Who is actually going to pay?

Various reports have been conducted over the years that have considered the economic impact were live exports of Australian animals stopped. Some reports have attempted to put a price on the financial cost of stopping live export, and predict ongoing returns if live export animals were supplied to Australian processors instead. I would like to discuss the economic expectations of some of these views. I am purely looking at economics, not animal welfare in this article.

In 2006 MLA released a report1 that considered the value and ramifications of closure of the live animal export industry stating that

the prosperity of Australian sheep and cattle producers is linked to the live export trade as domestic prices are underpinned by the trade1(Pg ii).

Forecasting a drop in both sheep and cattle prices of up to 18% and 7% respectively if live export was stopped 1(Pg 28/29). That irrespective of any gains made in beef export, the national beef industry would decline by $330M or 5% annually for every following year due to no live export trade1(Pg28)

Before the peak of the 2009 cattle export period of slightly less than 1M head, MLA (20072 ) forecast a 10 year direct loss of income if the trade was halted. Across Australian sheep and cattle industries (including dairy) a direct loss of income over 10 years was estimated at $2.2B. The effects would continue to be significant after the initial 10 years of closure. It forecast a farm-gate price drop of 59c/kg for the Northern Territory alone, due mainly to lack of processing facilities in the north and increased costs in freight, a point the MLA 2006 report also raised citing freight increases of as much as 40c/kg1(Pg 28).

From a personal perspective, owing to effects of  the ban in 2011, and then subsequent market loss the following 18 months we personally realised a direct loss of income of $239 per head ($0.70/kg loss directly plus extra cost in freight) for every steer that was suitable as a boat animal as a young animal but eventually sold into the Australian domestic market due to being too heavy or unable to gain market access in the period of 2011/2012 and part way into 2013. This doesn’t include the cost of keeping an animal for another 18 months on property and effect on overheads and finances due to loss of income. In total a loss of approximately nearly $300 per beast. We are a small property, the effect on others could have been much greater.

For WA northern cattle producers, a more dire forecast is predicted if live export ceased, estimating price drop of $1.60 down to $1.10 plus additional costs of 21c/kg in costs due to cartage2(Pg 6).

WA sent 23% of the cattle exported through their ports in 2013 of 276,450 head3. Historically WA has always been a significant volume exporter of approximately 70-80%  Australian sheep exports.

WA sheep producers prices are expected to plummet by 70-80% with a live export ban, remember this report was done nearly 7 years ago when Australia was approximately exporting 4M head of sheep a year3. In 2013 Australia sent just under 2M head of sheep. WA’s market share of live sheep exports in 2013 was 83%9

WA sheep producers experienced catastrophic market price freefall when the Saudi Arabian market had closed and caused an immediate reduction in WA sheep local prices of 50%1(Pg 23), In 20054. The WA saleyard sheep indicator in March 2013 was 120c/kg cwt, down from 331c/kg cwt 12 months previously. The OTH sheep (18-24kg) was 187c/kg in March 2013 but had been 220c/kg 12 months prior10

Friends who supplied live export sheep in WA have told me ram prices went from $100 per head export prices pre 2012, ESCAS implementation to $40 in Australia (following ESCAS implementation and loss of some markets) with many animals not being able to be sold at all. Others who solely supplied live export with Damaras, purposely bred for live export were unable to sell any into Australian processors as they were simply not desired animal type.

The Victorian dairy industry, if live export was stopped would affect their entire sectors farm profitability negatively by 20%2. Many enterprises sometimes up to 250 producers may contribute to a single shipment of export animals. 12 month old dairy heifer prices were estimated to drop in price from the then $1000 head to $500 and surplus heifers would go from $500 to $100 if the dairy live export industry shut down. Again keep in mind this report was written nearly 7 years ago. When dairy exports were nearly half of what they were in 2013.

In my opinion it could be reasonably expected some live export animals could be picked up by Australian processing. Surely though the realisation is that 100% transferability of live export sheep and cattle to onshore meat processing can not and will not happen. In regards to sheep the “current view is that such a subsititution will not occur easily”5(Pg 13).

As to what percentage Australian plants would willingly process animals  and to what capacity has simply been assumed at 100%. If the investment funding was available, abattoirs built, animals fed to ensure all year supply and availability, markets assured and costs of production not prohibitive, labour assured including unions irratic demands kept at bay and costs of production controlled. Would the Australian processes be able to or even want to maintain 100% capacity? Interestingly 100% operating capacity is actually not optimum for many abattoirs, about 80 to 85% is. If it was feasible to do don’t people think we would be doing it now? Live export in the north developed because the processing facilities we did have, were unable to stay competitive due to costs of operation and freight. Australian processing currently costs nearly twice as much as overseas processors, competititiveness is becoming a big problem on a global scale for all Australian manufacturing industries.

Of course the fundamental question underpinning a complete stoppage of live export to domestic processing, is would it be profitable? For the producer, processor and retailers. Ultimately in the long term most reports concur that for the producer, the base of the whole livestock production supply, it will not be profitable without live export. Why would processors pay more than they have to for a product of which there is no other competition for. Again the producer cops the raw end of the deal.

In 2009 ACIL Tasman, by virtue of RSPCA, conducted a study on the closure of the WA live export sheep industry, their conclusion, was that closure of live export for WA would “require adjustments” but were “not extensive”5. Ironically  they had the figures so completely wrong and undervalued that Livecorp instigated a review of the ACIL report in 20107. Livecorp claimed gross miscalculations were made by ACIL of nearly double in most cases of losses directly attributable to producers that would occur if live export was stopped. ACIL had based its ‘No live export available scenario’ on the assumption that market prices would remain unchanged without live export as a market alternative to producers. Every single other report even those supported by WSPA realise that returns to producers will lessen without live export. Yet RSPCA and others supporting a ban continue to present the ACIL 2009 report as fundamentally sound! Of course as the impact will be mainly worn by producers maybe it is of no concern to them of $60M losses here and there.

In  2012 WSPA stepped up to the plate, employing ACIL also, they carried out a feasibility study of establishment of an abattoir in north Australia, this study WSPA  regularly quote saying that producers will magically make 245%6 in increased profit by being able to sell heavier cattle to a newly established abattoir.

From a producers point of view this report indicated the abattoir required prime animals at very cheap prices to be paid for at less than cost of production, hot boned and put into non-premium markets in direct competition with already existing meat suppliers and assumed new market access will occur for the outgoing meat produced. A lot of ‘ifs’ in that equation on how the abattoir would be feasible itself and highly likely it wouldn’t!
I really do wonder sometimes at what point do people think producers should gift their animals, it seems that we are expected to do it an awful lot and yet magically to operate with no income! Of course assuming that they want livestock production to actually continue.

Unfortunately as with most things there’s a few points WSPA never point out in their propaganga phamplets, though very clearly stated by ACIL in the opening paragraphs of the 2012 report. The requirement of significant ongoing government investment if more processing facilities are to be established. Personally I think our government is currently broke, there is no slush fund for any industry at the present time.

ACIL have obviously realised the importance of producer viability to maintain live export because the 2012 report very clearly states that processing would depend on only a portion, they suggest half of what is currently sent to live export. The point being not to stop live export completely, yet process in the vicinity of 400,000 head. While I don’t agree with the basis of the views used in this report, it at least acknowledges the fact that live export is an important support basis for price and herd productivity.

Consider this AAco have battled for over 5 years now to eventually get an abattoir that will process 100,000 head initially, mostly its own cattle and cull numbers  that were already being processed somewhere else. It is not intended as a facility to process animals intended for live export, it is a vertically integrated system mainly intended for AAco’s own stock. The Facility is costing around $94M, of which they received no direct government assistance yet have repeatedly lobbied for. It will not process the 600,000 head turnoff currently directed to live export, infact it will process some numbers that are already directed at other abattoirs. I would dearly love to see the Livingstone abattoir operating profitably as it would be a welcome outlet for some of our own cull animals. I have not met a producer who doesn’t want this abattoir to succeed. In my opinion it had to be built near Darwin, not for cattle supply or market access but  for labour supply and employee demands now of facilities and amenities. A smaller facility in WA is also being currently built, again repeated requests for government funding have not been forthcoming, the majority of supply of cattle intended to come from the owners own herds.

ACIL’s 2012 report made some incredible assumptions concerning the 245% increased profitability

  1. Animals would reach 400kg live weight by 3 years of age – which is highly unlikely in north Australia.
  2. All north Australian properties have finishing capacity of animals to heavy weights – but they don’t!
  3. Properties would all be able to produce heavy cattle from every 5 out of 8 years – possible yes, but when thought of in the context of ensuring guarantee of average annual rainfall for 5 years, I’m not so sure!
  4. Sale price to abattoirs was based on $1.45 paid live weight delivery. A very low figure that I suspect wouldn’t even cover production costs of the closest supplier of animals.
  5. No mention was made of impact of currently working abattoirs as it was assumed a new abattoir would process 100,000 and the other 300,000 would simply go to other facilities. Therefore cost of freight and producers cost of production time in holding animals longer wasn’t considered when the plants were at full capacity and kill space not available. Seasonal variability of supply of animals to Australian abattoirs has been a major problem since the time the first slaughterhouse was established when the first settlers arrived.
  6. Alteration to herd size on property was only minimally altered for allowance of carrying sale animals rather than breeders. To me this is the biggest impact on property cost and operations and is fundamental to economic viability. If your property is fully stocked the carrying ability of sale to production animals is of utmost significance.

Of course a number of new processing facilities would be lovely in the perfect world but then again in the perfect world money would grow on trees. Australia simply doesn’t have the consistency of seasons to ensure continuity of supply of heavy animals suitable for slaughter. That is why Live export is so well suited to northern properties operations,  we breed quality cattle, but we don’t need to send them fully grown and fat. Other countries do the feedlot process, we breed they feed. For Australian processing we have to send them heavy for the processors to have yield of carcase in comparison to cost of processing. Small animals cost just as much to process yet yield substantially less meat, they are less profitable to process.

While it would be nice to process another 400,000 cattle in north Australia, surely others can see that it is not financially achievable. We must have the competition of live export to ensure some form of market price parity for the producer. Send us broke we will take a lot of other service industries, employees and businesses with us, including eventually some processors.

Is the Australian producer expected to give their cattle away to keep up supply to abattoirs to keep them in business while we go broke, it simply doesn’t work that way!

If the financial viability of producers is undermined then we simply go out of business or for those who can afford to diversify from livestock will do so. Stopping live export will undermine the national herds as producers stop production or lower it and this will ultimately affect processor numbers which will decline their supply of animals more than with live export available. A point only realised in one report5 and I’m surprised isn’t given more thorough consideration.

The most recent report I have found is another sponsored by WSPA. This one mainly focus’s on WA and phasing out of the sheep live export trade. Released in March 2013 this report is written by a economic analyst and uses these curious equations to consider prices in NSW sheep markets in comparison to WA and Comparing live export of sheep to sheep processed in WA determine that

“there is no support for the connection that the live sheep export trade somehow underwrites domestic sheep prices”8.

Equation_edited-1Equation_edited-2Source – ‘Economic impact of phasing out of the live sheep export trade’ A. Davey. March 2013. Appendix 2.

I must say this report is the oddest, most contradictory piece of rubbish I have seen for a long time. The very next paragraph following that profound statement then states a premium price of 57c per kg which is approximately $28 per head is received by farmers selling to the live export trade. 3 or 4 paragraphs after that it states that

“cessation of the live export trade would see sheep farmers selling heavy wethers lose the premium they currently receive at sale yard auctions when they sell to live sheep exporters. On this basis, these sheep farmers would be materially worse off”(Pg vii).

Yet the author feels that live export doesn’t underpin the market prices. Very odd and very wrong!

Sheep producers in WA have communicated quiet clearly the collapse of their ram prices and older sheep. Why on earth did this 2013 report so stupidly say that there is enough processing capacity in WA to process the entire WA current live export supplies when the sheep supplied to LE are in no way similar to type or age to what the processors actually want. It makes the arrogant assumption that to ensure all year round supply of animals to the processors that producers could and would wear all costs of feeding while waiting for kill space availability. At 50c per day cost to feed a sheep at what point do others expect producers to not even cover their own production costs but then incur further costs to appease the processors to keep up supply?

There is absolutely no doubt that Live export offers stability, income and confidence for investment in the beef industry as a whole, it does contribute significantly to the economy. Those who say it doesn’t aren’t affected directly by it and for those who believe we are ‘insignificant’ I can assure you stopping live export will destroy many good businesses. Live export production underpins not only the domestic cattle and sheep prices but the entire herd populations of both cattle and sheep. If you want to see a serious demise of the entire Australian livestock industries then support a ban. I hope I don’t have to write an article 3-4 years after a ban and ‘say I told you so, you really should be careful what you wish for”. Then again those who are pushing for a ban are not paying the economic price for it are they?  and they aren’t really pushing to improve animal welfare just animal liberation. Ironically I don’t think most of them give a damn anyway about the people a ban would affect, welcome to the more compassionate world.



Other reports of interest though not referred to in this post.
nwq-abattoir-opportunities

Investment opportunity – Northern outback QLD abattoir – DAFF. Feb 2012

Sources.

1 Hassalllive-expor-2006[1]

‘The Live export industry – Value, Outlook and Contribution to the economy’ MLA. Hassall & Associates. June 2006. – project code LIVE 314

2 Regional_Value_of_Livestock_Exports

‘The Live export industry – Assessing the value of the livestock export industry to Regional Australia’ MLA Clarke et al. June 2007 – project code LIVE 326

3 Australian livestock export trade. N Austin 2011.

4 2012AC Nath CP

‘Impact on Western Australia’s shep supply chain of the termination of live sheep exports’ Nath at el. 2012

5 ACIL Tasman 2009 – The value of live sheep exports from Western Australia
‘The Value of the live sheep exports from Western Australia’ ACIL Tasman, M. Barber 2009

6 ACIL Tasman 2012 – Economic analysis of live cattle exports

‘An economic analysis of the live exportation of cattle from northern Australia’ ACIL Tasman, M. Barber 2012

7 Zeitsch_Value of WA Live Sheep Exports_Final Report_9 February 2010[1]

‘Review of the ACIL Tasman study into the value of live sheep exports from Western Australia’ J. Zeitsch. 2010.

8 sapere report on live sheep

‘Economic impact of phasing out the live sheep export trade’ A. Davey. March 2013

9. Australian livestock export industry statistical review 2013.

10. Personal communication of sheep prices.

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Categories: Animals Australia, Australian abattoirs, Beef Industry, Katherine, Live Exports, Northern Territory., Politicians, Uncategorized | Tags: , , , , , , , , , , , , , | Leave a comment

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