Australia’s live cattle trade is likely to take a 19 percent hit in export volumes next financial year, and possibly more depending on how long the Federal Government’s suspension of trade with Indonesia lasts.
The Australian Bureau of Research Economics and Sciences’ has taken an early shot at estimating how large the impact of the ban could be on overall export volumes and cattle market conditions in general.
The official commodity forecaster says Australian exports to Indonesia for the 2010-11 financial year, which finishes next Thursday, will total 445,000 head.
This represents a 38pc drop on last financial year, and reflects the impact of two key Government decisions. The first was the imposition of severe weight and quota restrictions on cattle imports by the Indonesian Government to promote self-sufficiency in beef production in June 2010, and the second was the Australian Government’s decision to suspend live exports to Indonesia in early June 2011.
Total Australian live exports to all markets in 2010-11 will fall by 17pc to 723,000 head.
By 'volume' the ABARES report means outright cattle numbers, and it makes no attempt to factor-in the greatly reduced weight (average 320-340kg) , and hence value, of animals entering the market before and after the current ban is lifted.
Assuming the trade to Indonesia recommences early in 2011-2012, ABARES predicts that Australian live exports next financial year will total around 585 000 head, a reduction of 19 per cent from the current financial year.
“It is noteworthy that this forecast of total live exports in 2011–12 is based on the technical assumption that trade with Indonesia will restart during 2011–2012. However, there was considerable uncertainty at the time this forecast was prepared as to when the trade would resume,” the forecast said.
A longer term suspension would force producers to finish cattle previously destined for the Indonesian market for the domestic slaughter market.
The long-term impact of the suspension will also depend on the capacity of the northern cattle industry to find alternative live export markets.
Other key markets which had the potential to take additional, but nowhere near all, cattle that would normally have gone to Indonesia included Turkey (which took 8pc of Australian live cattle exports in 2010-211), Egypt (7pc), Israel (5pc) and a range of other smaller markets which each take around 1–2pc including Jordan, Libya, Malaysia, the Philippines and Saudi Arabia.
This prospect was limited by competition in Malaysia and the Philippines from South American beef and Indian buffalo meat.
ABARES said establishment of extra processing capacity in northern Australia could also help to reduce some of the impact, but would take time. It also noted the difficulties posed by a lack of existing supply chain infrastructure and the northern wet season to the establishment of a viable processing sector in the north.
The redirection of some live export cattle to southern and eastern markets could lead to downward pressure on domestic saleyards prices, but the impact was “not expected to be significant”.
In 2010–11 exports of live cattle to Indonesia accounted for an estimated 5pc of Australia’s total cattle turn-off in volume terms and 4pc in value terms.
“The extra beef production could be exported to Australia’s major beef markets in north Asia, the United States and the Middle East.
“The Indonesian market prefers meat slaughtered locally rather than imports of chilled or frozen beef, principally because of a lack of widespread refrigeration.”
“So the prospect, in the short term, of Indonesia substituting imports of Australian boxed beef for live cattle imports is expected to be limited, despite the suspension.”
Little long-term impact, says forecaster
Meanwhile, independent economic forecaster, IbisWorld, released an Australian beef industry report this week suggesting that while current live export issues will financially impact Australia’s beef industry this year, it should not have longer term effects.
Although the current temporary ban on live exports is set to create further challenges for suppliers operating in the industry, overall the health of beef cattle production looked positive, with total growth forecast at 1.8pc per annum over the next five years to reach $9.8 billion in revenue by 2015-16, IbisWorld suggested.
This signals an improvement compared with the past five years, which averaged a 3.6pc annual decrease, according to IbisWorld’s data.
“While it is important to recognise the short-term hardships that those operating in live export supply may face, looking at the bigger picture, the sector makes up just 6pc of total industry revenue. And exports to Indonesia were already contracting before the recent accusations of abattoir cruelty surfaced,” the report said.
Before the abattoir scandal arose, the Indonesian Government had launched a campaign to become self-sufficient in agricultural industries including beef, within five years, aiming to reduce import levels to 10pc of domestic demand by 2014. Although the ban is expected to create challenges in the short term, Indonesia’s importance as a live export market has been diminishing in recent years, with the number of cattle and the amount of revenue from the market already expected to decline over the next five years anyway.
In contrast, live exports to Egypt, Turkey, Israel and Saudi Arabia have all increased in the past year due to growing demand from the burgeoning middle classes.
IbisWorld anticipates that total Australian beef and veal production, currently at 2.1 million tonnes annually, will increase by 1.3pc annually over the five years through 2015-16, as the national cattle herd starts to rebuild following successive good seasons.
Gourmet, organic and free-range beef products could play an increasingly important role in beef industry growth over the next few years, the report suggests, as retail consumers and the food service sector seek greater variety, higher quality and healthier and more environmentally-friendly options.
In terms of future beef export growth, South Korea, Russia and the Middle East were the markets tipped to provide the greatest potential. In South Korea’s case, this was being driven by economic recovery and an outbreak of Foot and Mouth Disease in its domestic herd.