Lamb farms

​​​​​​​​Industry overview

The lamb industry makes an important contribution to the Australian economy. In 2015–16 it accounted for around 6 per cent ($3.2 billion) of the gross value of agricultural production and around 4 per cent ($1.8 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 and Water Resources, 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

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Farm financial performance

Authors: Jeremy van Dijk, James Frilay, and Dale Ashton

Summary

  • In 2016–17 average farm cash incomes of Australian lamb-producing farms are estimated to be the highest in over 20 years, in real terms.
  • The expected increase in incomes is a result of higher prices for lambs, sheep and wool, combined with increased receipts from crops.
  • On average, total cash costs are expected to remain steady in 2016–17.
  • In 2016–17 average farm cash income is projected to increase in all states except Tasmania.

Farm cash income and profit

Australian lamb-producing farms are defined as broadacre farms that sell at least 200 lambs for slaughter each year. Average farm cash income of Australian lamb producers is projected to increase by around 25 per cent in 2016–17 to an average of $265,000 per farm (Figure 1). Farm cash income in 2016–17 is projected to be the highest in over 20 years, an estimated 72 per cent higher than the average between 2000–01 and 2015–16 (in real terms).

Improved seasonal conditions in many lamb-producing areas is expected to encourage flock rebuilding and reduced lamb sales in 2016–17. Despite reduced sales, higher prices for lambs are projected to result in increased lamb receipts in 2016–17. Receipts from the sale of sheep and wool are also expected to increase because of higher prices. Crop receipts are expected to increase because of increased crop production and despite lower prices for wheat and barley.

Figure 1 Farm cash income, lamb producers, 1989–90 to 2016–17
average per farm
Add alt text
y Provisional estimate.
Source: ABARES Australian Agricultural and Grazing Industries Survey

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 a farm.

Between 2014–15 and 2016–17 at the national level, farm business profit rose on average, increasing by 34 per cent in 2015–16 and by 60 per cent in 2016–17 (Table 1). Farm business profit increased in 2015–16 despite lower average farm cash incomes. This was a result of a large build-up in trading stocks of grain held on lamb-producing farms.

Table 1 Key financial performance estimates, lamb producers, by state, 2014–15 to 2016–17
average per farm
Farm cash incomeUnit2014–152015–16p2016–17y
New South Wales$198,580226,200260,000
Victoria$136,180107,900194,000
Queensland$133,650499,000581,000
Western Australia$336,540275,000323,000
South Australia$288,730296,700358,000
Tasmania$243,910175,300140,000
Australia$215,450212,000265,000
Farm business profit
New South Wales$64,840116,600164,000
Victoria$–4,040–24,10084,000
Queensland$–51,990440,100384,000
Western Australia$163,740182,800153,000
South Australia$108,950118,700181,000
Tasmania$73,93023,90063,000
Australia$66,20088,600141,000
Rate of return (excluding capital appreciation)
New South Wales%2.63.54.3
Victoria%1.00.42.8
Queensland%0.48.26.7
Western Australia%4.04.33.7
South Australia%2.92.83.7
Tasmania%2.01.32.1
Australia%2.52.83.7

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

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 as their incomes fluctuate. However, ongoing low or negative profits affect long-term viability because farms have reduced capacity to invest in newer and more efficient technologies.

Over the 10 years to 2015–16, the proportion of lamb-producing farms recording negative farm business profits averaged 52 per cent a year. Improved financial performance in 2016–17 is projected to result in a fall in the proportion of farms recording negative farm business profit to 33 per cent (Figure 2).

Figure 2 Proportion of lamb producers with negative farm business profit, 2000–2001 to 2016–17
percentage of farms
Add alt text
p Preliminary estimate. y Provisional estimate.
Source: ABARES Australian Agricultural and Grazing Industries Survey

Total cash receipts

Lamb-producing farms usually operate as both livestock and cropping enterprises. In 2015–16 sales of livestock and livestock products made up over 50 per cent of total farm receipts and cropping receipts accounted for 41 per cent. Receipts from sales of sheep and lambs contributed just under a quarter of total receipts, with lambs accounting for 17 per cent of the total.

On average, total cash receipts rose slightly in 2015–16. Lamb receipts rose because of higher prices. Receipts from crops fell in 2015–16 because of drier seasonal conditions in some regions. Receipts from beef and wool rose because of higher prices and production.

In 2016–17 total farm cash receipts are projected to increase by around 8 per cent, on average, largely due to an expected increase in cropping receipts of around 21 per cent. This increase was driven by higher crop production arising from improved seasonal conditions. Slight increases in receipts from sheep and wool are also expected as a result of higher prices for both commodities. However, these prices will be offset by lower sheep and lamb sales because of flock rebuilding.

Total cash costs

Average total farm cash costs of lamb-producing farms were relatively stable between 2014–15 and 2016–17. Fertiliser, repairs and maintenance, crop and pasture chemicals, interest payments, and hired labour accounted for the largest shares of total cash costs for lamb producers from 2014–15 to 2016–17.

In 2015–16 average total cash costs on lamb-producing farms increased by 5 per cent to around $455,000 per farm. Total cash costs are projected to rise by a further 1 per cent in 2016–17.

Performance by state and scale of lamb production

Many lamb-producing farms operate as mixed enterprises. Production systems vary considerably with some lamb-producing farms focusing on particular commodities. As a result, receipts from the sale of lambs varies by state. In 2015–16 the average proportion of receipts for lambs was 20 per cent in New South Wales, 25 per cent in Victoria, 9 per cent in Queensland, 16 per cent in South Australia, 9 per cent in Western Australia and 23 per cent in Tasmania.

Average incomes of lamb-producing farms are estimated to have risen between 2014–15 and 2015–16 in New South Wales, Queensland and South Australia (Table 1). Receipts from the sale of lambs for slaughter increased because of higher lamb prices. However, most of the increase in farm income in Queensland was from higher receipts from beef cattle and cropping. In New South Wales, higher beef cattle receipts resulted in an overall increase in average income (Figure 3).

Figure 3 Farm cash income, lamb producers, by state, 2007–08 to 2016–17
average per farm
Shows incomes mostly rising over the period. Incomes in Queensland fluctuated from year to year and increased significantly in the four years to 2016–17, from just over $30,000 to $580,000.
y Provisional estimate.
Source: ABARES Australian Agricultural and Grazing Industries Survey

Average incomes of lamb producers in Victoria, Western Australia and Tasmania fell in 2015–16. In Victoria and Western Australia, incomes fell because of lower crop receipts, partly offset by increased receipts from wool and beef cattle. In Tasmania, declines are estimated to have been a result of flock rebuilding and lower crop receipts.

In 2016–17 average farm cash incomes are projected to increase in all states except Tasmania, because of higher crop and livestock receipts. In Tasmania, continued declines in crop receipts are expected to lead to lower average farm cash income.

All lamb-producing farms, except very large-scale farms, are estimated to have had lower average farm cash income in 2015–16 (Table 2). However, farm business profit was higher in 2015–16 for all farm sizes because of increases in livestock numbers and stocks of grain held on-farm. In 2016–17 farm cash income and farm business profit are expected to increase for all size categories.

Table 2 Farm financial performance, by scale of lamb production, 2015–16​
average per farm
AustraliaUnit2014–152015–16p2016–17y
Small-scale farms (200 to 500 lambs sold)
Farm cash income$136,260124,400172,000
Farm business profit$24,96029,50058,000
Rate of return a%1.671.802.53
Medium-scale farms (500 to 2,000 lambs sold)
Farm cash income$216,220203,900265,000
Farm business profit$58,38073,700144,000
Rate of return a%2.292.513.75
Large-scale farms (2,000 to 4,000 lambs sold)
Farm cash income$509,160489,100517,000
Farm business profit$279,120316,000364,000
Rate of return a%4.364.184.57
Very large-scale farms (More than 4,000 lambs sold)
Farm cash income$575,210580,600675,000
Farm business profit$198,640404,600489,000
Rate of return a%3.244.435.14

a Rate of return excluding capital appreciation. p Preliminary estimate. y Provisional estimate.
Source: ABARES Australian Agricultural and Grazing Industries Survey

Rate of return

Increases in farm incomes are projected to result in an average rate of return (excluding capital appreciation) of 3.7 per cent for Australian lamb producers in 2016–17, up from the 2.8 per cent in 2015–16 (Table 1).

Between 2000–01 and 2016–17 the average rate of return (excluding capital appreciation) was 2.3 per cent (Figure 4).

Figure 4 Rate of return, lamb producers, Australia, 2000–01 to 2016–17
average per farm
Shows average national rates decreasing to –0.9 per cent in 2006–07 and then fluctuating over time before rising to 3.7 per cent in 2016–17.
p Preliminary estimate. y Provisional estimate.
Source: ABARES Australian Agricultural and Grazing Industries Survey

Figure 5 shows that the performance of lamb-producing farms varied widely in 2015–16. Around one-quarter of lamb-producing farms recorded a rate of return (excluding capital appreciation) of between –2.5 per cent and 0, compared with slightly more than one-quarter of farms with a rate of return of between 0 and 2.5 per cent.

Around one-third of farms had a rate of return in excess of 2.5 per cent and 17 per cent had a rate of return lower than –2.5 per cent.

Figure 5 Distribution of lamb producers, by rate of return, 2015–16
Shows that nearly 60 per cent of lamb producers have rates of return of more than 0.
Source: ABARES Australian Agricultural and Grazing Industries Survey

Variations in rates of return

The long-term performance of farm businesses is determined by the level and variability of profits. Figure 6 shows the variation in the rate of return to capital (excluding capital appreciation) between 2000–01 and 2015–16. The variation in returns reflects 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 returns over the period, depending on the seasonal conditions and commodity prices that were realised and other farm-specific factors such as enterprise mix and the skill of the manager.

Figure 6 shows that Tasmania had the smallest range in rates of return over the period. Queensland and South Australia had the largest range of average rates of return.

Figure 6 Rate of return variability, by region, 2000–01 to 2015–16
Add alt text
Note: Boxes represent 50 per cent of years. Vertical lines represent the 25 per cent best and worst years. Horizontal line in each box is the median.
Source: ABARES Australian Agricultural and Grazing Industries Survey

Farm debt and equity

Authors: James Frilay and Dale Ashton​

Trends in average debt per farm

Debt is an important source of funds for investment and ongoing working capital for many lamb-producing farms. At the national level, from 2000–01 to 2016–17 average debt of lamb-producing farms trended upwards in real terms, mainly resulting from an increase in average farm size and changes in enterprise mix. The increase in average debt per farm was modest relative to the increase in average cash receipts per farm. The rate of increase slowed from 2007–08 to 2016–17 (Figure 7). In the 10 years to 2015–16 total farm debt fluctuated around an average of $688,000 (in 2016–17 dollars). Average debt of lamb-producing farms for 2016–17 is projected to increase slightly to around $736,000 per farm.

Figure 7: Total farm debt, lamb producers, Australia, 2000–01 to 2016–17 
average per farm
Total farm debt, lamb producers, Australia, 2000–01 to 2016–17, average per farm
Preliminary estimate. y Provisional estimate.
Source: ABARES Australian Agricultural and Grazing Industries Survey

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

Over the 3 years to 2015–16 land purchases accounted for the largest proportion of total farm debt, at 40 per cent on average (Figure 8). A further 38 per cent of debt was for working capital. The remaining debt was for a range of purposes such as vehicles and machinery, land development, and 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.

Figure 8: Main purpose of farm debt, lamb producers, Australia, 2013–14 to 2015–16
average proportion per farm
Main purpose of farm debt, lamb producers, Australia, 2013–14 to 2015–16, average proportion per farm
Source: ABARES Australian Agricultural and Grazing Industries Survey

Equity ratio

Changes in average debt per lamb-producing farm over the medium to long term were largely matched by changes in total farm equity. This was a result of increases in land values and average farm sizes. However, at the national level, the average equity ratio of lamb-producing farms trended downwards slightly over the 10 years to 2015–16, averaging around 86 per cent.

In 2015–16, 58 per cent of lamb producers had equity ratios greater than 90 per cent (Table 3). On average, lamb-producing farms with higher equity ratios tended to be smaller than farms with lower equity ratios. Lamb receipts as a proportion of total receipts decreased with equity ratio, reflecting the higher level of diversification among larger farms.

Table 3: Farm performance, by equity ratio, lamb producers, Australia, 2015–16
average per farm
Equity ratio:UnitsMore than 90%70 to 90%Less than 70%
Proportion of farms%583012
Total area operatedha2,1383,9434,496
Lambs soldno.9111,1541,200
Lamb receipts$101,997128,124130,076
Total cash receipts$466,863813,241987,011
Lamb receipts as a proportion of total receipts%221613
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.

For lamb-producing farms the ratio of interest paid to total cash receipts fell from an average of around 10 per cent in 2009–10 to less than 6 per cent in 2016–17 (Figure 9). Increased cash receipts and lower interest rates were the main reasons for this decline.

Figure 9: Ratio of interest paid to total cash receipts, lamb producers, Australia, 2000–01 to 2016–17
average per farm
Ratio of interest paid to total cash receipts, lamb producers, Australia, 2000–01 to 2016–17, average per farm
Preliminary estimate. y Provisional estimate.
Source: ABARES Australian Agricultural and Grazing Industries Survey

At the national level, in 2015–16 around 43 per cent of lamb producers reduced total debt on average. (Figure 10). A further 37 per cent increased debt, and 3 per cent of farms had no change in debt. The remaining 17 per cent of lamb-producing farms had no debt at 1 July 2015 and 30 June 2016.

Figure 10: Distribution of farms, by change in debt, lamb producers, Australia, 2015–16
Distribution of farms, by change in debt, lamb producers, Australia, 2015–16
Note: Change in debt from 1 July 2015 to 30 June 2016.
Source: ABARES Australian Agricultural and Grazing Industries Survey

Debt and equity, by size

From 2000–01 to 2016–17 average debt for very large lamb producers (selling more than 4,000 lambs for slaughter) increased at a faster rate than for the other size groups. In contrast, increases in debt were more modest for small, medium and large lamb producers. Nevertheless, lamb producers of all sizes increased their debt for purchasing land and working capital.

From 2000–01 to 2015–16 equity ratios trended downwards for all size categories. Overall, average 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.

Very large lamb producers have the lowest equity ratios, averaging slightly under 80 per cent from 2013–14 to 2015–16 (Table 4). This is because larger farms usually have higher turnover and are better able to service debt. Larger farms often have access to non-farm equity, but smaller farms are mostly family-owned businesses that rely heavily on the farmer's own capital.

Table 4: Equity ratio and total farm debt, lamb producers, by size 2013–14 to 2015–16
average per farm

Size

Equity ratio (%)

Total farm debt ($)

2013–14

2014–15

2015–16p

2013–14

2014–15

2015–16p

Small (200–500 lambs)

86.7

89.5

86.4

358,730

321,627

510,955

Medium (500–2,000 lambs)

86.1

86.4

86.6

606,713

697,430

659,851

Large (2,000–4,000 lambs)

81.8

83.9

86.2

1,542,804

1,490,034

1,339,942

Very large (>4,000 lambs)

80.8

79.1

79.1

2,811,229

3,066,861

3,167,604

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 2016. An estimated 23 per cent of all lamb-producing farms in Australia held no debt at 30 June. A further 15 per cent of farms held less than $100,000 in debt. An estimated 24 per cent of lamb-producing farms had debt exceeding $1 million. Average debt for lamb-producing farms was closely related to the scale of cropping activities. Around 58 per cent of lamb-producing farms had an equity ratio of more than 90 per cent.

Table 5: Distribution of farms, by farm business debt and equity ratio, lamb-producing farms, Australia, 30 June 2016
Farm business debt:No debtLess 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 $2mMore than $2mTotal
Equity ratio:
More than 90%23159631058
80 to less than 90%002455117
70 to less than 80%001145313
60 to less than 80%00002328
Less than 60%00001225
Total2315111214159100
Note: Row and column totals may not sum to 100 due to rounding. 
Source: ABARES Australian Agricultural and Grazing Industries Survey

Farm capital and investment

Authors: James Frilay and Dale Ashton​

Total farm capital

From 2000–01 to 2015–16 the gross value of Australian lamb production increased by around 135 per cent in real terms to an estimated $2.7 billion. Over the same period the number of lamb-producing farms remained relatively steady and, consequently, the gross value of production per farm increased.

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

The total value of capital for Australian lamb-producing farms increased by 110 per cent in real terms from 2000–01 to 2015–16, largely as a result of an appreciation in land values (Figure 11). On a per farm basis, total capital increased by 126 per cent to around $5.5 million per farm in 2015–16.

Figure 11 Total value of capital and number of farms, lamb producers, Australia, 2000–01 to 2015–16
p Preliminary estimate.
Source: ABARES Australian Agricultural and Grazing Industries Survey

Many lamb-producing farms are operated as mixed enterprises and production systems vary considerably. From 2000–01 to 2015–16 the total number of broadacre farms declined but the proportion of farms producing lambs increased from around 31 per cent to an estimated 43 per cent (Figure 12). 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.

Figure 12 Proportion of broadacre farms producing lambs, Australia, 2000–01 to 2015–16
p Preliminary estimate.
Source: ABARES Australian Agricultural and Grazing Industries Survey

Land accounted for an average of 80 per cent of total capital per farm between 2011–12 and 2015–16 (Figure 13). Plant and equipment made up 11 per cent of total capital and livestock a further 8 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.

Plant and equipment makes up around 12 per cent of total capital for lamb producers with grain-growing enterprises and only around 6 per cent of total capital for lamb producers without grain enterprises. Livestock makes up a greater proportion of total capital for lamb producers without grain growing at 13 per cent compared with 7 per cent for those with grain growing. Land accounts for 80 per cent of capital for both groups.

Figure 13 Components of capital, lamb producers, Australia, 2011–12 to 2015–16
average per farm
a The value of all inventories including herd, flock, stocks of wool, fruit and grains held on the farm at 30 June.
Source: ABARES Australian Agricultural and Grazing Industries Survey

Return on land

ABARES uses two rates of return to farm capital—rate of return excluding capital appreciation and rate of return including capital appreciation. Rate of return is defined as farm profit expressed as a percentage of total capital. Because land is the largest component of total farm capital, it plays a key role in determining changes to total farm returns over the medium to longer term.

Figure 14 shows the average value of land and fixed improvements per hectare. In real terms, the average value for lamb-producing farms increased by 7 per cent from 2000–01 to 2015–16, with an average annual return from land appreciation of 2.8 per cent. From 1989–90 to 1993–94 the real average value of land was $987 per hectare. In comparison, land was valued at an average of $1,135 per hectare from 2011–12 to 2015–16. From 1990–91 to 1999–2000 the average annual return from land appreciation was –0.7 per cent before stronger demand for farmland led to sharp increases in land values. From 2000–01 to 2005–06 the average annual return from land appreciation was 14.7 per cent before declining to an average of –4.4 per cent for 2006–07 to 2015–16.

Figure 14 Value of land and fixed improvements per hectare, lamb producers, Australia, 1989–90 to 2015–16
average per farm
p Preliminary estimate.
Source: ABARES Australian Agricultural and Grazing Industries Survey

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, 63 per cent of lamb-producing farms each year made additions to their total capital over the 10 years to 2015–16 (Figure 15). The average amount invested each year by those making capital additions fluctuated around an average of $201,000, broadly in line with movements in farm cash incomes.
In 2015–16 an estimated 69 per cent of lamb producers made capital additions at an average of $246,000 per farm.

Figure 15 Total capital additions, lamb producers, Australia, 2000–01 to 2015–16
proportion of farms and average per farm
p Preliminary estimate.
Note: Total capital additions is the average of those farms making capital additions.
Source: ABARES Australian Agricultural and Grazing Industries Survey

Figure 16 shows the average proportion of lamb producers that made capital additions each year from 2011–12 to 2015–16 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 each year, although only around 8 per cent of lamb producers purchased land each year on average between 2011–12 and 2015–16. Average expenditure on land for those making purchases was around $948,000 per farm.

Around 60 per cent of all lamb producers made additions to plant and equipment on average each year over the period, at an average of around $104,000 per farm. Around 9 per cent of lamb producers made additions to buildings and structures. Expenditure on these capital additions averaged around $61,000 per farm.

Figure 16 Components of capital additions, lamb producers, Australia, 2011–12 to 2015–16
proportion of farms and average per farm in category
Source: ABARES Australian Agricultural and Grazing Industries Survey

Farm capital and investment by size

The scale of production and underlying financial attributes of a farm determine how often capital additions may be made as well as the choice of additions. Because lamb-producing farms generally have a mix of enterprises, the set of investment choices available to a lamb producer will also include investments for non–lamb related components of farm businesses.

From 2000–01 to 2015–16 the proportion of larger lamb-producing farms (by number of lambs sold) increased and the proportion of small-scale lamb producers declined. The proportion of small lamb-producing farms (200 to 500 lambs sold) declined from 46 per cent in 2000–01 to 33 per cent in 2015–16 (Figure 17).

The proportion of medium lamb producers (500 to 2000 lambs sold) increased from 48 per cent of lamb-producing farms in 2000–01 to around 56 per cent of lamb-producing farms in 2015–16. Similarly, the proportion of large (2,000 to 4,000 lambs sold) and very large farms (more than 4,000 lambs sold) increased over the period. Large farms made up around 9 per cent of farms and very large farms made up 3 per cent of farms in 2015–16.

Figure 17 Proportion of farms by size category, lamb producers, 2000–01 to 2015–16
p Preliminary estimate.
Source: ABARES Australian Agricultural and Grazing Industries Survey

Figure 18 shows the proportion of total industry capital held by lamb-producing farms in each size category. Medium lamb producers accounted for 54 per cent of the total capital held by lamb-producing farms in both 2000–01 and 2015–16. The proportion of total capital held by small lamb-producing farms declined from 37 per cent in 2000–01 to an estimated 23 per cent in 2015–16. Large lamb-producing farms held 17 per cent and very large farms held 7 per cent of total capital in 2015–16.

Figure 18 Proportion of total capital, lamb producers, by size, 2000–01 to 2015–16
p Preliminary estimate.
Source: ABARES Australian Agricultural and Grazing Industries Survey

Figure 19 shows capital additions by size category. On average, the proportion of farmers making land additions increases as the scale of lamb production increases. An average of 13 per cent of very large lamb producers made land additions per year. Similarly, a greater proportion of large and very large lamb producers make plant additions per year than the two smaller size categories. Medium lamb producers made the highest proportion of building additions, with an average of 10 per cent of medium farms making additions per year.

Figure 19 Proportion of lamb producers making capital additions, by size, 2011–12 to 2015–16
proportion of farms
Source: ABARES Australian Agricultural and Grazing Industries Survey

Farm capital and investment by age of owner–manager

Investment in machinery, structures or land will be used over multiple production cycles and may take time before producing cash flow. Agricultural investments often require a large initial investment that is paid off over multiple years. As a result, the age of the owner–manager can influence investment decisions on a farm. However, because farming properties are often handed down within a family, any succession plans in place will also influence how investment decisions are made.

Figure 20 shows the percentage of farms making capital additions based on the age of the owner–manager. A higher proportion of the group of younger owner–managers (40 years or younger) made capital additions between 2011–12 and 2015–16 than the oldest age group (older than 60 years). Over the period 2011–12 to 2015–16, an average of around 13 per cent of farms with owner–managers 40 years or younger made land additions, around 9 per cent of farms with owner–managers between 40 and 60 years old and around 5 per cent of farms with owner–managers over 60 years old.

The proportions of farms making plant additions with owner–managers 40 years or younger (69 per cent) and those with owner–managers between 40 and 60 years (66 per cent) over the period were similar. Farms with owner–managers over 60 years of age had an average of 49 per cent of farms making plant additions over the period.

Figure 20 Capital additions by age of owner–manager, lamb producers, Australia, 2011–12 to 2015–16
proportion of farms
Source: ABARES Australian Agricultural and Grazing Industries Survey

Cost of production

Author: Peter Martin

Summary

  • Average on-farm per kilogram live weight cost of sheep production increased slightly in 2013–14 and 2014–15.
  • Over the three years to 2015–16 the total cost of sheep production for sheep producers averaged 311 cents per kilogram live weight and for slaughter lamb producers 298 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 366 cents per kilogram, compared with 257 cents for the largest slaughter lamb producers (selling more than 2,000 lambs).
  • Operating margins increased as the scale of slaughter lamb production increased, reflecting a decline in costs relative to the value of sheep meat and wool produced.
  • The smallest slaughter lamb producers on average generated revenue sufficient to cover all finance costs, capital depreciation and the value of unpaid owner–manager, partner and family labour.

Cost of sheep production

Between 2013–14 and 2015–16 prices for sheep, lambs and wool increased. The on-farm per kilogram live weight cost of sheep production also increased slightly between 2013–14 and 2015–16 (in real terms). Nationally, total costs of sheep production averaged 311 cents per kilogram live weight for all sheep producers and 298 cents per kilogram for slaughter lamb producers (Table 6) for the three years to 2015–16.

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, 2012–13, 2013–14, 2014–15 and 2015–16 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.

Slaughter lamb producers increased expenditure across most cost components in 2015–16 (Figure 21). For example, expenditure on fodder increased by 28 per cent (in real terms) as a result of dry seasonal conditions in parts of New South Wales, Victoria, South Australia and Tasmania. Higher sheep and lamb prices resulted in expenditure on sheep purchases increasing by 25 per cent in 2015–16.

Figure 21 Production costs, slaughter lamb producers, 2014–15 and 2015–16
Source: ABARES Australian Agricultural and Grazing Industries Survey

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 a longer period, 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 2015–16, on average, sheep producers generated 348 cents of output per kilogram live weight produced and slaughter lamb producers 342 cents (Table 6). The proportion of revenue generated from sheep meat live weight production averaged 61 per cent for all sheep producers, 63 per cent for all slaughter lamb producers and 67 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 lower average wool prices received by larger producers. This resulted in the total value of sheep enterprise per kilogram of live weight generally declining as lamb production increased (Table 6).

Table 6 Per kilogram live weight cost of sheep production and operating margins for sheep producers, 2013–14 to 2015–16
average per farm
ProductionunitSlaughter lamb producersAll sheep producers
200 to 500 head500 to 1,000 head1,000 to 2,000 headmore than 2,000 headaverage
Total live weight of sheep producedtonnes19(3)23(2)38(3)73(3)30(1)29(2)
Total live weight of lambs producedtonnes17(8)31(5)64(5)150(4)47(3)38(4)
Receipts per kilogram of live weight produced
Sheep and lambsc/kg204(3)213(2)210(1)227(4)215(1)212(1)
Woolc/kg165(4)129(3)123(3)111(3)126(2)136(2)
Totalc/kg369(2)342(1)333(1)338(2)342(1)348(1)
Production costs
Sheep and lamb purchasesc/kg22(11)24(7)27(7)33(6)28(4)27(4)
Shearing and crutching costsc/kg30(5)26(3)28(3)26(3)27(2)29(2)
Administrationc/kg12(6)10(4)8(4)7(5)9(2)9(2)
Hired labourc/kg4(15)7(10)8(8)14(6)9(4)9(4)
Crop and pasture chemicalsc/kg6(13)5(8)5(9)4(9)5(5)5(5)
Fertiliserc/kg13(9)11(6)12(7)11(7)11(4)12(4)
Fodderc/kg10(14)14(16)10(12)11(11)11(7)12(6)
Freightc/kg8(6)8(5)8(5)7(5)8(3)8(2)
Handling and marketingc/kg8(9)9(7)11(7)11(5)10(3)10(3)
Fuel and lubricantsc/kg14(6)11(4)9(5)8(4)10(2)10(2)
Livestock materials and veterinary chemicalsc/kg15(7)12(5)13(4)11(4)12(2)13(2)
Contracts paidc/kg5(16)5(12)5(8)5(7)5(5)5(5)
Land rentc/kg7(21)6(13)7(11)7(9)6(6)6(6)
Ratesc/kg11(6)11(4)10(7)7(4)9(3)10(3)
Repairs and maintenancec/kg20(6)19(5)17(5)15(5)17(3)18(2)
Other cash costsc/kg32(6)27(4)22(4)19(3)24(2)25(2)
Finance costsc/kg22(10)18(6)20(7)20(5)20(3)20(3)
Capital depreciationc/kg41(4)36(3)33(3)23(3)32(2)33(2)
Value of unpaid owner–manager, partner and family labourc/kg85(5)63(3)38(4)19(4)45(2)50(2)
Total cash costs excluding finance costsc/kg217(3)205(2)199(2)195(2)202(1)208(1)
Total cash costs including finance costsc/kg240(3)223(2)219(2)215(2)222(1)228(1)
Total cash, finance and depreciation costsc/kg281(3)259(2)252(2)238(2)253(1)261(1)
Total costs (all cash costs, finance, depreciation and the value of unpaid labour)c/kg366(3)322(2)289(2)257(2)298(1)311(1)
Operating margin over:
Cash costsc/kg151(5)137(4)135(3)143(6)140(2)140(2)
Cash and finance costsc/kg129(6)119(4)115(4)123(7)120(3)120(3)
Cash, finance and depreciation costsc/kg88(9)82(6)82(6)100(9)88(4)87(4)
All costs including unpaid labour costsc/kg2(455)20(28)44(12)80(11)43(9)37(10)

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 2015–16 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 declined as lamb production increased, but the average cost of production declined at a faster rate. Over the three years to 2015–16, the total cost of production (including the value of unpaid labour) for the smallest slaughter lamb enterprises averaged 366 cents per kilogram, compared with 257 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 costs and particularly input of unpaid owner–manager, partner and partner labour show a larger reduction (Figure 22).

Figure 22 Production costs, slaughter lamb producers, by number of lambs sold, 2012–13 to 2014–15
Source: ABARES Australian Agricultural and Grazing Industries Survey

These results suggest that significant economies of size in the sheep meat industry provide producers with a strong economic incentive to expand sheep meat production and enhance profitability. Economies of size 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).

The total cost of sheep production for Queensland was relatively high, averaging 322 cents per kilogram for the three years from 2013–14 to 2015–16 (Table 7). Several factors contributed to relatively high production costs in Queensland during this period:

  • The majority of producers in Queensland are small scale, selling 200 to 500 lambs for slaughter. These farms have high cash costs relative to the quantity they produce.
  • A high proportion of Queensland producers experienced dry seasonal conditions over the three years from 2013–14 to 2015–16. This resulted in increased cash costs, particularly for fodder and freight.

Many sheep farms in Queensland have relatively high debt levels. Finance costs (interest payments on debt) accounted for 8 per cent of the total cost of sheep production in Queensland (or 27 cents per kilogram), averaged over the three years from 2013–14 to 2015–16 for slaughter lamb producers.

Table 7 Per kilogram live weight cost of sheep production and operating margins for slaughter lamb producers, by state, 2013–14 to 2015–16
average per farm
Receipts per kilogram of live weight producedunitNew South WalesVictoriaQueenslandSouth AustraliaWestern AustraliaTasmania
Sheep and lambsc/kg231(3)220(2)206(4)212(2)182(3)204(2)
Woolc/kg119(3)115(4)105(20)134(4)145(3)150(7)
Totalc/kg351(2)335(2)311(6)347(1)327(2)354(3)
Production costs
Total cash costs excluding finance costsc/kg196(2)203(3)207(13)204(2)210(3)203(5)
Total cash costs including finance costsc/kg215(2)224(3)234(14)223(2)228(3)233(4)
Total cash, finance and depreciation costsc/kg245(2)261(2)267(13)259(2)258(3)254(4)
Total costs (all cash costs, finance, depreciation and the value of unpaid labour)c/kg288(2)321(2)322(12)299(2)294(3)287(4)
Operating margin over:
Cash costsc/kg154(5)132(4)104(14)143(4)117(6)150(5)
Cash and finance costsc/kg135(6)111(5)77(25)124(4)98(7)120(7)
Cash, finance and depreciation costsc/kg106(7)74(7)44(52)87(6)69(10)100(8)
All costs including unpaid labour costsc/kg63(13)14(43)‒11(242)47(12)32(22)66(13)

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 2015–16 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 in 2014–15 and 2015–16 as prices for sheep, lambs and wool increased.

From 2013‒14 to 2016‒16 operating margins for sheep producers were positive—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 15 cents per kilogram live weight produced in 2013‒14 and increased to 51 cents in 2015‒16. For slaughter lamb producers, operating margins averaged 26 cents per kilogram live weight produced in 2013‒14 and increased to 54 cents in 2015‒16 (Figure 23).

Operating margins also increased as the scale of slaughter lamb production increased, reflecting the decline in costs relative to the value of sheep products per kilogram live weight produced. Operating margins after accounting for all costs averaged 2 cents per kilogram for farms selling 200 to 500 lambs for slaughter and increased to 80 cents per kilogram for farms selling more than 2,000 lambs (Table 6).

Figure 23 Operating margins, sheep producers, 2013–14 to 2015–16
Note: Operating margins after accounting for cash, finance, depreciation and unpaid labour costs.
Source: ABARES Australian Agricultural and Grazing Industries Survey

Productivity

Agricultural productivity estimates are available for the sheep industry.

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 publications 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 2014–15 to 2016–17.​

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Last reviewed:
28 Sep 2017