Competition from New Zealand sheep producers is worrying Australian exporters.

Increased supplies, a tough world market and more competition were key reasons for a fall in the price of lamb in the first half of 2012, Meat and Livestock Australia said in its Mid-year update.

Average retail lamb prices dropped to $15.41 per kg in June 2012, compared with $16.19 per kg in June 2011.

Saleyard lamb prices were on average 22 to 26 per cent lower than for the previous year, while lamb slaughter increased by an estimated 15 per cent during the same period.

Slow trading conditions with the European Union, along with New Zealand redirecting its product to major lamb buying markets in the Middle East and China, was having a negative effect on Australian lamb exporters.

"While not reflected in volumes, the returns for Australian exporters have been impacted significantly," MLA chief economist Tim McRae said in the report released on Wednesday.

Sustained improvements in the quality and variety of lamb over the past decade would ensure the product would remain a major player in the very crowded Australian protein marketplace, he added.

Live sheep exports were expected to reach 2.6 million head in 2012, up six per cent from the previous year, but well down on the 4.1 million head exported in 2006.