The pastoral economy was established upon a system of farming that was frankly exploitative and destructive of the environment. The insubstantial basis of Otago's pastoral industries was hidden, however, during the early period of settlement by the excitement of the gold-mining era, the bulk of the diggings being concentrated in Central Otago itself. The provincial population expanded rapidly, with the result that by 1881 the province, excluding the Southland portion, held a fifth of the national total, the highest proportion ever obtained. And by the census of 1878, with 22,525 residents, Dunedin was the largest city of the Dominion. The gold-rush period raised the population of the central districts from a few thousand in 1860 to 20 thousand or more by 1863, and it was responsible for the initial establishment of the principal settlements, Lawrence, Clyde, Cromwell, Roxburgh, Alexandra, Arrowtown, and Queenstown, whose subsequent importance has never been as great. Above all, the gold period provided the dynamic factor necessary for growth. It would be hard to say precisely when the impetus created during this period finally spent itself. Between 1861 and 1871 the provincial population doubled and it nearly doubled again during the next decade, but thereafter the rate of growth was very slow. By the turn of the century the population was already equivalent to three-quarters of the present population. Furthermore, economic growth was concentrated in the eastern and coastal parts of Otago, principally in the Dunedin region, which by 1911 alone accounted for 70 per cent of the regional population.
Some concept of the destruction wrought by burning and overgrazing and by rabbits, whose destructive powers came into effect on the already depleted vegetation, can be obtained from a study of the Alexandra soil series, their distribution coinciding roughly with the extent of Central Otago. Found, especially, near Cromwell and Alexandra and in the eastern parts of the Mackenzie Country, they are developed on the lower mountain slopes and valley floors and in the 1940s were all classed as severely eroded, with the exception of the irrigated areas. The series covered a total area of 454,600 acres, of which 53 per cent had suffered extreme erosion and 25 per cent severe erosion. Nevertheless, in the post-war period, the sheep population of Tuapeka, Vincent, and Manio-toto counties has continued to increase at rates between 30 and 40 per cent, but this increase has been sustained differentially, the favoured parts, employing new techniques and practices, carrying the burden of growth. As a result of this increase in sheep population, the Otago wool returns for the 1963–64 season amounted to a record of £14,356,002. Dunedin has thus maintained its position as the largest South Island wool-selling centre (189,625 bales) and is the third largest in New Zealand.
The low grades of the interior basins favour an intensive livestock economy. The old turf is easily broken up and replaced with improved pastures that include clover to build up the nitrogen content of the soil. The soils have shown themselves deficient in sulphur, phosphate, and molybdenum, so that increased topdressing and liming is necessary. Perhaps the recognition of lucerne as the vital factor in providing winter fodder has been singularly the most important development. The results are impressive; a Department of Agriculture survey in 1955 revealed for the southern Maniototo area the owner surplus to be 72s. per acre on farms with a fifth of their acreage under lucerne, compared with 16s. per acre for farms with little lucerne. The acreages of the farms included in the survey range from 1,000 to 1,500 acres.
In the eastern Mackenzie Country (strictly a part of Canterbury) a property has increased its ewe flock ninefold in 11 years. In 1950 only 240 half-bred ewes were supported; the pastures were all tussock and rabbit infestation was acute. By 1956 the reduction of the rabbit menace had enabled the property to carry 600 ewes. The establishment of new pastures incorporating lucerne, together with topdressing and subdivision, has, in 1961, raised the capacity to 1,800 ewes. While these methods have increased the carrying capacity of the lower areas, the pressure upon the higher and heavily depleted tussock pastures has been reduced. In the Maniototo area at least, on the eastern slopes of Rough Ridge, aerial oversowing of grasses, spelling, and rabbit control have produced a slight improvement in the state of the tussock pastures.