Opportunities for the Australian beef industry in Australia

Transcription

1 Opportunities for the Australian beef industry in Asia Miho Kondo, Senior Manager Market Specialist Japan, Meat & Livestock Australia Introduction The title of this paper could have been Opportunities for Australian beef industry in Japan if it was written in the 1980s or 1990s, or in China in recent years (or in the US if in the 1960s). Today, our beef industry faces unprecedented demand from the entire Asia Pacific as well as the Middle East. In this brief document, we explore the current situation of the Australian beef industry, forces that are now re shaping Australia s trade, and our strengths and opportunities in key Asian markets. industry backdrop The Australian herd is relatively small compared with other major beef producing countries. In, Australia had only 3% of the global herd, and 4% of total beef production. 1 However, the Australian beef industry consistently exports about two thirds of total production, which ranks us within the top three beef exporters (see figure 1). Australian beef production surged in, driven by very dry weather in key cattle growing regions, and subsequent increases in cattle slaughter. Key facts that made the year particularly unique were: point growth in comparison with volumes in 2003 (see figure 2). Markets that had seen a rapid growth over the 10 years include China (up 371% year on year, to 154,800 swt), Indonesia (up 46% to 39,400 swt), and the Middle East region (up 95% to 61,000 swt). This strong demand and improvement in beef prices has not been translated into higher Australian cattle prices, due to the drought induced surge in cattle turnoff. These trends continued into 2014, with high production being supported by greater export volumes while cattle prices remained subdued in comparison with global upward movements. The conditions of the Australian cattle market, however, are anticipated to change significantly when the supply of cattle contracts in late Underpinned by strong international demand, there was no oversupply or subsequent discounting in either the Australian or export markets, despite the 10% year on year increase in production. The average export value of Australian beef in increased by 5% to A$5.18 per kilo. 2 The proportion of beef exported to destinations other than the top three markets (namely Japan, the US and Korea) reached 41% in, the highest on record, and a 25% 1 United States Department of Agriculture (USDA) 2 Value data by Australian Bureau of Statistics 3 Australian Cattle Industry Projections 2014 Mid-year update, Meat & Livestock Australia, July. Page 1 of 5

2 Opportunities in three markets crucial to Australia s Asian beef trade are covered below China, Indonesia and Japan. A notable exclusion is South Korea which also offers good growth prospects, especially given its bright economic prospects and falling import tariffs on Australian beef. China Why Australia? Figure 3 explores the layers of factors that influence the reputation and demand for Australian beef in international markets. Population billion (2010) Australian beef exports (in swt) 7 5.1kg cwt per capita per year 5 2, , billion by ( forecast 6 ) 8% growth from ( forecast 8 ) 130,000 After hovering below 10,000 per year for more than two decades, Australian beef exports to China have risen dramatically since 2012, and the market has now established itself as one of the major export destination for the industry, surpassing Korea for the first time in (see figure 4). Rapid growth in Australian beef exports to China was supported by many factors, including population and economic growth, urbanisation, westernisation of diets and rapid growth in modern retail and foodservice outlets. Additionally, reports from various sources indicate that domestic cattle and beef supply has fallen behind the growth in demand. These factors, combined with Chinese consumers concern for the safety of local foods, suggest that demand for Australian beef from China will remain strong in coming years. Australia s heavy reliance on exports, in comparison with other major beef producers, such as the US (estimated as less than 10%) or Brazil (30%), can expose the industry to various uncertainties ranging from currency movements, economic performance of destination countries, changes in domestic policies (especially import access) and unexpected incidents (i.e. conflicts, natural disasters). In order to mitigate and minimise risks associated with the export trade, the Australian beef industry has successfully diversified its export destinations to over 100 countries including the dynamic growths seen in China and Indonesia. That said, there are several issues that may impact future demand for the Australian product and require close monitoring, including: <Prices> The supply of Australian beef will be much tighter once rains arrive and prices are tipped to rise substantially, 4 The United Nations 5 Food and Agriculture Organization of the United Nations (FAO) 6 OECD-FAO Agricultural Outlook , The Organisation for Economic Cooperation and Development (OECD) Page 2 of 5 7 Department of Agriculture, Australia 8 Australian cattle industry projections 2014, Mid-year update, Meat & Livestock Australia, July.

3 testing out thrice sensitivity of Chinese buyers and consumers. <Competition> India and Canada signed a Memorandum of Understanding (MOU) with China to boost agricultural trade and investment. China also lifted its ban Brazilian beef in July, now allowing imports from eight approved meat packers in the country. <Trade> Australia is aiming to finalise Free Trade Agreement with China by November <Import protocol> China banned the use of Hormone Growth Promotants (HGP) in beef after the first quarter of 2014 prompting the re shuffling of export product portfolio from Australia. Indonesia Population millon (2010) Australian beef exports (in swt) 2.4kg cwt per capita per year 12,994 39, million by 8% growth from 50,000 Like Brazil, but unlike China and India, Indonesia owes much of its success to a commodities boom, especially in coal and gas to China and India, and palm oil to the world. While Indonesia s economy has cooled this year, Australian beef exports to the market are forecast to increase 34% year on year in 2014, to the record high 53,000 swt. The growth was created by the expanding middle class, alongside the removal of the import quota on boxed beef (August ). The beef price in the market has reportedly been high, after two years of excessive domestic cattle slaughter (from 2011 to, driven by the government self sufficiency policy). Indonesia also relaxed import protocols for feeder and slaughter cattle to supplement the drastically reduced herd, providing greater opportunities for Australia in 2014 and beyond. Red meat in Indonesia ranks as the lowest in South East Asia, at approximately 2.4kg cwt/person/year (see figure 5). However, with a population of 240 million people and growing middle class (consumers with disposable household income of over A$3,000 per year), the country is already a crucially customer for Australia, with substantial future growth potential. Some of the key issues in Indonesia that may impact future demand for the Australian product are similar to those in China, including tightening Australian supplies and higher prices, competition with other major beef suppliers, such as Brazil and India, and the fast modernisation of its supply chain (although many consumers continue to frequent traditional markets). Additionally, Halal regulations apply to boxed beef, while Australia implements the Exporter Supply Chain Assurance System (ESCAS), in partnership with Indonesia, to ensure the integrity of livestock trade. In terms of trade and market access status, Indonesia is a member of the ASEAN Australia New Zealand Free Trade Area (AANZFTA), and the import tariff on beef will be 0% for most tariff lines by 2020 under AANZFTA. Japan Population millon (2010) Australian beef exports (in swt) 6kg per capita (/14) 9 279, , million by 2% growth from 250,000 Japan may have lost its glamour and influence that it had over the Australian beef industry throughout the 80s (the economic boom and investments by Japanese corporations into the Australian beef supply chain), 90s (partial liberalisation of the Japanese beef market) and mid 2000s (significant increase in exports, including the record volume in 2006, due to Japan s ban on US beef). Its declining and aging population, and slow economic growth compared with other emerging markets, are 9 Food Supply per capita, Ministry of Agriculture, Forestry and Fisheries, Japan Page 3 of 5

4 not encouraging features when it comes to discussing Australia s future in Asia. However, the country remains Australia s largest by value and a critically important market for higher value products, such as chilled and grainfed beef, taking 44% and 56% of total exports of these, respectively. About one fifth of total Australian beef exports were sent to the market in, with Australian beef supporting one third of total beef in Japan. Furthermore, it is not that Japan is requiring less beef exports are declining because other markets (such as China, the Middle East, Korea and the US) are competing strongly for available supply and the market is buying more US beef instead of Australian. With 127 million middle class consumers who have a high appreciation of quality and safe food, Japan continues to provide a solid foundation for the Australian beef industry. Key issues in Japan include: Competition with US beef, combined with international demand for Australian beef, will remain strong and continue to influence our exports to Japan (see figure 6). The Japan Australia Economic Partnership Agreement (JAEPA) is anticipated to enter into force in early, and the subsequent reduction of beef tariff will likely create more opportunities for Australian beef in the market. Under the JAEPA, the tariffs on frozen Australian beef entering Japan will drop from 38.5% to 19.5% over 18 years (commencing with an 8% cut in year 1), while the tariffs for chilled beef will fall from 38.5% to 23.5% over 15 years including a 6% cut in year 1. Seeing limited growth internally, Japanese business entities are expanding into China, South East Asia and other global markets. Supermarkets, convenience stores and foodservice operators are seeking a collaborative partnership with Australian suppliers of quality agricultural produce. So, is sending good products good enough? Australia is renowned for its product integrity, clean and green environment, food safety and commitment for producing high quality, wholesome agricultural produce. However, our trade is subjected to a multitude of market forces including, but not limited to, fluctuating demand and prices, competition, changing consumer preferences, and supply conditions. Offering good products is often not good enough to attract buyers. So what else should we work on? Market access: The Australian government implements an integrated trade policy program with the goal of creating new and more open markets for exports. Australia has so far secured improved trade access conditions with its major red meat trading partners, including the US, Korea and Japan, while aiming to conclude negotiations with China before the end of The elimination of red meat import tariffs provides a level playing field for Australian products and creates more opportunities for Australian agricultural and livestock producers. Branding and communication: Imported products require stronger reinforcement of its safety, origin and uniqueness than domestic produce, as consumers can t see who, where, and how products were made and how they arrived to their table. While marketing communication by individual companies is indispensable, Brand Australia, or collectively promoting positive attributes of its origin, can also enhance consumers experience, satisfaction and loyalties. The Australian red meat industry s new branding scheme True Aussie represents uniqueness and quality that differentiates Australia from global competitors. Page 4 of 5

5 Comment partnership between producers G to G (Government to Government) negotiations build the foundation for trade, while dialogue between producers creates rapport and partnership. Meat & Livestock Australia commenced a producer rapport program called Producer to Producer (P2P) in 2012, focusing on providing opportunities to have direct interactions between young producers in Australia and Japan. While Australian beef is often seen as competition by Japanese producers, its complementary relationship, and the importance of growing overall beef are seldom explored. The program aims to create bi lateral dialogue, and develop young farmers who are willing to bring innovation and international perspective in their farming practise. References Market access, Meat and Livestock Australia and markets/overseasmarkets/market access South Asia, Meat and Livestock Australia and markets/overseasmarkets/south Asia Japan, Meat and Livestock Australia and markets/overseasmarkets/japan/bee Miho Kondo joined MLA in 2006 and is currently responsible for implementing a range of trade and strategic initiatives for the Japanese market the largest and most valuable export destination for Australian beef. Miho specialises in providing market analysis and insights to Australian and Japanese industry stakeholders, and facilitating projects that range from consumer research to market access or producer rapport programs. Miho moved to Sydney in 1995 and has since worked in the fields of sales, marketing and project management of Australian goods destined for Japan, including food, beverage and IT services. As a Japanese national with extensive experience in the Japanese and Australian private sectors, her trade and crosscultural business skills serve as a bridge between the Australian and Japanese business environments. Contemporary Issues in Rural Australia is published by The Centre for the Study of Rural Australia (CSRA) at Marcus Oldham. The purpose of the occasional papers series is to inform and encourage debate on the broad range of issues facing rural and regional Australia. The papers are available in printed and electronic format. To access this and other papers in the series, follow the links to the Centre for the Study of Rural Australia at ISSN X (Print) ISSN (Online) Submission The CSRA invites authors to contribute papers on topics and issues relevant to regional and rural Australia. Papers should not exceed 2000 words and be submitted to editorops@marcusoldham.vic.edu.au Comments You are encouraged to post comments regarding papers in the series via the CSRA chat group; Contact Dr Yasmin Chalmers (Director, CSRA): chalmers@marcusoldham.vic.edu.au; ph: Page 5 of 5