Tasmania's poppy industry, which grows half of the world's raw material for pain relief, needs a shot of its own medicine.

Farmers who have grown opium poppies for decades in Tasmania, are walking away from a crop they no longer consider lucrative.

The companies in Tasmania which extract the naturally occurring alkaloids from the poppies, like morphine and codeine, have slashed the production area they need.

There are a few reasons for this, starting with the US pharmaceutical market.

US crackdown suppresses global demand

Aggressive marketing from the 1990s helped drive up sales of pain medications, which in turn fuelled the growth of the poppy industry and its bumper profits.

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However, prescription opioid painkillers can be highly addictive and it was only a matter of time before this caught up with a generation of users.

This came to a head around 2013 when US authorities changed its prescriptions policies.

As a result, demand for the alkaloid thebaine, used in prescription painkillers like oxycodone, dipped sharply in the US.

Poppy processors admit tighter regulations around prescription pain medication has affected the demand for narcotic raw material. ( Supplied: AAP Melanie Foster )

Deaths from overdoses of prescription opioids and illicitly manufactured fentanyl, (a drug up to 50 times more powerful than morphine) have continued to spiral out of control.

The US is now dealing with more than 140 opioid-related deaths every day.

It has prompted the White House to push for opioid prescriptions to reduce by a third over the next three years.

In February this year, Australia introduced a ban on over-the-counter codeine-based products.

The ban is designed to slow the rate of codeine-related deaths in the country, which sits at around 150 each year.

Tasmanian poppy industry impacted

So what does this all mean for the Tasmanian poppy sector that is supplying the raw materials for pain relief?

The sharp correction in demand has led to reduced prices and contracted volumes.

The industry at its peak in 2013 had close to 900 growers in the state and that number has now halved.

Crop area has reduced from 30,000 hectares at its peak to around 10,000 hectares this season.

Growers turn to other crops

Tasmanian farmer Robbie Tole says he can make more money from raising lambs than growing opium poppies ( ABC Rural )

For the first time in 19 years, Robbie Tole will drop poppies from his cropping program.

The farmer at Cressy in Tasmania's north-east has been rolling back his poppy area over the last four years.

He said the crop is not as robust as it once was, when growers were earning up to $8,000 a hectare.

"Back in the day when we first started, there wouldn't have been a crop that came close.

"When we could put an irrigator in one year and pay for it with a crop of poppies, it was all very exciting."

Mr Tole said he could make 40 per cent more from growing lambs than poppies.

This year he will also triple hemp production for the food market.

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Dairy farmer Paul Hamilton said the numbers no longer stacked up on his farm in Tasmania's north-west either.

"We will put the area that would have been poppies in to grass," he said.

"We just haven't seen the returns," he said.

The changing attitudes of growers towards the crop is not lost on the CEO of Poppy Growers Tasmania, Keith Rice.

"A good farmer that I respect, said to me you couldn't grow poppies under $5,000 a hectare.

"There is still reasonable money at the top, but when we look at the average of $4,000, there's very little cream in that."

Poppy processors in a bind

Dairy farmer, Paul Hamilton, will make more money from milk this season than from poppies. ( ABC Rural: Margot Kelly )

It has become a numbers game for the processors of opium poppies too.

Despite the global oversupply of opiate product and demand dropping off in the US, countries like Spain and Turkey have increased their production.

They are also selling their product for a much cheaper price than Australian processors.

The shift in market dynamics has forced Australia's largest opium processor Tasmanian Alkaloids to restructure its business, reducing operating hours and slashing staff numbers.

In the last five year prices paid to growers have dropped around 20 per cent.

"We're suffering a glut at the moment, " said the company's managing director Doug Blackaby.

"We're making some changes and we have to react and once the equilibrium is reached, we'll certainly be looking at the size of the crop in the subsequent years."

The Tasmanian Alkaloids processing plant in Tasmania's north. ( ABC Rural: Tony Briscoe )

The company is also moving into an emerging pain relief market in Australia, medicinal cannabis.

Its board has approved a new facility to grow the crop under controlled conditions in Tasmania's north.

"It'll ensure our business is more sustainable and we're able to manage peaks and troughs better, once it picks up of course," said Mr Blackaby.

"From a grower point of view, the unfortunate aspect is we essentially have to grow it in secure hothouses.

"In terms of the business model and our cost basis, it's something that'll certainly help us sustain the business in the long term."

Pursuing new production areas

The industry's smallest manufacturer, ASX-listed company TPI Enterprises, has maintained a bullish view of the pain relief market.

After Tasmania lost its 40 year poppy monopoly in Australia in 2014, it moved its entire operation to Victoria and signed up growers across the state.

Farmers have reported mixed results in the last three years and it is unclear how many of those who originally trialled the crop in the state, are still growing it.

TPI has now set its sights on building production in New South Wales where 2,000 hectares of poppies is set to be planted this season.

"We are really excited that these innovative NSW farmers have so clearly demonstrated the viability of poppies as a potential break crop in crop rotations," TPI's director of agriculture, Michael Long, said.

The company has also secured a licence for medicinal cannabis.

Keith Rice from Poppy Growers Tasmania is remaining optimistic about the future of poppies in Tasmania.

"We have a situation where there is still pain in the world, sadly, but there's pain there," he said.

"Australia provides 50 per cent of the raw material to go into pain management.

"I see a really strong future for the industry, it will be built on productivity and it won't be measured on hectares any longer.

"The primary processing sector that we deal with and for the growers, I think we're going to be under pressure for some time."