The contribution of the Australian live export industry to the Australian red meat industries and the regions Prepared by: Derek Quirke Centre for International Economics 2 March 2011 ABARE-BRS Outlook 2001

2 The contribution of live exports n Total export value averaged $1 billion – Between to n These exports provide significant flow-on benefits to livestock producers – And regional economies n Because of the costs of – Acquisition of livestock; and – Their transport and preparation n Importantly, the live trade provides access to alternative markets to processing chain

3 Key destinations… n Indonesia remains the most important market, primarily for feeder steers – Accounting for 69% of total head exported – The Philippines and Malaysia have declined as markets as the result of competition from South American beef and Indian Buffalo n Sheep exports have stabilised around core markets including – Kuwait (25%), Saudi Arabia (24%) Bahrain and Jordan n Malaysia remains a key market for live goats accounting for 82% of exports

4 The live trade has resulted in… n Productivity improvements in the northern cattle at a much faster rate than the rest of Australia n Increases in land values for both northern and southern beef enterprises n A range of other regional benefits including: – Higher farm incomes than otherwise the case; and – Reduction of risk through access to more markets

5 Purchases of livestock… n Exports of feeder or slaughter cattle and sheep accounted for 90% of total – The remainder being goats, and breeding cattle and sheep n Over average 74% of the export value is the purchase of livestock from saleyards or directly off-farm – In farm level GVP terms this is worth $742 million each year n This doesn’t account for the flow-on to the wider livestock industry

6 And where they are located n It is well known that the live trade is vital to regional Australia n Live cattle particularly important to the northern pastoral zone – Currently very limited processing facilities – Transport south and east becoming more important n Live sheep purchased from southern WA through to SA and Victoria n Dairy heifers important for Victoria – otherwise would be slaughtered as calves

7 How the flow-on was calculated… n Its also widely acknowledged that farm gate returns would be lower without the trade – By how much? n This requires estimation of the next best use – Returns ‘without’ the export trade – This would be sales through the processing sector – Many require additional transport and feeding n The difference between the ‘with’ and ‘without’ indicates the ‘value of the trade’

8 Additional transport costs and slaughter capacity very important n Without the trade, an additional 520,000 cattle would need to be transitioned for processing – Mainly east to Queensland from the NT; and – South to Perth from NW Western Australia n Under current market conditions, sufficient capacity exists for their processing n Therefore transport is the major cost – Accounting for an additional $80 million or – Between 40 and 45 c/kg lw basis

9 …transport costs continued… n The major impact on sheep would be in WA – From , 2.96 million older sheep would be exported and 5 million sheep slaughtered each year n Around 80 per cent of exported sheep are from WA – Without the trade potentially means a 60% increase in sheep for slaughter – With 20% or 1 million head excess slaughter capacity, n Around 2 million older sheep will need to be transported east for processing – At an additional cost of $25 per head or $48 million

10 …using the GMI model n This impact was estimated using the MLA’s Global Meat Industries (GMI) model – Of Australian meat production, consumption and trade – Indentifies for 22 global regions and 8 types of livestock and meat – Including those important for live exports including Indonesia and the Middle East n This impact was estimated by – Diverting these livestock back through the processing sector; and by – Recognition of additional transport and feeding required to access processing markets

11 Impact on national prices… n Without the trade, saleyard prices would be – 4% or 7.8 c/kg liveweight lower for grass fed cattle – 7.6% or 12 c/kg liveweight lower for lambs – 17.6% or 14.6c/kg liveweight lower for older sheep n Impacts on regions will be greater Fall in farm gate returns %Ac/kg lw Grass fed cattle Grain fed cattle Lamb Mutton

12 … on production and exports… n Diversion through processing would result in – Beef production increasing by 5.1% or 109 kt cwe – Sheepmeat production by 14.6% or 100 kt cwe n The majority of this production would end up in price sensitive export markets – Including Japan, Korea and the United States – Some to the Middle East and Indonesia n But this diversion drives export returns down compared to the ‘without’ live exports case

13 … on industry GVP and incomes n Without the live trade: GVP would have been – 2% or $176 million lower for beef – 5.9% or $119 million lower for sheep n In value added or income terms this equates to $126 million across the red meat chain n For other live exports: the contribution was – $34 million for live dairy heifers; and – $4 million for the goat industry n Estimates used a conservative approach

14 The total contribution is significant n Between across all live exports the contribution each year was – $248 million in GVP terms; and – $110 million in value added or income terms n These impacts would be acute across northern beef and the WA sheep industry n Results are lower than previous studies because: – More conservative assumptions around transport – Significantly higher sheep prices observed under current market conditions

15 Key drivers of the results n Limited substitution between slaughter animals and boxed meat in key live export markets – each market has a range of segments – Mainly due to cultural practices around fresh consumption, acceptance of boxed product and end use – Lack of other quality suppliers from other countries – These factors could be changing slowly n The supply response of producers to lower prices and higher transport costs – This extent of this response has been debated widely

16 Key drivers continued n Depends on scope to move out of livestock into alternative enterprises – This is a critical issue for Northern beef which has restructured itself around the live trade – This is very limited in the short to medium term because of lack of alternatives n Declining flock numbers in WA used as rationale for declining importance of the trade – Sheep numbers have stabilised as a result of high prices and diversification away from grains – Continued role for sheep and live exports in WA

17 Bottom line on the contribution n The live export trade has made, and will continue to make, a significant contribution to – The Australian red meat industry; and – Regional economies n This continued contribution depends critically on – Continued access to export markets – The performance of the rest of the red meat chain including processing which depends on exchange rate levels