Increasing activity is expected in Australia’s fledgling cattle export trade to China in coming months as purpose-built supply chains start to open and receive Australian cattle.

But two factors are still likely to work against rapid early growth of the trade – the high price of Australian cattle, and stringent protocol conditions which will squeeze viability for exporters and importers.

Several feedlots and abattoirs are being built in China for the specific purpose of handling Australian cattle, mostly backed by a mixture of private and Chinese Government funding, as reported earlier this year.

Some will have significant capacity, with licenses to import and slaughter around 100,000 Australian cattle per year.

The dilemma for their owners is that they are set to enter the market at a time when the Australian cattle herd is at a cyclical low and prices are at near record highs.

To get their new facilities running Chinese importers will have to outbid buyers from competing markets and from within Australia, which will challenge their economics at current price levels.

They also don’t have any other alternative supply options at this stage. Australia is the only country currently licensed to supply live cattle to China.

The Australian Financial Review ran an interesting story on Friday documenting the concerns of one new abattoir owner, who is investing in a 100,000 head import supply chain project set to open early next year at Ningbo near Shanghai.

Chen Li told the paper his is one of four supply chains with licenses to import 100,000 cattle set to open around the same time.

He is worried the new demand will push Australian cattle prices higher and wreck the profitability of their new supply chains before they can get established.

“There is already demand for more than one million cattle a year,” Mr Chen told the AFR.

“We are worried we won’t be able to secure enough cattle from Australia. This could see the price go up more.”

In recent visits to China some cattle importers have indicated the Chinese Government will help to subsidise the cost of cattle to help them to get their businesses up and running. It is understood that China is also talking to other cattle producing nations to broaden its supply options, but whether many others could meet the biosecurity standards included in its cattle protocol with Australia is questionable.

The stringent nature of China’s protocol conditions, tougher than those of any other importing country, significantly reduces the available pool of cattle suitable for export to the market, and will continue to limit trade volumes while they remain in place.

Bluetongue requirements mean it is only viable to source cattle from southern States at present. All cattle shipped from Australia must have been on the same property for at least 90 days before entering pre-export quarantine (longer in some circumstances), and must be killed within 14 days of arrival in China, which prevents value-adding opportunities for importers and impacts further on their ability to turn a profit.

It is possible that China may start to ease some restrictions once early shipments demonstrate that Australian cattle pose no threat of harmful disease, which will reduce costs and facilitate greater levels of trade.

Only three small air-freighted consignments of Australian cattle have been delivered to China so far under the trade-opening protocol signed one year ago, with two delivered by Elders and one by Frontier International.

Most Australian exporters are also still yet to gain approval to supply China.

The Department of Agriculture told Beef Central this week that only three Australian cattle exporters have currently applied for ESCAS approval to supply cattle to China to date.

In total four feedlots and four abattoirs are now approved to receive Australian cattle in China, in three supply chains, the Department confirmed.