Live Export

Why northern abattoirs can’t replace live exports

Beef Central, 02/11/2012

Scot Braithwaite is the South East Asian marketing manager for Australia’s largest livestock export company, Wellard Rural Exports. He has had extensive experience working both in the northern cattle industry and in live export markets. In this opinion article, he outlines why he believes ACIL Tasman’s report into the economics of northern meat processing falls short of providing a realistic picture of cattle production and marketing in the north.

I have no issue with the establishment of an abattoir facility in the north. In fact, if there is a way for it to work, it should be encouraged. What I take exception to is the loose use of “facts” to show that the whole industry in the north would be better off with processing facilities than with live export. It is a nonsense and it will be used by the minority groups as “fact” if we don’t bring forward some of the shortcomings of the report.

Processing facilities were closing well before big volumes of cattle where going to live export. And the reason they closed are the same reasons they are not viable today:

1) Access to cattle: There is no access for three to four months of the year. 85 percent of the properties have no access to all-weather roads. And if they did, the country is too wet and too hot to be moving slaughter weight cattle around in big numbers. Even given reduced numbers and one month closed for maintenance, a facility killing 1000 head per day has to find 40,000 head of slaughter weight cattle in February and March.

One, you can’t get them, and two, properties don’t want to sell then because that is when they are actually putting on weight. So even if you could get them out you would have to pay such a high price to compensate for the forgone growth of selling early, that you are going to be paying $100 to $150 a head more than what is budgeted. (And then you have two facilities (as suggested in the ACIL Tasman report), so you have to find 80,000 head. You could spend $1 billion on roads, raise bridges above flood levels and get property access and you still would not get the cattle).

2) A) Weight in the cattle: The other major issue is the weight of cattle in the north. In the study they are being fairly pretty conservative and working on a 400kg live weight and a 200kg carcass. That is probably achievable, however, I cannot see how a facility located in an isolated area with wage costs the same as the mines can possibly compete with the facilities in the south. We must always remember they have to sell the product (which is all manufacturing beef, not prime cuts at $10/kg plus). In the south where wages are probably 20-30pc lower than the north, it costs $250 to kill and bone an animal, in a facility that kills 2000 head per day. Their average weights are 250kg. (If you send carcasses in less than 200kg there is a $1/kg penalty). So it costs $1/kg of carcass to kill, or, at a 69 percent meat to bone yield, $1.45/kg of actual meat. For the north, the cost will be $300 (I am being very generous and saying that this facility will only cost 16pc more to run. The cost per kilogram of meat will be $2.20. (200kg carcass at 68pc meat to bone yield – the industry standard for northern cattle). How do you make up the 75 cents/kg?

Even the report recognises that the two biggest sensitivities were seasonality and carcass weight, and the processor has no ability to effect either.

B) After July there is no weight gain in basically 85pc of the country and cattle go backwards until January. In addition to limited supply in January/February/March, it will be very difficult to get large numbers of cattle that do average 400kg live weight, in November and December. You as the operator have to cover these 5 months every year.

3) Labour: Looking at their assumptions of labour costs, they are working on$ 75,000 a year for skilled labour. When a TA in the mines is getting $120k a year, people doing the factory work will not be working for less than 30 to 40pc of what they are claiming. Unless they get overseas workers – and then the idea of doing this to help Australia’s employment situation goes out the window.

Those are the three reasons that it did not work before and it will not work again.

I think the sign of madness is doing the same thing over and over again and expecting a different result.

Other criticisms of the report are:

1) Pricing: And its effect back to the farmer. The processor in the north is only going to pay one cent more than what the producer would get if he sent the animal south. If the property owners in the north are netting 90 cents farm gate from their existing heavy sales trucked south. No commercial operation is going to pay any more then 91 cents. There is no magic wand that allows abattoirs to pay more than market price. The only advantage is that there will be another operator in the market, but in reality the northern guys can go to all areas already. Adelaide, Perth, Townsville, Brisbane. The huge bonus of additional prices for slaughter cattle from the operation is pure fallacy.

2) Not growing country: You can’t turn breeding country into growing country no matter how hard you wish it and how many reports you write.

3) The assumptions that are critical for the success of processing they start on 5.7.2 on page 43. And they include:

Genetics: You have to change the northern herd.

1) How long have they given for this momentous task to take place? I ran a camp in 1984, 26 years ago, when it was obvious that the Brahman cattle where far superior in adapting to the north than the Shorthorns. However it took 20 years and big money from the live exporters to get the core change adopted across the board.

2) How do you transition to the genetic requirement that is so important to the success of the operation? Does the abattoir start but run at a loss hoping that the cattle owners will see the light and change the genetics, or do you wait until the operators have changed the genetics because “you said you were going to build an abattoir -trust me”. If changing the genetics is the stress point for the facility to work then there is a reason it won’t work. You just can’t get to that point.

3) Balance of country: The report recognizes the need for growing out country. It just does not appear out of nowhere, in the midst of the genetic change over operators who don’t have finishing country will have to buy more. How? With what?

4) Growing season issues: The wet does not change not even for consultants and wannabe’s.

5) Transport access: As I said you could spend $10 billion on access roads and flood proofing supply routes but it is always the wrong time to sell. And then you are still not guaranteed of getting them out. The biggest threat is disruption of the supply chain and there is just no way you can get around it in the north.

6) Distance to markets: You can’t shorten the trip from Halls Creek to Darwin. Where do you put the facility? One is more efficient than two, but where do you put it? Two means you are very inefficient. An age-old problem that cannot be solved. This has been included as a critical part of the success of processing in the north, but not one suggestion as to how it can be done. 


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