A report released last week by MLA provides a valuable overview of the global beef industry and insight to the challenges Australia faces as one of the three largest exporters in world trade.
In global terms Australia accounts for only 3 per cent of beef production, but it represents 17pc of world trade and it is this reliance on export that is critical to the ongoing viability of the Australian industry.
Over the past six years Australian production has been heavily influenced by drought and herd liquidation but when a succession of better seasons return, production will expand and pertinent then will be the state of the global economies, currency fluctuations, market access changes and attitudes towards protectionism.
The report supports a global economic perspective of growing household incomes in developing countries providing consumers with the ability to increase protein consumption and in the case of those shifting into higher income brackets, increased demand for higher quality meat.
In developed markets it is expected that consumers will continue to seek differentiated segments such as grass-fed and grain-fed or certified breeds and raising claims. Mature markets, on the other hand, are expected to experience an increase in consumer interest and awareness of provenance, sustainability, animal welfare, food safety and traceability.
Because of its diverse production systems, Australia is well placed to target the broad range of differentiated opportunities across markets. However in differentiating itself from competitors, Australian beef will have to provide a value proposition to consumers.
The report makes the point that Australia’s high cost structure has made competing in the export market increasingly challenging despite a softer Australian dollar.
Australia’s high-cost disadvantage occurs in the finishing and processing of cattle.
Where high levels of broadacre efficiency and economies of scale make Australia one of the most efficient countries to breed and grow out calves, high store cattle prices, land, labour, regulatory and feed costs relative to other major beef producing countries contribute to Australia being less competitive in finishing those calves.
On top of that, Australia experiences relatively higher costs in processing its cattle, twice that of Brazil and 24pc more than the US.
A further dimension to the global picture is the forecast of increased production for all major beef exporters with the exception of the EU.
Standout forecasts for production growth in 2019 are the US with a 3.6pc increase on its 12.2 million tonnes (cwt) in 2018 and Brazil with 3pc on its 9.9mt.
For the US with its substantial domestic feed-grain supply, large herd, consolidated feedlot industry and impressive economies of scale, this increased production will intensify its already ramped-up export efforts and place pressure on Australia’s high-value export markets.
Brazil on the other hand still largely relies on grass to finish its cattle and its increased production will have the potential to compete with Australian manufacturing beef and live cattle exports in China, South-East Asia, and Middle East/North Africa.
However a mitigating factor is the recent regaining of access to Russia by some Brazilian beef plants which may alleviate some competitive pressure on Asian markets.
In addition to these global consumption and supply factors, market access is central to the ongoing viability of the Australian beef industry and the continuing pursuit of unrestrained entry to global markets remains critical.
Establishment of the World Trade Organisation (WTO) in 1995 allowed Australia to build stable trade relationships through bilateral Free Trade Agreements with the US, Japan, Korea and China and most recently the massive 11-member regional agreement known as TPP-11.
These deals in combination with Australia’s enviable food safety and animal health credentials are the underpinnings of its beef exports.
Negotiations are continuing for Australia’s involvement in another multilateral regional deal between ASEAN nations, India, China, Korea and New Zealand known as RCEP while in Europe negotiations are underway with the EU and will commence with the UK when it is in a position to do so following Brexit.
Continuation of this approach is seen as the best way to overcome tariff and non-tariff trade barriers and secure additional access benefits for Australian beef but the rise in protectionism as evidenced in recent US trade dealings is seen as a potential threat to the rules-based order of trade administered by WTO.
In summary the MLA report concludes that Australia must position itself by targeting consumers with the ability to afford Australian beef, provide a compelling value proposition and differentiate itself from global competitors.
This in combination with defending current access, opening further markets and removing non-tariff barriers are seen as the key to future trade.
Record hot and dry summer
WITH large parts of the central/southern interior and the south-eastern quarter of Queensland expected to record their driest summer on record and some of these same locations also expected to record similar extremes in maximum temperature, cattle are now hitting the market in numbers.
Warwick which usually yards around 1200 had 2500 head booked for Tuesday.
Across the border at Inverell there were 1600 cows in their offering this week following 1500 cows at Dubbo last week and 1300 cows at Wagga on Monday.
One processor I spoke to said there was growing concern about this big second run of females following on from the heavy liquidation that occurred in the latter half of last year.
For the moment they are dealing with what is in front of them but the concern is the implication for supply when the tide finally turns.
The increase in supply saw grid rates come off another 5-10 cents this week taking 4-tooth ox to 515c/kg and heavy cow to 430-440.
In the north, Townsville meatworks reopened on Tuesday bringing some normality back to producers and workers alike whose lives have been so affected by the floods.
Numbers are there at the moment to maintain production and roads are becoming trafficable. West of Julia Creek is expected to open on Wednesday with road-train access by Friday.