This publication is a summary of a report commissioned by the Department of Primary Industries and Regional Development’s Sheep Industry Business Innovation (SIBI) project and prepared by AEC Group Pty Ltd.
An example of a potential standardised forward contract template for the sheep industry was also developed as part of this study, and is listed on the sidebar.
Introduction
Increased use of forward contracts within the physical supply chain of the Western Australian sheep meat sector could result in greater supply chain integration and investment. The Western Australian (WA) sheep market functions primarily on spot, short term marketing at both ends of the physical supply chain (production to processor / live export). However more stable and consistent price and production conditions could be supported by market mechanisms, for example forward contracts of between two and six months for out-of-season supply of lamb.
The use and adoption of forward supply arrangements and contracts by the WA sheep industry supply chain could assist supply chain participants and future investors to:
- manage risk
- alleviate peak seasonal production supply
- increase supply chain infrastructure utilisation
- produce higher quality meat to customer specifications (branded high value programs)
- grow total output supply aligned to customer requirements
- obtain alternative sources of finance
- support the attraction of new capital investment (from existing and new participants).
The intention should not be for the WA sheep industry to become dominated by forward supply arrangements and contracts as a means of selling all sheep and lamb. There will always be a place for spot markets due to the large number of producers, the extensive means of production across vast distances in WA that is subject to significant annual climatic variability, and the dynamic shifts that occur year by year in land use allocation by producers and their consultants due to global grain market conditions.
However, the opportunity for greater supply chain integration through an effective forward supply arrangement and contracting system can provide benefits to all participants along the supply chain. To achieve this a proactive, positive and creative approach to addressing the core challenges, constraints and barriers is required along with long-running collaborative industry leadership and willing participants.