The number of sheep in New Zealand is falling, but other parts of the agriculture business are booming, the latest agricultural census shows.

Statistics New Zealand yesterday issued figures from its 2007 Agricultural Production Census, the first since 2002.

Sheep numbers dropped to 38.5 million last year, down 3 per cent from 39.6 million in 2002.

North Island sheep numbers rose slightly in the five-year period, from 18.4 million to 18.5 million, the South Island had a drop of 1.2 million sheep, from 21.1 million to 19.9 million.

Federated Farmers Meat and Fibre chairman Keith Kelly told the Herald yesterday the numbers of New Zealand sheep had probably declined even further since the census count - and could continue to fall.

A healthy dairy industry and the relegation of lamb to a niche market were driving the reductions, he said.

"At the moment, if you've got land suitable to convert to dairy, and if the figures add up, you convert. Dairy's making more money at the moment. And their product can be changed to zillions of different things."

He picked the slump to continue until the scarcity of lamb pushed prices up again, making farming sheep more viable.

He forecast a couple more years of decline and a possible bottoming of New Zealand sheep numbers at about 35 million - almost half the country's peak sheep population of about 70 million in the early eighties.

Then there were about 22 sheep for every New Zealander. Now it's about nine for each person.

Beef cattle and deer numbers have also dropped.

But the census shows the continuing growth of the wine industry, with a 71 per cent increase in the area planted with wine grapes since 2002, to 29,620ha.

New Zealand Wine policy manager John Barker said the increase in grapes was helping the country's wine industry meet its goal of $1 billion turnover by 2010. It now has a turnover of close to $800,000.

By 2015 it was expected the industry could top $2 billion, and while some of that rise would come from increasing the value of the product, vast new plots of land would have to be planted with grapes.

Marlborough, Hawkes Bay, Gisborne and Central Otago still had extensive suitable grape-growing areas yet to be planted, he said.

Despite the huge growth, New Zealand wine was not in danger of over-saturating its market, he said.

The majority of the industry's growth was being fuelled by export demand.

Because New Zealand's wine-makers targeted the top end of those markets - a sector of the wine market experiencing high growth - demand was continuing to rise. This was unlike Australia's wine industry.

With 170,000ha, much at the lower end of the market, Australian wine makers were vulnerable to market saturation and falling prices.

By Craig Borley | Email Craig