Victorian sheep farmers say they feel "scared" and "on edge" as concerns grow over an outbreak of foot-and-mouth disease arriving in Australia.

The highly contagious livestock illness is currently spreading in nearby Indonesia and has been detected in the tourist hotspot of Bali.

It is estimated an outbreak would shut down multiple livestock trades and cost the Australian economy $80 billion in losses over 10 years.

Australian Sheep and Wool Show board member and Geelong district farmer Graeme Harvey said it could cause meat prices to skyrocket.

"We'd have to eradicate a large number of animals to eradicate the disease, so supply would go down," Mr Harvey said.

Mr Harvey said many farmers he was speaking to were on edge.

"If you look at what happened in England a few years ago, a lot of animals had to be euthanised just for the disease to be stopped," he said.

"They're on edge because I don't think the average person realises ... what could happen."

'Snowball' effect

Longwood sheep farmer Andrew Mawson said he suspected it was a matter of when, not if, an outbreak happened.

"I'm a bit scared ... I guess maybe less people will be coming through the front gate to our farm," he said.

Mr Mawson said an outbreak was the last thing farmers needed after years of drought and the pandemic.

"I don't think people realise what damage it's going to do," he said.

"All wool exports will stop, processing will stop, meat will stop — it'll affect everyone."

Nutrien Bendigo Wool Area Manager Nicole Davies said the threat of foot-and-mouth disease was at the front of many farmers' minds.

"But I have faith we have vaccinations, a strategy and plan, and we'll be ready to do what we need to do."

Ms Davies said Victoria's mandatory electronic tagging system would also make it easier for farmers to trace animals if there was an outbreak.

"Victoria starting with the tags a few years ago was great and I think it'll be good if other states follow suit," she said.

Prevention, not compensation

Global Agritrends meat industry analyst Simon Quilty said the presence of foot-and-mouth disease in regions near Australia had ramped up efforts to introduce similar traceability schemes in other states.

"There are deep discussions across the nation and I think it's going to have to inevitably come in sooner rather than later," he said.

"Really, I think the cost of a tag is about $1-$1.50 per animal. 

Mr Quilty said there was a compensation structure in place if livestock needed to be euthanised due to an outbreak, but farmers who needed to cull herds later in an outbreak would be subject to lower prices.

"You'd want to be one of the first farmers to get FMD, not the last," he said.

"You will get a fair price if you're the first because markets won't have been impacted yet.

"But if two months later you're the last and markets have crashed and prices have deteriorated, then your compensation will not be anything like it should be at a fair price."