From the Ground Up: The Case for Investing in a Sheep Farm Now
Posted: February 19, 2013
If you've been mulling over investing in a sheep operation in Alberta, agriculture team specialists say now is the time to get in on the ground floor while commodity and livestock prices are low. The opportunity is still growing as global demand for lamb escalates.
To be successful, Alberta needs three key elements to keep up with requests for high quality lamb:
- More new producers
- Expansion of current operations
- Improved productivity based on leading-edge management practices
Although it is common knowledge that we should buy low and sell high in business and investing-people often do the opposite. Which is why now is the ideal time to consider one of the above options for increasing farm profitability.
This counter-cyclical approach is capturing the attention of potential producers who want to launch or expand their operations to take advantage of the most profitable livestock in Canada.
Despite streaks of drought and cyclical drops in commodity pricing, the industry is growing exponentially, boosted by changing demographics and increased wealth in lamb-eating countries. Since less than 50 percent of Alberta's lamb consumption is provided by local producers, the gate is wide open for producers to move in to fill the gap and recapture market share from imported lamb.
"There is an overall shortage of lamb world-wide that has led to record-high prices the past three years," says Sue Hosford, the Sheep Industry Development Specialist with Alberta Agriculture since 2002. "New producers willing to run a well-managed lamb business can save money investing in an operation now, building the business sustainably, and then selling the products once the price picks up."
Alberta's Lamb Traceability Pilot and Precision Flock Management Projects tracked the cost of production for over 50 provincial producers from 2008 to 2012. Running a lamb operation can be profitable – even at lower market prices. Interestingly, the study also found that successful producers took charge of what they could control: well-planned capital start up, costs and labour, technology that supports sound management decisions, and finessing their marketing skills.
"We found that the most efficient producers were able to produce a lamb for $130 less than bottom performing flocks," says Tony Stolz, agricultural management consultant with Stolz-Williams Consulting Ltd. The difference in income between top and bottom performing flocks was about $23 per lamb." These experts all agree that managing the cost of production is the key factor to creating a profitable operation.
Blair Dow, instructor with Lakeland College in Vermillion Alberta and co-operator on the Lamb Traceability Pilot Project, guides students through the Animal Science Technology Student Managed Farm course. It invites participants to manage a sheep production unit, which prepares them for future responsibilities, production decisions, and financial management. "Many students; our future producers, view the sheep industry as a potential opportunity to complement their existing operation," Dow says. "They realize a sound business plan is needed before the first lamb is even born."
When feed costs are high and revenue low, Dow cites the importance of closely monitoring the cost of production and making use of the new technology available, such as RFID, SheepBytes and Flock Snapshot. While there is a tremendous amount of information available at www.ablamb.ca on the sheep industry, we can also learn about best-practices from other livestock industries. We need to manage our maternal breeds in a similar manner to the dairy industry if we expect them to raise multiple lambs every year."
"Using the latest in management practices and technology ensures that sheep producers can improve their business management results while creating the high quality product demanded by consumers." Sue Hosford of ARD commented. "When you create a solid business plan, which in turn produces a profitable crop of lambs, it makes you feel good. You need time, money, patience and commitment to make an impact though. New producers have to research their market first, know who they're producing for and have the right sheep to meet that market's unique needs."
Tony Stolz suggests new, or expanding, producers have to move quickly but strategically:
- Access resources. Tap into workshops, tools, videos and virtual farm tours through Alberta Lamb Producers and Alberta Agriculture to help set up a profitable operation.
- Get to know the markets. Talk to lamb buyers and industry experts. Check out trends and case studies online. Visiting a number of top performing sheep operations can help generate ideas and to figure out systems that may work for you.
- Plan big and scale down from there. Historically, small, growing operations have difficulty balancing infrastructure with the growth of stock. That means the payback is low and slow. Ensure the farm infrastructure, handling systems, barns and record-keeping systems all grow with the flock.
- Plan for each step. This starts with writing a good business plan. Seek out experts at your bank or a business advisor to determine a practical and clear plan for operational growth, risks, contingencies and failure. The reality check will help keep you focused.
Smart investors know that now is the time to take advantage of lower barriers to entry into an industry that is strong and growing. To take advantage of Alberta Lamb Producers resources and training programs, visit www.ablamb.ca. See Producer Management Resources for business development and plan information. See Producer Management Resources for business development and plan information.