Meat Industry Strategic Plan

Transcription

1 COMMERCIAL IN CONFIDENCE R E P O R T Meat Industry Strategic Plan Quantifying the payoffs from collaborative investments by the red meat industry Prepared for Red Meat Advisory Council September 2015 THE CENTRE FOR INTERNATIONAL ECONOMICS

2 The Centre for International Economics is a private economic research agency that provides professional, independent and timely analysis of international and domestic events and policies. The CIE s professional staff arrange, undertake and publish commissioned economic research and analysis for industry, corporations, governments, international agencies and individuals. Centre for International Economics 2015 This work is copyright. Individuals, agencies and corporations wishing to reproduce this material should contact the Centre for International Economics at one of the following addresses. C A N B E R R A Centre for International Economics Ground Floor, 11 Lancaster Place Canberra Airport ACT 2609 GPO Box 2203 Canberra ACT Australia 2601 Telephone Facsimile cie@thecie.com.au Website S Y D N E Y Centre for International Economics Suite 1, Level 16, 1 York Street Sydney NSW 2000 GPO Box 397 Sydney NSW Australia 2001 Telephone Facsimile ciesyd@thecie.com.au Website DISCLAIMER While the CIE endeavours to provide reliable analysis and believes the material it presents is accurate, it will not be liable for any party acting on such information.

3 Meat Industry Strategic Plan iii Contents Abbreviations 9 Executive Summary 10 1 This report 15 About the Meat Industry Strategic Plan Information on the Economic Models Used 18 Structure of this report 18 2 Approach to identifying the potential benefits from MISP Approach to quantification 22 Industry baseline for MISP Pillar 1: Consumer and community support 30 Priority 1.1: Welfare of the animals within our care 30 Priority 1.2: Stewardship of environmental resources 40 Priority 1.3: Red meat in a healthy diet 53 4 Pillar 2: Productivity and profitability 55 Priority 2.1: Production efficiency in farms and feedlots 55 Priority 2.2: Processing productivity 67 Priority 2.3: Live export productivity 70 5 Pillar 3: Market Growth and Diversification 73 Priority 3.1: Trade and market access 73 Priority 3.2: Marketing and promoting Australian red meat and livestock 77 6 Pillar 4: Supply Chain Efficiency and Integrity 80 Priority 4.1: Optimising product quality and cost efficiency 80 Priority 4.2: Guaranteeing product and systems integrity 90 7 Summary of maximum benefits from MISP Definitions of key variables reported in the results 94 Maximum benefits and payoffs across pillars 95 Pillar 1: Consumer and Community Support 101 Pillar 2: Productivity and Profitability 108 Pillar 3: Market Growth and Diversification 114 Pillar 4: Supply Chain Efficiency and Integrity Recommended investment portfolio for MISP Approach to calculating MISP 2020 benefits under constrained budgets 128

4 iv Meat Industry Strategic Plan Benefits and payoffs from recommended portfolio 128 Pillar 1: Consumer and Community Support 134 Pillar 2: Productivity and Profitability 140 Pillar 3: Market Growth and Diversification 145 Pillar 4: Supply Chain Efficiency and Integrity 150 A Details of the GMI/IF models 156 B Further details on potential costs of an FMD outbreak 159 C Studies on the impact of generic promotion 162 D Premiums for Australian product 165 E Potential payoffs from the Beef Industry Strategic Plan 167 F Potential payoffs from the Sheep Industry Strategic Plan 197 References 227 BOXES, CHARTS AND TABLES 1 RMAC pillars and priority areas 11 2 MISP 2020 outcomes by Current and indicative industry investment portfolio 12 4 Benefit Cost Ratios by Pillar, Priority and Imperative for MISP Linked GMI and Integrated Framework RMAC pillars and priority areas RMAC imperatives quantified using the IF/GMI model Key between the classification in this report and the MISP summary document A key to the inputs into the economic modelling Production by the Australian red meat industry Production by industry segments Australian livestock prices in nominal terms Australian livestock prices in 2015 real terms Total exits from the Australian red meat industry Projected change in the cattle herd and sheep flock Potential costs of Imperative Continuous improvement of animal welfare (1.1.1) Estimated impact of an FMD outbreak in Australia Potential costs of Imperative Minimising risk and impact of emergency disease (1.1.2) Potential costs of Imperative Minimising the impact of endemic disease (1.1.3) Potential costs of Imperative Minimising industry impact on the environment (1.2.1) 45

5 Meat Industry Strategic Plan v 3.10 Potential costs of Imperative Sustainable management of the natural resource base (1.2.2) Potential costs of Imperative Adapting to climate variability (1.2.3) Red meat in a healthy diet (1.3.1) Current cost of production across industry segments Industry numbers by farm and size by financial performance Cost of production estimates by producer group Maximum benefits from reducing producer costs by improving decision support Potential costs of Imperative Decision support for farming businesses (2.1.1) R&D initiatives to improve livestock productivity mortalities R&D initiatives to improve livestock productivity conception rates R&D initiatives to improve livestock productivity growth rates Increasing livestock productivity though new research (2.1.2) Increasing access to, and efficiency, of processing labour (2.2.1) Maximum benefits for the live trade by Improving livestock performance in export operations (2.3.1) Cost of Technical Trade Barriers on Australian red meat exports Reducing barriers to trade risks and investment Marketing and promotion payoffs, risks and investment A vision for an integrated supply chain Improving quality and compliance via enhanced supply chain information (4.1.1 Initiative 1) Potential costs of Market Information activities in Imperative Economic cost of compliance with ESCAS Potential benefits by addressing labour/transport regulations for red meat Potential benefits by addressing transport/bottlenecks for red meat Potential benefits by addressing ESCAS/port bottlenecks for live export Potential costs of Imperative Potential costs of Imperatives Livestock and product assurance through integrated integrity systems (4.2.1) Summary of maximum benefits per dollar invested by 2030: all pillars Maximum benefits and investments identified by 2030 for MISP Maximum benefits and investments identified by 2020 for MISP Maximum benefits in terms of red meat net income across by 2030: all pillars Maximum benefits in terms of GVP by 2030: all pillars Summary of maximum benefits and investments by 2030: Pillar 1 priorities Maximum benefits and investments by 2030: Priority Maximum benefits and investments by 2020: Priority

6 vi Meat Industry Strategic Plan Maximum benefits and investments by 2030: Priorities 1.2 and Maximum benefits and investments by 2020: Priorities 1.2 and Maximum benefits in terms of red meat net income by 2030: Pillar Maximum benefits in terms of GVP by 2030: Pillar Summary of maximum benefits and investments by 2030: Pillar 2 priorities Maximum benefits and investments by 2030: Pillar Maximum benefits and investments by 2020: Pillar Maximum benefits in terms of red meat net income by 2030: Pillar Maximum benefits in terms of GVP by 2030: Pillar Summary of maximum benefits and investments by 2030: Pillar 3 priorities Maximum benefits and investments by 2030: Pillar Maximum benefits and investments by 2020: Pillar Maximum benefits in terms of red meat net income by 2030: Pillar Maximum benefits in terms of GVP by 2030: Pillar Summary of maximum benefits and investments by 2030: Pillar 4 priorities MISP 2020 benefits and investments by 2030: Pillar MISP 2020 benefits and investments by 2020: Pillar Maximum benefits in terms of red meat net income by 2030: Pillar Maximum benefits in terms of GVP by 2030: Pillar Total value of red meat industry investments Outcomes for maximum benefits and recommended portfolio by Summary of MISP 2020 benefits and investments by 2030: all pillars Benefits and investments by 2030: all pillars Benefits and investments by 2020: all pillars MISP 2020 benefits in terms of red meat net income by 2030: all pillars MISP 2020 benefits in terms of GVP by 2030: MISP Summary of MISP 2020 benefits & investments for by 2030: Pillar 1 priorities MISP 2020 benefits and investments by 2030: Priority MISP 2020 benefits and investments by 2020: Priority MISP 2020 benefits and investments by 2030: Priorities 1.2 and MISP 2020 benefits and investments by 2020: Priorities 1.2 and MISP 2020 benefits in terms of red meat net income by2030: Pillar MISP 2020 benefits in terms of GVP by 2030: Pillar Summary of MISP 2020 benefits and investments for Pillar 2 priorities MISP 2020 benefits and investments by 2030: Pillar MISP 2020 benefits and investments by 2020: Pillar MISP 2020 benefits in terms of red meat net income: Pillar 2 by MISP 2020 benefits in terms of GVP: Pillar 2 by Summary of MISP 2020 benefits and investments by 2030: Pillar 3 priorities MISP 2020 benefits and investments by 2030: Pillar MISP 2020 benefits and investments by 2020: Pillar 3 148

7 Meat Industry Strategic Plan vii 8.23 MISP 2020 benefits in terms of red meat net income by 2030: Pillar MISP 2020 benefits in terms of GVP by 2030: Pillar Summary of MISP 2020 benefits and investments by 2030: Pillar 4 priorities MISP 2020 benefits and investments by 2030: Pillar MISP 2020 benefits and investments by 2020: Pillar MISP 2020 benefits in terms of red meat net income by 2030: Pillar MISP 2020 benefits in terms of GVP by 2030: Pillar A.1 Industry details and production relationships identified by the Integrated Framework 157 A.2 Industry costs identified by the IF 158 B.1 Estimated costs of an FMD outbreak by CIE (2010) 159 B.2 Estimated costs of an FMD outbreak by ABARES (2013) 160 D.1 Differentials between Australian product and other suppliers E.1 BISP 2020 outcomes by E.2 Current and indicative industry investment portfolio 168 E.3 Benefit Cost Ratios by Pillar, Priority and Imperative for BISP E.4 Summary of BISP 2020 benefits and investments by 2030: all pillars 171 E.5 Benefits and investments by 2030: all pillars 172 E.6 Benefits and investments by 2020: all pillars 173 E.7 BISP 2020 benefits in terms of beef industry net income by 2030: all pillars 174 E.8 BISP 2020 benefits in terms of GVP by 2030: BISP E.9 Summary of BISP 2020 benefits and investments by 2030: Pillar 1 priorities 176 E.10 BISP 2020 benefits and investments by 2030: Priority E.11 BISP 2020 benefits and investments by 2020: Priority E.12 BISP 2020 benefits and investments by 2030: Priorities 1.2 and E.13 BISP 2020 benefits and investments by 2020: Priorities 1.2 and E.14 BISP 2020 benefits in terms of beef industry net income by2030: Pillar E.15 BISP 2020 benefits in terms of GVP by 2030: Pillar E.16 Summary of BISP 2020 benefits and investments by 2030: Pillar 2 priorities 182 E.17 BISP 2020 benefits and investments by 2030: Pillar E.18 BISP 2020 benefits and investments by 2020: Pillar E.19 BISP 2020 benefits in terms of beef net income by 2030: Pillar E.20 BISP 2020 benefits in terms of GVP by 2030: Pillar E.21 Summary of BISP 2020 benefits and investments by 2030: Pillar 3 priorities 187 E.22 BISP 2020 benefits and investments by 2030: Pillar E.23 BISP 2020 benefits and investments by 2020: Pillar E.24 BISP 2020 benefits in terms of beef net income by 2030: Pillar E.25 BISP 2020 benefits in terms of GVP by 2030: Pillar E.26 Summary of BISP 2020 benefits and investments for Pillar 4 priorities 192 E.27 BISP 2020 benefits and investments by 2030: Pillar E.28 BISP 2020 benefits and investments by 2020: Pillar 4 194

8 viii Meat Industry Strategic Plan E.29 BISP 2020 benefits in terms of beef net income: Pillar 4 by E.30 BISP 2020 benefits in terms of GVP: Pillar 4 by F.1 SISP 2020 outcomes by F.2 Current and indicative industry investment portfolio 198 F.3 Benefit Cost Ratios by Pillar, Priority and Imperative for SISP F.4 Summary of SISP 2020 benefits and investments by 2030: all pillars 201 F.5 Benefits and investments by 2030: all pillars 202 F.6 Benefits and investments by 2020: all pillars 203 F.7 SISP 2020 benefits in terms of sheep industry net income by 2030: all pillars 204 F.8 SISP 2020 benefits in terms of GVP by 2030: SISP F.9 Summary of SISP 2020 benefits and investments by 2030: Pillar 1 priorities 206 F.10 SISP 2020 benefits and investments by 2030: Priority F.11 SISP 2020 benefits and investments by 2020: Priority F.12 SISP 2020 benefits and investments by 2030: Priorities 1.2 and F.13 SISP 2020 benefits and investments by 2020: Priorities 1.2 and F.14 SISP 2020 benefits in terms of sheep industry net income by2030: Pillar F.15 SISP 2020 benefits in terms of GVP by 2030: Pillar F.16 Summary of SISP 2020 benefits and investments by 2030: Pillar 2 priorities 212 F.17 SISP 2020 benefits and investments by 2030: Pillar F.18 SISP 2020 benefits and investments by 2020: Pillar F.19 SISP 2020 benefits in terms of red meat net income by 2030: Pillar F.20 SISP 2020 benefits in terms of GVP by 2030: Pillar F.21 Summary of SISP 2020 benefits and investments by 2030: Pillar 3 priorities 217 F.22 SISP 2020 benefits and investments by 2030: Pillar F.23 SISP 2020 benefits and investments by 2020: Pillar F.24 SISP 2020 benefits in terms of red meat net income by 2030: Pillar F.25 SISP 2020 benefits in terms of GVP by 2030: Pillar F.26 Summary of SISP 2020 benefits and investments for Pillar 4 priorities 222 F.27 SISP 2020 benefits and investments by 2030: Pillar F.28 SISP 2020 benefits and investments by 2020: Pillar F.29 SISP 2020 benefits in terms of red meat net income: Pillar 4 by F.30 SISP 2020 benefits in terms of GVP: Pillar 4 by

9 Meat Industry Strategic Plan Abbreviations ABARES Australian Bureau of Agricultural and Resource Economics and Sciences AHA Animal Health Australia AUD Australian Dollar BCR Benefit Cost Ratio CIE Centre for International Economics EADRA Emergency Animal Disease Response Agreement ESCAS Exporter Supply Chain Assurance System ERF Emissions Reduction Fund FMD Foot and Mouth Disease GHG Greenhouse gas GMI Global Meat Industries IF Integrated Framework KPI Key Performance Indicator MISP 2020 Meat Industry Strategic Plan MLA Meat and Livestock Australia MSA Meat Standards Australia NTB Non-Tariff Barriers R&D Research and Development RMAC Red Meat Advisory Council TFP Total Factor Productivity

10 10 Meat Industry Strategic Plan Executive Summary The Red Meat Advisory Council (RMAC) has a custodial role in developing the Meat Industry Strategic Plan (also known as MISP 2020) for the red meat industry. MISP 2020 will set out the overarching priorities for the red meat and livestock industry, with a focus on delivering returns to the industry. While not the only consideration, the potential economic benefits from collective investments will guide these priorities. To achieve these goals, the MISP 2020 aims to determine these priorities through an objective and transparent assessment of benefits and costs from collaborative industry investments. The RMAC Board has established an overarching structure for MISP 2020 which identifies 5 core pillars of industry investments: Pillar 1. Consumer and Community Support Pillar 2. Market Growth and Diversification Pillar 3. Supply Chain Efficiency and Integrity Pillar 4. Productivity and Profitability Pillar 5: Leadership and Collaborative Culture. The approach used to identify the detail of the investments areas (defined as priorities and imperatives) that are required under each pillar and to quantify the potential benefits and costs from these investments made across the red meat supply chain involved: conducting a Key Stakeholder Meeting in September 2014 and then 12 Regional Workshops to obtain the views of industry leaders and general industry participants on the challenges and opportunities facing the industry and areas that would benefit from industry investment; accessing industry expertise across a series of Expert Team Workshops including detailed rationale for the maximum benefits that could be possible for each of the investment areas if funding was not constrained; and formal quantification of priorities and imperatives identified for potential investment using economic models of the red meat industry to determine the payoffs from investments in terms of net income and gross value of production. This report documents the key assumptions and data sources from the workshops and economic modelling and reports the detailed results for decision makers in the red meat industry. Finally, in recognition that industry funds are limited, and other factors need to be accounted for, an investment portfolio for MISP 2020 is suggested.

11 Meat Industry Strategic Plan This report is the companion document to final Meat Industry Strategic Plan (MISP 2020) as found in RMAC (2015). From the consultative process outlined above a total of 12 priority areas were identified for investment (see table 1) which were further divided into 23 imperatives. 1 RMAC pillars and priority areas a Pillar and priority area Pillar and priority area 1. Consumer and community support 2. Productivity and Profitability 1.1 Welfare of the animals within our care 2.1 Production efficiency in farms and feedlots 1.2 Stewardship of environmental resources 2.2 Processing productivity 1.3 Red meat in a nutritious and healthy diet 2.3 Live export productivity 3. Market growth and diversification 4. Supply Chain Efficiency and Integrity 3.1 Trade and market access 4.1 Optimising product quality and cost efficiency 3.2 Marketing and promoting Australian red meat and livestock 4.2 Guaranteeing product and systems integrity a An additional Foundation Pillar, Leadership and Collaborative Culture, contains two priorities and four imperatives. The order of the Pillars found in this report are different that found in RMAC (2015). Deliberately a conservative view was taken of the potential impacts of industry investments. A view is held that impacts have often been overstated in the past. Factors outside industry marketing and research and development activities contribute to the productivity and sales performance of the industry. Furthermore, in assessing impact, care must be taken to examine factors in combination as well as separately. For instance, some of the impacts of industry investment in on-farm productivity, that have been included in this report, might be considered as low. However, these estimates must be viewed in combination with investment to mitigate forecast impacts of climate variability. If these forecasts are accepted, just to maintain current levels of productivity will represent a considerable challenge. Improvements beyond current levels will be a significant achievement, especially after allowances are made for probabilities of technical success and levels of adoption. Chart 2 provides the headline payoffs, in terms of benefit cost ratios (BCRs) for each of the RMAC pillars and for MISP 2020 in total. Overall, over the period and , industry investment by the red meat industry could be expected to deliver a BCR of 7.4:1 based on industry net income and 12.5:1 based on gross value of production (GVP).1 Even though many of the recommended investments are long term, BCRs of 3.4:1 for net income and 5.7:1 for GVP are achieved over the period 2015 to Approximately half of the benefits are from investments that mitigate downside risks for the industry while the remainder target upside opportunities. 1 Industry net income is defined as the difference between total receipts and cash costs including hired labour. Gross value of production is defined as the value of livestock sold to processors or for live export.

12 12 Meat Industry Strategic Plan MISP 2020 outcomes by 2030 a Payoffs per dollar invested across MISP 2020 pillars: recommended portfolio 25 Benefit cost ratio Saleyard value of production Red meat net income 5 0 a BCR calculations use present value of benefits and costs from to in dollars using a real rate of return of 5 per cent. 1. Consumer and Community Support The red meat industry invested $165 million through its service companies in Table 3 compares the current and indicative investments that might be implemented under MISP 2020 including significant increases in funding for: Improving quality and compliance via enhanced supply chain information an imperative in Priority 4.1 Livestock and product assurance through integrated integrity systems an imperative in Priority Productivity and Profitability 3. Market Growth and Diversification 4. Supply Chain Efficiency and Integrity MISP Current and indicative industry investment portfolio Pillar and priority Current investment Indicative investment $m $m 1.1 Welfare of the animals within our care Stewardship of environmental resources Red meat in a healthy diet Consumer and Community Support Production efficiency in farms and feedlots Processing productivity Live export productivity Productivity and Profitability Trade and Market Access Marketing and Promotion Market growth and diversification Optimising product quality and cost efficiency Including Animal Health Australia and the National Residue Survey, but excludes an additional $30 million predominantly in MLA Donor Company projects.

13 Meat Industry Strategic Plan Pillar and priority Current investment Indicative investment $m $m 4.2 Guaranteeing product and systems integrity Supply Chain Efficiency and Integrity Total annual investment a a Total annual investment includes $5.5 million of industry skills and development funds (Pillar 5), not itemised but shown in the total. Investing in more effective and efficient value based marketing, that provide signals for more consistent livestock with higher yields, was a key theme of the Expert Workshops. A reduction in investment in imperative Marketing and Promotion in developed markets under Priority 3.2 was also identified. The Expert Workshops also identified large benefits from improving decision making in farm businesses on the basis of large variations in cost of production across producer groups. However, the required investment of around $100 million a year over the next 15 years was considered to be too large relative to the possible benefits. Table 4 provides detailed BCRs by Pillar, Priority and Imperative. 4 Benefit Cost Ratios by Pillar, Priority and Imperative for MISP 2020 a Pillar and Priority Imperative Pillar 1: Consumer and Community Support Continuous improvement of animal welfare Minimising risk and impact of emergency disease Minimising the impact of endemic disease Welfare of the Animals within our care Minimising industry impact on the environment Sustainable management of the natural resource base Adapting to climate variability Stewardship of environmental resources Red meat in a healthy diet Total Pillar Pillar 2: Productivity and Profitability Decision support to improve farming businesses On farm productivity research Production efficiency in farms and feedlots Processing productivity Live export productivity Total Pillar

14 14 Meat Industry Strategic Plan Pillar and Priority Imperative Pillar 3: Market Growth and Diversification Reducing economic barriers to trade Reducing technical barriers to trade Trade and market access Marketing and promotion developing export markets Marketing and promotion developed export markets Marketing and promotion domestic market Marketing and promoting Australian red meat and livestock Total Pillar Pillar 4: Supply Chain Efficiency and Integrity Improving quality and compliance via enhanced supply chain information Improving efficiencies in regulation, infrastructure and logistics Optimising product quality and cost efficiency Livestock and product assurance through integrated integrity systems Guaranteeing product and systems integrity Total Pillar MISP a Calculated as the expected present value of benefits and costs from to in dollars using a real rate of return of 5 per cent. This report also documents the equivalent benefits and costs outcomes for the Beef Industry Strategic Plan (BISP) and the Sheep Industry Strategic Plan (SISP).

15 Meat Industry Strategic Plan This report The Red Meat Advisory Council (RMAC) represents the collective interests of Australia s red meat and livestock industry. RMAC has a custodial role in developing the Meat Industry Strategic Plan (also known as MISP 2020) for the whole red meat industry. MISP 2020 will set out the overarching priorities for the red meat and livestock industry, with a focus on delivering returns to the industry. This report is the companion document to final Meat Industry Strategic Plan MISP 2020 (RMAC, 2015). About the Meat Industry Strategic Plan There are four main objectives of MISP 2020: Objectivity MISP 2020 aims to provide outcome and output based key performance indicators (KPIs) with associated reporting. Accountability there will be a formal allocation of roles and responsibilities to allow for clear accountability. Simplicity and clarity fewer but larger program areas, as compared to previous years, will allow for clarity. MISP 2020 will also set out clearly defined milestones and key performance indicators under these areas. Collaborative ownership and delivery this is about being integrated with other relevant strategic frameworks and concerted engagement with delivery partners. Formal quantification of investment priorities or imperatives is a crucial step in the development of any meaningful strategic plan and for MISP 2020: while all stakeholders will have preconceived ideas on the relative payoffs from each of the potential investment activities, ranking priority areas without a common methodology and metric in dollar terms is inherently difficult similarly, determining how the payoffs from investment priorities accrue to each of the sectors and their respective value chains components (for example on-farm, processing and exporting) requires a detailed understanding of where value is added and how each part of the chain reacts to price and profitability signals A whole of industry plan must recognise linkages along the value chain of each sector, as well as the separate contribution of each sector. Without a formal framework, such as that provided by the CIE suite of economic meat models, it is not possible to rigorously question results or undertake systematic sensitivity testing due to the large number of drivers and factors involved in estimating potential payoffs.

16 16 Meat Industry Strategic Plan The RMAC Board has established an overarching structure for MISP 2020 which identifies 5 core pillars of industry investments: Pillar 1. Consumer and Community Support Pillar 2. Market Growth and Diversification Pillar 3. Supply Chain Efficiency and Integrity Pillar 4. Productivity and Profitability Pillar 5: Leadership and Collaborative Culture. Note that Pillar 5 is a foundation pillar as outcomes from this Pillar, as well as being important in their own right, are necessary to achieving success in the other 4 Pillars. To identify the detail of the investments (areas of work) that are required under each Pillar and to quantify the potential benefits and costs from these investments made across the red meat supply chain, industry expertise was assembled across a series of workshops. In total, 8 Expert Team workshops were conducted and outcomes documented across the following subject areas (in order): environmental stewardship animal health and welfare (including biosecurity) supply chain efficiency (market information, meeting market specifications, etc) on-production efficiency in farms and feedlots (including work force and regulatory environment) marketing and promotion trade and market access processing productivity (including workforce and regulatory environment) live export productivity. A feature of the workshop process was the high level of expertise available within the industry and the inter-related nature of the imperatives and drivers all contribute to the ultimate goal of maximising industry profitability. More specifically, for each workshop, the role of the Expert Teams was to: establish a statement of what success looks like (in the next 5 to20 years out to 2030) for each MISP priority and imperative identified by the Team. suggest major activities (imperatives) that need to be planned and completed in order for significant progress to be achieved. suggest the size of potential industry improvements (in terms of profitability drivers) flowing from successful implementation of these activities. Importantly, the Expert Teams identified potential industry improvements from two investment scenarios: one in which investment was unconstrained (referred to throughout as the maximum benefit case) and one constrained by current funding levels. Under both investment scenarios, the Expert Teams considered how investment in specified activities (imperatives) by the industry would change demand and/or supply for Australian red meat and livestock.

17 Meat Industry Strategic Plan Demand side changes include increases in volumes and prices from increased market access or from marketing Supply side changes include initiatives that improve productivity by increasing output or reducing or costs Some activities could include elements of both the supply and demand sides for example, those that improve signals and collaboration along the supply chain or those that manage industry risks such as disease outbreaks or adverse community or consumer perceptions. Finally, the role of the Expert Teams was to suggest how success (through appropriate KPIs and/or critical success factors) might be monitored over time (noting that RMAC have determined that regular monitoring, and annual performance reporting, against the implementation of MISP 2020 is required). How the input from the Expert Team Workshops was used The conclusions around likely supply and/or demand changes arising from investment in a particular activity formed inputs into economic modelling. This modelling allowed the ultimate economic benefits for each body of work planned under MISP 2020 to be estimated, including calculation of benefit / cost ratios (BCRs). For the majority of the workshops and imperatives identified, the scenarios that were developed required further research and refinement so that they would be suitable for input to the economic modelling. This task involved: further interaction with the knowledge custodians from the Expert Team workshops to obtain more detail; and research from the literature from within and outside the industry on potential benefits and costs from investment areas as well as the assembly of data required to aggregate or validate the drivers identified in the workshop. The economic modelling enabled the benefits of possible activities under MISP 2020 to be quantified and reported in terms of key industry outcomes. These outcomes include variables such as livestock prices and gross value of production (GVP), but in this report the outcome that receives the predominant focus is profitability across each of the major segments of the industry. Given the long time frame/lag associated with many industry investment activities, benefits and costs were modelled out to while providing a snapshot of benefits and costs at the completion of MISP 2020 in The quantification of investment imperatives, priorities and pillars provides: high-level economic ranking based on payoffs and rates of return for each Investment Priority over the period and out to 2030 guidance on an appropriate allocation of resources between Investment Priorities based on the distribution of investment resources being commensurate with the expected payoffs and the successful achievement of the stated goals.

18 18 Meat Industry Strategic Plan Information on the Economic Models Used Economic models are relatively specific to particular tasks one model cannot do everything at the level of detail required. Because this strategic plan spans the value chain from production on-farm through to export markets, an integrated, through chain modelling approach is needed. Currently the red meat industry has two economic models that are suitable for this task: the global meat industries (GMI) model contains a detailed representation of demand and supply for meat and livestock globally; and the integrated framework (IF model) that has a detailed representation of the Australian red meat value chain. Chart 1.1 provides an overview of how these models work together to provide a comprehensive representation of the red meat value chain. 1.1 Linked GMI and Integrated Framework Trading relationships & barriers to trade Farm level: by region a Income growth & marketing initiatives Relative costs of meat production Other supply & demand side factors GMI model Projects global outcomes out to 2030 Identifies 8 commodities including meat and live trade For 22 regions,, tracks: consumption production trade prices by market Integrated framework Distinguishes: livestock industries and value chains major costs including livestock, labour, other inputs Determines: industry output and profitability for chain segments Feedlots Processors / Boning rooms Meat exports Live export Transport and marketing Retail and food service a Includes identification of northern and southern industries for cattle. Data source: CIE. More detail on the GMI/IF modelling framework is provided in appendix A of this report. Structure of this report The remainder of this report is structured as follows: Chapter 2 provides an overview of the inputs to the economic modelling for each imperative identified that was obtained from the Expert Team Workshops and further developed by the CIE/RMAC Expert group.

19 Meat Industry Strategic Plan It also provides an overview of the market outcomes for the Australian red meat industry in terms of production, consumption and prices, in the business-as-usual (baseline) case. Chapters 3 to 6 then discuss and identify the details of the maximum benefits that could be possible for each of the 4 Pillars Each provides details of the inputs and assumptions identified from the Expert Team Workshops and from further research undertaken Chapter 7 provides an overview of the maximum benefits of MISP 2020 from the economic modelling by pillar, priority and imperative when industry funding is unconstrained. Recognising that the funds available for investment by industry are limited, and that a large number of factors should be considered in developing an investment portfolio allocation, chapter 8 presents the expected benefits and payoffs when total investments are constrained to 2015 expenditure levels by Industry Service Organisations.

20 20 Meat Industry Strategic Plan Approach to identifying the potential benefits from MISP 2020 From a Key Stakeholder Meeting, held in Sydney in September 2014, from 12 consultative Regional Forums and from 8 Expert Team workshops 12 priority areas were identified for industry to pursue under the 4 MISP 2020 Pillars (see table 2.1). In turn under the 12 priority areas, a total of 23 imperatives were established (see table 2.2). 2.1 RMAC pillars and priority areas Pillar and priority area Pillar and priority area 1. Consumer and community support 2. Productivity and Profitability 1.1 Welfare of the animals within our care 2.1 Production efficiency in farms and feedlots 1.2 Stewardship of environmental resources 2.2 Processing productivity 1.3 Red meat in a healthy diet 2.3 Live export productivity 3. Market growth and diversification 4. Supply Chain Efficiency and Integrity 3.1 Trade and market access 4.1 Optimising product quality and cost efficiency 3.2 Marketing and promoting Australian red meat and livestock 4.2 Guaranteeing product and systems integrity a An additional Foundation Pillar, Leadership and Collaborative Culture, contains two priorities and four imperatives. Economic benefits were estimated for 19 of the 23 imperatives with these benefits classified as either defensive or proactive (see table 2.2): defensive or with downside risk investments designed to maintain or protect the existing value and net income of the industry from threats in the production and market environment (that is, investments designed to prevent a deterioration in industry value that might otherwise arise) proactive or with upside opportunity investments that improve industry value and net income. There are also imperatives that involve elements of both defensive and proactive investments.

21 Meat Industry Strategic Plan RMAC imperatives quantified using the IF/GMI model Priority/ Investment type Imperative Description Downside risk Upside opportunity 1.1 Welfare of the animals within our care Continuous improvement of animal welfare X Minimising risk and impact of emergency disease X Minimising the impacts of endemic disease X X 1.2 Stewardship of environmental resources Minimising industry impact on the environment X X Sustainable management of the natural resource base X X Adapting to climate variability X 1.3 Red meat in a healthy diet Positioning red meat as a preferred component in a healthy diet X 2.1 Production efficiency in farms and feedlots Decision support to improve farm businesses X Increasing livestock productivity through new research X 2.2 Processing productivity Increasing access to, and efficiency of, labour X 2.3 Live export productivity Improving livestock performance in export operations X 3.1 Trade and market access Reducing economic barriers to trade X X Reducing technical barriers to trade X 3.2 Marketing and promoting red meat and livestock Marketing and promotion developing export markets X Marketing and promotion developed export markets X Marketing and promotion domestic market X 4.1 Optimising product quality and cost efficiency Improving quality and compliance via enhanced supply chain information Improving efficiencies in regulation, infrastructure and logistics X 4.2 Guaranteeing product and systems integrity Livestock and product assurance through integrated integrity systems X Source: RMAC Expert workshops and CIE/RMAC Expert group. X

22 22 Meat Industry Strategic Plan Key between this report and MISP summary document For the public release of MISP 2020, the order of the pillars, priorities and imperatives was changed from this report as shown in table Key between the classification in this report and the MISP summary document MISP 2020 This report Imperative description Pillar 1: Consumer and Community Support Continuous improvement of animal welfare Minimising risk and impact of emergency disease Minimising the impact of endemic disease Minimising industry impact on the environment Sustainable management of the natural resource base Adapting to climate variability Positioning red meat as a preferred component in a healthy diet Pillar 2: Market Growth and Diversification Reducing economic barriers to trade Reducing technical barriers to trade Marketing and promotion - developing export markets Marketing and promotion - developed export markets Marketing and promotion - domestic market Pillar 3: Supply Chain Efficiency and Integrity Improving quality and compliance via enhanced supply chain information Improving efficiencies in regulation, infrastructure and logistics Livestock and product assurance through integrated integrity systems Pillar 4: Productivity and profitability Decision support to improve farming businesses On farm productivity research Processing productivity Live export productivity Approach to quantification Table 2.4 provides a guide to the template completed by Expert Teams. The task completed by these Teams, at its essence, involved comparing a baseline case with a do nothing case (in terms of no industry investments) and a maximum benefits case (in terms of unconstrained industry investments). It is important to note that the baseline is interpreted as the business-as-usual outcomes that could be reasonably expected if current industry/global trends continued out to This includes industry investments at current levels/program mix.

23 Meat Industry Strategic Plan A key to the inputs into the economic modelling a Question Units Description What can we expect if we do nothing by 2030? Supply productivity/costs change relative to base? Outcomes that could be reasonably expected if no industry investments were made. Importantly, the without industry investment ( do nothing ) case does not imply that no action would be undertaken by businesses or government possible responses by these groups were considered by the Expert Group. % Reduction in production or increase in unit costs relative to baseline. Demand price change relative to base? % Reduction in demand, either in volume or in price, relative to the baseline. What would be the maximum benefits in the with industry investment case? Supply productivity/costs change relative to base? The maximum outcome that could be expected with collaborative industry investments, if investments were unconstrained by funding? % Increase in production or reduction in unit costs relative to baseline. Demand price change relative to base? % Increase in demand, either in volume or in price terms, relative to the baseline. What are the risks in achieving the maximum benefit by 2030? What are the technical risks - % probability technical success? % of industry / sector business to which it is applicable? % adoption across industry / sector businesses? What % of maximum benefit could be realistically achieved by 2020? Adjustment of the maximum or optimistic outcome for technical risk and adoption % The probability of successful delivery of output of R&D, promotion and marketing or policy advice. % The proportion of a sector/industry for which the output is applicable. % The proportion of the applicable sector/industry which is likely to adopt out to % Time between the investment in the initiative and implementation and adoption by industry. Industry investment required What is the level of current (annual) funding? What would it cost to achieve maximum benefit (annual)? $m Current investments across service companies. $m The investment level that would be required to achieve the maximum benefits identified above. % achievable with current funding? % The level of outcomes possible with current funding, taking into account levels of adoption and technical risks % achievable with half current funding? % The level of outcomes possible with half current funding. a The baseline is interpreted as the business-as-usual outcomes that could be reasonably expected if current industry/global trends continued out to Deliberately a conservative view was taken of the potential impacts of industry investments. A view is held that impacts have often been overstated in the past. Factors outside industry marketing and research and development activities contribute to the productivity and sales performance of the industry and these should not be ignored

24 24 Meat Industry Strategic Plan when considering the impact of industry activities. Furthermore, in assessing impact, care must be taken to examine factors in combination as well as separately. For instance, some of the impacts of industry investment in on-farm productivity, that have been included in this report, might be considered low. However, these estimates must be viewed in combination with investment to mitigate forecast impacts of climate variability. If these forecasts are accepted, just to maintain current levels of productivity will represent a considerable challenge. Improvements beyond current levels will be a significant achievement, especially after allowances are made for probabilities of technical success and levels of adoption. Industry baseline for MISP 2020 The baseline for the analysis are the forecasts from MLA s GMI/IF model. These forecasts are the outcomes for a best-bet scenario that the industry could reasonably expect out to 2030 based on what is known and can be quantified. Therefore, the forecasts represent a business-as-usual approach out to Chart 2.5 shows the projected outcomes for Australian red meat production. The key feature of these projections are production outcomes driven by the current liquidation of the cattle herd this will limit the number of cattle available for slaughter and live export out to The projections indicate that the current liquidation of the herd means that it will not be until 2030 that beef production returns to the levels of (see chart). After sharply dropping over the next couple of years, a gradual recovery in herd numbers and slaughter levels should be observed from about 2018 onwards given normal seasonal conditions. The majority of this recovery is expected in the grass fed segment (first panel of chart 2.6) while grain fed production is expected to hold and increase marginally over the medium to long term.

25 Meat Industry Strategic Plan Production by the Australian red meat industry kt cwe kt cwe 1500 Beef Sheep and goat meat a Base year for projections is 2014, projections are from 2015 onwards. Data source: GMI model. 2.6 Production by industry segments 2500 Australian beef production 2000 kt cwe 1500 Grass fed Grain fed Australian sheep and goat meat production Lamb Mutton and goatmeat a Base year for projections is 2014, projections are from 2015 onwards. Data source: GMI model.

26 Ac/kg lw 26 Meat Industry Strategic Plan Over the longer term, modest productivity gains in the pasture-based sector, in concert with demand from developing markets is expected to drive production growth. Although starting from a lower production base, the growth in lamb production is expected to recover faster from levels and then grow faster than beef to 2030 as a result of continuance of strong demand conditions (see chart 2.6). Mutton and goat meat is expected to follow lamb production as the overall size of the flock increases in line with continue price growth. Projected price outcomes for cattle and sheep are shown in charts 2.7 and 2.8. From 2015 onwards, lower slaughter numbers and rebuilding of the cattle herd, along with more favourable exchange rate levels, will result in higher prices in nominal terms for Australian red meat producers. After adjustment for exchange rates, grass and grain fed prices are expected to track global beef prices as a result of increased competition, both directly in Australia s key export markets and indirectly through third markets supplied by our competitors. 2.7 Australian livestock prices in nominal terms 500 Cattle 400 Ac/kg lw Grass fed cattle Grain fed cattle Sheep and goats Lamb Mutton and goats a Base year for projections is 2014, projections are from 2015 onwards. Data source: GMI model projections and database.