Prepared by: Derek Quirke Centre for International Economics 2 March 2011

1. The contribution of the Australian live export industry to the Australian red meat industries and the regions ABARE-BRS Outlook 2001 Prepared by:Derek QuirkeCentre for International Economics2 March 2011

2. The contribution of live exports • Total export value averaged $1 billion • Between 2005-06 to 2008-09 • These exports provide significant flow-on benefits to livestock producers • And regional economies • Because of the costs of • Acquisition of livestock; and • Their transport and preparation • Importantly, the live trade provides access to alternative markets to processing chain

3. Key destinations… • 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 • Sheep exports have stabilised around core markets including • Kuwait (25%), Saudi Arabia (24%) Bahrain and Jordan • Malaysia remains a key market for live goats accounting for 82% of exports

4. The live trade has resulted in… • Productivity improvements in the northern cattle at a much faster rate than the rest of Australia • Increases in land values for both northern and southern beef enterprises • 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… • Exports of feeder or slaughter cattle and sheep accounted for 90% of total • The remainder being goats, and breeding cattle and sheep • 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 • This doesn’t account for the flow-on to the wider livestock industry

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

7. How the flow-on was calculated… • Its also widely acknowledged that farm gate returns would be lower without the trade • By how much? • 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 • The difference between the ‘with’ and ‘without’ indicates the ‘value of the trade’

8. Additional transport costs and slaughter capacity very important • 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 • Under current market conditions, sufficient capacity exists for their processing • 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… • The major impact on sheep would be in WA • From 2006-09, 2.96 million older sheep would be exported and 5 million sheep slaughtered each year • 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, • 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 • 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 • 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… • 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 • Impacts on regions will be greater

12. … on production and exports… • 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 • 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 • But this diversion drives export returns down compared to the ‘without’ live exports case

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

14. The total contribution is significant • Between 2006-09 across all live exports the contribution each year was • $248 million in GVP terms; and • $110 million in value added or income terms • These impacts would be acute across northern beef and the WA sheep industry • 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 • 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 • 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 • 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 • 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 • The live export trade has made, and will continue to make, a significant contribution to • The Australian red meat industry; and • Regional economies • 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

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