Does sheep farming have a future?

The adage "if you keep on doing what you have always done you will always get the same result," could have been written for the sheep industry. Agribusiness editor Neal Wallace reports that unless there is change, the future for the sheep industry looks bleak.

New Zealand's economy was built on the sheep's back, but today that industry is shrinking and in turmoil.

It will not disappear, but for many, the industry is a daily struggle for survival and one in which meat companies have been described as being on a slippery slope to find the last man standing.

Farmers and companies are making decisions based on short-term financial gains, leading to competition between meat companies paying above market rates for animals to keep their plants full.

Profitability is reliant on the exchange rate.

If the rate is low, most parties will make a good living.

If it is high, processors and farmers struggle - and they are leaving in droves.

But ANZCO and Alliance Group say there is no crisis.

Lamb prices are historically high, although low, relative to dairying, and the problem is one of competition for land use.

The facts say farmers see it differently.

What are the problems?Product prices not keeping pace with costs.

Prices for lambs which can fluctuate $30 between seasons.

Low sheep farmer confidence -just 34% in last week's Rabobank confidence survey expected the agricultural economy to improve.

Farmers leaving the industry for dairying: 340 in Otago and Southland in the last three years and another 250 throughout the South Island expected to change in the next few years These figures are substantiated by the dairy industry.

- Meat companies paying above market prices for lamb to keep their plants busy, rather than being market-led.

- Excess meat processing capacity.

- An industry unable to co-operate and lacking leadership.

- Farmers not being loyal to meat companies.

- Both meat and wool industries lacking a consumer focus.

- A decade of little or no promotion of wool.

- Competition for land use.

The current industry model is considered by many - but not all - to be broken, but many farmers who can are leaving.

The sheep flock has almost halved in 20 years and continues to shrink, as farmers are lured by the more profitable dairy industry on one side and forestry on the other.

Since 2008, there have been at least four independent reports on wool, and another four on meat, which have called for changes in the way the farmers supply stock and the way companies market the end product.

Critics may question the motive behind these reports, but there is uniformity in their findings that the current models are unsustainable.

Just last week, Beef and lamb New Zealand chairman Mike Petersen said farmers may have to change their behaviour and Meat Industry Association chairman Bill Falconer said his members may have to switch from a supply model to a value model, providing products in the form wanted by markets.