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 [email protected] 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 [email protected] 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.

27 Meat Industry Strategic Plan Given continued access to key markets, strong demand for live cattle should translate in stronger price growth than for the boxed trade. Ac/lg lw Sheepmeat prices are expected to continue to grow faster than for beef in nominal terms due to demand conditions and limited competition from our major competitor. 3 However, this price growth is unlikely to offset increases in costs of the Australian supply chains. Chart 2.8 shows that over the next 15 years, real prices for cattle, sheep and goats will fall. The projections indicate a resumption of trends in real agricultural prices that was observed during the 1980s and 1990s. 2.8 Australian livestock prices in 2015 real terms a Cattle Ac/kg lw Grass fed cattle Grain fed cattle Sheep and goat prices Lamb Mutton and goats a From 2015 onwards, nominal prices were adjusted by an increase in costs of 2.5 per cent each year. Data source: GMI model projections and database. Tables 2.9 and 2.10 show the projected paths of total industry exits as the total of slaughter and animals for live exports and implications for the herd and flock. 3 Production growth in New Zealand is limited by competition for land from other sectors, particularly dairy.

28 28 Meat Industry Strategic Plan Total exits from the Australian red meat industry a millions head 8 4 Cattle (LHS) Goats (LHS) Sheep (RHS) millions head a Total exits is equal to total numbers slaughtered and exported live. Data source: GMI model projections and database. Chart 2.10 shows that after dips in the respective herd and flocks following higher than average slaughter levels over the period largely due to seasonal conditions, total numbers are projected to recover to previous levels out past Projected change in the cattle herd and sheep flock a millions head Cattle (LHS) Sheep (RHS) millions head a Goats have been excluded due to harvest nature of production from the rangelands. Data source: GMI model projections and database. Key drivers for the Australian meat industry to 2030 The baseline used for MISP 2020 presents a number of opportunities and challenges for the red meat industry: significant breakthroughs in market access to the North Asian markets as a result of free trade agreements with Japan, Korea and China while there is scope to further build on own clean-and-green image underpinned by our integrity systems and disease-free status, any reduction in the perception of the effectiveness of these systems by our customers could be costly

29 Meat Industry Strategic Plan comparatively low productivity and production growth, relative to our competitors, at all stages of the supply chain, particularly as the result of higher labour and compliance/regulatory costs while the short term prospects for livestock prices are good, over the medium to long term cattle and sheepmeat prices are expected to decline in real terms under the base case dependence on production systems that are becoming more variable requiring greater management skill for adaptation and better integration along the supply chain.

30 30 Meat Industry Strategic Plan Pillar 1: Consumer and community support Priority 1.1: Welfare of the animals within our care Based on outcomes from the Key Stakeholder Meeting and the 12 Regional Workshops, as well as independent consideration at the Expert Team workshop, it was concluded that there should be three imperatives under the MISP Animal Welfare Priority: continuous improvement of animal welfare minimising risk and impact of emergency disease minimising the impact of endemic disease. Imperative 1.1.1: Continuous improvement of animal welfare This imperative comprises of ensuring industry practices meet evolving community expectations on animal welfare standards. What can we expect if we do nothing by 2030? Without industry action, the impact on both supply and demand was considered. Supply productivity/costs change relative to base Expert Team Workshop participants agreed that if industry investment was to stop, then industry practices would fall behind community expectations. If the industry makes no further progress on animal welfare, the judgement was that further regulation would be imposed on the industry. A recent report on the industry s social licence risks identified animal welfare as the biggest risk in particular, the risk was related to aversive and invasive on-farm procedures and the lack of pain management for such procedures. Land transport was highlighted separately from animal welfare as a significant issue. Over the next 15 years a risk existed of increased transport regulations being imposed on the industry if practices fell short of community expectations. Currently across the cattle and sheepmeat industries, transport costs represent about 3.5 per cent of the farm gate value of production. With the introduction of additional regulations, the judgement was that these costs could increase by 20 per cent. Additional on farm regulation may also increase livestock production costs, as could the introduction of separate on farm QA schemes by large customers (with, potentially, a

31 Meat Industry Strategic Plan duplication of such schemes). Taking these factors into account it was assessed that the do nothing case would involve a 1.0 per cent loss in productivity. Demand price changes relative to base If industry investment in animal welfare issues ceased it was judged that demand could contract by as much as 3 per cent below the base case by MLA surveys indicate that currently 2.8 per cent of consumers are eating less red meat due to animal welfare considerations. If industry does nothing it is probable that this area will attract increased publicity. A study by Kansas State University concluded that increased publicity on US pork and chicken animal welfare issues between 1999 and 2008 resulted in reductions in demand of 2.6 per cent and 5.0 per cent, respectively. 4 Without ongoing industry investment in live export animal welfare issues, it was judged that the live export industry was in danger of being closed as a result of the Australian government ceasing, or severely restricting, the issuing of Australian export licenses. Despite on-going efforts by individual live exporters, without further industry investment, it was assessed that there was an 80 per cent probability of this occurring. The potential costs of closure of live exports of cattle, sheep and goats to the Australian meat and livestock industry was estimated by updating a previous study which had examined the contribution of live exports5. In this study the impact on GVP and net income was calculated by forcing livestock, that would have otherwise been exported live, to be processed in Australia. The analysis also accounted for additional transport costs, particularly for some cattle in Northern Australia, which would require transport south and east for sale and processing, and for sheep in Western Australia which may require transport east. What would be the maximum benefits in the with industry investment case? In the area of animal welfare, it is unlikely that the industry would ever exceed customer expectations it is more probable that, even under a best case scenario, industry would be just meeting community expectations (which are expected to progressively shift upwards). That is, recommended industry action will be investments that are defensive in nature. Although some consumers may be inclined to consume more due to better animal welfare practices, this is likely to be a small proportion. The better animal welfare practices might also be expected to increase costs and lead to higher prices, thereby offsetting any potential increase in demand. It was, therefore, determined that under the maximum benefits case there would be zero change in demand from the projected baseline demand (in contrast to the 3 per cent fall in demand from the baseline under the do nothing case). 4 Tonsor and Olynk (2010). 5 CIE (2011).

32 32 Meat Industry Strategic Plan With successful industry investment the live export trade should remain open. What are the risks in achieving the maximum benefit by 2030? Areas for further research required under this imperative include: replacements for aversive procedures for example, a contraceptive replacement for spaying; and practical pain relief options for use with invasive procedures. It was judged that there was an 80 per cent probability that such research would be successful over the next 15 years. This is likely to be applicable to every sector in the industry due to the community viewing the red meat industry as a whole. The development of some R&D is also transferable across the different sectors. Taking the distribution of benefits into account, the judgement was that there would be a per cent adoption of improved animal welfare practices by Regarding the per cent adoption rate: it is worthwhile noting that pain relief is now used by per cent of farmers who mules sheep despite a cost of 70 cents to $1.00 per head. Ultimately, it is probable that adoption will be driven by customer requirements. Industry investments required Current industry investment on animal welfare projects in the areas of on-farm, feedlots, and live export totals approximately $10 million (see table 3.1). It was judged that the current level of investment was adequate. 3.1 Potential costs of Imperative Estimates What is the current level of funding? What would it cost to achieve the maximum benefit? What is the percentage achievable with current funding? What is the percentage achievable with half of current funding? $10 million Current level deemed adequate 100 per cent 50 per cent Source: CIE/RMAC Expert group and workshop input. A summary of this imperative is shown below in table 3.2.

33 3.2 Continuous improvement of animal welfare (1.1.1) By 2020 By 2030 Sector (by 2030) Total red meat a Northern beef Southern beef Sheep Goats Feed lots Live export Processing What can we expect if we do nothing by 2030? Supply productivity/costs change relative to base % Productivity Demand price change relative to base % Price b -3.0 What would be the maximum potential benefits by 2030? Supply productivity/costs change relative to base % Productivity Demand price change relative to base % Price What are the risks in achieving the maximum benefit by 2030? % probability technical success (R&D focus) % % of industry/sector is applicable % % adoption across industry / sector businesses % % of maximum benefit achieved by 2020? % Industry investment required What is the level of current annual funding? $m 10.0 Usual commodity split What would it cost p.a. to achieve maximum benefit? $m 10.0 Usual commodity split % achievable with current funding % 100 No difference % achievable with half current funding % 50 No difference a Value added shares by industry used to aggregate model inputs. b Modelled as an 80 per cent probability of closure of the trade. Source: RMAC Expert workshops and CIE/RMAC Expert group. Meat Industry Strategic Plan

34 34 Meat Industry Strategic Plan Imperative 1.1.2: Minimising risk and impact of emergency disease In terms of addressing the threat of exotic disease outbreaks, Workshop participants recognised that the actions required were wider than those that could be provided by the Australian meat and livestock industry alone and relied heavily on: work undertaken by Government officers in enforcing quarantine and biosecurity regulations at the national border joint agreement between all livestock industries, Animal Health Australia (AHA) and both state and federal governments under the Emergency Animal Disease Response Agreement (EADRA). Whilst the pre-eminence of Government action was acknowledged, it was also recognised that supportive industry action was vital in a number of areas. These included: maintaining and improving R&D capabilities to provide relevant vaccines in the case of an FMD outbreak strengthening capability and traceability systems as part of an effective zoning and vaccination approach that would be credible to key customers and authorities liaising with Government and participating in simulation exercises. In addition to the above a view was expressed that better on-farm biosecurity provided an underlying framework to reduce the probability of an adverse event and strengthen any mitigation response. What can we expect if we do nothing by 2030? The potential impact under the do nothing case was taken from previous work for the industry on the expected impact of FMD on the red meat industry. The total impact of an outbreak has been estimated by PC (2002), updated by CIE (2010) and most recently estimated by Beutre et al (2013) which represented new thinking on key parameters that contribute to the potential losses. The estimated losses range widely up to catastrophic depending on the key assumptions around size of the outbreak, the time and effectiveness of mitigation strategies and the exclusion period of Australian producers from export markets. These factors need to be moderated by the relatively low probability of an outbreak and the recognition of existing arrangements designed to mitigate losses. Appendix B provides further detail on the potential costs of an FMD outbreak. Estimating the potential losses from an FMD outbreak involves the development of a scenario around the probability of an outbreak and key factors that contribute to both a disruption in supply and demand of the livestock industries. Key factors include costs in containing the outbreak (zoning, vaccination and destruction of infected animals) and the impact of access to key export markets. CIE (2010), using judgement from industry experts at the time, identified that the annual probability of an FMD outbreak was between 1 and 2 per cent. More recently,

35 Meat Industry Strategic Plan the OIE estimated that the probability for Australia was 0.6 per cent used in this analysis.6 Assumptions around exclusion periods for export markets are one of the other key drivers of the potential impact. Past studies have made significantly different assumptions on market exclusion periods that would stem from an extensive or largescale FMD outbreak. For such an outbreak the PC (2002) and CIE (2010) assumed an exclusion period of 5 years for sensitive markets, whilst Beutre et al (2013) assumed a 10 year exclusion period for all markets. Table 3.3 shows that from the CIE analysis, an FMD outbreak could cost Australian red meat industries between $8.9 and $16.6 billion over the 3 to 5 year period from the time of the outbreak to the full re-entry into sensitive markets. For the ABARES analysis, which assumed a 10 year period before normal level of exports are resumed, the total losses could be as high as $42.5 billion in present value terms. After adjusting for the probability of an outbreak, on an annualised or expected basis, total losses could be as high as $255 million a year (see table 3.3). 3.3 Estimated impact of an FMD outbreak in Australia CIE (2010) ABARES (2013) Extensive Contained Average Large Small Average Potential losses from an outbreak Present value of losses $b Expected annual present value of losses using 0.6% probability of outbreak Beef $m Sheep $m Goats $m Total red meat $m Annual benefit of halving time to regain FMD-free status and market access Beef $m Sheep $m Goats $m Total red meat $m Annual impact on industry GVP Beef % Sheep % Goats % Total red meat % Source: CIE based on CIE (2010) and ABARES (2013). 6 Miller et al (2012),

36 36 Meat Industry Strategic Plan What would be the maximum benefits in the with industry investment case? In the event of an outbreak, it will be possible to mitigate some of these losses, principally by reducing exclusion periods from key markets. Compared to the do nothing case, collective action by industry could improve response times and provide benefits relative to the without investment case by reducing the time to re-enter key export markets. In terms of maximum benefit from the initiatives under the MISP, it has been assumed that with industry investment, the duration of an outbreak and the exclusion period from key markets could be halved compared to the without industry investment case. These investments would focus on preparedness strategies based on zoning and vaccination based on relevant regional FMD strains. Table 3.3 shows that on an annualised or expected basis, this benefit could be worth up to 1.5 per cent of red meat industry GVP each year. What are the risks in achieving the maximum benefit by 2030? This work is ongoing and involves R&D that is largely incremental in nature identifying FMD strains from South East Asia, the development of appropriate vaccines and the maintenance of supporting infrastructure and scientific capability. Technical success also assumes complementary livestock traceability systems are operational to required national standards. Overall, it was assumed that there is a 50 per cent chance of technical success for this imperative, in reducing the size of an outbreak and exclusion periods for key markets, because of the large number of uncertainties involved in such an outbreak. There would be 100 per cent applicability of the imperative across the red meat industry, and, in the case of an exotic disease outbreak, 100 per cent adoption as part of a coordinated response under EADRA. Industry investments required Industry investments currently total around $3 million (see table 3.4). It was judged that the current level of investment was adequate. 3.4 Potential costs of Imperative Estimates What is the current level of funding? What would it cost to achieve the maximum benefit? What is the percentage achievable with current funding? What is the percentage achievable with half of current funding? $3.3 million Current level deemed adequate 100 per cent 50 per cent Source: CIE/RMAC Expert group and workshop input. A summary of this imperative is shown below in table 3.5.

37 3.5 Minimising risk and impact of emergency disease (1.1.2) By 2020 By 2030 Sector (by 2030) Total red meat a Northern beef Southern beef Sheep Goats Feed lots Live export Processing What can we expect if we do nothing by 2030? Supply productivity/costs change relative to base % Productivity Demand price change relative to base b % Price What would be the maximum potential benefits by 2030? Supply productivity/costs change relative to base % Productivity Demand price change relative to base % Price What are the risks in achieving the maximum benefit by 2030? % probability technical success (R&D focus) % % of industry/sector is applicable % % adoption across industry / sector businesses % % of maximum benefit achieved by 2020? % Industry investment required What is the level of current annual funding? $m 3.3 Usual commodity split What would it cost p.a. to achieve maximum benefit? $m 3.3 Usual commodity split % achievable with current funding % 100 No difference % achievable with half current funding % 50 No difference a Value added shares by industry used to aggregate model inputs. b Represented by the present value cost of an FMD outbreak of $42.5 billion adjusted by the annual probability of an outbreak of 0.6 per cent. Source: RMAC Expert workshops and CIE/RMAC Expert group. Meat Industry Strategic Plan

38 38 Meat Industry Strategic Plan Imperative 1.1.3: Minimising the impact of endemic disease A recently published study, funded by MLA, has estimated the costs of endemic diseases to be slightly less than $1 billion per year for the cattle industry and about $2 billion per year for the sheep industry. There is the potential for some of these costs to be addressed through new treatments and better on farm security. What can we expect if we do nothing by 2030? Without any industry investment, the impact on both supply and demand were considered as below. Supply productivity/costs change relative to base If no industry funds are invested in addressing endemic diseases in the cattle and sheepmeat industries, the judgement was that productivity would decline by 0.5 per cent by 2030 a cost of about $50 million. Greater parasite resistance to chemical treatments would be evident, but this would be countered (to some extent) by the animal health companies developing new chemical treatments and improved rotation of existing treatments to reduce resistance. Of note is that northern cattle producers have historically addressed the issue of ticks through chemical treatments and indicine genetics ticks are showing increasing resistance to chemical treatment which is compounded by many producers moving to introduce more Bos taurus genetics into herds for meat quality reasons. Ticks are the most significant pest/disease issue for the northern cattle industry. Demand price change relative to base Failing to address endemic diseases is unlikely to impact on demand, either positively or negatively, over the next 15 years. What would be the maximum benefits in the with industry investment case? The maximum potential benefits possible with industry investment in this area were also considered. Supply productivity/costs change relative to base Taking account of the production losses associated with pest/diseases amenable to prevention through vaccines, the judgement was that, with successful industry investment in the development of new vaccines, it would be possible to reduce production losses in the cattle and sheep industries by about $250 million by 2030.

39 Meat Industry Strategic Plan A number of diseases are amenable to prevention with vaccines, including ticks (the most important cattle related pest/disease issue) and treatment of internal parasites (the most important disease issue for the sheep industry). 7 Demand price change relative to base Making progress on reducing endemic diseases is unlikely to impact on demand, either positively or negatively, over the next 15 years. What are the risks in achieving the maximum benefit by 2030? It is likely that the requisite R&D will not be the major constraint and the main benefits will accrue from adoption and practice change. Current research into various vaccines shows considerable promise. It was judged that there is a 90 per cent probability of technical success over the next 15 years and 70 per cent over the next 5 years. Most of the benefits for the cattle industry are associated with the development of a tick vaccine, with this benefit confined to the tick areas of northern Australia, although modelling indicates that with climate change the tick area will potentially extend south, eventually, to Victoria. Currently about 4.8 million cattle are located in tick affected areas and it is estimated that the cost of ticks are about $20 per head. Some benefits from investment in endemic diseases accrue to southern Australian cattle producers via better control of internal parasites, bovine virus diarrhoea, etc. The main sheep industry benefit is from improved control of parasites, which applies to 100 per cent of sheep/lamb producers. Note that the estimate of $250 million in potentially recouped lost productivity takes into account the percentage of industry affected by the various identified pest/disease issues. For this reason, the percentage of industry/sector businesses to which it is applicable is set at 100 per cent. Adoption rates are likely to be low over the first 5 years, because new technologies are likely to become only commercially available towards the end of this period. The judgement was that, given technical success in developing one-dose vaccines, adoption rates would be 30 to 50 per cent in the cattle industry and 50 per cent in the sheep industry by Industry investments required MLA currently invests about $5.8 million per year in improved control of endemic diseases as shown in table 3.6. The judgement was that the current level of funding was adequate in achieving the benefits envisaged by Goat numbers have been calculated as proportionate of the value to the sheep industry (given that there are about 0.5 million managed goats and 71 million in the sheep flock).

40 40 Meat Industry Strategic Plan Potential costs of Imperative Estimates What is the current level of funding? What would it cost to achieve the maximum benefit? What is the percentage achievable with current funding? What is the percentage achievable with half of current funding? $5.8 million Current level deemed adequate 100 per cent 50 per cent Source: CIE/RMAC Expert group and workshop input. A summary of this imperative is shown below in table 3.7. Priority 1.2: Stewardship of environmental resources Environmental services provided by Australian farmers include: biodiversity conservation; protection of water resources; soil formation and protection; nutrient storage and recycling; pollution breakdown and absorption; climate stabilisation; pest and weed control and conservation of potential future bio-resources. Future production increases will require ongoing improvement of the practices that are 'good for business and good for the environment to maintain a competitive edge. The Expert Team workshop concluded that there should be three imperatives under the MISP Environmental Stewardship Priority: minimising red meat and livestock industry impact on the environment by reducing CO 2 and methane emissions sustainable management of the natural resource base adapting to climate variability Workshop participants recognised that the industry s progress on the above imperatives would be reflected in community attitudes and social license to operate. Imperative 1.2.1: Minimising industry impact on the environment This imperative was around mitigating the industry s impact on a changing climate by reducing CO 2 and methane emissions. What can we expect if we do nothing by 2030? Expected outcomes under the do nothing case are considered below. Supply productivity/costs change relative to base If no industry funds are invested in mitigation actions, productivity improvements should not change versus the base case a zero per cent productivity or cost change by 2030.

41 3.7 Minimising the impact of endemic disease (1.1.3) By 2020 By 2030 Sector (by 2030) Total red meat a,b Northern beef Southern beef Sheep Goats Feed lots Live export Processing What can we expect if we do nothing by 2030? Supply productivity/costs change relative to base % Productivity Demand price change relative to base % Price No direct impact What would be the maximum potential benefits by 2030? Supply productivity/costs change relative to base % Productivity Demand price change relative to base % Price No direct impact What are the risks in achieving the maximum benefit by 2030? % probability technical success (R&D focus) % % of industry/sector is applicable % % adoption across industry / sector businesses % % of maximum benefit achieved by 2020? % Industry investment required What is the level of current annual funding? $m 5.8 Usual commodity split What would it cost p.a. to achieve maximum benefit? $m 5.8 Usual commodity split % achievable with current funding % 100 No difference % achievable with half current funding % 50 No difference a Value added shares by industry used to aggregate model inputs. b % figures only refer to on-farm changes Source: RMAC Expert workshops and CIE/RMAC Expert group. Meat Industry Strategic Plan

42 42 Meat Industry Strategic Plan Demand price change relative to base Without industry investment and industry progress in reducing greenhouse gas (GHG) emissions there is a danger the industry may increasingly be regarded as a polluter by consumers and the community. The judgement was that demand would contract by about 3 per cent below the base case due to environmental considerations if no progress was made by the industry in reducing GHG emissions. Beef cattle contribute 44 per cent of Australia's agricultural GHG emissions, and 6.7 per cent of total Australian emissions. MLA surveys indicate that currently 2.2 per cent of consumers are eating less red meat due to environmental considerations. If industry does nothing it is probable that there will be increasing calls by environmental groups and by governments for consumers to eat less red meat. The impact on demand was also considered in terms of additional revenue gained through carbon credits. The current Government is introducing the Emissions Reduction Fund (ERF) to replace the carbon price and is committed to reducing Australia's emissions to 5 per cent below the 2000 level by The ERF will focus on procurement of the lowest cost emission reductions from across all sectors of the economy. The Government has continued to support the Carbon Farming Initiative, with existing and new methodologies forming the basis for creating carbon credits when sold to the ERF. Four methodologies currently exist for livestock producers to claim carbon credits and two more are about to be accepted. At a carbon price of $10 per tonne, and with a limited number of methodologies currently available under the ERF to claim carbon credits, it is estimated that the industry might generate $30 million in revenue from these sources by 2020 with workshop participants of the view that northern cattle producers were likely to benefit proportionately more. What would be the maximum benefits in the with industry investment case? Maximum benefits were considered both in terms of productivity enhancement and demand impact. Supply productivity/costs change relative to base With successful industry investments in reducing GHG emissions from cattle and sheep there is the potential to increase productivity. The judgement was that, for the industry generally, a 0.7 per cent improvement in productivity is possible as the maximum potential benefit with industry action. This would be focussed primarily on the feedlot and processing sectors. Currently about 6 to 8 per cent of energy intake for beef cattle is lost in methane production. Through feed additives, through better animal selection and, potentially,

43 Meat Industry Strategic Plan through new research on the rumen, methane output can be reduced, with this energy redirected into animal growth. Current research indicates that 25 per cent of the energy lost could be redirected with the potential for this to increase. Costs, however, will be involved in feed additive applications and other methods to reduce methane. The workshops also identified possible further energy and other resource savings for the processing sector amounting to about a 1 per cent productivity improvement. Demand price change relative to base Even with successful industry investment in mitigating GHGs, the industry is still likely to remain a major GHG emitter as other industries reduce their GHGs it is possible that GHGs emitted by the red meat industry as a proportion of total GHG emissions will increase. It was judged that, even with successful industry investments, demand may still contract by about 1 per cent below the base case due to environmental considerations. Potentially the negative impact may be greater, but will be mitigated if the industry is seen to be proactively addressing environmental issues generally (see discussion on Sustainable management of the natural resource base in Section of this report) hence the choice of only a 1 per cent decline. Research is currently underway to develop new methodologies for establishing carbon credits for livestock producers. These include carbon sequestration modelling, feeding of supplements, improved beef and sheep genetics and flock/herd management. At a carbon price of $10 per tonne, if these methodologies are accepted, it is conservatively estimated that $100 million in revenue could be generated for the industry by Note that the price of carbon is predicted to rise beyond 2020 however, revenue generated has been halved between 2020 and This is because further into the future the regulatory risk associated with the scheme increases: a regulatory risk exists that agriculture could be excluded from gaining credits for reducing carbon emissions more significantly, a regulatory risk exists that taxes may be imposed on agriculture for carbon emissions. 8 It is also important to note that the ERF auction process will favour large industrial and energy companies over the fragmented agriculture sector. Aggregation of emission reduction strategies across groups within the agriculture sector would be required for the scheme to be applicable to small individual producers. What are the risks in achieving the maximum benefit by 2030? In terms of technical risks, further research is needed into: 8 Noting that this regulatory change would not negate the benefits of working on GHG mitigation, but rather than generating revenue, the benefit would be expressed as tax cost reductions,

44 44 Meat Industry Strategic Plan methodologies to claim carbon reductions, ensuring that these methodologies are accurate, simple to use and relatively cheap underlying reasons for genetic variation across livestock in methane production the potential to incorporate plant species with methane inhibiting properties into grazing systems the rumen and methods, such as vaccinations, to reduce methane emissions life cycle assessment studies for key supply chains and markets. It was judged by the CIE/RMAC Expert group that there is a 55 per cent probability that such research would be successful over the next 15 years. This would be applicable to a 100 per cent of all businesses. It was recognized that there would be commercial pressure for producers to adopt high environmental standards generally and this was taken into account in the adoption rate. Depending on the future of the ERF there may also be direct incentives for mitigation measures. Therefore, the percentage adoption across all industry/sector businesses was considered to be between 30 and 40 per cent. In terms of success by 2020, it was judged that 20 per cent of the maximum benefits would be achieved as a result of the long term nature of R&D required and the associated adoption risks. Industry investments required Table 3.8 shows that the costs associated with achieving maximum benefit for this imperative were estimated to be double current investments. 3.8 Potential costs of Imperative Estimates What is the current level of funding? What would it cost to achieve the maximum benefit? What is the percentage achievable with current funding? What is the percentage achievable with half of current funding? $4.5 million $9.0 million 100 per cent 50 per cent Source: CIE/RMAC Expert group and workshop input. A summary of this imperative is shown below in table 3.9. Imperative 1.2.2: Sustainable management of the natural resource base The Natural Resource Management/Weeds/Feral Animals imperative covered a wide range of topics, with most hard data on industry impact relating to weeds and feral animals. For this reason, and due to the difficulty in measuring the value of biodiversity, economic analysis was confined to weeds/feral animals.

45 3.9 Minimising industry impact on the environment (1.2.1) By 2020 By 2030 Sector (by 2030) Total red meat a,b Northern beef Southern beef Sheep Goats Feed lots Live export Processing What can we expect if we do nothing by 2030? Supply productivity/costs change relative to base % Productivity Demand price change relative to base % Price Supply revenue from carbon credits $m Revenue What would be the maximum potential benefits by 2030? Supply productivity/costs change relative to base % Productivity Demand price change relative to base % Price No direct impact Supply revenue from carbon credits $m Revenue What are the risks in achieving the maximum benefit by 2030? % probability technical success (R&D focus) % % of industry/sector is applicable % % adoption across industry / sector businesses % % of maximum benefit achieved by 2020? % Industry investment required What is the level of current annual funding? $m 4.5 Usual commodity split What would it cost p.a. to achieve maximum benefit? $m 9.0 Usual commodity split % achievable with current funding % 50 No difference % achievable with half current funding % 25 No difference a Value added shares by industry used to aggregate model inputs. b % changes are aggregated over all sectors Source: RMAC Expert workshops and CIE/RMAC Expert group. Meat Industry Strategic Plan

46 46 Meat Industry Strategic Plan This is not to dismiss the importance of the industry acting on biodiversity/natural resource management issues generally. In agricultural systems, loss of soil carbon, and soil acidification and erosion, are problematic and may have major impacts on production.9 Zhang (2010) suggests that with successful industry investment in soil health productivity could be increased by per cent. Recent consumer surveys by MLA have also highlighted the importance of the industry continuing to act generally on the environment.10 Of those responding to the MLA surveys, only 4 per cent reported that they are not concerned about the environment 36 per cent were slightly concerned, 46 per cent very concerned, and 14 per cent extremely concerned. Currently, this concern for the environment is not significantly impacting meat purchasing decisions because consumers have a high level of confidence with the industry s environmental management. Only 9 per cent of those surveyed disagreed or strongly disagreed with the statement Australian beef is sustainable and 15 per cent disagreed with the statement The beef industry is doing all it can to reduce its environmental impact. These demand side impacts have been included in the consideration of climate mitigation and are not repeated here to avoid double counting. What can we expect if we do nothing by 2030? Without any industry action, a modest decrease in productivity of 1 per cent by 2030 across the producing sector was forecast. The reasoning behind a modest decline is as follows: The distribution of weeds and feral animals will change as climate changes. Sleeper weeds and feral animals will expand their range in response to even moderate shifts in climate. Land degradation (for example, soil erosion, migration of undesirable plant species, removal of native vegetation) and repair costs may increase, especially with the challenges of variable seasons, and more frequent extreme weather events. It is estimated that there will be no impact on demand as a result of no industry action in order to avoid the double counting issue mentioned above. What would be the maximum benefits in the with industry investment case? It was judged that industry investment in these areas could improve productivity by 5 per cent by This assessment of an improvement in productivity was based on considerations included in dot points below 9 State of the Environment 2011 Committee 2011, Australia state of the environment 2011: Independent report to the Australian Government Minister for Sustainability, Environment, Water, Population and Communities. Canberra: DSEWPaC, 10 Parry-Husbands, H. and Visperas B. 2012, Project Daisy wave 3 red meat tracker. Report to MLA.

47 Meat Industry Strategic Plan Weeds currently cost the industry $2 358 million per year, equivalent to around 30 per cent of the gross value. 72 priority weeds requiring R&D have been identified by Grice et al (2014), with another 22 'sleeper weeds' identified as being future problems. 11 In a recent survey, 69 per cent of cattle and sheep producers reported weed related problems. In the 2012 National Landcare Survey, the average spend over the last 12 months on herbicides (all farmers) was $ ABS reported an average spend on pasture and crop chemicals ( ) of $ In terms of feral animals, Gong (2009) reported losses for the livestock industries of $285 million (due to foxes, rabbits, wild dogs and feral pigs).12 The Invasive Animals CRC has estimated that the development of new effective biological controls for rabbits could produce an economic benefit in excess of $1 billion over 15 years, as well as producing environmental benefits such as increased regeneration of up to 75 threatened species. What are the risks in achieving the maximum benefit by 2030? The judgement was that there is a 70 per cent probability of technical success over the next 15 years and 35 per cent over the next 5 years. Current research into pest animal toxins show promise, however, a toxin based approach is compromised with regulatory issues as well as community perceptions. The toxin 1080 is constantly under scrutiny based on welfare issues and non-target impacts. Overseas supply of core ingredients for new toxins increases the risk of technical success. Biological controls to address some feral animal problems (for example, rabbits) and weeds represent on an ongoing area for fruitful research. A new strain of the Rabbit Haemorrhagic Disease Virus is likely to be released next year with damage caused by rabbits representing by far the largest feral animal cost for the industry. Given that feral animals and weed problems are widespread, the applicability is set at 80 per cent. Existing technology and delivery processes will assist with establishing momentum for change. However, historically adoption is low due to contextual issues not being 11 Grice T., Morin L. and Suang L. 2014, A review of recent weed research and management relevant to Australian livestock industries and proposals for future investments. MLA final report project WEE Gong W., Sinden J., Braysher M. and Jones R (2009) The economic impacts of vertebrate pests in Australia, Invasive Animals Cooperative Research Centre, available at <

48 48 Meat Industry Strategic Plan sufficient to motivate for change. The judgement was that, given technical success, adoption may be achieved with 30 per cent of the sheep and cattle industries. Industry investments required Table 3.10 shows the costs associated with this imperative Potential costs of Imperative Estimates What is the current level of funding? MLA currently invests about $1.1 million per year in pest plants and pest animals. In addition, MLA invests about $0.6 million per year on natural resource management. Government supports natural resource RD&E with significant funding. What would it cost to achieve the maximum benefit? Industry investment in feral animals and weeds of $3.5m per year, when leveraged with other investments, would be necessary to achieve the benefits outlined. What is the percentage achievable with current funding? What is the percentage achievable with half of current funding? 25 per cent on-farm 10 per cent on-farm Source: CIE/RMAC Expert group and workshop input. A summary of this imperative is shown below in table Imperative 1.2.3: Adapting to climate variability Expert Team Workshop participants noted that climate variability, particularly the prevalence of extreme events, were as significant, if not more significant, than average rises in temperature and reductions in rainfall a few days of extreme temperatures in southern Australia, for instance, could kill off large tracts of rye grass. What can we expect if we do nothing by 2030? Studies suggest potential production losses in broadacre agricultural systems in southern Australia due to climate change could be more than 15 per cent if no adaptation to climate change occurs.13 Importantly, actual or realised productivity losses will be less than this, as producers will scale back on inputs (even with no further industry investment in this area) Eckard R, Cullen B and Bell M, 2012, Whole Farm Systems Analysis of Climate Change Impacts on the Southern Grazing Industries, Final Report Sub-project B SBP 0072 under B.SBP.0080, Meat and Livestock Australia, May Dahl, A, Leith, R & Gray, EM, 2013, Productivity in the broadacre and dairy industries, Agricultural commodities: March quarter 2013.

49 3.11 Sustainable management of the natural resource base (1.2.2) By 2020 By 2030 Sector (by 2030) Total red meat a,b Northern beef Southern beef Sheep Goats Feed lots Live export Processing What can we expect if we do nothing by 2030? Supply productivity/costs change relative to base % Productivity Demand price change relative to base % Price No direct impact What would be the maximum potential benefits by 2030? Supply productivity/costs change relative to base % Productivity Demand price change relative to base % Price No direct impact What are the risks in achieving the maximum benefit by 2030? % probability technical success (R&D focus) % % of industry/sector is applicable % % adoption across industry / sector businesses % % of maximum benefit achieved by 2020? % No direct impact Industry investment required What is the level of current annual funding? $m 1.8 Usual commodity split What would it cost p.a. to achieve maximum benefit? $m 3.5 Usual commodity split % achievable with current funding % % achievable with half current funding % a Value added shares by industry used to aggregate model inputs. b % changes refer to on-farm only Source: RMAC Expert workshops and CIE/RMAC Expert group. Meat Industry Strategic Plan

50 50 Meat Industry Strategic Plan Furthermore, and more significantly, even without industry investment in climate adaptation, to some extent producers will adapt by themselves to climate change this means that the 15 per cent figure needs to be substantially discounted. Taking these factors into account it was judged that without industry investment in climate adaptation: productivity losses of about 8 per cent would occur in the southern industry due to climate change the impact on the northern industry would be considerably less than this about 2 per cent. No impact on demand is anticipated. What would be the maximum benefits in the with industry investment case? Adaptation would involve: animal genetic improvement to cope with tougher conditions pasture innovations, including forage legumes improved climate forecasting. It was concluded that with appropriate investments, the impact of climate change could be more than counteracted and productivity improvements could occur. For the purpose of MISP modelling, any productivity improvements beyond simply countering the impact of climate change have been included under the On-farm Productivity Priority. Consequently, under the imperative adapting to climate variability, the productivity changes with industry investment have been set to zero. It is expected that there will be no impact on demand. What are the risks in achieving the maximum benefit by 2030? It was viewed that there was an 80 per cent probability of achieving technical success by Climate change is less applicable to high rainfall zones and in low rainfall rangeland areas however, the potential for extreme heat events is applicable to all. Adoption of climate change management systems have been historically low. Industry investments required Table 3.12 show the associated costs of this imperative and shows that an increase in the overall investment effort is required to achieve the maximum benefits identified.

51 Meat Industry Strategic Plan Potential costs of Imperative Estimates What is the current level of funding? What would it cost to achieve the maximum benefit? What is the percentage achievable with current funding? What is the percentage achievable with half of current funding? $0.55 million $3.5 million 20 per cent 0 per cent Source: CIE/RMAC Expert group and workshop input. A summary of this imperative is shown below in table 3.13.

52 3.13 Adapting to climate variability (1.2.3) What can we expect if we do nothing by 2030? By 2020 By 2030 Sector (by 2030) Total red meat a,b Northern beef Southern beef Sheep Goats Feed lots Supply productivity/costs change relative to base % Productivity Demand price change relative to base % Price Live export Processing No direct effects 52 Meat Industry Strategic Plan What would be the maximum potential benefits by 2030? Supply productivity/costs change relative to base % Productivity Demand price change relative to base % Price No direct effects What are the risks in achieving the maximum benefit by 2030? % probability technical success (R&D focus) % % of industry/sector is applicable % % adoption across industry / sector businesses % % of maximum benefit achieved by 2020? % Industry investment required What is the level of current annual funding? $m 0.5 Usual commodity split What would it cost p.a. to achieve maximum benefit? $m 3.5 Usual commodity split % achievable with current funding % 20 No difference % achievable with half current funding % 0 No difference a Value added shares by industry used to aggregate model inputs. b % changes refer to on-farm only Source: RMAC Expert workshops and CIE/RMAC Expert group.

53 Meat Industry Strategic Plan Priority 1.3: Red meat in a healthy diet There was deemed to be one imperative for this Priority: Positioning red meat as a preferred component in a healthy diet (1.3.1). Imperative 1.3.1: Positioning red meat as a preferred component in a healthy diet There are two aspects to position red meat as a preferred component in a healthy diet. One is to provide compelling reasons for consumers to continue to consume red meat as a nutritious food. The other is to influence Government policy and medical professionals to continue to advocate the inclusion of red meat in the diet. In the case of nutrition policy, Government initiatives and demand for Australian red meat policy is influenced by both domestic and global developments. It is important to keep this domestic and international policy flavour in mind when developing initiatives in this area. What can we expect if we do nothing by 2030? Under the do nothing case without any industry action in this area, there may be a demand shift away red meat represented by a 3 per cent decline in expenditure by domestic consumers by An evaluation of MLA s nutrition program in 2008 concluded that the program had most likely contributed to beef demand. Without any industry action, the workshop participants suggested a 1 kilogram decline per person consumption (based on nutrition only), over 20 years. What would be the maximum benefits in the with industry investment case? Even with industry action, it is expected that per person consumption of red meat will continue to decline in the domestic market. However, this decline would be halved, that is, a decline in expenditure of consumption of 1.5 per cent by What are the risks in achieving the maximum benefit by 2030? There was considered to be insignificant technical risk associated with this Imperative and, therefore, a 100 per cent probability of technical success. Critical to achieving technical success, however, was high international collaboration with other red meat producing countries. Industry investments required Current industry investment around red meat nutrition is $6.8 million in It was deemed that this level of expenditure was adequate going forward. A summary of this imperative is shown below in table 3.14.

54 3.14 Red meat in a healthy diet (1.3.1) What can we expect if we do nothing by 2030? By 2020 By 2030 Sector (by 2030) Total red meat a Northern beef Southern beef Sheep Goats Feed lots Live export Processing Supply productivity/costs change relative to base % Productivity Demand price change relative to base % Demand b Meat Industry Strategic Plan What would be the maximum potential benefits by 2030? Supply productivity/costs change relative to base % Productivity Demand price change relative to base % Demand b What are the risks in achieving the maximum benefit by 2030? % probability technical success (R&D focus) % % of industry/sector is applicable % % adoption across industry / sector businesses % % of maximum benefit achieved by 2020? c % Industry investment required What is the level of current annual funding? $m 6.8 Usual commodity split What would it cost p.a. to achieve maximum benefit? $m 6.8 Usual commodity split % achievable with current funding % 100 No difference % achievable with half current funding % 50 No difference a Value added shares by industry used to aggregate model inputs. b A change in demand modelled as a change in domestic expenditure on red meat. c 100% is used because of the rapid benefit and decay of promotional expenditure the benefit from expenditure is realised in the short term.

55 Meat Industry Strategic Plan Pillar 2: Productivity and profitability Priority 2.1: Production efficiency in farms and feedlots Based on outcomes from the Key Stakeholder Meeting and the 12 Regional Workshops, as well as independent consideration at the Expert Team workshop, it was concluded that there should be two imperatives under the Production efficiency in farms and feedlots Priority: decision support to improve farming businesses an imperative aimed at increasing the performance of average producers to the level of top producers through extension activities increasing maximum possible levels of efficiency and productivity through research across key areas such as mortality, conception and growth rates an imperative aimed at providing new knowledge that would allow top producers to further raise levels of performance. Imperative 2.1.1: Decision support to improve farming businesses A common theme of the Expert Team Workshop was that there was considerable scope for producers to adopt known technologies and practices off-the-shelf without the requirement for additional R&D. What can we expect if we do nothing by 2030? MLA currently spends $8.7 million per year on extension activities across the beef and lamb industries. Numerous studies on the effectiveness of this spend suggest a benefit cost ratio (BCR) of about 6:1. If the $38 million of benefits resulting from this spend were to be lost industry productivity would drop by about 0.4 per cent. It is estimated that there is no demand change under this imperative. What would be the maximum benefits in the with industry investment case? The objective of this imperative is to increase the performance of those outside of the top 20 or 25 per cent producers to the performance levels of top producers. Current information from the industry indicates substantial differences in terms of cost of production between average producers and top producers as shown in table 4.1: 30 and 22 per cent lower for northern and southern beef 14 and 30 per cent lower for prime and dual purpose lamb.

56 56 Meat Industry Strategic Plan It is important to note that these outcomes are drawn from data which is contributed by producers towards a benchmarking study and database. 4.1 Current cost of production across industry segments Average of all producers Top producers % difference Northern beef $/kg lw $1.69 $ Southern beef $/kg lw $1.19 $ Prime lamb $/kg dw $3.76 $ Lamb dual purpose $/kg dw $3.67 $ Note: For the northern beef top producers represent the top 25 per cent by financial performance, otherwise reference is to the top 20 per cent Source: McLean et al (2014), McEachern et al (2014a) and McEachern et al (2014b) As a result of this voluntary participation, the data contained in table 4.1 are unlikely to be representative of all producers. Rates of return reported from these studies are consistently above those in the MLA/ABARES surveys which is based more on stratified random samples. Due to the self-reporting nature of the benchmarking analysis, the average costs identified are likely to be less than those of the general producer base and therefore the differences reported in table 4.1may understate the potential gains that are available. The potential gains available to the industry depend on the scope of moving producers up towards best practice. This scope subsequently is dependent on the profile of the current producer base which is shown in table Industry numbers by farm and size by financial performance a Bottom 25% Middle 50% Top 25% ABARES number of farms (producers) Northern beef % Southern beef % Prime lamb (slaughter lambs) % Lamb dual purpose (mixed and specialist producers) % ABARES livestock numbers Northern beef % Southern beef % Prime lamb (slaughter lambs only) % Lamb dual purpose (mixed and specialist producers) % a Based on financial performance. Source: MLA and ABARES farm survey. This table shows, for example, in the Northern Beef sector that 28 per cent of the farms (producers) are in the top 25 per cent of financial performers and that these farms account for 54 per cent of the cattle. These data provide the weights to estimate the potential benefits of lifting producers up towards best practice for the industry as a whole. This is

57 Meat Industry Strategic Plan calculated in table 4.3, where the maximum benefits are assumed to result from the bottom and middle tier producers reducing their costs in line with the top 25 per cent. The cost of production estimates in table 4.1 then required adjustment to be on the same basis as the data in table 4.2. This is done in table 4.3, where an internally consistent cost estimate for the bottom 25 per cent producers has been calculated as well as an industry wide cost estimate reflecting the fact that the top 25 per cent of producers hold proportionally more of the cattle and sheep. This results in the average cost of production in Northern beef reducing from $1.69 per kg live weight to $1.48 kg per live weight 4.3 Cost of production estimates by producer group a Bottom 25% Middle 50% Top25% Industry average Assumed original cost estimates can be weighted by producers Northern beef $/kg lw Southern beef $/kg lw Prime lamb $/kg dw Lamb dual purpose $/kg dw Re-weighted by livestock numbers Northern beef $/kg lw Southern beef $/kg lw Prime lamb $/kg dw Lamb dual purpose $/kg dw a The cost of production for bottom 25 per cent producers calculated to achieve industry average in table 3.8. Source: McLean et al (2014), McEachern et al (2014a) and McEachern et al (2014b) and CIE calculations. The maximum benefits for the industry from this imperative can then be calculated from moving-up bottom and middle tier producers towards the top producers. Here, it has been assumed that in the maximum benefit case, middle tier producers catchup to where the top producers are now, and that producers in the bottom tier improve by at a similar rate to middle producers, but is not sufficient to get them to the top producers now. Table 4.4 shows that based on livestock numbers, rather than numbers of farms (producers), that the industry could reduce the average farm cost of production for northern beef by 17.2 per cent, for southern beef by 15.3 per cent, for prime lamb by 10.4 per cent and for dual purpose lamb by 21.3 per cent. 4.4 Maximum benefits from reducing producer costs by improving decision support a Bottom 25% Middle 50% Top 25% All producers a Northern beef % Southern beef % Prime lamb % Lamb dual purpose % a Weighted by livestock numbers rather than number of farms/producers. Source: CIE calculations.

58 58 Meat Industry Strategic Plan No demand changes are forecast under this imperative. What are the risks in achieving the maximum benefit by 2030? As no new knowledge is being acquired or technology being developed through research, technical risks are not applicable. The aim of this imperative is to raise the bottom and middle tier producers to the level of the top 20 per cent therefore, applicability is to these producers (based on livestock numbers as shown in table 4.2). It is estimated that 60 per cent these target groups will be amenable to applying new practices to their farming businesses. That is, this imperative focuses on the middle 50 per cent of producers. Industry investments required Table 4.5 shows the cost estimates from the expert workshop and the CIE/RMAC Expert group. 4.5 Potential costs of Imperative Estimates What is the current level of funding? What would it cost to achieve the maximum benefit? What is the percentage achievable with current funding? What is the percentage achievable with half of current funding? $5.8 million $100 million a year To obtain the maximum level of adoption tailored advice is required on a per property basis. Some in the workshop indicated an estimated cost of $6 000 per year per property. This would equate to an annual cost of about $250 million per year. Others identified that it would require about $100 million a year with costs assigned to both train the trainer type activities and on-farm delivery. The lower estimate has been used in this study. 5% 2.5%. Source: CIE/RMAC Expert group and workshop input. A summary of this imperative is shown below in table 4.6.

59 4.6 Decision support for farming businesses (2.1.1) By 2020 By 2030 Sector (by 2030) Total red meat a,b Northern beef Southern beef Sheep Goats Feed lots Live export Processing What can we expect if we do nothing by 2030? Supply productivity/costs change relative to base % Productivity Demand price change relative to base % Price No direct effects What would be the maximum potential benefits by 2030? Supply productivity/costs change relative to base % Productivity Demand price change relative to base % Price No direct effects What are the risks in achieving the maximum benefit by 2030? % probability technical success (R&D focus) % % of industry/sector is applicable d % % adoption across industry / sector businesses % % of maximum benefit achieved by 2020? c % Industry investment required What is the level of current annual funding? $m 5.8 Usual commodity split What would it cost p.a. to achieve maximum benefit? $m 100 Usual commodity split % achievable with current funding % 5% No difference % achievable with half current funding % 2.5% No difference a Value added shares by industry used to aggregate model inputs. b % changes refer to on-farm only C 40% used in recognition of the likely larger size of early adoptors d 60% is in relation to size rather than number of producers Meat Industry Strategic Plan

60 60 Meat Industry Strategic Plan Imperative 2.1.2: Increasing livestock productivity through new research The potential to improve productivity above the adoption of current best practice and known technologies was identified. The workshop identified three areas for improvement out to 2030: reducing mortality rates; increasing reproductive (conception) rates; and increasing growth rates include feed base and feed conversion efficiency. After further consultation with industry experts, detailed scenarios for each of these areas, as shown in tables 4.7 through to 4.9, were then developed. The relative scope for improvement across each area can be outlined as follows: the potential for reducing mortalities was identified as being low relative to the other areas across the industry in the case of northern beef, where mortalities are a significant constraint, the actions that are required are well known and are accounted for in imperative the major beneficiary of improved conception rates would be the northern beef industry where performance is poor against potential and, to a lesser extent, the sheep industry where adoption rates are currently low and could be improved with the development of further technologies the greatest potential lies in the improving growth rates especially in the southern beef and sheep industries which are characterised by comparatively low average daily weight gains compared to gains potentially available through maximising use of the feedbase. A summary of the three component imperatives is shown below in table At first glance, the increases in productivity from new research, as recorded in the row in table 4.10 titled Supply productivity/costs relative to base, may seem quite large. In assessing the size of these predicted changes, however, two factors need to be kept in mind: First, the improvements of up to 93 per cent recorded in the row Supply productivity/costs relative to base effectively represent research potential. After allowance for technical risk, applicability and adoption the absolute improvements in productivity are diminished considerably becoming 7.5 per cent for northern beef, 11.0 per cent for southern beef, 9.9 per cent for sheepmeat and 4.3 per cent for feedlots. Second, improvements are made over a 15 year period. Implied annual rates are modest. In terms of research potential the implied annual rates are 1.8 per cent for northern beef, 2.6 per cent for southern beef, 4.5 per cent for sheepmeat and 0.6 per cent for feedlots and after adjustment for technical risk, applicability and adoption are 0.5 per cent per cent each yearfor northern beef, 0.7 per cent for southern beef, 0.6 per cent for sheepmeat and 0.3 per cent for feedlots. Also note from table 4.10 that no assumptions have been made for improvements in goat productivity.

61 4.7 R&D initiatives to improve livestock productivity mortalities Northern beef Southern beef Sheep Feedlots What can we expect if we do nothing by 2030? Top line change Same as baseline Same as baseline Same as baseline Same as baseline Detail and mechanics 10% loss in breeders in the north - see Northern Beef Situation Report. Breeder (and calf) mortality is negligible (<2%) Ewe losses currently estimated to be 8% Mortality at around 1% (primarily Bovine respiratory disease (BRD) and Pestivirus) What would be the maximum benefits in the with industry investment case? Top line change 0% - see below 0% 0% BRD cases represent about 70% of feedlot mortalities. The target should be for a 50% reduction. Detail and mechanics The causes are multifactorial but can be substantially reduced through adoption of current best practice considered under the Decision support' MISP imperative, not here. Not a major research priority Focus on genetic-environmental interactions could see a reduction of mortality rates by as much as 25% That is, ewe mortalities could be reduced from 8% to 6%. Minor gains likely in areas of remote sensing technologies, better vaccines, etc. Significant gains could be made through extension (including before entering feedlot). What are the risks in achieving the maximum benefit by 2030? Technical chance of research providing the opportunity to attain the specified outcome na na 50% 95% Potential market size by 2030 (proportion of flock/herd) Potential adoption levels by 2030 (proportion of flock/herd) Impact summary na na 100% 100% na na 25% 100% Impact on cost of production na na -0.25% -0.25% What proportion (of best-case scenario) could be achieved by 2020? na na 20% 25% Meat Industry Strategic Plan

62 4.8 R&D initiatives to improve livestock productivity conception rates What can we expect if we do nothing by 2030? Northern beef Southern beef Sheep Feedlots Top line change Same as baseline Same as baseline Same as baseline Same as baseline Detail and mechanics Current branding rates average 72%. 'Hard' country 55-58% and 'soft' country 75%. Up to a 15% loss between pregnancy testing and weaning through abortion, dystocia, predation and ill-thrift Current rates are around 90% Marking rates currently average 95% in the prime lamb industry, with leading edge producers securing marking rates of %. 75% of lamb mortalities occur in the first 3 days of life. Most flocks will scan %. From scanning to marking the average loss is 35-40% in lifetime ewe flocks. na 62 Meat Industry Strategic Plan What would be the maximum benefits in the with industry investment case? Top line change 8% 0% 5% na Detail and mechanics Increase branding rate from 72% to 80%. Workshop suggested no change but subsequent discussions revealed significant scope for twinning Highly heritable within families in well-managed (fed) southern herds. Possible work in shortening gestation. In the prime lamb industry there is the potential to increase marking rates by 5% due to new research Further increases possible by more producers adopting existing research (2.2.1). Potential gains included better scanning techniques (that could be applied by producers) and increasing maiden CRs, especially joining ewe lambs (which comprise 15% of the national flock). Overall gains to be had in pursuing 3 lambs in 2 years. na

63 What are the risks in achieving the maximum benefit by 2030? Northern beef Southern beef Sheep Feedlots Technical chance of research providing the opportunity to attain the specified outcome Potential market size by 2030 (proportion of flock/herd) Potential adoption levels by 2030 (proportion of flock/herd) 85% na 30% na 100% na 100% na 35% na 25% na Impact summary Impact on cost of production -3.6% na -0.24% na What proportion (of best-case scenario) could be achieved by 2020? 10% na 70% na 4.9 R&D initiatives to improve livestock productivity growth rates Northern beef Southern beef Sheep Feedlots What can we expect if we do nothing by 2030? Top line change Same as baseline Same as baseline Same as baseline Same as baseline Detail and mechanics McLean et al (2014) range from 97 (average) to 106 (top 20%) kg LW/AE/year McEachern et al (2014) range from 31 (average) to 54 (top 20%) kg LW/ha/100mm rainfall. 300kg LW/ha/yr is an MFP benchmark kg/ha achieved in intensive, irrigated pasture-based systems (Winnaleah) versus 600kg/ha in well-managed, dryland systems (Tasmania) Industry average is around 180 grams/head/day. It has been shown that the genetic potential of lambs is a daily weight gain of grams/head/day. McEachern et al (2014a) averages are 16.8 and 11.5 kg Dwt/ha/100mm rainfall for prime lamb and dual purpose flocks, respectively. na Meat Industry Strategic Plan

64 Northern beef Southern beef Sheep Feedlots What would be the maximum benefits in the with industry investment case? Detail and mechanics 15% ADG increase in targeted areas Feedbase is the major constraint in northern Australia. Pasture legumes (sown either into native pastures or with selected grasses to replace the native pasture) remains the most effective option for long-term improvements in productivity. There are a relatively small number of reliable and persistent legume species/lines available for producers in northern Australia, and many land types currently have no reliable and persistent legume option. There is also a limited range of pasture grasses suitable, particularly lower fertility areas. Estimates of up to 15% increase in ADG with tropical legumes. Target is to increase growth rates by 10% and stocking rates by 10% Increase with precision fertiliser application, increased pasture digestibility, improved genetics and other improvements in feed conversion 12.5% increase in ADG Increase average daily weight gains by 12.5% (approximately an increase of 50 grams per head per day on leading edge producer ADGs of 400 grams per head per day) 10% in ADG 10% potential increase in ADG through genetic gain, new feed additives, alternatives to HGPs and beta-agonists, and better NFE testing/screening at induction 64 Meat Industry Strategic Plan What are the risks in achieving the maximum benefit by 2030? Technical chance of research providing the opportunity to attain the specified outcome Potential market size by 2030 (proportion of flock/herd) 70% 65% 50% 50% 80% 90% 80% 80% Potential adoption levels by 2030 (proportion of flock/herd) 35% 30% 20% 100%

65 Northern beef Southern beef Sheep Feedlots Impact summary Impact on cost of production -3.9% -8.25% -9.4% -4% What proportion (of best-case scenario) could be achieved by 2020? 15% 25% 30% 40% Meat Industry Strategic Plan

66 4.10 Increasing livestock productivity though new research (2.1.2) What can we expect if we do nothing by 2030? By 2020 By 2030 Sector (by 2030) Total red meat a Northern beef Southern beef Sheep Goats Feed lots Supply productivity/costs change relative to base % Productivity Demand price change relative to base % Price What would be the maximum potential benefits by 2030? Supply productivity/costs change relative to base b % Productivity Demand price change relative to base % Price Live export Processing No direct effects No direct effects 66 Meat Industry Strategic Plan What are the risks in achieving the maximum benefit by 2030? % probability technical success (R&D focus) % % of industry/sector is applicable % % adoption across industry / sector businesses % % of maximum benefit achieved by 2020? % Industry investment required What is the level of current annual funding? $m 15.5 What would it cost p.a. to achieve maximum benefit? $m 15.5 % achievable with current funding % 100 % achievable with half current funding % 50 a % changes refer to on-farm only. b Due to the way this imperative was calculated the information against sectors refers to the direct productivity impact expected for each sector prior to adjustment for technical success, applicability and adoption rates. Source: RMAC Expert workshops and CIE/RMAC Expert group.

67 Meat Industry Strategic Plan Priority 2.2: Processing productivity As part of this priority, the Expert Team Workshop participants discussed meaningful imperatives and identified the following areas of focus for the processing sector: Labour efficiency and the benefits of new technology and innovation. At present, the high cost of labour contributes to the relatively high cost of processing in Australia. The application of technologies and other changes (such as improving skill sets to meet more complex specifications and QA requirements) offers the potential to increase processing labour productivity. Better information flows through supply chain. This involves enhanced feedback systems, automation and use of electronic platforms to ensure continuity of supply. To illustrate, significant benefits have been realised from automation, for example, automation in lamb boning rooms.15 Additional benefits beyond labour productivity could include greater data availability for quality and yield. Infrastructure efficiency, streamlining logistics (transport, etc) including addressing infrastructure bottlenecks. A summary of other issues that were identified in the workshop include: the importance of energy efficiency the ability to demonstrate environmental credentials an improved electronic capability as part of individual plant and supply chain efficiency and through-chain integrity. There are strong linkages between the areas of work listed above and the other MISP priorities: better information flows through supply chain is already covered in the MISP Imperative Improving quality and compliance via enhanced supply chain information; infrastructure efficiency and removal of bottlenecks is identified in the MISP imperative Improving efficiencies in regulation, infrastructure and logistics; and improvements in energy efficiency has already been counted in the MISP Imperative Minimising industry impact on the environment. Therefore, the modelling work on processing productivity focused on securing improvements in labour productivity. Imperative 2.2.1: Increasing access to, and efficiency, of labour The two main focus areas identified for labour efficiency were (in order): ensuring / sustaining an adequate pool (quantity) of available labour supporting sufficient skills (quality) in the current workforce, including through the introduction of manual assist technologies, general advancements in automation 15 See for example, MLA Feedback Magazine 2015, Taking a forward leap, January-February,

68 68 Meat Industry Strategic Plan (which reduce labour requirements and increase yield) and also accessing some untapped areas of the labour force. 16 What can we expect if we do nothing by 2030? Without further industry investment in this area it was judged that there would be no significant change in labour productivity or the cost of labour compared to the current business-as-usual case. What would be the maximum benefits in the with industry investment case? To provide an indication of the magnitude of improvements possible in labour productivity is reasonably challenging given the range of plants by species, size and integration, plant age and business model and the lack of benchmarking data across the industry. There is no doubt, however, that labour costs are significant as a proportion of total processing costs. For an integrated beef processing plant operating in both the domestic and export markets, between 55 and 65 per cent of total variable costs is labour. If costs for processing cattle was around $300 per head, labour costs could be $170 or more per head. Potential savings in these costs in the order of $20 per head, or up to 10 per cent, could be realised, for example, from the removal of penalty rates or from further automation in boning rooms. This improvement was applied to both beef and sheepmeat operations. What are the risks in achieving the maximum benefit by 2030? It was agreed that there are no fundamental barriers to success. However workshop participants acknowledged the following: developing technologies to a commercially ready state (for example, to keep up with industry chain speeds) remains a technical barrier because of the variability between individual plants, adoption risks would be significant. Given, the magnitude of the potential benefits out to 2030, it was assumed that these benefits will be adopted by 75 per cent of the processing industry, on the basis of production, by Industry investments required Currently the industry spends $5.6 million annually on processing productivity and future investments of about this level were deemed appropriate. A summary of this imperative is shown below in table For instance, increased female participation. 17 In line with the current contribution of the top ten processors (both beef and sheepmeat) to production.

69 4.11 Increasing access to, and efficiency, of processing labour (2.2.1) By 2020 By 2030 Sector (by 2030) Total red meat a Northern beef Southern beef Sheep Goats Feed lots Live export Processing What can we expect if we do nothing by 2030? Supply productivity/costs change relative to base % Productivity Demand price change relative to base % Price What would be the maximum potential benefits by 2030? Supply productivity/costs change relative to base b % Productivity Demand price change relative to base % Price What are the risks in achieving the maximum benefit by 2030? % probability technical success (R&D focus) % % of industry/sector is applicable % % adoption across industry / sector businesses % % of maximum benefit achieved by 2020? % Industry investment required What is the level of current annual funding? $m What would it cost p.a. to achieve maximum benefit? $m % achievable with current funding % % achievable with half current funding % a Value added shares by industry used to aggregate model inputs. b Modelled as an 10 per cent increase in productivity of labour and energy use within processing plants. Source: RMAC Expert workshops and CIE/RMAC Expert group. Meat Industry Strategic Plan

70 70 Meat Industry Strategic Plan Priority 2.3: Live export productivity The live export industry, through its adoption of best practice and targeted R&D, has over many years reduced on-vessel mortalities and raised delivery rates to overseas markets thus simultaneously achieving: significant gains in productivity; and improvements in animal welfare. In terms of future R&D work Expert Team Workshop participants identified the following areas of activity: ongoing reductions in mortalities on vessels or in feedlots in overseas markets (this work has strong linkages to the MISP Animal Welfare Priority) including further addressing: heat stress, particularly for exports to the Middle East and the Gulf bovine respiratory disease salmonella and inanition 18. increase the welfare and growth rates of animals in feedlots overseas, working with local industries (with strong linkages to the MISP Animal Welfare and Market Access Priorities) reduction of the regulatory burden on the industry (with strong linkages to the MISP Regulation, Infrastructure and Logistics priority) Although strongly linked to improvements in productivity, the second and third of the areas above have been taken into account in economic modelling related to the MISP Market Access Priority and to MISP Regulation, Infrastructure and Logistics Priority and are not taken into account here to avoid double counting Therefore, only the first of the areas listed above is addressed under Priority 2.3. Imperative 2.3.1: Improving livestock performance in export operations What can we expect if we do nothing by 2030? Workshop participants indicated that under the do nothing case the current level of mortalities, which are already low, would continue into the future there should be no change from the baseline. What would be the maximum benefits in the with industry investment case? In relation to the first of these areas, research work currently underway offers the promise of mortalities for sheep on live export vessels being halved from 0.7 per cent to 0.35 per cent and cattle mortalities being reduced by about 20 per cent from 0.11 per cent to per cent. 18 The leading cause of death in sheep exported from Australia.

71 Meat Industry Strategic Plan Table 4.12 provides some indication of the maximum benefits to the live trade from further productivity-focused R&D on mortalities and morbidities. There could also be an insurance value of this research to quickly address emerging issues with respect to animal health and welfare more generally Maximum benefits for the live trade by 2030 Delivery rate 2013 Export fob value 2013 Cost of mortalities Reduction in mortalities by 2030 Increase in export value by 2030 a % $m $m % % Cattle Sheep Goats a Relative to baseline. Source: LiveCorp and CIE/RMAC Expert group. These improvements were applied to the GMI/IF model as an increase in the export return for each sector which was phased in between 2016 and What are the risks in achieving the maximum benefit by 2030? Given the adjustment in table 4.12 for likelihood of success, it has been assumed that all live exporters would have the incentive to adopt the required practice change or technologies by Industry investments required Currently the industry spends $1.1 million annually on Live export Productivity Research. It was judged that no change in expenditure in real terms would be warranted to achieve the maximum benefits identified above. A summary of this imperative is shown below in table 4.13.

72 4.13 Improving livestock performance in export operations (2.3.1) What can we expect if we do nothing by 2030? By 2020 By 2030 Sector (by 2030) Total red meat a Northern beef Southern beef Sheep Goats Feed lots Live export Processing Supply productivity/costs change relative to base % Productivity Demand price change relative to base % Price What would be the maximum potential benefits by 2030? 72 Meat Industry Strategic Plan Supply productivity/costs change relative to base % Productivity Demand price change relative to base % Price What are the risks in achieving the maximum benefit by 2030? % probability technical success (R&D focus) % % of industry/sector is applicable % % adoption across industry / sector businesses % % of maximum benefit achieved by 2020? % Industry investment required What is the level of current annual funding? $m 1.1 What would it cost p.a. to achieve maximum benefit? $m 1.1 % achievable with current funding % 100 % achievable with half current funding % 0 a % changes refer to the live export industry only Source: RMAC Expert workshops and CIE/RMAC Expert group.

73 Meat Industry Strategic Plan Pillar 3: Market Growth and Diversification Priority 3.1: Trade and market access The Expert Team workshop identified that market access remained a high priority for industry. Two primary imperatives were identified: securing further reductions in economic barriers to trade (3.1.1) securing alleviation from technical barriers to trade (3.1.2) Imperative 3.1.1: Reducing economic barriers to trade Two initiatives were modelled under reducing economic barriers to trade: Further reducing tariffs and/or increasing (or removing) quotas; and Defending, where appropriate, existing conditions of market access. Reducing tariffs/increasing quotas What can we expect if we do nothing by 2030? Without any further action by industry, Australian red meat exporters will most likely realise the benefits from recent FTA negotiations Japan-Australia Economic Partnership Agreement (JAEPA) Korea-Australia FTA (KAFTA) China-Australia FTA (ChAFTA). The potential improvements from these agreements are significant and the benefits from these agreements are likely to flow to industry even without substantial additional investments being committed to market access. Despite progress made in addressing economic barriers to trade in Japan, Korea and China, there are many market access barriers still to be addressed. Without concerted, coordinated industry action, individual companies will pursue their own company-based outcomes. Without considerable ongoing industry investment in market access through Industry Service Organisations and Peak Councils government would most likely prioritise other sectors over the meat and livestock sector and possibly exclude red meat from preferential agreements. Not all the potential gains would be realised, but some gains would still be achieved.

74 74 Meat Industry Strategic Plan What would be the maximum benefits in the with industry investment case? Red meat The Export Team workshop identified a clear list of market access priorities for industry and government to pursue on a country by country basis. Of these priorities the Trans Pacific Partnership (TPP) was identified as having the highest probability of a successful outcome and potentially would provide significant benefits to industry by: building on the outcome of the Japan Australia Economic Partnership Agreement offering relief from market access barriers applying to Australian beef and sheepmeat by other TPP member countries including Mexico, Canada, Peru and the United States. Apart from the TPP other identified priority markets for improvement in economic conditions of market access were the European Union, India and Taiwan. Live Exports The countries providing greatest potential benefits in terms of market access for the live export sector were identified as: Saudi Arabia exporters indicated that this would be a market of about sheep, with the potential to grow over time. Industry work on Livestock Global Assurance Program (LGAP) offers the potential of a reopening of the Saudi market. China at the same workshop exporters indicated that this would be a market for a minimum of feeder or slaughter cattle, with estimates ranging beyond cattle. Improved market access was represented by increasing demand for live sheep and cattle in each of these markets using the GMI model phased in over the period to Defending current access arrangements In addition to proactively agitating to reduce economic barriers to trade, industry action is also required to maintain existing arrangements. There have been a number of recent examples where market access conditions facing Australian red meat and livestock exporters have either come under threat or have deteriorated (e.g. the case of the Russian Federation). Not only must the industry focus on reducing economic and technical barriers to trade where such barriers exist, it must also be prepared to defend existing conditions of market access in an attempt to ensure that these do not deteriorate. What can we expect if we do nothing by 2030? A number of cases were identified where existing market access conditions were at risk of deteriorating. 19 Noting that Saudi Arabia sits in the other countries grouping of the GMI model.

75 Meat Industry Strategic Plan For red meat exports it was estimated that there was a risk of potential losses in market access totalling 30 kt product weight (a 2 per cent reduction in total exports in 2014 terms) each year out to 2030 without adequate surveillance of developments within markets. These losses are assumed to be proportional across beef and sheepmeat exports to emerging markets including Indonesia, the Philippines, the Russian Federation and Middle East/North Africa. For live exports, a significant risk was identified of trade restricting quotas being introduced in one or more major live export markets. The benefits were simulated by the avoidance of a 20 per cent reduction in access to a major market for live cattle. Maximum benefits under the with industry action case The maximum benefits have been quantified by assuming that some of the potential costs of lost market access could be avoided. Summary of risks and investments for the Market Access Priority Table 5.2 summarises the assessments made of the probability of success across the three imperatives under the Market Access Priority and current levels of expenditure. It was the judged that current levels of investment were adequate to achieve the outcomes identified above. Imperative 3.1.2: Reducing technical barriers to trade (TBTs) The Expert Team Workshop identified that TBTs remained an important constraint in key export markets. MLA has prepared a significant report on the industry priorities with respect to TBTs. The key issues identified in order of priority for meat include: product age and expiry dates plant accreditation product entry restrictions (specifications, bans on market entry) increased costs in terms of labelling requirements Market specific issues for live exports were also identified. What can we expect if we do nothing by 2030? The Workshop identified that without collaborative action on TBTs, the number and severity of TBTs would increase over time. Red meat Given the nature of how TBTs are implemented and the high costs of cataloguing them, participants believed that a conservative scenario to 2030 would be persistence of the barriers as described in table 5.1in percentage terms.

76 76 Meat Industry Strategic Plan Cost of Technical Trade Barriers on Australian red meat exports Value of TBTs a % of 2013 export value fob Beef Lamb Mutton Offal Total Beef Lamb Mutton $m $m $m $m $m % % % United States Canada South Korea Hong Kong Singapore Malaysia Indonesia Thailand Philippines China EU Mexico India Russian Federation Other countries Total a Estimated average value of trade barriers over the period to Source: DN Harris and Associates (2013) and CIE calculations. That is, current TBTs would persist at current levels in percentage terms as tariff equivalents out to The technical barriers to trade for red meat are significant. Over the period to the average annual impact has been calculated to be $ billion.20. The estimates in table 5.1: measure the impact of TBTs not only in terms of increasing compliance costs but also in terms of restricting quantities of product destined for these markets. represent a maximum benefit as a result of the line-by line approach to the calculations, the inclusion of increased market share (supply response) and the lack of constraint on the Australian supply side. To put this estimate in perspective: the average annual value of red meat and offal exports over the same 5 year period was $6.5 billion, therefore the potential improvement from the removal of trade barriers was a 21.2 per cent increase in the value of exports by , the export value of Australian red meat had risen to $9.5 billion as a result of volumes that were 46 per cent higher and nominal prices that were 13 per cent higher DN Harris and Associates 2013, Comparative evaluation of technical barriers to trade for Australian red meat, Report prepared for Meat and Livestock Australia and Australian Meat Industry Council, June.

77 Meat Industry Strategic Plan Live exports In the case of live exports the priorities were: spot market issues (weight restrictions, permit allocations, import methods) a number of health protocol requirements. Whilst these issues are acknowledged in the absence of a detailed study it is difficult to place a dollar cost on these restrictions. Therefore, no benefits from addressing these issues have been included in the analysis. Maximum benefits under the with industry action case The maximum benefits possible would be the removal of all TBTs identified above by 2030 (without replacement by new barriers). 5.2 Reducing barriers to trade risks and investment Reducing economic barriers to trade (3.1.1) Reducing technical barriers to trade (3.1.2) What are the risks in achieving the maximum benefit by 2030? % probability technical success (R&D focus) % % of industry/sector is applicable % % adoption across industry / sector businesses % % of maximum benefit achieved by 2020? % Industry investment required What is the level of current annual funding? $m What would it cost p.a. to achieve maximum benefit? $m % achievable with current funding % % achievable with half current funding % Source: RMAC Expert workshops and CIE/RMAC Expert group. Priority 3.2: Marketing and promoting Australian red meat and livestock The Expert Team Workshop identified that the marketing task facing the Australian red meat industry was segmented into three areas and imperatives: developing export markets (3.2.1) developed export markets (3.2.2) the (developed) domestic market (3.2.3). 21 Export values in were distorted by record slaughter levels of cattle.

78 78 Meat Industry Strategic Plan What can we expect if we do nothing by 2030? Without industry action across marketing and promotion, no boost in demand would be achieved from industry wide marketing efforts demand would be the same as the baseline. Maximum benefits under the with industry action case A number of studies have been analysed to assess the impact of generic promotional activities on red meat demand in order to guide MISP economic modelling for this imperative. These studies rely on a combination of economic theory and statistical methods to estimate returns to producers from generic promotion. Some points to emerge from these studies are: the demand for red meat is influenced by many factors the vast majority of which lie outside the control of industry for example, income levels, prices for substitute products, exchange rate levels, etc. results from studies examining the impact of generic promotional campaigns vary between very low impacts to moderate impacts the evidence suggests that generic promotion can expand total demand versus individual firm efforts that often compete only for market share and shelf space with little impact on expanding the total pie. A detailed review of previous studies is contained in appendix C of this report. The conclusion drawn the median benefit cost ratio from previous studies analysing returns to producers from generic marketing activities is about 6:1 in developed markets and slightly higher than this in developing markets. A BCR of 6:1 in terms of producer returns translates into a shift in retail expenditure levels for red meat in the domestic market of about 1.9 per cent (that is, generic promotion activities at recent levels of investment shift the amount consumer spend on red meat by about 1.9 per cent). Similar calculations can be applied to export markets. The likely program of work under this imperative through to 2030 would not be substantively different to that under current investment profile, and the same payoffs dollar of expenditure as identified above. Therefore, it has been assumed that the maximum benefit per dollar spent under the Marketing and Promotion Priority is: 10:1 for developing export markets around 6:1 for developed domestic and export markets. Risks and investments required for Marketing and promotion Given that activities envisaged within this priority are largely based on the continuance of the existing programs, with similar objectives and approach, there should be no risks to achieving the maximum benefits identified above. Table 5.3 summarises:

79 Meat Industry Strategic Plan Marketing and promotion payoffs, risks and investment a All red meat Developing export markets Developed export markets Domestic markets What can we expect if we do nothing by 2030? Demand change relative to base % What would be the maximum potential benefits by 2020? Estimated benefit cost ratio based on gross value of production 10:1 6:1 6:1 Demand (expenditure) change relative to base % What are the risks in achieving the maximum benefit by 2030? b % probability technical success a % % of industry/sector is applicable % % adoption across industry / sector businesses % % of maximum benefit achieved by 2020? % Industry investment required What is the level of current annual funding? $m What would it cost p.a. to achieve maximum benefit? $m % achievable with current funding % % achievable with half current funding % a Note that the benefits of marketing and promotion investments decay rapidly after funding ceases. b Probability of success and adoption has been incorporated into the maximum benefit calculation. Source: RMAC Expert workshops and CIE/RMAC Expert group. the increase in expenditure possible from each of the imperatives identified above the assessment of the probability of success across this priority the judgement that current levels of investment were adequate to achieve the outcomes identified above.

80 80 Meat Industry Strategic Plan Pillar 4: Supply Chain Efficiency and Integrity Based on outcomes from the Key Stakeholder Meeting and the 12 Regional Workshops, as well as independent consideration at the Expert Team workshops, it was concluded that MISP Pillar 4, Supply Chain Efficiency and Integrity, should contain two priorities: Optimising product quality & cost efficiency; and Guaranteeing product & systems integrity. Priority 4.1: Optimising product quality and cost efficiency This priority is comprised of the following imperatives: Improving quality and compliance via enhanced supply chain information (4.1.1) Improving efficiencies in regulation, infrastructure and logistics (4.1.2). Imperative 4.1.1: Improving quality and compliance via enhanced supply chain information From the Key Stakeholder Meeting, the Regional Forums and the Expert Team Workshop, there was general recognition that additional industry value could be created through: better integration and communication of information of customer requirements along the chain Industry Service Organisations continuing to supply general market intelligence on the state of the industry. Better integration and communication of information of customer requirements This initiative involves developing the tools required to enable better performance by the whole of supply chain. There are two important components of better information flows: improving the language that informs participants along the supply chain about customer requirements improving information and communication flows to be more accessible, relevant and timely. Expert Team Workshop participants pointed out that if market signals were not accurately and comprehensively conveyed throughout the supply chain, with price premiums and penalties applying against end user specifications, then production inefficiencies would arise. This highlights the need for a common language to apply across the whole supply chain with payment systems that maximise performance and

81 Meat Industry Strategic Plan align with the potential value of individual animals (see box 6.1). In addition, compliance against specification and industry efficiency would be enhanced by better objective measurement and prediction of key attributes, especially at the live stage A vision for an integrated supply chain Productivity and efficiency are maximised by regular turnoff of large lines of consistent cattle. The challenge for the Australian industry is the variation between individual animals within processing batches and over time. This variation leads to discounts against specification for producers and higher costs for processors as production cannot be organised around an individual animal type meeting the specification of a particular customer or market. There is scope for producers to avoid discounts if individual animals not meeting specification were not immediately sent for processing, but rather were diverted for aggregation with others, including finishing to meet the requirements of a market segment. There is also scope for processors to reduce costs and increase lean meat yield. Currently, the majority of the marshalling of product, to fill orders or to hit specification, is done within the plant in the chillers or boning room. The vision is to provide the industry systems and infrastructure to enable a move towards a more integrated system such as would be found if the industry was owned by a single entity. Achieving this vision requires transmission of price signals that better integrate the diverse producer and regional base of the Australian production system with the processing sector. In turn, transmission of appropriate price signal will encourage genetic selection and the application of livestock management systems that maximise saleable meat yield and quality. What can we expect if we do nothing by 2030? As suggested by the Expert Team Workshop under the do nothing case there would be no change from the baseline situation industry would continue much the way it does now. There may be a risk that the industry takes purely a commodity focus around yields with regard to customer requirements. There may, in fact, be a slight upside as individual supply chains increasingly see it as being in their commercial interests to share information to secure improved efficiency and revenue outcomes. 22 These tools could include new technologies such as Dual Energy X-ray Absorptiometry and Computerised Tomography.

82 82 Meat Industry Strategic Plan What would be the maximum benefits in the with industry investment case? Supply chain efficiency essentially involves all parts of the supply chain working harmoniously in a way that achieves maximum efficiency along the supply chain. Other MISP priorities are aimed at ensuring that each part of the supply chain separately achieves efficient outcomes (for example, MISP Priority 2.1: Production efficiency in farms and feedlots). The supply chain efficiency priority aims to add to the productivity benefits each segment of the supply chain can separately achieve by ensuring that different segments work together in a way that maximises efficiency for the supply chain as a whole. Given that ownership throughout the supply chain is diverse, the means by which this outcome is achieved is to ensure price signals along the supply chain incentivise supply chain participants to produce in a way that maximises profitability throughout the chain. To maximise profitability, product must be produced to end user specifications. To the extent that this is not occurring at present represents an industry opportunity. Data was made available to the MISP team on prices paid for steers and heifers and the final value of meat obtained from these animals discounted to a farm gate value. This data indicated that prices paid to producers were often a poor indicator of the true value of the animal if a producer was paid $900 for a steer (based on carcase weight), the true value of meat from the animal was likely to range from $800 to $ The $100 variation either way from the average value paid to a producer was due to differences in meat quality and yield. The data, moreover, revealed that about 50 per cent of the value variation was due to quality and about 50 per cent due to yield (both the total yield and distribution of that yield). To ensure correct signals based on yield and quality, two things need to occur, namely, producers: have to be paid on the true value of the animal, rather than being paid an average carcase weight value, thus providing the incentive to engage in management practices and genetic selection to supply high quality, high yielding animals that meet end user requirements; and need to act on this information the information needs to be presented to producers in a way that is easily assimilated and that encourages action. For the above two outcomes to occur to the maximum extent a number of other steps are required: extension and refinement of the MSA system to encourage customers to pay for the quality of meat they are purchasing (this includes MSA R&D of consumers in export markets) better techniques to measure meat yield in processing plants product description / grading languages to be fully reflective of customer preferences and not introduce artificial constructs, unrelated to product quality, such as number of days on feed for information to be shared throughout the supply chain and for systems to exist to encourage this sharing to occur.

83 Meat Industry Strategic Plan It must be noted that sharing of information is not only needed between processors and producers, but right along the supply chain through feedlots and backgrounders to cow/calf operators and seedstock producers. There may be blockages with information sharing at each one of these steps. The data available to the MISP team, indicating a $100 per head benefit from supply chain efficiency, was derived from very well specified steers and heifers externally these animals looked very similar despite the variation found in the final true value of meat obtained from these animals. Knowledge of more common supply chains operating throughout the industry suggests that the variation is likely to be double that in the data set available to the MISP team. What are the risks in achieving the maximum benefit by 2030? Technical risks were assessed by the Expert Team Workshop as being negligible the risks lay in adoption. The majority of the fundamental R&D in this area has already been undertaken and the requisite capability was not identified as a constraint. Work required would essentially involve adaptation of existing technologies to address the large variation in animal types and to suit chain speeds in Australian processing plants. Given this base, and the timeframe and investment levels, there would be a high probability of technical success. This was judged to be 90 per cent across all industry sectors. Applicability, however, would vary across sectors. Although the revenue/quality benefits from greater supply chain integration would apply to all cattle, it has less applicability to cows and live exports therefore it was judged that 70 per cent of grass fed turnoff would be relevant. 23 All of grain fed turnoff was deemed to be applicable. In the case of sheep, due to the relative value, the lamb slaughter in total sheep disposals was deemed applicable. In the calculation for % of industry / sector business to which it is applicable an allowance has been made for the lower applicability in these areas. In terms of adoption, the Expert Team Workshop suggested a rate mostly in the range of 50 to 60 per cent. This is an ambitious figure given that to secure maximum benefits adoption is required throughout the supply chain. Given the balance of the negligible technical risks and the moderate adoption risk, it has been assessed that 20 per cent of the maximum benefits could be achieved by This is plausible given that this could be achieved by the early adoption by one of the large processors operating in the industry. Industry investments required Currently the industry invests around $13.6 million each year in this area of work. To achieve the level of benefits outlined above, however, it was assessed that a sustained 23 Noting that finished cows could be subject to a similar assessment against specification as young cattle.

84 84 Meat Industry Strategic Plan increase in industry investment was required. The total investment required to achieve the maximum benefit was identified to be around $24 million a year for the next 7 years during the implementation phase of the investment. After this period, the average annual expenditure declines over time. A summary of this initiative is shown below in table 6.2. Providing market intelligence to industry A second set of activities included under Imperative was the collection and distribution of market information. What can we expect if we do nothing by 2030? The outcome of doing nothing in this area of work would be the benefits foregone associated with the current investment in information-based industry programs. An evaluation of MLA s Market Information program by the CIE (2009) identified three areas of benefit to the red meat industry: direct benefits to industry in terms of assisting better business decisions increased demand by global users increased Government interest in, and support for, the industry (for example, exceptional circumstance support for industry). The evaluation found that the average benefit-cost ratio was 5.6:1 for the program. Therefore, the consequences of the do nothing option would be forgoing benefits of around $30 million in real terms 24 What would be the maximum benefits in the with industry investment case? Without a substantive change in the way industry market information programs operate, we would expect the equivalent relationship between the money invested and the benefits to industry as has happened in the past. What are the risks in achieving the maximum benefit by 2030? Given the ongoing nature of the Market Information program, the CIE/RMAC Expert group saw no technical or adoption risks associated with the maximum benefits. 24 That is, $5 million investment by an average payoff of 5.6:1.

85 6.2 Improving quality and compliance via enhanced supply chain information (4.1.1 Initiative 1) By 2020 By 2030 Sector (by 2030) Total red meat a Northern beef Southern beef Sheep Goats Feed lots Live export Processing What can we expect if we do nothing by 2030? Supply productivity/costs change relative to base % Productivity Demand price change relative to base b % Price What would be the maximum potential benefits by 2030? Supply productivity/costs change relative to base % Productivity Demand price change relative to base % Price What are the risks in achieving the maximum benefit by 2030? % probability technical success (R&D focus) % % of industry/sector is applicable % % adoption across industry / sector businesses % % of maximum benefit achieved by 2020? % Industry investment required What is the level of current annual funding? $m 13.6 Usual commodity split What would it cost p.a. to achieve maximum benefit? $m 24.0 b Usual commodity split % achievable with current funding % 50 No difference % achievable with half current funding % 25 No difference a Value added shares by industry used to aggregate model inputs. B This investment applies for the first 7 years, but is reduced after that. Source: RMAC Expert workshops and CIE/RMAC Expert group. Meat Industry Strategic Plan

86 86 Meat Industry Strategic Plan Industry investments required The risks and investments required for the Market Information set of activities are summarised in table Potential costs of Market Information activities in Imperative Estimates What is the current level of funding? What would it cost to achieve the maximum benefit? What is the percentage achievable with current funding? What is the percentage achievable with half of current funding? $5 million Current level deemed adequate 100 per cent 50 per cent Source: CIE/RMAC Expert group and workshop input. Imperative 4.1.2: Improving efficiencies in regulation, infrastructure and logistics The Regional Stakeholder Forums and the Expert Team workshop all identified that unnecessary regulations and infrastructure bottlenecks are substantial issues. In MISP Regional Workshops the impact of regulation and the benefits from new infrastructure were amongst the most mentioned issues by participants. Two areas that received particular focus were: transport costs, including infrastructure (access) and regulation raised at 10 out of 12 regional workshops government red tape in all aspects of industry operations specifically raised at all but one of the Regional Workshops. While these issues are front of mind for industry, there is relatively little effort made by industry to quantify the likely benefits and costs in dollar terms. What can we expect if we do nothing by 2030? Without action by industry, we can expect that the costs of unnecessary regulations and infrastructure bottlenecks would, at minimum, stay at current levels or most likely increase. Red meat Industry costs that are subject to some regulatory influence are significant. ProAnd and Associates (2010) estimated that for: northern beef producers about 11 per cent of costs ($81 000) are subject to varying degrees of regulatory influence ($ of these costs are related to regulatory aspects of road transport and labour).

87 Meat Industry Strategic Plan southern beef producers about 11 per cent of costs ($21 000) are attributable to regulatory influence ($ of these are related to road transport and labour). sheepmeat producers about 15 per cent of costs ($24 600) are subject to regulatory influence ($ of these are related to road transport and labour). In addition, CSIRO undertook estimates of transport cost savings to the industry arising from possible road infrastructure improvements or policy changes as identified by an MLA-hosted workshop in Brisbane held in August Transport savings per head from the infrastructure improvements/policy changes were often in excess of 20 per cent and ranged up to $5.25 per head for cattle transport in Queensland as identified by Higgins et al (2015). Across Australia, the CSIRO report estimated transport costs savings of $12.24 per head, including $0.81 per head in breaking down vehicles from road trains and B- Doubles to 6 axle articulated vehicles. Note that these savings encompass beef producers, feedlots and processors. Live exports Apart from transport and labour, the Government imposes a range regulatory conditions on the live export industry which add significantly to costs, such as the costs associated with Exporter Supply Chain Assurance System (ESCAS). Table 6.4 shows that the average cost for compliance with ESCAS requirements for cattle is about $9 per head, but the range is wide, while the average cost for sheep is $0.77 per head. At export levels, the ESCAS costs for industry are in the order of $9 million for cattle and $1.5 million for sheep that is, $10.5 million in total. 6.4 Economic cost of compliance with ESCAS Species Method High Low Mode $ per head $ per head $ per head Cattle Boat $45.00 $8.00 $9.00 Sheep Boat $0.77 $0.77 $0.77 Sheep Air $10.00 $14.00 $13.00 Goats Air $10.00 $14.00 $13.00 Source: Schuster (2014). The Department of Agriculture has also estimated ESCAS costs using a business-cost calculator (Commonwealth of Australia 2015). Using this approach, it has been estimated that the cost to exporters of complying with ESCAS is in the order of $11.9 million each year (above the direct costs imposed by the Department of Agriculture). The Department also notes that it incurs costs in administering the ESCAS regulations. Costs include assessing applications to export, liaising with exporters to ensure information is compliant, issuing ESCAS approval documentation, non-compliance investigation and assessment of independent audit reports.

88 88 Meat Industry Strategic Plan To manage the additional requirements of ESCAS, the department engaged additional staff for documentation and compliance functions. The cost of administering ESCAS in was estimated to be $5.7 million. This estimate excludes incidental work undertaken by the department outside of direct administration of ESCAS. The costs of port congestion were also identified by live exporters in Perth as an efficiency inhibitor. One large exporter revealed that port congestion at Freemantle had resulted in none of their vessels being loaded on the intended day for 18 months. When purchasing cattle $10 per head is built-in for port delays and $1 per head for sheep. These costs could be reduced through improvements in port efficiency or additional berths becoming available. What would be the maximum benefits in the with industry investment case? Red Meat Whilst a significant proportion of industry costs are subject to some regulatory influence (ProAnd and Associates, 2010) or infrastructure provision (Higgins et al, 2015) not all will be amenable for redressing through industry research and influence. The next step would be to identify what proportion of these costs could practically be influenced (and subsequently reduced) by concerted industry action. The majority of regulation and infrastructure expenditure involve interactions with other industries and the wider community and is the subject of government legislation and/or state/regional planning. Of the total regulatory costs, those that are the most amendable to industry influence would be those most specific to the red meat industry. It was judged that less than 5 per cent of costs influenced by regulation could be reduced by the red meat industry by It was assessed that maximum cost savings for labour and transport, through influencing regulations or infrastructure provision, could be in the order of 30 per cent with a 5 per cent probability of success. Table 6.5 shows that potential cost savings achievable could be in the order of 0.05 to 0.06 per cent of farm level costs. The estimate used for feedlots was the average across beef sectors. Table 6.6 shows the significance of transport costs for each industry segment from the IF database. From the studies cited above, it was assumed it may be possible through regulatory reform and infrastructure provision to secure a 1 per cent reduction in transport costs by Table 6.6 indicates that transport cost savings could be in the order of to per cent for the farm level industries and per cent for processing. The estimate for feedlots used was the average across beef sectors. To quantify what is possible from this imperative, the largest of the cost savings identified between tables 6.5 and 6.6 has been applied to the GMI/IF to determine maximum benefits.

89 Meat Industry Strategic Plan Potential benefits by addressing labour/transport regulations for red meat Costs subject to regulatory influence All regulation Labour and transport Potential cost savings Likelihood of success Expected cost savings a % % % % % Northern beef Southern beef Sheepmeat Processing b na a As a percentage of total industry costs. b Estimates by CIE. Source: ProAnd and Associates (2010), CIE/RMAC Expert Group and IF database. 6.6 Potential benefits by addressing transport/bottlenecks for red meat Industry segment Transport in total costs Potential cost savings Likelihood of success Expected cost savings a % % % % Northern beef Southern beef Sheepmeat Processing sector b a As a percentage of total industry costs. b Estimates by CIE. Source: Higgins et al (2015), CIE/RMAC Expert Group and IF database. Live exports Exporters at the Expert Team Workshop meeting provided higher costs from ESCAS than had been estimated previously $25 per head for exports to Indonesia and $30-$40 per head for exports to Vietnam. They estimated that a 50 per cent reduction in costs was easily achievable by Table 6.7 identified $15 million in costs savings from a 50 per cent reduction in ESCAS compliance cost plus a complete removal of costs associated with port bottlenecks for Darwin, Fremantle and Townsville which account for 80 per cent of cattle and sheep exports. 6.7 Potential benefits by addressing ESCAS/port bottlenecks for live export ESCAS costs a Port bottlenecks b Total savings Export value Increase in export value $m $m $m $m % Cattle Sheep Goats a Savings from a 50% reduction in ESCAS compliance costs. b Assuming costs identified above for Fremantle are applicable for 80 per cent of cattle and sheep exported (Darwin, Fremantle and Townsville)) but not applicable for goats. Source: CIE/RMAC Expert Group and IF database.

90 90 Meat Industry Strategic Plan What are the risks in achieving the maximum benefit by 2030? The risks have been identified and accounted for in the calculation of the maximum benefits above. Industry investments required It was assessed that an increase in industry investment would be required to secure the benefits outlined above primarily around providing supporting research to establish priorities for the industry to target (see table 6.8). 6.8 Potential costs of Imperative Estimates What is the current level of funding? What would it cost to achieve the maximum benefit? What is the percentage achievable with current funding? What is the percentage achievable with half of current funding? $1.0 million $1.8 million 50 per cent 25 per cent Source: CIE/RMAC Expert group and workshop input. Priority 4.2: Guaranteeing product and systems integrity This priority comprises of one imperative: Livestock and product assurance through integrated integrity systems (4.2.1) These imperatives involve achieving consistently high levels of compliance across industry integrity systems as well as investing in ongoing improvements in these systems. These requirements include: Integrity and Quality Assurance Schemes: including Livestock Identification Scheme, National Feedlots Accreditation System, Livestock Production Assurance, TruckCare and SafeMeat. Customer and language specifications including: AUSMEAT, MSA and processors specifications. What can we expect if we do nothing by 2030? Without any industry action in this area, over time Australia would be unable to maintain its premium for the clean and green country brand. The combination of our integrity systems and disease free status allows exporters to charge a premium over suppliers from other countries without similar credentials. In most cases, Australian product does not compete directly with product from those countries to permit a direct comparison on a like-for-like basis, but in some countries comparisons are possible.

91 Meat Industry Strategic Plan An analysis of forequarter beef prices in the Malaysian market showed this premium can be up to 40 per cent.25 This market provides an opportunity to compare similar product between the major exporters including Australia and New Zealand, India and Brazil. Across all markets, a premium of 30 per cent is likely to be a more conservative estimate for beef. However as noted, this premium is attributable to both our integrity systems and disease free status, which is largely unrelated to industry investment on integrity systems. In the case without industry investment, as a result of a fall in demand, this premium may fall by between 5 and 10 per cent by It is unlikely that the premium will be completely eroded without any industry investment, due to current systems that are already in place, further actions from individual firms that will step in without industry investment and the contribution of the disease free status to demand for Australian product. The equivalent scenario for lamb, sheep and goat meat is more difficult to establish due to the lower levels of competition in key export markets and the equivalence in current integrity systems between Australia and New Zealand. Therefore, there is no reference point from the market. However, with a static or declining integrity system relative to New Zealand, Australian exporters would lose market share in developed markets such as the United States and the European Union. There would also be a response by Australian businesses. In the case without continued industry investment, a judgement was made that prices for Australian sheep and goat meat could fall by between 1 and 3 per cent by It is also to be noted that lack of industry investment in integrity systems may contribute to increased, and possibly unwarranted, government regulation, most likely in response to a failure in current systems. To reflect a gradual decline with more government regulation, a fall in productivity of 1 per cent by 2030 is likely to be the result of increased costs from the lack of industry investment and increased government regulation. What would be the maximum benefits in the with industry investment case? With investment, it is likely that the industry will be just meeting consumer expectations and therefore will continue along its current trajectory without any additional Government regulation on product integrity and with current price premiums maintained. What are the risks in achieving the maximum benefit by 2030? There was considered to be insignificant technical risks due to current knowledge, hence a 100 per cent probability of technical success. As a result of the objective of improving compliance with current standards, this imperative would be applicable to whole of industry and would be effectively adopted by 95 per cent industry. 25 See appendix D for details behind this calculation.

92 92 Meat Industry Strategic Plan Industry investments required This area of work will continue to involve significant investment by the industry. Current investments are around $18 million. A strong view was expressed that an increased level of investment was required in this area to ensure that customer perceptions of a high level of integrity with Australian meat were maintained (see table 6.9). Some expressed the view that some of the investment required could be achieved through user charging mechanisms rather than through general levies. 6.9 Potential costs of Imperatives investments Investments required to achieve maximum benefits $m $m Livestock and product assurance through integrated integrity systems Source: CIE/RMAC Expert group and workshop input. A summary of this imperative is shown below in table 6.10.

93 6.10 Livestock and product assurance through integrated integrity systems (4.2.1) By 2020 By 2030 Sector (by 2030) Total red meat a Northern beef Southern beef Sheep Goats Feed lots Live export Processing What can we expect if we do nothing by 2030? Supply productivity/costs change relative to base % Productivity Demand price change relative to base b % Price What would be the maximum potential benefits by 2030? Supply productivity/costs change relative to base % Productivity Demand price change relative to base % Price What are the risks in achieving the maximum benefit by 2030? % probability technical success (R&D focus) % % of industry/sector is applicable % % adoption across industry / sector businesses % % of maximum benefit achieved by 2020? % Industry investment required What is the level of current annual funding? $m 18.0 Usual commodity split What would it cost p.a. to achieve maximum benefit? $m 27.2 Usual commodity split % achievable with current funding % 65 No difference % achievable with half current funding % 33 No difference a Value added shares by industry used to aggregate model inputs. Source: RMAC Expert workshops and CIE/RMAC Expert group. Meat Industry Strategic Plan

94 94 Meat Industry Strategic Plan Summary of maximum benefits from MISP 2020 This chapter and the next report, in summary form, benefits to the industry from successfully implementing MISP imperatives. Industry benefits were estimated, for each imperative, by inputting into the GMI/IF model framework information from the scenarios outlined in Chapters 3-6. In this chapter benefits are estimated without any constraint being placed on the total amount of funds allocated to industry programs this is referred to as the maximum benefits case. In the next chapter results on benefits are reported when total future funding of industry programs is constrained to its current level. Chapters 7 and 8 are designed to be largely self-contained. This means that a considerable portion of information is repeated in these two chapters. Definitions of key variables reported in the results The key measure used for industry benefits is Industry net income. Net or cash income is defined as total receipts less cash costs. For farm level and feedlots this measure is equivalent to the ABARES definition of farm income and is total receipts less total cash costs (which includes wages paid to hired labour). The calculation for farm income, therefore, does not include deductions for depreciation and interest or payments to land and the contribution of the working proprietor all these costs must be met from the farm income figure. For processing and live export net income is equivalent to total revenues less livestock acquisition costs and operating costs. Again no provision is made for depreciation or return to capital these costs must be met from the net income figure. Apart from net income a second measure sparingly used, mainly to provide a point of comparison with some past work is Gross Value of Production (GVP). GVP is defined as the total equivalent producer value of all cattle, sheep and goats that are sold for slaughter or live exports. Note that the GVP figures presented in this report will be different to those calculated by ABARES due to different price series and different points used for valuing sales. The present value of benefits and costs is calculated using a real discount rate of 5 per cent. Two timeframes are considered: 2015 to 2030 the benefit period for MISP 2020 recognising the medium to long term payoff period of industry investments 2015 to 2020 the MISP 2020 investment timeframe.

95 Meat Industry Strategic Plan Consistent with the development of the inputs into the economic modelling, detailed results are report under the following headings: Mitigation of downside risk: benefits (simply referred to as downside risk in the table headings) that arise from countering a decline in industry value that would otherwise occur (or for which there is a risk of occurrence) Upside opportunities: benefits that raise the value of the industry above the baseline through taking advantage of available opportunities. Total benefits: the total benefit anticipated from industry action under MISP 2020 as the sum of downside risks and upside opportunities. In addition, benefits are recorded by red meat industry levy stream. Maximum benefits and payoffs across pillars Charts 7.1 provide an overview of the maximum benefits identified across the four MISP 2020 pillars. In total, the maximum payoff to the red meat industry from MISP in terms of industry net income is 5.3 to 1 (first panel of chart 7.1). Around 45 per cent of the total benefits identified are from avoiding downside risks involving investments designed to address industry threats, while over half are investments that target upside opportunities (second panel of 7.1). The analysis shows that Pillars 1 and 4: accounted for 95 per cent of the benefits from downside risks that would be avoided by industry investments. In comparison, Pillars 2 and 3 together accounted for nearly 70 per cent of the benefits from upside opportunities that would be captured by industry investments (see panel 2 of chart 7.1). Compared to current industry investments of $165 million for (excluding MLA Donor Company), the total expenditure required to achieve the maximum benefits was over $300 million a year (see panel 3 of chart 7.1). In terms of contribution of individual pillars, investments made under Consumer and Community Support were the most important in terms of the highest payoff (a benefit cost ratio of 11.8:1 and benefits that are 31 per cent of the total across all pillars. These benefits were realised from investments that would mitigate threats to the industry and demonstrate the significance of the industry maintaining its social license through ongoing commitment both to actual industry practices and to perceptions of animal welfare and the environment. The lowest payoff per dollar of investment was found to be Pillar 2: Efficiency and profitably with a benefit cost ratio of 2.5:1. The largest contributing factor to this outcome was the very large investment identified by the Expert Team Workshops required to address improvement in on-farm business skills. Pillars 3 and 4 were found to have broadly similar payoff in terms of benefit cost ratios but with significantly different drivers:

96 96 Meat Industry Strategic Plan Summary of maximum benefits per dollar invested by 2030: all pillars a,b Maximum payoffs per dollar invested across MISP 2020 pillars 25 $million Benefit cost ratio Saleyard value of production Red meat net income Consumer and Community Support 2. Productivity and Profitability 3. Market Growth and Diversification 4. Supply Chain Efficiency and Integrity MISP 2020 Increase in present value net income relative to the baseline 10 6 Downside risk Upside opportunity $ billion Consumer and Community Support 2 Productivity and Profitability 3 Market Growth and Diversification 4. Supply Chain Efficiency and Integrity MISP 2020 Annual investments required investments MISP 2020 Maximum benefits Consumer and Community Support 2 Productivity and Profitability 3 Market Growth and Diversification 4. Supply Chain Efficiency and Integrity a Expected present values from to in dollars using a real rate of return of 5 per cent. MISP 2020 b Annual investments are in nominal 2015 dollars and do not include $30 million, largely from Donor Company expenditure.

97 Meat Industry Strategic Plan benefits in the Market growth and Diversification pillar remain proactive in nature based on activities that largely continue current investments in these areas significantly higher investments were identified for Supply Chain Efficiency and Integrity to bolster existing Integrity systems (to defend Australia s clean and green image) and enhance supply chain connectivity (to maximise productivity). Tables 7.2 to 7.5 present the detailed results across each of the MISP pillars. Table 7.2 and 7.3 show how the expected maximum benefits, the required investments and the benefit cost ratios are distributed across the four Pillars to 2030 and 2020, respectively. Table 7.4 and 7.5 report the benefits: between industry net income (table 7.4) and GVP (table 7.5) across component pillars industry sectors (grass, grain, sheep, goats, processing and live export); and over time for the red meat industry. Table 7.4 shows that across the industry sectors and their net income, the total benefits from MISP 2020 are roughly proportional to respective baseline values while the majority of the benefits are expected to accrue beyond 2020.

98 7.2 Maximum benefits and investments identified by 2030 for MISP 2020 Expected benefits a 1. Consumer and Community Support 2. Productivity and Profitability 3. Market Growth and Diversification 4. Supply Chain Efficiency and Integrity All pillars Red meat Industry net income c $m Gross value of production b $m Meat Industry Strategic Plan Maximum investment Total over 15 years d $m Average annual investment e $m Benefit cost ratio Red meat Industry net income c Gross value of production b a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

99 7.3 Maximum benefits and investments identified by 2020 for MISP Consumer and Community Support 2. Productivity and Profitability 3. Market Growth and Diversification 4. Supply Chain Efficiency and Integrity All pillars Expected benefits a Red meat Industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment e $m Benefit cost ratio Red meat Industry net income c Gross value of production b a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Meat Industry Strategic Plan

100 100 Meat Industry Strategic Plan Maximum benefits in terms of red meat net income across by 2030: all pillars a MISP 2020 Outcome relative to the baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by MISP 2020 pillar 1 Consumer and Community Support Productivity and Profitability Market Growth and Diversification Supply chain Integrity and Efficiency All pillars % of MISP 2020 benefits Benefits in present values by sector Grass fed Grain fed Sheep Goats Processing Live Export Total red meat Profile of annual benefits in dollars a Expected present value of benefits for industry net income from to in dollars using a real rate of return of 5 per cent.

101 Meat Industry Strategic Plan Maximum benefits in terms of GVP by 2030: all pillars a MISP 2020 Outcome relative to the baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by MISP 2020 pillar 1 Consumer and Community Support Productivity and Profitability Market Growth and Diversification Supply Chain Efficiency and Integrity All pillars % of MISP 2020 benefits Benefits in present values by sector Grass fed Grain fed Sheep Goats Total red meat Profile of annual benefits in dollars a Expected present value of benefits for saleyard equivalent GVP from to in dollars using a real rate of return of 5 per cent. Pillar 1: Consumer and Community Support Chart 7.6 provides a summary of the payoffs for investments by priority across Pillar 1. The emphasis of this pillar is towards defensive investments that deliver 95 per cent of the benefits within this pillar compared to baseline. All of the investments in this pillar are directly concerned with maintaining the industry s social license to operate with priorities that address community concerns about animal welfare and the environment having broadly similar payoffs in terms of benefit cost ratios (note, however, that the Environment Priority also includes initiatives by the industry to adapt to climate variability).

102 102 Meat Industry Strategic Plan $ million 7.6 Summary of maximum benefits and investments by 2030: Pillar 1 priorities a,b Maximum payoffs per dollar invested 25 Benefit cost ratio Saleyard value of production Red meat Industry net income Welfare of the animals within our care 1.2 Stewardship of our environmental resources 1.3 Red meat in a healthy diet 1 Total Consumer and Community Support Increase in present value of net income relative to the baseline $ billion Downside risk Upside opportunity Welfare of the animals within our care 1.2 Stewardship of our environmental resources 1.3 Red meat in a healthy diet 1 Total Consumer and Community Support Annual investments required investments MISP 2020 Maximum benefits Welfare of the animals within our care 1.2 Stewardship of our environmental resources 1.3 Red meat in a healthy diet 1 Total Consumer and Community support a Expected present values from to in dollars using a real rate of return of 5 per cent. b Annual investments are in nominal 2015 dollars.

103 Meat Industry Strategic Plan Tables 7.7 to 7.12 present the detailed results for Pillar 1 by the priorities contained within this Pillar and the imperatives contained within each priority. table 7.7 presents the detailed results for Priority 1.1 Welfare of the animals within our care, in terms of the period 2015 to Table 7.8 presents the equivalent results over the MISP 2020 timeframe to The analysis has identified the need for continued investment in Imperative (Animal Welfare) that is expected to provide about 80 per cent of the total benefit from Priority 1.1 (see table 7.7). Imperative 1.1.2, that maintains a capability to mitigate the impact of an emergency disease outbreak, was also found to have relatively high payoff relative to the required investments because of the significant costs to the industry of being excluded from key export markets. The payoff from Imperative 1.1.3, addressing endemic disease, whilst significant, was found to be modest compared to the other imperatives under the Animal Welfare Priority. 7.7 Maximum benefits and investments by 2030: Priority Welfare of the animals within our care Continuous improvement of animal welfare Minimising risk and impact of emergency disease Minimising the impact of endemic disease Total Expected benefits a Red meat Industry net income c $m Gross value of production b $m Maximum investment Total over 15 years d $m Average annual investment e $m Benefit cost ratio a Red meat Industry net income c Gross value of production b a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Table 7.9 presents detailed results for Priority 1.2, Environmental Stewardship, and for Priority 1.3, Red Meat Nutrition, for the period Table 7.10 presents the equivalent results over the MISP 2020 timeframe to

104 104 Meat Industry Strategic Plan Maximum benefits and investments by 2020: Priority Welfare of the animals within our care Continuous improvement of animal welfare Minimising risk and impact of emergency disease Minimising the impact of endemic disease Total Expected benefits a Red meat Industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment $m Benefit cost ratio a Red meat Industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Imperative which addresses the threats and opportunities associated with industry action to mitigate impact on the environment, was found to have the second largest potential benefit in pillar 1, comprising 80 per cent of the benefits Environmental Stewardship priority (see table 7.9). To achieve these benefits, an increase in industry investment would be required, with technical success and adoption as key factors. In terms of payoffs, Imperative 1.2.3, adapting to climate variability, also provides significant benefits, particularly for southern producers being dictated by the size of the climate threat in this region. Finally, Imperative 1.2.1, related to maintaining the natural resource base, provides sizable benefits, but these are lower than for Imperative and The imperative under the Nutrition Imperative (Imperative 1.3.1) provides the lowest payoffs in this Pillar. Tables 7.11 and 7.12 show that the primary beneficiaries of these investments would be the farm sector industries, and that the majority of the benefits will flow beyond 2020.

105 7.9 Maximum benefits and investments by 2030: Priorities 1.2 and 1.3 Expected benefits a Minimising industry impact on the environment 1.2 Stewardship of environmental resources 1.3 Red meat in a healthy diet Sustainable management of the natural resource base Adapting to climate variability Total Red meat in a healthy diet Total Consumer and Community Support Red meat Industry net income c $m Gross value of production b $m Maximum investment Total over 15 years d $m Average annual investment $m Benefit cost ratio Red meat Industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Meat Industry Strategic Plan

106 7.10 Maximum benefits and investments by 2020: Priorities 1.2 and 1.3 Expected benefits a Minimising industry impact on the environment 1.2 Stewardship of environmental resources 1.3 Red meat in a healthy diet Sustainable management of the natural resource base Adapting to climate variability Total Red meat in a healthy diet Total Consumer and Community Support Meat Industry Strategic Plan Red meat Industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment $m Benefit cost ratio Red meat Industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

107 Meat Industry Strategic Plan Maximum benefits in terms of red meat net income by 2030: Pillar 1 a MISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by MISP 2020 imperative 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 Red meat in a healthy diet Consumer and Community Support % of MISP 2020 benefits Benefits in present values by sector Grass fed Grain fed Sheep Goats Processing Live Export Total red meat Profile of annual benefits in dollars a Expected present value of benefits for industry net income from to in dollars using a real rate of return of 5 per cent.

108 108 Meat Industry Strategic Plan Maximum benefits in terms of GVP by 2030: Pillar 1 a MISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by MISP 2020 imperative 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 Red meat in a healthy diet Consumer and Community Support % of MISP 2020 benefits Benefits in present values by sector Grass fed Grain fed Sheep Goats Total red meat Profile of annual benefits in dollars a Expected present value of benefits for saleyard equivalent GVP from to in dollars using a real rate of return of 5 per cent. Pillar 2: Productivity and Profitability Chart 7.13 provides a summary of the payoffs for investments by priority across Pillar 2.

109 Meat Industry Strategic Plan $million $ billion 7.13 Summary of maximum benefits and investments by 2030: Pillar 2 priorities a,b Maximum payoffs per dollar invested 20 Benefit cost ratio Saleyard value of production Red meat net income Farm and Feedlot productivity 2.2 Processing productivity 2.3 Live export productivity 2 Productivity and Profitability Increase in present value of net income relative to the baseline Downside risk Upside opportunity Farm and Feedlot productivity 2.2 Processing productivity 2.3 Live export productivity 2 Productivity and Profitability Annual investments required investments MISP 2020 Maximum benefits Farm and Feedlot productivity 2.2 Processing productivity 2.3 Live export productivity 2 Productivity and Profitability a Expected present values from to in dollars using a real rate of return of 5 per cent. b Annual investments are in nominal 2015 dollars.

110 110 Meat Industry Strategic Plan Overall, the payback in this pillar per dollar invested was lower than for other pillars. As noted in chart 7.13, all of the priorities involve investments addressing upside opportunities while noting that the flow-through of existing R&D is included in the baseline for the analysis. The first panel of chart 7.13 shows that Priority 2.2 (Processing productivity) has the largest payoff in BCR terms but panel 2 shows that this benefit is smaller than for Priority 2.1 (On-Production efficiency in farms and feedlots) due to what is achievable in each scenario, and the relative contribution of each of the industry sectors to overall industry net income. The maximum benefits and investment required for this pillar are dominated by Imperative that involves extension and adoption of existing practices and knowledge that would move the farm sector towards best practice. The substantial size of the potential benefits in terms of industry profitability, as identified in chapter 4, are offset over the first five years by the investments required to achieve them. This priority accounts for about 50 per cent of the total benefits from this pillar and over 80 per cent of the industry investment. As noted in chapter 4, the potential productivity benefits for the processing sector are confined to increasing labour productivity, while for live exporters, the potential is limited by already high delivery rates. Tables 7.14 to 7.17 present the detailed results for Pillar 2 by priority and imperatives. These tables further highlight the contribution of Priority 2.1 and Imperative 2.1.1, Decision support to improve farming businesses, to this pillar. The difference between tables 7.14 and 7.15 highlight the long term nature of the benefits expected from on-farm research, including from improving decision support. The payoffs from Imperative (R&D initiatives to improve livestock productivity) are affected by (a) the period of time that passes between when research investments are made and when research results become commercially available; (b) the fact that some research is technically challenging (the low hanging fruit has already been picked) and (c) the fact that adoption, particularly in the first 10 years, can be low (see narrative in chapter 4).

111 7.14 Maximum benefits and investments by 2030: Pillar Production efficiency in farms and feedlots Decision support to improve farming businesses R&D initiatives to improve livestock productivity Total Processing productivity Live export productivity Total Productivity and Profitability Expected benefits a Red meat Industry net income $m Gross value of production $m Maximum investment Total over 15 years d $m Average annual investment $m Benefit cost ratio a Red meat Industry net income c Gross value of production b a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Meat Industry Strategic Plan

112 7.15 Maximum benefits and investments by 2020: Pillar 2 Expected benefits a 2.1 Production efficiency in farms and feedlots Decision support to improve farming businesses R&D initiatives to improve livestock productivity Total Processing productivity Live export productivity Total Productivity and Profitability Meat Industry Strategic Plan Red meat Industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment e $m Benefit cost ratio a Red meat Industry net income c Gross value of production b a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

113 Meat Industry Strategic Plan Maximum benefits in terms of red meat net income by 2030: Pillar 2 a MISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by MISP 2020 imperative Decision support to improve farming businesses R&D initiatives to improve livestock productivity Processing productivity Live export productivity Productivity and Profitability % of MISP 2020 benefits Benefits in present values by sector Grass fed Grain fed Sheep Goats Processing Live Exporters Total red meat Profile of annual benefits in dollars a Expected present value of benefits for industry net income from to in dollars using a real rate of return of 5 per cent.

114 114 Meat Industry Strategic Plan Maximum benefits in terms of GVP by 2030: Pillar 2 a MISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by MISP 2020 imperative a Decision support to improve farming businesses R&D initiatives to improve livestock productivity Processing productivity Live export productivity Productivity and Profitability % of MISP 2020 benefits Benefits in present values by sector a Grass fed Grain fed Sheep Goats Total red meat Profile of annual benefits in dollars a Expected present value of benefits for saleyard equivalent GVP from to in dollars using a real rate of return of 5 per cent. Pillar 3: Market Growth and Diversification Chart 7.18 provides a summary of the payoffs for investments by priority across Pillar 3. At a priority level, the potential payoffs from ongoing investments in trade and market access (Priority 3.1) are expected to larger than those for marketing and promotion (Priority 3.2) over the medium to long term. Each of these priority areas are very different and would be expected to feature in the industry s investment portfolio. It must be noted that success on market access requires Government, Service Companies, Peak Councils and, individual enterprises acting in concert only the costs of the Service Companies have been taken into account in the benefit/cost analysis.

115 Meat Industry Strategic Plan Tables 7.19 to 7.22 present the detailed results by Pillar 3 priority and imperatives. $million 7.18 Summary of maximum benefits and investments by 2030: Pillar 3 priorities a,b Benefit cost ratio Maximum payoffs per dollar invested Saleyard value of production Red meat net income Trade and market access 3.2 Marketing and promoting Australian red meat and livestock 3 Market Growth and Diversification Increase in present value of net income relative to the baseline 4 Downside risk Upside opportunity 3 $ billion Trade and market access 3.2 Marketing and promoting Australian red meat and livestock 3 Market Growth and Diversification Annual investments required investments MISP 2020 Maximum benefits Trade and market access 3.2 Marketing and promoting Australian red meat and livestock 3 Market Growth and Diversification a Expected present values from to in dollars using a real rate of return of 5 per cent. b Annual investments are in nominal 2015 dollars.

116 7.19 Maximum benefits and investments by 2030: Pillar 3 Reducing economic barriers to trade 3.1 Trade and market access 3.2 Marketing and promoting Australian red meat and livestock Reducing technical barriers to trade Total Developing export markets Developed export markets Domestic market Total Total Meat Industry Strategic Plan Expected benefits a Red meat Industry net income c $m Gross value of production b $m Maximum investment Total over 15 years d $m Average annual investment e $m Benefit cost ratio Red meat Industry net income c Gross value of production b a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

117 7.20 Maximum benefits and investments by 2020: Pillar Trade and market access 3.2 Marketing and promoting Australian red meat and livestock Reducing economic barriers to trade Reducing technical barriers to trade Total Developing export markets Developed export markets Domestic market Total Total Expected benefits a Red meat Industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment e $m Benefit cost ratio Red meat Industry net income c Gross value of production b a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Meat Industry Strategic Plan

118 118 Meat Industry Strategic Plan Maximum benefits in terms of red meat net income by 2030: Pillar 3 a MISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by MISP 2020 imperative Reducing economic barriers to trade Reducing technical barriers to trade Defending existing conditions of market access Developing export markets Developed export markets Domestic market Market growth and diversification % of MISP 2020 benefits Benefits in present values by sector Grass fed Grain fed Sheep Goats Processing Live Export Total red meat Profile of annual benefits in dollars a Expected present value of benefits for industry net income from to in dollars using a real rate of return of 5 per cent.

119 Meat Industry Strategic Plan Maximum benefits in terms of GVP by 2030: Pillar 3 a MISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by MISP 2020 imperative Reducing economic barriers to trade Reducing technical barriers to trade Defending existing conditions of market access Developing export markets Developed export markets Domestic market Market growth and diversification % of MISP 2020 benefits Benefits in present values by sector Grass fed Grain fed Sheep Goats Total red meat Profile of annual benefits in dollars a Expected present value of benefits for saleyard equivalent GVP from to in dollars using a real rate of return of 5 per cent. Pillar 4: Supply Chain Efficiency and Integrity Chart 7.23 provides a summary of the payoffs for investments across Pillar 4.

120 120 Meat Industry Strategic Plan Summary of maximum benefits and investments by 2030: Pillar 4 priorities a,b $ million Maximum payoffs per dollar invested 20 Saleyard value of production Red meat net income Benefit cost ratio Optimising product quality and cost efficiency 4.2 Guaranteeing product and systems integrity 4 Supply Chain Efficiency and Integrity Increase in present value of net income relative to the baseline 3 Downside risk Upside opportunity 2 1 $ billion Optimising product quality and cost efficiency 4.2 Guaranteeing product and systems integrity 4 Supply Chain Efficiency and Integrity Annual investments required investments MISP 2020 Maximum benefits Optimising product quality and cost efficiency 4.2 Guaranteeing product and systems integrity 4 Supply Chain Efficiency and Integrity a Expected present values from to in dollars using a real rate of return of 5 per cent. b Annual investments are in nominal 2015 dollars. Tables 7.24 to 7.27 present the detailed results by Pillar 4 priority and imperatives.

121 7.24 MISP 2020 benefits and investments by 2030: Pillar Optimising product quality and cost efficiency 4.2 Guaranteeing product and systems integrity Improving quality & compliance via enhanced supply chain information Improving efficiencies in regulation, infrastructure and logistics Total Livestock and product assurance through integrated integrity systems Total Total Supply Chain Efficiency and Integrity Expected benefits a Red meat Industry net income c $m Gross value of production $m Maximum investment Total over 15 years d $m Average annual investment $m Benefit cost ratio Red meat Industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Meat Industry Strategic Plan

122 7.25 MISP 2020 benefits and investments by 2020: Pillar Optimising product quality and cost efficiency Guaranteeing product and systems integrity Improving quality & compliance via enhanced supply chain information Improving efficiencies in regulation, infrastructure and logistics Total Livestock and product assurance through integrated integrity systems Total Total Supply Chain Efficiency and Integrity Meat Industry Strategic Plan Expected benefits a Red meat Industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment $m Benefit cost ratio Red meat Industry net income c Gross value of production b a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

123 Meat Industry Strategic Plan Maximum benefits in terms of red meat net income by 2030: Pillar 4 a MISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by MISP 2020 imperative improving quality & compliance via enhanced supply chain information Improving efficiencies in regulation, infrastructure and logistics Livestock and product assurance through integrated integrity systems Supply Chain Efficiency and Integrity % of MISP 2020 benefits Benefits in present values by sector Grass fed Grain fed Sheep Goats Processing Live Export Total red meat Profile of annual benefits in dollars a Expected present value of benefits for industry net income from to in dollars using a real rate of return of 5 per cent.

124 124 Meat Industry Strategic Plan Maximum benefits in terms of GVP by 2030: Pillar 4 a MISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by MISP 2020 imperative a 4.1. Improving quality & compliance via enhanced supply chain information Improving efficiencies in regulation, infrastructure and logistics Livestock and product assurance through integrated integrity systems Supply Chain Efficiency and Integrity % of MISP 2020 benefits Benefits in present values by sector a Grass fed Grain fed Sheep Goats Total red meat Profile of annual benefits in dollars a Expected present value of benefits for saleyard equivalent GVP from to in dollars using a real rate of return of 5 per cent. All Imperatives under Pillar 4, related to supply chain efficiency, tackling red tape and further improving systems associated with product integrity, provide reasonably substantial benefits.

125 Meat Industry Strategic Plan Recommended investment portfolio for MISP 2020 The maximum potential benefits identified in chapter 7 are by definition unconstrained by budget. The CIE/ RMAC Expert group estimates that for across the red meat industry, total collective investments amounted to $165 million (see table 8.1). This includes the investments made by: major red meat service companies (MLA, LiveCorp and AMPC) Animal Health Australia and the National Residue Survey (NRS). Note budgets in this chapter do not include some additional expenditures by Service Companies, principally $30 million of Donor Company expenditure by MLA. In total, the investments identified by the Expert Team Workshops to achieve the maximum benefits are over $300 million, significantly beyond the industry s current funding capacity. 8.1 Total value of red meat industry investments industry allocation Required to achieve maximum benefits Recommended MISP 2020 allocation $m $m $m 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 Decision support to improve farm business Increasing livestock productivity through new research Increasing access to, and efficiency of, labour Improving livestock performance in export operations 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 (a) improving quality and compliance via enhanced supply chain information

126 126 Meat Industry Strategic Plan industry allocation Required to achieve maximum benefits Recommended MISP 2020 allocation $m $m $m 4.1.1(b) Providing market intelligence to industry Improving efficiencies in regulation, infrastructure and logistics Livestock and product assurance through integrated integrity systems Total investments 165* a 165* a Includes $5.5 million of industry skills and development funding, but does not include $30 million of expenditure largely arising from the MLA Donor Company. The increase in budget between the current investments and that level required to achieve the maximum benefits identified in the previous chapter primarily reflects three areas of increase: Imperative 2.1.1:Decision support for farming systems (comprising 68 per cent of the increased expenditure) Imperative 4.1.1: Improving quality & compliance via enhanced supply chain information (comprising 8 per cent of the increased expenditure) Imperative 4:2.1: Livestock and product assurance through integrated integrity systems (7 per cent). To calculate total benefits from MISP 2020 under the current total budget constraint it was necessary assign shadow or recommended budgets to MISP Imperatives that total $165 million. CIE accepts that many factors are considered when formulating budgets and these factors change from time to time. The recommended budgets included in this report have not been designed to constrain budgetary considerations by Industry Service Organisations, but are based on factors set out below and serve the purpose of estimating possible total benefits from MISP Table 8.1, as well as showing current levels of industry investment in MISP Imperatives and the level of investment required to produce maximum benefits, contains information on a recommended portfolio allocation. Factors used in formulating the recommended budgets found in Table 8.1 include the following: payoffs as indicated by the benefit / cost analysis an appropriate mix of defensive versus proactive investments, taking into consideration (a) different risk profiles by priority and imperatives and (b) industry s attitudes to managing risk an appropriate mix of economic, social and environmental benefits given the government s RD&E priorities timing of costs and benefits: having an appropriate mix of investments with short and long term payoff profiles investments in shared industry infrastructure relative to those specific to a value chain segment or levy stream.

127 Meat Industry Strategic Plan A number of comments can be made on the recommended portfolio shown in Table 8.1: Many imperatives receive the same recommended levels of funding as they currently receive. These include Continuous improvement of animal welfare Minimising risk and impact of emergency disease Sustainable management of the natural resource base Decision support to improve farm businesses Increasing livestock productivity through new research Increasing access to, and efficiency of, processing labour Improving livestock performance in export operations Reducing economic barriers to trade. It should come as no surprise that for many imperatives current funding allocations are about right. For the virtually all of the above imperatives benefits are high relative to costs and many receive the budgets requested under the maximum benefits case. For some imperatives recommended budgets are below current levels of funding. These include: Minimising the impact of endemic disease Minimising red meat and livestock impact on the environment Activities to position red meat as a preferred component of a healthy diet Furthermore, the recommended budget for the Marketing and Promotion Priority is substantially below current funding levels. Reductions in recommended funds allocated to these areas does not reflect the absence of returns from such investments it simply reflects a judgement that higher priorities lie elsewhere. It is to be noted that the BCR associated with the MISP Imperative Minimising red meat and livestock impact on the environment is large. Many of the issues tackled under this Imperative, however, are global in nature. Even though limited funds have been notionally assigned to this Imperative these funds could be leveraged by working with international partners. In the environment area the view was that emphasis should be afforded to the Imperative Adapting to climate variability in light of the potentially significant challenge this poses to Australian on-farm beef and sheepmeat productivity. Within the Marketing and Promotion Priority recommended budgets involve an increase in expenditure in developing export markets, but a decrease in expenditure in developed export markets and the domestic market. This allocation of funds partly reflects the economic assessment of where the demand building opportunities lie. It also reflects a view (expressed by the Expert Team) of the paybacks from industry marketing and promotion activities compared to those of meat processing enterprises. The areas receiving the greatest increases under the recommended budgets are Imperative 4.1.1: Improving quality & compliance via enhanced supply chain information

128 128 Meat Industry Strategic Plan and Imperative 4:2.1: Livestock and product assurance through integrated integrity systems. Other areas receiving increases are Adapting to climate variability Reducing technical barriers to trade Improving efficiencies in regulation, infrastructure and logistics. Approach to calculating MISP 2020 benefits under constrained budgets In calculating total benefits from implementing MISP 2020 when budgets were constrained the following approach was taken: Where there was no change in budgets between the maximum benefits analysis included in the previous chapter and the constrained budgets case considered here, benefits were simply calculated as those shown in the previous chapter. For all imperatives, except the Decision support to improve farming businesses imperative, where budgets did change an assumption of linearity was used to calculate benefits for the constrained budgets case versus the maximum benefits case. This simply means that the same benefit cost ratio was used as shown in the maximum benefits case, only that a lower level of constrained budgets investment was applied to this BCR. Information gathered from the Expert Teams on benefits at different budget levels for these imperatives supported the assumption of linearity. For Imperative Decision support to improve farming businesses a re-assessment of was made of the benefit cost analysis. It is to be noted that for this imperative funding was reduced from $100 million under the maximum benefits case to $5.9 million under the constrained budgets case. As a result, of the very substantial reduction in funds rather than using results from the maximum benefits analysis included in this report, a BCR of 6:1 has been used (up from 1.5) based on past analysis across MLA extensionbased projects. Benefits and payoffs from recommended portfolio Table 8.2 demonstrates that the maximum benefits analysis, while having benefits that are 40 per cent higher than the recommended portfolio, has a lower benefit cost ratio. Reducing industry investment by half in present value terms, has improved the MISP BCR from 5.3 to 7.4:1, almost entirely due to the impact of the significant expenditure level in Imperative

129 Meat Industry Strategic Plan Outcomes for maximum benefits and recommended portfolio by 2030 Maximum benefits Recommended portfolio (MISP 2020) Expected benefits a Red meat Industry net income c $m Gross value of production b $m Industry investment Total over 15 years d $m Average annual investment $m Benefit cost ratio a Red meat Industry net income c Gross value of production b a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return ofnet income across all. The outcomes of the recommended budget portfolio are shown in chart 8.3. Tables 8.4 to 8.7 present the detailed results across each of the RMAC pillars. Appendices E and F provide aggregate and detailed industry outcomes for the Beef Industry Strategic Plan (BISP) and the Sheep Industry Strategic Plan (SISP).

130 $million 130 Meat Industry Strategic Plan Summary of MISP 2020 benefits and investments by 2030: all pillars a,b Payoffs per dollar invested across MISP 2020 pillars: recommended portfolio 25 Benefit cost ratio Saleyard value of production Red meat net income Consumer and Community Support 2. Productivity and Profitability 3. Market Growth and Diversification 4. Supply Chain Efficiency and Integrity MISP 2020 Increase in present value of net income relative to the baseline $ billion Downside risk Upside opportunity -8 1 Consumer and community support 2. Productivity and Profitability 3 Market growth and diversification 4. Supply Chain Efficiency and Integrity MISP 2020 Annual investments required MISP 2020 Maximum benefits MISP 2020 Recommended investments 0 1 Consumer and community support 2. Productivity and Profitability 3 Market growth and diversification 4. Supply Chain Efficiency and Integrity a Expected present values from to in dollars using a real rate of return of 5 per cent. MISP 2020 b Annual investments are in nominal 2015 dollars and do not include $30 million, largely from Donor Company expenditure.

131 8.4 Benefits and investments by 2030: all pillars a 1. Consumer and Community Support 2. Productivity and Profitability 3. Market Growth and Diversification 4. Supply Chain Efficiency and Integrity All pillars Expected benefits a Red meat Industry net income c $m Gross value of production b $m Maximum investment Total over 15 years d $m Average annual investment e $m Benefit cost ratio Red meat Industry net income c Gross value of production b a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Meat Industry Strategic Plan

132 8.5 Benefits and investments by 2020: all pillars a Expected benefits a 1. Consumer and Community Support 2. Productivity and Profitability 3. Market Growth and Diversification 4. Supply Chain Efficiency and Integrity All pillars Red meat Industry net income c $m Gross value of production b $m Maximum investment 132 Meat Industry Strategic Plan Total over 5 years d $m Average annual investment $m Benefit cost ratio Red meat Industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

133 Meat Industry Strategic Plan MISP 2020 benefits in terms of red meat net income by 2030: all pillars a MISP 2020 Outcome relative to the baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by MISP 2020 pillar 1 Consumer and Community Support Productivity and Profitability Market growth and diversification Supply Chain Efficiency and Integrity All pillars % of MISP 2020 benefits Benefits in present values by sector Grass fed Grain fed Sheep Goats Processing Live Export Total red meat Profile of annual benefits in dollars a Expected present value of benefits for industry net income from to in dollars using a real rate of return of 5 per cent.

134 134 Meat Industry Strategic Plan MISP 2020 benefits in terms of GVP by 2030: MISP 2020 a MISP 2020 Outcome relative to the baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by MISP 2020 pillar 1 Consumer and community support Efficiency and profitability Market growth and diversification Supply Chain Efficiency and Integrity All pillars % of MISP 2020 benefits Benefits in present values by sector Grass fed Grain fed Sheep Goats Total red meat Profile of annual benefits in dollars a Expected present value of benefits for saleyard equivalent GVP from to in dollars using a real rate of return of 5 per cent. Pillar 1: Consumer and Community Support Chart 8.8 provides a summary of the payoffs for investments at the priority level across Pillar 1.

135 $ million Meat Industry Strategic Plan Summary of MISP 2020 benefits & investments for by 2030: Pillar 1 priorities a,b Payoffs per dollar invested across MISP4 pillars: recommended portfolio Benefit cost ratio Saleyard value of production Red meat net income Welfare of animals within our care 1.2 Stewardship of environmental resources 1.3 Red meat in a healthy diet 1 Total Consumer and Community Support Increase in present value of net income relative to the baseline 1 0 $ billion Downside risk Upside opportunity Welfare of animals within our care 1.2 Stewardship of environmental resources 1.3 Red meat in a healthy diet 1 Total Consumer and Community Support Annual investments required MISP 2020 Maximum benefits MISP 2020 Recommended investments Welfare of animals within our care 1.2 Stewardship of environmental resources 1.3 Red meat in a healthy diet 1 Total Consumer and Community Support a Expected present values from to in dollars using a real rate of return of 5 per cent. b Annual investments are in nominal 2015 dollars. Tables 8.9 to 8.14 present the detailed results by Pillar 1 priorities and imperatives.

136 136 Meat Industry Strategic Plan MISP 2020 benefits and investments by 2030: Priority Welfare of the animals within our care Continuous improvement of animal welfare Minimising risk and impact of emergency disease Minimising the impact of endemic disease Total Expected benefits a Red meat Industry net income c $m Gross value of production b $m Maximum investment Total over 15 years d $m Average annual investment e $m Benefit cost ratio a Red meat Industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent MISP 2020 benefits and investments by 2020: Priority Welfare of the animals within our care Continuous improvement of animal welfare Minimising risk and impact of emergency disease Minimising the impact of endemic disease Total Expected benefits a Red meat Industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment e $m Benefit cost ratio a Red meat Industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

137 8.11 MISP 2020 benefits and investments by 2030: Priorities 1.2 and 1.3 Expected benefits a Minimising industry impact on the environment 1.2 Stewardship of environmental resources 1.3 Red meat in a healthy diet Sustainable management of the natural resource base Adapting to climate variability Total Red meat in a healthy diet Total consumer and community support Red meat Industry net income c $m Gross value of production b $m Maximum investment Total over 15 years d $m Average annual investment e $m Benefit cost ratio Red meat Industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Meat Industry Strategic Plan

138 8.12 MISP 2020 benefits and investments by 2020: Priorities 1.2 and 1.3 Expected benefits a Minimising industry impact on the environment 1.2 Stewardship of environmental resources 1.3 Red meat in a healthy diet Sustainable management of the natural resource base Adapting to climate variability Total Red meat in a healthy diet Total consumer and community support Meat Industry Strategic Plan Red meat Industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment e $m Benefit cost ratio Red meat Industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

139 Meat Industry Strategic Plan MISP 2020 benefits in terms of red meat net income by2030: Pillar 1 a MISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by MISP 2020 imperative 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 Red meat in a healthy diet Pillar1 Consumer and Community Support % of MISP 2020 benefits Benefits in present values by sector Grass fed Grain fed Sheep Goats Processing Live Export Total red meat Profile of annual benefits in dollars a Expected present value of benefits for industry net income from to in dollars using a real rate of return of 5 per cent.

140 140 Meat Industry Strategic Plan MISP 2020 benefits in terms of GVP by 2030: Pillar 1 a MISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by MISP 2020 imperative 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 Red meat in a healthy diet All imperatives % of MISP 2020 benefits Benefits in present values by sector Grass fed Grain fed Sheep Goats Total red meat Profile of annual benefits in dollars a Expected present value of benefits for saleyard equivalent GVP from to in dollars using a real rate of return of 5 per cent. Pillar 2: Productivity and Profitability Chart 8.15 provides a summary of the payoffs for investments across Pillar 2.

141 Meat Industry Strategic Plan Summary of MISP 2020 benefits and investments for Pillar 2 priorities a,b Maximum payoffs per dollar invested $million Saleyard value of production Red meat net income Benefit cost ratio Farm and Feedlot productivity 2.2 Processing productivity 2.3 Live export productivity 2 Productivity and profitability Increase in present value of net income relative to the baseline Downside risk Upside opportunity $ billion Farm and Feedlot productivity 2.2 Processing productivity 2.3 Live export productivity 2 Efficiency and Profitability Annual investments required MISP 2020 Maximum benefits MISP 2020 Recommended investments Farm and Feedlot productivity 2.2 Processing productivity 2.3 Live export productivity 2 Efficiency and Profitability a Expected present values from to in dollars using a real rate of return of 5 per cent. b Annual investments are in nominal 2015 dollars. Tables 8.16 to 8.19 present the detailed results by Pillar 2 priorities and imperatives.

142 8.16 MISP 2020 benefits and investments by 2030: Pillar Production efficiency in farms and feedlots Decision support to improve farming businesses R&D initiatives to improve livestock productivity Total Processing productivity Live export productivity Total productivity and profitability Meat Industry Strategic Plan Expected benefits a Red meat Industry net income c $m Gross value of production b $m Maximum investment Total over 15 years d $m Average annual investment e $m Benefit cost ratio a Red meat Industry net income c Gross value of production b a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

143 8.17 MISP 2020 benefits and investments by 2020: Pillar Production efficiency in farms and feedlots Decision support to improve farming businesses R&D initiatives to improve livestock productivity Total Processing productivity Live export productivity Total productivity and profitability Expected benefits a Red meat Industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment e $m Benefit cost ratio a Red meat Industry net income c Gross value of production b a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Meat Industry Strategic Plan

144 144 Meat Industry Strategic Plan MISP 2020 benefits in terms of red meat net income: Pillar 2 by 2030 a MISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by MISP 2020 imperative Decision support to improve farming businesses R&D initiatives to improve livestock productivity Processing productivity Live export productivity Productivity and Profitability % of MISP 2020 benefits Benefits in present values by sector Grass fed Grain fed Sheep Goats Processing Live Export Total red meat Profile of annual benefits in dollars a Expected present value of benefits for industry net income from to in dollars using a real rate of return of 5 per cent.

145 Meat Industry Strategic Plan MISP 2020 benefits in terms of GVP: Pillar 2 by 2030 a MISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by MISP 2020 imperative Decision support to improve farming businesses R&D initiatives to improve livestock productivity Processing productivity Live export productivity Productivity and Profitability % of MISP 2020 benefits Benefits in present values by sector Grass fed Grain fed Sheep Goats Total red meat Profile of annual benefits in dollars a Expected present value of benefits for saleyard equivalent GVP from to in dollars using a real rate of return of 5 per cent. Pillar 3: Market Growth and Diversification Chart 8.20 provides a summary of the payoffs for investments by priority across Pillar 3.

146 146 Meat Industry Strategic Plan $million 8.20 Summary of MISP 2020 benefits and investments by 2030: Pillar 3 priorities a,b Payoffs per dollar invested across MISP 2020 pillars: recommended portfolio Benefit cost ratio 25 Saleyard value of production Red meat net income Trade and market access 3.2 Marketing and promoting Australian red meat and livestock 3 Market Growth and Diversification Increase in present value of net income relative to the baseline 3 Downside risk Upside opportunity 2 $ billion Trade and market access 3.2 Marketing and promoting Australian red meat and livestock 3 Market Growth and Diversification Annual investments required MISP 2020 Maximum benefits MISP 2020 Recommended investments Trade and market access 3.2 Marketing and promoting Australian red meat and livestock 3 Market Growth and Diversification a Expected present values from to in dollars using a real rate of return of 5 per cent. b Annual investments are in nominal 2015 dollars. Tables 8.21 to 8.24 present the detailed results by Pillar 3 priorities and imperatives.

147 8.21 MISP 2020 benefits and investments by 2030: Pillar Trade and market access 3.2 Marketing and promoting Australian red meat and livestock Reducing economic barriers to trade Reducing technical barriers to trade Total Developing export markets Developed export markets Domestic market Total Total Expected benefits a Red meat Industry net income c $m Gross value of production b $m Maximum investment Total over 15 years d $m Average annual investment e $m Benefit cost ratio Red meat Industry net income c Gross value of production b a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Meat Industry Strategic Plan

148 8.22 MISP 2020 benefits and investments by 2020: Pillar 3 Expected benefits a Reducing economic barriers to trade 3.1 Trade and market access 3.2 Marketing and promoting Australian red meat and livestock Reducing technical barriers to trade Total Developing export markets Developed export markets Domestic market Total Total Meat Industry Strategic Plan Red meat Industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment e $m Benefit cost ratio Red meat Industry net income c Gross value of production b a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

149 Meat Industry Strategic Plan MISP 2020 benefits in terms of red meat net income by 2030: Pillar 3 a MISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by MISP 2020 imperative Reducing economic barriers to trade Reducing technical barriers to trade Developing export markets Developed export markets Domestic market Market Growth and Diversification % of MISP 2020 benefits Benefits in present values by sector Grass fed Grain fed Sheep Goats Processing Live Export Total red meat Profile of annual benefits in dollars a Expected present value of benefits for industry net income from to in dollars using a real rate of return of 5 per cent.

150 150 Meat Industry Strategic Plan MISP 2020 benefits in terms of GVP by 2030: Pillar 3 a MISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by MISP 2020 imperative Reducing economic barriers to trade Reducing technical barriers to trade Developing export markets Developed export markets Domestic market Market Growth and Diversification % of MISP 2020 benefits Benefits in present values by sector Grass fed Grain fed Sheep Goats Total red meat Profile of annual benefits in dollars a Expected present value of benefits for saleyard equivalent GVP from to in dollars using a real rate of return of 5 per cent. Pillar 4: Supply Chain Efficiency and Integrity Chart 8.25 provides a summary of the payoffs for investments across Pillar 4.

151 $ million $ billion Meat Industry Strategic Plan Summary of MISP 2020 benefits and investments by 2030: Pillar 4 priorities a,b Payoffs per dollar invested across MISP 2020 pillars: recommended portfolio 20 Benefit cost ratio Saleyard value of production Red meat net income Optimising product quality and cost efficiency 4.2 Guaranteeing product and systems integrity 4. Supply Chain Efficiency and Integrity Increase in present value of net income relative to the baseline 2 Downside risk Upside opportunity Optimising product quality and cost efficiency 4.2 Guaranteeing product and systems integrity 4. Supply Chain Efficiency and Integrity Annual investments required MISP 2020 Maximum benefits MISP 2020 Recommended investments Optimising product quality and cost efficiency 4.2 Guaranteeing product and systems integrity 4. Supply Chain Efficiency and Integrity a Expected present values from to in dollars using a real rate of return of 5 per cent. b Annual investments are in nominal 2015 dollars. Tables 8.26 to 8.29 present the detailed results by Pillar 4 priorities and imperatives.

152 8.26 MISP 2020 benefits and investments by 2030: Pillar Optimising product quality and cost efficiency 4.2 Guaranteeing product and systems integrity Improving quality & compliance via enhanced supply chain information Improving efficiencies in regulation, infrastructure and logistics Total Livestock and product assurance through integrated integrity systems Total Total Supply Chain Efficiency and Integrity 152 Meat Industry Strategic Plan Expected benefits a Red meat Industry net income c $m Gross value of production b $m Maximum investment Total over 15 years d $m Average annual investment $m Benefit cost ratio Red meat Industry net income c Gross value of production b a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

153 8.27 MISP 2020 benefits and investments by 2020: Pillar Optimising product quality and cost efficiency 4.2 Guaranteeing product and systems integrity Improving quality & compliance via enhanced supply chain information Improving efficiencies in regulation, infrastructure and logistics Total Livestock and product assurance through integrated integrity systems Total Total Supply Chain Efficiency and Integrity Expected benefits a Red meat Industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment $m Benefit cost ratio Red meat Industry net income c Gross value of production b a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income across all red meat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Meat Industry Strategic Plan

154 154 Meat Industry Strategic Plan MISP 2020 benefits in terms of red meat net income by 2030: Pillar 4 a MISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by MISP 2020 imperative improving quality & compliance via enhanced supply chain information Improving efficiencies in regulation, infrastructure and logistics Livestock and product assurance through integrated integrity systems Supply Chain Efficiency and Integrity % of MISP 2020 benefits Benefits in present values by sector Grass fed Grain fed Sheep Goats Processing Live Export Total red meat Profile of annual benefits in dollars a Expected present value of benefits for industry net income from to in dollars using a real rate of return of 5 per cent.

155 Meat Industry Strategic Plan MISP 2020 benefits in terms of GVP by 2030: Pillar 4 a MISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by MISP 2020 imperative improving quality & compliance via enhanced supply chain information Improving efficiencies in regulation, infrastructure and logistics Livestock and product assurance through integrated integrity systems Supply Chain Efficiency and Integrity % of MISP 2020 benefits Benefits in present values by sector Grass fed Grain fed Sheep Goats Total red meat Profile of annual benefits in dollars a Expected present value of benefits for saleyard equivalent GVP from to in dollars using a real rate of return of 5 per cent.

156 156 Meat Industry Strategic Plan A Details of the GMI/IF models GMI model The GMI model provides a global representation of production, consumption, trade and prices at the bilateral level for meat (beef, sheep and goat meat, pigmeat and poultry) and live animals (cattle and sheep). It identifies demand and supply for eight meat commodities across 25 regions. In addition, Australian exports are recognised as differentiated products to those from other exporter countries, which allows a more realistic approach to evaluating demand, supply and trade issues. It measures payoffs to Australian beef and sheepmeat producers in terms of changes in prices, production and gross value of production at an aggregate industry level. Currently, its historical database and projections cover a timeframe from 1995 through to The GMI model is maintained by CIE on behalf of MLA and is maintained on an annual basis. The GMI model has been used in over 30 significant applications including: forecasting and competitor analysis market access issues evaluation of strategies and programs. Integrated Framework The Integrated Framework (IF) is a comprehensive model of the Australian red meat value chain. Table A.1 provides an overview of the commodity and industry detail identified by the IF that covers all of the direct stakeholders in the red meat industry. This table shows the sum of the table columns is total gross value of production (GVP) for each industry and across red meat and total value of output by commodity the sum of each row. Each sector and step of the value chain has its own representation and recognises the key linkages between red meat sectors including: the linkage between farm level and downstream activities which is primarily livestock sold to feedlots, live export and the processing sectors the capability of farm level sectors to switch their sales between these markets for cattle, this is between feeders, cattle for slaughter and for live export the multi-product nature of production for the sheep industry (lambs and sheep) and processing (meat and co-products).

157 A.1 Industry details and production relationships identified by the Integrated Framework Industry Farm level Processing Live export Commodity Northern beef Southern Beef Feed lots Sheep Goats Grass fed processing Grain fed processing Lamb processing Sheepmeat processing Goat meat processing Live cattle Live sheep Live goats Total production Grass finished cattle X X Y Feeders Grain finished cattle X Y Cattle for live export X X Y Lambs X Y Sheep X Y Sheep for live export X Y Goats X Y Goats for export X Y Grass fed beef X Y Grain fed beef X Y Lamb processing X Y Sheepmeat processing X Y Goat meat X Y Coproducts X X X X X X Y Live cattle X Y Live sheep X Y Live goats X Y Industry GVP Z Z Z Z Z Z Z Z Z Z Z Z Z Z Source: MLA Integrated Framework. Meat Industry Strategic Plan

158 Each industry is represented by a production function that combines inputs including land, labour and capital as shown in table A.2. It therefore it therefore identifies: the extent of value-adding contributed at each point of the value chain the value added of the red meat industry in total. The interaction between the Australian red meat supply chain and domestic and export markets is handled in concert with the GMI model which tracks the demand side for the industry. From the point of view of quantification of the imperatives within the overall strategy, the strength of the model is that it is possible to observe how prices and profitability (net income) change along the value chain in response to changes in economic drivers (as a result of investments made). A.2 Industry costs identified by the IF Industries Industry costs Farm Feedlots Processing Live export Livestock input (excluding transport) Feeder steers and heifers Slaughter cattle X X X Lambs Sheep X X Goats X Consumables and packaging X X Energy and water X X X X Transport X X X X Other inputs and services X X X X Labour X X X X Capital X X X X Margin X X X Source: MLA Integrated Framework.

159 B Further details on potential costs of an FMD outbreak Tables B.1 and B.2 highlight the key differences on assumptions between CIE (2010) that was an update of PC (2002) and the later ABARES (2013) estimates of the potential costs of an FMD outbreak. The substantive differences are that the ABARES modelling assumes: an outbreak with a smaller footprint in terms of number and distribution of infected and potentially infected animals significantly longer exclusion periods from all export markets with 10 year until 100 per cent recovery to pre-outbreak levels whereas the CIE (2010) identified a 5 year exclusion period that applied to sensitive, and not all, export markets. These latter market access assumptions were the key driver of the differences in the potential costs identified between the two studies. B.1 Estimated costs of an FMD outbreak by CIE (2010) Extensive Contained Baseline assumptions Probability of an outbreak % Duration of the outbreak years Re-entry to export markets years Total exclusion years Export market closure first year Discerning markets a % Less discerning % Export recovery period years 4 2 Cattle and sheep destroyed no Baseline present value of losses Market access losses $billion Domestic market losses $billion Control and eradication losses $billion Total losses $billion Improvement in response times from industry investments Duration of the outbreak % Re-entry to export markets %

160 Extensive Contained Expected annual present value of benefits b Beef $m Sheep $m 7 2 Goats $m 0 0 Total red meat $m Annualised impact on industry GVP b Beef % Sheep % Goats % Total red meat % a Includes the United States, Canada, Japan and Korea. b The benefits are the reduction in losses that would have otherwise occurred without industry investment. Source: CIE. B.2 Estimated costs of an FMD outbreak by ABARES (2013) Large multi-scale outbreak Small outbreak in Victoria Baseline assumptions Probability of an outbreak % Duration of the outbreak years Re-entry to export markets years Total exclusion years Export market closure first year Discerning markets a % Less discerning % Export recovery period years Cattle and sheep destroyed no Baseline present value of losses Beef $billion Sheep and goats $billion Total losses $billion Improvement in response times from industry investments Duration of the outbreak % Re-entry to export markets % Expected annual present value of benefits b Beef $m 97 2 Sheep $m 29 4 Goats $m 1 0

161 Large multi-scale outbreak Small outbreak in Victoria Total red meat $m Annualised impact on industry GVPb Beef % Sheep % Goats % Total red meat % a Includes the United States, Canada, Japan and Korea. b The benefits are the reduction in losses that would have otherwise occurred without industry investment. Source: Buetre et al (2013) and CIE.

162 C Studies on the impact of generic promotion Australian Studies on the Impact of Generic Promotion Over the past 25 years at least 5 major studies have been conducted into returns from generic promotion of Australian beef and lamb. Ball, K and Dewbre, J (1989) ABARE undertook a study in 1989 on the impact of generic beef, lamb and pork promotion on consumer demand and producer returns using quarterly data from 1977 to This period covered the very successful beef short cuts and Mum s cooking lamb for dinner (considered one of the best 30 television adverts of all time) campaigns. ABARE concluded that for every dollar that producers invested in advertising increased their returns by $7 (a Benefit Cost Ratio BCR of 7:1). Piggott, N. E. et al (1996) Using quarterly data for the period 1978:3 to 1988:4 (forty-two observations), Piggott et al used a series of models to estimate the impact of AMLC beef and lamb promotional campaigns. The BCR for beef in their preferred model was 24:1, but no promotional impact was found for lamb. Centre for International Economics (2008) The CIE in 2008 also undertook analysis of MLA s beef nutritional communication activities between 2011 and During this period both lamb and beef demand increased by 22.3 per cent, while domestic consumer expenditure on red meat increased by about 50 per cent from $6 billion in to $9 billion in The CIE reasoned that it was likely that the Nutrition program has supported an increase in demand and expenditure, however it was unable to calculate the value of the program s contribution to this change. Warrick Yates and Associates (2009) In 2009 Warrick Yates and Associates was commissioned to assess the impact of $50 million of additional marketing investment raised through a $1.50 increase in the beef transaction levy (the so-called Funding for the Future (FTF) program). Warrick Yates and Associates concluded that:

163 the FTF funding has enhanced the evolution of the Australian beef industry from the status of commodity beef marketer to that of an effective niche marketer in the global market the additional marketing levy funds by way of the FTF program has been a wise and prudent investment and is returning significant financial benefits to the Australian beef The beef industry investment of $50.2 million in additional marketing activities across the Funding for the Future Program life to date has returned an estimated total of $275M to the industry (medium estimate, farm gate value). The resultant BCR calculated by Warrick Yates and Associates was 5.5:1. Ehrenberg-Bass Institute/Centre for International Economics (2012) In 2011, MLA engaged the Ehrenberg-Bass Institute in collaboration with the Centre for International Economics (CIE) to evaluate the impact of domestic beef promotion between 2004 and The study found that MLA s beef promotion activities had: been based on sound research, featured well-branded advertising and considered market channels and influencers achieved good consumer recognition and message comprehension impacted positively on beef sales. However, the evaluation concluded that it is impossible to quantify the return from this investment due to the confounding effects of price, discontinuity in survey data and the lack of detailed consumer purchase data. 26 International Studies on the Impact of Generic Promotion Over US$1 billion is invested each year in the United States in the generic promotion of agricultural commodities and this has resulted in a rich set of studies evaluating the impact of these programs. Studies have also been conducted in Canada and Europe. United States While some evidence suggests that check off funded domestic marketing activities increased demand for beef in the Unied States (Ward and Lambert 1993; Ward 2001, 2004, 2009), other results suggest that generic advertising did not have a statistically significant impact on US beef demand when the role of branded meat advertising (Brester and Schroeder 1995) and information related to the link between health and red meat consumption (Kinnucan et al. 1997; Boetel and Liu 2003) were taken into account. 26 Compared to data available that we used in parallel US studies.

164 Ward measured marginal BCRs for US producer investment in domestic marketing activities of about 5:1 to 6:1 since the early 1990s. The latest study conducted on returns from the US beef check-off (Kaiser 2014) concluded that generic advertising by the Cattlemen s Beef Board (CBB), US beef demand would have been 0.7 per cent lower. Further, the study found that had there been no CBB investments in foreign markets, foreign beef demand for US beef would have been 6.4 per cent lower than it actually was. The BCR for domestic beef advertising was 6.4:1. For investment in foreign markets the BCR was 14:1. Canada Cranfield and Goddard (1999) evaluated cattle producer investment in generic beef advertising in Canada up to Their results suggest that both generic and branded beef advertising had a statistically significant effect on the demand for beef in Canada and the U.S. Moreover, they measured an average BCR for generic beef advertising in Canada of approximately 17:1. Cranfield (2010) analysed marketing expenditure by the Canadian Beef Cattle Research, Market Development and Promotion Agency (NCO agency) from 2012/03 to 2008/09. Subsequent to the Canadian BSE case the average BCR was 9.4:1.

165 D Premiums for Australian product Beef To provide an indication of what Australia s integrity systems provide by way of a premium over product from other countries, beef prices in Malaysia were analysed by country of origin. The objective was to compare like for like product between Australia, New Zealand, Brazilian beef and Indian buffalo. The analysis focused on forequarter primals and forequarter slice/bulk packs from India and Brazil because of their homogeneity in end use particularly in wet dishes. The analysis showed that there was inherent quality differences between products by country or origin and that distribution channels were also important. Australian and New Zealand beef is most likely sold through supermarkets and hyper markets because of higher food safety requirements, whereas Brazilian beef and Indian buffalo are most likely sold through the wet markets and low-end food service. Australian and New Zealand product sold at roughly equivalent prices reflecting similar quality product and underlying integrity systems. The differences in the wholesale price between forequarter primals and forequarter sliced and bulk for both Indian buffalo and Brazilian beef were insignificant. The premium for Australian and New Zealand beef compared to Indian buffalo is shown in the table D.1. If Australian product were to be sold at prevailing Indian prices, then returns to Australian exporters would fall by 40 per cent. D.1 Differentials between Australian product and other suppliers 2015 Australia India New Zealand Brazil Forequarter primals Ac/kg Forequarter sliced and bulk Ac/kg na 4.20 na 5.44 difference reduction in Australian price % Source: Wholesale price data from Malaysia, March Lamb and sheepmeat An equivalent analysis for beef is complicated by the fact that the global market for lamb and sheepmeat is structurally different to that for beef: there are two primary suppliers with aligned country brands and integrity systems demand is generally stronger for sheepmeat at similar price points.

166 Observed price differentials can be explained largely by product description of individual cuts and if they are chilled versus frozen or other market interventions such as the relative country allocation of quota in the European Union.

167 Benefit cost ratio E Potential payoffs from the Beef Industry Strategic Plan This appendix outlines the benefits and costs of the Beef Industry Strategic Plan (BISP 2020) that are consistent with Pillars 1 to 4 of MISP 2020 but are reported in the same order as found in RMAC (2015). Summary and introduction Chart E.1 provides the headline payoffs, in terms of benefit cost ratios (BCRs) for each of the RMAC pillars and for BISP 2020 in total. Overall, over the period and , industry investment by the red meat industry could be expected to deliver a BCR of 8.3:1 based on industry net income and 15.2:1 based on gross value of production (GVP). 27 Even though many of the recommended investments are long term, BCRs of 3.8:1 for net income and 6.7:1 for GVP are achieved over the period 2015 to Approximately 52 per cent of the benefits are from investments that mitigate downside risks for the industry while the remainder target upside opportunities. E.1 BISP 2020 outcomes by 2030 a Payoffs per dollar invested across MISP 2020 pillars: recommended portfolio Saleyard value of production Beef Industry net income 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 2. Market Growth and Diversification 3. Supply Chain Efficiency and Integrity 4. Productivity and Profitability BISP 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 processing or for live export.

168 The red meat industry invested $165 million through its service companies in The Beef industry collectively invested $106 million or 64 per cent of the total red meat industry over the same period. In line with recommended funding in MISP 2020, table E.2 shows that indicative investments that might be implemented under BISP 2020 including significant increases in funding for: Improving quality and compliance via enhanced supply chain information an imperative in Priority 3.1 Livestock and product assurance through integrated integrity systems an imperative in Priority 3.2. Investing in more effective and efficient value based marketing, that provide signals for more consistent livestock with higher yields, was a key theme of MISP A reduction in investment in the imperatives covering the Marketing and Promotion in developed markets and the domestic market under Priority 2.2 was also identified. MISP 2020 also identified large benefits from improving decision making in farm businesses on the basis of large variations in cost of production across producer groups for both beef and sheepmeat. Currently, it is estimated that nearly half of the current investments in the area of imperative Decision support to improve farming businesses, are made by the Beef industry. However, the required total investment of around $100 million a year for both beef and sheepmeat over the next 15 years was considered to be too large relative to the possible benefits and consequently new methodologies need to be developed E.2 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 Trade and Market Access Marketing and Promotion Market Growth and Diversification Optimising product quality and cost efficiency Guaranteeing product and systems integrity Including Animal Health Australia and the National Residue Survey, but excludes an additional $30 million predominantly in MLA Donor Company projects.

169 Pillar and priority Current investment Indicative investment $m $m 3. Supply Chain Efficiency and Integrity Production efficiency in farms and feedlots Processing Productivity Live export Productivity Productivity and Profitability Total annual investment a Total annual investment includes $3.8 million of industry skills and development funds (Pillar 5), not itemised but shown in the total. Table E.3 provides detailed BCRs by Pillar, Priority and Imperative. E.3 Benefit Cost Ratios by Pillar, Priority and Imperative for BISP 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 nutritious and healthy diet Total Pillar Pillar 2: 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 3: Supply Chain Efficiency and Integrity Improving quality and compliance via enhanced supply chain information Improving efficiencies in regulation, infrastructure and logistics

170 Pillar and Priority Imperative Optimising product quality and cost efficiency Livestock and product assurance through integrated integrity systems Guaranteeing product and systems integrity Total Pillar Pillar 4: 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 BISP a Calculated as the expected present value of benefits,based on net industry income and costs from to in dollars using a real rate of return of 5 per cent Recommended investment portfolio for BISP 2020 Benefits and payoffs from recommended portfolio Chart E.4 provides an overview of the benefits and investments by the four Pillars that were quantified by BISP The first panel summarises benefit cost ratios (BCR) for each of the Pillars. The second panel identifies the composition of the benefits that have been identified in terms of downside risk (benefits from actions that avoid developments that could negatively impact om the industry) upside opportunities (benefits from actions that improve industry productivity and net income above current levels) Finally, the third panel of chart E.4 presents the recommended annual investment by the BISP/MISP reports. Tables E.5 to E.8 present the detailed beef industry results across each of the MISP pillars.

171 E.4 Summary of BISP 2020 benefits and investments by 2030: all pillars a,b $million $ billion Payoffs per dollar invested across MISP 2020 pillars: recommended portfolio Saleyard value of production Beef Industry net income Benefit cost ratio Consumer and Community Support 2. Market Growth and Diversification 3. Supply Chain Efficiency and Integrity 4. Productivity and Profitability BISP 2020 Increase in present value of net income relative to the baseline Downside risk Upside opportunity Consumer and Community Support 2 Market Growth and Diversification 3. Supply Chain Efficiency and Integrity 4 Efficiency and Profitability BISP 2020 Annual investments required BISP/MISP Recommended investments Consumer and Community Support 2 Market Growth and Diversification a Expected present values from to in dollars using a real rate of return of 5 per cent. b Annual investments are in nominal 2015 dollars. 3. Supply Chain Efficiency and Integrity 4 Efficiency and Profitability BISP 2020

172 E.5 Benefits and investments by 2030: all pillars a Expected benefits a 1. Consumer and Community Support 2. Market Growth & Diversification 3. Industry Efficiency and Integration 4. Efficiency & Profitability All pillars Beef industry net income c $m Gross value of production b $m Meat Industry Strategic Plan Maximum investment Total over 15 years d $m Average annual investment e $m Benefit cost ratio Beef industry net income c Gross value of production b a Expected present value of net industry income from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net industry income of all Beef industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

173 E.6 Benefits and investments by 2020: all pillars a 1. Consumer and Community Support 2. Market Growth & Diversification 3. Industry Efficiency and Integration 4. Efficiency & Profitability All pillars Expected benefits a Beef industry net income $m Gross value of production $m Maximum investment Total over 5 years d $m Average annual investment $m Benefit cost ratio Beef industry net income Gross value of production a Expected present value of net industry income from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net industry income all Beef industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Meat Industry Strategic Plan

174 E.7 BISP 2020 benefits in terms of beef industry net income by 2030: all pillars a BISP 2020 Outcome relative to the baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by BISP 2020 pillar 1 Consumer and community support Market growth and diversification Supply Chain Efficiency and Integrity Productivity and profitability All pillars % of BISP 2020 benefits Benefits in present values by sector Northern beef Southern Beef Feedlots Processing Live export Total beef industry Profile of annual benefits in dollars a Expected present value of benefits for net industry income from to in dollars using a real rate of return of 5 per cent.

175 E.8 BISP 2020 benefits in terms of GVP by 2030: BISP 2020 a BISP 2020 Outcome relative to the baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by BISP 2020 pillar 1 Consumer and community support Market growth and diversification Supply Chain Efficiency and Integrity Productivity and profitability All pillars % of BISP 2020 benefits Benefits in present values by sector Northern beef Southern Beef Feedlots Total beef industry Profile of annual benefits in dollars a Expected present value of benefits for saleyard equivalent GVP from to in dollars using a real rate of return of 5 per cent. Pillar 1: Consumer and Community Support Chart E.9 provides a summary of the payoffs for investments at the priority level across Pillar 1.

176 $ million E.9 Summary of BISP 2020 benefits and investments by 2030: Pillar 1 priorities a,b Payoffs per dollar invested across MISP-2020 pillars: recommended portfolio 40.0 Saleyard value of production Beef Industry net income Benefit cost ratio Animal Welfare 1.2 Environmental Stewardship 1.3 Red meat in a healthy diet 1 Total Consumer and Community Support Increase in present value of net income relative to the baseline $ billion Downside risk Upside opportunity Animal Welfare 1.2 Environmental Stewardship 1.3 Red meat in a healthy diet 1 Total Consumer and Community Support Annual investments required BISP/MISP Recommended investments Animal Welfare 1.2 Environmental Stewardship 1.3 Red meat in a healthy diet 1 Total Consumer and Community Support a Expected present values from to in dollars using a real rate of return of 5 per cent. b Annual investments are in nominal 2015 dollars. Tables E.10 to E.15 present the detailed results by Pillar 1 priorities and imperatives.

177 E.10 BISP 2020 benefits and investments by 2030: Priority Welfare of animals within our care Continuous improvement of animal welfare Minimising risk and impact of emergency disease Minimising the impact of endemic disease Total Expected benefits a Beef industry net income c $m Gross value of production b $m Maximum investment Total over 15 years d $m Average annual investment e $m Benefit cost ratio a Beef industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income all Beef industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. E.11 BISP 2020 benefits and investments by 2020: Priority Welfare on animals within our care Continuous improvement of animal welfare Minimising risk and impact of emergency disease Minimising the impact of endemic disease Total Expected benefits a Beef industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment e $m Benefit cost ratio a Beef industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income all Beef industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

178 E.12 BISP 2020 benefits and investments by 2030: Priorities 1.2 and 1.3 Minimising industry impact on the environment 1.2 Stewardship of environmental resources 1.3 Red meat in a healthy diet Sustainable management of the natural resource base Adapting to climate variability Total Red meat in a healthy diet Total consumer and community support Meat Industry Strategic Plan Expected benefits a Beef industry net income c $m Gross value of production b $m Maximum investment Total over 15 years d $m Average annual investment $m Benefit cost ratio Beef industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income all Beef industry sectors including processing. D Expected present value of investments from to in dollars using a real rate of return of 5 per cent. E Average investments from to in dollars using a real rate of return of 5 per cent.

179 E.13 BISP 2020 benefits and investments by 2020: Priorities 1.2 and 1.3 Expected benefits a Minimising industry impact on the environment 1.2 Stewardship of environmental resources 1.3 Red meat in a healthy diet Sustainable management of the natural resource base Adapting to climate variability Total Red meat in a healthy diet Total consumer and community support Beef industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment e $m Benefit cost ratio Beef industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income all Beef industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Meat Industry Strategic Plan

180 E.14 BISP 2020 benefits in terms of beef industry net income by2030: Pillar 1 a BISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by BISP 2020 imperative 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 Red meat in a healthy diet All imperatives % of BISP 2020 benefits Benefits in present values by sector Northern beef Southern Beef Feedlots Processing Live export Total beef industry Profile of annual benefits in dollars a Expected present value of benefits for industry net income from to in dollars using a real rate of return of 5 per cent.

181 E.15 BISP 2020 benefits in terms of GVP by 2030: Pillar 1 a BISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by BISP 2020 imperative 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 Red meat in a healthy diet All imperatives % of BISP 2020 benefits Benefits in present values by sector Northern beef Southern Beef Feedlots Total beef Profile of annual benefits in dollars a Expected present value of benefits for saleyard equivalent GVP from to in dollars using a real rate of return of 5 per cent. Pillar 2: Market Growth and Diversification Chart E.16 provides a summary of the payoffs for investments by priority across Pillar 2.

182 $million E.16 Summary of BISP 2020 benefits and investments by 2030: Pillar 2 priorities a,b Payoffs per dollar invested across MISP-2020 pillars: recommended portfolio 30 Saleyard value of production Beef Industry net income 25 Benefit cost ratio Trade and Market Access 2.2 Marketing and Promoting Australian Red Meat and Livestock 2 Market Growth and Diversification Increase in present value of net income relative to the baseline Downside risk Upside opportunity $ billion Trade and Market Access 2.2 Marketing and Promoting Australian Red Meat and Livestock 2 Market Growth and Diversification Annual investments required 40 BISP/MISP Recommended investments Trade and Market Access 2.2 Marketing and Promoting Australian Red Meat and Livestock 2 Market Growth and Diversification a Expected present values from to in dollars using a real rate of return of 5 per cent. b Annual investments are in nominal 2015 dollars. Tables E.17 to E.20 present the detailed results by Pillar 3 priorities and imperatives.

183 E.17 BISP 2020 benefits and investments by 2030: Pillar Trade and market access 2.2 Marketing and promoting Australian red meat and livestock Reducing economic barriers to trade Reducing technical barriers to trade Total Developing export markets Developed export markets Domestic market Total Total Expected benefits a Beef industry net income c $m Gross value of production b $m Maximum investment Total over 15 years d $m Average annual investment e $m Benefit cost ratio Beef industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income all Beef industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Meat Industry Strategic Plan

184 E.18 BISP 2020 benefits and investments by 2020: Pillar 2 Expected benefits a Reducing economic barriers to trade 2.1 Trade and market access 2.2 Marketing and promoting Australian red meat and livestock Reducing technical barriers to trade Total Developing export markets Developed export markets Domestic market Total Total Meat Industry Strategic Plan Beef industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment e $m Benefit cost ratio Beef industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income all Beef industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

185 E.19 BISP 2020 benefits in terms of beef net income by 2030: Pillar 2 a BISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by BISP 2020 imperative Reducing economic barriers to trade Reducing technical barriers to trade Developing export markets Developed export markets Domestic market Market growth and diversification % of BISP 2020 benefits Benefits in present values by sector Northern beef Southern Beef Feedlots Processing Live Export Total beef industry Profile of annual benefits in dollars a Expected present value of benefits for industry net income from to in dollars using a real rate of return of 5 per cent.

186 E.20 BISP 2020 benefits in terms of GVP by 2030: Pillar 2 a BISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by BISP 2020 imperative Reducing economic barriers to trade Reducing technical barriers to trade Developing export markets Developed export markets Domestic market Market growth and diversification % of BISP 2020 benefits Benefits in present values by sector Northern beef Southern Beef Feedlots Total beef industry Profile of annual benefits in dollars a Expected present value of benefits for saleyard equivalent GVP from to in dollars using a real rate of return of 5 per cent. Pillar 3: Supply Chain Efficiency and Integrity Chart E.21 provides a summary of the payoffs for investments across Pillar 3.

187 $ million E.21 Summary of BISP 2020 benefits and investments by 2030: Pillar 3 priorities a,b Payoffs per dollar invested across MISP-2020 pillars: recommended portfolio 20 Benefit cost ratio Saleyard value of production Beef Industry net income Optimising product quality and cost efficiency 3.2 Guaranteeing product and systems integrity 3. Supply Chain Efficiency and Integrity $ billion Increase in present value of net income relative to the baseline 1.0 Downside risk Upside opportunity Optimising product quality and cost efficiency 3.2 Guaranteeing product and systems integrity 3. Supply Chain Efficiency and Integrity Annual investments required 40 BISP/MISP Recommended investments Optimising product quality and cost efficiency 3.2 Guaranteeing product and systems integrity 3. Supply Chain Efficiency and Integrity a Expected present values from to in dollars using a real rate of return of 5 per cent. b Annual investments are in nominal 2015 dollars. Tables E.22 to E.25 present the detailed results by Pillar 3 priorities and imperatives.

188 E.22 BISP 2020 benefits and investments by 2030: Pillar Optimising product quality and cost efficiency 3.2Guarenteeing product and systems integrity Improving quality & compliance via enhanced supply chain information Improving efficiencies in regulation, infrastructure and logistics Total Livestock and product assurance through integrated integrity systems Total Total Supply chain efficiency and integrity 188 Meat Industry Strategic Plan Expected benefits a Beef industry net income c $m Gross value of production b $m Maximum investment Total over 15 years d $m Average annual investment $m Benefit cost ratio Beef industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income all Beef industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

189 E.23 BISP 2020 benefits and investments by 2020: Pillar Optimising product quality and cost efficiency 3.2 Guaranteeing product and systems integrity Improving quality & compliance via enhanced supply chain information Improving efficiencies in regulation, infrastructure and logistics Total Livestock and product assurance through integrated integrity systems Total Total Supply Chain Efficiency and Integrity Expected benefits a Beef industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment $m Benefit cost ratio Beef industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Ney income all Beef industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Meat Industry Strategic Plan

190 E.24 BISP 2020 benefits in terms of beef net income by 2030: Pillar 3 a BISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by BISP 2020 imperative Improving quality and compliance via enhanced supply chain information Improving efficiencies in regulation, infrastructure and logistics Livestock and product assurance through integrated integrity systems Supply Chain Efficiency and Integrity % of BISP 2020 benefits Benefits in present values by sector Northern beef Southern Beef Feedlots Processing Live Export Total beef industry Profile of annual benefits in dollars a Expected present value of benefits for industry net income from to in dollars using a real rate of return of 5 per cent.

191 E.25 BISP 2020 benefits in terms of GVP by 2030: Pillar 3 a BISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by BISP 2020 imperative improving quality & compliance via enhanced supply chain information Improving efficiencies in regulation, infrastructure and logistics Livestock and product assurance through integrated integrity systems Supply Chain Efficiency and Integrity % of BISP 2020 benefits Benefits in present values by sector Northern beef Southern Beef Feedlots Total beef industry Profile of annual benefits in dollars a Expected present value of benefits for saleyard equivalent GVP from to in dollars using a real rate of return of 5 per cent. Pillar 4: Productivity and Profitability Chart E.26 provides a summary of the payoffs for investments across Pillar 4.

192 E.26 Summary of BISP 2020 benefits and investments for Pillar 4 priorities a,b 20 $million $ billion Payoffs per dollar invested across MISP2020: recommended portfolio Saleyard value of production 15 Benefit cost ratio 10 5 Beef industry net income Farm and Feedlot productivity 4.2 Processing productivity 4.3 Live export productivity 4 Productivity and Profitability Increase in present value of net income relative to the baseline 1.5 Downside risk Upside opportunity Farm and Feedlot productivity 4.2 Processing productivity 4.3 Live export productivity 4 Productivity and Profitability Annual investments required BISP/MISP Recommended investments Farm and Feedlot productivity 4.2 Processing productivity 4.3 Live export productivity 4 Productivity and Profitability a Expected present values from to in dollars using a real rate of return of 5 per cent. b Annual investments are in nominal 2015 dollars. Tables E.27 to E.30 present the detailed results by Pillar 4 priorities and imperatives.

193 E.27 BISP 2020 benefits and investments by 2030: Pillar Production efficiency in farms and feedlots Decision support to improve farming businesses R&D initiatives to improve livestock productivity Total Processing productivity Live export productivity Total productivity and profitability Expected benefits a Beef industry net income c $m Gross value of production b $m Maximum investment Total over 15 years d $m Average annual investment e $m Benefit cost ratio Beef industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income all Beef industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Meat Industry Strategic Plan

194 E.28 BISP 2020 benefits and investments by 2020: Pillar 4 Expected benefits a 4.1 Production efficiency in farms and feedlots Decision support to improve farming businesses R&D initiatives to improve livestock productivity Total Processing productivity Live export productivity Total productivity and profitability Meat Industry Strategic Plan Beef industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment e $m Benefit cost ratio Beef industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income all Beef industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

195 Meat Industry Strategic Plan E.29 BISP 2020 benefits in terms of beef net income: Pillar 4 by 2030 a BISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by BISP 2020 imperative Decision support to improve farming businesses R&D initiatives to improve livestock productivity Processing productivity Live export productivity Productivity and profitability % of BISP 2020 benefits Benefits in present values by sector Northern beef Southern Beef Feedlots Processing Live Export Total beef Profile of annual benefits in dollars a Expected present value of benefits for industry net income from to in dollars using a real rate of return of 5 per cent.

196 196 Meat Industry Strategic Plan E.30 BISP 2020 benefits in terms of GVP: Pillar 4 by 2030 a BISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by BISP 2020 imperative Decision support to improve farming businesses R&D initiatives to improve livestock productivity Processing productivity Live export productivity Productivity and profitability % of BISP 2020 benefits Benefits in present values by sector Northern beef Southern Beef Feedlots Total beef Profile of annual benefits in dollars a Expected present value of benefits for saleyard equivalent GVP from to in dollars using a real rate of return of 5 per cent.

197 Benefit cost ratio Meat Industry Strategic Plan F Potential payoffs from the Sheep Industry Strategic Plan This appendix outlines the benefits and costs of the Sheep Industry Strategic Plan (SISP 2020) that are consistent with Pillars 1 to 4 of MISP 2020 but are reported in the same order as found in RMAC (2015). Summary and Introduction Chart F.1 provides the headline payoffs, in terms of benefit cost ratios (BCRs) for each of the RMAC pillars and for SISP 2020 in total. Overall, over the period to , industry investment by the sheepmeat industry could be expected to deliver a BCR of 5.7:1 based on industry net income and 7.5:1 based on gross value of production (GVP). 29 Even though many of the recommended investments are long term, BCRs of 2.9:1 for net income and 3.9:1 for GVP are achieved over the period 2015 to Approximately 40 per cent of the benefits are from investments that mitigate downside risks for the industry while the remainder target upside opportunities. F.1 SISP 2020 outcomes by 2030 a Payoffs per dollar invested across SISP 2020 pillars: recommended portfolio 15 Saleyard value of production Sheepmeat Industry net income 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 2. Market Growth and Diversification 3. Supply Chain Efficiency and Integrity 4. Productivity and Profitability SISP 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.

198 198 Meat Industry Strategic Plan The red meat industry invested $165 million through its service companies in The sheepmeat industry collectively invested $57.8 million or 35 per cent of the total red meat industry over the same period. In line with recommended funding in MISP 2020, table F.2 shows that indicative investments that might be implemented under SISP 2020 including significant increases in funding for: Improving quality and compliance via enhanced supply chain information an imperative in Priority 3.1 Livestock and product assurance through integrated integrity systems an imperative in Priority 3.2. Investing in more effective and efficient value based marketing, that provide signals for more consistent livestock with higher yields, was a key theme of MISP A reduction in investment in imperative Marketing and Promotion in developed markets under Priority 2.2 was also identified. MISP 2020 also identified large benefits from improving decision making in farm businesses on the basis of large variations in cost of production across producer groups for both beef and sheepmeat. Currently, it is estimated that over half of the current investments in the area of imperative Decision support to improve farming businesses, are made by the sheepmeat industry. However, the required total investment of around $100 million a year for both beef and sheepmeat over the next 15 years was considered to be too large relative to the possible benefits. F.2 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 Trade and Market Access Marketing and Promotion Market Growth and Diversification Optimising product quality and cost efficiency Guaranteeing product and systems integrity Supply Chain Efficiency and Integrity Including Animal Health Australia and the National Residue Survey, but excludes an additional $30 million predominantly in MLA Donor Company projects.

199 Meat Industry Strategic Plan Pillar and priority Current investment Indicative investment $m $m 4.1 Production efficiency in farms and feedlots Processing Productivity Live export Productivity Productivity and Profitability Total annual investment a a Total annual investment includes $1.7 million of industry skills and development funds (Pillar 5), not itemised but shown in the total. Table F.3 provides detailed BCRs by Pillar, Priority and Imperative. F.3 Benefit Cost Ratios by Pillar, Priority and Imperative for SISP 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 nutritious and healthy diet Total Pillar Pillar 2: 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 3: 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

200 200 Meat Industry Strategic Plan Pillar and Priority Imperative Livestock and product assurance through integrated integrity systems Guaranteeing product and systems integrity Total Pillar Pillar 4: 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 SISP a Calculated as the expected present value of benefits and costs based on net income and costs. Recommended investment portfolio for SISP 2020 Benefits and payoffs from recommended portfolio Chart F.4 provides an overview of the benefits and investments by the four Pillars that were quantified by MISP The first panel summarises benefit cost ratios (BCR) for each of the Pillars. The second panel identifies the composition of the benefits that have been identified in terms of downside risk (benefits from actions that avoid developments that could negatively impact om the industry) upside opportunities (benefits from actions that improve industry productivity and net income above current levels) Finally, the third panel of chart F.4 presents the recommended annual investment by the SISP/MISP reports. Tables F.5 to F.8 present the detailed results across each of the RMAC pillars.

201 Meat Industry Strategic Plan F.4 Summary of SISP 2020 benefits and investments by 2030: all pillars a,b Payoffs per dollar invested across SISP 2020 pillars: recommended portfolio 15 Saleyard value of production Sheepmeat Industry net income $million Benefit cost ratio Consumer and Community Support 2. Market Growth and Diversification 3. Supply Chain Efficiency and Integrity 4. Productivity and Profitability SISP 2020 Increase in present value net income relative to the baseline Downside risk Upside opportunity 0.5 $ billion Consumer and Community Support 2 Market Growth and Diversification 3. Supply Chain Efficiency and Integrity 4 Efficiency and Profitability SISP 2020 Annual investments required SISP/MISP Recommended investments Consumer and Community Support 2 Market Growth and Diversification a Expected present values from to in dollars using a real rate of return of 5 per cent. b Annual investments are in nominal 2015 dollars. 3 Supply Chain Efficiency and Integrity 4 Efficiency and Profitability SISP 2020

202 F.5 Benefits and investments by 2030: all pillars a Expected benefits a 1. Consumer and Community Support 2. Market Growth and Diversification 3. Supply Chain Efficiency and Integrity 4. Productivity and Profitability All pillars Sheepmeat industry net income c $m Gross value of production b $m Meat Industry Strategic Plan Maximum investment Total over 15 years d $m Average annual investment e $m Benefit cost ratio Sheepmeat industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income all sheepmeat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

203 F.6 Benefits and investments by 2020: all pillars a 1. Consumer and Community Support 2. Market Growth and Diversification 3. Supply Chain Efficiency and Integrity 4. Productivity and Profitability All pillars Expected benefits a Sheepmeat industry net income $m Gross value of production $m Maximum investment Total over 5 years d $m Average annual investment $m Benefit cost ratio Sheepmeat industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income all sheepmeat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Meat Industry Strategic Plan

204 204 Meat Industry Strategic Plan F.7 SISP 2020 benefits in terms of sheep industry net income by 2030: all pillars a SISP 2020 Outcome relative to the baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by SISP 2020 pillar 1 Consumer and Community Support Market Growth and Diversification Supply Chain Efficiency and Integrity Productivity and Profitability All pillars % of SISP 2020 benefits Benefits in present values by sector Lamb and mutton Sheepmeat processing Live Export Total sheep Profile of annual benefits in dollars a Expected present value of benefits for industry net income from to in dollars using a real rate of return of 5 per cent. F.8 SISP 2020 benefits in terms of GVP by 2030: SISP 2020 a SISP 2020 Outcome relative to the baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by SISP 2020 pillar 1 Consumer and Community Support Market Growth and Diversification Supply Chain Efficiency and Integrity Productivity and Profitability All pillars

205 Meat Industry Strategic Plan SISP 2020 Outcome relative to the baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m % of SISP 2020 benefits Profile of annual benefits in dollars a Expected present value of benefits for saleyard equivalent GVP from to in dollars using a real rate of return of 5 per cent. Pillar 1: Consumer and Community Support Chart F.9 provides a summary of the payoffs for investments at the priority level across Pillar 1.

206 206 Meat Industry Strategic Plan F.9 Summary of SISP 2020 benefits and investments by 2030: Pillar 1 priorities a,b Payoffs per dollar invested across SISP 2020 pillars: recommended portfolio 15.0 Benefit cost ratio $ million Saleyard value of production Sheepmeat Industry net income Welfare of animals within our cared 1.2 Stewardship of environmental resources 1.3 Red meat in a healthy diet 1 Total Consumer and Community Support Increase in present value of net income relative to the baseline 0.5 $ billion Downside risk Upside opportunity Welfare of animals within our cared 1.2 Stewardship of environmental resources 1.3 Red meat in a healthy diet 1 Total Consumer and Community Support Annual investments required 15 SISP/MISP Recommended investments Welfare of animals within our cared 1.2 Stewardship of environmental resources 1.3 Red meat in a healthy diet 1 Total Consumer and Community Support a Expected present values from to in dollars using a real rate of return of 5 per cent. b Annual investments are in nominal 2015 dollars. Tables F.10 to F.15 present the detailed results by Pillar 1 priorities and imperatives.

207 Meat Industry Strategic Plan F.10 SISP 2020 benefits and investments by 2030: Priority Welfare of animals within our care Continuous improvement of animal welfare Minimising risk and impact of emergency disease Minimising the impact of endemic disease Total Expected benefits a Sheepmeat industry net income c $m Gross value of production b $m Maximum investment Total over 15 years d $m Average annual investment e $m Benefit cost ratio Sheepmeat industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income all sheepmeat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. F.11 SISP 2020 benefits and investments by 2020: Priority Welfare of animals within our care Continuous improvement of animal welfare Minimising risk and impact of emergency disease Minimising the impact of endemic disease Total Expected benefits a Sheepmeat industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment e $m Benefit cost ratio Sheepmeat industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income all sheepmeat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

208 F.12 SISP 2020 benefits and investments by 2030: Priorities 1.2 and 1.3 Minimising industry impact on the environment 1.2 Stewardship of environmental resources 1.3 Red meat in a healthy diet Sustainable management of the natural resource base Adapting to climate variability Total Red meat in a healthy diet Total Consumer and Community Support Meat Industry Strategic Plan Expected benefits a Sheepmeat industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment e $m Benefit cost ratio Sheepmeat industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income all sheepmeat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

209 F.13 SISP 2020 benefits and investments by 2020: Priorities 1.2 and Stewardship of environmental resources 1.3 Red meat in a healthy diet Minimising industry impact on the environment Sustainable management of the natural resource base Adapting to climate variability Total Red meat in a healthy diet Total Consumer and Community Support Expected benefits a Sheepmeat industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment e $m Benefit cost ratio Sheepmeat industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income all sheepmeat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Meat Industry Strategic Plan

210 210 Meat Industry Strategic Plan F.14 SISP 2020 benefits in terms of sheep industry net income by2030: Pillar 1 a SISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by SISP 2020 imperative 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 Red meat in a healthy diet Total Consumer and Community Support % of SISP 2020 benefits Benefits in present values by sector Lamb and mutton Processing Live export Total sheep Profile of annual benefits in dollars a Expected present value of benefits for industry net income from to in dollars using a real rate of return of 5 per cent.

211 Meat Industry Strategic Plan F.15 SISP 2020 benefits in terms of GVP by 2030: Pillar 1 a SISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by SISP 2020 imperative 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 Red meat in a healthy diet Total Consumer and Community Support % of SISP 2020 benefits Profile of annual benefits in dollars a Expected present value of benefits for saleyard equivalent GVP from to in dollars using a real rate of return of 5 per cent. Pillar 2: Market Growth and Diversification Chart F.16 provides a summary of the payoffs for investments by priority across Pillar 2.

212 212 Meat Industry Strategic Plan F.16 Summary of SISP 2020 benefits and investments by 2030: Pillar 2 priorities a,b Payoffs per dollar invested across SISP 2020 pillars: recommended portfolio Benefit cost ratio $million 16 Saleyard value of production Sheep industry net income Trade and Market Access 2.2 Marketing and Promoting Australian Red Meat and Livestock 2 Market Growth and Diversification Increase in present value of net income relative to the baseline 1.0 Downside risk Upside opportunity $ billion Trade and Market Access 2.2 Marketing and Promoting Australian Red Meat and Livestock 2 Market Growth and Diversification Annual investments required 20 SISP/MISP Recommended investments Trade and Market Access 2.2 Marketing and Promoting Australian Red Meat and Livestock 2 Market Growth and Diversification a Expected present values from to in dollars using a real rate of return of 5 per cent. b Annual investments are in nominal 2015 dollars. Tables F.17 to F.20 present the detailed results by Pillar 3 priorities and imperatives.

213 F.17 SISP 2020 benefits and investments by 2030: Pillar Trade and Market Access 2.2 Marketing and Promoting Australian Red Meat and Livestock Reducing economic barriers to trade Reducing technical barriers to trade Total Developing export markets Developed export markets Domestic market Total Total Expected benefits a Sheepmeat industry net income c $m Gross value of production b $m Maximum investment Total over 15 years d $m Average annual investment e $m Benefit cost ratio Sheepmeat industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income all sheepmeat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Meat Industry Strategic Plan

214 F.18 SISP 2020 benefits and investments by 2020: Pillar 2 Expected benefits a Reducing economic barriers to trade 2.1 Trade and Market Access 2.2 Marketing and Promoting Australian Red Meat and Livestock Reducing technical barriers to trade Total Developing export markets Developed export markets Domestic market Total Total Meat Industry Strategic Plan Sheepmeat industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment e $m Benefit cost ratio Sheepmeat industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income all sheepmeat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

215 Meat Industry Strategic Plan F.19 SISP 2020 benefits in terms of red meat net income by 2030: Pillar 2 a SISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by SISP 2020 imperative Reducing economic barriers to trade Reducing technical barriers to trade Developing export markets Developed export markets Domestic market Market Growth and Diversification % of SISP 2020 benefits Benefits in present values by sector Lamb and mutton Processing Live Export Total Sheep Profile of annual benefits in dollars a Expected present value of benefits for industry net income from to in dollars using a real rate of return of 5 per cent. F.20 SISP 2020 benefits in terms of GVP by 2030: Pillar 2 a SISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by SISP 2020 imperative Reducing economic barriers to trade Reducing technical barriers to trade

216 216 Meat Industry Strategic Plan SISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Developing export markets Developed export markets Domestic market Market Growth and Diversification % of SISP 2020 benefits Profile of annual benefits in dollars a Expected present value of benefits for saleyard equivalent GVP from to in dollars using a real rate of return of 5 per cent. Pillar 3: Supply Chain Efficiency and Integrity Chart F.21 provides a summary of the payoffs for investments across Pillar 3.

217 Meat Industry Strategic Plan F.21 Summary of SISP 2020 benefits and investments by 2030: Pillar 3 priorities a,b Payoffs per dollar invested across SISP 2020 pillars: recommended portfolio $ million 15 Saleyard value of production Sheep industry net income Benefit cost ratio Optimising product quality and cost efficiency 3.2 Guaranteeing product and systems integrity 3. Supply Chain Efficiency and Integrity $ billion Increase in present value of net income relative to the baseline 0.6 Downside risk Upside opportunity Optimising product quality and cost efficiency 3.2 Guaranteeing product and systems integrity 3. Supply Chain Efficiency and Integrity Annual investments required 20 SISP/MISP Recommended investments Optimising product quality and cost efficiency 3.2 Guaranteeing product and systems integrity 3. Supply Chain Efficiency and Integrity a Expected present values from to in dollars using a real rate of return of 5 per cent. b Annual investments are in nominal 2015 dollars. Tables F.22 to F.25 present the detailed results by Pillar 3 priorities and imperatives.

218 F.22 SISP 2020 benefits and investments by 2030: Pillar Optimising product quality and cost efficiency 3.2 Guaranteeing product and systems integrity Improving quality & compliance via enhanced supply chain information Improving efficiencies in regulation, infrastructure and logistics Total Livestock and product assurance through integrated integrity systems Total Total Capability, Industry Efficiency and Integrity 218 Meat Industry Strategic Plan Expected benefits a Sheepmeat industry net income c $m Gross value of production b $m Maximum investment Total over 15 years d $m Average annual investment $m Benefit cost ratio Sheepmeat industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income all sheepmeat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

219 F.23 SISP 2020 benefits and investments by 2020: Pillar Optimising product quality and cost efficiency 3.2 Guaranteeing product and systems integrity Improving quality & compliance via enhanced supply chain information Improving efficiencies in regulation, infrastructure and logistics Total Livestock and product assurance through integrated integrity systems Total Total Capability, Industry Efficiency and Integrity Expected benefits a Sheepmeat industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment $m Benefit cost ratio Sheepmeat industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income all sheepmeat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Meat Industry Strategic Plan

220 220 Meat Industry Strategic Plan F.24 SISP 2020 benefits in terms of red meat net income by 2030: Pillar 3 a SISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by SISP 2020 imperative improving quality & compliance via enhanced supply chain information Improving efficiencies in regulation, infrastructure and logistics Livestock and product assurance through integrated integrity systems Supply Chain Efficiency and Integrity % of SISP 2020 benefits Benefits in present values by sector Lamb and mutton Processing Export Total Sheep Profile of annual benefits in dollars a Expected present value of benefits for industry net income from to in dollars using a real rate of return of 5 per cent. F.25 SISP 2020 benefits in terms of GVP by 2030: Pillar 3 a SISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by SISP 2020 imperative improving quality & compliance via enhanced supply chain information Improving efficiencies in regulation, infrastructure and logistics Livestock and product assurance through

221 Meat Industry Strategic Plan SISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m integrated integrity systems 3 Supply Chain Efficiency and Integrity % of SISP 2020 benefits Profile of annual benefits in dollars a Expected present value of benefits for saleyard equivalent GVP from to in dollars using a real rate of return of 5 per cent. Pillar 4: Productivity and Profitability Chart F.26 provides a summary of the payoffs for investments across Pillar 4.

222 222 Meat Industry Strategic Plan $million F.26 Summary of SISP 2020 benefits and investments for Pillar 4 priorities a,b Payoffs per dollar invested across SISP 2020: recommended portfolio 16 Saleyard value of production Benefit cost ratio Sheep industry net income Farm and Feedlot productivity 4.2 Processing productivity 4.3 Live export productivity 4 Productivity and Profitability Increase in present value of net income relative to the baseline 1.0 Downside risk Upside opportunity $ billion Farm and Feedlot productivity 4.2 Processing productivity 4.3 Live export productivity 4 Productivity and Profitability Annual investments required SISP/MISP Recommended investments Farm and Feedlot productivity 4.2 Processing productivity 4.3 Live export productivity 4 Productivity and Profitability a Expected present values from to in dollars using a real rate of return of 5 per cent. b Annual investments are in nominal 2015 dollars. Tables F.27 to F.30 present the detailed results by Pillar 4 priorities and imperatives.

223 F.27 SISP 2020 benefits and investments by 2030: Pillar Production efficiency in farms and feedlots Decision support to improve farming businesses R&D initiatives to improve livestock productivity Total Processing productivity Live export productivity Total Productivity and Profitability Expected benefits a Sheepmeat industry net income c $m Gross value of production b $m Maximum investment Total over 15 years d $m Average annual investment e $m Benefit cost ratio Sheepmeat industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income all sheepmeat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent. Meat Industry Strategic Plan

224 F.28 SISP 2020 benefits and investments by 2020: Pillar 4 Expected benefits a 4.1 Production efficiency in farms and feedlots Decision support to improve farming businesses R&D initiatives to improve livestock productivity Total Processing productivity Live export productivity Total Productivity and Profitability Meat Industry Strategic Plan Sheepmeat industry net income c $m Gross value of production b $m Maximum investment Total over 5 years d $m Average annual investment e $m Benefit cost ratio Sheepmeat industry net income Gross value of production a Expected present value of benefits from to in dollars using a real rate of return of 5 per cent. b Saleyard equivalent GVP excluding processing (basis for levies). c Net income all sheepmeat industry sectors including processing. d Expected present value of investments from to in dollars using a real rate of return of 5 per cent. e Average investments from to in dollars using a real rate of return of 5 per cent.

225 Meat Industry Strategic Plan F.29 SISP 2020 benefits in terms of red meat net income: Pillar 4 by 2030 a SISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by SISP 2020 imperative Decision support to improve farming businesses R&D initiatives to improve livestock productivity Processing productivity Live export productivity Productivity and profitability % of SISP 2020 benefits Benefits in present values by sector Lamb and mutton Processing Live Export Total red meat Profile of annual benefits in dollars a Expected present value of benefits for industry net income from to in dollars using a real rate of return of 5 per cent. F.30 SISP 2020 benefits in terms of GVP: Pillar 4 by 2030 a SISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m Benefits in present values by SISP 2020 imperative Decision support to improve farming businesses

226 226 Meat Industry Strategic Plan SISP 2020 Outcome relative to baseline Baseline Downside risk Upside opportunity Total benefits BCR $m $m $m $m R&D initiatives to improve livestock productivity Processing productivity Live export productivity Productivity and profitability % of SISP 2020 benefits Profile of annual benefits in dollars a Expected present value of benefits for saleyard equivalent GVP from to in dollars using a real rate of return of 5 per cent.

227 Meat Industry Strategic Plan References ANZ, 2012, Greener Pastures: The Global Soft Commodity Opportunity for Australia and New Zealand, accessed at Ball, K and Dewbre, J 1989, An analysis of the returns to generic advertising of beef, lamb and pork, ABARE Discussion Paper 89.4, Australian Government Publishing Service, Canberra. Buetre, B, Wicks, S, Kruger, H, Millist, N, Yainshet, A, Garner, G, Duncan, A, Abdalla, A, Trestrail, C, Hatt, M, Thompson, LJ & Symes, M 2013, Potential socio economic impacts of an outbreak of foot and mouth disease in Australia, ABARES research report, Canberra, September. Centre for International Economics 2008, An evaluation of MLA s red meat nutrition program, Centre for International Economics, Canberra & Sydney, September 2009, About-MLA/Planning-and-reporting/Evaluation/Red-meat-nutrition-marketingCentre for International Economics 2009, Market Information Program:The value of good information, Prepared for Meat and Livestock Australia, November. Centre for International Economics 2010, NLIS (sheep and goats) Business Plan: The costs of full compliance with NLTPS, Prepared for Animal Health Australia, June. Centre for International Economics 2011, The contribution of the Australian live export industry, Prepared for LiveCorp and Meat and Livestock Australia, July. Commonwealth of Australia 2015, Exporter Supply Chain Assurance System Report. Cranfield, J. A. L. and E. W. Goddard 1999, Open economy and processor oligopoly power effects of beef advertising in Canada. Canadian Journal of Agricultural Economics 47(1): Cranfield, J. A. L. 2010, Evaluating the Economic Benefits From the Canadian Beef Check Off, University of Guelph, Guelph, Ontario, March Dahl A, Leith R and Gray EM, 2013, Productivity in the broadacre and dairy industries, Agricultural commodities: March quarter 2013 Department of Agriculture 2014, Exporter Supply Chain Assurance System, Commonwealth of Australia, January 2014, Deda B 2014, Australian Dollar Outlook, St. George Bank 10 December 2014, accessed at DN Harris and Associates 2013, Comparative evaluation of technical barriers to trade for Australian red meat Report prepared for Meat and Livestock Australia and Australian Meat Industry Council, June. Eckard R, Cullen B and Bell M, 2012, Whole Farm Systems Analysis of Climate Change Impacts on the Southern Grazing Industries, Final Report Sub-project B SBP 0072 under B.SBP.0080 Meat and Livestock Australia, May. Ehrenberg-Bass Institute/Centre for International Economics 2012, Aggressive promotion in the domestic market: Ex-post evaluation of the 2.4 beef marketing program, Centre for International Economics, Canberra & Sydney, January 2012, MLA/Planning-and-reporting/Evaluation/Aggressive-promotion-in-the-domestic-market-beef.

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230 2 Meat Industry Strategic Plan THE CENTRE FOR INTERNATIONAL ECONOMICS