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Tuesday, November 25, 2014

The battle of the spare paddock

By Andrew Woods  |  Source: ABS, ABARES, AWPFC

Key points

  • Crop areas increased at the expense of sheep numbers in the main sheep states, for the twenty years from the mid-1980s onwards.
  • Farmers decided on the allocation of farm resources based on relative profitability.
  • Since 2007, the link between sheep numbers and crop area looks to have changed, supporting a view that the Australian flock has reached base level.
  • The “base level” view fits with farm financial benchmarking results of recent years, which show sheep to be profitable relative to other enterprises.


2014-11-25 Battle Of The Spare Paddock FIG 1

2014-11-25 Battle Of The Spare Paddock FIG 2

Much attention is paid to wool marketing, competing fibre prices, fibre market share and other distractions in the wool industry. This article looks at the on-farm tussle over the past three decades between crops and livestock for use of farm resources, the “battle of the spare paddock”.

Wool production is determined by the number of sheep that farmers decide to run on their farms. Logic suggests that farmers will decide between the choices of enterprises available based on projected returns, with the enterprise deemed to have the greater return winning more farm area.

Figure 1 tests this assumption between comparing the annual area of crop in NSW with the annual number of livestock units of beef cattle and sheep, from 1987 onwards. For the best part of the past three decades, the correlation between crop area and livestock numbers in NSW (along with South Australia and Victoria) has been strongly negative. Increasing crop area has corresponded with decreasing sheep numbers.

For those interested in understanding what is happening to sheep numbers, analysis of relative profitability of competing crops and sheep/livestock is the key. This is where farmers have historically made decisions about switching resources between enterprises.

While the relationship in figure 1 is a strong one, you will notice that data from recent years is clustered near the bottom. From 2007 onwards, the relationship has broken down, with livestock numbers not really correlated with crop area.

Figure 2 shows a similar graph for Western Australia, with crop area compared to sheep numbers only (rather than sheep and cattle livestock units). The years from 1987 to 2006 are like NSW, with a very strong negative correlation between crop area and sheep numbers. Again like NSW, since 2007 the correlation has broken down with sheep numbers relatively steady despite variation in crop area.

So what does this mean? It appears that sheep numbers have reached a base level that is being maintained as best as possible by farmers, within the limitations of seasonal conditions.

This matches up with the improved returns from prime lamb during the past decade and wool since 2009. The sheep industry (wool and lambs) has broken its negative correlation with crop areas for the time being.  However in the long run, farmers will continue to decide on enterprise choices based on relative returns so the industry needs to prepare for continued competition at the farm level for resources.

What does this mean?

The wool/sheep industry tends to swing between euphoria (prices are at last reflecting what we need) and depression (fine wool commentary is the latest example). The crop area/sheep numbers discussed in this article point to the Australian flock reaching a base level in recent years.

This is good news that should give some heart to the industry. History, though, points to the relative profitability of enterprises as being the deciding factor for farmers in allocation enterprises on farm. The sheep/wool industry needs to use the current period of good fortune to prepare for future competition from crops.

Northern MPG
Northern MPG

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Go to Wool data

Southern MPG
Southern MPG

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Go to Wool data

Western MPG
Western MPG

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Go to Wool data

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