An ACIL Tasman report commissioned by the World Society for the Protection of Animals recently suggested that if 400,000 cattle could be processed in northern Australia rather than exported to Indonesia, northern producers could more than double their earnings before interest and tax.

The report’s release in early October sparked a raft of mainstream media headlines reporting that the live export trade can be easily replaced by northern abattoirs.

While the 139-page report provides a comprehensive picture of the northern cattle industry, the obvious question seems to be this – if northern abattoirs represent such a pathway to prosperity, why aren’t more commercial operators rushing to build northern plants?

It is well-documented that there are currently no significant abattoirs in Australia north of a line from Townsville to Perth.

AA Co’s planned Darwin abattoir is a notable (potential) exception, but one that is targeted not at processing the traditional slaughter weight categories the ACIL analysis focuses on, but rather cull cows in a low-labour cost, hot-boning type operation designed to produce grinding beef. It is being built not as a replacement for live exports, but rather to provide an avenue for northern livestock that are unsuitable for the Indonesian trade due to weight and seasonal issues.

In the weeks since the release of the ACIL Tasman report, northern cattle industry identities have criticised it for various reasons.

The Northern Territory Cattlemen’s Association chief executive officer Luke Bowen told ABC Radio it was “inaccurate and naive at best” to assume that live exports can be entirely replaced by a processing plant.

"It is a report that has been commissioned by groups with a very strong agenda, and an alliance with processors and unions, and vegan and vegetarian organisations, to discredit live exports," Mr Bowen said.

"It completely ignores the fundamentals of northern production systems into our international markets.

"Northern (meat) processing will only ever be complimentary to, not instead of, the live export industry." 

Wellard Rural Export’s South East Asian marketing manager Scot Braithwaite says the report notes that northern genetics would have to change for northern abattoirs to become viable, but doesn’t discuss whether an abattoir could run at a loss until that happens, or whether the genetic transition would have to occur before an abattoir is built.

“If changing the genetics is the stress point for the facility to work then there is a reason it won’t work,” Mr Braithwaite said. “You just can’t get to that point.” (see separate story – Why northern abattoirs can’t replace live exports).

The Australian Live Export Council says it is difficult to believe producer incomes would rise if the competition provided by live exports suddenly disappeared.

“This was seen recently when sheep prices fell from $100 to $60 per head after exporters withdrew from sheep purchases due to disruptions in the issuing of export permits,” ALEC chief executive Alison Penfold said. 

“And why, if the processing sector provides the ‘value add’ that the report claims, is it not able to out-bid the live exporters at market right now.”

She said there was no guarantee that export markets would simply replace live animal imports from Australia with boxed beef imports from Australia if the live trade was to end. There was a strong possibility many markets would simply source live animals from other countries instead, at an overall cost to Australia’s export income and to animal welfare standards in markets currently supplied by Australia.

For instance, in 2007 Australia could not meet the Middle East’s demand for live animals. The gap was not filled by Australian boxed meat but by live animals from Sudan, Somalia and Iran, countries that do not share Australia’s commitment to animal welfare – and critically, may also pose disease risks through such diseases as foot and mouth disease.

Ms Penfold said the livestock export industry saw itself as providing a complementary role to the domestic processing industry, with boxed meat products traditionally serving the high-end and supermarket trade and meat derived from livestock exports serving the wet-market trade at significantly lower price points.

“Livestock exports support the variability of Australia’s livestock supply, through providing an additional revenue for animals ready for market,” she said. 

“The trade provides an alternative market for producers when the processing sector faces difficult trading conditions. 

“The trade also provides a greater diversity of markets for the whole of the red meat industry and therefore spreads the risk of individual market disruptions.”

Why aren’t more people building northern abattoirs?

When asked why more northern processing developments were not being pursued if the report’s findings were correct, one of the report’s authors, Mark Barber from ACIL Tasman, told Beef Central that a variety of reasons were likely.

“I think there are a number of things that need to be lined up concurrently, which we emphasised in the report, that make it difficult for any one party to advance the notion of a processing facility,” he said.

“The first thing there is probably a lack of confidence by investors that suitable cattle can be sourced, so that needs to be tested further.

“But history tells us that those cattle are probably there and there is enough evidence to suggest that a portion of the cattle currently being sold can be taken to heavier weights. So there is an opportunity to explore that further.

“The second thing is that given the Indonesian trade policy around changes to the specs for the live trade, it makes it difficult for a processing facility to produce a high enough return to account for those risks. There needs to be some trade work and we suggest in the report that foreign investment or even Indonesian investment in a plant could be a way of addressing that.

“AA Co has identified there is an opportunity there and they are looking at putting some investment into that.

“The third thing is probably infrastructure – there needs to be an alignment of Government infrastructure expenditure with the opportunities that the plant presents.

“So it needs a coordinated approach, and I think a lot of the investments in processing facilities that have been looked at in recent times tended to look at just the processing facility in isolation and not looked at the wider market trade and policy objectives that need to be lined up.”

ACIL defends “holes” in report

Analysis of the ACIL Tasman report has raised a number of questions regarding the assumptions upon which conclusions have been drawn, and apparent errors contained within some pages.

In response to questions about apparent holes in the report from Beef Central, Mark Barber of ACIL Tasman said that while some errors were made, none have had a bearing on the report’s overall findings.

Beef Central put the following questions to Mr Barber. His responses are highlighted in italics below each question.

Question 1

Figure 12 (on page 88) shows a typical northern beef herd without alternatives to the live export trade. It allocates a starting value for 5000 mixed aged cows of $900 per head – this seems to be a high average value for a cow herd in northern Australia – can you explain the basis on which this value was used?

Yes the amount could be considered high but it is the same for both the herd with (Figure 13) and without (Figure 12) access to a processing facility so altering the amount has no material effect on the comparison.

Question 2

The 'sales' column of the same table lists 703 cows weighing 500kg achieving an average sale value of just 0.20c/kg liveweight, or $100 per head. Can you explain the basis on which a sale price of 0.20c/kg was used for this calculation?

Question 3

Figure 13 (on page 89) shows how the same herd might look like following the establishment of a regional processing facility. It gives mixed age cows a higher average weight of 550kg and a higher sale value of $1.10/kg. Can you explain why the sale value of a cow has increased by 90c/kg to 110c/kg as a result of this different scenario?

Question 2 and 3 are essentially the same question. The main difference between sale values is the transport costs. The difference in value between value in the north for older cows without and with a local cull cow processing facility is substantial. It is generally uneconomic to truck older cows to processing facilities on the east coast from northern Australia. This means that older cull cows in the north have little economic value. The difference in value between the two cow sales column is a combination of the number of cows that actually be sold and the much greater transport costs involved. But again I'd like to stress that figure 12 and 13 were included to show how the herd structure changes with access to a regional slaughter facility, they do not have any impact on the modelling in sections 5 and 7.

Question 4

Figure 13 also includes starting figures of 1452 male weaners valued at $500/hd, and 1452 female weaners valued at $500/hd. However in the next column, the calculated total value of the 1452 female weaners is listed at $1 452,000, twice the value of the 1452 male weaners (at $726,000), even though they are the same number and have the same value per head. This suggests there has been an error in calculating the totals, and that the value of the whole opening herd used in this analysis is out by $726,000. Can you explain if this is the case, and how this affects the result of the analysis contained in this table?

There are two errors in the value column in figures 12 and 13. When corrected the starting value of the herd without access to a local processing facility is $8,331,400 and the value of the herd with access to the processing facility is $8,237,250. This shows that a herd with access to a facility will be able to carry less cows which have a higher capital value than younger stock. Therefore having access to a processing facility means less capital tied up in the business. I will discuss with the client whether we replace the current version of the report on the website with a corrected version. But again this does not affect the main results in the report and is due to an error on my part.

Question 5

On page 38, under the heading 5.5 Profitability by Target Market a selected quote from ABARES says that northern producers “which sold cattle for slaughter realised a higher average beef cattle price in 2009-10 than producers targeting other markets”.  The data in the table below supports that, showing that the average price of cattle sold direct to slaughter was $770/hd in 2009-10, versus an average price of $593/head to those sold for live export in the same year. However the same table then shows that farm business profit of northern Australian farms that sold direct to slaughter averaged $77,976 in the three years to 2009-10, well below the $160,678 achieved by those that sold to live cattle markets over the same period.

Given that the reason for this analysis is to compare the potential profits of selling cattle direct to slaughter versus selling to live export, why was this outcome from the same table not highlighted as well? 

It would be best to discuss the actual calculations with ABARES. However, it is worth noting that there is no local slaughter market so producers who do sell to a slaughter market now incur amongst other things very high transport costs. Without a regional slaughter market the live trade is more profitable. But the question being tested in the report is whether producers would be better off if a local market were available.

I hope this helps your readers better understand our report and as mentioned I am more than happy to answer any further questions.