Australia's sheep industry is at an "important inflection point", with the nation's flock close to record lows and production growth set to remain constrained over the coming five years, Rabobank says in newly-released research.
This means future production growth will likely need to come from productivity improvements in order for the sector to capitalise on the world's growing appetite for Australian sheepmeat and wool, the specialist agribusiness bank says.
With Australia the world's largest exporter of both sheepmeat and wool, the report - titled Productivity the key to Australian sheep industry growth, by the bank's RaboResearch division - says the country's sheep flock has contracted to its second-lowest level in more than 100 years in 2026.
And while sheep and lamb prices have reached record highs and wool prices moved back to historical high levels not seen since 2019, a significant expansion of flock numbers remains unlikely due to ongoing structural challenges, Rabobank says. Yet market growth opportunities remain.
Report author, RaboResearch senior animal proteins analyst Angus Gidley-Baird said strong global demand, limited competition and constrained supply have created some of the most favourable market conditions the sector has seen in years.
"The question now is whether those conditions will be enough to encourage widespread flock rebuilding," he said. "While there are certainly individual producers looking to grow numbers, the feedback we are hearing across the industry suggests the appetite for large-scale rebuilding remains relatively subdued."
With flock numbers expected to remain relatively stable, Mr Gidley-Baird said, future growth is likely to be driven by productivity improvements in genetics, reproductive performance, management practices and technology adoption, rather than by increasing sheep numbers. "While the industry will also need to protect consumer demand through stronger value propositions and improved product quality," he said.
Structural constraints
The report notes Australia's sheep industry has undergone "profound structural change over recent decades", with flock numbers falling from a peak of 180 million head in 1970 to around 66 million head today. Current inventory estimates are among the lowest recorded since the early 1900s.
Mr Gidley-Baird said several factors were continuing to limit flock expansion, despite the favourable pricing environment.
"Seasonal uncertainty remains a factor, but there are also more persistent constraints. High restocking costs mean producers are being asked to reinvest at historically-elevated prices, while labour availability and labour costs continue to challenge many sheep enterprises," he said.
"Running more sheep generally requires more labour for activities such as drenching, crutching and shearing. That labour intensity is one of the key reasons we don't expect a material increase in flock numbers over the medium term."
RaboResearch modelling suggests the Australian breeding flock could increase by around six per cent between 2026 and 2030 under an average seasonal scenario, but overall industry growth is expected to be modest.
Global demand
The report says global demand for sheepmeat and wool is expected to remain strong and growing.
"And Australia, as the world's largest exporter of both wool and sheepmeat, is well positioned to benefit from this demand growth," Mr Gidley-Baird said.
The report says OECD-FAO projections point to global sheepmeat consumption increasing by almost two per cent annually through to 2030, driven primarily by population growth and rising incomes across Africa and Asia.
"Importantly, we don't see substantial production growth coming from Australia's major competitors," Mr Gidley-Baird said.
"Global sheepmeat supply is unlikely to keep pace with demand growth, which should continue to support prices and provide a positive outlook for Australian producers."
The report notes that global imports of sheepmeat are projected to rise by more than 70,000 tonnes between 2026 and 2031, while key exporting nations - including New Zealand, South Africa and the United Kingdom - are not expected to significantly increase exportable supply.
Mr Gidley-Baird said the demand outlook for wool was "less certain" than for sheepmeat, but wool's renewable and sustainability attributes supported its competitive position relative to synthetic fibres.
Tight supply underpins prices
Mr Gidley-Baird said these favourable market conditions were likely to support sheep and wool prices in coming years.
"Higher prices would normally trigger a strong supply response, but in this case, we expect structural constraints to continue limiting expansion," he said.
RaboResearch analysis indicates lamb prices should remain near current strong levels over the next several years, supported by constrained supply and ongoing demand growth. Even under a strong flock-rebuilding scenario where sheep numbers rise, the report said, prices would be unlikely to fall below today's levels.
And for wool, Mr Gidley-Baird said, limited growth in global supply is expected to support market fundamentals.
"Major competing suppliers are unlikely to generate substantial increases in exportable wool volumes over the next five years," he said, "meaning Australia's wool industry faces relatively limited global competition."
Value creation offers gains
The report also identifies opportunities to extract more value from existing sheep production through clearer quality signals and closer alignment with consumer preferences.
"In a market where supply is likely to remain constrained, maintaining consumer demand becomes increasingly important," Mr Gidley-Baird said.
"The industry's opportunity is not simply to produce more. It is also to strengthen the value proposition of Australian sheepmeat and wool through quality, sustainability and the characteristics consumers value most."
RaboResearch Disclaimer: Please refer to Australian RaboResearch disclaimer here
