Northern Australian beef industry Assessment of risks and opportunities

Assessment of risks and opportunities Trish Gleeson, Peter Martin and Clay Mifsud Research by the Australian Bureau of Agricultural and Resource Economics and Sciences Report to client prepared for the Northern Australia Ministerial Forum MAY 2012

Commonwealth of Australia 2012 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: Gleeson, T, Martin, P & Mifsud, C 2012, Northern Australian beef industry: Assessment of risks and opportunities, ABARES report to client prepared for the Northern Australia Ministerial Forum, Canberra, May, CC BY 3.0. Cataloguing data Gleeson, T, Martin, P & Mifsud, C 2012, Northern Australian beef industry: Assessment of risks and opportunities, ABARES report to client prepared for the Northern Australia Ministerial Forum, Canberra, May. ABARES project 43220 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 the preparation and compilation of 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, 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. Acknowledgements This research was funded by the Department of Regional Australia, Local Government, Arts and Sport. The authors thank Jammie Penm, Therese Thompson, John Hogan and Peter Tozer for their contributions to this work. The authors also gratefully acknowledge the guidance provided by Andrew Dickson, Ian Geary and Jack Lake of the Department of Regional Australia, Local Government, Arts and Sport. A series of consultations contributed to the authors understanding of issues affecting the northern Australian beef industry. The authors thank Andrew Ash, Michael Admans, John Berry, Sam Brown, Kevin Chennell, Chris Chilcott, David Farley, Chris Ham, Hanh Huang, Anne-Marie Huey, Leigh Hunt, Christine Long, Brad McCormick, Tim McRae, Russell Sangster, Troy Setter, Peter Stone, Gregorio Vial, Scott Wauchope and Susan Wishart for generously giving their time either in consultations or providing comments on the report. Their assistance is greatly appreciated.

Contents Summary vii 1 Introduction 1 What constitutes the northern Australian beef industry? 2 Structure of the report 4 2 Main features of the northern Australian beef industry 5 Natural endowments 5 Beef production system in northern Australia 7 Industry contribution to the northern Australian economy 10 Differences across jurisdictions 13 3 Factors that have driven development of the northern Australian beef industry 22 Before the 1990s 22 1990s Expansion of the live cattle trade 24 History of meat processing facilities in northern Australia 26 Land ownership 27 Pastoral lease reform 29 Water 31 4 Financial performance 33 Northern Australian beef producers 33 Historical financial performance of northern Australian beef producers 39 Recent financial performance of northern Australian beef producers 40 Regional financial performance 48 5 Productivity trends for the northern Australian beef industry 60 Productivity growth in Australian beef cattle industry 61 Opportunities for productivity growth 64 6 Export markets for live cattle 66 Key live export markets 67 Future demand for live cattle 74 Live export ports 74 7 Beef export markets 77 World market 77 Australian beef export markets 80 Future beef demand drivers 86 Market access 87 ABARES iii

Contents 8 Establishing meat processing facilities 90 Proposed northern beef processing facilities 90 Supporting meat processing facilities 94 Mosaic irrigation and irrigation research 98 9 Climate change, adaptation and mitigation 100 Response to climate change 102 10 Risks and opportunities assessment 105 Markets 105 Meat processing 112 Cattle production 114 Indigenous pastoral production 118 Diversification 119 Infrastructure 121 Climate change adaptation and mitigation 125 11 Conclusion critical factors determining growth 127 Appendix 1: Terms of reference 131 Appendix 2: Meat processing facilities and capacity 133 Appendix 3: Major road and bridge works in progress or recently completed 136 Appendix 4: Ports and port access risks for live exports of cattle 137 Glossary 138 References 140 Tables 1 Selected physical characteristics of beef cattle farms, 2009 10 8 2 Beef cattle numbers and beef cattle enterprises, as at 30 June 2010 10 3 Economic contribution of beef industries, 2009 10 13 4 Contribution to northern Australian beef industry, average for 2008 09, 2009 10 and 2010 11, farm businesses with greater than 100 beef cattle 36 5 Physical performance, average for 2008 09, 2009 10 and 2010 11, farm businesses with greater than 100 beef cattle 38 6 Financial performance, average for 2008 09, 2009 10 and 2010 11, farm businesses with greater than 100 beef cattle 49 7 Financial performance, average for 2008 09, 2009 10 and 2010 11, specialist beef producers with greater than 100 beef cattle 55 8 Financial performance, average for 2008 09, 2009 10 and 2010 11, specialist beef producers with greater than 100 beef cattle, including top 25 per cent 58 9 Annual average beef productivity growth by region, 1977 78 to 2009 10 61 10 Decomposing TFP results for the northern beef industry, 1977 78 to 2006 07 63 11 Australian live feeder/slaughter cattle exports 67 12 Value of Australian live feeder/slaughter cattle exports 68 13 Live cattle exports from northern region, by port and destination, 2010 11 75 iv ABARES

Contents 14 Live cattle exports from southern region, by port and destination, 2010 11 76 15 World beef production 2010 78 16 Japanese beef consumption 81 17 Changes in beef export volumes, selected markets 85 18 Tariffs and tariff quotas on Australian beef exports 88 19 Free trade agreements under negotiation: current tariffs applicable to Australian beef 89 Figures 1 Australian cattle industry markets, 2010 11 11 2 Growth in Australian cattle herd 24 3 Farm cash income, specialist beef cattle producers 40 4 Average price received for cattle sold, specialist beef producers 41 5 Farm business debt, family farms in northern live cattle export region 42 6 Percentage of farm businesses recording negative farm cash incomes 43 7 Farm business debt, family farms, balance of northern Australia 43 8 Land value per large stock unit, northern Australia specialist beef producers 44 9 Distribution of farm businesses by equity ratio at 30 June, northern live export region 45 10 Composition of average farm costs, live cattle export region, 2008 09 to 2010 11 46 11 Composition of average farm costs, balance of northern Australia, 2008 09 to 2010 11 46 12 Debt servicing ratio, specialist beef producers 47 13 Farm cash receipts and cash costs, northern live cattle export region 48 14 Farm cash receipts and cash costs, balance of northern Australia 48 15 Farm cash income, northern live cattle export region 51 16 Farm cash income, balance of northern Australia 53 17 Broadacre total factor productivity and farmer terms of trade, 1977 78 to 2008 09 60 18 Beef productivity by region, 1977 78 to 2009 10 62 19 Australian live feeder/slaughter cattle exports 67 20 Cattle exports from northern Australian ports to markets other than Indonesia 68 21 Distribution of beef from Australian cattle imports in Indonesia 71 22 Live cattle exports to the Philippines 72 23 Philippine per person consumption and price of beef and chicken 72 24 Beef production by top 10 beef producing countries 77 25 Beef consumption by top 10 beef consuming countries 79 26 Beef exports by world s leading beef exporters 79 27 Beef imports by world s leading beef importers 80 28 Australian beef exports to Japan 81 29 Australian beef exports to the United States 82 30 Australian beef exports to the Republic of Korea 84 31 Beef and veal net exports for major trading countries, 2010 and 2025 86 32 Hourly labour costs for food, beverage and tobacco manufacturing industry 96 ABARES v

Contents Maps 1 Northern Australia 3 2 Reliance of farm businesses on live cattle exports 3 3 Rainfall zones 6 4 Climate classifications 7 5 Northern Australian regions 39 6 Locations of export and domestic abattoirs and boning rooms and ports servicing northern Australia 91 7 Tick zones in northern Australia 97 8 National temperature increase, 50th percentile 101 9 National rainfall change, 50th percentile 101 Boxes 1 Significance of live export trade in dairy and breeding cattle 12 2 Brucellosis and Tuberculosis Eradication Campaign 23 3 Major financial performance indicators 34 4 AAGIS farm survey data 35 5 Measuring productivity trends 61 6 Temporary suspension and new animal welfare assurance framework 69 vi ABARES

Summary Australia s northern beef industry has developed and grown over the past two decades and is now a major contributor to regional economies in Queensland, the Northern Territory and northern Western Australia. The contribution to the Australian economy of the gross value of agricultural production from beef cattle in northern Australia, combined with first-stage beef processing (value-added production), is estimated at just over $5 billion in 2009 10. Live exports became a significant trade for the northern Australian beef industry in the early to mid 1990s, encouraged by a growing feedlot industry in South-East Asia, particularly in Indonesia and the Philippines. However, Indonesia s stated objective of achieving self-sufficiency in beef by 2014 and its subsequent moves to impose weight limits and quotas on live cattle, and quotas on boxed beef imports, has put pressure on the future of Australia s northern beef industry. Given the strength of the orientation toward live cattle export in some regions specifically for Indonesia, and in the face of such restrictions, pastoralists in these regions will need to go through a process of adjustment in order to diversify, not only toward other live cattle export markets, but also toward beef production and other agricultural activities. Under the leadership of the Northern Australian Ministerial Forum, the northern state and territory governments are working with industry to complete an assessment of the risks and opportunities facing the northern beef industry and to develop a strategy to realise the industry s potential. As part of this Northern Australian Beef Industry Strategy, the Northern Australian Ministerial Forum commissioned ABARES to undertake this assessment which will inform some of the critical policy issues facing the beef industry across northern Australia and their influence on the potential for the industry to diversify and grow. Background Natural endowments in many regions of northern Australia do not support beef production. Climates are harsh, soils and ecosystems are fragile and the wet season confines production to a limited window, making it difficult to finish cattle for markets in one production year, as can be achieved in southern Australia. Production systems and scale of operations in northern Australia vary markedly from those in the southern regions of Australia. The focus of the beef cattle industry in Queensland is primarily beef export markets whereas in the Northern Territory and northern Western Australia the focus is on the live cattle export trade. In contrast, the focus of production in southern states tends to be 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 (Figure S1). For the purposes of this study, the northern Australian beef industry is comprised of beef cattle producers, including for live export, in Queensland, the Northern Territory and northern Western Australia, and the Queensland meat processing sector (Map S1). Just over 8000 specialist beef producers (farms carrying more than 100 cattle) were located in northern Australia in the three years ending 2010 11. Of these, 1559 specialist beef farms were located in the northern live cattle export region. Generally, those farm businesses with the greatest reliance on the sale of live export cattle are located in the far northern and western extremes of the region (Map S2). ABARES vii

Summary FIGURE S1 Australian cattle industry markets, 2010 11 Live cattle (northern ports) 66% Indonesia 87% Other markets 13% Live export 8% Live cattle (southern ports) 34% Indonesia 16% Other markets 84% Japan 41% United States 15% Australian producer Northern meat processing (Qld) 49% Beef exports 85% Domestic beef consumption 15% Republic of Korea 15% Russian Federation 8% Indonesia 2% Other 18% Domestic slaughter 92% Japan 29% United States 18% Southern meat processing 51% Beef exports 53% Domestic beef consumption 47% Republic of Korea 16% Indonesia 9% Russian Federation 5% Other 22% Note: Live export and domestic slaughter are shares of number of cattle, while beef exports and domestic beef consumption are shares of carcass weight equivalents. Sources: ABS 2011, Livestock products, cat. no. 7125.0; ABS 2011, Livestock and Meat, Australia, cat. no. 7218.0.55; ABS 2011, Electronic trade data; ABARES estimates. viii ABARES

Summary MAP S1 Northern Australia Northern live cattle export region Balance of Northern Australia Note: Regions based on aggregations of ABS statistical local areas. Source: Australian agricultural and grazing industries survey (AAGIS) MAP S2 Reliance of farm businesses on live cattle exports Percentage of cattle receipts from live export sales 2008 09 to 2010 11 Less than 10% 10% to 50% 50% to 70% More than 70% Source: AAGIS ABARES ix

Summary 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. Financial performance of northern Australian beef producers After declining significantly between 2004 05 and 2009 10, farm cash income for farm businesses in the northern live cattle export region is projected to increase from an average of $127 000 per farm business in 2010 11 to average $165 000 per farm business in 2011 12 (Figure S2). This increase is mainly a consequence of higher average prices received for sale of cattle for slaughter. Greater weights of sale cattle resulting from favourable seasonal conditions in 2011 12, and a reduction in the number of cattle purchased and transferred onto corporate properties both contributed to higher average prices. For farms outside the northern live export region, farm cash income is projected to increase from an average of $72 000 in 2010 11 to average $99 000 in 2011 12, largely as a consequence of higher average prices, combined with a reduction in beef cattle purchases. However, farm cash incomes for some farms in the north of Australia that are highly dependent on the live export trade, are projected to decline in 2011 12. These are farms that are particularly in the Kimberley region of Western Australia and the Northern Territory regions of Top End Gulf, Victoria River Katherine and Barkly Tennant Creek. According to the Australian Agricultural and Grazing Industries Survey (AAGIS), around 300 beef industry farms in the northern live cattle export region derived more than 50 per cent of receipts from sale of cattle for live export in 2010 11. As a result of further reductions in the number of cattle expected to be sold for live export to Indonesia in 2011 12, farm cash income for these farms is projected to decline by around 40 per cent from an average of $519 000 per farm in 2010 11 to around $310 000 per farm in 2011 12. FIGURE S2 Farm cash income, specialist beef cattle producers a average per farm 450 360 270 Northern live cattle export region Balance of northern Australia Southern Australia 180 90 2011 12 $ 000 1990 91 1993 94 1996 97 1999 2000 2002 03 2005 06 2008 09 a Farm businesses with greater than 100 cattle. z ABARES projection. Source: AAGIS 2011 12z x ABARES

Summary Export markets Given Indonesia s recently announced reduction in cattle import quota, as part of its Blueprint on beef self sufficiency program 2014, and the difficulty in redirecting large numbers to other markets in the short term, Australia s total live cattle exports to all markets are forecast to fall by 34 per cent in 2011 12 to 500 000 head. In the short term, it is unlikely that a significant number of cattle originally intended for export to Indonesia can be redirected to other markets such as the Middle East or Turkey. A limited number may be redirected to other South-East Asian markets, such as Malaysia, the Philippines and possibly Vietnam and Brunei Darussalam. However, exports to these markets may need to compete with Indian buffalo meat and Latin American beef imports. Australia s major export markets for chilled and frozen beef have long been Japan, the United States and the Republic of Korea. However, further diversification of markets has increasingly become a feature of Australia s beef trade, and would become more important with potential expansion of beef processing capacity in northern Australia. Given the naturally lean characteristic of the meat from the predominantly Bos indicus cattle in northern Australia, any increased export beef supply would be less suited to the Japanese and Korean markets and more dependent on increased sales to the United States manufacturing beef market, or to other markets where beef for processing or grinding comprise most sales. These markets could include the Russian Federation, where there has been significant growth in exports, and the more proximate markets in South-East Asia and China. However, Australian beef is facing competition in emerging markets from other suppliers, particularly Brazil and India. Establishing meat processing facilities There are no northern meat processing facilities apart from those in coastal and south-east Queensland far from producers in northern Western Australia, the Northern Territory and north-west and far north Queensland. Industry and government have recognised the need for successful operation of an abattoir in northern Australia to ensure alternative market options. However, a number of factors will influence the capacity to establish meat processing facilities. These include: continuity of supply of stock competitive access to markets reliable source of skilled labour cost effective transport, energy supply and potable water coordinated feed-on and livestock aggregation services. An abattoir development would increase the incentive for development of an agistment/ backgrounding sector nearby and encourage value adding of cattle in areas where stock are now mostly shipped out either to the live export trade or to southern feedlots as stores. Such value-adding opportunities would also provide incentive to improve management practices, thus boosting on-farm productivity. ABARES xi

Summary Risks and opportunities This section sets out the key factors influencing growth of the northern beef industry. They are markets, meat processing, cattle production, Indigenous pastoral production, diversification, infrastructure, and climate change adaptation and mitigation. For each factor, a set of key risks and opportunities are presented. Markets Risks Opportunities Live export Biosecurity Sharp decline in cattle exports because of Indonesia s beef selfsufficiency plan. Vulnerability to market fluctuations risks producers ongoing viability. Large proportion of breeders in herds means less able to: hold onto younger trading stock when drought occurs hold a variety of different aged steers, reducing capacity to target markets other than feeder steer markets. Animals may pass through supply chains which do not meet OIE s requirements, affecting animal welfare and jeopardising trade. Some markets may be unable or unwilling to commit to new wholeof-supply-chain animal welfare regulations. If further disruption to livestock trade, Indonesia may source cattle from foot-and-mouth disease endemic countries, increasing risk to Australia of a foot-and-mouth disease incursion. Other export market opportunities: Philippines, Malaysia, Brunei Darussalam and Japan are established markets Vietnam re-entered the market in 2011. Opportunity to grow exports of breeding cattle and genetic material to Indonesia and other South-East Asian markets. Achieving supply chain animal welfare assurance in other markets will lead to sustainable and stable trade with these countries, given their investment in compliant supply chains. Biosecurity process being reformed to be able to focus on areas of greatest risk. xii ABARES

Summary Markets Risks Opportunities Beef exports Adverse economic conditions in developed countries may affect beef demand for some time. Strong Australian currency against US dollar: reducing Australia s competitiveness in Japan and the Republic of Korea eroding returns from US manufacturing beef market. Change to Japan s import protocol for US beef to allow beef from cattle up to 30 months of age risks Australia losing further market share in Japan. Implementation of Korea US Free Trade Agreement before Australia s agreement with the Republic of Korea affects Australia s competitive position in Korea. Indonesia s beef self sufficiency plan will reduce Australian beef exports to Indonesia. Positive economic growth outlook for developing economies should result in increased beef demand in these markets, but from a low base. Increase in Brazil s demand for beef will result in diversion of some of its export beef to its domestic market. Tighter US beef supply situation may result in stronger US demand and higher prices for Australian manufacturing beef. Demand in Japan for frozen grass-fed beef has been strong and is projected to grow further. Relatively strong economies and growing populations and incomes in South-East Asia, are expected to lead to increased demand for beef, but from a low base. Tighter supplies of South American, US and New Zealand beef over the next few years will reduce competition for Australian beef in emerging markets. However, competition from Indian exports may increase. More stable import demand from the Russian Federation for quality frozen grass-fed beef offers opportunity for northern Australia. China s rising incomes and urbanisation are expected to lead to growing demand for beef. Ongoing contraction of its domestic beef cattle herd will lead to increasing demand for imports. ABARES xiii

Summary Markets Risks Opportunities Domestic market Feedlots Widespread hormone growth promotant use in northern Australia may limit marketability of beef on domestic market. Export demand for grain-fed beef is expected to remain subdued over the medium term as a result of stronger competition from US beef in Japan. Restocker demand is expected to remain strong over the next year, underpinning firm young cattle prices, squeezing margins for feed lots. Meat Standards Australia grading provides avenue for price premiums for producers who, through improved nutrition programs and/or herd improvement, produce higher quality beef. Lower feed grain prices due to abundant feed grain supplies are expected to lower input costs for feedlots. xiv ABARES

Summary Meat processing Risks Without development of an associated feed-on sector or adjustment by producers toward fattening enterprises, northern meat processors will only have access to low value cattle for producing manufacturing quality beef. Current production system of turningoff young cattle for live export and high seasonality of supply are risks to reliability of supply of finished cattle. Attracting skilled labour to remote localities will require higher salaries, reducing margins for processors. Poor transport infrastructure offers challenges in getting cattle to processing facilities and meat to markets. Opportunities Lower feed grain prices due to abundant feed grain supplies are expected to lower input costs for feedlots. The expected decline in the live cattle trade with Indonesia should increase supply of cattle for meat processors. New investment in meat processing may provide opportunity for vertical integration through partnership arrangements with producers, also increasing security of supply. New meat processing facilities will provide employment and training opportunities for local workforce, including Indigenous Australians. Building new plant offers the opportunity to build more energy efficient facilities, employ emissions reduction technologies and adopt more automation. Government support is available to help meat processors implement emissions reduction technologies and increase energy efficiency. ABARES xv

Summary Cattle production Pasture and nutrition Breeding Cattle ticks Risks Climate change may increase evapotranspiration rates, affecting pasture growth. With the build-up in cattle numbers due to good seasonal conditions, and in the absence of a meat processing alternative, there is a risk of overstocking and, hence, land degradation should a poor season occur. Adjustment from a herd structure concentrating on breeders, to one holding steers of various ages, will result in reduced farm incomes for the adjustment period. Not maintaining tick control zones risks the tick-endemic area moving south, affecting the health and performance of cattle that do not have Bos indicus genetics. Acaricide performance has been declining due to ticks developing resistance. Climate change may result in spread of ticks beyond the control zone. Opportunities Improving cattle nutrition through improved pasture, forage crops and/or supplementary feed will lead to faster finishing of cattle and increased beef quality. Meat processing alternative will provide incentive for producers to improve nutrition, thereby maximising growth, beef quality and returns. Developing a more intensive stand and graze system could ensure accessibility of cattle for longer, extending the season for supply of cattle. Also offers greater control of product quality. Reducing variability of nutrient supply improves productivity of breeding females: enabling earlier and more frequent calving over their lifetimes increasing rates of genetic gain. Improved nutrition, through higher digestibility of feed, reduces methane emissions. Herd improvement, either through animal selection or cross-breeding, has the potential to boost farm productivity. Development of an effective and long-lasting tick vaccine is continuing. xvi ABARES

Summary Indigenous pastoral production Risks Tensions between community ownership and commercial requirements contribute to underperformance of Indigenous properties. Loss of live export markets will lead to further decline in viability of Indigenous properties. Opportunities A pastoral enterprise can contribute to the community's economic development by providing jobs on traditional land. Pastoral lease reforms may introduce flexibility to operate other commercial enterprises on pastoral leases. Training programs offer opportunity to contribute to developing properties and increasing cattle numbers. Diversification Risks Opportunities Good understanding of the hydrology and ecological functions of the area proposed for irrigation are essential, otherwise there is potential for non-sustainable use and degradation. Insufficient transport reduces cost-effective access to markets for irrigated agriculture or horticulture products. CSIRO study of irrigated mosaic agriculture will provide greater understanding and practical guidance for pastoralists. Performance of existing irrigation precincts can provide useful information on potential suitability to other regions. North Queensland Irrigated Agriculture Strategy is expected to advise suitable irrigation techniques and systems for northern Australia. Pastoral lease reform is expected to provide greater flexibility for diversification. Crop by-products from irrigated agriculture could benefit a feedlot sector, should one emerge. ABARES xvii

Summary Infrastructure Risks Opportunities Road and rail transport Ports Other transport issues Many properties are served by dirt roads that become impassable in the wet season and for some time after, restricting access to markets. Reduction in cattle train services in Queensland will add to the road transport task, increasing the need for road upgrades. Most live export ports are not exclusively for cattle loading. Competition with other exporters for berth access delays cattle loading and may lead to higher costs and animal welfare risks. Ports close to urban areas or to infrastructure used by tourism operators risk having their operations curtailed if those affected take action to restrict access for cattle export. Flooding or tidal conditions may restrict access to some estuarine ports. Rising fuel and labour costs will affect the cost of long-haul transport, especially for those trips that need to be broken; e.g. crossing the tick line and long trips where driver fatigue management regulations apply. Carbon pricing mechanism will apply to fuel used in heavy on-road transport from 1 July 2014, increasing costs of transporting cattle to port or for processing. COAG s Nation Building program is investing around $10 billion on transport infrastructure in Queensland, the Northern Territory and Western Australia. A large number of road sealing and bridge projects are underway, which will benefit the pastoral industry. Development of transport infrastructure has the potential to: enhance the ability of Indigenous pastoral properties to access markets open up Indigenous communities to development opportunities. xviii ABARES

Summary Climate change adaptation and mitigation Risks Should agriculture be included in carbon pricing, no carbon accounting method exists to take account of carbon sequestration in grazing systems, only greenhouse gas emissions. With most pastoral properties being leasehold, ownership of the carbon resource needs to be clearly defined before pastoralists can avail themselves of opportunities presented by the Carbon Farming Initiative. Opportunities Some mitigation practices are technically and economically viable without additional incentives; e.g. targeted soil-nutrient application and improved animal feed efficiency. Controlled burning, a common practice in tropical savannas early in the dry season, reduces the risk of high intensity, high greenhouse gas emission wildfires later in the dry season. Conclusion critical factors determining growth The feeder cattle trade with Indonesia is a natural fit for both countries northern Australia is ideally suited to breeding tropically adapted feeder cattle for the Indonesian market, while Indonesia s resources of abundant and low-cost labour and low-cost feed mean Indonesia is ideally suited to growing cattle out to slaughter. It will be important that government and industry continue to work on the trading relationship with Indonesia, demonstrating the synergies between the two countries in assuring Indonesia's beef production and convincing them of Australia's role in their food security. Development of meat processing in northern Australia will provide opportunities for the cattle industry but there will be a number of challenges, one of which is the need for improved access to markets. It is important that the Australian Government, supported by industry, continues its efforts in multilateral trade negotiations to pursue reductions in trade barriers such as tariffs and quotas. Pursuit of free trade agreements or closer economic partnerships with key trading partners is also important and will result in faster gains. Besides the market challenges, a range of operational challenges for meat processing remain. A viable meat processing sector in northern Australia will require stable supplies of cattle a new abattoir would not be sustainable if producers only used it opportunistically. It will be important for processors to establish relationships with producers throughout the supply chain to ensure supplies of quality cattle and to plan for peaks and troughs in production. Alliances or commercial arrangements will aid vertical integration and security of supply. A reliable source of skilled labour is needed to sustain a meat processing sector. Further initiatives to improve training for local and Indigenous meat workers would benefit the start-up of a new meat processing sector and would bring economic and social benefits. For example, governments could work in partnership with industry and the Indigenous Land Corporation to help improve training initiatives to skill local and Indigenous workers for the meat processing sector. ABARES xix

Summary Development of a feed-on sector and/or a shift by producers from operating breeding enterprises to fattening enterprises will be necessary to supply meat processors with slaughter ready cattle. Such a shift would need to be supported by development of irrigation for growing pasture and fodder crops, extending the ability to fatten cattle through the dry season. Development of irrigation, where feasible, will provide opportunities to improve the eating quality of the beef produced. Improved eating quality could also be enhanced by cross-breeding or development of composite breeds, taking care that Bos indicus content continues to dominate to ensure sufficient tick resistance is provided. Government and industry could work to coordinate research, development and extension support into northern Australian beef productivity drivers, including irrigation, breeding and hybridisation, herd structure and stocking rates. Also it would be beneficial to: ሲሲensure that learning from current mosaic irrigation research and the North Queensland Irrigation Agriculture Strategy are well communicated to producers ሲሲensure that policy incentives to encourage adoption of new practices or increase technical efficiency are well-aligned. Improvements to current transport infrastructure would be necessary for the success of new meat processing facilities both access for livestock coming in and for meat going to market. Recognition by the Australian and state and territory governments of this need has resulted in a record expenditure on road and bridge upgrades being scheduled over the next few years under COAG s Nation Building program. This effort needs to be continued, particularly in improving wet season access to major roads and also to properties and communities. Development of irrigated agriculture in northern Australia would provide opportunities, not only for improved pasture and fodder production, but for diversifying into other cropping activities such as grain crops, horticulture and other high value crops. Such diversification would reduce risk by providing varied income sources. However, current land tenure arrangements constrain non-pastoral use of land, being historically designed to support and facilitate pastoralism. Pastoral lease conditions are under review in both Western Australia and the Northern Territory and have been recently reviewed in Queensland. It would need juristictions to collaborate in their efforts to reform land tenure arrangements to allow pastoralists to avail themselves of environmentally and economically sustainable diversification opportunities to reduce risk. To make informed decisions, farmers and meat processors alike need to understand the potential benefits, trade-offs, sustainability and policy environment of alternative greenhouse gas mitigation strategies. Roles for governments would be to provide information, sponsor research that identifies low-cost greenhouse gas mitigation practices, to facilitate creation of reliable carbon accounting methods and ensure long-term policy certainty. xx ABARES

Chapter 1 Introduction Australia s northern beef industry has developed and grown over the past two decades, and is now a major contributor to regional economies in Queensland, the Northern Territory and northern Western Australia. The major factor behind expansion of the northern beef industry has been development of the Indonesian market for live feeder cattle. Over the 10 years to 2010 exports to Indonesia grew by around 80 per cent, from 277 152 head in 2001 to 515 600 head in 2010. However, Indonesia s stated objective of achieving self-sufficiency in beef by 2014 and its subsequent moves to impose weight limits and quotas on live cattle, and boxed beef imports, has put pressure on the future of the northern beef industry. Given the strength of the orientation in some regions toward live cattle export specifically for Indonesia, and in the face of such restrictions, pastoralists in these regions will need to go through a process of adjustment in order to diversify, not only to other live cattle export markets, but also the nature of their production systems. The temporary suspension in June 2011 of live cattle exports to Indonesia resulting from animal welfare concerns, highlighted the risks to this sector of the northern Australian beef industry maintaining such a large exposure to the live cattle trade generally and to Indonesia in particular a single commodity and a single market. Natural endowments in many regions of northern Australia do not easily support beef production. Climates are harsh, soils and ecosystems are fragile and the wet season confines production to a limited window, making it difficult to finish cattle for markets in one production year, as can be achieved in southern Australia. Other constraints on development include geographic isolation from major population centres; state and territory government land use regulation; transport and infrastructure shortcomings; and the high cost of and access to skilled labour. But there is potential to manage the effects of these constraining factors and to expand the industry s contribution not only to northern Australia s economy, society and environment, but also to the economies, societies and food security of its markets. While risks are associated with northern Australia s exposure to the live cattle trade, emerging opportunities exist in meat processing. The Northern Australia Land and Water Taskforce highlighted the potential to increase production from Australia s northern cattle herd through intensification of production and greater diversification and flexibility in land use (NALWT 2009). The potential also exists to increase the seasonal production window through mosaic irrigation, and to expand the potential catchment for possible meat processing facilities by using improved methods of transport and better infrastructure. ABARES 1

Introduction This study is a component of the Northern Australian Beef Industry Strategy which, in turn, is under the auspices of the Northern Australia Sustainable Futures program. The Northern Australia Sustainable Futures program emerged from the recommendations of the Northern Australia Land and Water Taskforce and has as its objective advancement of the economic, social and cultural interests of people living in northern Australia. Under the leadership of the Northern Australia Ministerial Forum, the Northern Australian Beef Industry Strategy was developed to provide information for the northern beef industry to diversify its production systems and add value to the industry s contribution to the northern region s future economic prosperity. This analysis of the northern Australian beef industry provides an assessment of the risks to the live cattle trade and the opportunities for and constraints to diversification and growth of the northern beef and meat processing industries. The study aims to contribute to the understanding of some of the critical policy issues facing the industry across northern Australia. The terms of reference are set out in Appendix 1. There are four other projects under the Northern Australian Beef Industry Strategy. They are: Building capacity and partnerships in the Indigenous pastoral industry Assessment of the sustainability and prospectivity of mosaic agriculture in northern Australia Optimising livestock industry logistics and productivity improvements Roles for governments in the development of meat processing capacity in northern Australia. What constitutes the northern Australian beef industry? For the purposes of this study, the northern Australian beef industry consists of beef cattle producers, including for live export, in northern Western Australia (Pilbara and Kimberley regions), Queensland and the Northern Territory, and the Queensland meat processing sector (Map 1). The red shading shows the region in which participation in the live cattle trade occurs and the orange shading shows the balance of northern Australia, which concentrates on beef production and has limited reliance on the live cattle trade. The remainder of Australia southern Western Australia, South Australia, New South Wales, the Australian Capital Territory, Victoria and Tasmania is defined as southern Australia. However, not all regions across the live cattle export area depicted in Map 1 rely heavily on the live export trade. Data from the ABARES Australian agricultural and grazing industries survey (AAGIS), and depicted in Map 2, show that those farm businesses with the greatest reliance on sale of live export cattle are located in the far northern and western extremes of the region. In the south of the region farm businesses derived less than 50 per cent of their cattle receipts from live cattle sales, and in many regions of Queensland less than 10 per cent. 2 ABARES

Introduction MAP 1 Northern Australia Northern live cattle export region Balance of Northern Australia Note: Regions based on aggregations of ABS statistical local areas. Source: Australian agricultural and grazing industries survey (AAGIS) MAP 2 Reliance of farm businesses on live cattle exports Percentage of cattle receipts from live export sales 2008 09 to 2010 11 Less than 10% 10% to 50% 50% to 70% More than 70% Source: AAGIS ABARES 3

Introduction Structure of the report This first chapter outlines the purpose of the report and defines northern Australia. Chapter 2 provides background information on the northern Australian beef industry, including location and nature of the industry, the economic contribution of the cattle industry to northern Australia and the extent of producer reliance on the live cattle export market versus other markets. Chapter 3 presents an analysis of the factors that have driven development of the northern beef industry, including development of live cattle exports, history of meat processing and a discussion on pastoral leasehold arrangements. Farm financial performance of northern Australian primary producers is presented in Chapter 4, focusing on specialist beef cattle producers those in the live export region and those producers in the balance of northern Australia. An analysis of productivity trends for northern Australian pastoralists is presented in Chapter 5. Export markets for live cattle, including recent trends in demand, projections and potential markets are discussed in Chapter 6. In Chapter 7, markets for northern Australian beef are discussed, including an analysis of global beef demand and supply, Australian beef exports and market access issues. The issue of establishing meat processing facilities in northern Australia is examined in Chapter 8, drawing on a number of recently conducted feasibility studies. Chapter 9 raises some of the issues around climate change, adaptation and mitigation, and policy initiatives such as carbon pricing and the Carbon Farming Initiative. Chapter 10 presents key short-term and longer-term risks to maintaining a sustainable industry countered by available opportunities. Finally, Chapter 11 presents a summary of critical factors determining growth of a sustainable northern Australian beef industry and the study s conclusions. 4 ABARES

Chapter 2 Main features of the northern Australian beef industry The beef industry in northern Australia faces many challenges in terms of the natural endowments at its disposal rainfall and temperature patterns, and soils which have resulted in production systems and scale of operations varying markedly from those in the southern regions of Australia. This chapter provides background information on the climatic and soil conditions producers in the north face, the production systems that have developed and the industry s contribution to the Australian economy. Descriptions of individual regions in each jurisdiction illustrate how the natural endowments, production systems and markets vary across northern Australia. Natural endowments Seasonal rainfall patterns in northern Australia are dominated by monsoon systems with distinct wet and dry seasons. The wet season usually occurs from September to March and coincides with periods of high evapotranspiration. The dry season usually occurs from April to October when water deficits can be substantial. This rainfall pattern determines when management operations such as mustering or weaning can be undertaken on pastoral stations and also when the growing season for pastures occurs. However, rainfall is far from uniform across the north. The intensity of the wet and dry seasons vary depending on the latitude, topography and distance from the coast. The average annual rainfall gradually diminishes, from more than 2000 millimetres to less than 600 millimetres, with distance inland and to the south. Rainfall also decreases from east to west, with areas of coastal Queensland receiving more than 3000 millimetres of rainfall in some years (Savanna CRC 2011). Map 3 shows the major seasonal rainfall zones of Australia. Of the regions covered in this study, the more northern regions are in the summer dominant pattern which is heavy monsoonal rain in summer with little if any rainfall in winter. The regions further south (the Pilbara in Western Australia, the Alice Springs and Barkly Tennant Creek regions of the Northern Territory and the Central West and South West regions of Queensland) are classified as being in the arid zone where rainfall is low year round. The soils of the tropical savannas, along with the distinct wet/dry climate, are a major determinant of vegetation in the region, and of potential land uses. Map 4 shows that northern Australia is not homogeneous in term of vegetation classes, ranging from rainforest and tropical savanna in the far north to grasslands and desert in the southern regions of northern Australia. The savannas range from forest in the coastal regions to woodlands with scattered low trees in the arid interior. Treeless grasslands occur on heavier soils and where drainage is impeded (Savanna CRC 2011). ABARES 5

Main features of the northern Australian beef industry Northern Australian soils generally have low fertility. Soils in the region are typical of many Australian soils; that is low in inherent nitrogen and phosphorus, which can lead to low pasture growth and poor stock productivity (Williams 1973). The Northern Australia Land and Water Science Review (Wilson et al. 2009) found that soil erosion rates are high and levels of soil development are generally low, particularly on extensive rocky upland areas; lowland plains are generally seasonally inundated, often for long periods; and many northern soils are acidic, gravelly and shallow. However, pasture improvement has occurred over some time in northern Australia with introduction of various pasture legumes, such as Stylosanthes spp, (that is, Townsville, Seca and Verano), and this has lead to improvements in the nutritive value of feed (Whan et al. 2006). Nutrients are leached by very high rainfall such that, while there may be lush plant growth during the wet season, its nutritive value is low. Compounding this, aerobic bacteria in soils are particularly active in areas where temperatures remain above 25 C for substantial periods of time. The activity of these bacteria occurs at a rate above plant growth, breaking down plant matter faster than it is produced. The result is soil lacking in humus which is necessary for good soil nutrition (Savanna CRC 2011). Of course, soil characteristics are highly dependent on localised factors and can therefore vary within a small area, but generally soils in northern Australia are more fertile in the south-east regions of northern Australia; in the north-west, shallow skeletal soils and infertile deep sandy soils, which have lower water-holding capacity, dominate. In the inland drier regions, more fertile cracking clay soils dominate. While more fertile, these inland areas are susceptible to drought. Seasonal climate factors also affect other participants in the beef industry, such as processors and transport operators, as cattle often cannot be transported in the wet season due to road inundation from flooding and lack of opportunities to muster cattle suitable for processing until paddocks dry. MAP 3 Rainfall zones Climate classes Summer dominant Marked wet summer and dry winter Summer Wet summer and low winter rainfall Uniform Uniform rainfall Winter Wet winter and low summer rainfall Winter dominant Marked wet winter and dry summer Arid Low rainfall Note: Based on a median annual rainfall and seasonal incidence. The seasonal incidence is determined from the ratio of the median rainfall: November to April and May to October. Based on a 100-year period from 1900 1999. Source: BoM 2011 6 ABARES

Main features of the northern Australian beef industry MAP 4 Climate classifications Equatorial rainforest (monsoonal) savanna Tropical rainforest (persistently wet) rainforest (monsoonal) savanna Subtropical no dry season distinctly dry summer distinctly dry winter moderately dry winter Desert hot (persistently dry) hot (summer drought) hot (winter drought) warm (persistently dry) Grassland hot (persistently dry) hot (summer drought) hot (winter drought) warm (persistently dry) warm (summer drought) Temperate no dry season (hot summer) moderately dry winter (hot summer) distinctly dry (and hot) summer no dry season (warm summer) moderately dry winter (warm summer) distinctly dry (and warm) summer no dry season (mild summer) distinctly dry (and mild) summer no dry season (cool summer) Note: Based on modified Koeppen classification system and on a standard 30-year climatology (1961 1990). Source: BoM 2011 Beef production system in northern Australia The beef industry of northern Australia differs markedly from that in southern Australia. As noted, geology and climatic factors are major determinants of the soil condition and therefore carrying capacity of the land. As a result, cattle stocking rates are much lower than in the south and, to sustain economically viable herds, properties tend to be very large. Pastures (both natural and naturalised grasses, such as buffel) have a limited growing season and man-made watering facilities are generally needed to supplement the natural water supplies. ABARES 7

Main features of the northern Australian beef industry The effects of this type of operation are evident in comparing stocking, branding and turn-off rates and herd size between the northern and southern beef production systems in Australia (Table 1). The closer settlement in the southern states, smaller property sizes and greater extent of improved pastures result in far higher stocking rates. Also in the south, beef cattle are generally produced in conjunction with grain growing, sheep grazing, dairying or some combination of these (Thompson & Martin 2011). The climatic conditions in the north make it difficult to finish cattle for markets in one production year, as can be achieved in southern Australia. As noted, the rainfall temperature relationship provides large quantities of pasture during the wet season and, for this reason, many cattle are in ideal condition at the end of the wet. Also breeding cows are usually pregnant because of the high quality pasture available. However, as the dry season progresses cattle lose condition, lactating cows reduce milk output and growth rate of calves is slowed (Hodge 1978). TABLE 1 Selected physical characteristics of beef cattle farms, 2009 10 average per farm Unit Northern Australia Southern Australia Area operated as at 30 June ha 23 966 6 389 Stocking rates no. per ha 0.51 1.26 Beef cattle purchases no. 62 40 Beef cattle sales no. 405 195 Calves branded no. 462 172 Note: Excludes farms with fewer than 100 head of cattle. Source: Thompson & Martin (2011) Over the past few decades, the industry has undergone significant change to improve long-term viability. Since the 1970s, Bos indicus cattle, particularly Brahman and Brahman crossbreeds, have been introduced as producers consciously bred cattle better suited for beef production in tropical conditions (Rutherford 1995). Conversely, the proportion of British and European breeds (Bos taurus), such as the Shorthorn and Hereford, has fallen considerably. To make up for low levels of nutrients in pastures, supplementary feeding of phosphorous and nitrogen is practised. This allows producers to stabilise production and improve stocking rates over the dry season as the cattle are able to eat more of the standing matter and still receive the protein, energy and trace elements they need. Improved on-farm infrastructure such as fencing and watering points has allowed producers to better manage the grazing of pastures and reduce degradation. Provision of extra water on most classes of country increases the land s carrying capacity by allowing cattle to graze all the area in the dry season. This in turn reduces the pressure on river or creek frontages and thus the potential for erosion (Rutherford 1995). Depending on the owner s management preferences, breeding can take place in different ways. Some managers prefer year-round breeding, that is, leaving bulls with breeding cows 12 months of the year, whereas other managers prefer some form of controlled mating, where bulls are left with breeding cows for a set time period 5 months then removed (DRDPIFR 2009). Cattle are usually mustered at least once a year, at which time they are removed for sale, young stock weaned and breeding stock selected. With year-round mating at least two weaning musters may be needed (Bortolussi et al. 2005). 8 ABARES

Main features of the northern Australian beef industry Early weaning and weaner management is another advancement introduced into northern Australia s production system as it has developed. Whichever breeding system is used, it is necessary to have a weaning protocol as well to ensure calves are weaned at the best time to ensure they maintain their growth path to produce ideal beef, and to allow the dam sufficient time to recover body condition to ensure she can get pregnant in the shortest period (DRDPIFR 2009). The benefits are reduced stress on breeding cows, reducing cow mortality and increasing pregnancy and, hence, calving rates. Traditionally, properties in northern Australia limited production to breeding and fattening enterprises with the average turn-off age (sale) for bullocks at around four to five years (Smith 1997). However, with many producers targeting the live cattle export trade since the mid 1980s, the average turn-off age fell as the live export market mostly requires younger cattle for finishing (fattening) at the export destination. Producing store cattle for backgrounding properties and feedlots has also contributed to lowering the average turn-off age. The implications are significant for herd management as producers carry a larger proportion of breeders to ensure they have the required numbers of younger cattle to be turned off each year. Because of this, northern properties no longer hold steers of different ages and their capacity to target alternative markets without a significant adjustment period is limited. Also, holding a higher proportion of breeders makes producers more susceptible when drought occurs. Under these conditions, producers would have to reduce their carrying capacity, leading to lower stock numbers (including breeding stock), until seasonal conditions improve. Most producers will turn off cattle to various markets each year, with timing to buy or sell determined by both prices and the condition of the country. If there has been a poor wet season, some producers may decide to sell some cattle to stores to reduce grazing pressure over the coming dry season. Store cattle are younger cattle sold, before meeting meatworks specifications, to other enterprises to add value either in feedlots or on grazing properties with surplus feed (backgrounders). Cattle destined for live export, where they will be fed out at the destination, can also be considered as stores. Buying and selling of store cattle is often opportunistic in that cattle can be disposed of, or acquired, depending on the favourability of seasonal and market factors. After a good rainy season, producers may buy stores to be fattened on their property and resold. During lean times, selling stores is a way of controlling herd growth and managing possible adverse effects. During good seasons, or if the price is low, stores can be bought to be fattened or for rebuilding herd numbers. Hormone growth promotants (HGPs) are used widely in northern Australia. HGPs work by improving feed conversion efficiency and thereby increasing growth rates and overall weight gains by 10 to 30 per cent. They increase muscle growth, mature size and lean yield, and tend to delay fat deposition (Cowley 2010). Beef Cooperative Research Centre research has linked HGPs with reduced meat quality, claiming to have found HGPs reduce the tenderness in the main grilling cuts (Gaden 2011). Also, grading by Meat Standards Australia (MSA) reduces the estimated eating quality of some cuts from HGP-treated cattle. While the use of HGPs has been raised by some northern live export markets, it has not limited access to date. The use of HGPs can limit access to the domestic beef market with the Coles supermarket chain adopting a policy of HGP-free beef and access to some overseas beef markets. The European Union market maintains a complete ban on imported meat from HGP-treated cattle. ABARES 9

Main features of the northern Australian beef industry Feedlot sector The feedlot sector is a provider of high quality and consistent cattle to meat processors supplying grain finished beef to domestic supermarkets, the domestic food service sector and a number of overseas markets, particularly Japan and the Republic of Korea. Queensland has the largest feedlot sector at 49 per cent of national feedlot capacity, as at the September quarter 2011 (ALFA/MLA 2011). Neither the Northern Territory nor the northern regions of Western Australia have commercial feedlots. Most of Queensland s feedlots are located in southern Queensland, close to the major grain growing region of the Darling Downs and a smaller number are located in the more central regions of Queensland. Around 30 per cent of cattle slaughtered in Queensland are grain-fed. Industry contribution to the northern Australian economy The beef cattle industry plays a significant role in regional economies across northern Australia in terms of gross value of beef cattle production, meat processing industry value added, export revenue (beef and live cattle) and employment. As at 30 June 2010, 71 104 farms were involved in beef cattle in Australia, with a national herd of 24 million head. Northern Australia hosts 60 per cent of the nation s beef cattle herd on just over one-quarter of Australia s beef cattle properties (Table 2). Of these, a significant number of properties run very small herds of beef cattle, principally located in southeast Queensland. The farm financial performance analysis presented in Chapter 4 focuses on farms with more than 100 beef cattle. Of all the beef cattle enterprises in northern Australia, 8020 fall into the category of having more than 100 beef cattle (Table 4, Chapter 4). Of the total Australian beef cattle herd, around 47 per cent is located in Queensland, 9 per cent in the Northern Territory and 4 per cent in the Kimberley and Pilbara regions of Western Australia (Table 2). The focus of the beef cattle industry in Queensland is primarily beef export markets whereas in the Northern Territory and northern Western Australia the focus is more on the live cattle export trade. In contrast, the focus of production in southern states tends to be 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 (Figure 1). TABLE 2 Beef cattle numbers and beef cattle enterprises, as at 30 June 2010 No. of businesses Share of total Australia No. of beef cattle Share of total Australia % no. % Queensland 18 310 25.8 11 193 348 46.6 Northern Territory 243 0.3 2 065 746 8.6 Northern Western Australia 107 0.2 897 486 3.7 Northern Australia 18 660 26.2 14 156 580 59 Australia 71 104 100 24 008 000 100 Note: ABS estimates are based on farms with an estimated value of agricultural operations of $5000 or more. Source: ABS 2011a 10 ABARES

Main features of the northern Australian beef industry FIGURE 1 Australian cattle industry markets, 2010 11 Live cattle (northern ports) 66% Indonesia 87% Other markets 13% Live export 8% Live cattle (southern ports) 34% Indonesia 16% Other markets 84% Japan 41% United States 15% Australian producer Northern meat processing (Qld) 49% Beef exports 85% Domestic beef consumption 15% Republic of Korea 15% Russian Federation 8% Indonesia 2% Other 18% Domestic slaughter 92% Japan 29% United States 18% Southern meat processing 51% Beef exports 53% Domestic beef consumption 47% Republic of Korea 16% Indonesia 9% Russian Federation 5% Other 22% Note: Live export and domestic slaughter are shares of number of cattle, while beef exports and domestic beef consumption are shares of carcass weight equivalents. Sources: ABS 2011, Livestock products, cat. no. 7125.0; ABS 2011, Livestock and Meat, Australia, cat. no. 7218.0.55; ABS 2011, Electronic trade data; ABARES estimates. ABARES 11

Main features of the northern Australian beef industry Gross value of northern Australian beef production The contribution to the Australian economy of the gross value of agricultural production from beef cattle combined with first-stage beef processing (value-added production) in northern Australia is estimated at just over $5 billion in 2009 10 (Table 3). The gross value of beef cattle production (farm-gate value) is estimated at $3.7 billion and is the combined value of turn-off for slaughter ($3.3 billion) and for live export ($416.1 million). The value added by first-stage beef production is estimated at $1.3 billion; with most (96 per cent) occurring in Queensland and the residual being the value of cattle turned off from the Pilbara and Kimberley regions of Western Australia and sent for slaughter in southern Western Australian meatworks. Exports of live cattle (for feeder/slaughter purposes) accounted for 8 per cent of Australia s total value of cattle production in 2009 10. Northern Australia accounted for 76 per cent of Australia s live cattle export returns, with the Northern Territory alone accounting for over one-third of Australia s total live export returns. Total cattle and calf disposals in northern Australia represented half of the Australian total value of cattle and calf disposals and provided 38 per cent of the gross value of northern Australia s total agricultural production. Box 1 Significance of live export trade in dairy and breeding cattle In 2010 11, around 77 000 (or 9.5 per cent) of all live cattle exported from Australia were for dairy or breeding purposes. Since 2001 02, the number of cattle exported for these purposes has fluctuated between 3 and 15 per cent of the total number of cattle exported. Similarly, the value of dairy and breeding cattle has ranged from $6 million to $32 million. The main markets for Australian dairy and breeding cattle are China, Mexico and the Russian Federation. Given the northern Australian industry is predominantly involved in the feeder/slaughter live cattle trade, the statistics presented throughout this report exclude cattle exported for breeding purposes, unless specifically stated. Employment Employment in beef cattle production and meat processing plays an important role in the economic development of northern Australia. The Australian Bureau of Statistics (ABS) census provides agricultural employment statistics by Australian and New Zealand Standard Industrial Classification (ANZSIC) industry. The 2006 Census showed that in Queensland around 54 000 people were employed in agriculture, 1648 people were employed in agriculture in the Northern Territory while in northern Western Australia 576 people were employed in agriculture (150 in the Pilbara and 426 in the Kimberley) in total, more than 56 000 people are employed in agriculture across northern Australia. The latest ABS employment statistics for the meat processing sector in Queensland are for 2006 07 (ABS 2009). At 30 June 2007, all meat processing plants in Queensland employed 11 752 people and injected $498 million in wages and salaries into the Queensland economy in 2006 07. These meat processing statistics also cover those engaged in sheep and pig meat processing as there are no disaggregated data available for the beef sector alone. 12 ABARES

Main features of the northern Australian beef industry TABLE 3 Economic contribution of beef industries, 2009 10 Northern Northern Unit Australia Qld NT WA Australia Gross value of cattle and calf slaughter $m 6 567.5 3 174.3 0d 123.3 3 297.6 Share of Australian total % 100.0 48.5 0.0 1.9 50.3 Value of Live cattle exports a $m 549.5 107.6 198.6 109.9 416.1 Share of Australian total % 100.0 19.6 36.1 20.0 75.7 Total cattle GVP $m 7 117.0 3 281.9 198.6 233.2 3 713.7 Share of Australian total % 100.0 46.2 2.8 3.3 52.3 Total Agriculture GVP $m 39 645.1 9 137.1 380.1 250.4 9 767.6 Proportion of Australian total % 100.0 23.0 1.0 0.6 24.6 Cattle GVP as a share of state/ regional agriculture GVP % 18.0 35.9 52.2 93.1 38.0 Beef processing value added b $m 2 620.2 1 269.7 0.0d 49.3 1 319.0 Total industry value c $m 9 737.2 4 551.6 198.6 282.5 5 032.7 a Northern Western Australian ports of Wyndham and Broome understates the total number of live exports coming out of northern Western Australia. Some will have been transported south and exported from southern ports such as Fremantle and Geraldton but not captured in northern live exports. b ABARES estimate. c Total cattle GVP (including value of live exports) plus value added of first-stage beef processing. GVP = gross value of production. d There is a small amount of processing near Darwin, however the value is not captured in ABS data. Sources: ABS 2011b; ABARES estimates Differences across jurisdictions This section provides descriptions of the beef cattle industry across the different jurisdictions northern Western Australia, Northern Territory and Queensland and in the different regions within each of these, further highlighting the challenges or advantages producers face, depending on location. Western Australia Western Australia has the largest land area of any Australian state or territory at 2.53 million square kilometres. This section describes the two individual cattle producing regions in the north of Western Australia the Kimberley and the Pilbara Gascoyne regions. These northern regions sit within two climatic zones the wet summer/dry winter tropics of the Kimberley and the arid low rainfall zone of the Pilbara Gascoyne. Together these regions occupy a land area of around 1 million square kilometres and accommodate just over 40 per cent of the state s cattle herd. ABARES 13

Main features of the northern Australian beef industry Kimberley Located in the far north of Western Australia, the Kimberley has a geographic area in excess of 420 000 square kilometres, equivalent to about one-sixth of Western Australia. According to the ABS, in 2009 10, 139 agricultural businesses covered an area of 19.3 million hectares. Agricultural production in the Kimberley region was valued at $195.0 million in 2009 10, which constitutes 3.4 per cent of the value of agricultural production in Western Australia. Kimberley agriculture is represented by large numbers of pastoral stations and the Ord River Irrigation Area near Kununurra and its associated horticultural developments. Ninety-four pastoral leases support 67 pastoral enterprises, including five corporate and 17 Indigenous-owned. In 2009 10, the pastoral industry made up 82 per cent of the total value of agriculture at $160.3 million. Crop production for the same year was valued at $34.6 million, or 18 per cent of the value of agricultural production in the region. Pumpkins, melons and mangoes were the dominant horticultural crops. In 2009 10, the ABS estimated the Kimberley cattle population to be 678 186 head, 30.7 per cent of the state herd. As there are no meat processing plants in the area, cattle are exported live, sold as stores or transported to meat processing plants located south of Perth. In a survey the Department of Agriculture and Food Western Australia undertook of the Kimberley pastoral industry, approximately 80 per cent of producers target the live export market (Dray et al. 2011). The remainder primarily breed and sell/transfer cattle to other regions of Australia for finishing before slaughter. Pilbara Gascoyne The Pilbara is located in the north of Western Australia, adjacent to the Kimberley region. The region extends from the Indian Ocean across the Great Sandy Desert to the Northern Territory border and measures around 507 900 square kilometres in area. However, no agricultural production is carried out in the region s east arid zone. Agricultural production in 2009 10 for the Pilbara region was valued at $55.4 million, 1 per cent of the Western Australian total. Fifty-five agricultural businesses were in the region in 2009 10, covering an area of 9.7 million hectares, 51 of them pastoral stations. Cattle production and live cattle exports accounted for $52.0 million (94 per cent) of the total value of agricultural production in the Pilbara in 2009 10, with the remaining $3.2 million from four properties producing wheat, barley and hay. In 2009 10, the ABS estimated the Pilbara cattle population to be 219 300 head, 10 per cent of the state herd. According to a Department of Agriculture and Food Western Australia survey, (Dray et al. 2011) about 69 per cent of pastoralists in the Pilbara region produce feeder cattle for the live export trade, 17 per cent breed and sell slaughter cattle to southern processors and the remaining 14 per cent primarily breed and sell/transfer cattle to other regions of Australia for finishing before slaughter. The Gascoyne region is located below and adjacent to the Pilbara. Livestock is the predominant land use with leases spread throughout the region. In 2008 09, the total value of agricultural production for the Gascoyne was $77.7 million, accounting for 1.1 per cent of the state s total. The Gascoyne river delta is home to the Carnarvon horticulture district and, according to the ABS, horticulture accounted for 54 per cent of the value of this region s agricultural production ($41.9 million) in 2008 09. Livestock disposals accounted for 40 per cent, at $31.2 million. Pastoralism has undergone major change since the 1990s and has diversified to be combined with some horticulture, with some pastoral properties producing table grapes, corn and other crops. 14 ABARES

Main features of the northern Australian beef industry Northern Territory The Northern Territory comprises a land area of 1.35 million square kilometres, and is the third largest of the states and territories in area after Western Australia and Queensland. It sits within two climatic zones: the wet summer/dry winter tropics in the north; and the semi-arid to arid areas in the south. In the north the wet season runs from 1 October to 30 April, and the dry season from 1 May to 30 September. In contrast, the southern part of the territory is relatively dry for most of the year, with cool winters and hot summers. With around 2.0 million head of cattle in the Northern Territory, the territory turns off 538 000 cattle each year either to the live export trade or to other states as stores or for finishing before slaughter. Victoria River District and Sturt Plateau The Victoria River District (VRD) is located about 500 kilometres south of Darwin in the northwest of the Northern Territory, stretching from the Joseph Bonaparte Gulf in the north to the Tanami Desert in the south and from the Western Australian border to the Sturt Plateau Victoria River watershed in the east. In area it measures 125 000 square kilometres, almost twice the size of Tasmania. The major land use in the VRD Sturt region is cattle grazing with the district supporting some of the longest settled and most successful grazing enterprises in northern Australia. The region is a hot semi-arid monsoonal climate characterised by a rainy season of 4 to 5 months and a dry season for the rest of the year. Over the past few decades, the VRD has essentially switched its herd composition from largely shorthorn dominated in the mid 1970s to the Brahman-based herd of today. Thus the region has been able to benefit greatly from the live export trade. Breeding for sale as stores targeting the live export market is the main focus of pastoralists in the region. As a consequence, there is now very little turn-off of cattle to domestic markets, as the closure of the nearby abattoirs in Katherine and Batchelor removed alternatives to the live cattle market for producers in the region. Even after the improvements in infrastructure that came with the Brucellosis and Tuberculosis Eradication Campaign (BTEC, see Chapter 3), most of the VRD is still characterised by large paddock sizes and limited watering points. Properties in the VRD are large with low stocking rates; on average around eight head per square kilometre. A trend in this region is toward company ownership, but owner/family run enterprises are still significant. Large tracts of land are now under Indigenous control or are conservation reserves. Virtually all grazing in the VRD takes place on native pastures. Around 30 per cent of the region may be considered unproductive country because of low carrying capacity and inadequate stock control, although improvement is occurring as a result of continuing development of properties in the region. In the Sturt Plateau, while most enterprises run cattle on native pastures, a trend is developing toward more intensive grazing systems based on improved pasture and other crops, although a limited road network has restricted cultivation options mainly to grain and hay cropping rather than horticulture. Agistment and short-term depoting of live export cattle en route to Darwin represent additional income sources for Sturt Plateau producers. ABARES 15

Main features of the northern Australian beef industry Northern Territory Top End and Gulf Pastoral properties in the Top End and Gulf regions are generally on a smaller scale than those in adjacent regions. Family owned properties still constitute most leases in this region, although corporately owned enterprises occupy a large area. Areas around Darwin are increasingly being converted from cattle grazing to more intensive agricultural uses. Intensification of cattle production is contributing to ongoing reduction in the age of turn-off and increases in carrying capacity and breeding rate. As well, hay production for feed at export cattle depots, for manufacture into pellets for feed on live export boats and for the recreational horse market is a growing income source for farmers in the region. The region has abundant natural permanent water. Large areas of the coastal plains are under water during the wet season allowing pasture production and grazing during the dry period. The very high wet-season rainfall greatly affects the grazing management regime in the Top End region. Much of the area has limited available soil nutrients, especially nitrogen and phosphorous (except for the black soil floodplains where phosphorous is adequate). The first two to three months of the wet season are vital as this is the only time stock have access to relatively high-quality feed. Throughout the rest of the year feeding supplements are needed. The northern monsoonal region is suitable for intensive pastoralism using introduced pasture species and cropping which enhance cattle fattening opportunities. Properties in the Gulf region are fewer in number, significantly larger and have poorer fertility than other regions. A large variety of soil types in the region results in the quality of the grazing country being highly variable. Good country tends to be used for fattening while poorer areas are used for breeding. On the whole, this region is considered fairly poor grazing country and low stocking rates are therefore maintained. Significant areas of the region suffer from floods in the wet season. Adequate fencing continues to be a major management issue in the region. Given the low carrying capacity of much of the country, paddocks need to be very large to contain a workable number of cattle. While breeding is an important earner for producers in the Gulf region, supplying cattle to the live export trade is significant. Producers tend to export live cattle out of Darwin. Arnhem Land This region covers the low-lying parts of Arnhem Land in the Top End of the Northern Territory and measures around 70 000 square kilometres. The region is almost all Aboriginal land and has some areas leased for other purposes, such as Gurig (Coburg) National Park and the mining operations near Nhulunbuy (Gove) and on Groote Eylandt. Little organised cattle grazing is taking place in the Arnhem Land region. A few small operations, such as those at Gumbulunya and Mawangi, supply local abattoirs. However, some communities are showing growing interest in setting up pastoral enterprises, and in managing more intensely the wild cattle populations in the area. In addition, awareness is growing of the potential for harvesting wild buffalo, which is already being carried out around Bulman, and supplies the traditional owners of Kakadu. 16 ABARES

Main features of the northern Australian beef industry Barkly Tablelands The Barkly Tablelands covers an area of about 323 500 square kilometres, stretching from the Queensland border to west of the Stuart Highway and from north of Elliott to south of Barrow Creek. The Barkly Tablelands are in the north-west of the Mitchell grass region, on the Northern Territory side of the border. The country is well suited to cattle grazing and it is economically one of the most important areas for pastoral production in the Northern Territory. While the region supports little permanent surface water, a comprehensive network of bores that feed raised earth dams ( turkey-nests ) for watering cattle is an important factor in the success of the area s pastoral production. Most properties are corporately owned. Most have adopted rotational grazing, supplementary feeding and pasture monitoring as part of their operational strategies. The quality of native pasture grazing means little attempt is made at pasture improvement, simply because Mitchell grass is so productive on the cracking clay soils. The major species is Mitchell grass, but Flinders grass also provides important feed in the summer months. The Barkly Tablelands district is largely semi-arid and has well defined wet and dry seasons. Corporate properties manage drought periods by shifting cattle to affiliated properties in Queensland or elsewhere where seasonal conditions may be more favourable. For the rest of the producers in the Barkly, the probability of drought must be factored into long-term property management plans. Live export has become increasingly important for private producers in this region. Corporate properties, which essentially run a whole state or regional portfolio of properties, tend to turn-off stock to affiliated properties for fattening. They may also sell some cattle fattened over the wet. Some properties in the region are being used as depots (for live export out of Darwin) for cattle from affiliated enterprises in other states. Alice Springs and central Australian regions The Alice Springs region is arid with limited permanent surface water. The area relies heavily on underground water which varies greatly in quantity, quality and accessibility. In most cases the water is sub-artesian and must be pumped to the surface. The region has significant areas of mulga country. Grasses used for grazing include perennial grasses, ephemeral annual grasses, shrubs and top feed and spinifex. The predominant cattle type is Bos taurus, mainly Hereford. Some properties have Bos indicus to supply the live export trade. Most properties are family owned, and the cattle industry is characterised by breeding and fattening stock to slaughter weights to supply abattoirs in southern states. Bullocks are grown out to approximately 600 kilograms live weight and sent to South Australia for slaughter; few are sold into the northern live export trade. ABARES 17

Main features of the northern Australian beef industry Queensland Queensland comprises a land area of 1.73 million square kilometres and is the second largest of the states and territories in area after Western Australia, and the third most populous. It sits within three climatic zones: the wet/dry tropics in the north; the semi-arid to arid areas in the south-west; and the summer rainfall subtropical areas in the south-east. Queensland has Australia s largest beef cattle herd, at 11.2 million or 47 per cent of the Australian total, and is the nation s largest producer and exporter of beef. Given the wide variability across the state of climate and vegetation classes, a range of production systems is employed across the state with a number of systems used in some regions. Beef cattle production occurs across all regions in Queensland. The following section describes these regions Cape York and Queensland Gulf; the western north and south-west; the central north; the eastern north; the south eastern coastal; and the Darling Downs and central highlands. Cape York Peninsula and Queensland Gulf regions The Cape York Peninsula region in far north Queensland covers an area of 115 000 square kilometres. While a relatively large area is set aside for conservation, pastoralism is the dominant land use. The conversion of land to national parks and to Indigenous use has reduced pastoral lease land to about 56 per cent of the total area of Cape York. A strip along the west coast of Cape York consists entirely of Aboriginal lands, reserves and mining areas. Most pastoral leases are located in the centre of Cape York and across to the east coast. Because many properties are only marginally productive, many graziers in Cape York must engage in off-farm employment, such as fencing, mustering or supplying tourist facilities. It also means very little capital is available for property development. Most cattle from Cape York Peninsula are sold through the yards at Mareeba, in north-east Queensland. The road system is a major limitation in terms of both the number of cattle that can be moved at one time, and the seasonality of access. The quality of the grazing country in the Queensland Gulf region is highly variable throughout owing to a variety of soil types. On the whole this region is considered fairly poor grazing and low stocking rates are therefore maintained. Significant areas of the region suffer from floods in the wet season. Adequate fencing continues to be a major management issue in the region. While producers in the Queensland Gulf region have relied on live cattle exports, turn-off of cattle to domestic store markets, or to affiliated properties for corporately owned enterprises, will continue to be a major earner. 18 ABARES

Main features of the northern Australian beef industry Queensland western north and south-west Much of this region is dominated by the largely treeless plains of Mitchell grass on relatively fertile cracking clay soils which extend into the Northern Territory (see Barkly Tablelands). The land in this region is almost totally given over to pastoralism. The region has traditionally run sheep but since the mid 1990s has gradually switched to cattle production. Much of the northern Mitchell downs is now used to background cattle coming from the northern breeder areas. Few sown pastures support cattle grazing and browsing native perennial grasses, naturalised tropical and subtropical grasses (such as buffel), shrubs and native trees. More than 80 per cent of rain falls between December and March (annual averages are 600 millimetres in the north and 400 millimetres in the south of the region) and run-off from heavy summer storms can cause dramatic changes in river levels over a short time. The southern areas of the Mitchell grass region, which have lower and less reliable rainfall, benefit from the fact that their rain tends to fall over a longer time. The growing season is therefore longer and there is the chance of winter rains, which can improve animal health and weight gain. Cattle are bred on extensive, low stocking rate properties. During good seasons or flooding in the channel country, large numbers of cattle are purchased for finishing. Purchasing rather than breeding allows stocking rates to accommodate the highly variable conditions. Under conservative grazing practices, Mitchell grass (found in the north of this region) can withstand extended periods of grazing and drought. It is one of the most nutritious pasture species to be found in the tropical savannas. One of its most valuable attributes is that it hays off (standing matter dries but does not decay or lose its nutritive value) during the dry season and continues to provide nutritious feed. The main production systems in the region are breeding and selling store weaners or producing feed-on steers that are either finished as Japanese Ox or sent on to feedlots for finishing. Queensland central north This region covers the savanna country in north-east Queensland, lying inland from Cooktown in the north to Rockhampton in the south. It covers around 310 000 square kilometres and does not include the rainforest areas of the wet tropics and the central Mackay coast. Land use is dominated by pastoralism and includes major beef cattle areas in its southern parts with small areas of nature reserve and vacant Crown Land. The cattle grazing industry in this region is more diverse and complex than others in the tropical savannas because of the variation in soil type, average annual rainfall and rainfall variability. Cattle grazing enterprises range from traditional, extensive systems in the west of the region, to more intensive, smaller operations on sown pastures in more fertile areas. The region has some of the most fertile soils to be found in the tropical savannas. Properties can be much smaller yet still productive and sustainable. While there are some properties of considerable size running tens of thousands of cattle, on average enterprises in this region are smaller in area than others in northern Australia. The production system is mainly breeding enterprises. Cattle are almost exclusively Bos indicus and crosses, with many cattle sold into the live export feeder market. Pastures are a combination of native and naturalised tropical and subtropical grasses (including buffel) and legumes and finishing retained stock may take several years. ABARES 19

Main features of the northern Australian beef industry Queensland central west The central west Charleville Longreach region has around 3 per cent of Queensland s beef cattle enterprises and more than 8 per cent of Queensland s beef cattle herd. The region is characterised by a diverse range of land types and production systems. In the Desert Uplands, breeding properties turn-off weaners primarily through store sales as trade steers or sell them direct to live export. Mulga lands consist of primarily breeder operations with weaner turn-off. However, in good seasons steers can be sold grass-finished to the Korean or domestic markets. Queensland eastern north Producers in this northern coastal region and Atherton Tableland area mainly fatten store cattle from western breeding properties for local domestic trade, Japanese Ox and yearling trade. Cattle are either processed in the abattoir at Townsville, or exported live from Townsville. Queensland south-eastern coastal Most beef enterprises in this region are small and non-commercial. Climate is moist and temperate with uniform rainfall, a long hot summer and a mild winter. Most areas have an annual rainfall of between 800 and 1200 millimetres. The region is a breeding and finishing area with calves born in spring. Few animals are sold as weaners and most are sold to the domestic supermarket trade or to feedlots at 16 24 months of age. Cattle are both Bos taurus and Bos indicus and their crosses. 20 ABARES

Main features of the northern Australian beef industry Queensland Darling Downs and central highlands The Darling Downs and central highlands region has around 23 per cent of Queensland s beef enterprises and carries 10 per cent of the state s beef herd. Native pastures (generally under woodlands of eucalypt, cypress pine and mulga) cover more than 70 per cent of the region and are predominantly grazed for beef production. Besides being well suited to livestock production, the Darling Downs is renowned as a rich agricultural region growing crops such as cotton, sorghum, wheat, barley, sunflowers, and legumes. Many properties are mixed-enterprise farms, combining cropping with livestock production. The Darling Downs is also the largest producer of pigs and grain-fed beef in Australia. This region supports a diverse range of cattle production systems. In the western properties where the soil is less fertile, producers breed for the store trade. Elsewhere, producers may breed and finish cattle suitable for the domestic market and Japanese Ox, finishing on crop and/or pasture or some may buy in stock for finishing on crop and/or pasture. Some producers in the region also background stock for feedlots, while some may breed and produce feeder cattle which are finished on-farm in opportunity feedlots or in the many commercial feedlots in the region. The region also supports many stud producers. Sources: ABS 2011a, b; DEEDI 2010; DRDL 2011a, b; Dray et al. 2011; Northern Territory Cattlemen s Association 2011; Savanna CRC 2011. ABARES 21

Chapter 3 Factors that have driven development of the northern Australian beef industry The northern beef industry has a long pioneering history but a number of events were pivotal to development of the industry as we know it today. This chapter outlines these events as well as current events which may lead to further developmental change. Before the 1990s Three major historical events altered the structure and development of the northern beef industry. These were award pay for Indigenous stock workers in 1968, the beef price slump of the early to mid 1970s, and the Brucellosis and Tuberculosis Eradication Campaign (BTEC) of the 1970s through to declaration of tuberculosisfree status in 1997. Before 1968, Indigenous stock workers were not paid award wages. Consequently station owners could employ a relatively large number of Indigenous stock workers. Up to then, camps of as many as 200 Indigenous people on most of the large stations provided most of the labour needed for mustering and other jobs. However, after the pay rates for these workers were raised to award levels, pastoralists either had to reduce stock numbers or, to maintain production, adopt different control methods that is, yards and crushes as opposed to roping to undertake operations on stock, such as branding, vaccination and castration (Lehane 1996). High inflation and the oil price shock of 1973 led to an oversupply of beef and the beef price slumped. Demand for the type of beef supplied from the northern region was particularly low, due to its quality (BAE 1975). This put further pressure on producers profitability as they sought to identify alternative markets or enterprises to maintain their incomes. The BTEC program caused substantial changes to beef production in the northern region, particularly to the methods of production and stock management (Box 2). The requirements of the program were that producers be able to regularly test and monitor cattle on their properties, imposing on producers the need to have proper animal handling facilities such as crushes and yards, and to be able to muster cattle completely; that is, clean musters (Lehane 1996). Another requirement was that properties testing positive to either disease be destocked to reduce the spread of the disease and minimise the chances of further infection. Producers were compensated for this destocking, which allowed the more progressive producers to restock with 22 ABARES

Factors that have driven development of the northern Australian beef industry cattle more suited to a tropical environment by introducing Bos indicus genetics such as Brahman into the herd. Brahman genetics were preferred due to tick resistance and lower maintenance requirements, as well as the potential for hybrid vigour when crossed with the British breed cattle already present in the north (Whan et al. 2006). Box 2 Brucellosis and Tuberculosis Eradication Campaign The national campaign to eradicate brucellosis and tuberculosis (TB) began in 1970 and it was called the BTEC campaign, taking its name from the Brucellosis and Tuberculosis Eradication Committee. As the BTEC campaign got underway, the standard methods of mustering on horseback or motor bike were found to work well in the closely-settled areas, but not elsewhere. Yet clean mustering was essential if the test and slaughter technique used for eradicating these diseases was to succeed. Sound cattle yards were essential because repeated tests, with the cattle being held for three days each time, were needed to detect TB in live animals. New methods had to be developed for mustering cattle over vast areas and, in this, helicopters proved invaluable. The industry also had to be restructured in marginal areas. Stations judged capable of long-term economic viability were fenced and equipped with cattle yards and crushes, while the less productive areas were destocked. Before this, cattle were managed under an open-range system where fences were few and paddocks were mainly small holding paddocks. Much of the industry was relatively primitive with many producers doing no more than harvesting an essentially wild population of cattle and buffalo (Henzell 2007; Lehane 1996). Tax concessions and, later, low-interest loans were provided to enable producers to build the required fences and handling facilities. In areas where sufficient control could not be achieved, cattle were destocked. Human health concerns were behind earlier efforts to fight bovine TB as it was readily transmitted to humans through cow s milk. But by the 1970s when BTEC began, eradication of TB in dairy herds and milk pasteurisation had removed this risk. Both TB and brucellosis remained serious occupational risks, though, as dairy farmers, meat workers and vets could be readily infected. However, the main motivation for the BTEC campaign was the economic loss caused by bovine brucellosis, which led to cows aborting the disease resulted in reduced calf drops and milk production, and cows could be rendered temporarily or permanently sterile. The disease also posed a trade risk in the form of threatened bans from the United States and Germany. Although the BTEC campaign encountered some strong opposition at times, the nation was free of brucellosis by 1989 and received TB-free status in 1997 (Animal Health Australia 2009). Results included upgraded northern herds with more productive Brahman cattle; improved calving and survival rates, resulting in increased turn-offs, sales and dividends; better land management through control of stocking rates; and lower labour costs (Lehane 1996). ABARES 23

Factors that have driven development of the northern Australian beef industry 1990s Expansion of the live cattle trade Much of the growth in the national cattle herd in the past 20 years has been across northern Australia because of the suitability of the country for breeding and access to the live cattle trade (Figure 2). Traditional breeding and fattening systems that turned off bullocks at 4 to 5 years of age were converted to enterprises with a higher proportion of breeders turning cattle off at a younger age for placement in Asian feedlots. This was a major contributing factor to the steady increase in turn-off rates observed in northern Australia in the period (ABARE 2007). FIGURE 2 Growth in Australian cattle herd 20 000 16 000 Qld, NT & WA NSW, Vic., SA & Tas. 12 000 8000 4000 000 head 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 Source: ABS 2011a Australia s success in meeting the growth in South-East Asian demand for live feeder cattle in the early to mid 1990s was made possible by some important changes to the breeding and management systems of northern Australian properties. Trade opened up opportunities for large-scale change and development in the pastoral industry in northern Australia. The industry was able to take advantage of incentives provided by BTEC to change its production systems, change animal genetics toward Bos indicus cattle such as Brahman and develop property infrastructure, such as fenced paddocks, watering points, cattle yards, and pasture management. Weaning became an accepted practice, branding and turn-off rates improved and cattle death rates declined. Switching over to Bos indicus genetics introduced cattle suitable to the tropical environment, tolerant of parasites, tick resistant, easier to muster and handle and better able to handle transport and shipping. Also, the relatively close distance to some markets made live cattle exports a feasible option to producers rather than sending the cattle to markets in the south or east for which they may not have been suited and for a lower net return. The expansion in live cattle exports came at an opportune time for the northern beef cattle industry. In the early to mid 1990s, US demand for Australian boxed beef (Australia s largest market) fell as a result of US herd liquidation. Surplus US beef found its way into traditional Australian markets such as Japan, Canada and Taiwan, placing downward pressure on prices. At the same time an El Niño event was occurring, resulting in a series of below average rainfall years, pasture deficiency and drought. If the live trade had not emerged when it did, management and development of northern Australian properties would have been severely set back by these events. 24 ABARES

Factors that have driven development of the northern Australian beef industry The live export trade also provided drought-stricken properties an opportunity to sell cattle rather than retain them in overstocked pastures. The live trade continues to provide northern cattle properties the opportunity to match the productive capacity of their soils to the growth potential of cattle. Emergence of a feeder trade In the 1990s, greater demand for beef protein in South-East Asia resulted in depletion of their domestic herds, increasing the demand for imported cattle. Imports of live feeder and slaughter cattle allow many South-East Asian nations to overcome impediments that restrict expansion of regular beef cattle farms, including a lack of land, capital, infrastructure and skilled labour. A self sustaining feedlot sector developed using cheap by-products from agriculture. Most South-East Asian countries have large supplies of cheap crop by-products that are ideal for cattle rations, such as reject bananas from export, pineapple pulp from canning, chicken litter and sugar by-products (Hughes 2000). This, in addition to low labour costs, makes cattle fattening highly profitable. The ability of the feeder trade to valueadd and to create jobs is regarded politically as highly desirable by importing countries and was an important incentive for development of the Indonesian trade, in particular. Custom and practicality also play a substantial role. Most meat sales in these countries are conducted through the wet market. In these non-refrigerated markets, thawed frozen beef does not have the same keeping qualities as meat from cattle slaughtered on the day of sale. So custom dictates that any meat identified as not fresh be rejected or sold at a discounted price. Improvements in transport infrastructure, through use of ships and cargo trucks specialising in transporting livestock, also facilitated the export of live cattle. In addition, marketability of live cattle in the north improved with the use of export depots situated close to ports where quarantine requirements could be fulfilled (Drum & Gunning-Trant 2008). Future growth in the live cattle trade to Indonesia has come under pressure from Indonesia's stated objective of achieving beef self-sufficiency by 2014. The Indonesian Government imposed a weight limit for cattle of 350 kilograms in 2010, imposed an import quota of 500 000 head in 2011 and further reduced the import quota to 283 000 head in 2012. Animal welfare Animal welfare concerns pose a serious risk to the live cattle trade. A number of animal welfare groups are seeking to end the live animal trade for all livestock species (not exclusively cattle). These efforts are in response to concerns around the welfare of animals throughout the supply chain, from Australia through to point of slaughter overseas. Livecorp and Meat & Livestock Australia have developed protocols and programs for treatment of animals in transit and at point of delivery to minimise stress on the animals. They have also spent a number of years in destination countries undertaking education and technical extension to improve handling and welfare of animals for slaughter. The airing on national television and social media of video footage taken by animal welfare activists of animal cruelty in a number of Indonesian abattoirs 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. Some commentators spoke of the industry losing its social license to operate, an intangible permission the community gives when a project or activity gains ongoing approval or broad social acceptance. ABARES 25

Factors that have driven development of the northern Australian beef industry In response to the Independent Review into Australia s Live Export Trade (Farmer Review) in 2011, the Australian Government is implementing 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 (OIE) standards (see Chapter 6). The supply chain assurance regulations applied to Indonesia upon resumption of trade in July 2011 are being extended to cover all markets and all species by the end of 2012. History of meat processing facilities in northern Australia The history of beef processing in the north of Australia is linked to the British presence in the pastoral industry up until 1973, when the United Kingdom joined the then European Community, now the European Union (Whan et al. 2006). Many processing works in the north of Australia were either owned by British interests or supplied most of their product to the United Kingdom. With the United Kingdom joining the European Union, combined with the beef slump of the early 1970s, many meatworks closed due to lack of markets, except for a small domestic or local market. Another reason for some export-oriented meat processing plants closing was the higher hygiene standards the United States required for processing plants supplying beef into that market. Some processing plants could not meet these requirements without significant expenditure and lower beef supply and prices forced these plants to close (Davidson 1981). As the northern export cattle industry developed, strong demand for live product resulted in increasing prices for feeder and finished cattle. The number of remaining export accredited abattoirs in the region fell as slaughter cattle were diverted from the beef trade toward the live cattle trade (Drum & Gunning-Trant 2008). Slaughter works located in Wyndham, Derby and Broome in Western Australia, and Cairns, Pentland, Bowen and Gladstone in Queensland (Alexander & Carraill 1973; Davidson 1981) have all closed. The Katherine plant ceased production in 2001 and the decision has only recently been made to shut it down permanently (ABC 2011a). Some went into liquidation due to inefficiencies and crises in the market place, while others were caught up in a rationalisation that occurred when Australian Meat Holdings developed the concept of the mega-abattoir (Neithe & Butler 2010). Despite closure of many plants in northern Australia, capacity, throughput and efficiency have increased in the processing sector in other parts of Australia. Northern Western Australia and the Northern Territory currently have no export certified meat processing works. Queensland has processing plants in Townsville, Rockhampton and Biloela to service northern producers with larger processing capacity located in southern Queensland. With the emerging challenges to the live export industry, interest in examining feasibility of reintroducing meat processing to northern Australia has been increasing. Chapter 8 discusses a number of the feasibility studies and proposals being considered and some of the conditions required for them to succeed. 26 ABARES

Factors that have driven development of the northern Australian beef industry Land ownership Corporate property ownership Corporations both private (including families) and publicly listed companies hold a large portion of land in the northern beef producing region. Some use the north as part of a strategic production chain that either brings cattle from the north to the south or east for feeding out and processing or as means of geographic diversification. This also gives them the ability to spread risk and allows many to manage events such as the Indonesian ban on accepting cattle over 350 kilograms, subsequent reductions in quota and the temporary suspension in live exports to Indonesia in June 2011. The largest cattle producer in the region is the Australian Agricultural Company (AAco), which controls 6.7 million hectares with around 665 600 head on 18 properties (eight in the Northern Territory and 10 in Queensland) at 31 December 2011 (AAco 2012). The company owns stations from the Victoria River District in the Northern Territory through to western Queensland, and also several relatively smaller operations in eastern Queensland. It also owns two feedlots, one in the Darling Downs and one west of Rockhampton. Other private companies, such as S. Kidman & Co Ltd, Stanbroke Pastoral Company Pty Ltd and Consolidated Pastoral Company Pty Ltd have holdings of land or cattle on a smaller scale than AAco. The top 10 beef producers in the region hold approximately 2.25 million head or 25 per cent of cattle in the region and control about 40 million hectares of the 155 million hectares under grazing (AFJ 2011; BITRE 2009). Further to corporation ownership of properties is that some of these corporations are partly owned by international businesses. AAco is a publicly listed company and 20 per cent of shares are owned by IFFCO, a privately owned agribusiness and food company originating from India and based in the United Arab Emirates. However, other private companies are majority owned by foreign companies. For example, Consolidated Pastoral is 90 per cent owned by Terra Firma, a European-based private equity firm. Stanbroke Pastoral and S. Kidman & Co and many others are family or privately owned companies with no, or insignificant, international ownership. Indigenous land ownership Indigenous land ownership in the northern beef region is also substantial, although not all land owned by Indigenous people in this region is used for beef production. According to the Indigenous Land Corporation (ILC), approximately 4.45 million hectares of station type land are owned by (or have been purchased by the ILC for) local Indigenous people in the northern region of Australia. Not all pastoral leases held by Indigenous people are through the ILC. For example, in Western Australia the ILC reports interactions with land owners holding approximately 2.5 million hectares, whereas the Pastoral Lands Board of Western Australia reports that Indigenous people hold leases to 8.9 million hectares in the northern beef region (Pastoral Lands Board of Western Australia 2008). In Queensland, the ILC and partnerships hold approximately 1.13 million hectares of land. However, this is not a complete record. It can be reasonably assumed that Indigenous groups hold more land in Queensland, but due to the land holding arrangements in that state it is not possible without a complete title search to determine the amount of land these groups hold. In Cape York where the Queensland Government has purchased a number of properties, a tenure resolution process has been ongoing for a number of years. Negotiations will then be undertaken with Traditional Owners resulting in portions of the land being held as national park and some being transferred back to the Traditional Owners for development, with the ABARES 27

Factors that have driven development of the northern Australian beef industry aspiration often being development as pastoral properties. In the Northern Territory, 50 per cent of the land has become Aboriginal Freehold since enactment of the Aboriginal Land Rights (Northern Territory) Act 1976 and a large proportion of the remaining land mass is subject to Native Title interests. Indigenous pastoral stations differ from traditional family or corporately-owned properties in that whole communities often live on a station, most of whom see that property as their traditional land. While many residents are involved in the pastoral enterprise, many are living on the properties for social and cultural reasons rather than undertaking commercial activities. Other landowners in the region One major buyer of land in northern Australia has been the Australian Wildlife Conservancy. The conservancy has been purchasing pastoral leases using donations and various government grants. Currently the conservancy holds 22 sanctuaries covering over 2.6 million hectares, including 1.1 million hectares of lease country in northern Australia (Australian Wildlife Conservancy 2011). The conservancy is not an active acquirer of land but does take an interest in leases with particular ecosystems that may be endangered or contain endangered or threatened species. Another conservation group is Bush Heritage, which holds nearly 557 000 hectares of land in nine sanctuaries throughout Queensland with a further 390 000 hectares in 16 locations throughout southern Australia (Bush Heritage 2011). Bush Heritage aims to soon link with owners of land to achieve its goal of protecting 1 per cent of Australia s land mass by 2025. This goal includes linking with land owners in the northern beef production region, including pastoralists and Indigenous groups. These conservation groups and others, including Greening Australia and the Trust for Nature, are supported by international philanthropic conservation groups, such as the Nature Conservancy, corporate businesses in Australia through the Corporate Conservation Council and various government agencies and programs. The Australian Government, through its Caring for our Country initiative, is partnering with individual landowners to set up conservation covenants where the landowner manages the land as part of the National Reserve System, Australia s network of parks, reserves and protected areas. The Henbury Conservation Project is an example of such a property being taken out of production for conservation (SEWPAC 2012). Henbury Station was purchased in 2010 by R.M. Williams Agricultural Holdings with the support of the Caring for our Country initiative. With the removal of grazing pressures, the company will actively manage the former pastoral property to control fire, weeds and feral animals to support the regeneration of native vegetation. Funding of Henbury s long-term conservation will be provided by income from carbon credits. The land aquired for conservation now and in the future has the potential to reduce the productive capability of the region. On the other hand, if the groups improve other facets of the land purchased, such as ecosystems and accessibility, the benefits to the region in tourism income may outweigh the loss in production to the cattle industry. 28 ABARES

Factors that have driven development of the northern Australian beef industry Pastoral lease reform Land tenure in the northern beef producing region is typically a leasehold arrangement from the Crown Land management authority for the particular state: leases in Western Australia are managed by the Pastoral Lands Board under the Land Administration Act 1997 in the Northern Territory, leases are managed under the Pastoral Land Act 1992 by the Department of Natural Resources, Environment, and the Arts in Queensland, leases under the appropriate legislation, the Land Act 1994, are managed by the Department of Environment and Resource Management. A pastoral lease is issued for a specified time, area and purpose as a contract between the Crown and the lessee. Most lease agreements cover operation of the lease and what constitutes an appropriate enterprise to undertake within the leased property. Generally, except in Queensland, a pastoral lease must be used for pastoral purposes usually the grazing of cattle and/or sheep. In Queensland, a lease issued for pastoral purposes may be used for both agricultural and grazing purposes (Productivity Commission 2002). In most states the legislation covers land management, including items such as stocking rate and some measures of land maintenance and erosion control or vegetation cover. However, none of the land Acts cover water and water rights; these are covered under different pieces of legislation and, depending on which state the lease is in, some water rights are covered by federal rather than state legislation. Most of the land tenure legislation limits ownership of leased land. In Western Australia the maximum amount of leased land allowed to be held is 500 000 hectares, and in the Northern Territory the limit is 1.3 million hectares. Pastoral lease conditions have been under review in each jurisdiction in northern Australia. Pastoral lease arrangements are characterised by extensive and prescriptive legislation and regulation. According to the Productivity Commission s 2002 report, pastoral leasing arrangements are generally designed to support and facilitate pastoralism and constrain the emergence of non-pastoral land uses. As a consequence, innovative land uses and potential economic and ecological gains that could benefit land managers and the wider community could be stifled. Western Australia Part 7 of the Land Administration Act 1997 (WA) sets out the terms and conditions under which pastoral leases may be developed and administered. All existing Western Australian pastoral leases expire on 30 June 2015. This expiry date was seen by the Western Australian Government as an appropriate time to negotiate exclusions from pastoral leases of key areas of land identified for public purposes (public works, conservation, national park, nature reserve or other state purposes) and all leases affected by this were advised in April 2005 (DRDL 2011c). The Western Australian Government is undertaking a Rangelands Review program for the Western Australian pastoral industry to address two ongoing issues: that the sustainability and capacity of the pastoral industry in many areas of the rangelands is increasingly under threat from the depleted condition of the resource and declining terms of trade for some commodities that the potential exists to increase investment in the rangelands through enabling improved access to diversification options and improved security of tenure (DRDL 2011d). ABARES 29

Factors that have driven development of the northern Australian beef industry The current permit provisions of Part 7 of the Land Administration Act 1997 (WA) provide for a range of activities consistent with or related to pastoral purposes: commercial grazing of authorised stock agricultural, horticultural or other supplementary uses of land inseparable from, essential to, or normally carried out in conjunction with the grazing of stock including production of stockfeed activities ancillary to the above. The land may not be used for purposes other than pastoral purposes and a pastoralist may not sell any product of a non-pastoral use of the land. To ensure a state-wide approach is taken to designing and implementing diversification and economic initiatives in the rangelands, the government is investigating (through public consultation) the concepts of a rangelands lease which, if adopted, will create a further form of Crown tenure within the Land Administration Act 1997 (WA). This rangelands lease will not necessarily affect existing pastoral lease activities, but alternative tenure options would be available for pastoralists and others to take up should they wish. A rangelands lease will allow for a diverse range of permitted uses, provided those uses are broadscale and consistent with preservation and ongoing management of the rangelands as a resource. Currently private conservation groups, mining companies and others have only been able to acquire tenure over large rangelands areas under a pastoral lease which requires them to undertake pastoral activities and carries obligations relating to stock numbers and pastoral activities generally. This may not be appropriate for their intended use of the land (DRDL 2011d). In addition, pastoralists seeking to diversify into areas other than pastoral activities have only been able to do so to a limited extent by applying for the permits under the relevant sections of the Land Administration Act 1997 (WA). Such a rangelands lease could allow multiple activities on a lease, such as pastoral, horticulture, agriculture, tourism (broadacre, remote, low value, such as looking at land features), carbon sequestration, mining companies, and lifestyle. Northern Territory The Pastoral Land Act 1992 (NT) is under review to address a number of anomalies and limitations. The objectives of the Act when passed in 1992 were in part to provide a form of tenure of Crown Land that facilitated sustainable use of land for pastoral purpose and economic viability of the pastoral industry and to prevent or minimise degradation of or other damage to the land and its indigenous plant and animal life (Northern Territory Government 2011). Proposed amendments to the Act are in response to concerns the Productivity Commission review raised, which suggested pastoral lease administration processes constrain emergence of non-pastoral land use (Productivity Commission 2002). Proposed amendments to the Act are consistent with the Northern Territory Government s new climate change policy and a number of conservation initiatives. Issues, such as greenhouse gas emissions, climate change and carbon abatement/ trading, mandate the need for legislation to recognise clearing, conservation and sustainable pastoral land management. Some changes proposed include clearing controls, addressing ineffective penalties for offences under the Act and access to pastoral land. 30 ABARES

Factors that have driven development of the northern Australian beef industry Clearing controls for non-pastoral land were introduced in December 2002 but not for pastoral land. This reform will provide consistency around clearing on all land tenure in the Northern Territory. Penalties for offences under the Act are ineffective, particularly for unauthorised clearing, and are being brought into line with provisions of the Environmental Offences and Penalties Act to make them effective. In addition, the Act makes no provisions relating to corporate liability. The legislation for providing public access to pastoral land is impractical. Non-pastoral use approvals are only short term, do not provide for the activity to be carried out by a third party and are not transferable with title. Conservation management is not recognised as an allowable non-pastoral activity. No provisions regulate major development work, such as pasture ponding banks, dams, irrigation works, feedlots and extensive areas of non-native pastures. In addition to reforms to the Pastoral Land Act 1992, the Northern Territory Government is developing new native vegetation reforms, which include a mechanism to declare a periodic limit to contain the rate of clearing and protect the carbon bank in vegetation, in line with the Northern Territory Government s climate change policy. The reforms, currently contained in the Draft Native Vegetation Management Bill for the Northern Territory 2011, were subject to community consultation in the first half of 2011 and the Northern Territory Government is considering public submissions. Queensland The State Rural Leasehold Land Strategy, released on 4 December 2007, was developed to address future management and use of the state s rural leasehold land. The Land and Other Legislation Amendment Act 2007 (Qld) amended the Land Act 1994 (Qld) to give effect to the strategy. These provisions commenced on 1 January 2008. The strategy recognises that expatriation of about half the pastoral leases in the next 20 years provides the opportunity to shift land management policy from one of development and closer settlement to one of environmental sustainability. The strategy received support for a lease term policy relating to land condition, a commitment to incrementally improve and maintain land condition, protect significant environmental areas and resolve access and use of leasehold land by Traditional Owners. The strategy uses a mix of regulatory and incentive-driven approaches to protect environmental, social and economic values of rural leasehold land over the long-term. Land management agreements will be prepared in consultation with leaseholders on renewal of tenure, and all new lease arrangements will be consistent with contemporary natural resource management expectations and practices. Incentives offered under the strategy include: improved tenure security, by correlating the length of lease terms with the condition of the land resource improved business certainty, by establishing land management agreements clearly outlining leaseholders natural resource management obligations. Water While diversification opportunities are constrained by leasehold arrangements and depend on the lease reform processes underway in the jurisdictions, agricultural production possibilities are also limited by access to other resources, such as water for irrigation. Again each jurisdiction has different legislation covering water access and water management. ABARES 31

Factors that have driven development of the northern Australian beef industry Northern Territory The territory has limited control of water usage for irrigation in the pastoral regions. Much of the control is essentially market driven; the cost of irrigation on pastoral stations outweighs the benefits, so few producers use irrigation for diversification of enterprises. Queensland Much of Queensland s pastoral zone and the rivers within that zone are covered by the Wild Rivers Act 2005 (Qld), which limits the ability of producers in this region to undertake irrigation projects. The purpose of this Act is to preserve the natural values of rivers that have not been significantly affected by development; rivers that have all, or almost all, of their natural values intact (DERM 2010). The Act regulates new development within a declared wild river and its catchment area, and regulates the taking of natural resources from the area. The Act was amended in 2006 (Wild Rivers and Other Legislation Act 2006 (Qld)) to ensure low-impact development could occur in a declared area, including low-impact mining, transport and agricultural development, and development in urban areas. Western Australia Water resources are managed by the Western Australian Department of Water. Competition for water rights or access is limited in most catchments; hence producers in Western Australia have used this to diversify their production systems. Examples of such diversification include maize cropping and on-farm feedlots, hay and sorghum production, and even sweet corn production for human consumption. Further access to water may arise through mine dewatering opportunities, particularly in the Pilbara iron ore production area as mines in that area expand or new mines open. Some of these mines have large ore bodies inundated with water and for the miner to access the ore body it is necessary to remove the water. Much of this water cannot be pumped directly into existing waterways and must be disposed of in a secondary manner, such as for irrigation, providing an opportunity for agriculture producers in the vicinity of the mine. 32 ABARES

Financial performance Chapter 4 Financial performance This chapter presents financial performance estimates for specialist beef producers running more than 100 beef cattle and is based mainly on data collected in ABARES Australian Agricultural and Grazing Industries Survey (AAGIS; boxes 3 and 4). The AAGIS covers broadacre farms with an estimated value of agricultural operations exceeding $40 000. In the three years ending 2010 11 farms in scope for AAGIS and carrying more than 100 beef cattle accounted for just over 80 per cent of all beef cattle in northern Australia. The remaining cattle were located on very small farms and on farms in industries that fall outside the scope of AAGIS, including sugar cane, cotton, horticulture, dairy farms and specialist beef feedlots. Northern Australian beef producers In the three years ending 2010 11, an average of just over 8000 broadacre farm businesses in northern Australia were carrying more than 100 beef cattle. Around 85 per cent of these farm businesses derived most of their receipts from sale of beef cattle. These producers termed specialist beef producers in this report accounted for 93 per cent of beef cattle in northern Australia and 91 per cent of the total value of beef cattle sales (Table 4). Around 81 per cent of northern Australia s specialist beef producers are located in Queensland and these producers account for 74 per cent of beef cattle in northern Australia. Fifty-seven per cent of cattle are located in pastoral (rangelands) regions of northern Australia and 45 per cent are located in the northern live export cattle region (see Chapter 1, Map 1). Northern live cattle export region The northern live cattle export region contains the majority of farms involved in export of live cattle intended for slaughter to markets in South-East Asia and the Middle East. Farm businesses operating in this region are estimated to have accounted for 97 per cent of the total value of sales of cattle for live export from northern Australia. Generally, those farm businesses with the greatest reliance on sale of live export cattle are located in the far northern and western extremes of the region (see Chapter 1, Map 2). 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 ABARES 33

Financial performance Box 3 Major financial performance indicators Farm cash income = total cash receipts total cash costs total revenues received by the farm business during the financial year payments made by the farm business for materials and services and for permanent and casual hired labour (excluding owner manager, partner and family labour) Cash operating margin = farm cash income * 100 / total cash receipts margin of total cash receipts over total cash costs including interest payments Farm business profit = farm cash income + changes in trading stocks depreciation Imputed value of owner manager, partner and family labour Profit margin = farm business profit * 100 / total cash receipts + build up in trading stocks profit margin after accounting for all cash costs, interest, depreciation and the imputed value of unpaid labour inputs Profit margin adjusted to full equity = (farm business profit + interest paid) * 100 / total cash receipts + build up in trading stocks profit margin plus interest paid plus depreciation on leased plant as a percentage of the total value of output produced Rate of return = farm business profit adjusted to full equity * 100 Equity ratio = (total farm capital value excluding leased capital farm business debt) * 100 / total capital used profit margin adjusted to full equity expressed as a percentage of the total capital, land, livestock and machinery used by the business / total farm capital value excluding leased capital percentage of the farm business owned Debt servicing ratio = interest paid * 100 / (farm cash income + interest paid) proportion of net cashflow used to pay interest on farm business debt 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 derived less than 50 per cent of their cattle receipts from live export sales and less than 10 per cent in many areas of Queensland. In 2011, 42 per cent of the estimated 1559 farm businesses in the live export region, or 660 businesses, intended to export cattle to Indonesia. Around 300 of these businesses intended to sell more than 50 per cent of their total cattle turn-off for live export according to an ABARES survey of beef cattle producers in northern live cattle export regions conducted in late June 2011 (ABARES 2011). Just over 40 per cent of businesses intending to sell more than 50 per cent of total turn-off for live export were located in northern Western Australia and a further 28 per cent in the Northern Territory. 34 ABARES

Financial performance Box 4 AAGIS farm survey data Each year ABARES interviews the operators of around 1600 broadacre farm businesses in its Australian agricultural and grazing industries survey (AAGIS) as part of its annual farm survey program that has been in operation for more than 30 years. The AAGIS is targeted at commercial-scale broadacre farms farms that grow grains or oilseeds, or run sheep or beef cattle and that have an estimated value of agricultural output exceeding $40 000. Methodology Data provided in this report have been collected through on-farm interviews and incorporate detailed farm financial accounting information. The AAGIS sample is selected from the ABS business register. Data for individual sample farms collected through the AAGIS are weighted using ABS benchmarks to be population representative at regional, state and industry levels. Estimates for 2009 10 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 the estimates. The 2010 11 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 benchmarks may also change. The 2011 12 projections are based on data collected through on-farm interviews and telephone interviews between October and December 2011. The 2011 12 projections include crop and livestock production, receipts and expenditure up to the date of interview, together with expected production, receipts and expenditure for the remainder of 2011 12. Modifications were made to expected receipts and expenditure for the remainder of 2011 12 when significant post-interview price changes occurred. Farm businesses operating in the northern live cattle export region have an average herd size around 3.4 times larger than the average herd size for the balance of northern Australia (Table 5). Many of the farm businesses carrying the largest herds are operated by corporate entities. AAGIS estimates indicate that, while these corporate farm businesses account for less than 1 per cent of specialist beef producers in the northern live export cattle region, they accounted for around 11 per cent of the total cattle sales and almost 29 per cent of the total value of cattle sold for live export in the three years ending 2010 11 (Table 5). Balance of northern Australia The balance of northern Australia includes all of central and southern Queensland (the regions of South West Queensland, Central Western Queensland, the Central Highlands of Queensland, Western Darling Downs, Eastern Darling Downs and South Eastern Coastal Queensland) plus the Alice Springs District in the Northern Territory (Map 5). Together, these regions account for around 55 per cent of cattle on northern Australian broadacre farms, with over 85 per cent of these cattle located on specialist beef farms and the balance on mixed enterprise farms, particularly grains beef farms in the Central Highlands and Darling Downs, together with sheep beef farms in central and southern areas of Queensland. ABARES 35

Financial performance TABLE 4 Contribution to northern Australian beef industry, average for 2008 09, 2009 10 and 2010 11, farm businesses with greater than 100 beef cattle Estimated number Number of Number of Number of Cattle Live export AAGIS of businesses businesses beef cattle cattle sold sales value cattle sales value sample no. % % % % % no. Northern Australia Specialist beef producers a 6 800 85 93 (3) 91 (3) 91 (3) 97 (9) 627 Mixed enterprise beef producers 1 220 15 7 (6) 9 (7) 9 (8) 3 (67) 117 Total 8 020 100 100 100 100 100 745 Northern Australian specialist beef producers a Pastoral zone 1 710 21 57 (4) 49 (5) 44 (5) 95 (9) 305 Cropping zone 2 730 33 22 (6) 26 (6) 30 (7) 0 (106) 155 High rainfall zone 2 490 31 15 (4) 16 (5) 17 (6) 2 (41) 167 Queensland 6 480 81 74 (3) 75 (4) 79 (4) 18 (21) 353 Northern Western Australia 150 2 6 (10) 5 (11) 4 (10) 29 (13) 22 Northern Territory 160 2 13 (7) 11 (11) 8 (10) 50 (13) 47 Northern live cattle export region a Queensland 1 240 15 28 (6) 23 (10) 21 (9) 17 (21) 174 Northern Western Australia 150 2 6 (10) 5 (11) 4 (10) 29 (13) 22 Northern Territory 120 1 12 (8) 9 (13) 7 (12) 50 (13) 36 Cape York and Gulf of Carpentaria 60 1 4 (11) 2 (18) 2 (21) 2 (29) 25 Western North Queensland 60 1 4 (19) 5 (41) 4 (33) 5 (50) 17 Central North Queensland 610 8 16 (7) 13 (6) 13 (8) 9 (28) 71 Eastern North Queensland 490 6 3 (9) 3 (9) 3 (10) 1 (36) 61 Kimberley 50 1 5 (11) 4 (12) 3 (12) 21 (14) 10 Plibara - Gascoyne 110 1 2 (18) 2 (21) 1 (20) 10 (31) 12 Barkly - Tennant Creek 30 0.4 5 (12) 5 (22) 3 (18) 9 (28) 10 Victoria River District - Katherine 80 1 7 (12) 4 (16) 4 (18) 36 (16) 16 Top End - Roper - Gulf 20 0.2 1 (14) 0 (23) 0 (23) 5 (26) 10 Family operated 1 440 18 34 (5) 27 (5) 24 (6) 68 (9) 187 Corporate b 60 0.7 12 (8) 11 (21) 7 (19) 29 (17) 45 Total northern live cattle export region a 1 510 19 45 (4) 38 (7) 32 (6) 97 (9) 232 continued... 36 ABARES

Financial performance TABLE 4 Contribution to northern Australian beef industry, average for 2008 09, 2009 10 and 2010 11, farm businesses with greater than 100 beef cattle continued Estimated number Number of Number of Number of Cattle Live export AAGIS of businesses businesses beef cattle cattle sold sales value cattle sales value sample no. % % % % % no. Balance of northern Australia a South West Queensland 180 2 6 (17) 5 (16) 5 (20) 0 17 Central Western Queensland 460 6 7 (6) 8 (7) 8 (6) 0 22 Eastern Darling Downs Queensland 760 9 2 (7) 3 (7) 4 (10) na 24 Western Darling Downs Queensland 690 9 4 (18) 5 (17) 5 (19) 0 25 Central Highlands Queensland 1 270 16 16 (7) 18 (8) 21 (8) 0 38 South Eastern Coastal Queensland 2 000 25 11 (4) 13 (5) 14 (5) na 53 Alice Springs District 40 0 2 (7) 2 (9) 1 (10) na 11 Total balance of northern Australia a 5 410 66 48 (3) 54 (4) 59 (4) 3 (86) 190 a Farms mainly reliant on beef cattle production (Beef cattle specialized ANZSIC). b Public companies, large private companies and indigenous corporations. Notes: Excludes major feedlots. Figures in parentheses are standard errors expressed as a percentage of the estimate provided. Source: Australian Agricultural and Grazing Industries Survey (AAGIS) and Australian Bureau of Statistics ABARES 37

Financial performance TABLE 5 Physical performance, average for 2008 09, 2009 10 and 2010 11, farm businesses with greater than 100 beef cattle average per farm Estimated number Area of Average beef Net cattle Branding Stocking of businesses land operated cattle number turnoff rate c rate rate no. ha no. % % ha/lsu b Northern live cattle export region a Family operated 1 440 62 300 (7) 2 900 (5) 20 (3) 65 (2) 21 (7) Corporate 60 423 700 (5) 22 900 (8) 29 (7) 60 (4) 17 (6) Queensland 1 240 38 500 (12) 2 800 (6) 21 (6) 64 (2) 13 (12) Northern Western Australia 150 234 700 (6) 7 100 (10) 26 (7) 63 (4) 36 (10) Northern Territory 120 247 400 (5) 12 200 (8) 24 (8) 63 (4) 19 (6) Cape York and Gulf of Carpentaria 60 125 300 (15) 8 300 (11) 17 (8) 59 (7) 14 (13) Western North Queensland 60 117 400 (16) 8 700 (19) 20 (20) 68 (6) 13 (15) Central North Queensland 610 51 200 (17) 3 200 (7) 22 (4) 65 (2) 15 (18) Eastern North Queensland 490 3 200 (12) 800 (9) 20 (7) 62 (2) 4 (10) Kimberley 50 332 500 (11) 13 500 (11) 25 (8) 66 (4) 24 (7) Plibara - Gascoyne 110 192 800 (14) 4 300 (33) 27 (27) 61 (10) 41 (22) Barkly - Tennant Creek 30 699 400 (5) 24 600 (12) 30 (10) 60 (7) 25 (10) Victoria River District - Katherine 80 157 300 (10) 10 200 (12) 19 (11) 66 (2) 15 (9) Top End - Roper - Gulf 20 61 100 (20) 3 200 (14) 19 (13) 65 (3) 17 (16) Northern live cattle export region 1 510 77 800 (5) 3 700 (4) 22 (4) 64 (2) 20 (6) Balance of Northern Australia a South West Queensland 180 177 800 (19) 3 900 (17) 13 (13) 71 (4) 41 (11) Central Western Queensland 460 16 400 (6) 1 900 (6) 28 (5) 82 (1) 9 (7) South Eastern Coastal Queensland 2 000 2 500 (22) 400 (7) 29 (7) 85 (1) 5 (21) Central Highlands Queensland 1 270 4 700 (23) 600 (18) 24 (9) 83 (3) 5 (15) Western Darling Downs Queensland 690 7 100 (10) 1 500 (7) 27 (4) 77 (2) 4 (7) Eastern Darling Downs Queensland 760 2 800 (6) 700 (4) 26 (4) 78 (1) 4 (4) Alice Springs District 40 337 000 (5) 5 300 (7) 23 (6) 65 (5) 62 (7) Balance of Northern Australia 5 410 14 000 (5) 1 100 (3) 25 (2) 78 (1) 11 (5) Northern Australia Specialist beef producers a 6 800 28 100 (4) 1 700 (3) 23 (2) 70 (1) 15 (4) Mixed enterprise beef producers 1 220 19 400 (3) 700 (6) 25 (5) 80 (1) 14 (4) a Farms mainly reliant on beef cattle production (Beef cattle specialized ANZSIC). b Large stock unit (400 kg dry cow / steer). c Total cattle turned off less total cattle turned on expressed as a percentage of the average cattle number carried. Notes: Excludes major feedlots. Figures in parentheses are standard errors expressed as a percentage of the estimate provided. Source: Australian Agricultural and Grazing Industries Survey (AAGIS) 38 ABARES

Financial performance MAP 5 Northern Australian regions Northern live cattle export region Kimberley Pilbara-Gascoyne Top End-Roper-Gulf Victoria River District-Katherine Barkly-Tennant Creek Cape York and Gulf of Carpentaria Western north Queensland Central north Queensland Eastern north Queensland South West Queensland Balance of Northern Australia Central West Queensland Central Highlands Queensland South Eastern Coastal Queensland Western Darling Downs Eastern Darling Downs Alice Springs District Note: Regions based on aggregations of Australian Bureau of Statistics statistical local areas. Source: AAGIS Historical financial performance of northern Australian beef producers The average financial performance of northern Australian beef producers substantially exceeded the average financial performance of beef producers in southern Australia throughout all of the 1990s and much of the 2000s (Figure 3). For the decade ending 2004 05, farm cash income for farm businesses in the northern live cattle export region averaged $173 000 per farm business a year and $91 000 a year in the balance of northern Australia, compared with just $31 000 a year in southern Australia, in 2011 12 dollars. Rates of return averaged 3.0 per cent a year in the northern live cattle export region and 1.1 per cent a year in the balance of northern Australia. The average financial performance of beef producers in the northern live cattle export region is strongly influenced by the performance of larger businesses, particularly the very large corporate farm businesses (public companies, large private companies and Indigenous corporations). Nevertheless, after excluding these corporate businesses, annual farm cash income for family farm businesses in the northern live cattle export region averaged a relatively high $115 000 per farm business for the decade ending 2004 05 and the average rate of return was 2.2 per cent a year. The superior financial performance of beef producers in northern Australia, on average, has largely been a consequence of the much larger scale of operations of northern businesses enabling businesses to generate relatively large farm cash incomes and business profits. These relatively high profits combined with low land values, particularly in pastoral regions, resulted in higher rates of return to total capital used compared with estimates for beef producers in southern Australia. ABARES 39

Financial performance FIGURE 3 Farm cash income, specialist beef cattle producers a average per farm 450 360 270 Northern live cattle export region Balance of northern Australia Southern Australia 180 90 2011 12 $ 000 1990 91 1993 94 1996 97 1999 2000 2002 03 2005 06 2008 09 a Farm businesses with greater than 100 cattle. z ABARES projection. Source: AAGIS 2011 12z Recent financial performance of northern Australian beef producers The financial performance of beef producers in northern Australia declined significantly between 2005 06 and 2010 11 (Figure 3). The decline in average financial performance of beef producers in northern Australia in this period, particularly in the northern live cattle export region, was due in large part to the general reduction real beef cattle prices over this period, reduced cattle turn-off and increased farm business debt. Annual farm cash income for farm businesses in the northern live cattle export region averaged $84 400 per farm business and $65 000 in the balance of northern Australia for the three years ending 2010 11 (Table 6) substantially below the average farm cash incomes for the decade ending 2004 05, in real terms. Rates of return averaged 1.2 per cent a year in the northern live cattle export region and just 0.8 per cent a year in the balance of northern Australia for the three years ending 2010 11. Farm cash income for farm businesses in the northern live cattle export region is projected to increase from an average of $127 000 per farm business in 2010 11 to average $165 000 per farm business in 2011 12. This increase is mainly a consequence of higher average prices received for sale of cattle for slaughter, partly due to higher weights for sale cattle resulting from good seasonal conditions in 2011 12, together with a reduction in the number of cattle purchased and transferred onto corporate properties. Farm cash income for corporately owned farm businesses in the northern live cattle export region is expected to increase from an average of $277 000 per business in 2010 11 to average $1.4 million per business in 2011 12. However, farm cash income for family operated farm businesses is expected to average $120 000 per business in 2011 12, similar to the level in 2010 11. The reduction in number of cattle sold for live export in 2011 12 on family owned businesses is estimated to be much larger than on corporately owned businesses, on average. For the balance of northern Australia, farm cash income is projected to increase from an average of $72 000 in 2010 11 to average $99 000 in 2011 12, largely as a 40 ABARES

Financial performance consequence of higher average prices received for beef cattle in 2011 12, combined with a reduction in beef cattle purchases. Prices received for beef cattle According to AAGIS data, average prices received for cattle fell by around 15 per cent, in real terms, between 2004 05 and 2011 12. Average prices received fell by a similar percentage in all regions and for live export cattle (Figure 4). Differences in the average price received for beef cattle in various regions partly reflect differences in the weights and type of cattle produced, but also the large differences in the cost of transporting cattle to slaughter or other markets in eastern Queensland and southern Australia. The average price received per head for cattle sold to the domestic market from the northern live cattle export region was around $170 per head lower than the average price received for the balance of northern Australia for the decade ending 2010 11. FIGURE 4 Average price received for cattle sold, specialist beef producers a 1200 1000 800 600 Balance of northern Australia domestic Northern live cattle export region domestic Northern live cattle export region live export 400 200 2011 12 $/head 1999 2000 2001 02 2003 04 2005 06 2007 08 2009 10 a Farm businesses with greater than 100 cattle. z ABARES projection. Source: AAGIS 2011 12z Change in cattle turn-off Overall, the proportion of the cattle herd turned-off (sold or transferred off properties) for northern Australia declined from 33 per cent in 2005 06 to 29 per cent in 2010 11. The largest reduction occurred in southern and eastern regions of Queensland, with turn-off rates falling markedly between 2007 08 and 2010 11. In contrast, in the northern live cattle export region turn-off rates have mostly remained around 29 per cent since 2005 06. Most of northern Australia was affected by drought for a substantial part of the early and mid 2000s resulting in increased cattle turn-off as stocking rates were reduced. Eastern and northern regions continued to be affected by drought in 2006 07 before rainfall increased in far northern areas in 2007 08. However, drought intensified in central Australian regions in 2007 08. Rainfall increased across most northern regions from 2008 09, except northern Western Australia where severe drought was experienced in 2009 10. ABARES 41

Financial performance As grazing improved in far northern areas in 2007 08 and 2008 09 cattle numbers were partly replenished with stock purchased or transferred in from remaining drought-affected regions to the east and south and the average expenditure on cattle purchase increased. Breaking of the drought across the whole of eastern Australia in late 2009 10 led to increased cattle purchases in 2009 10 and 2010 11, a decline in cattle sold and lower farm receipts as producers rebuilt cattle numbers through natural increase. Increase in farm business debt Farm business debt for northern Australian specialist beef producers more than doubled in the period since 1999 2000 from an average of $280 000 per farm at 30 June 2000 to around $650 000 per farm at 30 June 2011, in real terms. Average farm business debt increased in most regions of Australia over the decade to 2011. Increases in the northern live cattle export region were among the largest recorded. Average farm business debt increased by around 250 per cent for family operated farm businesses in this region between 30 June 2000 and 30 June 2011, in real terms (Figure 5). FIGURE 5 Farm business debt, family farms in northern live cattle export region, as at 30 June average per farm 1500 1200 900 600 Building and structure development Vehicles, machinery and plant Land development Reconstructed debt Working capital a Land purchase 300 2011 12 $ 000 2001 2003 2005 2007 2009 2011p a Includes livestock purchases. p ABARES preliminary estimate. Source: AAGIS Debt for land purchase accounted for most of this increase to 2005. However, in the period since, land purchase debt stabilised and debt for land development showed the largest increase in percentage terms, followed closely by debt for purchase of vehicles, plant and machinery and debt to finance development of buildings and structures, indicating that some businesses may have shifted focus to increasing the productivity of their existing land holding rather than acquiring more land. However, overall in dollar terms, the largest increase since 2005 has been in working capital debt. This is mostly overdraft debt to meet operating expenditure and livestock purchase. Some of this debt has been restructured into term loans (Figure 5). Increases in borrowing for working capital largely correspond with change in proportion of farms recording negative farm cash income. A steady increase occurred in the proportion of farms recording negative farm cash income and, therefore, potentially needing to borrow to meet cash shortfalls in the northern live cattle 42 ABARES

Financial performance export region between 2004 05 and 2009 10 (Figure 6). The proportion of farms recording negative farm cash income peaked in 2009 10 during the period of drought in northern Western Australia. FIGURE 6 Percentage of farm businesses recording negative farm cash incomes 50 40 Northern live cattle export region Balance of northern Australia 30 20 10 % 2001 02 2003 04 2005 06 2007 08 2009 10 2011 12z z ABARES projection. Source: AAGIS In the other regions of northern Australia, excluding the live cattle export region, average farm business debt increased by over 300 per cent between 2000 and 2008, in real terms, but has since declined slightly (Figure 7). FIGURE 7 Farm business debt, family farms, balance of northern Australia, as at 30 June average per farm 1000 Building and structure development 800 Vehicles, machinery and plant Land development 600 Reconstructed debt Working capital a 400 Land purchase 200 2011 12 $ 000 2001 2003 2005 2007 2009 2011p a Includes livestock purchases. p ABARES preliminary estimate. Source: AAGIS ABARES 43

Financial performance In a situation similar to that in the live export region, most of the increase in farm business debt before 2008 was for land purchase. Land purchase debt stabilised after 2008 and debt for land development has shown the largest increase in percentage terms, followed by debt for purchase of vehicles, plant and machinery and then debt to finance construction of buildings and structures. After increasing significantly between 2000 and 2008, working capital debt and reconstructed debt has declined for northern Australian farm businesses outside the live cattle export region. This downward trend may, at least partly, reflect the steady decline in the proportion of farms recording negative farm cash incomes over the past five years (Figure 6) following a peak in 2006 07 at the height of the drought in eastern and southern Queensland. This downward trend contrasts with the rising trend observed for the live cattle export region. Land values and farm equity Land values for beef producing properties in northern Australia are estimated to have increased by 280 per cent between 1999 2000 and 2008 09, in real terms. Land values increased markedly in all regions including pastoral areas where grazing of beef cattle currently provides the only income for businesses. Values increased by over 320 per cent in the higher rainfall areas of eastern and southern Queensland and by an average of 240 per cent in the northern live cattle export region (Figure 8). FIGURE 8 Land value per large stock unit, northern Australia specialist beef producers a 6000 5000 4000 3000 High rainfall zone Cropping zone Northern Australia Northern live cattle export region 2000 1000 2011 12 $/LSU 2000 01 2002 03 2004 05 2006 07 2008 09 2010 11p a 400 kilogram steer equivalent. Farm businesses with greater than 100 cattle. p ABARES preliminary estimate. Source: AAGIS In the early and mid 2000s demand for land was high, with a high level of land purchases by existing farm businesses (ABARE 2010). In addition, non-agricultural factors such as an increase in mining activity, urban expansion and tourism activity, a general increase in Australian property values and speculation around future agricultural development and returns in northern Australia are likely to have been significant factors stimulating increases in land values in some regions. In the period since 2008 09 there has been a marked reduction in land purchase activity (ABARE 2010; Herron Todd White 2011) and land values stabilised before falling moderately in 2009 10 and 2010 11. 44 ABARES

Financial performance Rising land values to 2008 09 mostly offset the effect of increasing farm business debt on farm equity. However, with land values falling slightly since 2008 09, together with a continued increase in average farm business debt, the proportion of farm businesses in the northern live cattle export region with a low equity ratio has been rising. According to AAGIS data, the estimated proportion of farm businesses with an equity ratio (proportion of farm assets owned) of less than 70 per cent increased from 2 per cent at 30 June 2006 to around 16 per cent at 30 June 2011 (Figure 9). This compares with around 9 per cent of broadacre farms nationally with less than 70 per cent equity at 30 June 2011. Equity ratios of 70 per cent or less, as recorded in ABARES surveys, are normally below the level at which banks would continue to support lending. Presence of a significant proportion of farm businesses with low equity ratios in the northern live cattle export region has also been noted in other recent analyses of the financial performance of farm businesses (McCosker et al. 2010) with some indication that there may be a concentration of these businesses in areas with highest reliance on live cattle exports close to the main live export ports (Hydros Consulting 2011). FIGURE 9 Distribution of farm businesses by equity ratio, northern live export region, as at 30 June 100 80 60 Less than 70% equity ratio 70 to 80% equity ratio 80 to 90% equity ratio 90 to 100% equity ratio 100% equity ratio 40 20 % 2001 2003 2005 2007 2009 2011p p ABARES preliminary estimate. Source: AAGIS Change in farm costs Freight costs are a major determinant of the net price received for beef cattle in northern Australia and farm cash costs. Other major farm costs include cattle purchases, interest payments, wages for hired labour, repairs and maintenance, fodder (mostly supplements), fuel and livestock contracts (such as contract mustering). The profile of average farm costs in the northern live cattle export region and the balance of northern Australia is provided in figures 10 and 11. Livestock purchase cost includes the value of cattle transferred onto corporate properties from other properties owned by the same business entity. On average, hired labour cost for farm businesses in the northern live cattle export region accounted for a larger share of ABARES 45

Financial performance FIGURE 10 Composition of average farm costs, live cattle export region, 2008 09 to 2010 11 a Beef cattle purchases and transfers Interest paid Wages for hired labour Repairs and maintenance Fodder Fuel oil & grease Freight Contracts - livestock Handling and marketing charges Livestock materials Agistment Rates - shire Insurance Land rent Motor vehicle expenses Accounting Other materials Other costs Other services Operator and family labour cost Depreciation a Farm businesses with greater than 100 cattle. Source: AAGIS % 5 10 15 20 FIGURE 11 Composition of average farm costs, balance of northern Australia 2008 09 to 2010 11 a Beef cattle purchases and transfers Interest paid Repairs and maintenance Fuel oil & grease Fodder Freight Wages for hired labour Rates - shire Handling and marketing charges Livestock materials Insurance Contracts - livestock Motor vehicle expenses Agistment Accounting Land rent Other materials Other services Other costs Operator and family labour cost Depreciation a Farm businesses with greater than 100 cattle. Source: AAGIS % 5 10 15 20 46 ABARES

Financial performance total farm costs than for businesses in the balance of northern Australia. This reflects the greater presence of corporate farms where all labour input is hired as well as the larger scale of operations of farm businesses in this region necessitating greater use of non-family and partner labour. Between 1999 2000 and 2010 11, expenditure on most inputs increased broadly in line with the general rate of inflation. The cost of fodder (including supplements) increased markedly in years when drought was severe, both as a consequence of increased fodder use and much higher fodder prices. Expenditure on cattle purchases (and inward transfers of cattle) increased markedly in years when drought conditions eased, due to both an increase in the numbers of cattle purchased and increases in the purchase price of cattle for restocking. Expenditure on interest increased by much more than all other categories of farm cost between 1999 2000 and 2010 11. In the northern live cattle export region, expenditure on interest payments increased by 250 per cent, in real terms. In the balance of northern Australia, interest paid increased by 170 per cent. Debt servicing ratio (the percentage of net cashflow needed to pay interest) increased from less than an average of 20 per cent per farm in the early 2000s to a peak of just over 90 per cent in 2009 10 in the northern live cattle export region and just over 50 per cent in the balance of northern Australia. Estimated improvement in average farm cash income in 2010 11 and 2011 12 resulted in this ratio falling to around 33 per cent and 27 per cent, respectively, but remaining relatively high in historical terms (Figure 12). FIGURE 12 Debt servicing ratio, specialist beef producers average per farm 100 80 Northern live export region family farms Balance of northern Australia 60 40 20 % 1999 2000 2001 02 2003 04 2005 06 2007 08 2009 10 2011 12z z ABARES projection. Source: AAGIS A high proportion of the costs of northern beef producers are fixed costs; that is, they are not able to vary with the level of output of the farm. As a consequence, reduced real farm cash receipts in some recent years have resulted in a lesser reduction in farm cash costs. The only farm cost reduced significantly is the cost of repairs and maintenance. As a consequence, average farm cash income fell appreciably from 2006 07 to 2009 10 in northern Australia, particularly in the northern live cattle export region (figures 13 and 14). ABARES 47

Financial performance FIGURE 13 Farm cash receipts and cash costs, northern live cattle export region average per farm 1200 1000 Total cash receipts Total cash costs 800 600 400 200 2011 12 $ 000 1999 2000 2001 02 2003 04 2005 06 2007 08 2009 10 2011 12z z ABARES projection. Source: AAGIS FIGURE 14 Farm cash receipts and cash costs, balance of northern Australia average per farm 700 600 500 400 300 200 100 Total cash receipts Total cash costs 2011 12 $ 000 1999 2000 2001 02 2003 04 2005 06 2007 08 2009 10 2011 12z z ABARES projection. Source: AAGIS Regional financial performance Average farm business profit of specialist beef producers in each region is strongly related to herd size. Regions having the largest average herd sizes, such as Barkly Tennant Creek, Kimberley, Victoria River District Katherine, Cape York and Gulf of Carpentaria and Western North Queensland had the highest average farm business profits in the three years ending 2010 11. Most also recorded average profit margins (adjusted to full equity) and rates of return above the average for northern Australia (Table 6). 48 ABARES

TABLE 6 Financial performance, average for 2008 09, 2009 10 and 2010 11, farm businesses with greater than 100 beef cattle average per farm Cash Profit margin Debt Farm operating Farm Profit adjusted Rate of Land value Equity servicing Off-farm cash income margin business profit margin to full equity return c per LSU b ratio d ratio d income e $ % $ % % % $ % % $ Northern live cattle export region a Family operated 50 800 (41) 11 (40) 9 000 (251) 2 (249) 16 (24) 1.1 (26) 1 910 (3) 86 (1) 60 (18) 27 700 (12) Corporate 833 600 (42) 18 (43) 628 800 (50) 13 (44) 14 (42) 1.8 (47) 920 (7) na na na Queensland 74 700 (24) 15 (23) 41 600 (47) 7 (42) 20 (13) 1.4 (17) 2 030 (3) 87 (2) 48 (15) 28 700 (13) Northern Western Australia 269 500 (34) 23 (31) 78 000 (91) 4 (102) 12 (123) 1.4 (110) 700 (6) na na na Northern Territory 151 900 (143) 7 (139) 154 200 (106) 7 (104) 15 (44) 1.5 (48) 1 160 (6) 79 (2) 56 (66) 26 600 (24) Cape York and Gulf of Carpentaria 145 200 (30) 17 (23) 178 800 (61) 17 (48) 28 (28) 1.6 (40) 1 310 (14) 90 (4) 38 (17) 28 300 (41) Western North Queensland 64 100 (367) 3 (364) 184 200 (104) 7 (93) 19 (26) 2.1 (36) 1 650 (6) 76 (8) 85 (110) 4 200 (53) Central North Queensland 126 600 (17) 22 (14) 96 900 (28) 15 (23) 28 (9) 2.0 (13) 1 930 (5) 86 (2) 40 (13) 19 600 (20) Eastern North Queensland 15 300 (57) 9 (54) 60 300 (24) 36 (34) 23 (51) 0.9 (38) 3 740 (6) 93 (2) 58 (30) 42 000 (19) Kimberley 540 700 (21) 25 (17) 264 800 (54) 13 (44) 14 (41) 1.7 (47) 700 (7) na na na Plibara - Gascoyne 153 300 (52) 22 (35) 2 100 (999) 0 (999) 11 (98) 1.3 (103) 740 (19) 80 (14) 34 (29) 39 300 (35) Barkly - Tennant Creek 307 300 (311) 5 (308) 385 800 (109) 9 (106) 14 (76) 1.3 (83) 900 (11) 76 (9) 34 (209) 18 200 (54) Victoria River District - Katherine 122 300 (115) 9 (101) 178 700 (59) 11 (50) 24 (16) 1.8 (19) 1 270 (7) 79 (2) 63 (48) 21 400 (39) Top End - Roper - Gulf 39 100 (163) 7 (153) 67 500 (124) 10 (108) 18 (46) 1.2 (54) 1 940 (12) 86 (2) 54 (76) 58 600 (24) Northern live cattle export region 84 400 (27) 13 (26) 35 700 (63) 5 (60) 16 (17) 1.2 (20) 1 640 (3) 86 (1) 47 (16) 27 600 (12) Balance of Northern Australia a South West Queensland 84 600 (194) 9 (198) 81 400 (129) 6 (122) 14 (55) 1.7 (59) 1 650 (10) 80 (5) 85 (99) 26 100 (28) Central Western Queensland 143 900 (12) 32 (11) 91 100 (19) 18 (18) 28 (10) 1.8 (12) 3 160 (7) 92 (1) 25 (18) 6 700 (16) South Eastern Coastal Queensland 32 000 (16) 22 (14) 19 700 (51) 12 (59) 1 (699) 0.1 (690) 5 720 (9) 93 (2) 33 (18) 23 900 (24) Central Highlands Queensland 25 200 (60) 10 (69) 16 200 (104) 5 (101) 7 (81) 0.4 (85) 4 390 (8) 90 (3) 58 (32) 19 500 (27) Western Darling Downs Queensland 115 700 (13) 27 (11) 39 500 (35) 9 (33) 26 (9) 1.3 (10) 4 160 (5) 88 (1) 38 (11) 22 800 (22) Eastern Darling Downs Queensland 46 000 (15) 25 (12) 23 100 (26) 12 (28) 1 (208) 0.1 (205) 5 620 (7) 95 (1) 29 (15) 26 400 (14) Alice Springs District 145 900 (35) 14 (31) 74 000 (114) 7 (121) 3 (248) 0.3 (258) 1 350 (7) 89 (2) 41 (23) 60 600 (36) Balance of Northern Australia 65 000 (12) 21 (11) 6 500 (97) 2 (95) 15 (11) 0.8 (13) 4 040 (3) 91 (1) 38 (8) 19 200 (9) Northern Australia Specialist beef producers a 69 300 (11) 18 (10) 13 000 (53) 3 (52) 15 (10) 0.9 (11) 2 890 (2) 90 (1) 41 (8) 21 000 (8) Mixed enterprise beef producers 107 500 (14) 23 (10) 23 900 (64) 5 (60) 17 (15) 1.5 (18) 3 220 (4) 86 (1) 34 (10) 24 100 (10) a Farms mainly reliant on beef cattle production (Beef cattle specialized ANZSIC). b Large stock unit (dry cow or steer). c Return adjusted to full equity on total capital, excluding capital appreciation. d For family operated farms. e For farm operator manager and spouse. Notes: Excludes major feedlots. Figures in parentheses are standard errors expressed as a percentage of the estimate provided. Source: Australian Agricultural and Grazing Industries Survey (AAGIS)

Financial performance Regions with low average herd sizes, having a high proportion of producers with smaller herds, generally had the poorest average financial performance in the three years ending 2010 11. Regions with low average herd size and relatively poor average financial performance include Eastern North Queensland in the northern live cattle export region where rate of return averaged 0.9 per cent a year in the three years ending 2010 11. Similarly, in the balance of northern Australia, the regions of South Eastern Coastal Queensland and the Eastern Darling Downs both recorded an average rate of return of 0.1 per cent a year in the three years ending 2010 11 (Table 6). Whilst AAGIS financial performance data for specialist beef producers in northern Australia indicates a general declined between 2005 06 and 2010 11, this decline is not evident for every region in northern Australia (Figure 15). The Pilbara Gascoyne region of Western Australia, a region with relatively high reliance on exports of live cattle, exhibits the strongest downward trend in average farm cash income of any northern live cattle export region (Figure 15). This region also had the second lowest estimated average farm business profit of all the regions in the northern live export region after Eastern North Queensland for the three years ending 2010 11 (Table 6), despite having a relatively high average herd size. In part, this region s relatively poor performance during this period was due to the effects of drought in 2009 10. McCosker et al. (2010) also identified relatively poor financial performance in this region. In contrast, the Top End Roper Gulf, another region with high reliance on sale of live export cattle, exhibited a slight rising trend in estimated average farm cash income over the past decade. Average farm cash incomes in this region are relatively low for a pastoral area because of the relatively small average herd size, but estimated profit margins were above the average for northern Australia. In addition, the off-farm income of farm operators was relatively high compared with other regions in the northern live cattle export zone. Eastern north Queensland had the lowest estimated average farm cash income among regions in the northern live cattle export zone in the three years ending 2010 11. The primary cause of low performance across a range of financial performance measures farm cash income, farm business profit and rate of return is small herd size. In the three years ending 2010 11 the average herd size in this region was 800 head, the lowest of all regions in the northern live cattle export zone. This region is fairly typical of higher rainfall regions, where there is a high proportion of smaller farm businesses. While the average financial performance of these businesses is low, most businesses generate positive farm cash income because of substantial input of unpaid family labour. Off-farm income of farm operators is relatively high compared with other regions in the northern live cattle export region as a consequence of proximity to larger urban centres. Among regions in the balance of northern Australia, South West Queensland and South Eastern Coastal Queensland exhibit the strongest downward trends in average farm cash income (Figure 16). Increases in average farm cash income are expected in many regions in 2011 12 as a consequence of higher cattle price and an increase in the sale weights of cattle due to excellent pasture conditions resulting from above average rainfall in 2010 11 and 2011 12. Average farm cash income increased significantly in the Alice Springs District in 2010 11 as cattle turn-off increased following the steady rebuild of cattle numbers after heavy destocking in response to drought through the mid 2000s. Average farm cash income is projected to increase further in 2011 12 as turn-off increases and higher prices are received for cattle sold. 50 ABARES

Financial performance FIGURE 15 Farm cash income, northern live cattle export region average per farm 2000 Cape York and Gulf of Carpenteria 2000 Western North Queensland 1500 1500 1000 1000 500 500 2011 12 $ 000 2011 12 $ 000 500 500 1000 1999 2000 2002 03 2005 06 2008 09 2011 12z 1000 1999 2000 2002 03 2005 06 2008 09 2011 12z 2000 Central North Queensland 2000 Eastern North Queensland 1500 1500 1000 1000 500 500 2011 12 $ 000 2011 12 $ 000 500 500 1000 1999 2000 2002 03 2005 06 2008 09 2011 12z 1000 1999 2000 2002 03 2005 06 2008 09 2011 12z 2000 Kimberley 2000 Pilbara Gascoyne 1500 1500 1000 1000 500 500 2011 12 $ 000 2011 12 $ 000 500 500 1000 1999 2000 2002 03 2005 06 2008 09 2011 12z 1000 1999 2000 2002 03 2005 06 2008 09 2011 12z continued... ABARES 51

Financial performance FIGURE 15 Farm cash income, northern live cattle export region average per farm continued 2000 Top End - Roper - Gulf 2000 Victoria River District - Katherine 1500 1500 1000 1000 500 500 2011 12 $ 000 2011 12 $ 000 500 500 1000 1999 2000 2002 03 2005 06 2008 09 2011 12z 1000 1999 2000 2002 03 2005 06 2008 09 2011 12z 8000 Barkly - Tennant Creek* 6000 4000 2000 2011 12 $ 000 2000 1999 2000 2002 03 2005 06 2008 09 2011 12z * this graph has a different scale z ABARES projection. Source: AAGIS 52 ABARES

Financial performance FIGURE 16 Farm cash income, balance of northern Australia average per farm 2000 South West Queensland 2000 Central Western Queensland 1500 1500 1000 1000 500 500 2011 12 $ 000 2011 12 $ 000 500 500 1000 1999 2000 2002 03 2005 06 2008 09 2011 12z 1000 1999 2000 2002 03 2005 06 2008 09 2011 12z 2000 Eastern Darling Downs 2000 Western Darling Downs 1500 1500 1000 1000 500 500 2011 12 $ 000 2011 12 $ 000 500 500 1000 1999 2000 2002 03 2005 06 2008 09 2011 12z 1000 1999 2000 2002 03 2005 06 2008 09 2011 12z continued... ABARES 53

Financial performance FIGURE 16 Farm cash income, balance of northern Australia average per farm continued 2000 Central Highlands 2000 South Eastern Coastal Queensland 1500 1500 1000 1000 500 500 2011 12 $ 000 2011 12 $ 000 500 500 1000 1999 2000 2002 03 2005 06 2008 09 2011 12z 1000 1999 2000 2002 03 2005 06 2008 09 2011 12z 2000 Alice Springs District 1500 1000 500 2011 12 $ 000 500 1000 1999 2000 2002 03 2005 06 2008 09 2011 12z z ABARES projection. Source: AAGIS 54 ABARES

Financial performance TABLE 7 Financial performance, average for 2008 09, 2009 10 and 2010 11, specialist beef producers a with greater than 100 beef cattle average per farm Northern Northern live Australia export region Population no. 6 800 1 510 Sample contributing 627 232 Physical Area of land operated 30 June ha 28 100 (4) 77 800 (5) Beef cattle average number no. 1 698 (3) 3 736 (4) Beef cattle purchased no. 68 (15) 119 (38) Beef cattle transferred in no. 44 (17) 115 (24) Calves marked no. 492 (3) 1 042 (4) Branding rate % 70 (1) 64 (2) Beef cattle sold total no. 442 (3) 823 (7) Beef cattle sold live export no. 48 (8) 214 (8) Beef cattle transferred out no. 68 (15) 237 (17) Cattle turn-on rate % 7 (11) 6 (22) Cattle turn-off rate % 30 (2) 28 (4) Stocking rate b ha/lsu 15 (4) 20 (6) Sheep numbers at 30 June no. 51 (22) 65 (51) Area planted to crops ha 42 (12) 22 (33) Scale of operation large stock units (LSU) b no. 1 826 (3) 3 948 (4) Receipts Beef cattle sales total $ 313 400 (3) 492 000 (6) Beef cattle sales live export $ 26 500 (9) 118 500 (9) Value of cattle transferred out $ 32 400 (16) 111 800 (18) Total cash receipts $ 386 100 (3) 658 700 (6) Costs Beef cattle purchases $ 42 500 (9) 65 200 (24) Value of cattle transferred in $ 23 600 (18) 59 800 (25) Wages for hired labour $ 19 500 (6) 50 200 (8) Fodder $ 20 700 (5) 44 500 (6) Fuel oil & grease $ 21 100 (3) 40 300 (5) Repairs & maintainance $ 29 600 (3) 47 500 (5) Other materials $ 22 700 (5) 39 400 (8) Contracts $ 12 400 (8) 25 200 (7) Administrative costs $ 12 600 (4) 18 100 (8) Total freight $ 17 900 (5) 38 100 (8) Handling and marketing charges $ 8 000 (6) 14 500 (11) Rates $ 9 400 (3) 11 800 (5) Other services $ 18 500 (3) 25 400 (5) Interest paid $ 47 400 (6) 73 700 (12) Land rent $ 4 200 (8) 8 300 (9) Total cash costs $ 316 800 (4) 574 300 (7) continued... ABARES 55

Financial performance TABLE 7 Financial performance, average for 2008 09, 2009 10 and 2010 11, specialist beef producers a with greater than 100 beef cattle average per farm continued Northern Australia Northern live export region Farm capital and debt Livestock capital at 30 June $ 1 217 600 (3) 2 464 200 (4) Plant, vehicles and machinery capital at 30 June $ 250 000 (3) 340 200 (4) Land, fixed improvements and water capital at 30 June $ 5 276 000 (3) 6 468 600 (5) Total capital at 30 June $ 6 750 300 (2) 9 278 800 (4) Farm business debt at 30 June b $ 648 500 (6) 1 031 100 (12) Farm business equity at 30 June b $ 5 555 000 (2) 6 555 800 (4) Equity ratio at 30 June % 90 (1) 86 (1) Debt servicing ratio % 41 (8) 47 (16) Debt to receipts ratio % 205 (5) 239 (9) Farm liquid assets at 30 June c $ 142 000 (13) 163 200 (13) Financial performance Total cash receipts $ 386 100 (3) 658 700 (6) less total cash costs $ 316 800 (4) 574 300 (7) Farm cash income $ 69 300 (11) 84 400 (27) plus buildup in trading stocks $ 37 800 (20) 64 300 (36) less total net depreciation $ 37 500 (2) 53 800 (4) less operator and family labour cost $ 56 600 (2) 59 200 (3) Farm business profit $ 13 000 (53) 35 700 (63) Profit at full equity $ 63 300 (11) 112 600 (21) plus capital appreciation $ 144 700 (18) 215 600 (24) Profit at full equity incl. capital appreciation $ 81 400 (32) 103 000 (56) Rate of return excluding capital appreciation % 0.9 (11) 1.2 (20) including capital appreciation % 1.2 (32) 1.1 (56) Percentage of farms with negative farm cash income % 26 (9) 39 (9) Cash operating margin % 18 (10) 13 (26) Profit margin % 3 (52) 5 (60) Profit margin at full equity % 15 (10) 16 (17) Distribution of farms Low equity negative income % 3 (18) 4 (33) Low equity positive income % 1 (20) 2 (34) High equity negative income % 22 (10) 33 (11) High equity positive income % 73 (3) 60 (6) 100% equity ratio % 35 (7) 34 (12) 90 to 100% equity ratio % 41 (6) 36 (11) 80 to 90% equity ratio % 13 (10) 15 (16) 70 to 80% equity ratio % 6 (13) 8 (24) continued... 56 ABARES

Financial performance TABLE 7 Financial performance, average for 2008 09, 2009 10 and 2010 11, specialist beef producers a with greater than 100 beef cattle average per farm continued Northern Australia Northern live export region 60 to 70% equity ratio % 3 (18) 4 (35) Less than 60% equity ratio % 2 (21) 2 (35) Other Off-farm income d $ 21 000 (8) 27 600 (12) Prices received Live export cattle $ 556 (2) 553 (2) Other cattle $ 727 (2) 613 (4) Land value per hectare $ 188 (5) 83 (6) Land value per LSU $ 2 900 (2) 1 600 (3) a Farms mainly reliant on beef cattle production (Beef cattle specialized ANZSIC). b Large stock unit (400 kg dry cow / steer). c Ranked by rate of return on total capital. d For farm operator manager and spouse. Notes: Excludes major feedlots. Figures in parentheses are standard errors expressed as a percentage of the estimate provided. Source: Australian Agricultural and Grazing Industries Survey (AAGIS) ABARES 57

Financial performance Table 8 Financial performance, average for 2008 09, 2009 10 and 2010 11, specialist beef producers a with greater than 100 beef cattle, including top 25 per cent average per farm Northern Australia Northern live export region Average Top 25% c Average Top 25% c Population no. 6 800 1 710 1 510 390 Sample contributing 627 190 232 70 Physical Area of land operated 30 June ha 28 100 (4) 52 900 (6) 77 800 (5) 106 800 (6) Beef cattle sold - total no. 442 (3) 911 (6) 823 (7) 1 731 (13) Beef cattle sold - live export no. 48 (8) 127 (11) 214 (8) 475 (12) Beef cattle transferred out no. 68 (15) 159 (21) 237 (17) 531 (22) Beef cattle numbers at 30 June no. 1 723 (3) 3 908 (4) 3 781 (4) 7 896 (8) Branding rate % 70 (1) 72 (1) 64 (2) 67 (2) Cattle turn-on rate % 7 (11) 6 (20) 6 (22) 6 (36) Cattle turn-off rate % 30 (2) 28 (4) 28 (4) 29 (7) Stocking rate ha / LSU b ha/lsu 15 (4) 13 (5) 20 (6) 13 (6) Receipts Beef cattle sales - total $ 313 400 (3) 669 800 (5) 492 000 (6) 1 055 700 (13) Beef cattle sales - live export $ 26 500 (9) 72 000 (11) 118 500 (9) 268 600 (13) Value of cattle transferred out $ 32 400 (16) 79 300 (22) 111 800 (18) 258 300 (24) Total cash receipts $ 386 100 (3) 843 400 (5) 658 700 (6) 1 416 800 (11) Costs Interest paid $ 47 400 (6) 110 900 (9) 73 700 (12) 143 600 (24) Beef cattle purchases $ 42 500 (9) 80 800 (18) 65 200 (24) 132 100 (45) Repairs & maintainance $ 29 600 (3) 53 400 (5) 47 500 (5) 75 700 (9) Value of cattle transferred in $ 23 600 (18) 35 800 (27) 59 800 (25) 99 800 (36) Fuel oil & grease $ 21 100 (3) 40 200 (5) 40 300 (5) 69 400 (9) Fodder $ 20 700 (5) 41 100 (8) 44 500 (6) 84 500 (10) Wages for hired labour $ 19 500 (6) 40 700 (8) 50 200 (8) 102 600 (12) Total freight $ 17 900 (5) 38 600 (7) 38 100 (8) 74 800 (14) Total cash costs $ 316 800 (4) 618 700 (6) 574 300 (7) 1 055 400 (12) Farm capital and debt Total capital at 30 June $ 6 750 300 (2) 11 971 300 (4) 9 278 800 (4) 15 695 500 (10) Farm business debt at 30 June b $ 648 500 (6) 1 506 700 (9) 1 031 100 (12) 1 954 400 (30) Equity ratio at 30 June % 90 (1) 86 (1) 86 (1) 84 (3) Debt servicing ratio % 41 (8) 33 (9) 47 (16) 28 (20) Farm liquid assets at 30 June c $ 142 000 (13) 321 400 (20) 163 200 (13) 304 900 (17) Financial performance Farm cash income $ 69 300 (11) 224 700 (9) 84 400 (27) 361 400 (18) Farm business profit $ 13 000 (53) 234 300 (8) 35 700 (63) 453 800 (13) Rate of return % 0.9 (11) 2.9 (5) 1.2 (20) 3.8 (7) Cash operating margin % 18 (10) 27 (8) 13 (26) 26 (15) Profit margin % 3 (52) 24 (6) 5 (60) 27 (9) Profit margin at full equity % 15 (10) 36 (3) 16 (17) 36 (7) continued... 58 ABARES

Financial performance Table 8 Financial performance, average for 2008 09, 2009 10 and 2010 11, specialist beef producers a with greater than 100 beef cattle, including top 25 per cent average per farm continued Northern Australia Northern live export region Average Top 25% c Average Top 25% c Other Off-farm income d $ 21 000 (8) 25 200 (12) 27 600 (12) 24 700 (17) Prices received Live export cattle $ 556 (2) 566 (2) 553 (2) 566 (2) Other cattle $ 727 (2) 763 (3) 613 (4) 626 (7) Land value per hectare $ 188 (5) 167 (6) 83 (6) 94 (9) Land value per LSU $ 2 900 (2) 2 200 (3) 1 600 (3) 1 200 (6) a Farms mainly reliant on beef cattle production (Beef cattle specialized ANZSIC). b Large stock unit (400 kg dry cow / steer). c Ranked by rate of return on total capital. d For farm operator manager and spouse. Notes: Excludes major feedlots. Figures in parentheses are standard errors expressed as a percentage of the estimate provided. Source: Australian Agricultural and Grazing Industries Survey (AAGIS). ABARES 59

Chapter 5 Productivity trends for the northern Australian beef industry One of the northern Australian beef industry s key performance measures is the improvement in productivity it has experienced over the past 20 or so years since trade with Indonesia began in earnest. Productivity is a key determinant of economic performance, profitability and international competitiveness. Increased productivity is an indicator of productive efficiency that is, where fewer inputs are needed to produce the same output or additional output is possible from the same level of inputs. As well as increasing agricultural production, productivity growth helps ease the effects on farmers incomes of a persistent decline in their terms of trade (prices received for outputs, relative to prices paid for inputs). Relative to the price of farm inputs, output prices have declined over the longer term until the mid 2000s (Figure 17). In response to declining terms of trade, productivity growth has been the main means by which Australian farmers have increased agricultural production and maintained international competitiveness (Gray et al. 2011). FIGURE 17 Broadacre total factor productivity and farmer terms of trade, 1977 78 to 2008 09 200 Terms of trade Total factor productivity 150 100 50 index 1980 1985 Source: Gray et al. 2011 1990 1995 2000 Financial year ended 2005 2010 60 ABARES

Productivity trends for the northern Australian beef industry Given limitations to the land, labour, water and other resources available to agriculture, long-term growth in production depends largely on increases in productivity. Such productivity increases come about through efficiency gains, mostly associated with adopting new or improved technologies, embracing better production and management practices, realising economies of scale and undertaking structural adjustment. These factors are typically considered drivers of growth in Australia s agricultural sector (Nossal et al. 2008). ABARES regularly publishes total factor productivity (TFP) growth rates for the broadacre and dairy industries (see, for example, Gray et al. 2012; Gray et al. 2011; Nossal & Sheng 2010; Nossal et al. 2009). Box 5 provides a description of the methodology used. Box 5 Measuring productivity trends Agricultural productivity trends are measured in terms of average annual growth in total factor productivity (TFP). TFP compares the total outputs produced (crops and livestock) relative to the total inputs used (land, labour, capital, materials and services). A high rate of growth could reflect an increase in the level of output relative to the resources used or, alternatively, a reduction in inputs needed to achieve a particular output level. ABARES estimates TFP as the ratio of a quantity index of total market outputs relative to a quantity index of market inputs. Multiple outputs and inputs are aggregated separately using a Fisher index. Annual TFP growth rates (percentage change over time) are calculated by fitting an exponential trend line. The data used in the productivity estimates are sourced from the ABARES Australian agricultural and grazing industries survey (AAGIS). The dataset is comprehensive and can facilitate measurement of TFP; however, the impact of missing variables is sometimes captured in the analysis. For example, short-term influences, such as the effect of climate variability on livestock production and deferring input expenditure in low-income years, have an impact on estimates, yet are not always accounted for in TFP measurement. Long-term productivity trends are therefore generally the focus in TFP studies, reducing the effect of these short-term fluctuations (Nossal et al. 2008). Productivity growth in Australian beef cattle industry Total factor productivity for the northern beef region grew on average by 1.3 per cent a year between 1977 78 and 2009 10, slightly higher than the 1.0 per cent growth in the southern beef region (Table 9). However, Figure 18 shows the extreme volatility in the southern region toward the end of the period with drought conditions influencing this result. TABLE 9 Annual average beef productivity growth by region, 1977 78 to 2009 10 (%) Productivity growth Output growth Input growth All beef 1.4 1.5 0.0 Northern 1.3 1.2 0.1 Southern 1.0 1.5 0.5 Source: Gray et al. 2012 ABARES 61

Productivity trends for the northern Australian beef industry TFP was in gradual decline in the northern beef industry throughout the 1980s, but grew strongly over the 1990s (on average by 3.5 per cent a year; Figure 18). High productivity growth coincided with major developments in the northern beef industry, including the move toward Bos indicus cattle and turning cattle off at a younger age with the emergence of the live feeder cattle export trade with Indonesia. With an improved market for younger animals, the industry now had the cashflow to introduce technology and management practices to improve breeder efficiency, such as strategic supplementation programs, pregnancy testing, bull testing, controlled mating and improved weaning practices. The improved infrastructure that came about through the BTEC campaign, such as fencing, watering points and pasture management, made the beef industries in the Northern Territory and Western Australia, previously low input industries, more profitable. Improved provision of water increased the carrying capacity of the land, allowing cattle to graze throughout the dry season (Drum & Gunning-Trant 2008; Rutherford 1995). Together these factors addressed the previously existing inefficiencies from low reproductive performance and high death rates (Heatley 2000). FIGURE 18 Beef productivity by region, 1977 78 to 2009 10 200 Northern region Southern region 150 100 50 index 1980 1985 Source: Gray et al. 2012 1990 1995 2000 Financial year ended 2005 2010 Expansion in output occurred as a result of corporatisation of the northern beef industry by companies operating in the live export market, which has underpinned greater use of Bos indicus breeds, higher fertility rates and increased turn-off weights (ABARE 2009). These gains reflect investment by individual properties encouraged by higher returns offered in the live export market relative to alternatives. A Centre for International Economics study points to a parallel experience through expansion of Indigenous-owned cattle production. Investment in fencing and cattle handling facilities on Indigenous-held properties has enabled increased production targeted at the live export trade, which also provided a range of employment and income opportunities that would have otherwise been limited (CIE 2011). Nossal et al. (2008) examined productivity in the northern beef industry between 1977 78 and 2006 07 in detail, decomposing TFP results over two periods: before the emergence of the live cattle trade (1977 78 to 1995 96) and after (1995 96 to 2006 07). They examined distribution by scale and by intensity (level of diversification). Their results are presented in Table 10. 62 ABARES

Productivity trends for the northern Australian beef industry Over the full (29-year) period, they found that the northern beef region achieved average productivity growth rates of 1.05 per cent, lower than the 1.16 per cent of those in the southern region, but far less volatile. TFP growth was flat between 1977 78 and 1995 96, then accelerated at an average of 1.14 per cent a year between 1995 96 and 2006 07. The improvement in performance in the north was driven by strong output growth of 1.90 per cent with only moderate additional input requirements. In contrast, southern producers experienced an average annual fall in TFP of 2 per cent a year between 1977 78 and 1981 82, strong growth of 3.74 per cent a year between 1981 82 and 1993 94 and a reduction again (of 0.46 per cent a year) between 1993 94 and 2006 07. The adjustments to northern grazing systems (described above) facilitated steady productivity growth compared with the volatility experienced in the southern region where the volatility largely reflects the affect of drought in a number of periods which led to destocking followed by extended periods of rebuilding. In the northern region, output growth was particularly high for larger beef producers between 1995 96 and 2006 07 (Table 10). Large producers (800 to 1600 head) increased output by 5.03 per cent a year and very large producers (more than 1600 head) increased output by 3.21 per cent a year. Smaller producers had negative output and TFP growth over the same period. Larger operations enabled farms to carry more TABLE 10 Decomposing TFP results for the northern beef industry, 1977 78 to 2006 07 Number of farms TFP growth Output growth Input growth (% share of total) % % % Northern Australia (1977 78 to 2006 07) 10 174 (100) 1.05 0.71 0.34 By sub-period: Between 1977 78 and 1995 96 5 696 (56.0) 0 0.94 0.94 Between 1995 96 and 2006 07 4 478 (44.0) 1.14 1.9 0.76 By scale: Very large farm (more than 1600 head) 4 143 (40.7) 1.88 3.19 1.31 Large farm (800 1600 head) 1 396 (13.7) 2 1.84 0.17 Medium farm (400 800 head) 1 538 (15.1) 0.24 1.31 1.55 Smaller farm (100 400 head) 2 445 (24.0) 0.05 1.51 1.56 Very small farm (less than 100 head) 652 (6.4) 2.14 0.58 2.72 Northern Australia (1995 96 to 2006 07) By scale: Very large farm (more than 1600 head) 2 104 (47.0) 0.07 3.21 3.15 Large farm (800 1600 head) 639 (14.3) 2.23 5.03 2.9 Medium farm (400 800 head) 604 (13.5) 0.30 2.40 2.00 Smaller farm (100 400 head) 875 (19.5) 1.93 0.30 1.66 Very small farm (less than 100 head) 256 (5.7) 2.07 0.18 1.72 Southern Australia (1977 78 to 2006 07) 11 777 (100) 1.16 0.48 0.69 By sub-period: Between 1977 78 and 1981 82 1 676 (14.2) 2.00 0.10 0.10 Between 1981 82 and 1993 94 4 458 (37.9) 3.74 1.85 1.89 Between 1993 94 and 2006 07 5 643 (47.9) 0.46 0.27 0.19 Note: TFP = total factor productivity. Source: Nossal et al. 2008 ABARES 63

Productivity trends for the northern Australian beef industry cows in order to boost calf production. Productivity growth is likely to continue to be driven by larger farms with bigger land holdings and greater access to capital. These farmers are generally better equipped to take advantage of advanced breed genetics, greater ease in moving livestock and fodder, and better herd management, mustering techniques and disease response mechanisms (Nossal et al. 2008). Opportunities for productivity growth Increasing agricultural productivity continues to be a core objective of rural industries and Australian governments to offset the pressures of long run declining terms of trade. In addition, global food security concerns, pressures of climate change and a degrading resource base all provide incentive for farmers to further improve productivity to offset their effects and maintain long run profitability (Nossal et al. 2009). The three main pathways to productivity growth at an industry level (Gray et al. 2011; Nossal & Sheng 2010) are: technical change development of new innovations resulting in best practice farms getting better changes in technical efficiency adoption of existing innovations where average farms catch up to best practice farms structural adjustment exit of less efficient businesses. ABARES research has identified a slowdown in broadacre productivity growth concentrated in the cropping and mixed cropping livestock industries since the mid 1990s. It is likely that drought and slow growth in public agricultural research expenditure have contributed to the productivity slowdown (Sheng et al. 2011). Nossal and Sheng (2010) note that not only has growth in agricultural research investment slowed, but it has also been spread across a wider variety of areas (food safety, environmental management, biosecurity and climate change). Research in these areas has complementary benefits for agricultural productivity growth, but spreading resources more thinly can reduce the effect of research outputs on productivity growth. A range of other factors could be contributing to the changing trend in productivity growth. Farmers may face constraints on timely and effective adoption of new technologies and farming systems. Ageing farm populations, another factor, could lead to less willingness to invest in new technologies. Also, if business support measures that reduce income risk are being capitalised into land values, artificially high land prices may cause some farmers to delay adjustment decisions, thereby impeding expansion by more efficient operations (Gray et al. 2011; Nossal & Sheng 2010). The productivity growth slowdown has made it apparent that adjustments in the areas of technical change, technical efficiency and structural adjustment are not happening fast enough. Well-aligned policy incentives to encourage adoption of new developments are required to enhance the rate of farm innovation. This includes not only ensuring efficient public R&D but also ensuring regulations are not inappropriately restricting the range of management practices available to farmers. 64 ABARES

Productivity trends for the northern Australian beef industry Future productivity drivers Future productivity gains may come from improved breeding and genetics to upgrade northern herds to produce higher quality beef. Getting cattle into the value adding chain provides greater return. Much potential exists in the Brahman breed to use genetic markers for tenderness and other meat quality characteristics to increase market potential and flexibility (Playford 2005). Breeding for tick control is another important contributor to improving beef quality in northern Australia. By maintaining high Bos indicus content in breeding females while increasing Bos taurus content in the offspring, tick resistance can still be achieved and marketability improved. The more Bos indicus genes within a breed or cross, the greater is the resistance to cattle ticks. First crosses between Bos indicus and Bos taurus have an intermediate level of tick resistance. Cattle that are fiveeighths or more Bos indicus are largely resistant to cattle tick (MLA 2005). The MSA meat grading program used to guarantee meat tenderness has the potential to provide opportunity and incentive for herd improvement. MSA was initially punitive toward Bos indicus cattle, and this has to a degree driven breeding policy (Playford 2005). However, through such mechanisms as ageing and tenderstretch, MSA provides the opportunity to open pathways to improve meat quality. Bos indicus cattle can and do achieve MSA quality grades. Study into productivity drivers The Commonwealth Scientific and Industrial Research Organisation (CSIRO) is undertaking a study with Meat & Livestock Australia (MLA) to determine how to shift the production frontier for the northern beef industry to again achieve productivity growth toward 2 per cent a year this equates to 40 50 per cent over 20 years. They note the industry has faced many challenges as, even though prices have been relatively strong, profitability has not; one factor being escalating land values over the past 10 years. The study s authors posit that the desired productivity growth will not be achieved by continuing on the path of turning off animals at 250 kilograms live weight and that transformational change is needed (Andrew Ash & Leigh Hunt, CSIRO, pers. comm.). The study models a number of scenarios considering aspects, such as biophysical constraints, location, herd structure, breeding and hybridisation, stocking rates on used land and potential markets. They will be examining what biological limits face the industry and whether we have yet reached those limits; whether genetic improvement has levelled; what is the potential for the research into gene markers and hybridisation; what room is there for reproductive performance; and, in soil and water coincidence, what potential is there for mosaic irrigation. As well as looking at the scope for increases in beef productivity, the effects of alternative development scenarios on land and water resources and resultant greenhouse gas emissions will be investigated. ABARES 65

Chapter 6 Export markets for live cattle Australia s live cattle exporting industry has developed to meet the needs of its target markets. Emergence of South-East Asian economies in the 1980s resulted in re-shaping of the Australian industry from one exporting principally breeding cattle for herd improvement and expansion, to one exporting feeder and slaughter cattle for developing regional feedlot industries (Drum & Gunning-Trant 2008). Increased demand for Australian cattle was largely driven by: industry reform in a number of South-East Asian countries resulting in development of self sustaining feedlot sectors religious, demographic and socioeconomic factors, such as comparatively low incomes and lack of refrigeration, favouring importation of live cattle over boxed beef substantial economic growth across the ASEAN region contributing to increased protein demand. The volume and value of Australia s live cattle exports have expanded markedly since the early days of the trade. In 1988 89, Australia exported 87 035 cattle for feeder and slaughter purposes, worth $45.1 million. The largest markets were Japan, Malaysia and the Philippines. No cattle were exported to Indonesia until 1990. The volume and value of live feeder and slaughter cattle exports peaked in 2002 03 at 972 073 head and $564 million, with Indonesia the largest market. Given Indonesia s recently announced reduction in cattle import quota, as part of its Blueprint on beef self sufficiency program 2014, and the difficulty in redirecting large numbers to other markets in the short term, Australia s total live cattle exports to all markets are forecast to fall by 34 per cent in 2011 12 to 500 000 head (Figure 19). 66 ABARES

Export markets for live cattle FIGURE 19 Australian live feeder/slaughter cattle exports 1000 800 600 Others ASEAN (excluding Indonesia) Middle East Indonesia Forecast total 400 200 000 head 1993 94 1996 97 1999 2000 2002 03 2005 06 2008 09 2011 12f f ABARES forecast. Source: ABS electronic trade data Key live export markets The Australian live cattle export industry supplies many countries, each with differing economic performance, political factors, religious traditions and social customs (tables 11 and 12). These traits often contribute to the tastes and preferences of consumers and reduce the possibility of substituting boxed beef for live cattle. Demand for beef protein in many of these nations is often divided, between those demanding freshly slaughtered meat (usually the majority), and those demanding chilled and/or frozen meat. TABLE 11 Australian live feeder/slaughter cattle exports (number of head) 2006 07 2007 08 2008 09 2009 10 2010 11 Indonesia 452 197 546 906 699 859 699 586 456 017 Turkey 0 0 0 168 100 935 Israel 54 432 58 980 27 710 36 430 50 416 Egypt 0 0 0 33 351 23 090 Malaysia 52 033 24 211 19 456 4 600 19 721 Saudi Arabia 24 556 10 271 23 031 7 668 19 508 Philippines 13 897 15 480 10 318 14 427 15 647 Japan 20 810 20 244 17 191 15 479 12 389 Jordan 3 902 891 9 965 27 542 9 328 Russian Federation 0 0 0 0 7 914 Brunei Darussalam 5 119 5 955 3 668 3 423 4 008 Libya 0 21 150 25 496 19 269 0 Others 9 349 4 018 7 986 8 682 9 259 Total 636 295 708 106 844 680 870 625 728 232 Source: ABS electronic trade data ABARES 67

Export markets for live cattle TABLE 12 Value of Australian live feeder/slaughter cattle exports ($ million) 2006 07 2007 08 2008 09 2009 10 2010 11 Indonesia 302.8 342.1 448.7 427.6 286.5 Turkey 0 0 0 0.2 82.9 Israel 39.5 35.9 14.6 21.2 33 Egypt 0 0 0 29.9 18.3 Malaysia 29.3 15 13.7 3.7 13.2 Saudi Arabia 16.9 5.3 12.8 4.8 16 Philippines 9.6 10.3 6.8 7.9 9 Japan 18.5 17.9 14.3 14.9 15.5 Jordan 2.1 0.5 5.3 14.7 4.8 Russian Federation 0 0 0 0 6.4 Brunei Darussalam 3.1 5.3 3 3.4 3.6 Libya 0 10.6 13.2 10.2 0 Others 13.9 3.2 5.5 11.2 9.8 Total 435.8 446.1 537.6 549.5 499.1 Source: ABS electronic trade data Australia s primary market for live cattle exports is Indonesia. In 2010 11, Indonesia accounted for 456 017 (or 63 per cent) of total live feeder/slaughter cattle exports (Table 11). Of these, 418 797 (92 per cent) were sourced from northern Australian ports, at a value of $256.6 million. Among Australia s other markets for live cattle in 2010 11, the largest were Turkey and Israel, together accounting for 151 351 cattle, all of which were sourced from southern Australian ports. In 2010 11, the number of cattle sourced from northern Australian ports for markets other than Indonesia was 76 045 (10 per cent of total live exports), compared with 293 291 (37 per cent) in 2001 02 (Figure 20). This reflects northern Australian cattle producers increasing specialisation of production toward, and subsequent dependence on, the Indonesian market. FIGURE 20 Cattle exports from northern Australian ports to markets other than Indonesia 300 250 200 150 100 50 300 250 200 150 100 50 Volume Value (right axis) 000 head 2002 03 2004 05 2006 07 2008 09 2010 11 $m Source: ABS electronic trade data 68 ABARES

Export markets for live cattle Indonesia Indonesia has long been a large and fast growing market for Australian live cattle exports, being the largest market for feeder and slaughter cattle for 14 of the past 20 years, including every year since 2000 01. The live cattle trade between Australia and Indonesia began in 1990, and grew significantly before the Asian financial crisis in 1998. From 1990 91 to 1996 97, the trade grew from 7736 head to 463 561 head; an average annual growth rate of 101 per cent. The onset of the Asian financial crisis resulted in exports to Indonesia falling to a low of 94 588 head (13 per cent of total live export volumes) in 1998 99. Demand for Australian cattle fell because many Indonesian lot feeders incurred heavy debts during the downturn, significantly reducing their available cash. In addition, interest rates were as high as 60 per cent in 1998, significantly reducing the ability of lot feeders to supplement their cash to fund continued cattle purchases (Cordingly 1999). Live cattle exports to Indonesia recovered quickly after the Asian financial crisis, as demand from lot feeders rose in the absence of any significant expansion in domestic beef production. Growth over subsequent years continued despite high Australian saleyard prices and a sustained reduction in the value of the Indonesian rupiah against the Australian dollar. From around 95 000 head in 1998 99 (12 per cent of live exports), exports to Indonesia peaked at close to 700 000 head in 2008 09 (83 per cent of live cattle exported) and 2009 10 (80 per cent). Enforcement of a 350 kilograms weight limit, and imposition of an import quota by the Indonesian Government contributed to exports falling in 2010 11 to 456 000 head. Box 6 Temporary suspension and new animal welfare assurance framework On 8 June 2011, the Minister for Agriculture, Fisheries and Forestry, Senator the Hon. Joe Ludwig, announced suspension of export to Indonesia of all livestock for the purpose of slaughter. This suspension was in response to the airing of footage taken by animal welfare activists of animal cruelty in a number of Indonesian abattoirs. On 6 July 2011, the Minister lifted the suspension and issued revised export control orders allowing export of livestock to Indonesia only where animals could be managed through supply chains that meet international welfare standards. Export permits are now only to be issued when an exporter can assure the government it can meet agreed OIE (World Organisation for Animal Health) standards. An independent audit of the supply chain is needed to support this claim and audit reports are to be made public. If an exporter is found to have used any part of a supply chain that does not meet OIE standards, the Australian Government can revoke the exporter s licence to export. Farmer Review and new welfare assurances for livestock exports On 21 October 2011, the minister announced the government s response to the Independent Review into Australia s Livestock Export Trade, the Farmer Review (Farmer 2011a). It included 14 recommendations relating to future regulation of the live animal export industry, of which the government has agreed, or agreed in principle, to all. The recommendations and subsequent policy response from the Australian Government relate to components of the industry both overseas and in Australia. Of the six recommendations affecting overseas parts of the supply chain, the most significant relates to how the government can ensure ongoing viability of the trade. In response to a need to set out a clear statement of its intended policy and continued... ABARES 69

Export markets for live cattle Box 6 Temporary suspension and new animal welfare assurance framework continued operational approaches to the live export industry, the Australian Government has introduced new regulations to ensure all Australian livestock exported for feeder and slaughter purposes are treated at or above OIE standards. From 1 January 2013, all livestock exporters will need to make certain they can track and control movements of individual animals through their supply chains, and conduct independent audits of their supply chains to ensure compliance with these new regulations. The supply chain assurance regulations recently applied to livestock exports to Indonesia will be extended to cover all markets and all species by 31 December 2012. Four other recommendations, affecting overseas parts of the supply chain, relate to operational changes for exporting companies and for the Department of Agriculture, Fisheries and Forestry (DAFF). The eight remaining recommendations relate to the Australian component of the live animal export industry. In three instances, the review recommended greater cooperation between the Australian Government, and the state and territory governments to achieve three outcomes: first, clarification of roles and responsibilities for regulation of animal welfare along the live export supply chain in Australia; second, development of new nationally enforceable animal welfare regulations; and third, implementation of a new national identification scheme for sheep and goats, and removal of existing exemptions in the National Livestock Identification System for cattle exported from Western Australia and the Northern Territory. The remaining five recommendations relate to implementation of quality assurance programs to improve livestock health, improving efficiencies in the operation of DAFF, reviewing the role of the Livestock Export Standards Advisory Group and inspection arrangements at the port of Fremantle, Western Australia. The Indonesian Government s beef self-sufficiency drive is likely to prevent shipments of live cattle and boxed beef to Indonesia returning to the highs achieved in 2008 09 and 2009 10. In December 2010, the Indonesian Government imposed a limit of 500 000 head of cattle to be imported from Australia during 2011 and a stricter enforcement of the 350 kilogram weight limit of imported cattle. The quota was further reduced for 2012 with the announcement in December 2011 that Indonesia would import only 283 000 head of cattle during 2012, 217 000 lower than in 2011. In January, import permits for 60 000 head were issued for the first three months of 2012 (and filled within the first month). If these restrictions are strictly enforced, Australian live cattle exports to Indonesia in 2011 12 will be around 330 000 head, 29 per cent lower than in 2010 11. 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. Key reasons for the program s implementation are to encourage increased domestic beef production, to reduce price pressure on local producers, and to reduce trade exposure to Australia. Indonesia s blueprint suggests raising the 5 per cent tariff on imported meat and edible offal, and keeping in place the 350 kilogram weight limit on imported feeder cattle. Beef production in Indonesia consists of small-scale producers that fatten native cattle purchased from small-hold breeders, and large commercial feedlot operators that import live feeder cattle. Australian feeder cattle typically spend between 60 and 100 days in Indonesian feedlots before they have gained adequate weight for 70 ABARES

Export markets for live cattle slaughter. Before imposition of the Australian Government s supply chain assurance regulations in 2011 (Box 6), Indonesian feedlots had a holding capacity of 270 000 head, allowing an annual turnover of 800 000 (MLA & Livecorp 2011). Traditional wet markets and meat manufacturers purchase most Australian lot-fed cattle in Indonesia (Figure 21). Beef to be sold in the wet market will be slaughtered the night of purchase from the feedlot, to be sold and consumed the next day (MLA & Livecorp 2011). FIGURE 21 Distribution of beef from Australian cattle imports in Indonesia Wet markets 65% Manufacturing 18% Restaurants 11% Quick service restaurants 3% Modern retail 3% Source: MLA & Livecorp 2011 Religious, demographic and socioeconomic factors are significant contributors to Indonesian demand for live cattle imports. Around 86 per cent of Indonesians are Muslim and demand for beef generally peaks at the end of Ramadan, as fasting ends and consumption rises. Around 56 per cent of Indonesians live in rural areas, where access to refrigeration is limited. According to the World Bank, Indonesia s electrification rate was 65 per cent in 2011, among the lowest in South-East Asia (World Bank 2011). Of the 90 million people without access to electricity, around twothirds live in rural areas. This contributes to a large proportion of beef in Indonesia being sold in traditional wet markets within 24 hours of being slaughtered. The Philippines Exports of Australian live feeder and slaughter cattle to the Philippines have fluctuated significantly since trade commenced in 1987. From the early 1990s, population growth and changing food preferences contributed to increased demand for beef in the Philippines. The number of commercial beef farms rose substantially, as existing subsistence operations were unable to meet the growing demand for beef. These were supplemented by increasing numbers of feedlots for fattening of low priced feeder cattle imports from Australia and New Zealand. This contributed to a significant rise in exports of Australian live cattle to the Philippines during the 1990s, peaking at 260 918 head in 1998 99 (Figure 22). Shipments continued rising, despite the onset of the Asian financial crisis, partly because the Philippine Government adjusted imported feeder cattle tariffs down to 3 per cent. Cattle above 330 kilograms had previously attracted a 30 per cent tariff, making imports of heavier cattle unprofitable (Toyne et al. 1999). From the early 2000s, a combination of factors led to decline of Australian live cattle exports to the Philippines. Higher Australian cattle prices, sustained depreciation of the Philippine peso against the Australian dollar, and rising input and transport costs contributed to higher operating costs in the Philippine cattle feedlot sector. Retail beef prices climbed as a result, which led to continued growth in consumption ABARES 71

Export markets for live cattle of lower priced meats, including chicken. In response, Philippine beef consumption stagnated (Figure 23). In 2010, total imports of live cattle into the Philippines fell a further 19 per cent, as meat processors continued substituting a number of lower priced meats for manufacturing grade beef. FIGURE 22 Live cattle exports to the Philippines 300 250 200 150 100 50 150 125 100 75 50 25 Volume Value (right axis) 000 head 1989 90 1992 93 1995 96 1998 99 2001 02 2004 05 2007 08 $m 2010 11 Source: ABS electronic trade data FIGURE 23 Philippine per person consumption and price of beef and chicken 12 10 300 250 Beef consumption Beef price (right axis) 8 200 6 150 4 100 2 50 kg 1992 1995 1998 2001 2004 2007 pesos/kg 2010 12 10 300 250 Chicken consumption Chicken price (right axis) 8 200 6 150 4 100 2 50 kg 1992 1995 1998 2001 2004 2007 pesos/kg 2010 Source: Philippine Bureau of Statistics 72 ABARES

Export markets for live cattle Turkey Turkey recently emerged as a major market for Australian feeder and slaughter cattle. In 2010 11, 100 935 head of Australian cattle were exported to Turkey, compared with only 168 head the previous year (Table 11). This was the first time since 2003 04 that more than 100 000 cattle were exported to a single market other than Indonesia. In 2010 11, all shipments to Turkey were from the Australian ports of Fremantle in Western Australia (85 211 head) and Portland in Victoria (15 724 head). The increased demand from Turkey was driven by several factors. First, the Turkish Government removed a ban on imports of live feeder and slaughter cattle. Before 2010, only imports of dairy and beef breeding stock were permitted. The ban s removal resulted in meat from Australian cattle supplementing local supplies, which are often not of high quality or in sufficient quantity to satisfy demand. Second, continued application of a 225 per cent tariff on red meat imports and a ban on beef imports from the European Union over Bovine Spongiform Encephalopathy (BSE) concerns led to insufficient supplies of beef in Turkey. This resulted in importation of live cattle as the only way to supplement domestic production. In addition, the absence of growth in the Turkish cattle herd or beef production resulted in significantly higher retail prices. This led to investment in the sector by large pastoral companies that established commercial feedlots in the west of the country (USDA 2010). This development resulted in increased demand for live cattle and genetic material. Beef production in Turkey consists of many small-scale producers operating highcost, low-yield herds of predominantly Holstein and Swiss Brown breeds. These are more suited to manufacturing than high-quality beef production (USDA 2010). The harsh climate of east Turkey, where most of the herd is located, limits the popularity of breeds such as Angus and Hereford. Despite government intervention, beef and dairy herds continue to decline. Limited planting of high quality crops results in cattle often feeding on pasture of low nutrient value. Also, foot-and-mouth disease is endemic, occurring in every province of Turkey in 2009. An absence of sufficient labour and capital among many small producers means they are often unable to expand production in response to increased demand. Other markets Other markets where Australia has exported large numbers of cattle for feeder and slaughter purposes include Egypt, Libya and Malaysia. Exports to Egypt peaked at 223 049 head (26 per cent of export volume) in 1999 2000. However, a large depreciation in the value of the Egyptian pound relative to the Australian dollar contributed to Australian cattle becoming relatively more expensive, resulting in declining shipments. Cattle exports to Egypt were banned in 2006 07 as a result of animal welfare concerns. The trade resumed in 2009 10 through a single facility at the Port of Sokhna an integrated port, feedlot and abattoir. Since the trade s resumption, yearly volumes have failed to exceed 15 per cent of their former highs. The opening of a second closed loop facility in late 2011 is expected to result in increased exports to Egypt. Live cattle exports to Libya have been sporadic, peaking at 157 629 head in 1997 98, but falling to zero between 2000 01 and 2006 07. No cattle were exported to Libya in 2010 11, partly due to social disruption being experienced in that country. ABARES 73

Export markets for live cattle Malaysia was once a large market for Australia for live cattle. Numbers peaked at 95 000 head or 10 per cent of total exports in 2002 03. Since then, a depreciation in the Malaysian ringgit increased the price of Australian cattle, resulting in increased imports of cheaper Indian beef and lower demand for Australian cattle. Smaller markets include Japan and Brunei Darussalam. Exports to Japan were around 12 000 head of cattle in 2010 11, down from 15 000 the previous year; they had been around 20 000 in 2007 08. Brunei Darussalam is a smaller South-East Asian market to which around 4000 cattle were shipped in 2010 11. Vietnam has re-entered the trade, taking a shipment of 1000 cattle in the second half of 2011. Vietnam has not imported cattle in any significant quantity from Australia since 2004 05 when it imported around 2000 head. Future demand for live cattle As Indonesia s population becomes more urbanised, consumers are expected to increasingly substitute chilled and frozen beef for freshly slaughtered beef. Indonesian cities generally have better access to electricity and refrigeration than rural areas, removing the health requirement for freshly slaughtered meat. In 2009, food sales in modern supermarkets rose by 4.7 per cent year-on-year, compared with a 2.1 per cent rise for food sales at traditional markets (MLA & Livecorp 2011). Around 3 per cent of beef from Australian live cattle imports is sold through supermarkets, far smaller than that sold at wet markets. The retail sector has increasingly been supplied by imported boxed beef from the United States, New Zealand and Australia; although the self-sufficiency drive is also directed at reducing beef imports, which may constrain further growth. In the short term it is unlikely that a significant number of cattle can be redirected to other markets. In 2010 11, all cattle exported to Turkey, Israel, Saudi Arabia and the Russian Federation were sourced from southern Australian ports, indicating a preference for Bos taurus. In addition, many of these markets generally import cattle from Australia that are close to slaughter weight because they lack large-scale feedlot infrastructure for finishing cattle prior to slaughter. The currencies of these four nations have depreciated against the Australian dollar by an average of 8 per cent over the past year, making Australian cattle relatively more expensive in those markets. A limited number of cattle may be redirected to other South-East Asian markets, such as Malaysia, the Philippines and possibly Vietnam and Brunei Darussalam. In the past, these markets have sourced Australian cattle from northern ports. However, exports to these markets may need to compete with Indian buffalo meat and Latin American beef imports. Growth in live cattle exports over the medium term will depend on development of new markets for northern Australian cattle, if the Indonesian Government strictly enforces the import restrictions. Over the past decade, the number of cattle exported from northern Australian ports to markets other than Indonesia fell from 293 000 head in 2001 02 to 76 000 head in 2010 11 (Figure 20). Live export ports The makeup of Australian live cattle exports, by region and port of loading, are shown in tables 13 and 14. Darwin (Northern Territory) accounts for the largest number of live cattle exports, given its proximity to major beef producing regions in northern Australia and its closeness to the largest market, Indonesia. The port of Fremantle (Western Australia) accounts for the next largest number of live cattle exports. Many 74 ABARES

Export markets for live cattle producers in the Kimberly, Pilbara and Gascoyne Murchison regions send cattle south into areas with good feed to grow out the cattle for export. Fremantle is a deep water port, allowing access by much larger ships than other ports in the region. Most cattle exported from Fremantle are destined for markets in the Middle East and North Africa. Of the remaining ports, Broome and Wyndham in Western Australia and Townsville in Queensland account for the largest numbers of cattle exports. Most cattle passing through all three ports were exported to Indonesia. However, exports from Townsville are sporadic. Lower numbers of cattle are also exported from Geraldton and Port Hedland (Western Australia) and Brisbane and Karumba (Queensland). Although it is difficult to determine if cattle exported from Brisbane are sourced from the northern live export regions, these cattle would be principally Bos taurus breeds. Most ports from which live cattle are exported are affected either by competition from other industries (such as mining) for berth access and/or being located in or near significant population centres or areas of tourism importance. Appendix 4 lists each live export port the northern live export industry uses and the particular risks affecting access for each. TABLE 13 Live cattle exports from northern region, by port and destination, number of head, 2010 11 Brisbane Broome Darwin Innisfail Karumba Brunei Darussalam 4 008 Egypt 9 340 India 1 850 Indonesia 72 872 261 053 2 388 12 145 Japan 12 389 Malaysia 6 940 9 152 2 969 Philippines 5 500 10 147 Total 12 389 94 652 286 210 2 388 15 114 Other Northern Territory Townsville Wyndham Total Brunei Darussalam 4 008 Egypt 13 750 23 090 India 1 850 Indonesia 2 790 33 064 34 485 418 797 Japan 12 389 Malaysia 19 061 Philippines 15 647 Total 2 790 46 814 34 485 494 842 Source: ABS electronic trade data. ABARES 75

Export markets for live cattle TABLE 14 Live cattle exports from southern region, by port and destination, number of head, 2010 11 Fremantle Geraldton Portland Total Bahrain 1 234 1 234 China 2 000 2 000 Indonesia 33 760 3 460 37 220 Israel 50 416 50 416 Jordan 9 328 9 328 Kuwait 399 206 605 Malaysia 660 660 Mauritius 1 200 1 200 Russian Federation 305 7 609 7 914 Saudi Arabia 19 508 19 508 Turkey 85 211 15 724 100 935 Total 203 971 3 460 25 959 233 390 Source: ABS electronic trade data. 76 ABARES

Chapter 7 Beef export markets Australia s major export markets for chilled and frozen beef have long been Japan, the United States and the Republic of Korea. Since 1989 90, they have accounted for more than 80 per cent of Australia s beef exports. Producers supply the north Asian markets with both grass-fed beef and grain-fed beef containing higher marbled content, and the United States with lean beef more suitable for grinding and combining with US fatty trim to make hamburger mince. Diversification of markets has increasingly become a feature of Australia s beef trade, and would become more important with potential expansion of beef processing capacity in northern Australia increasing the supply of Australian beef for export. Given the naturally lean characteristic of the meat from the predominantly Bos indicus cattle in northern Australia, the increased supply would be less suited to the Japanese and Korean markets. This supply would be dependent on increased sales to the United States manufacturing beef market, or to other markets where beef for processing or grinding comprise most sales. These could potentially include the Russian Federation, where growth in exports has been significant, and the more proximate markets of China and South-East Asian countries. However, Australian beef is facing competition in emerging markets from other suppliers, particularly Brazil and India. World market World production and consumption of beef and veal rose from 2001 until 2008, when it fell slightly before stabilising in 2010 (Table 15). In countries with the highest per person incomes, no significant increases in production or per person consumption have been recorded. For example, in Japan, the United States and the Republic of Korea, beef production in 2010 was lower than in 2000 (3 per cent, 2 per cent and 11 per cent lower, respectively). Similarly, per person consumption was 21 per cent, 12 per cent, and 2 per cent lower, respectively (USDA 2011a). Significant increases in beef production and consumption among countries in the developing world over the past decade have more than offset declines recorded in developed nations. Growth in per person incomes has been a major factor contributing to increasing substitution of protein, including beef, for plant-based foods. For example, in South-East Asia beef production rose 32 per cent and consumption 56 per cent between 2000 and 2010 (USDA 2011a). Regions where growth in consumption outstripped production represent a significant opportunity for Australian beef from both northern and southern herds. ABARES 77

Beef export markets The United States, Brazil, the European Union and China account for over 60 per cent of global beef production (Table 15). The United States is the world s largest beef producer, accounting for around 21 per cent of total production, which has remained relatively unchanged over the past decade. Brazil has emerged as the main growth producer (Figure 24), because of considerable investment in cattle genetics and infrastructure, and its ability to produce beef at a lower cost than many of its competitors. Brazil s consumption of beef has also been rising strongly in recent years (Figure 25), but production still exceeds consumption. The European Union s production has also been largely unchanged while China s, supported by government subsidies throughout the 1990s, has declined in recent years due to removal of government support and pressure of higher input prices (Pan 2010). India, with the world s largest cattle herd and current low production, has considerable potential to expand beef production. TABLE 15 World beef production 2010 Share of Country Production world production Herd size Share of world herd 000 tonnes cwe % 000 head % Argentina 2 620 4.6 48 156 4.8 Australia 2 087 3.7 26 733 2.6 Brazil 9 115 16 190 925 18.9 China 5 600 9.8 104 814 10.4 European Union 8 022 14.1 86 993 8.6 India 2 842 5.0 320 800 31.7 Mexico 1 751 3.1 21 456 2.1 United States 12 047 21.1 92 582 9.1 Others 12 959 22.7 119 626 11.8 World 57 043 100.0 1 012 085 100.0 Note: cwe = carcass weight equivalent. Source: USDA 2011a FIGURE 24 Beef production by top 10 beef producing countries 15 000 United States European Union 12 000 Brazil China Argentina 9000 Australia India 6000 Mexico Russian Federation 3000 Pakistan 000 tonnes cwe 2000 2003 2006 2009 2012a a USDA forecast. Source: USDA 2011b 78 ABARES

Beef export markets FIGURE 25 Beef consumption by top 10 beef consuming countries 15 000 United States European Union 12 000 Brazil China Argentina 9000 Mexico Russian Federation 6000 Japan India 3000 Pakistan 000 tonnes cwe 2000 2003 2006 2009 2012a a USDA forecast. Source: USDA 2011b International trade in beef accounted for only 14 per cent of total world production in 2011 (USDA 2011a). Australia was the largest exporter (1325 kilotonnes), with Brazil second (1325 kilotonnes) and the United States third (1241 kilotonnes). The USDA is forecasting that during 2012 strong export growth from India will see that country s beef export volumes converge with the other three (Figure 26). FIGURE 26 Beef exports by world s leading beef exporters 2000 1600 1200 Brazil Australia United States India 800 400 000 tonnes cwe 2008 2009 2010 2011 2012a a USDA forecast. Source: USDA 2011b According to USDA estimates, a strong rise in Indian exports over 2010 and 2011 and forecast further growth 2012 will see India eclipse the United States to become the third largest exporter of beef behind Australia and Brazil. India had the world s largest cattle herd in 2010 (Table 16) at 321 million head, 32 per cent of the world s total herd. The next largest herd was Brazil s at 191 million. Relative to the size of its herd, India s beef production is small at 2.8 million tonnes, or 5 per cent of the word s production. The large size of India s herd is primarily attributable to the sacred role cattle have in the Hindu religion. Much of the beef production is from the large milking buffalo herd (carabeef) which supplies 60 per cent of the nation s milk ABARES 79

Beef export markets production and produces very lean meat. In global markets, India s beef is inexpensive and predominantly shipped to South-East Asia, the Middle East and North Africa; emerging markets for Australia that will become increasingly important. In 2010, the United States was the largest importer of beef (1042 kilotonnes), followed by the Russian Federation (1020 kilotonnes) and Japan (721 kilotonnes). USDA estimates for 2011 show the Russian Federation s imports eclipsing those of the United States and forecast to remain higher in 2012. FIGURE 27 Beef imports by world s leading beef importers 1500 1200 Russian Federation United States Japan 900 600 300 000 tonnes cwe 2008 2009 2010 2011 2012a a USDA forecast. Source: USDA 2011b Australian beef export markets Emerging markets are taking an increasing share of Australia s beef exports. As recently as 2004 05, Japan, the United States and the Republic of Korea accounted for 92 per cent of beef export volumes. However, strong growth in exports to emerging markets has resulted in the three main markets share of trade falling, albeit to a still sizeable 69 per cent, as of 2010 11. Japan Japan is Australia s largest beef export market, accounting for 37 per cent of export volume and 39 per cent of export value in 2010 11. Over 350 000 tonnes (shipped weight) of beef were exported from Australia to Japan during 2010 11, unchanged from the previous year. The Japanese market was worth around $1.7 billion in 2010 11, while the average value per kilogram fell 1 per cent in 2010 11 to $4.75, following a 16 per cent fall the previous year, with increasing competition from US beef exports returning to the Japanese market. During the early 2000s demand for Australian beef in Japan increased, largely because of outbreaks of BSE in Japanese, Canadian and US cattle herds. The first case of BSE in Japan was announced in September 2001, prompting beef consumption to fall from a record high in 2000, to a record low (at the time) in 2002. Discovery of BSE in North American cattle in 2003 prompted the Japanese Government to ban imports of US and Canadian beef, driving greater demand for Australian beef. Australian beef exports to Japan reached an all time high of 419 000 tonnes in 2004 05, at the same time Japanese beef consumption fell to a further record low. The inability of rival supplier, New Zealand, and the domestic Japanese beef market to increase beef supply 80 ABARES

Beef export markets after US and Canadian beef disappeared from the market greatly inflated demand for Australian product, even at a time of depressed Japanese consumption. FIGURE 28 Australian beef exports to Japan 500 400 Chilled Frozen 300 200 100 kt 2000 01 2002 03 2004 05 2006 07 2008 09 2010 11 Source: DAFF 2011a TABLE 16 Japanese beef consumption Year Imports Domestic Total Growth, year-on-year % % t % 2000 01 67 33 1 090 366 2001 02 62 38 861 225 21.0 2002 03 62 38 947 477 10.0 2003 04 59 41 874 693 7.7 2004 05 56 44 799 557 8.6 2005 06 57 43 811 732 1.5 2006 07 57 43 810 531 0.1 2007 08 56 44 825 365 1.8 2008 09 56 44 825 394 0.0 2009 10 57 43 840 414 1.8 2010 11 58 42 854 185 1.6 Source: Agriculture and Livestock Industries Corporation, Japan. Since Japan partially relaxed the ban on imports of US beef in 2006, Australia has lost market share to US beef. Japan s imports of US beef in 2010 11 were still less than half those of 2002 03, but have grown steadily, and are expected to continue growing during 2011 12. ABARES is forecasting Australian beef exports to Japan to fall by 4 per cent in 2011 12 to 338 000 tonnes in 2012 13 (Mifsud 2012: 88). While Japan s total beef imports are expected to rise in 2011 12, most of this increase is expected to be sourced from the United States. Aided by a relatively competitive exchange rate, US beef is expected to keep displacing product from other major suppliers in the Japanese market, including Australia, Canada and New Zealand. ABARES 81

Beef export markets Australian beef exports to Japan are projected to decline over the next few years. Per person beef consumption in Japan is projected to remain relatively stable over the medium term, and demand for US grain-fed beef (which is typically preferred over Australian beef because of its higher marbling) is expected to rise. This is likely to result in a gradual reduction in Australian exports of high-value chilled cuts which are mainly used for household consumption. Australian exports of lower-value frozen cuts (mainly consumed by the food service sector) are expected to continue growing. Analysis of beef exports to Japan, by cut, indicates that around 32 per cent of Australian beef exports to that market are for manufacturing purposes. Higher value loin, rib, shoulder, butt and full set cuts make up the majority of exports to Japan. A significant risk to future demand for Australian beef in Japan is the possibility of relaxation of the age restrictions applying to US imports from beef sourced from cattle 20 months of age or younger to beef from cattle up to 30 months of age. At present, all beef in Japan which has been imported from the United States is required to have been slaughtered at 20 months of age or younger, with all bone marrow, spinal cord, brains and vertebrae removed. In the current economic environment of a relatively weak US dollar against the Japanese yen and a high Australian exchange rate, relaxation of import standards applying to US beef would be expected to result in higher imports of US beef and some substitution away from Australian beef. If approved, the new import rules may apply from mid 2012. United States of America The United States is Australia s second largest beef export market, accounting for 17 per cent of beef export volume (shipped weight) and 16 per cent of export value in 2010 11. Around 160 000 tonnes of beef were shipped from Australia to the United States during 2010 11, 24 per cent lower than the previous year (Figure 29). The US market was worth around $709 million in 2010 11, 13 per cent less than the previous year. The average value per kilogram rose by around 15 per cent in 2010 11 to $4.40 per kilogram. Of Australia s major markets for beef, exports to the United States have typically comprised the highest proportion of lower value frozen beef for manufacturing purposes. FIGURE 29 Australian beef exports to the United States 500 400 Chilled Frozen 300 200 100 kt 2000 01 2002 03 2004 05 2006 07 2008 09 2010 11 Source: DAFF 2011a 82 ABARES

Beef export markets Beef export volumes to the United States fell to their lowest in more than 40 years in 2010 11, for a few reasons. First, consistent depreciation of the US dollar against the Australian dollar made Australian beef exports comparatively more expensive than other beef suppliers. Second, an extended period of poor seasonal conditions in major cattle producing regions of the United States has contributed to extensive herd liquidation, resulting in an increased supply of beef and reduced demand for imports. Third, declining US economic conditions contributed to reduced demand for beef, especially in the foodservice sector which typically accounts for a high proportion of beef for grinding. ABARES is forecasting Australian beef exports to the United States to rise by 6 per cent in 2011 12 to 170 000 tonnes (shipped weight), before increasing a further 6 per cent in 2012 13 to 180 000 tonnes (Mifsud 2012: 87). US beef production is forecast to fall, but exports to remain historically high resulting in a lower supply of beef for the US domestic market. The US cattle herd is currently around 90.8 million head, the lowest since 1958. Reduced calf numbers and feeder cattle placements and disproportionally large cow and bull slaughter are expected to lead to further decline in the herd in 2012 13. Over the medium term, herd rebuilding depends on seasonal conditions and could take several years before sufficient breeding stock is replenished. As a result, US import demand for beef is likely to increase over the medium term. Despite a positive outlook, Australian exporters are likely to continue encountering strong competition from other exporters such as Canada, which has a freight cost advantage, and Mexico, which also has lower production costs. Nevertheless, Australian beef exports to the United States are projected to continue rising over the next five years to 230 000 tonnes in 2016 17. US demand for manufacturing beef is expected to remain high due to limited domestic supplies. Republic of Korea The Republic of Korea is Australia s third largest beef export market, accounting for 15 per cent of volume (shipped weight) and 17 per cent of total value in 2010 11. Around 140 000 tonnes of beef were shipped from Australia to the Republic of Korea in 2010 11, 12 per cent higher than the previous year. The Korean market was worth around $714 million in 2010 11, 19 per cent higher than the previous year. The average value per kilogram rose by 9 per cent to $4.70. Australian beef exports to the Republic of Korea grew significantly over the past decade, from 57 000 tonnes in 2000 01 to 140 000 tonnes in 2010 11 (Figure 30). Korea also has a BSE-related 20-month age restriction on beef from the United States and Canada but, unlike Japan, is not yet considering relaxing that restriction. In late 2011, the Korea US Free Trade Agreement was ratified. As a result, the current 40 per cent tariff applying to all beef imports will be phased out for US beef by 2.7 percentage points a year over the next 15 years. With Australia still negotiating its free trade agreement with the Republic of Korea, Australian beef exports face a strong risk of being at a competitive disadvantage in the Korean market. Competition with Canadian beef in the Korean market will also increase because the Korean Government lifted its BSE-related ban on Canadian imports in January 2012. ABARES is forecasting Australian beef exports to the Republic of Korea to rise by 5 per cent in 2011 12 to 145 000 tonnes, before falling by 2 per cent in 2012 13 to 142 000 tonnes as competition from US beef increases, aided by a competitive US exchange rate (Mifsud 2012: 89) and a lower tariff on Korean imports of US beef under the Korea US Free Trade Agreement. Korean imports of beef have grown ABARES 83

Beef export markets steadily in recent years in response to growing per person consumption, and substantially higher pig meat prices following a cull of domestic pigs infected by footand-mouth disease. Over the next five years, Australian beef exports to the Republic of Korea are projected to decline as Australian beef faces greater competition from the United States and Canada. FIGURE 30 Australian beef exports to the Republic of Korea 200 160 Chilled Frozen 120 80 40 kt 2000 01 2002 03 2004 05 2006 07 2008 09 2010 11 Source: DAFF 2011a Emerging markets The Australian beef export trade has rapidly diversified over the past six years. A significant rise in exports to emerging markets such as the Russian Federation, South- East Asia and the Middle East has brought about this diversification, with the Russian Federation and Indonesia moving past Chinese Taipei as the fourth and fifth largest markets by 2010 11 (Table 17). While growth in exports to Indonesia has been strong in recent years, the Indonesian Government s December 2011 announcement that it will limit beef imports (from all suppliers) to 34 000 tonnes in 2012 as part of its beef self-sufficiency objective, will reduce exports to that market. Australian beef exports to Indonesia are expected to fall by 16 per cent to 38 000 tonnes in 2011 12, before declining a further 20 per cent in 2012 13 to 30 000 tonnes (Mifsud 2012: 89). Significant growth has been achieved in beef exports to the Russian Federation over recent years, albeit with some volatility from year to year. The Russian Federation has now become the fourth largest market after the Republic of Korea. Almost all Australian exports to the Russian Federation (98.5 per cent in 2010 11), are frozen grass-fed beef, mostly for grinding into hamburger for fast food or to be combined with other product into sausage. However, a growing proportion is being exported as frozen hindquarter and forequarter cuts which have a number of uses in foodservice (such as stews) or can be portioned for retail sale (MLA 2010). Australian frozen beef exports to the Russian Federation compete directly with South American beef (from Brazil and Argentina) and exports to the high value chilled beef market (1.5 per cent in 2010 11) compete directly with US chilled beef. Much of the increase in demand from the Russian Federation for Australian beef in 2011 was because of disruptions in South American supplies. The Russian Federation banned imports from a large number of Brazilian beef plants midyear, and in September, imports from Paraguay were stopped because of a major foot-and-mouth disease outbreak. 84 ABARES

Beef export markets TABLE 17 Changes in beef export volumes, selected markets ('000 tonnes) 2004 05 2010 11 Change Japan 418.9 351.4 67.5 United States 362.7 160.0 202.7 Korea, Rep of 91.1 139.2 48.1 Russian Federation 1.4 71.4 70.0 Indonesia 6.3 45.1 38.8 Chinese Taipei 25.5 31.5 6.0 Middle East 2.5 29.1 26.6 Philippines 1.9 21.4 19.5 Malaysia 3.7 13.9 10.2 European Union 7.0 12.3 5.3 Central and South America 2.9 10.0 7.1 Singapore 1.8 8.3 6.5 China 1.0 7.2 6.2 Canada 7.0 6.9 0.1 Papua New Guinea 2.1 6.5 4.4 Hong Kong 2.3 5.8 3.5 Pacific Islands 1.6 2.3 0.7 Thailand 1.0 2.3 1.3 South Africa 0.1 2.2 2.1 New Zealand 1.9 1.9 0.0 Others 5.1 8.6 3.5 Total 947.8 937.3 10.5 Source: DAFF 2011a Very strong growth has also been seen in beef exports to the Middle East, with the United Arab Emirates, Saudi Arabia, Jordan and Kuwait the most important destinations. The Philippines, Malaysia, Singapore and China have also grown strongly from a small base. In China, beef and sheep meat are less affordable than pork and poultry and are therefore considered more of a special occasion meal option (Pan 2010). However, total consumption of both has risen rapidly in recent decades because of a combination of rising per person incomes and urbanisation. Much of this demand has been supplied by domestic production. Government support during the 1990s encouraged production, but this support was removed as beef production became increasingly reliant on grain and the Chinese Government recognised beef production was an inefficient converter of grain compared with pork and poultry production (Pan 2010). Removal of support, combined with high grain prices, resulted in sales of Australian beef (and sheep meat) growing rapidly since 2007 at both the high and low end of the market. Based on FAPRI ISU 2011 World Agricultural Outlook projections to 2025 (see Figure 31) China is projected to be a significant net importer of beef by 2025 as well as the United States, Mexico, the Russian Federation and Japan. Brazil is projected to almost double its net exports, providing serious potential trade competition for Australia. ABARES 85

Beef export markets FIGURE 31 Beef and veal net exports for major trading countries, 2010 and 2025 Brazil Australia India New Zealand Argentina Canada China Ukraine Paraguay Vietnam Thailand South Africa Indonesia United States Chinese Taipei Philippines Egypt Hong Kong Mexico European Union Republic of Korea Japan Russian Federation 2000 1000 000 tonnes 1000 2000 3000 4000 2025 2010 Source: FAPRI ISU 2011 Future beef demand drivers In the 1980s, people in developing countries consumed about one-third of the world s meat supply. Now developing countries are consuming almost half of the world s meat production and by 2020 it is expected to be two-thirds (Gregory 2007). According to Food and Agriculture Organization (FAO) projections, meat consumption has been continuously increasing in developing countries from an average of 10 kilograms per person in the 1960s to 26 kilograms in 2000 and will reach 37 kilograms around 2030. Developed countries are not expected to significantly change per person meat consumption. Drivers of consumption growth for livestock products in developing countries include rising per person incomes and urbanisation. Income growth is generally considered the strongest driver of increased consumption of livestock products, and demand is more responsive to income growth in low income countries than in higher income countries (FAO 2009). Trends toward increasing urbanisation are a particularly important contributor to the rising demand for meat in developing countries as city dwellers tend to spend more on food than the lower income earning rural population. According to the FAO (2009), by the end of 2008 more than half the world s population was living in towns and cities and by 2050 around 70 per cent are expected to be urban dwellers. Urbanisation stimulates improvements in infrastructure, including cold chains, which permit trade in perishable goods like meat. There have been particularly large increases in consumption of animal products in Brazil and China, although still well below the levels of consumption in most other developed countries. According to the FAO, meat consumption has also increased in Malaysia, Vietnam and the Democratic People s Republic of Korea. 86 ABARES

Beef export markets Overall beef (and lamb) consumption in Asia is expected to rise, but at a much lower rate than pig and poultry meats. Much of the increase in meat production in developing countries, given land constraints, will be supplied by intensive livestock farming, with growth in pig and poultry production outstripping that of beef and lamb. In developing Asia, consumer preference, based on culinary heritage, is also likely to continue to be the white meats seafood, poultry and pork. Beef (and sheep meat to a smaller extent) will account for the remainder, providing small servings at the premium end of the market, much like the pattern that emerged in Japan, Chinese Taipei and the Republic of Korea over the past several decades. Also, as in other developing Asian markets, the growth in China of western-style supermarkets and restaurants that cater to wealthier customers, is adding to the rising demand for beef. However, Australia is not alone in these developing markets, with exporters such as Brazil at the higher end of the price spectrum and Uruguay at the lower end also exporting to markets in Asia, including China. The United States, while excluded from China by the discovery of BSE in 2003, would also be a significant competitor at the higher end of the market should it regain access to China. Market access International demand for Australian beef is affected by trade barriers, including tariffs and quotas, operating in a number of countries. Tariffs levied on imported beef increase its price, making it more expensive relative to local beef. Tariff rate quotas apply a different tariff depending on the quantity of imports all imports below the quota are levied a lower or nil tariff, while those above the quota attract a higher tariff. Table 18 shows the main tariffs the Australian beef industry faces in both major and minor export markets, and expected changes in arrangements resulting from recent free trade agreements. Quotas on Australian beef imports, enforced in Canada, the European Union, the United States, and the Russian Federation are also shown where applicable. International trade negotiations Despite slow progress in multilateral trade negotiations through the World Trade Organization, it remains a forum with the potential to generate the largest gains for Australia in global trade in agricultural commodities. Although generally smaller in magnitude, economic benefits can also be secured through negotiation of bilateral agreements. This includes both negotiation of free trade agreements and development of biosecurity and other protocols with individual countries to facilitate direct trade in specific commodities. Free trade agreements or closer economic partnerships can speed up trade liberalisation by delivering gains more quickly than through multilateral or regional agreements. Australia s beef exports to South-East Asia are expected to rise as a result of the free trade agreements that have been negotiated with a number of countries in the region. The ASEAN Australia New Zealand Free Trade Agreement (AANZFTA) was negotiated in 2010 between Australia, New Zealand and the Association of South East Asian Nations comprising Burma, Brunei, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam. For beef, AANZFTA will result in tariffs on most beef products falling to zero in the Philippines by 2012 and in Indonesia by 2020. Before announcement of AANZFTA, Australia had negotiated a free trade agreement with Thailand in 2005. This arrangement will result in beef tariffs also falling to zero by 2020. As a result of the Australia United States Free Trade Agreement (AUSFTA), also finalised in 2005, above quota tariffs on beef are to fall to zero by 2022. However, the US quota, at over 400 000 tonnes, is so large as to be effectively non-binding. ABARES 87

Beef export markets TABLE 18 Tariffs and tariff quotas on Australian beef exports Country Bound tariff a (%) Applied tariff (%) Australia s tariff quota (t) In quota tariff (%) Expected changes Canada 26.5 26.5 35 000 (per calendar year) 0 China 12 25 Australia and China negotiating free trade agreement European Union 12.8% + 141.4 to 304.1 Euro/100kg 12.8% + 141.4 to 304.1 Euro/100kg 7150 (high quality beef) per fiscal year 20 Indonesia 50 5 34 000 global quota in 2012 Most tariffs to be removed by 2020 under AANZFTA Japan 50 38.5 (special safeguard of 50) Australia and Japan currently negotiating free trade agreement Mexico 45 20 25 Philippines 35 (boneless) 40 (bone in) 10 Expected to be 0 under AANZFTA by 2012 Russian Federation WTO accession expected in mid-2012 50, but not less than 1 Euro/kg 407 000 frozen 1000 chilled (both shared with other nations) 15, but not less than 0.2 Euro/kg Republic of Korea 40 40 Australia and Republic of Korea currently negotiating free trade agreement Chinese Taipei 29 b NT $10/kg Thailand 50 50 Expected to be 0 under AANZFTA by 2020 United States 26.4 26.4 408 214 (in 2011). Final quota 448 214 in 2022 then unlimited volumes permitted 0 Unlimited volumes and 0 tariff expected under AUSFTA after 2022 a As negotiated through GATT/WTO deliberations. Agreed rate at which tariffs will not exceed. b Estimated tariff equivalent (average across tariff lines). Note: AANZFTA = ASEAN Australia New Zealand Free Trade Agreement; AUSFTA = Australia United States Free Trade Agreement; WTO = World Trade Organization. Sources: WTO Statistics database; MLA 2011 88 ABARES

Beef export markets A number of agreements are currently under negotiation which may result in further trade liberalisation. Of importance to Australia s current beef markets are the negotiations on the Australia Japan Free Trade Agreement, the Australia Korea Free Trade Agreement and the Australia China Free Trade Agreement (Table 19). Cementing Australia s already strong relationships with Indonesia and Malaysia will be the Indonesia Australia Comprehensive Economic Partnership Agreement and the Australia Malaysia Free Trade Agreement, also under negotiation. The United States recently successfully concluded its negotiation with the Republic of Korea and the US Korea Free Trade Agreement came into effect on 15 March 2012. The agreement allows for the import tariff on US beef to reduce from the current 40 per cent to zero over the next 15 years, posing a risk to Australia s growing trade in beef with the Republic of Korea and providing more urgency for Australia s own negotiations with the Republic of Korea. Now that the United States has negotiated its free trade agreement with the Republic of Korea, it will remain ahead of Australia in stepped tariff reductions, putting Australia at a disadvantage unless Australia is able to negotiate more favourable terms. TABLE 19 Free trade agreements under negotiation: current tariffs applicable to Australian beef Free trade agreements Tariff rate (%) Japan 38.5 Republic of Korea 40 Malaysia 0 China 12 25 Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE) 0 5 Indonesia Comprehensive Economic Partnership Agreement 0 5 Trans-Pacific Partnership Agreement (Brunei, Chile, New Zealand, Singapore, Australia, United States, Peru, Vietnam) 0 17 Pacific Agreement on Closer Economic Relations (Australia, various Pacific islands, New Zealand) 0 35 ABARES 89

Chapter 8 Establishing meat processing facilities No export certified slaughter works currently operate in northern Western Australia, but three operate in southern Western Australia. At the time of writing, the Northern Territory had no export certified works. Queensland meatworks at Townsville, Rockhampton and Biloela are the only export certified works in the northern part of Queensland but there are a number in south-east Queensland. Processing plants at Beenleigh and Dinmore, near Brisbane, process large numbers of cattle each day, but these works are processing cattle from feedlots in the Darling Downs area of Queensland and would not typically process cattle directly from the northern regions. Many smaller processing works in northern Australia service local areas, but the kill numbers for these are relatively small (that is, less than 100 head per week). Map 6 shows the locations of export certified meat processing facilities in Australia and their locations in relation to ports and the major road networks. Appendix 1 lists processing works available to the northern Australian beef industry works that are currently operating; works that are not operating but still intact; works that had existed but no longer do; and proposed works in the northern region. Companies such as JBS Swift, Teys Australia, Nippon Meat Packers Australia, AAco, Stanbroke, and the Northern Australian Pastoral Company also have substantial feedlots in Queensland. However, other than the Goonoo Feedlot, owned by AAco and located west of Rockhampton, the remainder are in the Darling Downs region of south-east Queensland. Some of these feedlots take cattle from the northern region suitable as feedstock for processing into the domestic and export beef markets. Proposed northern beef processing facilities Over the past few years, a number of northern meat processing feasibility studies have been conducted and proposals considered in various forms with respect to cattle processing. The findings of each are presented here. Feasibility studies Northern Western Australian beef abattoir The Department of Agriculture and Food Western Australia (DAFWA) and the Rural Industries Research and Development Corporation (RIRDC) commissioned a two-phase study to determine the feasibility of an abattoir in north-west Western Australia and a suitable location. Phase 1 examined a range of possible types and locations of processing works exclusively in Western Australia to service producers 90 ABARES

Establishing meat processing facilities MAP 6 Locations of export and domestic abattoirs and boning rooms and ports servicing northern Australia N 0 250 500 750 1000 Kilometers Abattoirs / boning rooms Domestic abattoir/boning rooms Export abattoir/boning rooms Transport Ports Roads (formation 1) Roads (formation 2) Source: ABARES in the Pilbara, Kimberley, Gascoyne and Murchison regions (SD&D & Meateng 2010). The study examined various aspects of the location including transport costs and infrastructure, cattle populations, land ownership, and other related requirements such as feed supplies for an industry providing slaughter cattle. It concluded that meat processing would not be viable without government assistance and that should such assistance be forthcoming the preferred location for a processing works would be Broome in the Kimberley region. Phase 2 of the study was released in November 2011 (SD&D, Hyder & Meateng 2011). This time the report undertook a preliminary investigation of structural changes in the northern rangelands industry required to withstand any future shocks to the live export trade. The study concluded that, before an abattoir is designed, attention needs to be paid to developing a feed-on sector. While policy activities such as land tenure reform, identification and tapping of new groundwater resources, increased use of irrigation for fodder production and grazing, support for Indigenous industrial employment and planning for energy developments are underway to facilitate this development, the policy efforts of both government and industry bodies need to be effectively coordinated and formally integrated. Development of an irrigation industry to support fodder production, as well as more intensive grazing in locations where groundwater resources are sustainable, would be important precursors to any public sector support for a Kimberley abattoir. The consultants maintain their conclusion from Phase 1 that commercial forces alone are unlikely to bring about development of new processing facilities in the region. Some form of government ABARES 91

Establishing meat processing facilities assistance would be necessary, possibly in the form of infrastructure and services provision and potentially some contribution to financing construction. Phase 2 also looked at whether the industry would be able to support two slaughter/ processing plants, given the AAco proposal to construct a Darwin facility. The authors concluded that a Darwin facility would reduce the dominance of the live export trade and would be of some benefit to eastern Kimberley producers and therefore capture some share of the Kimberley production. However, those in western Kimberley and northern Pilbara would remain significantly distant from processing facilities in the Northern Territory and southern Western Australia. Nevertheless, a facility in Broome would be disadvantaged, not only in terms of ensuring a reliable cattle supply, but also by competition for markets. The authors concluded that, if the Darwin proposal proceeds, perhaps only a niche operation in Broome would be likely to succeed rather than a significant standard integrated abattoir. The consultants therefore concluded that further consideration of a Kimberley processing facility be held over until the AAco development decision is made. Mobile abattoir systems Neithe and Butler (2010) reviewed the potential for mobile abattoir systems to be developed for use in the northern cattle regions. However, the issues of cold chain management, DAFF Biosecurity inspection, labour, effluent disposal and access to power and water make it difficult to conceive of a business cost model that would be viable in competition with normal fixed location abattoirs. The authors concluded that, while a fleet of mobile abattoirs was unlikely to be able to satisfy the needs of the northern Australian cattle sector in terms of either capacity or processing cost, there may well be an interim or marginal role for entrepreneurs to establish mobile operations. They could serve a useful purpose in establishing volumes toward a critical threshold where a fixed processing plant became viable. The authors concluded this could be facilitated by government where they involve operations that would be compliant with food and environmental standards. Northern Territory dual species abattoir A pre-feasibility study for a northern Australian dual-species (camels and cattle) abattoir (Neithe 2009) concluded that such a facility would be of benefit to the local beef producers. The report concluded that a large multi-species export abattoir using existing plant and infrastructure appeared to be the best option to sustain a meatworks business that would source livestock from the Northern Territory and the Kimberley region of Western Australia. The report also highlighted the significant opportunities that exist in harvesting feral camel populations if transport logistics could be overcome and markets secured. Animal welfare, driver safety and increased transport costs (due to new heavy vehicle driver fatigue legislation) were also highlighted as negative issues associated with long distance animal transportation. The report indicated that opportunities to harvest and process meat in smaller-scale operations may offer alternative ways to address these issues. This would become more important should a large export operation fail to survive or eventuate in the north. The complementary slaughter seasons of cattle with camels and goats have led to suggestions that this model could help provide the elusive 12-month supply of slaughter stock for continuous operation of a processing facility. However, while this model has labour cost and retention benefits, it would also require a higher capital base for processing a species other than beef cattle. This would be added to the capital required for meat processing plants with, for example, the need for single deck trucks for transporting camels. 92 ABARES

Establishing meat processing facilities The authors concluded that the economic viability of a facility under this model would depend on the cattle numbers available, and attracting the attention of a processor with operational experience and market access. Such a processor would need to determine that a cattle processing stream was viable, and then seek to address the incremental benefits and costs of seasonal processing of a second and third species. Queensland abattoir feasibility study One of the components of the joint Australian and Queensland Government $10 million North Queensland Irrigated Agriculture Strategy was a study into the feasibility of establishing an abattoir in north-west Queensland. The Queensland Government announced the study s findings on 22 February 2012. The Queensland study by Meateng, Felix Domus & Tim Hoffman Advisory (2012) found that, while there is no shortage of meat processing capacity in Queensland, it is too distant from the production areas of the far north and north-west Queensland, with many producers located over 1500 kilometres from the major Brisbane abattoirs and 800 kilometres from Townsville. Live cattle transport to existing abattoirs, restrictive animal welfare and driver fatigue regulations, tick line treatments and live-weight loss all add significantly to cost and transportation time. The consultants concluded that an abattoir situated in Cloncurry would offer the greatest benefit per head of cattle for pastoralists with cuts of up to $41 a head when compared with transporting cattle to existing abattoirs. The report also points to a number of challenges that a new facility will face such as higher operating costs than existing abattoirs, and that all-weather roads and improved fodder production would be necessary to reduce the seasonal supply shortfall. A commercial investor may only be interested if government assistance can be provided in the form of infrastructure (all-weather road access and utility services), provision of land, support with statutory and development approvals, training support and support with tax concessions and meat inspection charges. The study suggests a number of changes which could develop over time as result of incentives provided by a local meat processor including use of better properties for finishing young cattle from breeder-only properties in the far north; expansion of fodder supply capacity (including irrigated fodder) to expand wet season supply and improve slaughter weight for age; and improved breeds and genetics. Northern abattoir development proposal Northern Australia Beef Limited, a wholly owned subsidiary of AAco, proposes construction of a meat processing works at Livingston Valley, 50 kilometres south of Darwin. It is expected that this works would process cull cows, out-of-specification steers not suitable for export to Indonesia (that is, heavy weight greater than 350 kilograms animals) and other stock not suitable for the live cattle trade in general. In addition to providing slaughter and meat processing facilities for AAco cattle (about 40 per cent of throughput), the facility is expected to provide service kill for other producers in northern Australia. The objective is to provide a new platform for AAco s boxed beef business and is an important part of AAco s strategy of vertical integration along the beef value chain, reducing freight costs and improving animal yields (AAco 2010). The expected throughput of this works is 1000 head per day throughout the year; that includes working through most of the wet season, with a maintenance break at some stage in the wet season. The beef would be exported as frozen primal cuts and coarse ground beef to Asia and the United States (ABC 2011c). ABARES 93

Establishing meat processing facilities At the time of writing, the proposal was before the Northern Territory Government for development approval and environmental assessment; the company is also seeking support from the Northern Territory and Australian governments for upgrades to related infrastructure. Supporting meat processing facilities Industry and government have recognised the need for successful operation of an abattoir in northern Australia to ensure market options, to create employment opportunities and to possibly aid feral animal control. Indonesia s desire to move toward self-sufficiency by 2014 presents further motivation to re-establish meat processing in Australia s north. The issues that need consideration when establishing meat processing facilities include: continuity of supply of stock competitive access to markets reliable source of skilled labour cost effective transport, energy supply and potable water coordinated feed-on and livestock aggregation services. Continuity of supply of stock Reliability of supply would be a major issue, given the strength of the live export trade and the extent to which farm businesses have geared production toward turning off younger stock. Seasonal variation is also an issue for ensuring reliable and steady throughput. The relative amount of seasonal variation is extraordinarily high in tropical northern Australia where cattle can only be mustered during the dry months of May to September, heavily affecting the potential supply of animals throughout the year. As SD&D & Meateng noted in 2010, a new abattoir would no doubt claim a base-load kill volume from producers keen to reorient their operations in pursuit of higher returns from processing than those available from the live trade. This base load would also include supplies of cattle less favoured by or unsuitable for the live export trade and difficult for many to market; that is, shorthorn types, cull cows and animals over the 350 kilograms maximum weight specified by Indonesia. However, this base load would not be steady, reliable or of sufficient scale to guarantee the abattoir could operate at its design capacity. Also, without feed-on facilities and major producer efforts in reorienting toward beef production, this base-load kill would be producing relatively low-value meat, principally of manufacturing quality. A new abattoir would need to be considered as part of a revitalised supply chain. Abattoir operators would depend on relationships with producers working with cattle in a range of production stages breeding, weaning, backgrounding, growing out as well as trading. SD&D & Meateng (2010) point out that established processors would not risk capital in providing a facility that producers would only use opportunistically. The future status of the live trade is uncertain as changes to Indonesian import policy are possible. Processors would need some form of security over their supply arrangements to confidently invest in a new facility, implying a unique partnership relationship between producers and processor might be needed to ensure stability of a new facility. 94 ABARES

Establishing meat processing facilities Competitive access to markets All recent studies into the feasibility of northern abattoirs have concluded that meat processing would only benefit the industry if markets could be found for beef produced and returns are sufficient to cover costs. Cattle for live export contributed 8 per cent to the national turn-off of beef cattle in 2010 11 and two-thirds of these cattle were exported from northern ports (Chapter 2, Figure 1). While this is a relatively small proportion of national turn-off, without the live export trade these cattle would need to be added to the current national slaughter and markets found for the additional beef. As discussed in Chapter 7, substantial potential exists for additional beef to be marketed to China and South-East Asia. But these additional exports will face competition from other suppliers such as Brazil and India as well as increases in domestic supplies. Smaller regional abattoirs would face significant competition from the larger more efficient facilities in south-east Queensland and southern Australia with already established access to export markets. Reliable source of skilled labour Attracting skilled labour to remote localities is always an issue, regardless of the industry (Neithe & Butler 2010). The cattle industry struggles to attract and retain skilled staff and plant operators and a meat processing facility would probably find it equally difficult, unless the returns are such that high wages can be offered. Attracting skilled labour to remote localities would need to be accompanied by additional incentives such as social activities and community services. For example, the mining industry has succeeded in this area because it is able to provide accommodation, facilities and high wages. A Productivity Commission report on the competitiveness of the meat processing industry examined the cost profile of Australian abattoirs and meat processors (Productivity Commission 1994). It identified the cost of labour (including labour on-costs) as accounting for close to half the processing costs. More recent figures, released by JBS Australia on their processing costs, show the labour component being around 21 per cent of total input costs (including livestock component) and 70 per cent of their processing costs (excluding livestock component) (Beef Central 2011). US Bureau of Labor Statistics data on labour costs in various countries also show that Australian labour costs in the food and beverage manufacturing sector were significantly higher than in competing countries, particularly low-cost producers such as Brazil, Argentina and Mexico (Figure 32). Attracting skilled labour is not only a problem of remote locations. Many of the larger export abattoirs are using overseas labour sourced from countries such as Brazil and the Republic of Korea. Workers come to Australia on temporary work visas and work on both the slaughter floor and in the boning room. This would be an initial option for any proposed meat processing facility, but the preference in the longer term would be to provide training opportunities for local, including Indigenous, employees thereby bringing economic and social benefits to the northern Australian economy. The Indigenous Land Corporation is already injecting capital into meat processing training for Indigenous workers. In November 2010, Gunbalanya Meatworks reopened with an upgraded abattoir at the Aboriginal settlement of Oenpelli on the western edge of Arnhem Land in the Northern Territory. Using local labour, Gunbalanya Meatworks supplies affordable meat to local communities and some beef and buffalo meat products interstate. While the Gunbalanya operation is relatively ABARES 95

Establishing meat processing facilities small, with throughput of around 50 animals a week (half cattle, half buffalo), the intention is to train 16 Indigenous trainees each year in its combined meatworks and pastoral operation (ILC 2011). FIGURE 32 Hourly labour costs for food, beverage and tobacco manufacturing industry 35 30 25 20 United States Australia Canada Mexico Argentina Brazil 15 10 5 US$/ hour 2002 2003 2004 2005 2006 2007 Source: Bureau of Labour Statistics 2012 Cost effective transport, energy and potable water Transport infrastructure is crucial for the location and viability of meat processing in northern Australia, both for stock coming in for processing and for product going to market. Many properties are served by dirt roads that become impassable in the wet season and require some time to dry out after the wet, thus access to markets for some producers is restricted by road conditions (Cribb et al. 2009). Of the total road and track length (94 000 km and 291 000 km, respectively) in northern Australia, less than 10 per cent is sealed and most sealed roads are considered principal roads or highways (BITRE 2009). In addition, 71 per cent of access roads in the region are not sealed. Given road access to markets (including ports) is critical to producers and meat processors alike, improvement to roads and associated infrastructure, such as bridges, is essential for further development of the industry. A meat processing facility located in the tropical north would benefit from a transport advantage when compared with processing works in eastern and southern Australia, negating the requirement to transport cattle thousands of kilometres on long-haul transport. Long-haul transport needs to comply with rigorous animal welfare requirements as well as deal with driver occupational health and safety concerns. Section 9.5.2 of the Code of Practice for Land Transport prescribes that stock over 6 months of age should be spelled for 12 24 hours after each 36 hours of water deprivation time for a normal journey or for 36 hours for journeys of 36 48 hours. Such long journeys are difficult for the animals and they lose condition before reaching their destination. Additionally, the heavy vehicle driver fatigue laws prescribe that the absolute maximum length of time a solo driver can spend on the road in any 24-hour period is 16 hours. Both the land transport standards and heavy vehicle driver fatigue laws add significantly to the costs of moving livestock over long distances. 96 ABARES

Establishing meat processing facilities Transporting live cattle across the tick line also adds considerable cost in terms of treatments and permits required before transport, and under certain circumstances the treatment can devalue the product (SD&D & Meateng 2010). Locating meat processing facilities within a tick endemic area would negate the need for producers MAP 7 Tick zones in northern Australia Sources: DAFWA (pers. comm.); DEEDI 2011c; DRDPIFR 2009 to incur these costs in accessing slaughter facilities. Map 6 shows an approximation of the tick zone in northern Australia, ostensibly the region above the twentieth parallel, apart from in Queensland where the zone extends down the eastern side of the state. Reliable energy sources are needed to support meat processing facilities, particularly three-phase power to minimise the risk of distribution losses. An abattoir has significant consumption of energy electricity and/or gas with refrigeration being the main component of energy consumption. The Australian standard for hygienic food production for both export and domestic markets requires a processing room temperature of no warmer than 10 C and chilled storage at no more than 7 C for carcass, side, quarter or bone-in cut and no more than 5 C for any other cut (SCARM 2002). A source of good potable water is required for any abattoir operation. The abattoirs must be cleaned at the end of each shift in preparation for commencement of the next. In the case of export abattoirs, comprehensive and rigorous swabbing procedures are to be met in terms of chlorination and water temperatures to ensure removal of fat and destruction of common pathogens. Bore water is acceptable if chlorinated, but surface waters need to be treated as well as chlorinated, similar to that required for human consumption (Neithe & Butler 2010). Carbon management needs to be considered in any new processing facility with consumption of energy optimised and greenhouse gas emissions minimised. Consideration should be given to renewable energy, such as solar, for generating hot water and lighting. Emissions from water treatment ponds are also accounted for in greenhouse gas emissions. ABARES 97

Establishing meat processing facilities Coordinated feed-on and livestock aggregation services An abattoir development would increase the incentive for developing a nearby agistment/ backgrounding sector and encourage value adding of cattle in areas where stock are now mostly shipped out either to the live export trade or to southern feedlots as stores. Such value adding opportunities would also provide incentive to improve management practices, thus boosting on-farm productivity. Use of backgrounding and feed-on facilities en route to processing from breeding enterprises is well established in central Queensland with the industry able to make use of grain supply generated from cropping areas in the central and southern parts of the state. In Western Australia, no feedlots exist north of Geraldton and the cost of freighting grain from the Western Australian grain belt to the Kimberley and Pilbara is too high for a traditional feedlot sector to be developed in those regions (SD&D & Meateng 2010). In the northern cattle regions, evolving from substantially a cattle industry into a beef industry will depend on sustainable development of water resources for improved pasture and fodder production (Cribb et al. 2009). Sources of feed suggested as alternatives to grain include tropical grasses under irrigation and horticultural roughage waste. The Western Australian abattoir feasibility study suggested an abattoir capable of handling 100 000 head per year would need the support of an agistment sector capable of holding up to 25 000 head to maintain cattle supply through the wet December to March period (SD&D & Meateng 2010). Such facilities need not be concentrated into a single property or zone, but could be made up of a large number of properties with water licences and centre pivot irrigation systems to provide the necessary feed requirements of the animals being held. In addition to agistment or specialist feed-on sectors, individual producers may have the capacity to value-add their own stock in suitable areas. Chilcott (2009) suggests intensification of beef production, based on small-scale irrigation fodder production (mosaic irrigation) and fenced stand and graze feeding systems would lead to improved year-round access to stock and the ability to fatten them during the dry season. This more evenly distributed supply of better condition cattle would benefit both live export markets and the potential for abattoir development in the north. Development of an irrigation sector or mosaic irrigation systems might be precursors to developing a more integrated supply chain as producers see opportunities to valueadd and improve product availability and quality. Mosaic irrigation and irrigation research About 60 to 70 per cent of Australia s water run-off occurs in the north and developing some of these water resources would enable expansion of both agricultural and horticultural industries. Bristow and Filmer (2008) suggest that a quiet revolution in livestock management could be achieved without large-scale, publicly funded irrigation schemes, but rather the small and distributed scale of mosaic agriculture. Use of irrigation mosaics has the potential to enable northern cattle producers to overcome seasonal feed shortages and intensify production. Irrigation in Australia is characterised by large areas of similar land use, fundamentally changing hydrology and other ecological functions (Bristow & Filmer 2008). This offers economies of scale from an engineering perspective but in some cases has resulted in environmental problems such as rising watertables, salinisation, groundwater pollution and major changes to natural river flows. Irrigation mosaics small patches of irrigation spread across the landscape offer an alternative approach which could suit some areas of northern Australia where the necessary 98 ABARES

Establishing meat processing facilities resources intersect and critical sensitivities are excluded (Cribb et al. 2009). For example, 30-hectare irrigation circles based on 300-metre centre pivot travelling irrigators could be located in areas with productive and resilient soils; access to water of suitable quality and quantity; and access to roads, power and labour and avoid areas of significant environmental or cultural value. Deciding whether to expand irrigation, and if so, what it should look like, where it should be located and how to manage it, requires an improved understanding of groundwater systems, rivers and catchments and of the risks and benefits associated with irrigation. The SD&D & Meateng 2010 study pointed out that the costs of clearing land and installing irrigation infrastructure, such as centre pivots, are high and the process of gaining permits difficult under current pastoral land tenure arrangements. The CSIRO, under a joint partnership with the Australian and state and territory governments under the Northern Australia Sustainable Futures program, is examining development of irrigated mosaic agriculture for northern Australia. The CSIRO study, to be completed by the end of 2013, aims to provide a practical guide to establishing mosaic irrigation for the northern Australian beef industry. Some mosaic precincts or hubs already exist. In Western Australia, a mostly horticultural precinct is operating south of Broome, with further development potential, and there are plans to investigate potential for the Fitzroy River area. In Queensland, a number of studies examined the feasibility of irrigated agriculture on the Flinders River soils within a mosaic cropping context (Coventry & Pollock 2011; DEEDI 2011a). Following on from the state government funded Flinders River studies, the Australian Government announced in December 2011 a $6.8 million investment into a comprehensive assessment, again by CSIRO, of surface water storage options in the Flinders and Gilbert River catchments of north Queensland. The studies aim to identify new irrigated agriculture techniques that could be extended across northern Australia. The Queensland government is contributing a further $3 million for on-farm demonstration projects and systems analysis to develop practical farming approaches. This combined body of work is the North Queensland Irrigated Agriculture Strategy and includes $200 000 in shared funding for the recently released (22 February 2012) feasibility study, which supports development of a meat processing facility in north Queensland. ABARES 99

Chapter 9 Climate change, adaptation and mitigation The global scientific community agrees that the climate has been changing due to human activity and will continue to change (IPCC 2007). Since 1950 the average temperature in Australia has increased by around 0.9 C and most of eastern and south-western Australia has experienced substantial decreases in rainfall. In contrast, north-western Australia has become wetter over this period, mostly in the summer (CSIRO, BoM & DCCEE 2011). Best estimates (50th percentile) of the global climate model projections for medium emissions indicate that by 2030 the average temperature in northern Australia may have increased by up to 1.5 C relative to 1990, while for 2070 an increase of up to 3 C is projected for medium emissions (Map 8). Temperature increases are likely to be greatest in Australian inland areas, and least in coastal areas, with north-western Australia predicted to experience the most severe warming. Map 9 indicates that, for medium emission scenarios, annual average rainfall is projected to decline in most of Australia by 5 per cent in 2030, by 10 per cent in 2050 and by 20 per cent in the central and western parts of Australia by 2070. In contrast, little change in future rainfall is projected for the northern regions of Australia. Agriculture is likely to be affected directly and indirectly by climate change and Australia is projected to be one of the most adversely affected regions from future changes in climate in terms of reductions in agricultural production and exports, under the assumption of no adaptation and mitigation (Gunasekera et al. 2007). Reduced rainfall and higher evaporation rates due to elevated temperatures in some areas are likely to reduce water availability. Drier conditions and increased frequency of hot days are likely to increase the frequency and intensity of bushfires. Increases in extreme weather events such as heatwaves, droughts, extreme rainfall events, flooding and changes in characteristics of tropical cyclones are also possible and can reduce agricultural productivity. Extreme rainfall events can also degrade soil through increased erosion and lead to soil acidification. Climate change may also make some control measures less effective. For example, prolonged drought reduces the opportunity to use fire as a weed management tool (Howden & Meinke 2003). Also, carbon dioxide fertilisation associated with climate change is expected to enhance weed growth so protection of native pasture from encroachment of woody weeds and other weeds will be important for improving pasture productivity. In addition, increased temperature and increased carbon dioxide levels may alter the environmental conditions which affect the population 100 ABARES

Climate change, adaptation and mitigation MAP 8 National temperature increase, 50th percentile 2030 Low emissions Medium emissions High emissions 2050 2070.3.6 1 1.5 2 c 2.5 3 4 5 Note: Projections of temperature increases in 2030, 2050 and 2070 relative to the period 1980 1999. Source: CSIRO, BoM & DCCEE 2011 MAP 9 National rainfall change, 50th percentile 2030 Low emissions Medium emissions High emissions 2050 2070 40 20 10 5 2 2 5 10 20 40 % Note: Projections of changes of rainfall in 2030, 2050 and 2070 relative to the period 1980 1999. Source: CSIRO, BoM & DCCEE 2011 ABARES 101

Climate change, adaptation and mitigation dynamics and survival of insects, viruses, bacteria and other parasites therefore affecting distribution, pattern and severity of impacts of pests and diseases (Whetton 2003). Response to climate change The Australian Government s broad response to climate change is to cut greenhouse gas emissions and drive investment in a low carbon economy. This will be achieved by putting a price on carbon and investing in adaptation and mitigation measures. Carbon pricing The Australian Government s Clean Energy Future legislation passed through the Senate in November 2011 and the associated carbon pricing mechanism is scheduled to begin on 1 July 2012. The carbon price mechanism will place an explicit price on greenhouse emissions from the stationary energy, rail, domestic aviation and shipping and industrial processing sectors as well as on waste and emissions from oil, gas and coal production. The carbon price is fixed like a tax for the first three years, starting at $23 a tonne of carbon dioxide equivalent (CO 2 -e) in 2012 13 and rising by 2.5 per cent a year in real terms. From 1 July 2015, the carbon price mechanism will move automatically to a flexible, market-driven approach set by the market, called an emissions trading scheme. For the first three years of emissions trading, a price ceiling and price floor will apply before moving to a fully flexible market price. The Australian Government has decided to exclude the agricultural sector from carbon pricing. Nevertheless, farmers may still be affected by imposition of a carbon price. Farm input costs may increase as a direct result of placing a price on nonagricultural greenhouse gas emissions and the price received for farm products may fall if food processors pass their own cost increases on to farmers. ABARES assessed the potential short-run effects of a carbon pricing scheme at the farm level for 2012 13 and 2014 15 (Whittle et al. 2011). The report notes that electricity, fuel and freight are the major energy-intensive inputs farmers and food processors use. For farmers, fuel-based farm inputs, which include freight and aerial agricultural services, account for the highest shares of emissions-intensive inputs and electricity represents only a small proportion of on-farm input costs. Whittle et al. estimate that the share of beef farmers total farm costs allocated to freight is 3.4 per cent with electricity at 0.9 per cent and aerial agricultural services at 0.4 per cent. Under the carbon pricing mechanism, farmers will be exempt from any reductions in the currently applicable fuel tax rebate. Fuel used by heavy on-road transport will be exempt from a carbon price in 2012 13 and 2013 14, and the government intends to expand coverage of the carbon price to include heavy on-road vehicles from 1 July 2014. Therefore, farmers and food processors could face increased costs for freight from 2014 15. The imposed carbon price on emissions from domestic aviation from 1 July 2012 is expected to raise the cost to farmers of aerial agricultural services, such as mustering. Meat processors also face higher input costs from their use of electricity and transport fuel. As is the case for farmers, electricity and fuel use constitute small shares of meat processors total costs (0.6 per cent and 0.1 per cent) when compared with road transport (7.9 per cent). As noted, a carbon price on fuel used by the road transport sector will not apply until 2014 15. 102 ABARES

Climate change, adaptation and mitigation In addition to higher electricity, fuel and transport costs, some of the larger meat processors may also face a carbon price if direct greenhouse gas emissions principally methane from waste water ponds total more than the 25 000 tonnes of CO 2 -e threshold for a single facility. Some of the larger abattoirs are expected to exceed the facility level emissions thresholds of 25 000 tonnes CO 2 -e and will therefore be required to buy and surrender to the government a carbon permit for every tonne of carbon pollution they produce. Average annual greenhouse gas emission from waste water ponds in the meat processing sector have been estimated at 611 000 tonnes of CO 2 -e; nearly eight times higher than for the dairy sector (Whittle et al. 2011). In the analysis of the short-run effects of the carbon pricing mechanism, ABARES estimated an increase in on-farm input costs of around 1 per cent in each of the first two years for beef farms. For the meat processing sector, ABARES estimated an increase in processing costs of 0.07 per cent in 2012 13, excluding the cost of waste water emissions and 0.14 per cent a year including the cost of waste water emissions. In 2014 15, these costs are expected to increase to 0.13 per cent and 0.20 per cent respectively. Food processors are likely to pass some of their additional costs on to farmers, resulting in lower farm cash receipts for farmers. The ABARES analysis suggests that in reality it is unlikely that food processors will pass back all their cost increases and not all food processors will have to pay for waste water emissions. Adaptation and mitigation While measures to reduce growth of greenhouse gas emissions are an important response to climate change, adaptation to climate change is also an important part of the response. Both processors and farmers are likely to make adjustments to their input output mixes and management practices over the longer term to ameliorate some of the effects of carbon pricing. Upgrading of plant to increase energy efficiency and use of renewable energy may also reduce the effects. For farmers, emissions can be reduced by implementing alternative management practices, increasing carbon sequestration and reducing fossil fuel emissions. Some adaptation strategies available to help farmers manage pasture and soil moisture include dividing properties into smaller areas which are grazed more intensively for shorter periods of time (rotational grazing); increasing pasture productivity through precision application of nitrogen and phosphorous; increasing legume content of pastures; and using pastures adapted to environmental conditions under climate change (Howden & Meinke 2003). As part of the Australian Government s policy to reduce emissions and help the agricultural industry contribute to abatement and store carbon in the land, it has developed a $1.7 billion Land Sector Package under the Securing a Clean Energy Future plan. The package includes the: Biodiversity Fund Carbon Farming Futures Fund Indigenous Carbon Farming Fund Regional Natural Resource Management Planning for Climate Change Fund Non-Kyoto Carbon Fund Carbon Farming Skills program. ABARES 103

Climate change, adaptation and mitigation Concurrently, efforts are being supported through the Carbon Farming Initiative, designed to provide opportunities for farmers to earn additional revenue from selling carbon offset credits. The scheme will provide new opportunities for farmers, foresters and landholders to access proven technologies and management practices that can reduce input costs and emissions or sequester carbon and increase productivity. The initiative will allow farmers to generate carbon credits that they can sell on domestic and international carbon markets. Depending on the availability of approved methodologies, carbon credits can be generated through: reforestation and regrowth native forest protection reduced methane emissions from livestock manure management reduced fertiliser emissions prescribed burning of savannas enhanced forest management revegetation and vegetation management (establishment and management of woody biomass that does not meet forest criteria) cropland and grazing land management (reduction or sequestration of greenhouse gas emissions from soil, cropping and vegetation) (Sparkes et al. 2011). Also as part of the $4 million Carbon Farming Initiative communications program, the Minister for Agriculture, Fisheries and Forestry, Senator the Hon. Joe Ludwig, announced (in December 2011) $1.68 million in grants for regional facilitators to help farmers, land managers and Indigenous Australians benefit from the initiative. Regional Landcare facilitators will use the grants to run information sessions on how Carbon Farming Initiative projects work and have local experts share their carbon farming experiences in regionally focused workshops to help farmers and land managers understand how the initiative will help them. The Australian Government, through its Caring for our Country initiative, provided $9 million toward the purchase of Henbury Station, 130 kilometres south of Alice Springs. R.M. Williams Agricultural Holdings will manage Henbury to enhance carbon sequestration, establishing a model for generating biodiverse carbon credits. The process of natural revegetation will remove carbon dioxide from the atmosphere, storing carbon in the soil and native vegetation. The company plans to sequestrate up to 1.5 million tonnes of carbon dioxide emissions per year for the next 10 to 15 years (SEWPAC 2012). The Australian Government is also implementing the $200 million Clean Technology Food and Foundries Investment program to fund processors in the food manufacturing industry to implement emissions reduction technologies and increase energy efficiency. Food processors, including meat processors, will have a $150 million dedicated funding stream under this program and, should these funds be exhausted, will be able to access further funding under the $800 million Clean Technology Investment program. 104 ABARES

Chapter 10 Risks and opportunities assessment This chapter outlines the key factors determining growth of the northern Australian beef industry. For each, a set of key risks and opportunities are presented. Markets The single most important factor influencing growth of the northern Australian beef industry and determining its competitiveness is the market outlook for live cattle exports, beef exports and the domestic market. Live cattle exports Demand for live exports to South-East Asia has induced a change in some regions in northern Australia toward more rapid turn-off of young stock for placement in Asian feedlots. The growth in demand has been strongest from Indonesia, driven by that country s push to develop a strong feedlot sector to satisfy its growing population s demand for protein, to provide a source of employment, and to take advantage of cheap feed in the form of crop by-products. As a result, in recent years more than 80 per cent of live cattle exports from northern Australia were destined for that single market. Risks If Indonesia achieves its desire to phase down its reliance on Australian feeder cattle in its push for beef self-sufficiency by 2014, Australia s exports to that market will decline markedly, particularly affecting those producers in the north who are heavily or wholly geared toward live cattle export. The live cattle market is far more vulnerable to fluctuations, as demonstrated by the temporary trade suspension to Indonesia in 2011 due to animal welfare concerns; and the drop in demand as a result of economic crisis in South-East Asia in the late 1990s. This vulnerability poses a large risk to the ongoing viability of producers who are targeting this market, particularly since the live export trade specifications require different herd management. The live feeder cattle export trade requires younger lighter cattle (up to 350kg) and as a result the average turn-off age has decreased in the north. Producers must carry a larger proportion of breeders to ensure they have the required numbers of young cattle to be turned off each year. However, holding a higher proportion of breeders makes producers more susceptible to drought and less able to hold young stock for sale the following year. In addition, because these properties no longer hold a variety ABARES 105

Risks and opportunities assessment of steers of different ages, their capacity to target alternative markets, many of which prefer slaughter-weight animals, without a significant adjustment period is limited. The risk to sustainability of Australia s live export trade to markets is that animals will pass through supply chains that do not meet the OIE s requirements, resulting in poor animal welfare outcomes and jeopardising ongoing feasibility of the livestock export trade with that particular market, if not for the whole trade. This potential for suspension or loss of the trade in this environment creates uncertainty for the livestock export industry and can undermine the security of individuals income sources and stability of local economies. Some markets may also be unable or unwilling to commit to the new whole-of-supplychain animal welfare regulations, resulting in further potential loss of trade. Opportunities With demand from Indonesia for live feeder cattle expected to decline, a number of other countries offer opportunity to continue the trade. The Philippines, Malaysia and Brunei Darussalam are established South-East Asian markets that offer potential. However, being price sensitive markets, trade with these countries has been sporadic in recent years when strong demand from Indonesia kept prices relatively high. Vietnam re-entered the market in the second half of 2011 taking a shipment of around 1000 cattle. Japan is also an established participant in the live cattle trade importing up to 20 000 head per year. Turkey resumed live cattle imports by taking more than 100 000 head in 2010 11; all were exported from southern Australian ports. Turkey and Middle East markets have a preference for slaughter weight cattle and so are not immediately suited to the very young feeder cattle being bred for Indonesian feedlots. Self-sufficiency, as defined by Indonesia, means that 90 per cent of beef consumption will be supplied by Indonesian cattle. Should this target be achieved, Australia still has scope to supply the remaining 10 per cent, either through live feeder cattle or beef exports. Australia also has scope to further develop a significant trade in breeding cattle and genetic material to Indonesia and other South-East Asian markets. The Australian Government made advances in this direction during a 2012 visit to Indonesia by its (then) Foreign Minister, Kevin Rudd (Gadd 2012). Breeding cattle are subject to a separate import protocol and are not included in the current 283 000 head feeder cattle quota. Specifications for breeding cattle are typically Bos indicus heifers with pregnancy status differing depending on individual contracts. All of Australia s live export markets are members of the OIE. However, adoption of OIE requirements across supply chains in some foreign markets is inconsistent. Arrangements have been instituted to ensure livestock exported to Indonesia and cattle exported to Egypt pass through supply chains that meet OIE requirements. Negotiating similar arrangements in other existing and emerging markets and subsequent investment in acceptable animal welfare protocols and practices offer the prospect of developing sustainable, stable and growing trade with these countries. Biosecurity Indonesia s preference is to import cattle from suppliers free from foot-and-mouth disease. Australia s foot-and-mouth disease-free status means cattle exported from Australia to Indonesia (and other neighbouring countries) provide a biosecurity benefit to our neighbours in the form of supply of disease-free cattle, and to Australia in the form of reduced risk of foot-and-mouth disease incursions. 106 ABARES

Risks and opportunities assessment Risks In the event of further disruption to the live cattle trade with Indonesia, Indonesia may turn to sources that are not free of foot-and-mouth disease and Australia risks losing that geographic buffer from possible foot-and-mouth disease incursions. Opportunities The Australian Government is undertaking biosecurity reform to improve biosecurity business systems, reduce regulatory burden and strengthen national and international working partnerships. The reform will refocus Australia s biosecurity system into one that is more streamlined, modern, aligned, responsive and targeted to risk in a changing risk environment (DAFF 2011b). The key principles of the reform include shifting the focus from the border to managing risks across the biosecurity continuum (offshore, at the border and onshore); strengthening partnerships with stakeholders, being intelligence-led and evidence-based in decision making; and accessing modern and appropriately sourced funding, legislation and technologies. The shift from mandatory intervention at the border to a risk-return approach with targeted inspections enables the focus of resources on those greatest risks to Australia s biosecurity. Beef exports The focus of the Queensland cattle industry is beef export markets. In northern Western Australia and the Northern Territory, while the focus may be on live exports, store cattle are also transported from the pastoral regions to the agricultural areas in Queensland or to southern Western Australia for grass and/or grain finishing before slaughter. Much of this product is also exported. The northern Australian meat processing sector currently only located in Queensland exports around 85 per cent of beef production to markets around the world, the three largest being Japan, the United States and Republic of Korea. Should the live export trade contract in the near term a larger supply of cattle will be available for processing and export. Risks Adverse economic conditions in developed economies slowly recovering from the global financial crisis, compounded by ongoing debt issues for some countries in the European Union, has resulted in reduced demand for high quality beef in developed markets. In addition, tight global credit has affected beef buyers ability to access full credit (McRae 2012). A slower than expected turnaround in global economic conditions, as the European debt crisis remains unresolved, presents the risk that global demand for high quality beef will remain subdued for some time. The continuing strength of the Australian dollar against the weak US dollar makes it difficult to compete with the United States in the traditional high quality beef markets of Japan and the Republic of Korea. The high Australian dollar, which has appreciated 52 per cent against the US dollar since the beginning of 2009, is also eroding exporter returns from relatively strong US manufacturing beef prices. The risk is that the Australian currency will remain at this level, around parity, for an extended period. Australia s competitive position in its traditional markets is challenged by the increase in US beef exports into Japan and the Republic of Korea. Continuing US currency weakness risks US beef taking further market share from Australia. Changes to the import protocol for US beef in Japan relaxation of the age restriction from 20 months to 30 months of age or younger is also expected to result in higher imports of US beef. In the Republic of Korea, implementation of the Korea US Free ABARES 107

Risks and opportunities assessment Trade Agreement prior to Australia finishing its own negotiations with the Republic of Korea will result in the United States benefitting from greater and earlier tariff reductions. Indonesia s drive for beef self sufficiency also affects beef imports. Australian beef exports to Indonesia had been growing strongly, but Indonesia s announcement of a global quota of only 34 000 tonnes in 2012, when Australia had exported over 45 000 tonnes in 2011 12, will result in sharp contraction of exports to this emerging market if Indonesia strictly enforces the quota. In 2010 11, Indonesia was the most important market for northern Australian exporters, after the Russian Federation. Opportunities A positive economic growth outlook for China, South-East Asia, the Russian Federation, the Middle East and Brazil is expected to result in increased demand for beef in these markets. For Brazil, the result will be diversion of some beef from export markets to Brazil s domestic market, reducing some of the competition for Australian beef. A very tight supply situation is expected for US beef in 2012 as the beef herd has been reduced to a 60-year low and the United States Department of Agriculture is forecasting slaughter to fall by 5 per cent. Resulting higher prices will make the US market more attractive for Australian exporters, even if the Australian dollar remains strong. Japan s economy and confidence continue to recover since the global financial crisis and the earthquake and tsunami disasters. Demand for chilled beef has been falling but demand for frozen grass-fed beef has remained strong, offering potential for northern beef in this market. Other markets in South-East Asia the Philippines, Singapore, Malaysia and Thailand have strong economic growth, growing incomes and populations and growing demand for beef. Chinese Taipei is another important, traditional and stable market for Australian beef. Tighter supplies of South American, US and New Zealand beef are expected which will reduce competition for Australian beef in emerging markets. Indian beef supplies are growing and will compete strongly in price sensitive markets such as Malaysia. The Russian market is becoming a more stable market in recent years. Russian demand is for quality frozen grass-fed beef, again a potential market for northern Australian beef. China offers potential as an emerging market for Australian beef with its rising incomes and increasing urbanisation. While pig meat and poultry will remain the meats of choice, demand for beef and sheep meat are expected to continue rising. With China s own beef herd contracting, this demand will be increasingly met by imports. Domestic market In northern Australia a relatively small proportion of meat production is sold on the domestic market 15 per cent compared with almost half of southern Australian meat production (Chapter 2, Figure 1). Expansion in meat processing capacity in northern Australia may see a rise in the share of beef destined for the domestic market. Risks Hormone growth promotants (HGPs) are used widely in northern Australia to achieve sustained live-weight gain, given the challenging seasonality of pasture growth in the north. Since January 2011, the national food retailer Coles has 108 ABARES

Risks and opportunities assessment promoted the meat sold in its stores as being HGP-free. Use of HGPs may affect producers ability to market additional supply of beef domestically, especially if other retailers follow this lead. Australia s second major food retailer, Woolworths, is promoting sale of MSA-graded meat. As research has found HGPs affect the eating quality of some cuts of meat (particularly the grilling cuts) northern beef risks receiving MSA downgrades, further affecting their ability to market domestically. Opportunities The MSA grading system provides opportunities to producers who wish to receive premiums in the domestic market to produce higher quality beef through adopting suitable nutrition programs and/or cross breeding. Combined with tenderstretch technology used in meat processing, northern beef cattle can and do achieve MSA grades. Feedlots Almost half the nation s feedlot capacity is located in Queensland. Feed grain prices comprise a significant cost to commercial feedlots, so any sharp increase in grain prices affects profitability. Dramatic increases in feed grain prices over 2010 and 2011 have reduced feedlot margins as have high cattle prices. Also, the sector battled historically high feeder cattle prices during 2011 12 due to competing restocker demand. Risks Subdued economic conditions in Japan suppressed export demand for high quality Australian grain-fed beef, but increased demand for less expensive grass-fed exports; and increased competition from US exports in Japan affected demand for grain-fed beef. There is a strong risk export demand for grain-fed beef will remain subdued as the sustained strong Australian dollar and proposed changes to the import protocol for US beef imports in Japan both adversely affect Australia s competitive position in this market. With another good wet season in 2011 12, and potentially good pasture availability, demand from producers seeking to continue rebuilding herds is likely to underpin relatively high prices for young cattle, again squeezing feedlot margins. Opportunities While numbers on feed are likely to continue to be suppressed in the short term, abundant feed grain supplies and associated lower grain prices are expected to improve margins for the feedlot sector. ABARES 109

Risks and opportunities assessment Markets Risks Opportunities Live export Biosecurity Sharp decline in cattle exports because of Indonesia s beef selfsufficiency plan. Vulnerability to market fluctuations risks producers ongoing viability. Large proportion of breeders in herds means less able to: hold onto younger trading stock when drought occurs hold a variety of different aged steers, reducing capacity to target markets other than feeder steer markets. Animals may pass through supply chains which do not meet OIE s requirements, affecting animal welfare and jeopardising trade. Some markets may be unable or unwilling to commit to new wholeof-supply-chain animal welfare regulations. If further disruption to livestock trade, Indonesia may source cattle from foot-and-mouth disease endemic countries, increasing risk to Australia of a foot-and-mouth disease incursion. Other export market opportunities: Philippines, Malaysia, Brunei Darussalam and Japan are established markets Vietnam re-entered the market in 2011. Opportunity to grow exports of breeding cattle and genetic material to Indonesia and other South-East Asian markets. Achieving supply chain animal welfare assurance in other markets will lead to sustainable and stable trade with these countries, given their investment in compliant supply chains. Biosecurity process being reformed to be able to focus on areas of greatest risk. 110 ABARES

Risks and opportunities assessment Markets Risks Opportunities Beef exports Adverse economic conditions in developed countries may affect beef demand for some time. Strong Australian currency against US dollar: reducing Australia s competitiveness in Japan and the Republic of Korea eroding returns from US manufacturing beef market. Change to Japan s import protocol for US beef to allow beef from cattle up to 30 months of age risks Australia losing further market share in Japan. Implementation of Korea US Free Trade Agreement before Australia s agreement with the Republic of Korea affects Australia s competitive position in Korea. Indonesia s beef self sufficiency plan will reduce Australian beef exports to Indonesia. Positive economic growth outlook for developing economies should result in increased beef demand in these markets, but from a low base. Increase in Brazil s demand for beef will result in diversion of some of its export beef to its domestic market. Tighter US beef supply situation may result in stronger US demand and higher prices for Australian manufacturing beef. Demand in Japan for frozen grass-fed beef has been strong and is projected to grow further. Relatively strong economies and growing populations and incomes in South-East Asia, are expected to lead to increased demand for beef, but from a low base. Tighter supplies of South American, US and New Zealand beef over the next few years will reduce competition for Australian beef in emerging markets. However, competition from Indian exports may increase. More stable import demand from the Russian Federation for quality frozen grass-fed beef offers opportunity for northern Australia. China s rising incomes and urbanisation are expected to lead to growing demand for beef. Ongoing contraction of its domestic beef cattle herd will lead to increasing demand for imports. ABARES 111

Risks and opportunities assessment Markets Risks Opportunities Domestic market Feedlots Widespread hormone growth promotant use in northern Australia may limit marketability of beef on domestic market. Export demand for grain-fed beef is expected to remain subdued over the medium term as a result of stronger competition from US beef in Japan. Restocker demand is expected to remain strong over the next year, underpinning firm young cattle prices, squeezing margins for feed lots. Meat Standards Australia grading provides avenue for price premiums for producers who, through improved nutrition programs and/or herd improvement, produce higher quality beef. Lower feed grain prices due to abundant feed grain supplies are expected to lower input costs for feedlots. Meat processing With the emerging challenges to the live export industry, industry and governments have shown increasing interest in the feasibility of reintroducing meat processing capacity to northern Australia. However, a number of challenges need to be overcome before viable meat processing facilities can be established. Foremost are the market risks of a strong Australian dollar, competitiveness against US beef in traditional markets and competition in emerging markets, but the operational challenges are equally important. Both the market and operational risks/opportunities apply to existing Queensland meat processing businesses as well as potential new processing capacity in the north. Risks Without development of a feed-on sector or adjustment by producers toward fattening enterprises, potential northern meat processors are likely to only have access to low value cattle cull breeding cows and bulls, out-of-specification live export cattle (over 350 kilogram limit) and shorthorn types producing low value beef suitable for manufacturing beef markets. Reliability of supply of finished cattle is a risk in northern Australia, given the extent farms have geared production toward turning off younger stock. High seasonality and seasonal variation is also a risk for ensuring reliable and steady numbers of cattle for processing throughout the year. Attracting skilled labour to remote locations is difficult without offering high salaries. This risks raising costs to levels which make the enterprise unviable. The Australian meat processing sector already has higher processing costs than competitor countries. Without significant development of transport infrastructure, getting the cattle to processing facilities during the wet season will remain a challenge. Freighting meat to markets will also be a challenge. 112 ABARES

Risks and opportunities assessment Carbon pricing imposes higher costs on meat processors, through higher electricity costs, freight costs and charges for methane emissions from waste water. The initial reaction from meat processors to the impost of carbon pricing is a proposal to close plants for a number of weeks each year to offset the impact of carbon pricing. Opportunities Price competition for cattle has been strong among live cattle exporters, restockers and lot feeders, all competing with meat processors for beef cattle. With the expected reduction in live cattle exports, price competition for cattle is expected to ease. Processing would need to become the dominant stream in the region of the abattoir, with live export as a backup option. Established processors will not risk capital in providing a facility that producers will only use opportunistically. Indonesia s move to self-sufficiency and phasing out of cattle imports provides opportunity for meat processing to gain security of supply. New investments in meat processing could offer producers opportunities for owner involvement or a partnership relationship, thus providing a level of vertical integration. This would mean producers have a commercial commitment to ensuring security of supply to meat processing facilities. Meat processing facilities would offer training and employment opportunities for the local workforce, including Indigenous communities. They would also offer employment opportunities for those already skilled Indigenous workers trained through Indigenous Land Corporation programs. New investment in meat processing offers opportunities to build state-of-the-art facilities that would improve efficiencies and reduce costs, such as incorporating renewable energy sources, efficient technologies, emissions reducing waste treatment and increased automation. Government funding is available under the Clean Technology Food and Foundries Investment program and under the Clean Technology Investment program to help meat processors implement emissions reduction technologies and increase energy efficiency. ABARES 113

Risks and opportunities assessment Meat processing Risks Without development of an associated feed-on sector or adjustment by producers toward fattening enterprises, northern meat processors will only have access to low value cattle for producing manufacturing quality beef. Current production system of turningoff young cattle for live export and high seasonality of supply are risks to reliability of supply of finished cattle. Attracting skilled labour to remote localities will require higher salaries, reducing margins for processors. Poor transport infrastructure offers challenges in getting cattle to processing facilities and meat to markets. Opportunities Lower feed grain prices due to abundant feed grain supplies are expected to lower input costs for feedlots. The expected decline in the live cattle trade with Indonesia should increase supply of cattle for meat processors. New investment in meat processing may provide opportunity for vertical integration through partnership arrangements with producers, also increasing security of supply. New meat processing facilities will provide employment and training opportunities for local workforce, including Indigenous Australians. Building new plant offers the opportunity to build more energy efficient facilities, employ emissions reduction technologies and adopt more automation. Government support is available to help meat processors implement emissions reduction technologies and increase energy efficiency. Cattle production A number of risks arise from beef cattle production around pasture and feed sources, breeds and breeding, and cattle tick. The opportunities come from two sources; the cattle and the pastures. However, these opportunities can only generate positive outcomes if linked with downstream possibilities, such as improved access to existing or new markets. Pasture and feed sources Northern Australian beef cattle production systems are highly reliant on pasture as the main feed source and pasture growth itself is dependent on rainfall through the wet season. Climate change brings with it risks to feed supplies, but opportunities lie in development of production systems to improve feed and nutrition programs and improve productivity. 114 ABARES

Risks and opportunities assessment Risks Following two good wet seasons and a build-up in cattle numbers, stock numbers may not be adjusted quickly enough should unfavourable seasonal conditions occur. In the absence of a meat processing alternative, and given the reduced live cattle trade with Indonesia, overstocking may lead to a decline in productive land and eventual degradation. Being so reliant on pasture growth and hence rainfall, expected climate change may provide some risk to the industry. According to CSIRO, BoM and DCCEE predictions, northern Australia appears relatively unaffected by climate change through to 2030 with relatively minor temperature and rainfall changes when compared with southern Australia (CSIRO, BoM & DCCEE 2011). However, the major effect of climate change is an increase in evapotranspiration rates of between 2 and 4 per cent. This change could affect pasture growth because of the need for higher use of water in the system. Opportunities The infusion of Brahman genetics, with their desirable traits of heat and tick tolerance, improved the productivity of the northern beef herd. However, these cattle often do not produce the same quality of beef as other breeds, notably the Bos taurus breeds. This is not entirely due to the breed but can be due to management of the cattle and their nutrition program from weaning to slaughter. Cattle fed an adequate diet throughout their life can produce beef of a high standard and this is where the opportunity arises through adequate pasture growth and quality and/or access to quality supplemental feed. While many producers provide supplementary feeding in the dry season to counter loss of nutrient value of pastures, few producers provide supplementary feed above that needed for maintenance and fewer still provide forage crops to enable animals to maintain a steady growth rate, rather than a loss in weight over the dry season. An adequate nutrition program means cattle are finished faster; therefore reducing the time the animal is on the station. This allows the producer to either increase the stocking rate because of lower feed requirements for younger stock or to simply keep the current stocking rate and increase the turn-off rate. Potential development of meat processing in the tropical north, and the need for supply of slaughter weight animals, may provide incentive for producers to develop forage and fodder supplementation to keep animals on a rising plane of nutrition, maximising growth and quality and, hence, returns. Development of properties toward a more intensive stand and graze system and/ or supported by mosaic irrigation for feed crops and forage would also ensure cattle are accessible for more of the year, providing the opportunity to extend the season for supply of suitable cattle either for live trade or meat processing. Such a system also offers greater control of product quality. Establishing more productive perennial pastures in marginal cropping lands will increase soil organic matter and soil carbon, provide good ground cover, break disease or pest cycles and make the farming system more sustainable. For example, well-managed leucaena with well-established inter-row grass can provide better cattle growth rates than other grass/legume or pure grass pastures allowing cattle to reach target markets at a younger age (DEEDI 2010). However, it is important to note that crop production specifically for cattle is unlikely to be profitable on cropping land that is not marginal. Growth of pasture for purely cattle feed on valuable cropping land would not compete with more lucrative cropping alternatives, including sandalwood investment (Niethe & Quirk 2008). ABARES 115

Risks and opportunities assessment Reducing the variability in nutrient supply would also improve the lifetime productivity of breeding females. Most females in the northern region do not calve until they are 2 to 3 years old and in some parts of the region 3 to 4 years old (Bortolussi et al. 2005), and they then produce three or four calves over the next 4 to 6 years. This lower productivity, compared with the fertility of herds in southern Australia, limits profitability and producers ability to generate faster rates of genetic gain, as breeders must be kept for longer to maintain herd turn-off rates. With improved nutrition, as measured through higher digestibility of feed on offer, carbon emissions (notably methane) are reduced as higher digestibility increases passage of feed through the rumen which in turn reduces methane emissions (Hegarty 2002). Breeds and breeding The live feeder cattle export trade requires younger cattle; as a result, the average turn-off age has decreased in the north. Producers must carry a larger proportion of breeders to ensure they have the required numbers of younger cattle to be turned off each year. With the probable contraction in live feeder cattle exports, producers need to either fatten and finish cattle themselves (if sufficient suitable land and pastures are available)or produce store cattle for finishing elsewhere. This will require a period of adjustment to restructure herds, which may also include cross-breeding to improve meat quality. Producing cattle for the beef market (either export or domestic) may require more composite breeds including reintroduction of Bos taurus genetics to the largely Bos indicus breeds. The dominant (five-eighths or more) genotype would need to remain Bos indicus as it is tick resistant and suited to tropical conditions. Risks Because properties concentrating on the live export trade no longer hold a variety of steers of different ages, their capacity to target alternative markets, many of which prefer a slaughter-weight animal, will require a significant adjustment period. Farm incomes for these businesses are likely to decline during this period. Opportunities Improving herds, either through animal selection or cross-breeding, has the potential to boost farm productivity. Cattle ticks The cattle tick is a serious economic pest for the northern beef industry. It is one of the most costly and difficult management issues and has high impacts on cattle welfare. If left unchecked, the external parasite can significantly reduce cattle live-weight gain and milk production. The effect of ticks, and tick-borne diseases and treatments costs the Australian cattle (beef and dairy) industries around $175 million a year (Beef CRC 2011). Treatment is necessary to ensure compliance with regulatory protocols for interstate and international livestock movement. Risks The risks of not maintaining the tick control zone include increased costs to control ticks (vaccination and chemical control), increased risk of tick fever and interference with breeding programs as producers below the tick line would need to infuse more Bos indicus genetics into their herds. 116 ABARES

Risks and opportunities assessment Traditional methods of controlling ticks, using acaricides (pesticides that kill ticks and mites) are slowly declining as ticks are developing resistance to the available classes of acaricides. Climate change may result in the tick endemic area spreading and the control zone forced further south. Opportunities Promising signs are emerging of Australian scientists developing an effective tick vaccine. Research led by the Queensland Alliance for Agriculture and Food Innovation, the University of Queensland and the CRC for Beef Genetic Technologies has pinpointed tick vaccine antigens that will enable cattle to resist tick infestations. Research trials have recorded 50 to 87 per cent protection from ticks. However, development of a commercial product is a number of years away. The industry and governments worldwide expect that an effective tick vaccine would require 90 per cent efficacy and 12 months immunity (Beef CRC 2011). Cattle production Pasture and nutrition Risks Climate change may increase evapotranspiration rates, affecting pasture growth. With the build-up in cattle numbers due to good seasonal conditions, and in the absence of a meat processing alternative, there is a risk of overstocking and, hence, land degradation should a poor season occur. Opportunities Improving cattle nutrition through improved pasture, forage crops and/or supplementary feed will lead to faster finishing of cattle and increased beef quality. Meat processing alternative will provide incentive for producers to improve nutrition, thereby maximising growth, beef quality and returns. Developing a more intensive stand and graze system could ensure accessibility of cattle for longer, extending the season for supply of cattle. Also offers greater control of product quality. Reducing variability of nutrient supply improves productivity of breeding females: enabling earlier and more frequent calving over their lifetimes increasing rates of genetic gain. Improved nutrition, through higher digestibility of feed, reduces methane emissions. ABARES 117

Risks and opportunities assessment Cattle production Breeding Cattle ticks Risks Adjustment from a herd structure concentrating on breeders, to one holding steers of various ages, will result in reduced farm incomes for the adjustment period. Not maintaining tick control zones risks the tick-endemic area moving south, affecting the health and performance of cattle that do not have Bos indicus genetics. Acaricide performance has been declining due to ticks developing resistance. Climate change may result in spread of ticks beyond the control zone. Opportunities Herd improvement, either through animal selection or cross-breeding, has the potential to boost farm productivity. Development of an effective and long-lasting tick vaccine is continuing. Indigenous pastoral production Substantial areas of pastoral land, Crown Land and other unallocated land across northern Australia are classified as Indigenous land. While some has remained in pastoral production, some has left or never been under pastoral production. Many have the potential to be developed by Indigenous land owners. Niethe & Quirk (2008) identified that Indigenous properties in the rangelands of Western Australia were stocked well below capacity and that opportunity lay in significant improvements in carrying capacity. In the Kimberley, for example, improved land condition combined with development of watering points, fencing, access roads and stock handling facilities, could support doubling of cattle numbers. In the Pilbara, Neithe & Quirk identified that Indigenous properties had scope to run 25 to 30 per cent more cattle with similar improvements in land condition and property infrastructure. Risks Tensions between community ownership and the requirements of conducting a commercial enterprise are unique to Indigenous-held properties and underlie the underperformance of Indigenous pastoral leases. Loss of live cattle export opportunities, such as a decline in exports to Indonesia, will lead to further decline in financial performance of Indigenous properties. Opportunities Ownership of pastoral leases and operating pastoral enterprises could contribute to economic development of Indigenous communities through the promise of real jobs on traditional lands; providing opportunity for training and development of young people. 118 ABARES

Risks and opportunities assessment Pastoral leasehold conditions restrict the ability to develop other commercial enterprises on Indigenous pastoral leases. The leasehold reforms underway in the jurisdictions should provide opportunities to introduce more flexibility to operate other commercial enterprises to benefit the communities. In the Northern Territory, the Indigenous Pastoral Program provides training and employment opportunities for Indigenous people on Indigenous-held pastoral land (Northern Territory Government 2010). The program is a joint initiative between the ILC and the Northern Territory Government, the Northern and Central Land Councils and the Northern Territory Cattlemen s Association. It aims to make significant increases in the number of cattle on Indigenous land while achieving sustainable development outcomes. While the focus of the program is on pastoralism, it also accommodates multiple land use aspirations. In Western Australia, the Kimberley Indigenous Management Support Service and the Pilbara Indigenous Management Support Service are joint programs between the ILC and the Western Australian Department of Agriculture and Food. The objectives of these programs are to deliver improvements in infrastructure, breeding genetics, turn-off and employment. In the Cape York Peninsula in Queensland, the Cape York Indigenous Pastoral Strategy aims to develop pastoral lands and improve cattle herds in the region. Indigenous pastoral production Risks Tensions between community ownership and commercial requirements contribute to underperformance of Indigenous properties. Loss of live export markets will lead to further decline in viability of Indigenous properties. Opportunities A pastoral enterprise can contribute to the community's economic development by providing jobs on traditional land. Pastoral lease reforms may introduce flexibility to operate other commercial enterprises on pastoral leases. Training programs offer opportunity to contribute to developing properties and increasing cattle numbers. Diversification Producers in some parts of the northern beef region have the opportunity to diversify outside the typical pastoral cattle production system. These opportunities depend on the overarching legislation in the state or territory. Each state and territory has slightly different requirements of their leaseholders, but most allow the leaseholder to undertake some form of agricultural production. The agricultural production possibilities are also limited by access to other resources, such as water for irrigation, and again each state and territory has different legislation covering water access and water management. ABARES 119

Risks and opportunities assessment Development of mosaic irrigation on northern pastoral properties, if applied sustainably, could provide improved pasture and fodder production for finishing cattle when rainfall is low, and pasture production and nutrient-value is deficient. Improved pasture and fodder production would enable the industry to increase the value of its output by transitioning from a cattle producing industry to a beef industry, producing higher quality grass-finished animals. This would increase security of supply to support a viable meat processing industry and reduce the need for many producers to transport cattle over long distances to southern markets. They may also provide diversification opportunities to the core beef business such as grain crops, horticulture and other types of high-value crops thereby improving risk management. Risks Producers should only invest in irrigated agriculture to diversify their enterprises if the benefits outweigh the costs, including the cost of clearing land, installing irrigation infrastructure and obtaining permits. It is essential to gain adequate understanding of the hydrology and other ecological functions of the area where irrigation is proposed, otherwise the potential for nonsustainable use and degradation would be high. Development of irrigated agriculture or horticulture without sufficient transport infrastructure risks having stranded assets and product without cost-effective access to markets. Opportunities The CSIRO, with funding from the Northern Australia Sustainable Futures program, is studying the feasibility of establishing irrigated mosaic agriculture in northern Australia. This research will provide the northern beef industry with a better understanding of the effects of irrigation mosaics and practical guidance to establishing mosaic irrigation. Some small irrigation precincts or hubs in Western Australia and Queensland already provide opportunity for gathering information on their suitability to other regions. The Australian and Queensland governments, through the North Queensland Irrigated Agriculture Strategy, are investing $10 million in a comprehensive assessment of water storage options in the Flinders and Gilbert River catchments to determine the irrigated agriculture techniques and systems that could be applied across northern Australia. Reform to current pastoral land tenure arrangements should provide greater opportunity for pastoralists to diversify toward agricultural or horticultural activities. By-products from higher value crop or horticultural production has potential to benefit a feedlot sector, should one emerge. 120 ABARES

Risks and opportunities assessment Diversification Risks Opportunities Good understanding of the hydrology and ecological functions of the area proposed for irrigation are essential, otherwise there is potential for non-sustainable use and degradation. Insufficient transport reduces cost-effective access to markets for irrigated agriculture or horticulture products. CSIRO study of irrigated mosaic agriculture will provide greater understanding and practical guidance for pastoralists. Performance of existing irrigation precincts can provide useful information on potential suitability to other regions. North Queensland Irrigated Agriculture Strategy is expected to advise suitable irrigation techniques and systems for northern Australia. Pastoral lease reform is expected to provide greater flexibility for diversification. Crop by-products from irrigated agriculture could benefit a feedlot sector, should one emerge. Infrastructure Road and rail transport Road conditions can affect the health and performance of cattle and the resultant quality of beef. The industry relies on the road transport system to move cattle from farms to destinations such as ports or processing plants efficiently and with minimal delay. In many regions of northern Australia this is a challenge, particularly when roads and river crossings can be inundated by flood waters and roads and bridges have weight limits. In addition, a large number of highways and major roads, and the vast majority of access roads to farms and communities, are not sealed severely limiting access during the wet season. The northern cattle industry needs significantly improved access to all-weather roads and bridges to extend the seasonal production window and to facilitate livestock movements. Such improvements would also benefit other freight and passenger movement, thus opening up whole regions for further development. In northern Western Australia roads are the only mode of transport. In the Kimberley, the Great Northern Highway is the only sealed road linking the region with the Northern Territory and other regional centres in Western Australia. In the Pilbara, while the mining boom has increased demands on the road network, the pastoral industry also has great need for an improved road network. Up to a half of the Pilbara s road transport of livestock is to Port Hedland while the remainder is transported to Perth along the North West Coastal Highway and the Great Northern Highway. ABARES 121

Risks and opportunities assessment The Northern Territory is serviced by only five sealed major roads the Stuart Highway which travels the length of the Territory from Darwin to Adelaide, and the Barkly, Victoria, Tablelands and Carpentaria highways. Other major (unsealed) highways include the Tanami and Central Arnhem roads, and the Plenty, Buntine and Kakadu highways. Queensland has an extensive highway system traversing the state and a set of developmental roads which are major access roads, but not of highway grade. Queensland is the only jurisdiction that uses rail to move cattle. Examples of important projects recently completed or underway in northern Australia that will benefit the pastoral industry in moving cattle either to port or for further processing through feed-on enterprises and/or meat processing facilities are listed, by jurisdiction, in Appendix 3. Risks While significant major road and bridge upgrading is underway in northern Australia, much remains to be improved. Many properties are served by dirt roads that become impassable in the wet season and require time to dry out after conclusion of the wet, thus restricting access to markets for producers who are not on tar. Road access is also critical to processors, both for stock coming in for processing and product going to market. Hence, it is essential for success or further development of the beef industry in northern Australia that roads and bridges are maintained and improved. There is a risk that the current economic climate may lead to a slowdown in infrastructure spending. While Queensland uses rail to transport cattle, with privatisation of QR National the number of cattle train services has reduced. The reduction of cattle train services in Queensland will add to the road transport task, increasing the need for road upgrades and possibly increasing costs to producers and meat processors. Opportunities Under the COAG Nation Building program, the Australian Government, together with the state and territory governments, is making a significant commitment to Australia s transport infrastructure, investing nearly $37 billion nationwide over six years (2008 09 to 2013 14). As well as a near doubling of road funding, around onethird of the nation s interstate rail network is being rebuilt. Total indicative funding for Queensland under the Nation Building program is $7.2 billion; for the Northern Territory, $475 million; and for Western Australia, $2.4 billion (DIT 2009). Improved transport infrastructure could boost employment in remote locations and aid further development of communities, businesses and services. It would also provide potential for sustainable wealth creation of Indigenous-owned pastoral properties across northern Australia by enhancing their ability to access markets. The affect that road upgrades can have on a remote region can be seen in the increased agricultural activity at Lakeland Downs in the Cape York region of Queensland and increased visitation and economic development activity in Cooktown since the Mulligan Highway was sealed. Building approvals jumped by some 150 per cent since sealing, while some statistics indicate an increase in visitor numbers in the order of 40 per cent (HoR Standing Committee on Economics 2011). 122 ABARES

Risks and opportunities assessment Ports Most ports from which cattle are exported have at least one of two common features. First, the port is not exclusively for live cattle loading other industries compete for port access; second, some are located in or near significant population centres or areas of societal importance, such as tourist destinations or attractions. Appendix 4 details the issues the northern ports (and some southern ports) face in servicing the northern live cattle export industry. Risks Fremantle, Darwin, Broome, Geraldton, and Townsville ports are located within the municipal limits and some require transport of stock through built-up urban areas; others have port bypass access roads, which limit travel through urban areas. Further, Broome and Townsville ports are located close to infrastructure that tourism operators use. These two problems pose risks to the live cattle trade if residents or others, such as tourism operators, take action to restrict access to the ports due to externalities generated, such as road congestion, smell or noise. Darwin, Geraldton and Port Hedland ports also serve other industries, particularly the mining industry, and with the development and growth of these industries port access may be limited as competition between ships serving each of these industries seek access. Access to ports such as Karumba and Wyndham, may also be limited due to their location; these two ports are not served by a natural or constructed harbour, but are on estuaries of rivers in the region, hence access may be limited due to weather or tidal conditions. Competition between industries accessing port facilities, particularly the large demands of the minerals and energy sector, may also pose a risk to the timely movement of meat exports should further abattoir facilities be established in northern Australia. Other transport issues Risks Compounding the transport problem in Australia are potential changes to longhaul transport requirements due to animal welfare concerns. These changes could particularly affect Fremantle, Geraldton, and Port Adelaide. The code of practice for animal transport is not onerous on transport operators, but changes as a result of current revisions could make it more difficult and expensive for long-haul operators. Rising fuel prices and labour costs could also affect long-haul transport, again especially for those that need to break their trips. For example, those from the Kimberley into southern Western Australia where cattle cross the tick line and must be unloaded to be dipped and reloaded; and for driver fatigue breaks and chain of responsibility requirements, on trips longer than 2000 kilometres. The National Transport Commission regulations stipulate drivers must have at least six hours break in 24 hours using Advanced Fatigue Management and longer breaks under other fatigue management schemes, these laws vary with state legislation (NTC 2007). With these two requirements, long-haul transport of live cattle from remote locations becomes less feasible. A further risk is added to the costs of fuel with the carbon price mechanism applying to heavy on-road vehicles from 1 July 2014. This would add to the costs of transporting cattle to port or processing, therefore further reducing the viability of long-haul transport. ABARES 123

Risks and opportunities assessment Infrastructure Risks Opportunities Road and rail transport Ports Other transport issues Many properties are served by dirt roads that become impassable in the wet season and for some time after, restricting access to markets. Reduction in cattle train services in Queensland will add to the road transport task, increasing the need for road upgrades. Most live export ports are not exclusively for cattle loading. Competition with other exporters for berth access delays cattle loading and may lead to higher costs and animal welfare risks. Ports close to urban areas or to infrastructure used by tourism operators risk having their operations curtailed if those affected take action to restrict access for cattle export. Flooding or tidal conditions may restrict access to some estuarine ports. Rising fuel and labour costs will affect the cost of long-haul transport, especially for those trips that need to be broken; e.g. crossing the tick line and long trips where driver fatigue management regulations apply. Carbon pricing mechanism will apply to fuel used in heavy on-road transport from 1 July 2014, increasing costs of transporting cattle to port or for processing. COAG s Nation Building program is investing around $10 billion on transport infrastructure in Queensland, the Northern Territory and Western Australia. A large number of road sealing and bridge projects are underway, which will benefit the pastoral industry. Development of transport infrastructure has the potential to: enhance the ability of Indigenous pastoral properties to access markets open up Indigenous communities to development opportunities. 124 ABARES

Risks and opportunities assessment Climate change adaptation and mitigation Apart from indirect effects, agriculture is currently excluded from the carbon pricing mechanism; however, in the future it is possible that this may not be the case. Adaptation and mitigation strategies that farmers employ are an important part of the response to climate change and carbon pricing. Risks A risk is inherent in farmers ability to measure carbon emissions and sequestration of carbon in the system. The IPCC is uncertain as to the potential net greenhouse gas emissions from agriculture, specifically the carbon sequestration potential in grazing systems. At present only greenhouse gas emissions are counted in the national greenhouse gas statistics, not sequestration of carbon in the soil and plant residue (Smith et al. 2007). Therefore, until a full accounting method of the carbon cycle in the northern grazing systems is developed, these systems could be under threat from poorly designed policies to mitigate greenhouse gas emissions in agriculture. A further related issue is that of carbon ownership in production systems in northern Australia. Most cattle stations are leased from state departments or statutory authorities; most businesses do not own the land on which they farm. Ownership of the carbon resource needs to be clearly defined for station owners so pastoralists can undertake mitigation strategies, such as pasture improvement or feed management, to reduce the potential costs imposed due to carbon emissions from livestock on the station. Even though agriculture is not included in the carbon price mechanism at this stage, when the Carbon Farming Initiative and associated carbon trading and revenue earning opportunities are introduced, carbon ownership will be very important. The leasehold reforms under development may address this issue. Opportunities Some mitigation practices may be technically and economically viable without extra incentives. For example, targeted soil nutrient application and improved animal feed efficiency may be attractive, as they have the potential to reduce input costs. However, without incentives or a well-designed market, these options may not be realised. Tropical savannas and temperate grasslands are burnt to revive pastures, reduce fuel loads and reduce the risk of high-intensity wildfires. Although these fires produce substantial greenhouse gas emissions, the risk is that reducing these practices could increase the number of large, high-intensity fires, resulting in more greenhouse gas emissions overall. In tropical savannas, controlled burning early in the dry season reduces the risk of high-intensity, high-emission fires occurring later in the dry season. ABARES 125

Risks and opportunities assessment Climate change adaptation and mitigation Risks Should agriculture be included in carbon pricing, no carbon accounting method exists to take account of carbon sequestration in grazing systems, only greenhouse gas emissions. With most pastoral properties being leasehold, ownership of the carbon resource needs to be clearly defined before pastoralists can avail themselves of opportunities presented by the Carbon Farming Initiative. Opportunities Some mitigation practices are technically and economically viable without additional incentives; e.g. targeted soil-nutrient application and improved animal feed efficiency. Controlled burning, a common practice in tropical savannas early in the dry season, reduces the risk of high intensity, high greenhouse gas emission wildfires later in the dry season. 126 ABARES

Chapter 11 Conclusion critical factors determining growth Disruption to the live export trade during the 1997 98 Asian financial crisis and the 2011 temporary trade suspension as a result of animal welfare breaches in Indonesian abattoirs, highlighted the risks to a section of the northern Australian beef industry in being exposed to a single commodity (feeder steers) and a single market (Indonesia). Compounding this concern are the recent sharp reductions in cattle import quota and imposition of weight limits as part of Indonesia s stated objective of achieving beef self sufficiency by 2014. Reduced access to the Indonesian market may lead to some adjustment for those cattle producers highly reliant on the trade if cattle cannot be diverted to alternative markets. Parts of northern Australia are not conducive to beef production as the natural endowments of the region the climate and soils do not easily lend themselves to finishing cattle to slaughter weight. As well, the dearth of meat processing facilities in northern Australia (apart from those on the east coast of Queensland) and the cost of transporting cattle south or east for processing are real barriers. As a result, many producers in northern regions have optimised their production systems for the live export trade while others concentrate on sending animals to backgrounders in other regions or to feedlots for finishing. Live cattle exports will remain important. Producing cattle for live export is a legitimate activity, given the constraints of the region s natural endowments. There are opportunities for live cattle exports to other markets in South-East Asia the Philippines, Malaysia, Brunei Darussalam and Vietnam still capitalising on Australia s proximity, and supply of tropically adapted and disease-free cattle. Indonesia is likely to become a much smaller market as they strive to source their needs from their own cattle herd. Australia can play a role in helping them develop their herd by exporting breeding cattle and genetic material. Northern producers would be instrumental in this. The feeder cattle trade with Indonesia is a natural fit for both countries northern Australia is ideally suited to breeding tropically adapted feeder cattle for the Indonesian market, while Indonesia s resources of abundant and low-cost labour and low-cost feed mean Indonesia is ideally suited to growing cattle out to slaughter. It will be important that government and industry continue to work on the trading relationship with Indonesia, demonstrating the synergies between the two countries in assuring Indonesia s beef production and convincing them of Australia s role in their food security that food security rather than self sufficiency is the optimal objective. ABARES 127

Conclusion critical factors determining growth An opportunity to re-establish a meat processing sector in northern Australia is supported by the industry s willingness to support the sector. State and territory governments have undertaken a number of studies over recent years, but the expected decline in the live export trade with Indonesia provides added impetus. An AAco proposal to build a meat processing plant in Darwin is undergoing government planning and approval processes prior to an investment decision. In addition, state governments are considering the feasibility of establishing meatworks in Western Australia (possibly near Broome) and Queensland (possibly near Cloncurry). Development of meat processing in northern Australia would provide opportunities for the beef industry but there would also be a number of challenges. Again, markets are important. Outside of the traditional markets of Japan, the United States and the Republic of Korea, opportunities exist to export northern Australian beef to a number of emerging markets, including China and markets in South- East Asia as well as established markets such as Chinese Taipei and the Russian Federation. However, northern Australian beef exports will face competition in these markets from countries such as Brazil, Argentina and possibly India, as well as from existing Australian exporters. Australia needs to be competitive in these markets and the strong Australian dollar, if sustained, affects our competitiveness in price sensitive markets and erodes exporter returns. Improved access to markets is necessary for success in growing international trade. It is important that the Australian Government, supported by industry, continues its efforts in multilateral trade negotiations through the WTO Doha Round to pursue reductions in trade barriers such as tariffs and quotas. Pursuit of free trade agreements or closer economic partnerships with key trading partners is also important and will result in faster gains. A priority for beef needs to be the Australia Korea Free Trade Agreement negotiations now that the Republic of Korea s agreement with the United States has come into effect (from 15 March 2012). Without a speedy conclusion, Australia is at a competitive disadvantage against US beef exports in the Korean market. Conclusion of free trade agreement negotiations with Japan and China will also offer real gains for Australia s beef industry. Besides the market challenges, a range of operational challenges for meat processing remain. A viable meat processing sector in northern Australia would require stable supplies of cattle. A new abattoir would not be sustainable if producers only used it opportunistically. It would be important for processors to establish relationships with producers throughout the supply chain to ensure supplies of quality cattle and plan for peaks and troughs in production. Alliances or commercial arrangements would aid vertical integration and security of supply. A reliable source of skilled labour is needed to sustain a meat processing sector. Salaries are already a large component of meat processing costs, but it would be difficult to attract skilled workers to remote locations without providing higher salaries and conditions. Attracting skilled labour from overseas through temporary work visas may be an initial option, but training for local and Indigenous workers would be the longer-term objective. Further initiatives to improve training for local and Indigenous meat workers would benefit start-up of a new meat processing sector and would bring economic and social benefits. For example, governments could work in partnership with industry and the Indigenous Land Corporation to help improve training initatives to skill local and Indigenous workers for the meat processing sector. Development of a feed-on sector and/or a shift by producers from operating breeding enterprises to fattening enterprises will be necessary to supply meat processors with slaughter-ready cattle. Such a shift would need irrigation support for 128 ABARES

Conclusion critical factors determining growth growing pasture and fodder crops. Small scale or mosaic irrigation would facilitate fodder production and intensification of cattle production, extending producers ability to fatten cattle through the dry season. Development of irrigation, where feasible, would provide opportunities to improve the eating quality of the beef produced. Improved eating quality could also be enhanced by cross-breeding or development of composite breeds while taking care to continue Bos indicus content dominance to ensure sufficient tick resistance. Increased research, development and extension support would be needed to ensure success of all these developments. Government and industry could work to coordinate research, development and extension support into northern Australian beef productivity drivers, including irrigation, breeding and hybridisation, herd structure and stocking rates. Also it would be beneficial to: ensure that learning from current mosaic irrigation research and the North Queensland Irrigation Agriculture Strategy are well communicated to producers ensure that policy incentives to encourage adoption of new practices or increase technical efficiency are well-aligned. Improvements to current transport infrastructure would be necessary for the success of new meat processing facilities both access for livestock coming in and for meat going to market. Australian and state and territory government recognition of this critical need has resulted in record expenditure on road and bridge upgrades being scheduled over the next few years under COAG s Nation Building program. This effort needs to be continued, particularly in improving wet season access to major roads and also to properties and communities. Improving access to remote regions also has the effect of increasing other economic activity, benefitting development of communities. Development of irrigated agriculture in northern Australia would provide opportunities, not only for improved pasture and fodder production, but also for diversifying into other cropping activities such as grain crops, horticulture and other high value crops. Such diversification would reduce risk by providing varied income sources. However, current land tenure arrangements constrain non-pastoral use of land, being historically designed to support and facilitate pastoralism. Pastoral lease conditions are under review in both Western Australia and the Northern Territory and have been recently reviewed in Queensland. Jurisdictions have an opportunity to collaborate on their individual lease reforms to ensure leaseholders are able to take advantage of environmentally and economically sustainable diversification opportunities to reduce risk. Currently, apart from indirect effects, agriculture is excluded from the carbon pricing mechanism but this decision may be reviewed. However, in addition to indirect costs of higher electricity and freight prices, some of the larger meat processors face a direct impost on the greenhouse gas emissions they produce, mostly from their waste water ponds. If agriculture were to be included in an emissions trading scheme, carbon ownership needs to be clarified. Currently, businesses covered by a pastoral lease do not own the land upon which they farm. A clear definition of who owns the carbon is needed so mitigation strategies (such as pasture improvement or feed management) can be fully accounted for when undertaken by pastoralists to reduce the potential costs imposed due to emissions from their livestock. The current land tenure reforms are an opportunity to provide such clarity. ABARES 129

Conclusion critical factors determining growth To make informed decisions, farmers and meat processors need to understand the potential benefits and tradeoffs of the sustainability and policy environment of alternative greenhouse gas mitigation strategies. Roles for governments would be to provide information, sponsor research that identifies low-cost greenhouse gas mitigation practices, to facilitate creation of reliable carbon accounting methods and ensure long-term policy certainty. 130 ABARES

Appendix 1 Terms of reference Objective Assess the risks and opportunities for the northern Australian beef industry. Outline The Northern Australian Beef Industry study consists of five components. These are: Northern Australia beef industry: assessment of risks and opportunities Indigenous pastoral industry: building capacity and partnerships for sustainability Mosaic irrigation in northern Australia: assessment of sustainability and prospectivity Optimising livestock industry logistics and productivity improvements Roles for governments in the development of meat processing capacity in northern Australia. ABARES has been asked to report on the first component. Specifically, the policy announcement on the first component referred to the following points: The northern Australia beef industry faces both challenges and opportunities. Although risks are associated with Australia s exposure to the live cattle trade, there exist emerging opportunities in meat processing. The potential exists to increase the seasonal production window through mosaic irrigation, to expand the potential catchment of processing facilities using improved methods of transport and better infrastructure, and to supplement production by processing other meats. This project will provide a thorough assessment of emerging risks to the live cattle trade and opportunities and constraints to the diversification and growth of the northern beef and meat processing industries. The ABARES study will cover the following areas: Main features of the northern Australian beef industry ሲሲlocation, nature and changes in the value of production and exports since 2000 01 ሲሲcontribution of the industry to the northern economy ሲሲproducer reliance on the live cattle export market versus other markets ሲሲdifferences in the industry between jurisdictions. ABARES 131

Terms of reference Factors that have driven the development of the northern Australian beef industry ሲሲreasons behind the move to a live cattle export industry ሲሲhistory of meat processing facilities in northern Australia ሲሲthe effect of restrictions on the use of pastoral leases between jurisdictions. Farm financial performance of beef producers in northern Australia ሲሲfarm financial performance from 2000 01 to 2010 11 ሲሲprofile of key production sectors: corporate, Indigenous and family farm enterprises ሲሲfinancial performance of specialist live export producers and corporate farms in comparison to other beef producers in northern Australia. Export markets for live cattle ሲሲrecent trends in demand for live cattle in major export markets, such as Indonesia, plus medium term projections ሲሲmarket access and other issues involved in diversifying/expanding the live export trade. Productivity trends for the northern Australian beef industry ሲሲestimates of productivity trends drawn from ABARES annual AAGIS farm survey data ሲሲdrivers of past and future productivity trends, including changes in the genetic composition of the northern herd ሲሲreview joint MLA/CSIRO research underway on productivity improvements for the northern beef industry. Establishing meat processing facilities commercial issues ሲሲreview findings of recent RIRDC report to identify constraints in establishing meat processing facilities and any follow-up research ሲሲreview state of play with other proposals to establish meat processing facilities in northern Australia ሲሲreview direction of CSIRO research on mosaic irrigation. Critical factors determining the growth of a sustainable northern Australian beef industry ሲሲkey short and longer term risks and opportunities ሲሲrespective roles of industry and governments in addressing key risks and opportunities. 132 ABARES

Appendix 2 Meat processing facilities and capacity Northern Territory Export works Batchelor (Windy Hills Australian Game Meat) mothballed since 2003, but proposal to spend $5 $7 million to reopen for slaughter of cattle, buffalo and possibly camels in 2012; with an expected capacity of 250 to 300 head per day (ABC 2011b). Darwin (Northern Australia Beef Limited wholly owned subsidiary of Australian Agricultural Company (AAco)). Current proposal to build a new works near Darwin to slaughter cattle that do not meet live export specifications; that is, heavy steers and bulls, cull for age cows, and non-breeding heifers. In addition to providing slaughter and meat processing facilities for AAco cattle (about 40 per cent of throughput), the facility is expected to provide service kill for other producers in northern Australia. The proposed facility is to process up to 1000 cattle per day to export as frozen primal cuts and coarse ground beef to Asia and the United States (ABC 2011c). Katherine (Teys Australia) mothballed since 2001, and needing much work to comply with current health and environment standards; is being dismantled with the Teys Australia decision in September to sell (ABC 2011a). Local works Oenpelli (Gunbalanya Meat Supply Pty Ltd) small, 50 head per week plant (50:50 cattle and buffalo), supplying local Indigenous communities (a small number of other plants like this throughout the territory). Gunbalanya Station receives cattle from ILC properties in the territory for the meatworks and also finishes cattle for live export. Berrimah, Darwin (Litchfield) closed in 2007, was processing pigs, goats and buffalo. Litchfield, opening in 1993, was purpose-built to slaughter the associated piggery output (6000 pigs a year), but had the capability for service kills of local livestock, such as cattle, buffalo, sheep, goats and deer. Tennant Creek (Barkley Meats) before being mothballed had a slaughter capacity of 70 head per day. ABARES 133

Meat processing facilities and capacity Western Australia Northern works currently no large-scale works open in northern Western Australia Broome closed in 1993. Broome is the preferred location for an abattoir to service the Kimberley and Pilbara, according to a consultant s report prepared for the Department of Agriculture and Food Western Australia and the Rural Industries Research and Development Corporation (SD&D & Meateng 2010). This preference is based on location and transport costs, but does not take into account the proposed AAco works in Darwin. Derby closed in the 1970s, probably around the time of the beef price slump. Kununurra currently non-operational. The land has been sold to local interests, and it appears that this works will not reopen. Wyndham closed in 1985. Wyndham remained open for longer than other plants as it was subsidised by the government (Henzell 2007). Glenroy closed in 1964. Located at Glenroy Station, 190 miles south of Wyndham and 160 miles east of Derby, the abattoir processed 60 head of cattle per day. Yeeda Station not yet operating, a proposed boutique works is in the pipeline, intending to process around 100 head per week. Southern works major works (small plants catering to local markets are not included) Harvey (Harvey Beef) the largest processor in Western Australia, located 160 kilometres south of Perth, processes about 145 000 head a year, again some of which would be northern cattle suitable for markets served by Harvey Beef. Bunbury (V&V Walsh Meat Processors & Exporters) processing both sheep and cattle, can process up to 400 head a day. Major supplier to Woolworths in Western Australia. Margaret River (Western Meat Packers Group) slaughter capacity of up to 250 head of cattle a day. Gingin located about 50 kilometres north of Perth, processes about 60 000 head a year, some of which are northern cattle brought into the northern agricultural region for growing out. Queensland The Queensland meat processing industry is dominated by JBS Swift, which acquired Australian Meat Holdings plants in 2007; and Teys Australia, formed from a merger of Teys Brothers and Cargill Beef Australia in September 2011. These two major processors operate several plants each throughout Australia, the largest of which are located in coastal or metropolitan Queensland. Nippon Meat Packers Australia is the third largest meat processing company in Australia, with one plant in Queensland and another in southern Australia. JBS Swift Queensland plants (http//www.jbsswift.com.au) are: Dinmore (Brisbane) 9 shifts over 5-day operation, processing 1675 head per shift. Employs 1950. 134 ABARES

Meat processing facilities and capacity Beef City (Toowoomba) 5-day operation, 2 shifts per day, processing 1100 head per day grain-fed cattle mainly sourced from Beef City feedlot in the same location. Employs 940. Rockhampton 6-day operation, processing 700 head daily of grass-fed animals. Employs 550. Townsville 5-day operation, single shift, processing 900 head per day of grass-fed animals. Employs 600. Teys Australia plants (http://teysaust.com.au) are: Beenleigh (Brisbane) 2 shifts per day with 1428 head per day capacity for grainfed cattle sourced from feedlot at Condamine. Employs 800. Rockhampton joined the Teys Group as a result of the merger with Consolidated Meat Group in 2002. Australia s largest single shift slaughter with capacity 1731 head per day. Employs 900. Biloela daily capacity 700 head of grass-fed beef for chilled export market. Employs 400. Nippon Meat Packers Australia (http://www.nmpa.com.au) are: Oakey capacity of up to 1200 head per day of grain-fed cattle (British and European Cross steers, sourced from feedlot at Whyalla) and high quality grass-fed cattle predominantly sourced from the Darling Downs and throughout Queensland. Employs more than 750. Mackay (Thomas Borthwick & Sons/Nippon Meat Packers Australia) certified for organic beef production and specialising in high quality, chilled grass-fed beef sourced from central Queensland cattle. Capacity to process in excess of 750 head a day. Other processors are located throughout Queensland but most are small local processors, including butchers supplying their own shops. Locations include Ayr, Boulia, Camooweal, Cannonvale, Charters Towers, Clermont, Cloncurry, El Arish, Giru, Hughendon, Winton, Sarina, Tolga, Tully, and Weipa (DEEDI 2011b). Most do not present a viable alternative for producers involved in the live export trade. Queensland facilities closed over the last few decades include: the Australian Meat Holdings facilities at Mareeba (closed 1984), Cape River (1986), Queerah (1986) and Mt Isa (1986) the Smorgons facility at Ross River (1995) the Thomas Borthwick & Sons facility at Bowen (1997) the Teys Brothers Innisfail facility (2006) (DEEDI 2011b). ABARES 135

Appendix 3 Major road and bridge works in progress or recently completed Examples of important projects recently completed or currently underway in northern Australia which will benefit the pastoral industry moving cattle to port or for further processing through feed-on enterprises and/or meat processing facilities are listed here for each jurisdiction. Jurisdiction Western Australia Northern Territory Queensland Project description 136 ABARES Current upgrading and widening of the Great Northern Highway between Fitzroy Crossing and Gogo Station and between Erskine and Blina. Widening of these sections and construction of new bridges will improve access for heavy vehicle transport operators and reduce the frequency and duration of road closures due to flooding. Upgrading of the Gibb River Road at Mt Barnett improves wet season access to properties and Indigenous communities in the area. Realignment of Marble Bar Road at Coongan Gorge will enhance access to pastoral properties in the East Pilbara. Construction and sealing of new parts of the Marble Bar Road from Newman to Nullagine, including a new bridge over Fortescue River will minimise delays caused by flooding and improve access to the East Pilbara. Upgrading of the Daly River area roads. Sealing of the Tanami Road in the Alice Springs region. Continued upgrade of the Plenty Highway in the Alice Springs region, associated flood ways and drainage to increase flood immunity. Upgrading and sealing of Fog Bay Road and Port Keats Road in the Top End and sealing of selected stream crossings. New bridges in the Katherine region over Jasper Creek and Cullen River. Commencement of Central Arnhem Road upgrade in the Katherine region. Upgrading and sealing of parts of Peninsula Developmental Road in Far North region, including construction of new crossing over South Laura River. Flinders Highway floodway upgrades between Julia Creek and Cloncurry in the North West region to improve drainage during wet weather events. Queensland Government s Regional Bridge Renewal program in the northern region. Widening and strengthening of Gregory Developmental Road north of Charters Towers. Strengthening and widening of Bruce Highway throughout the state. Bitumen sealing of a number of developmental roads in the Central West region.

Appendix 4 Ports and port access risks for live exports of cattle Darwin is the largest export out-loading port for live cattle in Australia. However, competition for port space from mineral producers/exporters could reduce access. Fremantle although south of Perth in Western Australia, it is the second largest export out-loading port for live cattle, most of which are pastoral cattle. The challenge for Fremantle is that to get cattle to port requires transport from the holding depot through major urban areas of metropolitan Perth to the loading dock. Broome is the third largest port that may face challenges given its reliance on tourism and the need to transport cattle through urban areas. Geraldton although a relatively small port in terms of out-loading, it is a major port for live cattle out of the Gascoyne Murchison region. Geraldton is also used by some pastoralists from the Kimberley Pilbara who have holding properties in the Gascoyne Murchison region. Competition from minerals and grain exporters limit access. Wyndham is a reliable port for exporting, but access may be limited at times due to the location of the port. Townsville is similar to Broome in that the port requires transport of cattle through urban areas to port and the port is also close to tourism sites. Port Hedland is rarely used now by the Pilbara cattle industry. The major issue for this port is competition from iron ore and other mineral exporters. Karumba is north of Normanton and services the eastern gulf producers of Queensland. It was designed as a port for exporting cattle but, like Wyndham, access may be limited at times due to the location of the port. Port Adelaide although not in the north of Australia, Port Adelaide may service producers from central Australia who choose or may be forced, due to road conditions, to transport cattle south to Adelaide rather than north to Darwin. Again, similar issues to ports such as Fremantle. ABARES 137

Glossary AAco AAGIS AANZFTA ANZSIC AUSFTA Backgrounding BITRE BoM Branding rate Breeder cattle BTEC COAG CSIRO DAFWA DCCEE DEEDI DERM DIT DRALGAS DRDL DRDPIFR FAO Australian Agricultural Company Australian agricultural and grazing industries survey ASEAN Australia New Zealand Free Trade Agreement Australian and New Zealand Standard Industrial Classification Australia United States Free Trade Agreement The grouping and acclimatisation of animals before entry into the feedlot or intensive finishing system Bureau of Infrastructure, Transport and Regional Economics Bureau of Meteorology Brandings as a percentage of cows mated. Calves, cows and bulls primarily for breeding purposes and usually of a higher value than feeder and slaughter cattle Brucellosis and Tuberculosis Eradication Campaign Council of Australian Governments Commonwealth Scientific and Industrial Research Organisation Department of Agriculture and Food Western Australia Australian Government Department of Climate Change and Energy Efficiency Queensland Government Department of Employment, Economic Development and Innovation Queensland Government Department of Environment and Resource Management Australian Government Department of Infrastructure and Transport Australian Government Department of Regional Australia, Local Government, Arts and Sport Western Australian Government Department of Regional Development and Lands Northern Territory Government Department of Regional Development, Primary Industry, Fisheries and Resources Food and Agriculture Organization 138 ABARES

Glossary FAPRI ISU Feeder cattle HGPs HoR ILC IPCC Mortality rate MSA NALWT NTC OIE RIRDC SCARM SD&D SEWPAC Slaughter cattle Stocking rate Store cattle TFP Turn-off rate Turn-off USDA Vertical integration VRD WA WTO Food and Agricultural Policy Research Institute Iowa State University Cattle requiring additional feeding to reach a weight suitable for slaughter Hormone growth promotants House of Representatives Indigenous Land Corporation Intergovernmental Panel on Climate Change Deaths as a percentage of average herd size Meat Standards Australia Northern Australia Land and Water Taskforce National Transport Commission World Organisation for Animal Health Rural Industries Research and Development Corporation Standing Committee on Agriculture and Resource Management Strategic Design & Development Australian Government Department of Sustainability, Environment, Water, Population and Communities Cattle purchased for immediate slaughter that require little or no additional feeding before slaughter Measured by the population density of livestock, per hectare of rangeland grazing Younger cattle sold, before meeting meatworks specifications, to other enterprises to add value either in feedlots or on grazing properties with surplus feed (backgrounders). Cattle destined for live export, where they will be fed out at the destination, can also be considered as stores. total factor productivity Sales as a percentage of average herd size In Queensland and Western Australia, it is the sum of live cattle exports and slaughtering; in the Northern Territory it is the sum of live cattle exports, slaughterings and interstate flows United States Department of Agriculture The process by which several steps in the production and/or distribution of a product or service are controlled by a single company or entity. The main aim is to reduce transaction costs by incorporating input suppliers (backward integration) or by joining with major retail outlets (forward integration). Victoria River District Western Australia World Trade Organization ABARES 139

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