The federal government says the states have agreed to develop a nationally mandated mandatory sheep and goat electronic identification system.
Victoria is the only state so far mandated for electronic tagging of sheep.
A national livestock traceability system is seen as an important response to the threat from incursions of diseases like foot and mouth.
Cattle already have a tagging regime.
The decision to research a mandatory rollout nationally came from a meeting of the nation's Agriculture ministers this week.
The NSW government says it has received unanimous support for the development of a national, industry-led mandatory sheep and goat electronic identification system.
Agriculture Minister Dugald Saunders said there is now a strong mandate to start working on how best to implement a national system for sheep and goats.
"Individual traceability for sheep and goats will be critical in the event of an emergency disease outbreak like foot and mouth disease in Australia," Mr Saunders said.
"Today's agreement is a major leap towards closing all gaps in our national biosecurity system.
"Recent detections of foot and mouth disease fragments in Melbourne and Adelaide are a frightening reminder of the need to ramp up our biosecurity controls.
"It's also great to see NSW Farmers throw their weight behind a national eID system for sheep and goats during an emergency vote at their annual conference this week.
"This shows great collaboration from industry and producers to address the foot and mouth disease threat at our border."
Mr Saunders said a national framework will be urgently developed by federal and state agricultural departments with industry input for consideration at the next meeting of agriculture ministers.
"My commitment to sheep and goat producers is that they will have their voices heard during all stages of the implementation and development of a national traceability system."