 (3) 430 (1) 403 (2) 411 (2) 421 (1) 433 (1)
Production costs
Sheep and lamb purchases c/kg 27 (14) 34 (7) 37 (7) 47 (6) 38 (4) 37 (4)
Shearing and crutching costs c/kg 32 (5) 30 (4) 27 (3) 27 (3) 29 (2) 30 (2)
Repairs and maintenance c/kg 24 (6) 22 (5) 20 (5) 17 (5) 20 (3) 22 (3)
Livestock materials and veterinary chemicals c/kg 15 (8) 15 (5) 14 (6) 13 (4) 14 (3) 15 (3)
Fodder c/kg 17 (11) 15 (10) 12 (10) 14 (9) 14 (5) 15 (6)
Fertiliser c/kg 15 (10) 14 (7) 14 (7) 13 (5) 14 (3) 14 (4)
Handling and marketing c/kg 10 (8) 13 (6) 12 (6) 14 (4) 13 (3) 13 (3)
Rates c/kg 14 (5) 12 (5) 10 (5) 8 (5) 11 (3) 11 (3)
Hired labour c/kg 5 (17) 8 (10) 10 (8) 14 (6) 10 (4) 10 (4)
Administration c/kg 13 (5) 11 (6) 8 (4) 7 (4) 9 (3) 10 (3)
Fuel and lubricants c/kg 13 (8) 10 (4) 9 (4) 7 (4) 9 (3) 10 (3)
Freight c/kg 8 (8) 9 (5) 8 (5) 8 (5) 8 (3) 9 (3)
Land rent c/kg 5 (25) 6 (12) 7 (10) 8 (9) 7 (6) 6 (6)
Crop and pasture chemicals c/kg 5 (13) 7 (11) 7 (8) 5 (8) 6 (5) 6 (5)
Contracts paid c/kg 4 (21) 5 (12) 5 (9) 5 (9) 5 (5) 5 (6)
Other cash costs c/kg 38 (5) 29 (4) 25 (4) 23 (3) 27 (2) 28 (2)
Finance costs c/kg 21 (10) 18 (6) 19 (5) 23 (6) 20 (3) 20 (3)
Capital depreciation c/kg 46 (4) 40 (3) 36 (3) 25 (3) 35 (2) 35 (2)
Value of unpaid owner-manager, partner and family labour c/kg 97 (5) 66 (4) 44 (3) 22 (4) 50 (2) 55 (2)
Total cash costs excluding finance costs c/kg 245 (3) 240 (2) 226 (2) 229 (2) 233 (1) 240 (1)
Total cash costs including finance costs c/kg 267 (3) 258 (2) 245 (2) 252 (2) 254 (1) 261 (1)
Total cash, finance and depreciation costs c/kg 313 (3) 298 (2) 281 (2) 277 (2) 288 (1) 296 (1)
Total costs (all cash costs, finance, depreciation and the value of unpaid labour) c/kg 410 (3) 364 (2) 325 (2) 299 (2) 338 (1) 351 (1)
Operating margin over
Cash costs c/kg 221 (5) 190 (3) 177 (3) 182 (4) 188 (2) 193 (2)
Cash and finance costs c/kg 199 (6) 172 (3) 158 (4) 159 (5) 168 (2) 173 (3)
Cash, finance and depreciation costs c/kg 153 (8) 132 (4) 122 (5) 134 (6) 133 (3) 137 (3)
All costs including unpaid labour costs c/kg 56 (25) 66 (10) 78 (7) 112 (7) 83 (5) 83 (5)

Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Estimates have been rounded to the nearest whole number and are presented in 2018–19 dollars. Cash costs include all expenditure on materials, interest, rent, services and labour such as fodder, rates, irrigation water, fuel, fertiliser, accountancy, electricity, veterinary chemicals and repairs incurred in the production of farm income. Cash costs do not include expenditure on items of farm capital such as purchase of vehicles, machinery, land, structures or improvements or value of labour and other inputs where no direct cash expenditure is made.
Source: ABARES Australian Agricultural and Grazing Industries Survey

The value of sheep production (on a per kilogram basis) declined as lamb production increased up to 2000 head, but the average cost of production declined at a faster rate. Over the three years to 2017–18, the total cost of production (including the value of unpaid labour) for the smallest slaughter lamb enterprises averaged 410 cents per kilogram, compared with 299 cents per kilogram for slaughter lamb producers selling more than 2,000 lambs. As production increases, cash costs of production reduce by a relatively small amount, but capital depreciation and particularly input of unpaid owner–manager, partner and partner labour show a larger reduction (Figure 25).


These results suggest significant economies of scale in the sheep meat industry. Economies of scale for sheep producers mainly arise from greater efficiency in the use of farm capital and labour as the scale of the sheep enterprise increases. Generally, increases in the scale of sheep enterprises bring only small reductions in cash operating costs per kilogram in both variable and fixed cash costs (overhead costs such as administrative costs, insurance and rates).

Cost of sheep production by region

The total cost of sheep production varied little across the states for the three years from 2015–16 to 2017–18. Cost of production for Queensland was slightly lower averaged across the three years than the other states and had the largest variation between years (Table 10). This partly reflects the comparatively small number of slaughter lamb producers (and resulting low sample) in Queensland.

Table 10 Per kilogram live weight cost of sheep production and operating margins for slaughter lamb producers, by state, 2015–16 to 2017–18
average per farm
Receipts per kilogram of live weight produced unit New South Wales Victoria Queensland South Australia Western Australia Tasmania
Sheep and lambs c/kg 271 (2) 268 (2) 278 (6) 255 (2) 224 (2) 251 (3)
Wool c/kg 148 (3) 154 (5) 127 (16) 179 (4) 187 (4) 186 (7)
Total c/kg 419 (2) 422 (2) 405 (6) 434 (2) 411 (2) 437 (3)
Production costs
Total cash costs excluding finance costs c/kg 232 (2) 228 (2) 212 (8) 231 (2) 244 (3) 244 (4)
Total cash costs including finance costs c/kg 252 (2) 250 (2) 230 (8) 250 (2) 263 (3) 275 (4)
Total cash, finance and depreciation costs c/kg 285 (2) 285 (2) 258 (8) 289 (2) 299 (3) 298 (4)
Total costs (all cash costs, finance, depreciation and the value of unpaid labour) c/kg 336 (2) 343 (2) 310 (7) 334 (2) 343 (3) 335 (3)
Operating margin over:
Cash costs c/kg 187 (4) 194 (4) 193 (9) 204 (4) 167 (5) 193 (6)
Cash and finance costs c/kg 167 (4) 172 (5) 175 (10) 184 (4) 148 (6) 162 (7)
Cash, finance and depreciation costs c/kg 134 (5) 136 (6) 147 (12) 145 (5) 112 (7) 139 (8)
All costs including unpaid labour costs c/kg 83 (9) 79 (10) 95 (20) 100 (8) 68 (12) 102 (11)

Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Estimates have been rounded to the nearest whole number and are presented in 2018–19 dollars. Cash costs include all expenditure on materials, interest, rent, services and labour such as fodder, rates, irrigation water, fuel, fertiliser, accountancy, electricity, veterinary chemicals and repairs incurred in the production of farm income. Cash costs do not include expenditure on items of farm capital such as purchase of vehicles, machinery, land, structures or improvements or value of labour and other inputs where no direct cash expenditure is made.
Source: ABARES Australian Agricultural and Grazing Industries Survey

Operating margins

Operating margins (receipts per kilogram less costs of production) increased by a large amount in 2016‒17 as prices for sheep, lambs and wool increased and production costs were largely unchanged. In 2017‒18, prices for sheep, lambs and wool increased again—but only by around half as much as the increase in 2016–17.

From 2015‒16 to 2017‒18 operating margins for sheep producers at all scales of operation were positive on average—even when the value of unpaid owner–manager, partner and other family labour is included in the costs of production. A large amount of unpaid labour is used in family-operated sheep-producing farms, particularly smaller farms.

For all sheep producers operating margins averaged 53 cents per kilogram live weight produced in 2015‒16, and increased to 101 cents in 2016‒17. It then declined slightly to 98 cents per kilogram in 2017‒18. For slaughter lamb producers, operating margins averaged 55 cents per kilogram live weight produced in 2015‒16, increased to 102 cents in 2016‒17, then declined to 96 cents per kilogram in 2017‒18 (Figure 26).

Over the period 2015‒16 to 2017‒18, the average operating margin for Western Australian slaughter lamb producers was lower than the average for other states. This was mainly a result of lower average prices received for sheep and lambs compared to the other states, together with relatively high costs of production (Table 10).

Throughout the period 2012‒13 to 2014‒15, operating margins were higher for slaughter lamb producers compared with all sheep producers. However, in 2015‒16 and 2016‒17 margins for all sheep producers were similar to those for slaughter lamb producers. In 2017‒18, margins for all sheep producers exceeded those for slaughter lamb producers as prices received for wool increased by more than prices received for lamb.

Operating margins also increased as the scale of slaughter lamb production increased. Over the period 2015‒16 to 2017‒18, operating margins after accounting for all costs averaged 56 cents per kilogram for farms selling 200 to 500 lambs for slaughter and increased to 112 cents per kilogram for farms selling more than 2,000 lambs (Table 9).


Productivity

Agricultural productivity estimates are available for the sheep industry.

References

ABS 2019, Value of agricultural commodities produced, Australia, 2017–2018, cat. no. 7503.0 Australian Bureau of Statistics, Canberra, accessed 21 June 2019.

Data and other resources

Beef, lamb and sheep industries data
A large selection of ABARES farm survey data on the beef, slaughter lambs and sheep industries

Previous reports

See our previous research page for previous versions of the report Australian lamb: financial performance of lamb producers.

Farm surveys definitions and methods

Further information about our survey definitions and methods.

Farm performance: broadacre and dairy farms

This web report provides a detailed profile of the financial performance of farm businesses in the grains, livestock and dairy industries in the years 2016–17 to 2018–19.

Last reviewed: 4 November 2019
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