The next step for WA sheep: From spot prices to forward certainty

Friday’s Round 2 transition grant announcement provides a timely opportunity to look beyond processing capacity and consider what else the WA sheep industry needs to remain competitive long term.

There were significant positives in the announcement that should be acknowledged. A substantial number of WA producers received support to invest in on-farm finishing capacity, including feedlots and confinement systems, feed and grain storage, livestock handling, technology and improved production systems. These are practical investments that can improve productivity, increase flexibility around turnoff and help producers manage seasonal and market risk.

A number of WA processors also received funding to invest in capacity and infrastructure. Continued investment in an efficient and profitable processing sector is important.

But it is also worth recognising that the legislated end of live sheep exports already provides WA processors with a significant structural advantage. One of the largest competing buying channels for WA sheep is being removed, giving processors greater access to livestock that previously had an alternative market.

Against that background, it is reasonable to question whether further taxpayer-funded incentives to expand processing capacity should be the priority.

That isn’t a criticism of processors for applying. Any well-managed business would pursue available funding to improve its operation. The question is whether, as an industry, transition investment is being directed towards the areas that will deliver the greatest long-term benefit.

WA appears to have considerable latent processing capacity and, with sheep numbers having fallen substantially, our immediate problem isn’t necessarily a shortage of hooks. The greater challenge is ensuring an evolving and competitive marketplace that gives producers confidence to remain committed to sheep.

WA has fewer processors and abattoirs than it once did and, combined with the loss of live export, that inevitably changes the competitive landscape. Live export wasn’t simply another destination for sheep — it provided a separate buying channel, multiple buyers, different price points and genuine market choice for producers.

It is also worth noting that across the published Round 1 and Round 2 recipient lists, there does not appear to be funding specifically identified as supporting one of WA’s existing live sheep exporters to transition its business. These are businesses directly affected by the phase-out, with established livestock procurement networks, market knowledge and international customer relationships.

As we look to rebuild some of the competitive tension being lost, retaining and redirecting some of that capability should surely be part of the conversation.

While the legislated phase-out is not completed until May 2028, commercially much of the change has already occurred. Live export numbers have reduced substantially and the buying presence of the trade is now a fraction of what it once was.

That is understandable. Faced with a legislated end date, exporters have had to make forward-looking commercial decisions well ahead of the final deadline. For the WA sheep industry; however, it means much of that competitive buying channel has already disappeared.

Replacing as much of that competitive tension as possible should be a priority now.

That means creating an environment that attracts new buyers, new capital and potentially new participants into the WA sheep industry, including investment from outside the existing supply chain. We also need to develop new market pathways and continue expanding finishing opportunities that give producers greater choice in how and when livestock are marketed.

Alongside that, forward contracting needs to become a much greater priority, providing producers with more certainty and the ability to manage price risk before committing significant capital to production.

Forward contracts won’t replace the competition previously provided by live export, but they can provide something increasingly important — greater price visibility, certainty and practical risk-management tools before producers commit livestock, feed, land and significant amounts of capital.

That capital component shouldn’t be underestimated. Maintaining sheep numbers or rebuilding breeding flocks requires substantial investment well before any return is realised. If we expect growers to make production decisions six, twelve or even eighteen months ahead, greater visibility of future market opportunities needs to become part of the transition strategy.

This is particularly important in WA, where sheep and lamb production continually competes for land, capital and management resources against cereal and legume cropping.

Grain growers have long had the ability to look forward, manage price risk and make production decisions with greater visibility around potential returns. If sheep are competing for the same land and capital, livestock producers need tools that allow them to do the same.

Processing capacity is important and continued investment should be encouraged. But alongside that investment we need an evolving competitive marketplace, genuine market choice and better mechanisms to manage future price and capital risk.

Having more hooks available is part of the transition. Giving producers greater confidence about what their livestock may be worth before they commit the land, feed and capital to produce them must be part of it too.