The contribution of the Australian live export industry to the Australian red meat industries and the regions

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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