The Sheep Industry Business Innovation project focused on producing a more profitable and resilient sheep industry. This includes a focus on increasing business performance by improving farm business skills and increasing access to investment by increasing confidence and promoting alternative business models. Sheep Industry Business Innovation project has conducted a number of studies to help farmers better understand their costs and income base, and the costs and risks associated with adapting farming systems under increasingly variable operating conditions. This information is summarised below into three catorgies, farm systems, investment and farm business managment training:
Farm systems
Economic research and analysis on components of the sheep enterprise that impact on farming systems are analysised in the below reports:
- Crop v sheep and sheep enterprise type - Comparative analysis of Gross Margins for grain and sheep enterprises in the central and high rain fall regions of the WA wheatbelt 2016
- Enterprise size - Opportunities for producers to expand their sheep enterprise
- Time of marketing - Out of season lamb price signals
Investment
Economic research and analysis on investing in the sheep enterprise are discussed in the following reports
- The cost of getting back into sheep
- Sheep industry business models
- Prices, patterns and profitability of feedlots: Investor-ready sheep feedlot report
Farm business management training
The Sheep Industry Business Innovation project will be developing training resources on farm business management complementing the resources outlined below:
- Targeted training to improve business management provided via the department
- Business improvement toolbox – articles and templates on continuous improvement including gross margin analysis drom the department
Additional information is avaiable from the Grains Research and Development Corporation including farm the business management manual, managment fact sheets and a farm gross margin and enterprise planning guide including a spreadsheet for livestock.
Increasing income
Sheep enterprise type
A farmer might wonder whether he is producing the right sort of sheep for the market. Comparison between Merino, prime lamb, Merino 30% crossbred and non-shearing were made.
The 2016 gross margins of four different sheep enterprises in the high rainfall zone of Western Australia were found to have only small differences in profitability. Management was found to have a greater influence on profitability than choice of enterprise. The biggest driver of profitability was found to be stocking rate.
Enterprise size
Farmers have to make land choices, and consider returns on sheep, and compare that to other potential enterprises to use the land resource. While historical prices have favoured cropping as the dominant land use, increasing returns for sheep and wool have made the sheep enterprise more attractive and caused farmers to consider expanding their sheep enterprise.
In the low rainfall cereal-sheep zone, comparisons of key performance indicators with wool belt producers indicated that they could improve their KPIs. Expansion of the sheep enterprise could be achieved by increasing production and/or increasing land area by converting low-productivity cropping paddocks back to pasture paddocks.
The difference in average gross margin between sheep and crop was found to be less than the difference in individual farm productivity. This highlights the importance of informed management choices throughout the year regardless of whether an area of land is used for sheep or crop.
Time of marketing
While the seasonality of pasture production in WA favours lambing to occur before the spring flush, making this the cheapest way to produce lambs, consumers want to have access to sheepmeat year-round. However farmers need to be able to achieve higher prices for carryover lambs to cover the associated extra costs and still maintain profitability.
Carryover lambs incur costs associated with increased death rates (due to a longer time retained on-farm), feeding and management including shearing and husbandry treatments. Longer wool can be a source of income from carryover lambs.
Modelling found that in order to maintain profitability from turning off lambs one month later, farmers needed to receive from $0.15-$0.51/kg DW/month.
Managing costs/investment
Improved returns from sheep and wool sales cause farmers to consider purchasing stock to get back into or increase their sheep enterprise. At this time young ewes will be relatively expensive, but farmers with extra feed may hope to make use of it. How would the capital cost of purchasing ewes compare against retaining more bred ewes, how long will it take to recoup the cost, and to achieve a stable flock structure?
Current modelling found that the most cost-effective option, with moderate debt and a reasonable time to achieve debt payback, was to increase the lambing percentage from 90-105%. By improving ewe management, a farmer would be able to increase his sheep enterprise without purchasing ewes when the market was high.
This option compared favourably with buying ewes into an existing enterprise, retaining older ewes, increasing the number of ewe lambs retained, or starting a new sheep enterprise including essential sheep infrastructure.
Doing business
When planning for the longer-term, farmers rely significantly on their consultants for the likely outlook for the sheep industry. A selection of WA consultants to the sheep industry were interviewed in 2016 and the majority of respondents (24) were considered to be ‘generally positive’ toward the sheep enterprise.
Having a management plan with long- and short-term breeding objectives was one of the features shared by 23 high-performing sheep businesses in WA.
Other features included monitoring ewe condition, culling of dry ewes and early supplementary feeding. All the businesses assessed their sheep enterprise performance every year, mainly with financial benchmarking or productivity performance (lambs per hectare).
Agribusiness looking to increase the profitability of sheep production may look to novel business structures. Options that were modelled include joint venture finance, vertically-integrated companies, livestock leasing and pasture development.
A vertically-integrated model that used joint venture finance was found to meet objectives of economies of scale, productivity, capital attraction and the development of new value chains.
The WA sheep industry has capacity to increase production, which would support sheep processors to continue to supply domestic and export markets. Insufficient and seasonal supply puts these markets at risk when customers require a regular supply of sheepmeat.
There seem to be a number of barriers that have discouraged sheep farmers from increasing production in recent years. These have included the relative grain, wool and sheepmeat prices, the capital cost of new technology, the reduced size of WA sheep enterprises, and the impact on breeding objectives of variable feed availability and commodity prices.
Potential opportunities to encourage industry expansion include greater use of the sheep enterprise to offset cropping risks, novel ways to manage capital expenditure on new technology and improved communication of market specifications and prices.