OUTGOING WAMMCO International chief executive officer Coll MacRury has warned two of WA's sheep processors could be forced to shut down.
The claim comes on the back of WAMMCO offering $5.60/kg contract price to producers.
This is a record contract price for the company.
WAMMCO chief executive Coll MacRury said it was the highest price ever offered by the co-operative which he said was reflective of the high prices at the moment.
"It is definitely a high price for February and the highest ever for WAMMCO," Mr MacRury said.
He said the incentive would probably be matched by their competitors because they would also have to pay the market price.
"Others will have to follow," he said.
"But if prices continue to rise, then it will be survival of the fittest."
Mr MacRury said the lack of numbers in WA's sheep flock will cause some rationalisation in the processing industry.
"The exodus to the Eastern States last year of more than one million WA sheep, of which about 700,000 are thought to include valuable breeding stock, poses serious immediate and medium-term lamb production problems for all processors and exporters in WA," he said.
"I believe the shortage will force at least two WA sheepmeat processors to close their doors as 2011 proves to be one of the industry's toughest ever supply years."
Mr MacRury said on the other hand, WA sheep producers could expect a price 'bonanza' with major bonuses if there was a reasonable season.
"The latest predictions are that WA will suffer a further drop in sheep numbers to a flock of below 12.5 million, confirming the crippling impact of the 2010 drought," he said.
"They also confirm the increasing need for us to play a leading role in rebuilding the sheep flock in WA.
"The announcement last week of an increase in our schedule price to $5.60/kg represents a solid start."
In November last year, WAMMCO said it was looking at bringing lambs back from the Eastern States for slaughter and Mr MacRury said it was still a possibility, but prices would have to drop before they did.
"It is a medium-term thing, prices are too high at the moment, but it is a possibility still," he said.
"The time will come when stock becomes more plentiful over there and then that will impact (the market) here.
"It is part of our risk management strategy, but prices need to be 60-70 cents cheaper over there than here for it to be viable.
"By the time you include transport costs it's not worth it."
Fletchers general manager Greg Cross said they were taking the market week by week and wouldn't be offering a similar incentive.
"We are heading into territory we have never been before, so all you can do is wait and see," he said.
"We won't be offering an incentive because if the supply isn't there, what can you do?
"We are just meeting the market."