A SENIOR live export company executive lit a fuse on the growing tensions between the meat processing sector and live export trade at Beef 2015 last week when he used an opportunity to speak at a JBS-sponsored symposium to issue a provocative warning to the meat processing sector.
The message delivered by Wellard Rural Exports general manager, Asia, Scot Braithwaite was essentially this: it is more efficient to convert cattle from a paddock in Australia to beef in an end-user market through the live export trade than it is to process meat in Australia and ship it in boxed form, and if processors don’t become more efficient, live exporters will win the battle for Australia’s remaining cattle.
In his opening comments Mr Braithwaite did warn that he was about to follow advice on speech making once given by Winston Churchill who reportedly once said that speakers should include a statement that was “truly outrageous”.
With the stage set, he dropped his bombshell: there is a strong possibility, he said, that live exports will soon become the dominant export market for Australian cattle producers.
“How in the next 20 minutes do I substantiate such an outrageous statement?,” he said.
His argument was based on what he sees as the vastly superior efficiency of the live export sector compared to the Australian red meat processing sector.
Capital follows efficiency, he said, and capital was clearly flowing toward the live export sector.
To illustrate his point he drew an analogy with Australia’s steel production sector and now defunct car manufacturing industry.
Increases in ship sizes meant that four times less fuel was needed today to transport the same amount of iron ore to China than required 20 years ago.
As a result it was now more economically viable to ship raw material offshore and process it in foreign countries, a trend which had led to the demise of Australia’s high cost car manufacturing industry.
At the same time livestock ships were also becoming bigger and more efficient, Mr Braithwaite said.
Ten years ago the average livestock shipment was 2000 cattle per load, and Australia had one ship able to carry more than 20,000 head in a single load.
Today the average load is 4000 head, and there are now four ships that can carry 20,000 head.
Mr Braithwaite said in the past 10 years almost $600 million had been spent by live export companies on buying new ships or converting ships from other purposes into livestock carriers.
Every time a new vessel was commissioned, it was more efficient than the one before. For example, when Wellard Rural Exports built the Ocean Drover, it was 20pc more efficient than other ships of the time. Then came the Ocean Shearer, which was 8pc more efficient than the Drover, and the new ships today were 10pc more efficient again than the Shearer. That amounted to a 40pc improvement in efficiency over 10 years, he said.
At the same time, cattle importers throughout Asia were building bigger and more efficient feedlots and abattoirs, which was driving further efficiency gains throughout the live export supply chain.
By comparison, he said, there had been only one new processing facility built in Australia over the same period, AACo’s $100 million plant near Darwin.
“So there we have in total US $600 million investments in the livestock export industry against $100m in the processing industry,” he said.
In a capitalist market, Mr Braithwaite said, “capital followed efficiency”.
With the Asian region poised to import an additional four million cattle per year in coming years, and Australia’s herd getting smaller, he predicted that exporters would win the battle with processors for the remaining cattle.
“Live exports will be here forever, we have got the most efficient way to deliver protein to the world,” he said.
“Our competitors for supply – processors – are going to have to get their acts together in efficiency to get the cattle.
‘It will be up to who has the most efficient chain, and I believe that is us’
“Because there is going to be a time when buyers will be looking for four million live cattle and it will be up to who has the most efficient chain, and I believe that is us.”
Mr Braithwaite said he knew of one investor who already has 60,000 cattle on feed and is in the process of developing feedlot capacity to feed 300,000 cattle in Vietnam, Cambodia and Laos.
Mr Braithwaite said he believed this importer was the “real deal” due to his strong exsiting track record and would soon be looking to import 600,000 cattle a year.
“That is 600,000 cattle a year to one guy, to one person, and he has possibly the cheapest cost of feed in the world, buying Tapioca for $125/t. It is $250/t in Indonesia.”
He said a recent experience in Southern Australia demonstrated the important role that live export competition played in underpinning livestock prices.
“Recently we ran the Nada – a 28,000 head ship – out of Fremantle to Indonesia and Vietnam.
“We pulled into Portland and picked up 6000 slaughter cattle and the market jumped 40c/kg.
“That is the effect live exports have.”
In response to a question from the floor about the costs of exporting cattle, Mr Braithwaite said it cost about US 75c/kg liveweight to export a steer from Darwin to Jakarta (which equals $240 for a 320kg feeder steer), $2.40 per head per day to feed that animal (for 120 days that would equate to $288/hd) and between $5 to $40 per head to process the animal depending on the abattoir. This represents a cost of about $570 in total to take a feeder steer to finished market weight and to be processed.
With the price of cattle in the US currently quivalent to around AUD$4.50/kg liveweight, Mr Braithwaite also predicted that Australia could soon be delivering hundreds of thousands of cattle to that market should a protocol agreement be reached.
Click here to view this morning’s processor rebuttal to Scot Braithwaite’s claims, provided by AMPC chairman Stephen Kelly.