Edward Lotterman - Agricultural Economist
Published July 1, 1993 | July 1993 issue
Where did all the sheep go? Will they ever come back? Questions such as these might be asked by some Ninth District Rip Van Winkle who fell asleep at the end of World War II and awoke in the 1990s. The answers to these questions constitute an interesting case study of an economic sector that simply slipped away over time without arousing any protest or even attention.
Fifty years ago there were about 8 million stock sheep in the Ninth District states of Montana, North Dakota, South Dakota and Minnesota. Today there are about 1.5 million. Compared to cattle, the sheep industry always was small: 1950 cash receipts from sheep were 6 percent of those from cattle. But by 1990 this proportion had declined to just 1.5 percent. While cash receipts from cattle, adjusted for inflation, grew 11 percent in the four decades up to 1990 and those from turkeys more than doubled, receipts from sheep raising dropped over 70 percent.
No other sector of comparable importance in U.S. agriculture has undergone such a decline. The story of the decline is an instructive one, involving external challengesin the form of high production costs and low prices for wool and meatas well as inadequate responses to such challenges on the part of the industry.
Over the past half century, the sheep industry's costs rose while product prices declined in real terms. "Labor costs were probably the number one factor in the decline of the sheep industry in Montana," argues P.J. Hill, an economic historian at Wheaton College in Wheaton, Ill.
Hill grew up on a sheep ranch in Powder River County, Mont., and spent every spring for many years working on that ranch while on the faculty at Montana State University in Bozeman. He explains that sheep in Montana were herded in bands of 1,000 or more per herder. The herder spent several months of the year living in a wagon. This lonely, poorly paid herder's life became increasingly unattractive as off-ranch opportunities became more visible and viable in the years following World War II.
The growing coyote population in recent years has also put pressure on the sheep industry. "Limits on predator control, due in part to pressure from environmental groups, have hurt the profitability of sheep raising in the last 10 to 20 years." Hill says.
The 1973 restrictions on the use of toxic substances for predator control caused big losses, says Peter Orwick, director of government affairs for the American Sheep Industry Association (ASI). "And we have not been able to rescind them."
Changing national consumption patterns, which lowered the price of wool and meat, also hurt the industry. Prior to the 1960s, income from wool sales was much more important than now. Peak sheep numbers and profits coincide directly with war periods, when large amounts of wool were purchased for military clothing. In fact, the introductory paragraphs of the 1954 Wool Act, which established the wool subsidy payment system still in effect, notes that the purpose of the act is to ensure the supply of wool for national defense purchases. This act was passed immediately after the Korean War in which US troops had suffered bitter cold and in which wool shortages had driven prices to unprecedented high levels.
But with the rapid development of modern synthetic fibers in the 1950s, wool consumption and prices fell drastically. Although wool has recovered some of the ground it lost in the apparel industry, per capita consumption and real prices have not recovered from the introduction of synthetics. And the availability of wool imports from Australia and New Zealand, even after paying US import tariffs, tends to place a ceiling on domestic wool prices.
Sheep producers experienced problems with demand for meat as well as for wool. Lamb and mutton have always been ethnic dishes in the United States, with consumption historically concentrated in the urban Northeast. As the proportion of the population composed of immigrant communities with strong ethnic food consumption patterns diminished, so did per capita lamb and mutton consumption. From 1970 to 1990, per capita consumption of lamb declined from 2 to 1 pounds. In the same period, turkey consumption rose from 6 to 14 pounds.
But as immigration has increased and settlement patterns have changed, consumption by new ethnic communities, particularly in the Southwest, has again become important. The University of Nevada recently completed a study of lamb consumption in the Reno metropolitan area. Only 1 percent of Caucasian households surveyed had purchased lamb in the previous 30 days, while 40 percent of Asian and 25 percent of Hispanic households had done so.
Hudson Glimp, a sheep specialist who supervised the Reno study, argues that the increase of such ethnic communities in the US population "may be very good for the US sheep industryif it can meet the demand." But he agrees that the lack of lamb consumption in the vast majority of US households is one of the most serious problems faced by the industry.
While hamburgersthe quintessential fast-food productare made of beef, and chicken is sold in a variety of fast-food offerings, lamb, like pork, has yet to make a significant entry into this market. And while pork and turkey processors have introduced a wide range of innovative new products incorporating convenience and further processing, no similar products incorporating lamb or mutton are generally available at the retail level. If shoppers encounter any lamb in their grocer's meat case it is likely to be traditional cuts such as leg of lamb or lamb chops.
The sheep industry was not the only agricultural sector to experience sharp challenges in recent decades. But the industry's response was somehow less effective than that of other groups. Some argue that this is due in large part to the ready availability of alternatives, like cattle. Sheep and cattle are produced using essentially the same set of resources. Glimp says that in the West, "Most of the major sheep producers are also in the cattle industry." According to Glimp, running both on the same pastures can be economically and environmentally beneficial since cattle and sheep prefer different species of forage plants.
But the ease with which cattle can be substituted for sheep also put the sheep industry in an ironic bind. Producers could shift from one to the other so easily that the production in the smaller sector could be quite volatile and could decline over time with little notice or warning.
Hill describes the livestock industry in southeastern Montana: "There were cattle producers and sheep producers side by side in most areas. Very seldom was it the rule that either cattle or sheep dominated. But it doesn't take tremendous shifts in either input or output prices to shift production from one to the other. As raising sheep became less favorable relative to cattle, producers simply switched from one to the other." There was no rural crisis of sheep raisers going out of business entirely. But neither was there much incentive to innovate on either the production or marketing of sheep in the way that the hog and poultry industries did in the last three decades.
Research and product marketing have also lagged. The Department of Agriculture, with its US Sheep Experiment Station at Dubois, Idaho, focuses on sheep production in the western range states. USDA also conducts farm flock sheep research at its Meat Animal Research Center in Clay Center, Neb. Jim Fitzgerald, director of the Dubois station, says that the three principal breeds used in the northern plains area were all developed at Dubois. And he describes a research program involving genetics, breeding, nutrition and reproductive physiology that "places more emphasis on fitting the animal into the grazing environment."
But in spite of these efforts, sheep, like cattle, have not experienced the dramatic improvements in productivity that occurred with hogs and poultry in the last four decades. And marketing efforts by industry groups were apparently unable to halt the slide in lamb and wool consumption until recently.
But some observers argue that such lags in product innovation may be ending. "Food service has been put down as one of the highest priorities by the Lamb Council," says Priscilla Root, director of consumer information for the American Sheep Industry. ASI, the sheep industry's association, based near Denver, is responsible for product development and market promotion as well as representing sheep producers on policy questions. Root says that lamb has always been a higher-cost meat than hamburger or chicken. "Lamb is just a little bit more upscale," she says explaining ASI's emphasis on the hotel, restaurant and institutional (HRI) market as opposed to fast food.
Root describes a seasoned ground lamb burger tested in a contract with Canteen Corp., a leading national institutional food service, as well as a precooked, seasoned Denver rib currently being test-marketed on the West Coast. An Italian lamb sausage marketed to upscale pizzerias is also encountering success. Other efforts focus on developing a product suitable for delicatessens.
Although sheep producers have traditionally worried about competition from imports, meat exports may prove to be an area of growth for the industry. "It's just unbelievable the number of sheep they eat in Mexico City," says Rodney Kott, extension sheep specialist at Montana State University, noting that slaughter prices have increased in recent years. A few years ago slaughter prices barely brought enough to pay for transportation costs to the packing plant. Jim Robb, at the Western Livestock Marketing Information Project, says, "In the last two years we have seen a phenomenal increase in sales to Mexico. Over 800,000 head were sold last year."
As in other agricultural sectors, the future course of the sheep industry depends in part on the actions of the federal government. Two current public policy issues may affect the sheep industry. Wool subsidy payments are subject to a limit of $125,000 per producer. A bill introduced in Congress proposes lowering that ceiling over a period of three years to $50,000.
According to Don Keyes, an official with the Minnesota office of USDA's Agricultural Stabilization and Conservation Service, which administers the wool program, virtually none of the 3,500 Minnesota producers who applied for payments based on 1992 production would be affected by the proposed payment limit; in fact the average wool payment in Minnesota is only slightly over $200. In Montana, where flocks are larger, some 15 producers out of 3,136 would be subject to the new limit. The average payment in Montana was about $2,700. In South Dakota the situation is similar.
But according to ASI's Orwick, the small numbers of producers subject to existing or proposed limits understates likely impacts of the proposed lower limits. "I think that in virtually all the western states the payment limit would have an impact" he argues. "The larger producers may be few in number, but they are the mainstay of the industry, including wool warehouses and packing plants, in most areas."
The question of grazing fees on public land may have potential for great impacts on livestock production in the west and on sheep in particular. Twenty-five percent of the sheep industry is dependent on public lands, according to Orwick. Also, one-third of all lambs spend some time on public land and one-half of all fine wool is produced on these lands. While the administration backed away from including an increase in grazing fees as part of its initial economic package, most observers agree that some increase will take place eventually.
"The grazing fee question is a very hot issue," says Kott who notes that there already is "some movement away from use of Forest Service land by sheep producers as part of a change from herding sheep to using fenced pastures."
Orwick says ASI "supports a fair and equitable fee formula, including payment of a reasonable fee, but one that gives some stability to producers." The degree to which increases in grazing fees will curtail either cattle or sheep production is hotly disputed, and it is not clear if such increases will cause any further shift from sheep to cattle. But one thing is clear, says Wheaton College's Hill: "The value of grazing leases that are sold together with privately owned ranches has dropped substantially in recent years."
There is general agreement among sheep experts that the sheep industry will probably not grow or shrink substantially in the next few years. "The industry is cyclical," says Montana's extension specialist Kott. "We are going to see fairly wide swings in prices. With two or three bad years some people will bail out. But the long-term prospects are good."
South Dakota's Slyter agrees. "I am cautiously optimistic," he says. "There is a lot of opportunity, a lot of under-utilized forage and a lot of underutilized labor. Sheep are a way of transforming those unused resources into something of value."
Glimp, the sheep specialist who supervised the Reno study, also says that the industry need not shrink, but argues that its survival depends on cutting costs by returning to traditional extensive systems. "My philosophy is that we are going to have to have very low-input systems," he says. "We are going back to saying that less is better. Those operations that have survived are the ones that invested very little in facilities and purchased inputs."
The dramatic decline of the sheep industry in the Ninth District, as well as the rest of the United States, occurred in large part because it faced an unfavorable combination of production costs and product prices. These were caused by factors external to the industry, factors that were beyond the control of individual producers or of industry groups. But the sheep industry also faded away because it was unableor unwillingto adapt and innovate in response to changing economic conditions.
While it is difficult to identify any substantial or long-term economic losses to the district as a result of this decline, it is also clear that some firms, particularly those involved in the processing or marketing of sheep products, did undergo wrenching changes. Also, range and animal scientists express a clear consensus that the trend toward grazing by only one speciescattleis environmentally less desirable than more diverse grazing patterns.
The decline of the sheep industry has apparently abated, and sheep raising may even experience some resurgence in response to changing tastes and preferences. But leaders in other agricultural sectors would do well to consider the sheep industry's fate as they chart their own courses.
Although sheep are raised in all statesand even in virtually all countiesof the Ninth Federal Reserve District, most sheep production occurs in the four western states. Montana and South Dakota each have some 600,000 stock sheep. There are 280,000 in Minnesota and 180,000 in North Dakota. Ninth District counties of Wisconsin have some 27,000, while the Upper Peninsula of Michigan adds another 3,000 head.
The 1.7 million head in the four-state area are about one-fifth of the US total and bring in some $75 million in farm receipts. But compared to the district's $1.7 billion in dairy marketings, $1.5 billion in cash receipts for hogs or $3.8 billion in beef marketings, sheep are relatively small potatoes.
Production in Michigan, Wisconsin, Minnesota and eastern areas of the Dakotas generally follows the "farm-flock" pattern, that is the sheep are an adjunct to more important crop operations and serve in large part to use crop residues as well as excess labor during winter months. Grain and harvested forages are used extensively, virtually all lambs produced are fattened on the same farm and wool is a relatively minor component of sheep income. Flock sizes range from a few dozen to a few hundred.
Operations in the western Dakotas and Montana follow the "range" pattern in which sheep are often the sole enterprise. Flock sizes vary from one to several thousand, very little grain is used, native pastures provide the bulk of the feed supply, lambs are sold after weaning to be fattened elsewhere to the east or south, and wool is of high quality and a major component of income.