Beef 2015 Report

Live export will win the battle for cattle: Wellard Asia manager

James Nason, May 13, 2015
Wellard Rural Exporters general manager, Asia, addresses the Industry Symposium at Beef 2015 last week.

Wellard Rural Exporters general manager, Asia, Scot Braithwaite addresses the Industry Symposium at Beef 2015 last week.

 

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.

 

 

 

HAVE YOUR SAY

Your email address will not be published. Required fields are marked *

Your comment will not appear until it has been moderated.
Contributions that contravene our Comments Policy will not be published.

Comments

  1. G D Dunbar, July 14, 2015

    Anne Bullen:

    I hear what you’re saying about the current profitability in selling export cattle live versus processed meat. That said, I believe many of our buyers will eventually be enticed to grow their own herds and capture all of the profits from manufacturing feed, growing, slaughter and further processing. They already have much of the processing in place, and it will only be a matter of time till they begin to develop the infrastructure to feed and grow their own cattle. Even if they have to import the raw materials for feeding or purchase ready made feed, these folks aren’t fools. They’re part of the world’s developing countries and they eventually will, IMHO, go after all of the money. They may never be able to handle the entire process, but they will bite off a large chunk of our live export business in time. Incidentally you might want to read what Indonesia has just done to our export beef as of 14 July 2015.

  2. Ann Bullen, May 15, 2015

    For a southern producer we welcome with open arms the live export trade as the essential to a competitive price being paid for what we produce. I have just agreed to send my third consignment of registered breeding heifers offshore at prices 3 times what I get locally. My tailender steers sold through VLE Pakenham were also bought for an export order out of Portland. The increased competition at that store sale meant I went home with about an extra $80 a head for the same weight as other pens in that sale. As far as loss of jobs from the rural communities JBS plants are based in Melbourne (hardly rural). Lack of genuine competition from domestic processors is what has been killing the industry. We welcome the live trade as another market for our product.

  3. Patrick Francis, May 14, 2015

    This development of live exports dominating cattle marketing in Australia has been hinted at by a number of industry people in Beef Central over the last six months. Now a player in the sector has admitted what the live export sector’s medium term objective is. Cattle farmers should be outraged because if live exports become the dominate market, they will be confined to being commodity producers, with value adding passed into the hands of overseas businesses. To some extent that happens at the moment with overseas ownership of abattoirs and feedlots but at least Australias are employed in regional areas and service businesses earn incomes which employs more people locally. Also ask what will happen to the lot feeding sector finishing export cattle and to the feed grain and food waste products supplying feedlots. Reflect on what will happen to genetic improvement in the Australian cattle herd when live weight gain and carcase feedback data disappear overseas in feedlots and abattoirs buying cattle at the lowest possible price with no connections to Australian cattle farmers.
    Braithwaites analogy of cattle processing going the same way as car manufacturing is worth thinking about but with cattle feeding and processing going off-shore the impact will be far greater on employment in regional centres. Finally it worth thinking about who will buy our cattle when the next World or Asian economic downturn occurs, demand for beef drops and Australia’s major feedlots and export abattoirs have closed and been dismantled? I agree with Phil Holmes when he said at Beef 2015 cattle farmers “…in the live export trade are on a hiding to nothing.” Braithwaite’s comments if they eventuate provide another reason why this is so.

  4. JAY STEPHEN, May 13, 2015

    Maths not to the fore here [misprint ?] , “shocker” (Winston Churchill was responsible for killing more Australians than Hitler)…. re 320 kg steer @ todays rate QLD Curry $2.20 the true cost would be >$1,454.00 the only way this price can go is up Unless again there’s more secret money behind another dodgy news clip in some overseas country that is backed by our Government

    Jay, the $570 estimate mentioned in the article relates specifically to shipping, feeding and processing costs – Editor

Get Beef Central's news headlines emailed to you -
FREE!