From mutton to lamb: the outlook to 2040

It would be an understatement to say the Australian sheep industry has been through some tough times since the 1990s. Today, the sector is back on its feet and times ahead look even better, with a new report forecasting a surge in demand for lamb over the coming decades.

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" The sheep industry has a strong future and considerable scope to grow."
Mark Bennett, Head of Agribusiness, Australia, ANZ

It’s been a long road to get here. The market distortion caused by the Wool Price Reserve Scheme and its subsequent removal in the early 1990s turned the lamb industry on its head.

Farmer after farmer moved away from wool – some into sheep meat production, others into cropping, beef or even the dairy industry – a shift that resulted in Australia’s national flock falling from 170 to 70 million.

Farmers who persevered with their flock have had to change their output significantly, with wool producers moving towards fine and super-fine wool and meat producers increasing carcass weights and lambing rates.

Now, with both lamb and wool prices reaching – and sustaining – new highs, the question facing the industry is: what is next for producers and what role does the sheep industry play in the overall mix of Australian agriculture?

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A new report released by ANZ, The Sheep’s Back, shows global demand for mutton and lamb meat is likely to increase by 2.8 million cwt (carcass weight per tonne) by 2040 – a rise of 21 per cent on current global supply. In comparison, global demand for beef is forecast to increase by 33 per cent, pork 23 per cent and poultry 15 per cent.

That demand, however, will vary between regions, with strong increases expected in Asia, including much of the Middle East, and Africa, but less substantial gains are forecast in Europe and the United States.

But the gains in price could be even greater, with the report showing that, if current trends continue, the total value of sheep meat produced will increase by 30 per cent by 2040.

Demand for wool isn’t anticipated to be as strong, but it’s still expected to rise by 96,690 tonnes (raw) or nearly nine per cent by 2040, an increase in value of 13 per cent or $A1 billion in current terms.

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These figures are really only an indication of future demand given consumers’ current consumption habits – they don’t take into account the industry’s ability to grow supply, demand and value through farm management and productivity gains, marketing and branding and leveraging external investment.

With the opportunity clearly there, how do we realise it? Growing the national flock number is one part of it but just as importantly will be the improved productivity gains.

Starting on farm, producers must run a critical eye over their entire operation – examining their land use, strategies for genetic improvements, better lambing and weaning rates, reduced fattening times – all with efficiency and value-adding top of mind.

t’s perhaps of greater interest for Australian farmers to consider the role the sheep industry plays in the broader Australian mix of farming.  The Sheep’s Back shows the sheep industry is relatively low cost and high return, and importantly for mixed operations low volatility in costs and income.

It would also seem many farmers across Australia are realising the potential with sheep present in almost 30 per cent of all farms. The figure highlights while sheep are 11 per cent of Australia’s agricultural output, the industry’s performance is relevant to nearly a third of Australian farming operations. 

So why isn’t there more interest in farming and investing in sheep?  There’s logic in the conclusion the asset class has fallen under the radar and there is a strong upside and future for the industry.

While we aren’t likely return to ‘riding on the sheep’s back’, the sheep industry has a strong future and considerable scope to grow demand, efficiency and the investment case in a way that can benefit both new investors and a significant portion of today’s Australian farmers.

Mark Bennett is Head of Agribusiness, Australia at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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