A one-cent shift in currency value in the Australian dollar currently represents the equivalent of $45 million in revenue to the Australian beef export industry, a large Brisbane Show audience was told on Friday afternoon.

Richard Rains, the chief executive of Sanger Australia, one of Australia’s largest non-packer exporters made the comment during an entertaining Q&A program staged during interbreed cattle judging at Brisbane Exhibition on Friday.

Compare Terry Nolan, the chairman of the Australian Meat Industry Council, interviewed MLA chairman Don Heatley and Mr Rains on a variety of industry topics in front of a large city and country-based audience.

Asked to speculate on where the A$ value might head, given recent extreme volatility seen during early August Mr Rains’ blunt response was that he had “absolutely no idea.”

“When the currency can move US10c in one week as it has done during early August and continues to show alarming volatility of 2-3c on a daily basis, who knows where it is going to be tomorrow, next week or next month?” he said.

“Fortunately we as exporters have tools to hedge the currency, removing some of the risk of currency movement. But sadly the producing sector does not have that same opportunity.”

“But for every 1c that the A$ moves against the US currency, it is equivalent to $45 million to the Australian red meat industry. If we were selling our export beef today at the same price we were 12 months ago, that would equate to A$1.2 billion in additional revenue to the red meat industry in Australia. That’s a big number, in anybody’s language, but fortunately we have managed to get our prices a little higher, meaning the impact has not been that great.”

Mr Rains said the US, which had historically been one of Australia’s largest beef customers, was today a large and growing export competitor of Australia’s, mostly due to currency movements making their beef very cheap.

“Every time the A$ goes up, I try to get some more money out of our customers to compensate, but the Americans don’t have the same problem. They are happy to sell their product into export at the same price all the time, because as their currency weakens, that represents a better return.”

The US had increased its export to Japan enormously this year, at Australia’s expense, and that was tough on the Australian export industry, Mr Rains said.           

Established as a meat export trading company in 1973, Sanger Australia is one of Australia’s largest traders operating through an international sales network for Australian meat products.

The privately-owned company provides international buyers with access to a wide range of Australian beef at various price points.

Live export impact

Terry Nolan’s questions to MLA chairman Don Heatley covered a broad range of topics, starting with the impact of recent live export closure to Indonesia.

Mr Heatley told the audience MLA thought that about 100,000 to 150,000 head ‘would not make it’ onto a boat this year for various reasons, but it was very difficult to put a more exact figure on the deficit.

“We’re hoping we can get at least 200,000 cattle up there this year, and it may be a little bit more,” he said.

“But one of the difficulties with the live trade that the Government has not yet fully understood is that live cattle export is not like a commodity like iron ore, where the tap can be simply turned off one day and started another, without major disruptions to the supply chain.”

Mr Rains said it was well-known that the Indonesian Government was anxious to become self-sufficient in beef production and the Australian-enforced market closure might serve to ‘steel the Indonesian government’s resolve’ to attain greater self-sufficiency, becoming less reliant on imports, which could not be good for Australia.

“Combining the live cattle imports with meat imports in equivalent boxed meat tonnage terms, Indonesia is actually the third largest export market for Australian beef,” Mr Rains said.
“Indonesia is right on our doorstep, it’s a terribly important market for us, and we need to do whatever we possibly can to retain as much access as possible.”

So will there be any impact seen from the recent market closure in Australia’s markets other than Indonesia?

“Those cattle aren’t of a weight to be slaughtered immediately. What cattle don’t go out live, I’d like to think would come south and go onto grass for six months to find their way into production next year,” Mr Rains said. “We are fortunately enjoying a good season in Queensland meaning there is plenty of grass available for those cattle to go onto.”

Compare Terry Nolan asked Mr Heatley to comment on the financial return to producers, who often had major capital investment tied-up in land and cattle for relatively small return, challenging Mr Heatley to ‘reinvent’ a supply chain that better reflected that return on investment.

Top-down approach to supply chains 

Mr Heatley said the key message when looking at setting-up a supply chain was not to start at the bottom, but at the top.

“The top of the pile is the consumer, and that’s where beef producers tend to get a little confused about how supply chains work. We have this product that walks on four legs – it’s not cattle, it’s actually food. We need to figure out who our target audience is, what they want in terms of product, and build the supply chain downwards, rather than upwards.”

“I’ve seen so many times industry participants wanting to step into the supply chain and creating a product and then try to find a home for it. That’s not how it works: the consumer is king and that means having a deep understanding of what the consumer wants in the first place.”

In terms of production competitiveness, Mr Heatley said the industry now had a set of tools at its disposal in a wide range of areas that could help stakeholders remain competitive. The industry needed about 2.6pc productivity improvement across the industry each year ‘just to stand still.’

“We must stake advantage of the opportunities that come our way, in areas like genetics and marketing opportunities,” he said. 

“In the area of genetics, for example, there has been a set of excellent tools created from levy payers’ money to help producers understand what they can do with genetic improvement.”

“In the area of marketing, it is difficult to understand why the industry is so fearful of a marketing tool in the form of cattle futures and forward trading, which is in common use around the world.

We had a cattle futures contract but in the end it had to be let go because producers and other stakeholders did not want to hedge against price risk.”

Automated carcase management 

Asked whether there was technology or other developments in overseas markets that Australia should be looking at more closely, Mr Heatley nominated automated carcase management systems in use in overseas sheep processing, which he described as ‘absolutely brilliant.’

“The technology is being applied in New Zealand and elsewhere. It is still work in progress, but it will get there for beef, and it will eliminate a large amount of cost from the processing sector.”

While some producers might say that such programs ‘just gave money to the processors’, the reality was that value flowed up and down the supply chain all the time, Mr Heatley said.

“There are times when we know that processors are giving it back to us as producers, and other times when we give it away to them. But technology like this will help lift productivity through the chain,” he said

But the Australian industry was also somewhat different from the US industry, where slaughter cattle were much more uniform in terms of feeding program, genetics, carcase weight and other factors.