Australian beef Financial performance of beef cattle producing farms, 2010 11 to 2012 13

Financial performance of beef cattle producing farms, 2010 11 to 2012 13 Peter Martin, Paul Phillips, Robert Leith and Tim Caboche Research by the Australian Bureau of Agricultural and Resource Economics and Sciences RESEARCH REPORT 13.8

Commonwealth of Australia 2013 Ownership of intellectual property rights Unless otherwise noted, copyright (and any other intellectual property rights, if any) in this publication is owned by the Commonwealth of Australia (referred to as the Commonwealth). Creative Commons licence All material in this publication is licensed under a Creative Commons Attribution 3.0 Australia Licence, save for content supplied by third parties, logos and the Commonwealth Coat of Arms. Creative Commons Attribution 3.0 Australia Licence is a standard form licence agreement that allows you to copy, distribute, transmit and adapt this publication provided you attribute the work. A summary of the licence terms is available from creativecommons.org/licenses/by/3.0/ au/deed.en. The full licence terms are available from creativecommons.org/licenses/by/3.0/au/legalcode. This publication (and any material sourced from it) should be attributed as Martin, P, Phillips, P, Leith, R & Caboche, T 2013, : Financial performance of beef cattle producing farms, 2010 11 to 2012 13, ABARES research report 13.8 prepared for Meat & Livestock Australia, Canberra, July. CC BY 3.0. Cataloguing data Martin, P, Phillips, P, Leith, R & Caboche, T 2013, Australian beef: Financial performance of beef cattle producing farms, 2010 11 to 2012 13, ABARES research report 13.8, Canberra, July. Internet : Financial performance of beef cattle producing farms, 2010 11 to 2012 13 is available at daff.gov.au/abares/publications. Contact Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) Postal address GPO Box 1563 Canberra ACT 2601 Switchboard +61 2 6272 2010 Facsimile +61 2 6272 2001 Email info.abares@daff.gov.au Web daff.gov.au/abares Inquiries regarding the licence and any use of this document should be sent to copyright@daff.gov.au The Australian Government acting through the Department of Agriculture, Fisheries and Forestry, represented by the Australian Bureau of Agricultural and Resource Economics and Sciences, has exercised due care and skill in preparing and compiling the information and data in this publication. Notwithstanding, the Department of Agriculture, Fisheries and Forestry, ABARES, its employees and advisers disclaim all liability, including liability for negligence and for any loss, damage, injury, expense or cost incurred by any person as a result of accessing, using or relying upon any of the information or data in this publication to the maximum extent permitted by law. ISSN 1447-8358 ISBN 978-1-74323-141-8 ABARES project 43009

Contents Summary 1 1 Introduction 3 2 Cattle production 9 3 Financial performance 13 4 Farm investment 35 5 Farm debt 39 6 Beef cattle selling methods 47 7 Grain finishing 49 8 Productivity 50 Survey methods and definitions 52 References 61 Figures 1 Beef cattle branding rate 7 2 Beef cattle turn-off rate 7 3 Beef cattle turn-off, Australia 11 4 Beef cattle stocking rates 12 5 Beef cattle numbers and saleyard prices, Australia 12 6 Farm receipts, northern beef cattle producing farms 13 7 Composition of farm costs, beef cattle producing farms, 2009 10 to 2011 12 14 8 Cash costs, beef cattle producers, northern Australia 14 9 Financial performance of beef producing farms, northern Australia 16 10 Financial performance of beef producing farms, northern live cattle export region 20 11 Farm cash receipts, southern beef cattle producing farms 27 12 Composition of cash costs for beef cattle producers, southern Australia 27 13 Financial performance of beef producing farms, southern Australia 29 14 Farm cash income beef producers, southern Australia 30 15 Proportion of beef producing farms acquiring land, Australia 35 16 Land prices, beef cattle producing farms 36 ABARES iii

17 Net investment in vehicles, machinery and farm improvements, northern producing farms 37 18 Net investment in vehicles, machinery and farm improvements, southern producing farms 37 19 Composition of farm business debt, northern producing farms 39 20 Composition of farm business debt, southern producing farms 40 21 Proportion of beef cattle producing farms increasing farm business debt 41 22 Ratio of interest payments to total cash receipts, beef cattle producing farms 44 23 Debt servicing and borrowing capacity, northern cattle producing farms 45 24 Debt servicing and borrowing capacity, southern cattle producing farms 46 25 Method of selling cattle, southern Australia 47 26 Method of selling cattle, northern Australia 48 Tables 1 Distribution of broadacre beef cattle farms, by number of cattle, at 30 June 4 2 Selected physical characteristics of beef cattle producing farms, by region 6 3 Beef cattle herd group, by number of head 8 4 Financial performance of beef cattle producing farms, northern Australia 15 5 Financial performance of beef cattle producing farm businesses, northern live cattle export region 19 6 Selected estimates for beef cattle producers highly reliant on live cattle exports 21 7 Financial performance of beef cattle producing farms, northern Australia, by herd size 22 8 Financial performance of beef cattle producing farms, northern Australia, by zone 26 9 Financial performance of beef cattle producing farms, southern Australian 28 10 Financial performance of beef cattle producing farms, southern Australia, by herd size 32 11 Financial performance of beef cattle producing farms, southern Australia, by zone 34 12 Distribution of northern cattle producing farms, by farm business debt and equity ratio, at 30 June 2012 42 13 Distribution of southern cattle producing farms, by farm business debt and equity ratio, at 30 June 2012 43 14 Average annual beef input and productivity growth by region, 1977 78 to 2010 11 50 Maps 1 cattle industry 5 2 Australian rainfall deciles: 1 July 2011 to 30 June 2012 10 3 Australian rainfall deciles: 1 June 2012 to 31 May 2013 10 4 Northern Australian live cattle export region 18 5 Australian broadacre zones 24 6 Australian broadacre zones and regions 56 Boxes 1 Major financial performance indicators 16

Summary Around 25 500 Australian broadacre farms run more than 100 beef cattle. These farms are classified as beef cattle producing farms in this report. Around two-thirds of these farms derive most of their farm receipts from sales of beef cattle and around one-third are mixed enterprise, deriving a substantial proportion of their receipts from cropping, sheep, lambs and wool as well as from the sale of beef cattle. The average financial performance of cattle producing farms is estimated to have declined in 2012 13. This is due to lower beef cattle prices, as beef cattle turn-off increased in response to drier seasonal conditions and high beef cattle numbers, particularly in northern Australia. Beef cattle numbers increased in northern Australia in 2010 11 and 2011 12 due to above average seasonal conditions and low turn-off of cattle for slaughter and live export. In addition, reduced prices for sheep, lambs and wool, together with lower overall grain production in southern Australian regions, further reduced overall farm receipts in 2012 13. For northern Australia average farm cash income for beef cattle producing farms is estimated to decline from an average of $102 900 per farm in 2011 12 to $100 000 per farm in 2012 13, around 10 per cent below the average for the 10 years ending 2011 12, in real terms. Increased beef cattle turn-off is estimated to have resulted in a small reduction in beef cattle numbers in northern Australia and a reduction in the value of cattle inventories, compared with large increases in 2010 11 and 2011 12. As a consequence, farm business profit is estimated to have declined sharply from an average of $45 100 per farm in 2011 12 to $2000 per farm in 2012 13. For southern Australia average farm cash income for beef cattle producing farms is estimated to decline from an average of $98 300 per farm in 2011 12 to $84 000 per farm in 2012 13, around 19 per cent above the average for the 10 years ending 2011 12, in real terms. Reduced growth in beef cattle numbers as turn-off increased resulted in a small increase in the value of cattle inventories compared with the large increase in 2011 12 and further reduced farm business profit. Farm business profit is estimated to have declined from an average of $30 500 per farm in 2011 12 to $4000 per farm in 2012 13. ABARES 1

Summary Around 15 900 beef cattle producing farms earn most of their total farm receipts from the sale of beef cattle. Most of these producers, termed specialist beef cattle producers in this report, are located in southern Australia. Farm cash income for specialist beef cattle producers in southern Australia is estimated to have declined from an average of $54 100 per farm in 2011 12 to $52 000 per farm in 2012 13. This is still around 25 per cent above the average for the previous 10 years, a period in which income for many southern cattle producers decreased because of drought. Farm business debt declined in 2011 12 and farm business equity ratios remained relatively high, averaging 88 per cent in northern Australia and 90 per cent in southern Australia at 30 June 2012, despite reductions in reported land values in some regions. Overall, a further reduction in farm debt is expected in 2012 13 and, combined with lower interest rates, is expected to lead to improvements in the debt servicing position of farms. Despite these improvements, high farm debt from borrowing for farm investment over the past 15 years, together with accumulated business losses, has resulted in a high proportion of farm receipts being needed to meet interest payments. Most cattle producing farms have relatively high farm equity and adequate farm cash income in 2012 13. However, lower farm cash income and reduced land values have resulted in increased financial pressure on some farm businesses. Investment in land, cattle, vehicles, machinery and farm infrastructure in recent years, together with improved animal genetics, herd and business management, provides a basis to further increase farm productivity and improve financial performance over the medium term. 2 ABARES

Chapter 1 Introduction More Australian farms are engaged in running beef cattle than are involved in any other form of agricultural activity. Around 55 per cent of all Australian farms carry beef cattle (ABS 2013). Running beef cattle is the most widely dispersed agricultural activity in Australia; beef cattle farms form an important part of rural communities and economies in almost all regions. In addition, farms running beef cattle are responsible for managing more than 75 per cent of the total area of agricultural land in Australia. This report presents the detailed financial performance of beef cattle producing farms for the period 2010 11 to 2012 13 and discusses recent farm financial performance and productivity in an historical context. The report draws heavily on data from the ABARES annual Australian Agricultural and Grazing Industries Survey (AAGIS) to provide an overview of the production, financial performance and productivity growth of the cattle industry. Meat & Livestock Australia funded the preparation of this report and partly funded AAGIS. ABARES uses the latest data available to produce estimates from this survey. This means estimates are revised as new information becomes available. Farm businesses with fewer than 100 head of beef cattle are excluded from the analysis to focus on larger beef cattle producers. Farm businesses with fewer than 100 head of cattle represent just 2 per cent of the national beef cattle herd and only contribute around 4 per cent to the total value of beef cattle sales (Table 1). Specialist feedlots are mainly involved in feeding cattle in a confined area with cattle on feed mostly purchased from other producers. Unlike the farm businesses included in this report, specialist feedlots have minimal involvement in cattle grazing or cattle breeding. Farm businesses finishing more than 5000 cattle on grain for more than 70 days have been excluded from this report to remove specialist feedlots and ensure a consistent definition of beef producers over the period for which AAGIS data are available. Since 2006 specialised feedlots have been listed in a separate ANZSIC industry classification in Australian Bureau of Statistics collections; they are no longer included in the broadacre group of industries surveyed in AAGIS. ABARES 3

Introduction TABLE 1 Distribution of broadacre beef cattle farms, by number of cattle, at 30 June average between 2009 10 and 2011 12 Number of farms Share of farms Share of beef cattle Share of value of cattle sales no. % % $ Northern Australia < 100 770 9 1 2 100 200 head 1 310 15 1 2 200 400 head 1 690 19 4 6 400 800 head 1 750 20 7 10 800 1 600 head 1 440 16 12 14 1 600 5 400 head 1 490 17 31 35 > 5 400 head 390 4 44 31 Total 8 830 100 100 100 Southern Australia < 100 6 300 27 4 7 100 200 head 5 720 24 11 11 200 400 head 6 410 27 23 21 400 800 head 3 410 14 24 24 800 1 600 head 1 390 6 19 18 1 600 5 400 head 420 2 13 13 > 5 400 head 50 0 6 6 Total 23 700 100 100 100 Australia < 100 7 070 22 2 4 100 200 head 7 030 22 5 8 200 400 head 8 100 24 10 14 400 800 head 5 160 16 14 17 800 1 600 head 2 820 9 15 16 1 600 5 400 head 1 910 6 24 23 > 5 400 head 440 1 30 18 Total 32 530 100 100 100 Note: Excludes major feedlots. Source: Australian agricultural and grazing industries survey (AAGIS) 4 ABARES

Introduction Northern and southern Australia The performance of beef cattle producing farms in northern Australia and southern Australia is presented separately. Northern Australia is defined as northern Western Australia, the Northern Territory and Queensland. The remainder of Australia, including southern Western Australia, South Australia, New South Wales, Victoria and Tasmania, is defined as southern Australia (Map 1). MAP 1 cattle industry Northern Southern Note: Regions based on aggregations of ABS statistical local areas. Source: AAGIS Just over 8800 beef cattle producing farms were located in northern Australia in the three years ending 2011 12. Around 96 per cent of these farm businesses were located in Queensland and a further 2 per cent in both the Northern Territory and Western Australia. Farm businesses with the greatest reliance on the sale of live export cattle are located in the far northern and western extremes of northern Australia. Northern Australia and southern Australia have marked differences in climate, pastures, industry infrastructure and proximity to markets. These differences have resulted in the beef industry developing and growing differently in the two regions over the past 20 years, as well as differences in the characteristics of farm businesses. The focus of the beef cattle industry in Queensland is primarily beef export markets, whereas in the upper Northern Territory and northern Western Australia the focus is on the live cattle export trade. In contrast, the focus of production in southern states is spread more evenly between the domestic beef market, which accounts for around one-third of the nation s beef production, and the beef export market (Gleeson et al. 2012). ABARES 5

Introduction Rainfall in northern Australia is dominated by monsoon systems with distinct wet and dry seasons. The wet season usually occurs from September to March and the dry season usually occurs from April to October, which limits the growing season for pastures and makes it difficult to finish cattle for markets in one production year, as can be achieved in southern Australia. Rainfall is far from uniform; the intensity of the wet and dry seasons varies depending on the latitude, topography and distance from the coast. More variable quantity and lower quality of pasture in most northern areas results in lower stocking rates and much more extensive production systems than in southern Australia, on average (Table 2). Improved pastures in many southern beef cattle producing areas and the production of fodder crops allow for much higher stocking rates. Remote locations in the north make management practices such as short-term supplementary feeding to deal with poor seasonal conditions less cost-effective than in southern Australia. An important part of normal management practice and response to differing seasonal conditions across northern Australia is the transfer of beef cattle between the individual landholdings of large family-owned and corporate farm businesses. Transferring cattle between holdings located in different regions often provides significant flexibility in managing variable seasonal and market conditions. Transfers into and out of farm businesses are reported in the data tables in this report. TABLE 2 Selected physical characteristics of beef cattle producing farms, by region average per farm Northern Australia Southern Australia 2010 11 2011 12p 2012 13y 2010 11 2011 12p 2012 13y Area operated at 30 June ha 24 180 23 100 (11) na 5 970 6 100 (12) na Beef cattle numbers at 30 June no. 1 580 1 630 (4) 1 600 395 420 (4) 425 Calves branded no. 486 482 (4) 461 167 170 (4) 179 Beef cattle purchases no. 76 63 (16) 41 44 36 (16) 32 Branding rate % 71 73 (1) na 87 89 (1) na Beef cattle sold no. 445 420 (5) 429 177 174 (5) 181 Within year change in cattle numbers % 4 3 (23) 2 7 6 (18) 1 Area planted to crops no. 103 84 (22) 78 241 247 (9) 174 Sheep numbers at 30 June no. 350 363 (20) 353 1 140 1 240 (7) 1 200 Stocking rate hectares per large stock unit ha 1 910 1 800 (4) na 870 900 (4) na Cattle turn-on rate % 7 5 (13) 3 11 9 (15) 8 Cattle turn-off rate % 30 30 (3) 32 42 43 (3) 46 p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Source: AAGIS. 6 ABARES

Introduction Branding rates (calves branded as a percentage of cows mated) are typically lower and more variable in the north than in southern Australia, reflecting less favourable pasture conditions. According to AAGIS data, branding rates for northern Australia averaged 71 per cent for the 10 years ending 2011 12, compared with 85 per cent for southern Australia (Figure 1). Slower growth rates and lower branding percentages for cattle in northern Australia result in lower average turn-off rates. According to AAGIS data, turn-off rates (cattle sold or transferred off-farm as a percentage of the average herd size) averaged 32 per cent for northern Australia for the 10 years ending 2011 12, compared with 45 per cent in southern Australia (Figure 2). FIGURE 1 Beef cattle branding rate 100 80 Southern Australia Northern Australia 60 40 20 % 1993 94 1996 97 1999 2000 2002 03 2005 06 2008 09 2011 12p p Preliminary estimate. Note: Branding rate is defined as the number of calves marked as a proportion of cows mated. Source: AAGIS FIGURE 2 Beef cattle turn-off rate 60 50 Southern Australia Northern Australia 40 30 20 10 % 1994 95 1997 98 2000 01 2003 04 2006 07 2009 10 2012 13y y Provisional estimate. Source: AAGIS ABARES 7

Introduction To be economically viable northern properties tend to be much larger in terms of average herd size and the area of land operated than properties in the south. For example, in northern Australia 87 per cent of the beef cattle herd is on properties with over 800 head of cattle, while in southern Australia 62 per cent of the beef cattle herd is on properties with fewer than 800 head of cattle (Table 1). The main breeds of cattle in northern Australia are Bos indicus. Over recent decades the proportion of Bos indicus in the region has increased as producers introduced and selected cattle better suited for beef production in tropical conditions. In southern Australia British and European Bos taurus breeds, such as the Angus and Hereford, remain dominant. To provide an insight into the performance of the beef cattle industry, farm businesses with different scales of operation were stratified into four groups small, medium, large and very large based on the size of their beef cattle herd in each year the farm business was surveyed. Beef cattle producers operate significantly larger properties in northern Australia than their counterparts in southern Australia. For this reason different sized groups have been used in these regions to enable meaningful analysis of financial performance by scale (Table 3). TABLE 3 Beef cattle herd group, by number of head Group Northern Australia Southern Australia Small 100 400 100 200 Medium 400 1 600 200 400 Large 1 600 5 400 400 800 Very large > 5 400 > 800 In this report farm businesses with more than 100 head of beef cattle are classified as specialist beef cattle producing farms if they earned, on average, more than 50 per cent of total farm receipts from the sale of beef cattle in the previous three years. An average of 15 900 farms were classified as specialist beef cattle producers between 2009 10 and 2011 12. Eighty-five per cent of beef cattle producing farms in northern Australia were classified as specialist beef cattle producers between 2009 10 and 2011 12. In southern Australia the number of specialist beef cattle producers and mixed enterprise producers is more even. Between 2009 10 and 2011 12 around 47 per cent of beef cattle producing farms were classified as specialist producers. For this reason, some separate tabulation and analysis of financial performance is provided for specialist beef cattle producers in southern Australia. 8 ABARES

Chapter 2 Cattle production Increase in beef cattle numbers cattle numbers increased by 6 per cent between 2001 and 2011, despite dry seasonal conditions across much of Australia for most of the decade. In southern Australia, where drought conditions were more extended, beef cattle numbers declined by 5 per cent. However, in northern Australia seasonal conditions generally improved after 2008 and beef cattle numbers increased. In 2010 11 most of Australia s agricultural regions received well above average rainfall and summer 2010 11 brought widespread flooding to eastern and northern Australia, disrupting on-farm activities and cattle transport and sales. In northern Australia beef cattle numbers increased by 13 per cent between 2001 and 2011. Numbers in the northern live export cattle region increased by 16 per cent in response to improved seasonal conditions and an increase in the number of beef cattle exported live from northern ports. The number of beef cattle on farms increased by 58 per cent in the Kimberley region over this period, by 24 per cent in the Northern Territory and by 13 per cent in North-West Queensland. According to Australian Bureau of Statistics Agricultural Census data, beef cattle numbers increased by 77 per cent in Central Western Queensland and by 33 per cent in South Western Queensland. In contrast, beef cattle numbers in south-eastern Queensland remained significantly below the number recorded in 2001 (ABS 2013). Seasonal conditions in 2011 12 and 2012 13 In 2011 12 average to above average seasonal conditions for most beef cattle producing farms produced excellent grazing conditions. Flooding during late summer caused damage to infrastructure and to some farms in southern and western Queensland and central north and north-western New South Wales. In contrast, seasonal conditions were dry in south-western Victoria (Map 2). In 2012 13 below average rainfall through winter, spring and summer reduced pasture and crop growth in all states. In northern Australia the traditional wet seasons failed and by autumn dry conditions extended across most of the continental interior. Rainfall along coastal margins of New South Wales and Queensland was higher, providing adequate grazing conditions in these regions (Map 3). ABARES 9

Cattle production MAP 2 Australian rainfall deciles: 1 July 2011 to 30 June 2012 Rainfall deciles Western Australia Northern Territory Queensland 10 8 9 4 7 2 3 1 Highest on record Very much above average Above average Average Below average Very much below average Lowest on record South Australia New South Wales Australian Capital Territory Victoria Tasmania Source: Bureau of Meteorology MAP 3 Australian rainfall deciles: 1 June 2012 to 31 May 2013 Rainfall deciles Western Australia Northern Territory South Australia Queensland New South Wales 10 8 9 4 7 2 3 1 Highest on record Very much above average Above average Average Below average Very much below average Lowest on record Australian Capital Territory Victoria Tasmania Source: Bureau of Meteorology 10 ABARES

Cattle production Beef cattle turn-off and prices Widespread above average grazing conditions after 2010 11 resulted in an increase in saleyard prices for beef cattle due to strong restocker demand as available cattle were redistributed between farms and regions with abundant grazing. Turn-off of cattle for slaughter slowed sharply in 2010 11 as rebuilding of cattle herds commenced in southern Australia (Figure 2 and Figure 3) and branding rates rose in both southern and northern Australia (Figure 1). FIGURE 3 Beef cattle turn-off, Australia 12 10 8 6 4 45 40 35 30 25 Live cattle exported Cattle and calves slaughtered Turn-off rate (right axis) 2 000 head % 1994 95 1997 98 2000 01 2003 04 2006 07 2009 10 2012 13f 20 f ABARES forecast. Source: Australian Bureau of Statistics With the continuation of above average grazing conditions in 2011 12 (Map 2), transactions of cattle between farms slowed, calf brandings rose, turn-off rates declined further and cattle numbers on farms increased further. Increases in cattle in northern live export regions were boosted by reduced exports of live cattle to Indonesia from mid-2011. Increases in most other regions of both northern and southern Australia resulted from high brandings and low turn-off for slaughter. According to AAGIS data, by the end of 2011 12 stocking rates on beef cattle producing farms in northern Australia were the highest in the past 20 years and in southern Australia stocking rates approached those last reached in 2000 01 (Figure 4). Despite much drier seasonal conditions, turn-off of beef cattle did not increase significantly until 2013, when failure of the northern wet season reduced pasture availability across a large area of northern Australia and particularly western Queensland. Saleyard throughput and cattle slaughter surged across the eastern states during the last quarter of 2012 13. Prices for slaughter age cattle were reduced by the increased supplies. Adding further pressure to markets, relatively few producers were in a position to increase stocking, with widespread dry conditions resulting in lower demand from producers for younger cattle for restocking (Map 3). Saleyard prices for all classes of cattle fell during 2012 13 and the weighted average saleyard prices for 2012 13 declined to the lowest recorded since 1998 99, in real terms (Figure 5). ABARES 11

Cattle production FIGURE 4 Beef cattle stocking rates 0.25 0.20 Southern Australia Northern Australia 0.15 0.10 0.05 Large stock units/hectare 1993 94 1996 97 1999 2000 2002 03 2005 06 2008 09 2011 12p p Preliminary estimate. Source: AAGIS FIGURE 5 Beef cattle numbers and saleyard prices, Australia 30 25 20 15 10 600 500 400 300 200 Beef cattle numbers Saleyard price (right axis) 5 million 1994 95 1997 98 2000 01 2003 04 2006 07 2009 10 2012 13f 100 2012 13 Ac/kg f ABARES forecast. Sources: Australian Bureau of Statistics; ABARES 12 ABARES

Chapter 3 Financial performance Financial performance of northern cattle producers Farm cash income In 2011 12 average farm cash receipts for northern cattle producers declined by 8 per cent, due mainly to reduced beef cattle turn-off for both slaughter and live export (Figure 6). The decline occurred despite an increase of 2 per cent in the average sale prices for beef cattle due to the sale of heavier cattle. The reduction in farm receipts was more than offset by a sharp reduction in the number of beef cattle purchased in 2011 12, resulting in a 32 per cent fall in expenditure on beef cattle purchases (Figure 7). This reduction, together with a 7 per cent reduction in interest payments due to lower interest rates, resulted in average farm cash income for northern cattle producing farms increasing slightly to an average of $102 900 per farm in 2011 12 (Table 4). FIGURE 6 Farm receipts, northern beef cattle producing farms 700 600 500 400 300 Other cash receipts Total crop receipts Sheep, lambs and wool sales Beef cattle sales for live export Beef cattle sales 200 100 2012 13 $ 000 1994 95 1997 98 2000 01 2003 04 2006 07 2009 10 2012 13y y Provisional estimate. Source: AAGIS ABARES 13

Financial performance Beef cattle purchases are the largest cash cost of beef cattle producing farms and, as a consequence of increases in farm debt over the decade to 2009 10, interest payments are now the second largest in both northern and southern Australia (Figure 7). Average total cash costs decreased in 2011 12 to be similar to those recorded in the late 1990s, in real terms (Figure 8). FIGURE 7 Composition of farm costs, beef cattle producing farms, 2009 10 to 2011 12 Livestock purchases and transfers Interest paid Repairs and maintainance Freight, handling and marketing Fuel, oil and lubricants Wages for hired labour Fodder Contracts Administrative costs Rates Livestock materials and chemicals Land rent Crop & pasture chemicals Fertiliser Shearing crutching Other materials Other services Other cash costs Value of owner manager and family labour Depreciation % 5 10 15 20 Southern Australia Northern Australia Source: AAGIS FIGURE 8 Cash costs, beef cattle producers, northern Australia 700 600 500 400 Overhead costs Interest paid Variable costs Beef cattle purchases Total cash receipts 300 200 100 2012 13 $ 000 1994 95 1997 98 2000 01 2003 04 2006 07 2009 10 2012 13y y Provisional estimate. Source: AAGIS 14 ABARES

Financial performance TABLE 4 Financial performance of beef cattle producing farms, northern Australia average per farm Farm cash receipts 2010 11 2011 12p 2012 13y Beef cattle sales total $ 327 990 316 200 (5) 290 000 Beef cattle sales live export $ 24 640 17 200 (25) 8 000 Value of cattle transferred out $ 33 500 28 900 (19) 19 000 Sheep, lambs and wool sales $ 16 320 12 400 (20) 11 000 Total crop receipts $ 31 580 25 200 (27) 31 000 Total cash receipts $ 442 700 408 300 (5) 376 000 Farm cash costs Beef cattle purchases $ 49 050 43 700 (12) 30 000 Beef cattle transferred in $ 27 450 15 300 (19) 3 000 Wages for hired labour $ 19 210 18 200 (9) 15 000 Fodder $ 13 290 13 800 (9) 15 000 Fuel oil and lubricants $ 22 160 21 700 (6) 20 000 Repairs and maintenance $ 33 090 32 100 (5) 35 000 Contracts $ 16 300 14 900 (11) 14 000 Freight, handling and marketing $ 27 730 23 800 (7) na Interest paid $ 50 470 43 700 (10) 41 000 Total cash costs $ 342 940 305 400 (6) 276 000 Farm capital and debt Total capital at 30 June $ 6 446 730 5 740 000 (4) na Farm business debt at 30 June a $ 674 450 603 900 (11) 618 000 Equity ratio at 30 June a % 88 88 (1) na Farm financial performance Farm cash income $ 99 760 102 900 (11) 100 000 Farm business profit $ 51 320 45 100 (29) 2 000 Profit at full equity $ 105 020 91 400 (15) 45 000 Rate of return Return on capital excluding capital appreciation % 1.6 1.6 (14) 1.1 Return on capital including capital appreciation % 2.5 0.1 (324) na Return on owners equity % 0.6 0.6 (46) na a Average per responding farm. p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Source: AAGIS. ABARES 15

Financial performance In 2012 13 drier seasonal conditions and high beef cattle numbers in northern Australia led to an increase in beef cattle turn-off and to a small reduction in cattle numbers in many regions in northern Australia. However, lower average sale prices for beef cattle are estimated to have more than offset the increase in turn-off to result in average beef cattle receipts declining by around 8 per cent for northern beef producing farms. The reduction in beef cattle receipts is estimated to be partially offset by increased grain receipts for mixed enterprise farms in Queensland (Table 4). Despite further reductions in expenditure on beef cattle, together with lower interest expenditure, the reduction in beef cattle receipts is estimated to result in average farm cash income for beef cattle producing farms in northern Australia declining slightly to average $100 000 per farm in 2012 13. This is around 10 per cent below the average for the previous 10 years, in real terms (Figure 9). FIGURE 9 Financial performance of beef producing farms, northern Australia 200 150 Farm cash income Farm business profit 100 50 2012 13 $ 000 50 100 1994 95 1997 98 2000 01 2003 04 2006 07 2009 10 2012 13y y Provisional estimate. Source: ABARES Box 1 Major financial performance indicators Total cash receipts: total revenues received by the business during the financial year Total cash costs: payments made by the business for materials and services and for permanent and casual hired labour (excluding owner manager, partner and family labour) Farm cash income: total cash receipts total cash costs Farm business profit: farm cash income + change in trading stocks depreciation imputed labour costs Profit at full equity: return produced by all the resources used in the business farm business profit + rent + interest + finance lease payments depreciation on leased items Rate of return: return to all capital used profit at full equity x 100 total opening capital 16 ABARES

Financial performance Farm business profit and rates of return Farm cash income is a measure of cash funds generated by the farm business for farm investment and consumption after paying all costs incurred in production, including interest payments but excluding capital payments and payments to family workers. It is a measure of short-term farm performance because it does not take into account depreciation or changes in farm inventories. A measure of longer term profitability is farm business profit, as it takes into account capital depreciation and changes in inventories of livestock, fodder, grain and wool. Reductions in herd sizes on many farms in northern Australia and slowing in growth of beef herds on others, resulting from increased cattle turn-off, will result in a reduction in the value of cattle inventories. As a consequence, farm business profit for beef cattle producing farms in northern Australia is projected to decline from an average of $45 100 per farm in 2011 12 to just $2000 per farm in 2012 13. Profit at full equity, also referred to as earnings before interest and taxes (EBIT), adjusts farm business profit by adding back interest and leasing expenditure so that the performance of all farms can be compared regardless of the financing arrangements in place. For northern beef cattle producing farms, profit at full equity averaged $105 020 in 2010 11, declined to $91 400 in 2011 12 and is estimated to have declined further to $45 000 in 2012 13 (Table 4). Rate of return on total capital used (profit at full equity expressed as a percentage of total capital) averaged 1.6 per cent in both 2010 11 and 2011 12 and is estimated to decline to 1.1 per cent in 2012 13. Reductions in land values resulted in small negative average rates of return on total capital used when capital appreciation is included in both 2010 11 and 2011 12. Return on owners equity (farm business profit as a percentage of the equity owners have in the farm business) in both 2010 11 and 2011 12 was less than the return on total capital used. This indicates that interest and lease costs were greater than the income generated by the assets they finance, on average. Financial performance of live export region Live exports became a significant trade for the northern industry in the early to mid-1990s, encouraged by a growing feedlot industry in South-East Asia, particularly in Indonesia and the Philippines. Cattle exported live from northern Australia over the past decade have mostly been sourced from the northern live export region (Map 4). This region contains around 1500 farm businesses. AAGIS data indicate that around 300 of these businesses derive more than 50 per cent of their beef cattle receipts from live export sales. Indonesia has been the largest market for feeder and slaughter cattle from northern Australia for 15 of the past 21 years, including every year since 2000 01. Live cattle exports to Indonesia peaked at close to 700 000 head in 2008 09. However, from January 2011 the Indonesian Government began to implement the policy of achieving 90 per cent self-sufficiency in beef production by 2014 and imposed weight limits and quotas on live cattle, and quotas on boxed beef imports. The desire to achieve self-sufficiency in meat production has been Indonesian Government policy since 2000, with the target completion date of 2005 postponed firstly to 2010 and then to 2014. Implementation of the policy has put pressure on the future of beef producers in the northern live export region. ABARES 17

Financial performance MAP 4 Northern Australian live cattle export region Note: Regions based on aggregations of ABS statistical local areas. Source: AAGIS Enforcement of a 350-kilogram weight limit and imposition of an import quota by the Indonesian Government contributed to exports falling to 456 000 head in 2010 11. In addition to the reduction in Indonesian imports, animal welfare concerns pose a serious risk to the live cattle trade. Video footage taken by animal welfare activists of animal cruelty in a number of Indonesian abattoirs, which was broadcast on Australian national television and social media, led to a public outcry against the live export trade and temporary suspension, on 8 June 2011, of export to Indonesia of all livestock for slaughter. In response, the Australian Government implemented a through-chain animal welfare assurance framework that ensures all Australian livestock exported for feeder or slaughter is treated at or above World Organisation for Animal Health standards. The supply chain assurance regulations applied to Indonesia when trade resumed in July 2011. The Indonesian quota was further reduced for 2012 and exports declined to 375 000 head in 2011 12. Exports to Indonesia in 2012 13 are estimated to have been 265 000 head, a decline of 29 per cent from 2011 12. 18 ABARES

Financial performance In 2011 12 turn-off of cattle for live export was reduced by 20 per cent for beef cattle producing farms in the live export region, on average. The effect on farm cash receipts of the reduction in turn-off for live export was partially offset by the sale of other cattle for high prices, reflecting above average pasture conditions. In addition, purchase of beef cattle and transfer of beef cattle to properties in the region was reduced and transfer of cattle out to other regions increased by corporate operators. This resulted in reductions in average farm cash costs and slowed the increase in beef cattle numbers within the region. Overall, beef cattle numbers are estimated to have increased by around 3 per cent during 2011 12. Farm cash income increased slightly from an estimated average of $155 600 per farm in 2010 11 to $158 900 in 2011 12 and inventories of beef cattle increased on properties (Table 5). TABLE 5 Financial performance of beef cattle producing farm businesses, northern live cattle export region Farm cash receipts 2010 11 2011 12p 2012 13y Beef cattle sales total $ 656 050 626 400 (10) 621 000 Beef cattle sales live export $ 148 610 110 900 (26) 79 000 Value of cattle transferred out $ 187 290 160 100 (21) 192 000 Total cash receipts $ 887 490 841 300 (9) 871 000 Farm cash costs Beef cattle purchases $ 80 370 87 500 (17) 60 000 Beef cattle transferred in $ 130 470 76 300 (25) 70 000 Interest paid $ 81 830 78 100 (19) 75 000 Total cash costs $ 731 910 682 400 (8) 711 000 Farm capital and debt Total capital at 30 June $ 10 623 660 9 923 100 (6) na Farm business debt at 30 June a $ 1 125 640 1 220 200 (19) 1 233 000 Equity ratio at 30 June a % 85 83 (3) na Farm financial performance Farm cash income $ 155 580 158 900 (23) 161 000 Farm business profit $ 141 280 157 800 (23) 21 000 Profit at full equity $ 226 570 239 700 (17) 96 000 Rate of return Return on capital excluding capital appreciation % 2.1 2.4 (14) 1.0 Return on capital including capital appreciation % 3.1 0.8 (101) na Return on owners equity % 1.2 1.3 (27) na a Average per responding farm. p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Source: AAGIS. ABARES 19

Financial performance In 2012 13 turn-off of cattle for live export is estimated to have decreased by a further 20 per cent. However, turn-off of cattle to slaughter markets is estimated to increase by around 14 per cent as high cattle numbers are reduced, and transfers of cattle out of the region by corporate businesses is also estimated to increase. As a result, a small increase in total cash receipts and a small increase in average farm cash income to an estimated $161 000 per farm is estimated. However, reduction in cattle inventories is estimated to result in farm business profit falling to $21 000 per farm (Table 5 and Figure 10). FIGURE 10 Financial performance of beef producing farms, northern live cattle export region 500 400 Farm cash income Farm business profit 300 200 100 2012 13 $ 000 100 1994 95 1997 98 2000 01 2003 04 2006 07 2009 10 2012 13y y Provisional estimate. Source: AAGIS The average financial performance of beef cattle producing farms in the northern live export region is heavily influenced by the performance of very large herd size corporate farms. These farms dominate turn-off and performance estimates and typically have financial performance that is well above the average for other smaller herd size businesses in the region and performance that is very variable from year to year (Thompson & Martin 2012). The performance of smaller farm businesses more reliant on live cattle exports can be substantially different to the regional average. Farms most reliant on live cattle exports Generally farm businesses with the greatest reliance on the sale of live export cattle are located in the far northern and western extremes of the northern live cattle export region. Farm businesses located relatively close to the live export ports of Darwin, Broome, Wyndham and Port Hedland derived more than 70 per cent of their total beef cattle receipts from sale of cattle for live export, on average, in the three years ending 2010 11. Businesses in the south of the region and in Queensland generally, are far less reliant on live export sales (Gleeson et al. 2012). The recent financial performance of 25 farm businesses that in 2010 11 obtained most of their farm cash receipts from the sale of cattle for live export is reported in Table 7. 20 ABARES

Financial performance Reductions in the number of cattle sold for live export to Indonesia in 2011 12 resulted in farm cash income for these farms declining by around 27 per cent, from an average of $230 880 per farm in 2010 11 to around $169 300 per farm in 2011 12. The number of cattle transferred to properties in other regions increased and beef cattle numbers on farms increased by 2 per cent, on average. In 2012 13 lower beef cattle prices and continued reduction in the number of cattle sold for live export are estimated to have resulted in a further decline in farm cash income to an estimated average of $117 000 per farm (Table 6). TABLE 6 Selected estimates for beef cattle producers highly reliant on live cattle exports a average per farm Physical 2010 11 2011 12p 2012 13y Beef cattle purchases no. 17 22 (46) 19 Beef cattle transferred in no. 64 0. 0 Calves branded no. 1 790 2 020 (27) 1 980 Beef cattle sold total no. 1 440 1 420 (23) 1 350 Beef cattle sold live export no. 1 260 850 (28) 750 Beef cattle transferred out no. 32 290 (55) 350 Beef cattle numbers at 30 June no. 6 480 6 590 (20) 6 570 Percentage change in cattle numbers no. 2 2 (111) 0 Stocking rate hectares per large stock unit no. 20 19 (14) na Cattle turn-on rate % 1 0 (33) 0 Cattle turn-off rate % 23 26 (12) 26 Farm cash receipts Beef cattle sales total $ 756 480 662 800 (23) 539 000 Beef cattle sales live export $ 672 240 386 400 (29) 309 000 Value of cattle transferred out $ 16 760 97 700 (55) 203 000 Total cash receipts $ 826 440 816 700 (20) 789 000 Farm cash costs Total cash costs $ 595 570 647 400 (20) 673 000 Farm financial performance Farm cash income $ 230 880 169 300 (35) 117 000 Farm business profit $ 204 380 115 900 (120) 37 000 a Estimates are for a sample of 23 farms in the northern live cattle export region, highly reliant on live cattle exports and remaining in the AAGIS for each of the three years ending 2012 13. p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Source: AAGIS. ABARES 21

Financial performance TABLE 7 Financial performance of beef cattle producing farms, northern Australia, by herd size average per farm Farm cash receipts Small Medium 2010 11 2011 12p 2012 13y 2010 11 2011 12p 2012 13y Beef cattle sales total $ 67 070 66 100 (21) 68 000 186 340 205 500 (8) 229 000 Beef cattle sales live export $ 500 380 (84) 20 2 090 440 (77) 510 Value of cattle transferred out $ 340 3 350 2 920 (85) Sheep, lambs and wool sales $ 13 950 11 600 (51) 11 000 20 470 15 700 (38) 8 000 Total crop receipts $ 21 560 15 400 (218) 19 000 22 370 17 700 (21) 31 000 Total cash receipts $ 113 950 101 600 (45) 109 000 270 700 270 300 (7) 292 000 Farm cash costs Beef cattle purchases $ 14 630 10 900 (45) 10 000 26 960 28 000 (23) 25 000 Beef cattle transferred in $ 3 940 200 (60) Wages for hired labour $ 1 560 600 (115) 800 5 060 5 200 (42) 5 700 Interest paid $ 8 460 10 200 (135) 10 000 32 620 27 800 (14) 27 000 Total cash costs $ 90 160 81 800 (41) 94 000 196 530 192 000 (8) 197 000 Farm capital and debt Total capital at 30 June $ 2 463 070 2 025 900 (21) na 4 834 470 4 347 700 (7) na Farm business debt at 30 June a $ 120 310 131 200 (137) na 424 810 365 500 (14) na Equity ratio at 30 June a % 95 94 (8) na 91 92 (1) na Farm financial performance Farm cash income $ 23 790 19 800 (102) 14 000 74 170 78 300 (19) 94 000 Farm business profit $ 35 990 42 100 (20) 63 000 5 450 4 400 (309) 12 000 Profit at full equity $ 27 000 31 600 (46) 53 000 40 980 34 700 (37) 18 000 Rate of return Return on capital excluding capital appreciation % 1.1 1.6 (64) 3.0 0.8 0.8 (36) 0.5 Return on capital including capital appreciation % 1.0 2.0 (129) na 2.2 0.2 (346) na Return on owners equity % 1.5 2.2 (26) na 0.1 0.1 (308) na Other Off-farm income a $ 30 820 30 100 (22) na 26 460 25 600 (30) na continued... 22 ABARES

Financial performance TABLE 7 Financial performance of beef cattle producing farms, northern Australia, by herd size average per farm continued Farm cash receipts Large Very large 2010 11 2011 12p 2012 13y 2010 11 2011 12p 2012 13y Beef cattle sales total $ 621 210 596 300 (6) 616 000 2 120 880 2 282 500 (11) 1 838 000 Beef cattle sales live export $ 10 020 5 280 (49) 6 800 421 090 359 300 (26) 209 850 Value of cattle transferred out $ 3 870 (35) 520 621 730 611 370 (20) 614 410 Sheep, lambs and wool sales $ 15 540 9 600 (67) 18 000 2 710 1 000 Total crop receipts $ 58 360 60 600 (26) 58 000 72 090 33 200 (96) 27 000 Total cash receipts $ 747 100 712 400 (6) 737 000 2 894 310 3 000 500 (9) 2 578 000 Farm cash costs Beef cattle purchases $ 77 930 75 100 (22) 61 000 349 000 334 500 (18) 156 000 Beef cattle transferred in $ 12 610 3 100 (35) 454 840 332 500 (20) 103 800 Wages for hired labour $ 26 310 27 700 (16) 26 900 224 100 247 100 (9) 231 800 Interest paid $ 105 870 99 100 (14) 86 000 269 500 245 000 (32) 316 000 Total cash costs $ 536 510 520 900 (8) 513 000 2 490 930 2 337 300 (12) 2 114 000 Farm capital and debt Total capital at 30 June $ 10 345 220 10 066 400 (4) na 31 659 300 31 944 400 (10) na Farm business debt at 30 June a $ 1 393 690 1 337 100 (13) na 5 205 850 5 230 600 (33) na Equity ratio at 30 June a % 87 87 (2) na 79 80 (5) na Farm financial performance Farm cash income $ 210 590 191 500 (14) 224 000 403 380 663 200 (23) 464 000 Farm business profit $ 130 590 143 300 (17) 89 000 709 840 749 300 (19) 409 000 Profit at full equity $ 243 260 249 400 (10) 181 000 990 220 997 300 (15) 733 000 Rate of return Return on capital excluding capital appreciation % 2.3 2.5 (10) 2.5 3.0 3.0 (16) 2.3 Return on capital including capital appreciation % 3.4 1.4 (57) na 2.4 1.2 (95) na Return on owners equity % 1.4 1.6 (16) na 2.3 2.5 (38) na Other Off-farm income a $ 23 970 22 600 (23) na 16 480 17 000 (27) na a Average per responding farm. p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Source: AAGIS. ABARES 23

Financial performance Financial performance by herd size Farm financial performance varies between producers with different herd sizes. Generally farm cash incomes, farm business profits and rates of return are higher for larger herd size producers (Table 7). 2012 13 Reduced farm business profit is estimated for all herd size groups in 2012 13 as lower values of cattle inventories on farms are expected because of increased turn-off, slower growth in cattle numbers on some farms in northern Australia and reductions in cattle numbers on others. However, higher average farm cash incomes are estimated for medium and large herd size groups as larger increases in turn-off are estimated to more than offset the reductions in average prices received, resulting in higher farm cash receipts. Financial performance by zone Farm business profit of beef cattle producers in each zone (Map 5) is strongly related to herd size. The northern pastoral zone, which has the largest average herd size, had the highest average farm business profits in the three years ending 2012 13 (Table 8). This zone also recorded rates of return that were above the average for northern Australia. MAP 5 Australian broadacre zones Northern pastoral zone Northern wheat sheep zone Northern high rainfall zone Southern pastoral zone Southern wheat sheep zone Southern high rainfall zone Source: AAGIS 24 ABARES

Financial performance Of the three zones in the region, the northern high rainfall zone had the lowest estimated average farm cash income in the three years ending 2012 13. Small herd size is the primary cause of low performance across a range of financial performance measures. In the three years ending 2012 13 the average herd size in this region was 810 head, the lowest of all zones in northern Australia. This is fairly typical of higher rainfall regions with a high proportion of smaller farm businesses. While the average financial performance of these businesses is low, most generate positive farm cash income because of the substantial input of unpaid family labour. Including the value of this unpaid labour in the calculation of farm business profit results in most farm businesses generating negative profits and returns to capital. 2012 13 Reduced farm cash income and farm business profit is estimated for the northern high rainfall and pastoral zones in 2012 13 as a reduction in cattle prices received more than offset increased turn-off and as inventories of cattle are reduced on farms. In contrast, farm cash income and business profit is estimated to have increased on northern wheat sheep zone farms. Larger increases in turn-off in this zone, combined with the sale of heavier cattle resulting in a lesser decline in prices received for cattle compared with other zones, is estimated to have resulted in increased beef cattle receipts and an increase in farm cash income and farm business profit in 2012 13 (Table 8). ABARES 25

Financial performance TABLE 8 Financial performance of beef cattle producing farms, northern Australia, by zone average per farm Pastoral Wheat sheep High rainfall 2010 11 2011 12p 2012 13y 2010 11 2011 12p 2012 13y 2010 11 2011 12p 2012 13y Farm cash receipts Beef cattle sales total $ 583 930 551 000 (8) 486 000 268 030 263 700 (8) 323 000 187 750 188 900 (7) 166 000 Beef cattle sales live export $ 86 720 65 600 (26) 39 000 3 600 1 400 (56) Value of cattle transferred out $ 118 860 104 500 (20) 93 000 3 140 3 500 (53) 40 2 100 (99) Sheep, lambs and wool sales $ 43 770 40 600 (23) 42 000 10 860 4 300 (33) 5 000 20 100 (109) Total crop receipts $ 650 400 (43) 400 68 820 46 300 (31) 59 500 10 000 13 100 (42) 15 700 Total cash receipts $ 789 240 744 600 (6) 689 000 392 360 335 600 (10) 407 000 213 170 221 900 (7) 191 000 Farm cash costs Beef cattle purchases $ 75 680 67 000 (15) 35 000 48 460 45 200 (22) 42 000 27 200 20 000 (22) 15 000 Total cash costs $ 615 860 581 800 (7) 557 000 311 430 244 300 (12) 257 000 151 730 154 400 (9) 168 000 Farm capital and debt Total capital at 30 June $ 9 150 100 8 857 400 (6) na 4 831 110 4 796 400 (6) na 4 942 690 4 457 700 (9) na Farm business debt at 30 June a $ 957 160 1 115 100 (17) na 616 270 615 500 (19) na 267 580 310 900 (15) na Equity ratio at 30 June a % 86 84 (2) na 85 89 (2) na 95 93 (1) na Farm financial performance Farm cash income $ 173 390 162 800 (16) 132 000 80 930 91 400 (19) 150 000 61 440 67 500 (15) 23 000 Farm business profit $ 176 040 169 100 (16) 39 000 26 090 17 700 (129) 32 000 22 130 22 500 (47) 72 000 Profit at full equity $ 250 520 244 000 (12) 128 000 91 100 60 400 (39) 74 000 600 3 600 (303) 50 000 Rate of return Return on capital excluding capital appreciation % 2.6 2.7 (11) 2.1 1.6 1.3 (38) 1.8 0.0 0.1 (301) 1.3 Return on capital including capital appreciation % 5.4 0.9 (86) na 1.2 0.7 (120) na 0.6 0.3 (236) na Return on owners equity % 2.0 1.9 (20) na 0.3 0.3 (168) na 0.5 0.5 (50) na a Average per responding farm. p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Source: AAGIS. 26 ABARES

Financial performance Financial performance of southern cattle producers Farm cash income In 2011 12 average farm cash receipts for southern cattle producers declined by 2 per cent due mainly to reduced beef cattle turn-off and slightly lower average grain receipts (Figure 11). The reduction in farm receipts was mostly matched by a small reduction in average total cash costs due mostly to reduced expenditure on purchases of beef cattle (Figure 12). This reduction, together with a 7 per cent reduction in interest payments due to lower interest rates, resulted in average farm cash income for southern cattle producing farms remaining largely unchanged at an average of $98 300 per farm in 2011 12 (Table 9). FIGURE 11 Farm cash receipts, southern beef cattle producing farms 500 400 300 Other Crops Sheep, lambs and wool Beef cattle 200 100 2012 13 $ 000 1994 95 1997 98 2000 01 2003 04 2006 07 2009 10 2012 13y y Provisional estimate. Source: AAGIS FIGURE 12 Composition of cash costs for beef cattle producers, southern Australia 500 400 300 Overhead costs Interest paid Variable costs Beef cattle purchases Total cash receipts 200 100 2012 13 $ 000 1994 95 1997 98 2000 01 2003 04 2006 07 2009 10 2012 13y y Provisional estimate. Source: AAGIS ABARES 27

Financial performance TABLE 9 Financial performance of beef cattle producing farms, southern Australian average per farm Farm cash receipts All beef cattle producing farms Specialists beef cattle producers 2010 11 2011 12p 2012 13y 2010 11 2011 12p 2012 13y Beef cattle sales $ 148 820 142 400 (6) 139 000 166 680 164 400 (14) 158 000 Sheep, lambs and wool sales $ 92 790 95 600 (7) 71 000 16 460 19 100 (26) 15 000 Total crop receipts $ 118 270 112 400 (15) 110 000 8 080 6 500 (28) 7 000 Total cash receipts $ 386 940 381 500 (6) 345 000 202 640 203 700 (14) 199 000 Farm cash costs Beef cattle purchases $ 33 620 27 900 (14) 21 000 36 350 30 000 (42) 23 000 Interest paid $ 32 760 29 200 (10) 25 000 14 790 12 800 (19) 11 000 Total cash costs $ 288 330 283 200 (6) 262 000 159 560 149 600 (16) 146 000 Farm capital and debt Total capital at 30 June $ 4 522 290 4 219 000 (4) na 3 391 500 3 337 000 (6) na Farm business debt at 30 June a $ 436 290 430 300 (11) 400 000 206 500 172 000 (13) 170 000 Equity ratio at 30 June a % 90 90 (1) na 94 95 (1) na Farm financial performance Farm cash income $ 98 610 98 300 (9) 84 000 43 080 54 100 (16) 52 000 Farm business profit $ 51 860 30 500 (30) 4 000 8 540 800 (873) 17 000 Profit at full equity $ 89 790 65 200 (16) 34 000 9 150 14 800 (53) 3 000 Rate of return Return on capital excluding capital appreciation % 2.0 1.6 (14) 1.0 0.3 0.4 (50) 0.1 Return on capital including capital appreciation % 1.5 1.4 (31) na 0.6 0.1 (476) na Return on owners equity % 1.3 0.7 (33) na 0.3 0.1 (200) na a Average per responding farm. p Preliminary estimate. y Provisional estimate. na Not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Source: AAGIS. In 2012 13 drier seasonal conditions resulted in an increase in beef cattle turn-off and a slowdown in the rate of increase in beef cattle numbers in many regions in southern Australia. Lower average sale prices for beef cattle are estimated to have more than offset the increase in turn-off, resulting in average beef cattle receipts declining by around 2 per cent for southern beef producing farms. In addition, receipts from grain, sheep, lamb and wool are also estimated to have declined, resulting in average total cash receipts declining by 10 per cent (Table 9). 28 ABARES

Financial performance Despite further reduced expenditure on purchase of beef cattle and lower interest expenditure, average farm cash income for beef cattle producing farms in southern Australia is estimated to have declined slightly to average $84 000 per farm in 2012 13. This is still around 19 per cent above the average for the previous 10 years, in real terms. However, farm cash incomes for many southern cattle producing farms were low through most of the 2000s due to drought. Farm business profit and rates of return Much smaller increases in beef cattle numbers during 2012 13 will result in a smaller average increase in the value of cattle inventories on beef cattle producing farms. As a consequence, farm business profit is estimated to decline by a larger amount than farm cash income. Farm business profit is estimated to decline from an average of $30 500 per farm in 2011 12 to just $4000 per farm in 2012 13 (Figure 13). FIGURE 13 Financial performance of beef producing farms, southern Australia 150 100 Farm cash income Farm business profit 50 2012 13 $ 000 50 100 1994 95 1997 98 2000 01 2003 04 2006 07 2009 10 2012 13y y Provisional estimate. Source: AAGIS For southern beef cattle producing farms, profit at full equity averaged $89 790 in 2010 11, declined to $65 200 in 2011 12 and is estimated to have declined further to $34 000 in 2012 13 (Table 9). Rate of return on total capital used (profit at full equity expressed as a percentage of total capital) averaged 1.6 per cent in both 2010 11 and 2011 12 and is estimated to decline to 1.0 per cent in 2012 13. The return on owners equity in both 2010 11 and 2011 12 was less than the return on total capital used, indicating that interest and lease costs were greater than the income generated by the assets they finance, on average. ABARES 29

Financial performance Financial performance of specialist beef cattle producers Around 47 per cent of beef cattle producing farms in southern Australia are classified as specialist producers, deriving more than 50 per cent of average farm cash receipts from the sale of beef cattle. Specialist beef cattle producing farms account for the majority of farms in the southern high rainfall zone. On average, specialist beef cattle producers in southern Australia derived 81 per cent of their average total cash receipts from the sale of beef cattle in the three years ending 2012 13 (Table 9). Over most of the past two decades average farm cash income for specialist beef cattle producers in southern Australia has been substantially below the average for all beef cattle producing farms in southern Australia (Figure 14). This is mainly a result of the much higher proportion of small herd size farms among specialist beef cattle producers. FIGURE 14 Farm cash income beef producers, southern Australia 120 100 80 Beef cattle producing farms Specialist beef cattle producers 60 40 20 2012 13 $ 000 1994 95 1997 98 2000 01 2003 04 2006 07 2009 10 2012 13y y Provisional estimate. Source: AAGIS In 2011 12 average farm cash receipts for southern cattle producers remained largely unchanged, reduced beef cattle receipts were offset by a 16 per cent increase in receipts from sheep, lambs, and wool. However, a small reduction in average total cash costs, due to a reduction in the number of beef cattle purchased and a reduction in interest payments, resulted in average farm cash income for southern cattle producing farms increasing slightly to $54 100 per farm in 2011 12 (Table 9). In 2012 13 lower average sale prices for beef cattle are estimated to have more than offset increased cattle turn-off, resulting in average beef cattle receipts for southern beef producing farms declining by 4 per cent and average total cash receipts decreasing by 3 per cent. 30 ABARES

Financial performance Despite a further reduction in expenditure on purchase of beef cattle, lower average total cash receipts are estimated to result in average farm cash income for beef cattle producing farms in southern Australia declining slightly to average $52 000 per farm in 2012 13. This is still around 25 per cent above the average for the previous 10 years, in real terms. Slowing in growth in cattle numbers will result in smaller values for the build-up in trading stocks on specialist beef cattle producing farms. As a consequence, farm business profit for the beef industry is estimated to decline by more than farm cash income, from an average of $800 per farm in 2011 12 to $17 000 per farm in 2012 13. Financial performance by herd size Farm financial performance for southern cattle producing farms varies between different herd size groups. Generally farm cash incomes and farm business profits and rates of return are higher for larger herd size producers (Table 10). Small herd size farms are often substantially reliant on off-farm income to support the farm s operators, particularly small specialist beef cattle producers. 2012 13 Farm cash incomes and farm business profit are estimated to decrease for all herd size groups in 2012 13 as receipts from beef cattle are reduced and as the increase in cattle inventories on farms in southern Australia is reduced. Financial performance by zone Similar to northern Australia, farm business profit of beef cattle producers in each zone of southern Australia (Map 5) is strongly related to herd size. The southern pastoral zone, which has the largest average herd size, had the highest average farm business profits in the three years ending 2012 13 and the highest rates of return (Table 11). 2012 13 Farm cash income and farm business profit are estimated to decrease for beef cattle producers in all southern zones in 2012 13 (Table 11), although they will remain above the average for the decade ending 2011 12. Beef cattle turn-off is estimated to have increased in all zones but to have increased most in the wheat sheep zone. In contrast to other zones, purchases of beef cattle are estimated to remain relatively high in the southern wheat sheep zone in 2012 13 as producers replace stock sold for slaughter with unfinished stock purchased from other areas. Overall, beef cattle numbers are estimated to have increased by around 2 per cent in the southern wheat sheep zone. ABARES 31

Financial performance TABLE 10 Financial performance of beef cattle producing farms, southern Australia, by herd size average per farm Small Medium Farm cash receipts 2010 11 2011 12p 2012 13y 2010 11 2011 12p 2012 13y Beef cattle sales $ 51 890 49 300 (8) 51 000 88 600 94 500 (7) 93 000 Sheep, lambs and wool sales $ 70 590 89 200 (14) 51 000 61 520 65 300 (23) 52 000 Total crop receipts $ 89 080 108 800 (19) 78 000 90 390 68 300 (40) 103 000 Total cash receipts $ 233 100 270 700 (10) 193 000 255 820 243 400 (15) 264 000 Farm cash costs Beef cattle purchases $ 13 990 10 700 (24) 9 000 22 350 18 700 (31) 12 000 Wages for hired labour $ 2 920 5 400 (19) 4 000 5 560 5 900 (25) 7 000 Interest paid $ 17 200 21 300 (16) 11 000 16 690 14 800 (20) 20 000 Total cash costs $ 170 950 203 000 (8) 148 000 182 000 180 500 (15) 203 000 Farm capital and debt Total capital at 30 June $ 2 410 580 3 218 000 (8) 3 180 000 3 587 140 3 242 400 (8) 3 266 000 Farm business debt at 30 June a $ 232 620 310 400 (16) na 229 300 225 100 (20) na Equity ratio at 30 June a % 90 90 (2) na 94 93 (1) na Farm financial performance Farm cash income $ 62 150 67 700 (23) 46 000 73 820 62 900 (21) 60 000 Farm business profit $ 20 320 200 (999) 24 000 19 090 1 200 (877) 18 000 Profit calculated at full equity $ 40 630 26 400 (69) 9 000 41 030 21 300 (52) 7 000 Rate of return Return on capital excluding capital appreciation % 1.7 0.8 (66) 0.4 1.1 0.7 (50) 0.3 Return on capital including capital appreciation % 1.5 0.2 (283) na 1.2 0.5 (137) na Return on owners equity % 0.9 0.0 (999) na 0.6 0.0 (876) na Other Off-farm income a $ 41 100 40 100 (21) na 35 340 35 800 (18) na continued... 32 ABARES

Financial performance TABLE 10 Financial performance of beef cattle producing farms, southern Australia, by herd size average per farm continued Farm cash receipts Large Very large 2010 11 2011 12p 2012 13y 2010 11 2011 12p 2012 13y Beef cattle sales $ 205 370 183 000 (10) 171 000 503 530 563 600 (28) 537 000 Sheep, lambs and wool sales $ 120 090 107 600 (17) 84 000 211 450 210 500 (20) 177 000 Total crop receipts $ 129 560 152 700 (32) 120 000 268 600 210 000 (66) 219 000 Total cash receipts $ 491 890 495 700 (13) 416 000 1 049 100 1 058 100 (23) 1 003 000 Farm cash costs Beef cattle purchases $ 35 390 31 500 (25) 24 000 118 230 115 900 (76) 90 000 Wages for hired labour $ 14 840 17 000 (28) 18 000 71 790 61 200 (25) 61 000 Interest paid $ 48 290 47 100 (18) 33 000 101 490 73 900 (38) 69 000 Total cash costs $ 355 090 369 900 (14) 320 000 837 530 774 800 (26) 729 000 Farm capital and debt Total capital at 30 June $ 5 629 860 4 946 400 (8) 4 548 000 11 137 800 9 924 300 (12) 9 612 000 Farm business debt at 30 June a $ 600 240 680 400 (19) na 1 517 450 1 239 800 (45) na Equity ratio at 30 June a % 89 86 (2) na 86 88 (5) na Farm financial performance Farm cash income $ 136 800 125 800 (27) 96 000 211 560 283 300 (20) 274 000 Farm business profit $ 72 620 41 700 (80) 4 000 209 430 225 500 (22) 189 000 Profit calculated at full equity $ 125 670 95 000 (38) 42 000 321 460 307 000 (22) 265 000 Rate of return Return on capital excluding capital appreciation % 2.3 1.9 (36) 1.1 3.0 3.2 (15) 3.4 Return on capital including capital appreciation % 2.8 1.1 (97) na 0.7 4.3 (23) na Return on owners equity % 1.4 0.9 (84) na 2.4 2.4 (18) na Other Off-farm income a $ 31 820 31 300 (12) na 30 890 29 200 (24) na a Average per responding farm. p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Source: AAGIS. ABARES 33

Financial performance TABLE 11 Financial performance of beef cattle producing farms, southern Australia, by zone average per farm Pastoral Wheat sheep High rainfall 2010 11 2011 12p 2012 13y 2010 11 2011 12p 2012 13y 2010 11 2011 12p 2012 13y Farm cash receipts Beef cattle sales $ 160 460 158 000 (19) 133 000 145 360 146 600 (11) 135 000 150 370 138 500 (6) 141 000 Sheep, lambs and wool sales $ 202 680 212 600 (18) 154 000 94 940 100 900 (10) 72 000 82 420 83 300 (10) 64 000 Total crop receipts $ 61 640 34 800 (27) 51 000 249 760 261 000 (17) 248 000 28 490 20 000 (20) 20 000 Total cash receipts $ 522 560 499 200 (18) 428 000 522 130 552 200 (9) 491 000 279 060 259 800 (5) 240 000 Farm cash costs Beef cattle purchases $ 39 640 28 400 (27) 16 000 38 690 39 000 (24) 31 000 29 500 20 600 (14) 15 000 Total cash costs $ 363 560 343 800 (14) 307 000 391 330 428 600 (9) 390 000 208 400 182 600 (6) 171 000 Farm capital and debt Total capital at 30 June $ 3 501 280 3 514 500 (10) 3 269 000 4 742 910 4 797 500 (6) 4 445 000 4 446 100 3 890 100 (5) 3 741 000 Farm business debt at 30 June a $ 380 740 357 900 (54) 366 000 640 410 743 400 (15) 670 000 292 110 228 100 (11) 218 000 Equity ratio at 30 June a % 88 89 (5) na 86 84 (2) na 93 94 (1) na Farm financial performance Farm cash income $ 159 000 155 400 (34) 121 000 130 800 123 600 (16) 102 000 70 660 77 300 (9) 69 000 Farm business profit $ 149 270 119 300 (54) 39 000 80 870 21 100 (94) 5 000 23 220 30 000 (24) 100 Profit at full equity $ 177 710 144 700 (46) 59 000 136 930 78 900 (29) 54 000 48 900 50 200 (15) 19 000 Rate of return Return on capital excluding capital appreciation % 5.4 4.3 (48) 2.6 3.0 1.7 (26) 1.5 1.1 1.3 (15) 0.6 Return on capital including capital appreciation % 6.9 4.4 (48) na 1.8 2.1 (23) na 1.0 0.7 (105) na Return on owners equity % 5.8 3.7 (43) na 2.0 0.5 (88) na 0.5 0.7 (30) na a Average per responding farm. p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Source: AAGIS. 34 ABARES

Chapter 4 Farm investment Producers capacity to generate farm income will be influenced by their past investments both in additional land to expand the scale of their farming activities and in new infrastructure, plant and machinery to boost productivity in the longer term. Over the past decade beef cattle producers have undertaken considerable new investments in land, plant and machinery. The proportion of beef cattle producing farms acquiring land was high in both northern Australia and southern Australia in the period between 1999 2000 and 2006 07 (Figure 15). The proportion dropped sharply from 2007 08 and has remained relatively low since, particularly in northern Australia. FIGURE 15 Proportion of beef producing farms acquiring land, Australia 10 8 Southern Australia Northern Australia 6 4 2 % 1993 94 1996 97 1999 2000 2002 03 2005 06 2008 09 2011 12p p Preliminary estimate. Source: AAGIS ABARES 35

Farm investment Land values reported for beef cattle producing farms have declined since 2009 10, with land values reported in 2011 12 as much as 25 per cent below those reported in 2008 09 in some pastoral regions of northern Australia. Very large increases in reported land values occurred over the previous decade. Much smaller reductions in reported land values occurred in many regions in the high-rainfall and wheat sheep zones (Figure 16). FIGURE 16 Land prices, beef cattle producing farms 1200 1000 400 Southern Australia Northern Australia (right axis) 300 800 200 600 100 2012 13 $/ha 1993 94 1996 97 1999 2000 2002 03 2005 06 2008 09 2012 13 $/ha 2011 12p p Preliminary estimate. Source: AAGIS Average land prices for beef cattle producing farms increased sharply between 2001 02 and 2007 08, particularly compared with cash receipts generated per hectare which increased only modestly over this period. The ratio of average land price per hectare to total cash receipts per hectare almost doubled from around 5:1 before 2001 02 to around 9:1 in 2009 10 on beef cattle producing farms. This ratio more than doubled across all agricultural zones. The ratio increased from 7:1 to 15:1 in the high-rainfall zone and from 4:1 to 8:1 in the wheat sheep zone. The largest increase was reported in the pastoral zone of northern Australia, where the ratio increased from 4:1 to 10:1. Only a relatively small proportion of beef cattle producing farms buy land in any one year, but most producers make some investment in plant, vehicles, machinery and/or infrastructure each year. However, because of the much larger average value of land transactions, the value of land purchases dominates total investment. Net investment in plant, vehicles, machinery and farm infrastructure for beef cattle producing farms has been historically high since 2006 07 (Figures 17 and 18). 36 ABARES

Farm investment FIGURE 17 Net investment in vehicles, machinery and farm improvements, northern producing farms 50 40 30 20 10 2012 13 $ 000 1993 94 1996 97 1999 2000 2002 03 2005 06 2008 09 2011 12p Computer, office, workshop and other equipment Livestock handling Buildings, fences, yards, water facilities and structures Grain storage Accommodation Irrigation equipment Harvesting and handling Cultivation, sowing, fertiliser and spraying Tractors Vehicles Repairs and maintainance p Preliminary estimate. Source: AAGIS FIGURE 18 Net investment in vehicles, machinery and farm improvements, southern producing farms 50 40 30 20 10 2012 13 $ 000 1993 94 1996 97 1999 2000 2002 03 2005 06 2008 09 2011 12p Computer, office, workshop and other equipment Livestock handling Buildings, fences, yards, water facilities and structures Grain storage Accommodation Irrigation equipment Harvesting and handling Cultivation, sowing, fertiliser and spraying Tractors Vehicles Repairs and maintainance p Preliminary estimate. Source: AAGIS ABARES 37

Farm investment In 2008 09 and 2009 10 investment in plant, machinery and farm infrastructure (such as buildings, irrigation systems, water supply structures and fencing) was stimulated by the investment allowance offered to businesses as part of the Australian Government s Nation Building and Jobs Plan to support economic activity during the global financial crisis. Net investment is the difference between the total value of plant, vehicles, machinery and farm infrastructure purchased and the total value of those items sold or disposed of. In addition to acquiring new capital items and replacing old items, ongoing maintenance and repair of existing plant, vehicles, machinery and farm infrastructure is needed. This expenditure is recorded in ABARES surveys as the cash cost of repairs and maintenance. A significant proportion of reported annual expenditure on repairs and maintenance is the capital cost of replacing and upgrading items of farm capital, such as fencing, stockyards and watering facilities. Annual expenditure on repairs and maintenance is strongly correlated with farm income. Expenditure on repairs and maintenance rises in years of high farm cash income and decreases in years of lower farm cash incomes. In northern Australia, fencing, stockyards and watering facilities account for a high proportion of total farm capital value. Expenditure on the repair and maintenance of this infrastructure, together with plant machinery and vehicle repairs, typically exceeds net capital additions (Figure 17). Since 2006 07 expenditure on repairs and maintenance and net capital additions in northern Australia have trended downward as total farm cash receipts have declined. In the five years ending 2011 12 motor vehicles accounted for around 40 per cent of average total net capital additions for northern beef cattle producing farms. Tractors accounted for a further 25 per cent, but most expenditure was by mixed enterprise beef cattle producing farms. Investment in plant, vehicles, machinery and farm infrastructure for southern cattle producing farms has also been very strong since 2006 07 (Figure 18). In the five years ending 2011 12 motor vehicles accounted for 27 per cent of average total net capital additions for southern beef cattle producing farms. Reflecting the reliance of many southern beef cattle producers on crop production, tractors also accounted for 27 per cent of net capital additions and crop harvesting equipment and cultivation and planting equipment each accounted for a further 15 per cent. Most of the increase in real expenditure on net capital additions and repairs and maintenance over the past 20 years for both northern and southern beef cattle producing farms is due to an increase in the average scale of operations of farms, increased production of crops and increased intensification of beef cattle enterprises. 38 ABARES

Chapter 5 Farm debt Debt is an important source of funds for farm investment and ongoing working capital, particularly because more than 95 per cent of beef cattle producing farms are family-owned and operated. For family farms, funding for farm expansion and improvement is limited to the funds available to the family, the profits the farm business can generate and the funds it can borrow. Average debt per farm business more than doubled in real terms for beef cattle producing farms between 2000 01 and 2008 09, in both northern Australia and southern Australia. In northern Australia average debt per farm business increased from $333 000 per farm in 2000 01 to $704 000 per farm in 2008 09 (Figure 19). Debt in southern Australia increased from an average of $205 000 per farm in 2000 01 to $469 000 per farm in 2008 09 (Figure 20). FIGURE 19 Composition of farm business debt, northern producing farms 800 700 600 500 400 300 200 Other debt Buildings and structures Land development Machinery, plant and vehicles Reconstructed debt Land purchase Working capital 100 2012 13 $ 000 1993 94 1996 97 1999 2000 2002 03 2005 06 2008 09 2011 12p p Preliminary estimate. Source: AAGIS ABARES 39

Farm debt FIGURE 20 Composition of farm business debt, southern producing farms 800 700 600 500 400 300 200 Other debt Buildings and structures Land development Machinery, plant and vehicles Reconstructed debt Land purchase Working capital 100 2012 13 $ 000 1993 94 1996 97 1999 2000 2002 03 2005 06 2008 09 2011 12p p Preliminary estimate. Source: AAGIS A number of factors contributed to the growth in debt over this period, including the effects of lower interest rates, increases in farm size, changes in commodities produced and reduced farm cash incomes during the 2000s because of widespread and extended drought conditions. Throughout much of the 2000s interest rates were historically low, reducing the cost of servicing debt and encouraging borrowing for farm investment. Interest rate subsidies provided to many farms as part of drought assistance programs also supported borrowing. Structural adjustment resulted in beef cattle producers in the wheat sheep zone changing the mix of commodities produced, and farm size increased in both northern and southern Australia. The largest contribution to increases in farm debt in the past two decades has been borrowing to fund new investment, particularly purchase of land, machinery and vehicles and to develop land and farm improvements. Debt to fund land purchase accounts for the largest share of debt on beef cattle producing farms, accounting for an estimated 60 per cent of average debt in northern Australia and 45 per cent of average debt in southern Australia in 2011 12. Increased size of farm enterprises also resulted in higher borrowing for ongoing working capital. Additionally, borrowing to meet working capital requirements increased for producers during the 2000s as drought depressed farm cash incomes in many regions. Working capital debt accounted for 22 per cent of average farm debt in northern Australia in 2011 12 and 37 per cent of average debt in southern Australia, second only to land purchase debt. 40 ABARES

Farm debt Growth in average debt per farm business has slowed for beef cattle producing farms in recent years because of a diminished appetite for further increases in debt by farm businesses, a reduction in land values and more restricted access to credit from lending institutions. The proportion of farms increasing debt declined significantly in 2010 11 and 2011 12 to be closer to the historical lows recorded in 2000 01 (Figure 21). Average farm debt for beef cattle producing farms has declined slightly since 2008 09 in both northern Australia and southern Australia, according to AAGIS data. FIGURE 21 Proportion of beef cattle producing farms increasing farm business debt 50 40 Southern Australia Northern Australia 30 20 10 % 1993 94 1996 97 1999 2000 2002 03 2005 06 2008 09 2011 12p p Preliminary estimate. Source: AAGIS Distribution of farms by debt and equity The proportion of beef cattle producing farms with relatively high debt varies across the regions and herd sizes. Around 12 per cent of farms in southern Australia, 15 per cent of farms in northern Australia and 19 per cent of farms in the northern live cattle export region carried in excess of $1 million in debt at 30 June 2012. The higher proportion of such farms in northern Australia and the northern live cattle export region largely reflects the much higher proportion of large and very large herd size businesses in those regions (Table 12 and Table 13). In contrast, around 59 per cent of beef cattle producing farms in southern Australia and 56 per cent in northern Australia were recorded as having less than $100 000 in debt at 30 June 2012. A high proportion of these businesses are small and medium herd size farms, but more than 20 per cent of very large herd size businesses were also recorded as having less than $100 000 in debt at 30 June 2012. The general increase in land values to 2008 boosted the equity most farmers have in their businesses. For some farms, reductions in farm debt, increases in capital investment and increased livestock numbers have resulted in further improvement in farm equity. However, in a number of regions farm equity is estimated to have fallen significantly over the past three years as a consequence of reductions in reported land values. ABARES 41

Farm debt TABLE 12 Distribution of northern cattle producing farms, by farm business debt and equity ratio, at 30 June 2012ap percentage of farms Herd size Northern Australian live cattle export region Northern Australia Small Medium Large Very large Farm business debt b < $100 000 % 79 (9) 49 (15) 31 (20) 25 (37) 39 (23) 56 (7) $100 000 and < $250 000 % 10 (31) 13 (37) 6 (38) 2 (80) 13 (37) 10 (25) $250 000 and < $500 000 % 3 (61) 10 (42) 10 (34) 1 (49) 12 (52) 7 (27) $500 000 and < $1m % 5 (61) 19 (24) 10 (35) 1 (39) 17 (42) 11 (19) $1m and < $2m % 3 (98) 6 (35) 23 (25) 11 (49) 4 (39) 8 (22) $2m % 1 (99) 3 (40) 20 (19) 61 (18) 15 (22) 7 (14) Total % 100 100 100 100 100 100 Average farm debt at 30 June $ 131 000 (137) 366 000 (14) 1 337 000 (13) 5 231 000 (33) 1 220 000 (19) 604 000 (11) Farm business equity ratio bc 90 per cent % 85 (8) 69 (8) 54 (11) 39 (23) 54 (17) 71 (4) 80 and < 90 per cent % 7 (47) 14 (28) 22 (25) 28 (27) 23 (29) 13 (16) 70 and < 80 per cent % 4 (62) 10 (32) 13 (31) 14 (35) 15 (44) 9 (21) 60 and < 70 per cent % 1 (99) 4 (54) 6 (41) 10 (66) 3 (54) 3 (36) < 60 per cent % 3 (90) 3 (50) 5 (39) 10 (44) 6 (38) 3 (30) Total % 100 100 100 100 100 100 Average farm business equity ratio at 30 June % 94 (8) 92 (1) 87 (2) 80 (5) 83 (3) 88 (1) Population of farms no. 3 117 3 452 1 519 375 1 297 8 463 a Excludes debt for large corporate farms. b Average per responding farm. c Equity ratio defined as total owned business capital at 30 June less debt as a percentage of total owned business capital. p Preliminary estimate. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate provided. Source: AAGIS 42 ABARES

Farm debt TABLE 13 Distribution of southern cattle producing farms, by farm business debt and equity ratio, at 30 June 2012ap percentage of farms Herd size Small Medium Large Very large Southern Australia Farm business debt b < $100 000 % 63 (10) 68 (6) 50 (14) 30 (28) 59 (5) $100 000 and < $250 000 % 15 (41) 10 (35) 10 (38) 13 (45) 12 (21) $250 000 and < $500 000 % 6 (46) 9 (26) 13 (43) 7 (51) 9 (19) $500 000 and < $1m % 8 (35) 6 (35) 7 (38) 17 (31) 8 (18) $1m and < $2m % 5 (23) 5 (37) 11 (26) 21 (21) 8 (14) $2m % 3 (32) 2 (55) 9 (34) 13 (43) 4 (16) Total % 100 100 100 100 100 Average farm debt at 30 June $ 310 000 (16) 225 000 (20) 680 000 (19) 1 240 000 (45) 430 000 (11) Farm business equity ratio bc 90 per cent % 76 (5) 83 (4) 67 (7) 59 (11) 76 (3) 80 and < 90 per cent % 11 (31) 11 (27) 14 (29) 22 (18) 12 (14) 70 and < 80 per cent % 5 (48) 4 (38) 7 (40) 15 (35) 6 (22) 60 and < 70 per cent % 4 (42) 3 (35) 8 (31) 1 (69) 4 (25) < 60 per cent % 3 (58) 0 (74) 4 (62) 2 (110) 2 (30) Total % 100 100 100 100 100 Average farm business equity ratio at 30 June % 90 (2) 93 (1) 88 (2) 86 (5) 90 (1) Population of farms no. 6 059 6 868 3 789 1 756 18 472 a Excludes debt for large corporate farms. b Average per responding farm. c Equity ratio defined as total owned business capital at 30 June less debt as a percentage of total owned business capital. p Preliminary estimate. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate provided. Source: AAGIS ABARES 43

Farm debt On average, farm business equity remains strong for most beef cattle producing farms. The average equity ratio for beef cattle producing farms, at 30 June 2012, was estimated to be 88 per cent for northern Australian farms and 90 per cent for southern Australian farms. Six per cent of beef cattle producing farms in both northern Australia and southern Australia and around 9 per cent in the northern live cattle export region were estimated to have equity ratios below 70 per cent in 2011 12. In contrast, 71 per cent of beef cattle producing farms in northern Australia and 76 per cent in southern Australia were estimated to have equity ratios exceeding 90 per cent at 30 June 2012. Equity ratios are typically lower for larger herd size farms because they are able to service larger debts. Debt servicing The proportion of farm receipts needed to fund interest payments rose substantially in the decade ending 2009 10. This was due to a combination of large increases in farm debt and reduced farm receipts, as a result of extended drought conditions. Interest rate subsidies paid to farm businesses as drought assistance partially offset the increase in interest paid between 2001 02 and 2007 08. Higher farm receipts in 2010 11 and 2011 12 and reductions in interest rates in 2011 12 resulted in farm receipts needed to fund interest payments declining. In 2012 13 the ratio of interest payments to farm receipts is estimated to have reduced further because of lower interest rates, to around 12 per cent in northern Australia and 7 per cent in southern Australia (Figure 22). Nevertheless, the proportion of farm receipts needed to meet interest payments remains relatively high, compared with those recorded historically, particularly in northern Australia. FIGURE 22 Ratio of interest payments to total cash receipts, beef cattle producing farms 20 Northern Australia Southern Australia 15 10 5 % 1994 95 1997 98 2000 01 2003 04 2006 07 2009 10 2012 13y y Provisional estimate. Source: AAGIS 44 ABARES

Farm debt In 2012 13 the proportion of beef cattle producing farms recording negative farm cash incomes, and therefore potentially needing to borrow additional working capital, is estimated to have increased by around 5 per cent in both northern Australia and southern Australia. The capacity farm businesses have to undertake further borrowing depends on both the equity (security) farmers have in their businesses and the business s capacity to service increased debt from farm receipts. The proportion of beef cattle producing farm businesses in northern Australia with relatively low additional borrowing capacity (equity ratio of less than 70 per cent) and relatively high debt servicing commitments (interest to receipts ratios exceeding 15 per cent) has increased slightly since 2008 09 to an estimated 6 per cent in 2011 12. This is still well below the high recorded in 1996 97, when beef cattle prices were historically low (Figure 23). In the northern live cattle export region the proportion increased to around 9 per cent in 2011 12. FIGURE 23 Debt servicing and borrowing capacity, northern cattle producing farms 40 35 30 25 20 15 10 Farms with greater than 15% interest to receipts ratio Farms with less than 70% equity ratio Farms with equity ratio less than 70% and interest to receipts ratio greater than 15% 5 % of farm businesses 1988 89 1991 92 1994 95 1997 98 2000 01 2003 04 2006 07 2009 10 2012 13y y Provisional estimate. Source: AAGIS ABARES 45

Farm debt The proportion of beef cattle producing farm businesses in southern Australia with relatively low borrowing capacity and relatively high debt servicing commitments has declined since 2009 10 to around 4 per cent in 2011 12, which is around half the historical highs recorded in the late 1990s (Figure 24). FIGURE 24 Debt servicing and borrowing capacity, southern cattle producing farms 40 35 30 25 20 15 10 Farms with greater than 15% interest to receipts ratio Farms with less than 70% equity ratio Farms with equity ratio less than 70% and interest to receipts ratio greater than 15% 5 % of farm businesses 1988 89 1991 92 1994 95 1997 98 2000 01 2003 04 2006 07 2009 10 2012 13y y Provisional estimate. Source: AAGIS 46 ABARES

Chapter 6 Beef cattle selling methods cattle producers sell cattle primarily through auction, in the paddock and over the hooks. AAGIS data indicate significant differences between the preferred method of sale of northern and southern Australian producers. In southern Australia the auction system remained the main method of sale in 2011 12, with 69 per cent of beef cattle sales (Figure 25). Auction sales are most favoured by producers who have smaller herds and who sell in small lot sizes, particularly in southern Australia. These producers are generally located closer to settled areas so distances to saleyards and freight costs are relatively small. These areas also produce and trade a range of cattle types, including store, finished and stud, which are able to be sold at auction. FIGURE 25 Method of selling cattle, southern Australia 100 80 60 Other Over hooks Paddock Auction 40 20 % 1991 92 1995 96 1999 2000 2003 04 2007 08 2011 12p p Preliminary estimate. Note: Live export cattle sales are mostly paddock sales over the scales. Because of changes in data collected, consistent results cannot be provided for the period 2002 03 to 2004 05. Source: AAGIS ABARES 47

Beef cattle selling methods Larger herd size producers are more likely to sell over the hooks or in the paddock because they are able to generate larger sale numbers. Direct methods of sale, such as over the hooks, can also reduce the carcase damage and loss of meat quality caused by the additional handling involved in saleyard and auction sales. In 2011 12 the proportion of cattle sold at auction in northern Australia declined to 33 per cent and the proportion sold over the hooks increased to 34 per cent. The proportion sold in the paddock increased to 32 per cent (Figure 26). In northern Australia the proportion of cattle sold over the hooks typically exceeds the proportion sold via auction. However, in 2010 11 the proportion of cattle sold at auction exceeded the proportion sold over the hooks for the first time since 2000 01. This appears to be the result of increased demand from restockers for young cattle sold at auction. FIGURE 26 Method of selling cattle, northern Australia 100 80 60 Other Over hooks Paddock Auction 40 20 % 1991 92 1995 96 1999 2000 2003 04 2007 08 2011 12p p Preliminary estimate. Note: Live export cattle sales are mostly paddock sales over the scales. Because of changes in data collected, consistent results cannot be provided for the period 2002 03 to 2004 05. Source: AAGIS 48 ABARES

Chapter 7 Grain finishing In the three years to 2011 12 around 4 per cent of southern Australian and 3 per cent of northern cattle producers used grain to finish beef cattle for sale. In both regions grain finishing farms, on average, operated a smaller area than non-grain finishing farms. Despite operating on a smaller area, grain finishing farms sold significantly more cattle than non-grain finishing farms. Based on AAGIS results most beef cattle producers in northern Australia that used grain to finish cattle for sale were in south-eastern and central Queensland. In northern Australia the proportion of beef cattle producers using grain to finish beef cattle decreased significantly from around 7 per cent in 2007 08 to just 1 per cent in 2011 12. This decrease is likely to have been due to several factors, including improved pasture availability and a reduction in turn-off rates as more cattle were retained for herd rebuilding. While the proportion of farms grain finishing cattle decreased, farms that did grain finish sold a higher proportion of grain finished cattle. In the north the margin between the average price received for cattle sold directly for slaughter by grain finishing farms and non-grain finishing farms also fell markedly. In 2009 10 cattle sold for slaughter by grain finishing farms received an average of around $170 per head more than cattle sold for slaughter by non-grain finishing farms. During 2011 12 grain finishing farms only received $66 per head more for cattle sold for slaughter. By contrast, the proportion of farms using grain to finish beef cattle for sale in southern Australia remained around 4 per cent in both 2010 11 and 2011 12. Unlike in northern Australia, the average proportion of cattle finished on grain did not change significantly. The margin between the average price received for cattle sold directly to slaughter by grain finishing farms widened, from an average premium of around $86 per head for grain finished farms in 2009 10 to $101 per head in 2011 12. ABARES 49

Chapter 8 Productivity The beef industry has achieved average productivity growth of 0.9 per cent a year, primarily through output growth (0.6 per cent a year on average) and moderate reductions in input use (0.3 per cent a year on average) (Table 14). In the northern region productivity growth has resulted from moderate output growth and moderate input reductions (primarily in land and labour). In contrast, productivity growth in the southern beef industry is a result of higher output growth accompanied by moderate growth in input use, particularly land and materials including seed, fertiliser and crop chemicals. TABLE 14 Average annual beef input and productivity growth by region, 1977 78 to 2010 11 Productivity growth Output growth Input growth % % % Northern region 1.0 0.6 0.4 Southern region 0.4 0.8 0.4 All beef 0.9 0.6 0.3 Note: Estimates are for the beef industry and for specialist beef producing farms and exclude large feedlots. The northern beef industry has expanded over the past 20 years, driven partly by growth in the live export trade. Since 1988 89 average herd size has increased at an average rate of 1.3 per cent a year and stocking rates have increased by 2 per cent a year on average Increases in the average size of northern beef operations have increased the capacity of producers to invest in improved pastures, sophisticated cattle management systems and on-farm infrastructure, facilitating productivity growth. In addition, the shift to a higher proportion of Bos indicus breeds and the eradication of brucellosis and tuberculosis from the herd have led to improvements in animal health, increasing branding rates and reducing mortalities (Gleeson et al. 2012). 50 ABARES

Productivity Productivity growth in the southern beef industry has been slower than in the northern industry (Table 14). Output growth has been highly variable, largely because of climate factors. Southern beef producers tend to be smaller, more intensive operations that rely on improved pastures (reflected by higher average stocking rates) and are more diversified than northern producers (Nossal et al. 2008). As a result, productivity growth in the southern region is more sensitive to drought conditions, which increase use of purchased feed, adversely affect crop yields and drive significant destocking and restocking activities that hamper output growth. Similar to the northern beef industry, advances in animal genetics and herd, disease and fodder management have contributed to higher branding rates and reduced mortalities, increasing productivity. However, the rate of improvement has been less significant in the south than in the north, partly because of the better rates already achieved by southern beef producers. This is one factor that may explain the lower productivity growth of southern producers. Another factor is be the prevalence of small farms with less capacity to invest in and benefit from improved technology and farm systems (Nossal et al. 2008). ABARES 51

Survey methods and definitions ABARES has conducted surveys of selected Australian agricultural industries since the 1940s. These surveys provide a broad range of information on the economic performance of farm business units in the rural sector. This comprehensive information is widely used for research and analysis and forms the basis of many publications, briefing material and industry reports. The information in this report is derived from the annual Australian Agricultural and Grazing Industries Survey (AAGIS). This survey covers farm business units that are mainly engaged in running sheep or beef cattle or growing grain, oilseeds or pulses. Definitions of industries Industry definitions are based on the 2006 Australian and New Zealand Standard Industrial Classification (ANZSIC06). This classification is in line with an international standard applied comprehensively across Australian industry, permitting comparisons between industries within Australia and internationally. Farms assigned to a particular ANZSIC have a high proportion of their total output characterised by that class. Further information on ANZSIC and on farming activities included in each of these industries is provided in Australian and New Zealand Standard Industrial Classification (ABS 2006). The five broadacre industries covered by AAGIS are: Wheat and other crops industry (ANZSIC06 Class 0146 and 0149) ሲሲfarms engaged mainly in growing rice, other cereal grains, coarse grains, oilseeds and/or pulses Mixed livestock crops industry (ANZSIC06 Class 0145) ሲሲfarms engaged mainly in running sheep and/or beef cattle and growing cereal grains, coarse grains, oilseeds and/or pulses Sheep industry (ANZSIC06 Class 0141) ሲሲfarms engaged mainly in running sheep Beef industry (ANZSIC06 Class 0142) ሲሲfarms engaged mainly in running beef cattle Sheep beef industry (ANZSIC06 Class 0144) ሲሲfarms engaged mainly in running both sheep and beef cattle. 52 ABARES

Survey methods and definitions Target populations AAGIS is designed from a population list drawn from the Australian Business Register (ABR) and maintained by the Australian Bureau of Statistics (ABS). The ABR comprises businesses registered with the Australian Taxation Office. The ABR-based population list provided to ABARES consists of agricultural establishments with their corresponding geography code (currently Australian Statistical Geography Standard), ANZSIC and a size of operation variable. ABARES surveys target farming establishments that make a significant contribution to the total value of agricultural output (commercial farms). Farms excluded from ABARES surveys will be the smallest units and, in aggregate, will contribute less than 2 per cent to the total value of agricultural production for the industries covered by the surveys. The size of operation variable used in ABARES survey designs is usually estimated value of agricultural operations (EVAO). EVAO is a standardised dollar measure of the level of agricultural output. A definition of EVAO is given in Agricultural industries: financial statistics (ABS 2001). Before 1986 87 the survey included establishments with an EVAO of $10 000 or more. Between 1987 88 and 1991 92 the survey included establishments with an EVAO of $20 000 or more. Between 1991 92 and 2003 04 the survey included establishments with an EVAO of $22 500 or more. Since 2004 05 ABARES farm surveys have included establishments classified as having an EVAO of $40 000 or more. Survey design The target population is grouped into strata defined by ABARES region, ANZSIC and size of operation. The sample allocation is a compromise between allocating a higher proportion of the sample to strata with high variability in the size variable and an allocation proportional to the population of the stratum. A large proportion of sample farms is retained from the previous year s survey. The sample chosen each year maintains a high proportion of the sample between years to accurately measure change while meeting the requirement to introduce new sample farms. New farms are introduced to account for changes in the target population, as well as to reduce the burden on survey respondents. The sample size for AAGIS is usually around 1600 farms. The main method of collecting data is face-to-face interviews with the owner manager of the farm business. Detailed physical and financial information is collected on the operations of the farm business during the preceding financial year. Respondents to AAGIS are also contacted by telephone in October each year to obtain estimates of projected production and expected receipts and costs for the current financial year. ABARES surveys also allow supplementary questionnaires to be attached to the main or to the telephone surveys. These additional questions help address specific industry issues such as grain cost of production, livestock management practices and adoption of new technologies on dairy farms. ABARES 53

Survey methods and definitions Sample weighting ABARES survey estimates are calculated by appropriately weighting the data collected from each sample farm and then using the weighted data to calculate population estimates. Sample weights are calculated so that population estimates from the sample for numbers of farms, areas of crops and numbers of livestock correspond as closely as possible to the most recently available ABS estimates from data collected from Agricultural Census and Surveys. The weighting methodology for AAGIS uses a model-based approach, with a linear regression model linking the survey variables and the estimation benchmark variables. The details of this method are described in Bardsley and Chambers (1984). For AAGIS, the benchmark variables provided by the ABS include: total number of farms in scope area planted to wheat, rice, other cereals, grain legumes (pulses) and oilseeds closing numbers of beef and sheep. Generally, larger farms have smaller weights and smaller farms have larger weights. This reflects both the strategy of sampling a higher fraction of the large farms than smaller farms and the relatively lower numbers of large farms. Large farms have a wider range of variability of key characteristics and account for a much larger proportion of total output. Reliability of estimates The reliability of the estimates of population characteristics published by ABARES depends on the design of the sample and the accuracy of the measurement of characteristics for the individual sample farms. Preliminary estimates and projections Estimates for 2010 11 and all earlier years are final. All data from farmers, including accounting information, have been reconciled; final production and population information from the ABS has been included and no further change is expected in these estimates. The 2011 12 estimates are preliminary, based on full production and accounting information from farmers. However, editing and addition of sample farms may be undertaken and ABS production and population benchmarks may also change. The 2012 13 estimates are projections developed from the data collected through on-farm and telephone interviews from October to December, as well as from the preliminary estimates. Projection estimates include crop and livestock production, receipts and expenditure up to the date of interview together with expected production and receipts and expenditure for the remainder of the projection year. Modifications are made to expected receipts and expenditure where significant production and price change has occurred post interview. Projection estimates are necessarily subject to greater uncertainty than preliminary and final estimates. Preliminary and projection estimates of farm financial performance are produced within a few weeks of the completion of survey collections. However, these may be updated several times at later dates. These subsequent versions will be more accurate, as they will be based on upgraded information and slightly more accurate input datasets. 54 ABARES

Survey methods and definitions Sampling errors Only a subset of farms out of the total number of farms in a particular industry is surveyed. The data collected from each sample farm are weighted to calculate population estimates. Estimates derived from these farms are likely to be different from those that would have been obtained if information had been collected from a census of all farms. Any such differences are called sampling errors. The size of the sampling error is influenced by the survey design and the estimation procedures, as well as the sample size and the variability of farms in the population. The larger the sample size, the lower the sampling error is likely to be. Hence, national estimates are likely to have lower sampling errors than industry and state estimates. To give a guide to the reliability of the survey estimates, standard errors are calculated for all estimates published by ABARES. These estimated errors are expressed as percentages of the survey estimates and termed relative standard errors. Calculating confidence intervals using relative standard errors Relative standard errors can be used to calculate confidence intervals, which give an indication of how close the actual population value is likely to be to the survey estimate. To obtain the standard error, multiply the relative standard error by the survey estimate and divide by 100. For example, if average total cash receipts are estimated to be $100 000 with a relative standard error of 6 per cent, the standard error for this estimate is $6000. This is one standard error. Two standard errors equal $12 000. There is roughly a two-in-three chance that the census value (the value that would have been obtained if all farms in the target population had been surveyed) is within one standard error of the survey estimate. This range of one standard error is described as the 66 per cent confidence interval. In this example, there is an approximately two-in-three chance that the census value is between $94 000 and $106 000 ($100 000 plus or minus $6000). There is roughly a 19-in-20 chance that the census value is within two standard errors of the survey estimate (the 95 per cent confidence interval). In this example, there is an approximately 19-in-20 chance that the census value lies between $88 000 and $112 000 ($100 000 plus or minus $12 000). Comparing estimates When comparing estimates between two groups, it is important to recognise that the differences are also subject to sampling error. As a rule of thumb, a conservative estimate of the standard error of the difference can be constructed by adding the squares of the estimated standard errors of the component estimates and taking the square root of the result. ABARES 55

Survey methods and definitions For example, suppose the estimates of total cash receipts were $100 000 in the wheat and other crops industry and $125 000 in the mixed livestock and grains industry a difference of $25 000 and the relative standard error is given as 6 per cent for each estimate. The standard error of the difference can be estimated as: ((6 x $100 000 / 100) 2 + (6 x $125 000 / 100) 2 ) = $9605 A 95 per cent confidence interval for the difference is: $25 000 ± 1.96*$9605 = ($6174, $43 826) Hence, if a large number (toward infinity) of different samples are taken, in approximately 95 per cent of them the difference between these two estimates will lie between $6174 and $43 826. Also, since zero is not in this confidence interval, it is possible to say that the difference between the estimates is statistically significantly different from zero at the 95 per cent confidence level. Regions Broadacre statistics are also available by region (Map 6). These regions represent the finest level of geographical aggregation from which reliable estimates can be produced. MAP 6 Australian broadacre zones and regions 511 713 714 712 311 313 332 Pastoral zone Wheat sheep zone High rainfall zone 512 711 312 314 531 522 521 411 421 322 121 111 422 122 221 132 123 431 222 223 131 231 331 321 631 Note: Each region is identified by a unique code of three digits. The first digit identifies the state or territory, the second digit identifies the zone and the third digit identifies the region. Source: ABARES 56 ABARES