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Clear Horizon Consulting
Suite 11, 16 Phillimore Street, Fremantle, WA 6157
P: (08) 9335 8111
E: / Anne Jones
Project Evaluation Officer
444 Albany Highway 6330
P: 08 9892 8529
Document review and authorisationVersion / Date distributed / Issued to: / Comments
1 / 23-05-2016 / Anne Jones, Mandy Curnow
2 / 09-06-2016 / Anne Jones, Mandy Curnow / Included references and formatting changes.
Project Director / Carina Calzoni
Internal Contributors / Megan Roberts
Last saved / 9/06/2016 8:52 AM
Clear Horizon Reference Number / CH16_026
This document has been produced with information supplied to Clear Horizon by DAFWA, including results of an inception meeting in April 2016 and literature searches. While we make every effort to ensure the accuracy of the information contained in this report, any judgements as to suitability of the information for the client’s purposes are the client’s responsibility. Clear Horizon extends no warranties and assumes no responsibility as to the suitability of this information or for the consequences of its use.
SIBI - Review of barriers to adoption Clear Horizon Consulting1
2.1.The WA sheep industry capacity
2.1.Macro and micro economic barriers
2.3.Information and extension limitations
3.Discussion and recommendations
SIBI - Review of barriers to adoption Clear Horizon Consulting1
The ‘Sheep Industry Business Innovation’ (SIBI) Project aims to work with industry to increase the capacity and value of the Western Australian (WA) sheep industry. Through this project it has been identified that some of the activities that have been employed to progress the sheep industry have not had the same level of take up as in other jurisdictions in Australia. There is also evidence to suggest that sheep producers are not increasing their flock or getting back into sheep regardless of positive market signals.
Therefore, the aim of this desk-top study is to better understand the barriers to adoption for sheep producers and assist in designing methods that more effectively support changes in the business of sheep production and in other stakeholders involved in the sheep meat and wool supply chain.
The study was divided into two phases. Phase 1 involved addressing the evaluation (research) question ‘What are the barriers impacting the growth of sheep production in WA?’ This phase commenced with the preparation of a literature review plan that scoped and articulated the boundaries of the research. Following the review plan, Clear Horizon scanned the literature/ documentation available through the project, literature available in Australia and International where relevant. The outcomes of Phase 1 are reported separately.
Phase 2 (this report) addresses ‘What strategies could the Sheep Industry Business Innovation Project employ to facilitate an increase in Western Australian sheep flock?’ This report discusses the findings of the literature review in more detail and identifies any knowledge gaps in the literature. It includes a set of recommendations that the SIBI could consider to help remove barriers associated with industry growth in WA.
2.1. The WA sheep industry capacity
In WA the majority of sheep are located in the cropping regions across southern WA in mixed grain and grazing operations, with some grazing in the adjacent rangeland areas. In 2015, there were approximately 5600 sheep producers in WA with about 80 percent of these producers managing a flock of more than 500 sheep. Since the early 1990’s, the proportion of breeding ewes has increased to over 50 percent as the sheep industry has transitioned from a wool dominated industry to a wool and lamb industry (DAFF, 2010).
As a profile of the industry in WA, Ellis (2015) surveyed 194 sheep producers across the State. The study reflected the general profile of the WA sheep industry. Property size mostly ranged between 1,000 to 2,000 hectares; with 23 percent of respondents from properties of over 5,000 hectares (including 3 properties over 100,000 hectares). The average age of those interviewed was 52 years. The business structure was mostly family-based, six percent were corporate or a non-family partnership, and only 2 percent had an external (non family) manager. The average turn-off of the producers in the sample group was 2,800 head in 2014 but for most, sheep accounted for less than 50 percent of their land use and of their income. For only 12 percent of the sample the income from sheep (meat plus wool) was more than half of their total property income in 2014.
The growth projections outlined by Ellis (2015) suggest that there is significant latent capacity for growth in sheep production in WA. That is, producers could increase turn-off with further investment. In a survey of 194 sheep producers, Ellis (2015) found that the main types of investment that producers indicated they would need to employ included: land acquisition, reducing cropping, more infrastructure, improving land conditions, more feed, more labour, purchase more ewes/lamb/sheep, better seasonal conditions needed, more water or water storage, and to increase feed lotting. Of these issues raised in the survey, few referred specifically to land acquisition or shifts from cropping. Most referred to the incremental changes in their operations as the main areas requiring greater investment. When asked under what circumstance they would increase turn-off, the most common response was that prices for sheep would need to increase, and there needs to more be consistency of price (Ellis, 2015).
The increasing demand for red meat protein from Asia and the Middle East provides a major incentive for producers to increase their flock. Accordingly, the peak body of the WA sheep industry, the Sheep Industry Leadership Council (SILC) has adopted a vision of a robust and vibrant industry, focused on meat more than wool, that will double its annual value of production by 2025. For example, they are focusing efforts on ‘The More Sheep Initiative’. This initiative is an industry-wide approach to secure the future of the WA sheep Industry. The focus is on assisting WA producers to become more profitable by producing more sheep from the investment in their current flocks. The Department and the Sheep Industry Leadership Council report that they work cooperatively to increase the flock size through “support of farm management programs, delivery of timely tactical messages and More Sheep workshops” (DAFWA, 2015b).
According to Ellis, producers clearly indicated signs of a positive climate for change and potential growth. Ellis (2015) reported a high level of confidence in the future of sheep meat. Producers also exhibited considerable flexibility in their attitudes to change from their turn-off timing; to the channels they sell into. There was also significant interest in the application of improved methods, including a focus on improving lambing rates.
Despite the positive market signals however, there has been a steep decline in numbers of sheep from 25 million in 2004/05 to 14 million head in 2010/11. With a modest recovery in 2012/13 to 15.5 million head, numbers have continued to contract falling back to 14 million head in 2015 and are predicted to fall to 13 million by the end of June 2016 (Pritchett, 2016). It is apparent that sheep producers are not increasing their flock or getting back into sheep. A review of sheep and agricultural literature found that there are a variety of factors that may be limiting the growth potential of sheep production in WA. Some of these are discussed below.
2.1. Macro and micro economic barriers
Sheep and grain industry mix
In 2015, the sheep industry in WA contributed to almost half of the gross value of agricultural production from all livestock industries. In real terms, this consists of $582 million for wool and $410 million for sheep meat (including live exports) (DAFWA 2015a). However, when compared with grain production, which in 2015 was worth over $5.1 billion (DAFWA 2016), the sheep industry is clearly a less valuable commodity.
At a national scale, grain-sheep industry from 2009-2015 showed a high level of volatility (Newstex, 2014a). However, as wool prices have increased this has helped to offset to this contraction. Whilst wool production has historically formed the largest portion of industry revenue, in the years 2008- 2014 there was a noticiable shift in production in favour of meat processing (Newstex, 2014a).
The importance of the sheep industry in a mixed farming enterprise however, is that it helps with diversification and provides an opportunity to spread risk, making sheep a significant and profitable contribution to the overall farming operation. In fact, Hall et al. (2012) report that when cropping exceeds 60–75 percent of the farm area, overall profit often does not increase where as the financial risks associated with cropping does. The growing costs of cropping increases proportionally with increased crop area, and the business becomes more vulnerable to a poor or failed crop.
However it appears, according to the survey of producers reported in Ellis (2015), that some producers perceive that there are “better returns and an easier lifestyle from grain”. This is supported by a study of producer perceptions in the Avon region by Jack in the Box Consulting (2006). The study found that where there was passion for sheep, some producers had been willing to optimise their sheep enterprises through a shift to meat sheep or a renewed focus on producing higher value fine wool. However in many cases sheep numbers were declining due to an increased emphasis on cropping (Jack In the Box Consulting 2006).
Again the challenge of finding the right mix is shown in the MLA Sheep Industry Projects 2014 mid year update (MLA, 2014). The report found that improved seasonal conditions in 2014 for the WA flock and attractive sheep meat prices have encouraged producers to consider retaining breeding numbers in order to boost lamb sales in coming years. However, these considerations are still overshadowed by the desire to move towards more cropping, especially when seasonal conditions permit (MLA, 2014).
This is consistent with the findings of Ellis (2015), where surveyed sheep producers were asked under what circumstance they would increase turn-off. According to Ellis (2015), the most common response was that prices would need to increase. The findings reported that when this response was probed in a follow up question, the feedback was varied, but much of it related to long-term average price (and thus the consistency of price) and also to the relative prices of grain and the ‘package’ price of wool and meat (Ellis 2015).
The trade-off and interplay between grain, wool and meat prices are clearly a fundamental dynamic and a key barrier to sustainable supply as effort is shifted between activities.
Agricultural industry advisors and consultants understand and promote the benefits of sheep in terms of off-setting the high risks of cropping.
DAFWA model a series of whole-farm scenarios across all agricultural zones showing optimum sheep/wheat enterprises over a range of climatic conditions and feed availability.
High technology/capital costs
It has been reported that the sheep industry exhibits a high level of capital intensity, where "for every dollar spent on labour, an estimated $1.39 is spent on capital" (Newstex, 2014b). In practice, this means that the sheep industry has increasing requirements for investment in technology and capital improvements.
Technology involved in sheep management includes a range of farm machinery and equipment required for sowing, harvesting grain storage, sheep handling and shearing. Capital includes fencing, sheep yards, shearing sheds, feed storage, water storage and watering points (Kingwell et al., 2013).
Whilst there have been technological improvements in the industry, these improvements often come at a cost by pushing up capital expenditure requirements. Whilst a reduction in labour may offset the increasing necessity of capital investment, the sheep industry already has low-intensity labour needs (Thompson & Young 2013) and so the offset may not be sufficient to promote the necessary investment. However, Kingwell et al. (2013) found that farms improved productivity by better use of existing technologies that offered scale of economies.
Identify opportunities for improved sheep management through better use of existing technologies and identify and promote opportunities for leasing or share arrangements for equipment and facilities that optimise the benefits while reducing high capital outlays.
Access to labour
Historically, the gradual independence of Australia's business and industry from wool cycles does not appear to have affected the seasonal labour market in the wool industry, so outsourcing of shearing and crutching is still incorporated into producer labour needs (Cashin and McDermott, 2012, M2 Presswire, 2003, Newstex, 2014b).
Sheep production involves highly seasonal labour needs. In WA the sheep flock is generally lambing in May, being shorn in September and the husbandry program includes crutching, drenching, jetting, vaccinating and lamb marking. Thompson and Young (2013) found that labour needs do have some influence on production viability. For example if owner operators are unable or reluctant to hire casual labour, then they are unable to match labour supply to the seasonal labour demand.
This demonstrates that there is a large potential for labour saving technology or practices to benefit mixed farm enterprises in WA, bearing in mind the added cost that capital investment may incur for producers.
Support the testing, development and transfer of new technologies that reduce the labour required in the seasonal peaks and increase sheep management efficiencies.
It is possible that there are some micro-economic influences, such as debt structure that are limiting production efficiency and growth in sheep production at the producer level. For example, Mugera and Nyambane (2015) found that short-term debt is positively related to technical efficiency and that long-term debt has minimal effect on production efficiency. This may be an area for further investigation.
Undertake a review of the debt structure across agricultural businesses in WA and investigate the impact of short-term and long-term debt on ability of producers to adopt sheep, increase their flock or expand their sheep enterprise.
2.1. Market barriers
Live export market
The role of the live exports industry in influence participation in or diversification into sheep production and fluctuations in that market warrants exploration. WA supplies up to 70 percent of Australia’s trade in live exports of sheep (Deards & Thompson, 2012). In 2014/15, 3.7 million sheep and lambs, or two-thirds of turn-off for the year, were processed producing 80 000 tonnes of sheep meat. Eighty per cent of the sheep meat with a value of $318 million was exported to markets in over 50 countries (DAFWA 2015a). The value of Western Australian sheep and lamb exports have grown considerably since 2012. Western Australian lamb exports have increased 120% since 2012 (Pritchett, 2016).
Sheep destined for the live sheep trade are either sold at saleyards (Katanning or Muchea) or sold on-farm direct to buyers through livestock agents receiving 5% commission. The sheep are transported to feedlots where they are prepared for up to three weeks before being loaded on to a boat at Fremantle (Ministerial Taskforce, 2004).
In recent years, there has been a greater propensity for Australian producers to move from exporting older, less commercially useful sheep towards producing sheep targeted for key markets, particularly those in the Middle East (Farmer, 2011). This is reflected in results of a survey of 134 sheep producers conducted by DAFWA and MLA in 2010 showing producers’ attitudes towards live sheep exports is very positive with 74 percent of WA producers saying that they supplied sheep to the live export trade and 80 percent said they were supplying wethers with an average age of to 2 years old, indicating that the live export trade is no longer seen as just an outlet for older/cull wethers (Kingwell et al. 2011).
This is supported by Kingwell et al. (2011) who found that some farmers prefer a sheep enterprise that is simple and flexible to run which generates reasonable profits over the superior profits from lamb production. Lamb production requires a level of time and skill that crop dominant farmers may be unable or unprepared to give.
In relation to quality of supply, the Independent Review of Australia’s Live Export Trade (Farmer, 2011) found evidence of out-of-specifications sheep being delivered to Fremantle. This departs from Australian Standards for the Export of Livestock (ASEL) requirements and adds significant pressure to the loading process. In addition, the Review found that despite the general improvement in animal handling and transport and better understanding of welfare issues, there are some residual problems including on-farm preparation of both sheep and cattle and loading of higher-risk livestock for transport to feedlots.
The live export industry therefore is important for producers and for the sheep supply chain in general, however there is a need for predictability and certainty of price, quality, supply and policy.
Promote the value of the live sheep export to producers and ensure that producers are aware of their obligations under the ASEL.
Promote the value of the live export to consumers and promote the improvements in animal health resulting from the adoption of the ASEL.
Ensure that export market specifications are transparent and that producer’s feedlots are aware of the sheep management practices available to them to meet those specifications.
Domestic supply chain
While live exports provide substantial benefits to exporters and their suppliers, it does reduce incomes to processors by increasing livestock prices and reducing throughput levels (CIE, 2011). The CIE study found that the GVP for sheep for processors increases by $38 million when live sheep export is terminated. This clearly demonstrates that the main reason for the excess capacity in the WA meat-processing sector is the high demand for sheep from the live export trade in Australia. As a result there are high peaks of seasonal supply and demand and longer periods of lower supply (Lindner, et al., 2004). As a consequence, the WA meat-processing sector has experienced lower levels of throughput and capacity utilisation than it would have in the absence of live export (Taskforce, 2004).