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Cost of new livex standards could force some operators out, committee warns

by James Nason, 05 November 2018
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SOME potentially significant changes have been proposed to the Australian Standards for the Export of Livestock – changes that the review committee acknowledges will impose more cost and which could force some less efficient exporters and producers to exit the industry.

It has been more than five years since the standards that govern the health and welfare of livestock exported from Australia were reviewed.

The last time a review of the Australian Standards for the Export of Livestock (ASEL) was attempted was in 2013. However a failure by industry and animal welfare representatives to reach agreement on 13 unresolved issues meant that review could not be concluded.

In his review of the Department of Agriculture’s performance as the regulator of the live export industry released last week, public sector integrity expert Phillip Moss was critical of the Department for failing to resolve the disputed issues and to complete the ASEL review when it was last due in 2013.

Had the review been completed at that time, would it have prevented some of the welfare breakdowns that have occurred in the five years since? Sheep Producers Australia, in its submission to the Moss Review,  said it believed the failure to update ASEL in 2013 had enabled some exporters to avoid implementing technology and practices that would have improved animal welfare outcomes.

Mr Moss said the current ASEL standards do not meet community expectations, a view he said was supported during his review by stakeholders both within animal welfare organisations and the livestock export industry.

After years of limited progress on ASEL some significant changes are now coming to the way Australian livestock exporters do business.

For most of this year a new committee including an independent chair, three technical experts and representatives from animal welfare groups and industry have been conducting a review of ASEL.

The committee released its draft recommendations last week, which will effectively “reset the baseline for livestock export health and welfare standards”, and stakeholders now have just over three weeks to provide feedback by Tuesday 27 November 2018.

Several changes have been proposed, which the committee acknowledges will result in more cost being passed onto exporters, and potentially their customers they sell to or the producers they buy from.

Some of the changes included in the release of draft standards included:

Lower stocking densities: On-board Stocking densities was one of the most contested issues among stakeholders, the committee said.

Allowable stocking densities will be reduced with the committee recommending the use of an allometric approach using a k-value of 0.030 as the appropriate coefficient (industry groups had asked for a smaller coefficient (ie allowing more animals per area) and animal rights groups wanted a higher coefficient (allowing fewer animals onboard).

The committee noted that a coefficient of 0.027 allowed for all animals to lie down simultaneously but may not provide adequate room for access to feed and water troughs, while 0.33 was considered to provide acceptable space allowance for animals in long-term – typically lifetime – conferment.

Longer time in pre-export quarantine: Exporters will also likely have to keep stock in pre-export quarantine facilities for longer prior to export. The committee is recommending the minimum time for cattle be held in pre-export quarantine be increased to two clear days for short haul (currently its one day) and three days for long haul (currently two days). It wants buffalo to be held for five clear days, and sheep for five clear days,  irrespective of premises location and design, and/or length of export voyage.

Heat risk assessments for any shipments crossing equator: Exports of heavy southern Bos Taurus cattle to markets like China which would involve crossing the equator are also set for new limitations.

Current ASEL standards prevent Bos Taurus cattle from southern Australia being exported to the Middle East from May to October (unless an agreed heat stress risk assessment indicating a lower management risk is in place).

The committee believes Heat Stress Risk Assessments in future should be applied on any voyage in which cattle cross the equator.

Pregnancy testing of breeders by vets only: The committee recommends that pregnancy testing of breeder cattle remain the domain of registered veterinarians, with additional accreditation under the National Cattle Pregnancy Diagnosis Scheme (NCPDS) required to test cattle destined for longer voyages. However the committee believes existing flexibility for testing slaughter cattle should be retained, with those animals to be tested by either a registered veterinarian or a competent pregnancy tester.

It also recommends manual palpation remain the preferred method of pregnancy testing cattle, but ultrasound testing should be available where it is safer for the animal, with an NCPDS accredited vet to make that judgement.

Reducing reportable mortality rates: The committee wants the reportable mortality rates (the rate at which a departmental investigation of mortality is triggered) for sheep to be reduced from 2 percent to 1 percent, and for cattle and buffalo from 1 percent down to 0.5 percent, for all voyages, regardless of length.

Introduction of “Average Daily Mortality Rate” reporting:The committee recommends the addition of Average Daily Mortality Rate reporting, calculated by dividing the final voyage mortality rate by the length of time of the voyage in days. The committee recommends a reportable average daily mortality rate of 0.5pc for sheep and 0.025pc for cattle. “These recommendations introduce a new, more meaningful reporting parameter for mortality, which allows a fairer comparison of voyage performance for all shipments regardless of voyage length.”

More stock handlers: The committee recommends that on every voyage there should be one competent stock handler per 3,000 cattle or buffalo, and one per 30,000 sheep. The accredited stockperson would count towards this requirement.

The recommendations also call for additional space requirements onboard for pregnant cattle and horned animals, an increase in minimum fodder reserves, an increase in minimum bedding requirements and a need for veterinarians to be placed on more voyages than under the current ASEL (see review report for full details on all recommendations)

Economic impact of proposed changes

The terms of reference for the ASEL view state that the committee cannot focus solely on enhancing animal welfare and must consider the impact of any proposed changes on the future viability of the industry.

The review acknowledges there is no escaping the fact the changes proposed will increase costs. Exporters would either have to try and pass those costs on to their customer, pass costs back to the farmer through a reduced purchased price, absorb the cost increases themselves and accept a lower profit, a combination of all three, or the exporter may have to exit the market.

The committee conducted some modelling of these costs and said the major cost increase will come from the recommended change in stocking densities.

Its modelling suggested that for a medium size 4500 square metre vessel shipping

300kg-350kg feeder cattle from Darwin to Jakarta, the recommended lighter stocking densities would result in a fall in the profit margin for the voyage of about 3.5pc, and a fall in the total margin of under 10pc.

“At this level it could be expected that exporters will pass a proportion of the cost increases back to farmers in the form of lower purchases prices in order to keep the margin at or above 10pc,” the report said.

Modelling for a shipment from Townsville to Vietnam indicated a 3pc fall in profit margin and showed a 2-5pc fall in profit margin for a shipment from Portland to China, depending on the time of year.

The report said the modelling showed that while the industry was likely to remain financially viable under the proposed changes, the increased costs the changes will create could not be absorbed fully by the exporter. Nor could the full costs be passed back to the farmer and the industry remain sustainable.

“There would need to be a sharing of the costs between farmers and exporters, with each taking a reduction in their profit margins,” it said.

“The consequent reduction in the margin of both the exporter and farmers may well result in the least efficient industry participants exiting the market, with only the most efficient remaining.”

Should be scope to reward superior performance

The committee said it also believed there should be scope for the regulator to reward superior performance by exporters based on demonstrated outcomes.

The data was now available to identify those operators who consistently achieved better welfare outcomes including low mortality and other reportable incidents than those that do not.

“The AAVs – and now the independent observers – are able to report on the results of innovative practices being used and their results, and how different combinations of inputs can achieve the same or better outcomes.”



Reader's Comments


Comment
  • Dick Morgan November 6, 2018

    Why is the economic impact modelling only concerned and structured to show the effect on the exporter’s profit margin (or a reduced price to the farmer)? Why not model a situation where the increased cost price is passed on to the importer/buyer?

    Assuming the cost of the animal is a fair market price at the time, the two most significant cost impacts are the vessel charter cost and the number of animals allowed on board (stocking density). Depending on who charters the vessel – either the exporter or the importer – the CIF landed price will determine the success or failure of the transaction. If the exporter charters the vessel and offers the importer a CIF price (which includes the additional costs of the new regulations) and the importer declines the offer because he says it is higher than the market can pay, then this is when a negotiated price has to be achieved if the transaction is to be successful. The exporter has to give a little and the importer has to give a little in order to achieve a successful outcome. There’s nothing new about this. It’s the classic “offer/counteroffer/accept” transaction.

    If it turns out that the increased costs simply cannot be absorbed by the market at the time in the higher CIF price then the transaction is abandoned. Again there is nothing new in this type of scenario. However if the demand is strong enough, and there are no other alternative supply sources, then the importer will just have to pay the higher price.

    What is needed in this live animal export trade is a situation where the animals arrive at the destination port in good condition (maybe even better and heavier that when first loaded on the ship), a mortality rate of less than 1% and all concerned – farmer, exporter, importer and regulator – all congratulating each other on a successful business outcome.

    Is this more than can be hoped for? Wishful thinking?

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