Larger scale, lower cost of production for sheep producers – ABARES

Following on from an earlier article focused on the cost of beef production, the article below outlines the cost of production for Australian sheep producers – drawing on findings from a recent report from the Australian Bureau of Agricultural and Resource Economics (ABARES), commissioned by MLA.

Producers can use this report to compare the cost of production of their cattle herd or sheep flock with the industry generally, and possibly identify opportunities for improvements within their business.

The report presents cost of production estimates for beef cattle and sheep producers for the three years ending 2014-15, based on data that ABARES collects on broadacre farms through its Australian Agricultural and Grazing Industries Survey (AAGIS).

For the purpose of this report, farm businesses with fewer than 800 head of sheep (4% of the national flock) were excluded from the analysis.

The average on-farm cost of sheep production (on a per kg live weight basis) remained relatively unchanged between 2012-13 and 2014-15. The national average cost of production for the three years ending 2014-15 was 304¢/kg live weight for sheep producers and 288¢/kg live weight for slaughter lamb producers.

For slaughter lamb producers, the average cost of production decreased as the scale of lamb production increased; the smallest producers (selling 200 to 500 lambs) averaged 346¢/kg live weight, while the largest producers (selling more than 2,000 lambs) averaged 251¢/kg live weight. As a result, operating margins (receipts per kg less costs of production) increased as the scale of production increased.

However, unlike beef producers, on average, the smallest slaughter lamb producers generated sufficient revenue to cover all finance costs (interest payments on debt), capital depreciation and most or all of the value of unpaid family and partner labour.

The report found that, over the three years to 2014-15 on average, sheep producing farms with high operating margins predominantly had low costs of production, had larger sheep flocks, sold a larger number of lambs and had higher flock productivity. Compared with other sheep producing farms, these had a larger scale of operation, higher labour use efficiency and higher stocking rates.  Interestingly, these farms did not sell lambs or sheep at higher live weights but they did receive considerably higher prices.