Any assumption that Australia will automatically become the food bowl of Asia because of its close proximity to the region fails to recognise the competitive pressures at play in the market, beef industry leaders told an AgForce forum in Roma yesterday.

The forum highlighted the challenges being faced at different ends of the supply chain, from producers who are struggling to remain viable in the face of high costs and unprofitable prices, and processors who are looking to lower costs in the face of intense competition from lower-cost competitors in other countries.

Costs threaten export competitivess

While demand for beef in Asia is expected to grow significantly in coming years, and provides great reason for optimism, speakers yesterday warned against complacency at Government and industry level.

Success in Asia depends heavily on Australia’s ability to address issues which impede competitiveness and hinder growth, JBS Australia director John Berry said.

Australia’s proximity to Asia was no guarantee of a competitive edge in the market, he said, citing relative sea-freight costs to underline his point.

The cost of shipping a 40 foot reefer container from Brisbane to Japan was $3700, while the cost of shipping the same container from the west coast of the United States to Japan was just $2300.

Comparisons between operating costs for processors in Australia and their competitors in other countries outlined the challenges to competitiveness.

It costs 2.4 times as much to process an animal in Australia as it does in the US, and three times as much than in Brazil.

For example a skilled boner in Australia cost $30 per hour, plus 40-42pc on-costs or $43 per hour, while an equivalent worker in the US costs $18 per hour.

Electricity, gas and water costs in Australia were twice that of the US, while Australian processors now also pay $93 million in federal meat inspection and quarantine costs following a Gillard Government decision to convert to full-cost recovery of those services; costs which are still funded by Government in the US and Brazil.

The carbon tax had added a direct impact of $6-8/head to processing costs in Australia, costs that again did not exist in the US and Brazil.

“The Asian White Paper highlights the demand by Asia for our product, but even though we are geographically located well and have a safe and high quality product, the question for us all is, is success guaranteed?… not necessarily,” Mr Berry said.

“Australia has an inherently high-cost labour market, complex and costly industrial relations and a high cost regulatory environment.

“We can grow the pie or we can contract, but to grow we need to grow profitability and sustainably, and we need a systematic approach to addressing a number of the road blocks and cost structure which are there not just for the processor but the full supply chain.”

High processing costs triggering demand for carcase exports

Australia’s high processing costs also appear to be having an impact on the type of product customers are now demanding.

In an earlier presentation MLA managing director Scott Hansen said that about 7pc of the product Australia is exporting to the Middle East and China is now going in carcase form.

Customers were asking exporters to send raw product because they could value-add carcases at lower cost at their end.

“We’re starting to see this regression in which some of the customers in these emerging market places are saying, just send us the carcase and we will value add it from here because we can do it at a lower cost than what you can do it over there,” Mr Hansen told the forum.

“And I think that is a worrying trend for us and a trend that we need to consider in terms of our policies and our engagement post-farm gate moving forward.”

Unprofitable prices squeezing producer viability

While processors say their own high costs are dramatically affecting Australia’s competitiveness in export markets, at the same time producers are warning that if processors do not pay more for cattle, their own viability and sustainability will be in severe doubt.

Dulacca beef producer Lee McNicholl said profitable cattle businesses could not be sustained at current price levels.

He questioned why cattle producers in the United States were currently returning more than A$900 for 300kg weaners (quoting prices from the Oklahoma City Stockyards), while Australian cattle producers were receiving around $530 for the equivalent article.

When 300kg weaners were taken to 600kg after 100 days on feed, US producers were still getting $300-$350 more for the same article than their Australian counterparts.

“You mentioned sustainability, in this industry sustainability starts with the producer, because if we can’t get prices that we can run our businesses on you blokes won’t stay in business,” Mr McNicholl said in a question to Mr Berry.

“Now the prices we get for our cattle at the moment are totally unsustainable.”

In response Mr Berry reiterated his point that Australian processors faced significantly higher costs than those in the US, and, as an export orientated country, faced ongoing competition in international markets not just from other countries but other proteins.

He added that there are very different supply-demand dynamics playing out in both countries.

“It is the supply and demand equation, we have had good seasons, a lot of cattle have grown out and are hitting the slaughter floors now,” Mr Berry said.

“On the inverse look at the US where they are close to their lowest herd since the 1950s.

“So it is a supply and demand equation, I can’t stand here today and say that the challenges in the international markets are s going to be any easier going forward. They will continue to be complex and challenging.

"As processors we have to address the cost structures around our business. However, greater market access, not less market access, is the key as it will benefit the producer and processor alike.”

Mr Berry said he agreed that profitability and sustainability must exist “right through the whole supply chain”.

Future sustainability would rely heavily upon the Australian government’s ability to finalise Free Trade Agreements with key markets such as South Korea, Japan and China, he said, to ensure Australia can not only maintain but grow  its share of those critically important markets going forward.

Nil confidence at producer level

Several other producers also raised concerns about the lack of profitability in the current market, and the impact that is having on producer confidence.

James Stinson from Muckadilla told deputy opposition leader Julie Bishop that there was no confidence in rural Queensland, which was affecting livelihoods of rural producers and their mental state.

“My comment to the federal government is you can’t keep gouging rural Australia,” he said.

“The taxes, the fees, the levies that we pay, we just had an increase in stamp duty on insurance, which is just ludicrous.

“We’re hearing a lot of comments coming out of both levels of government about future plans for agriculture in Queensland and Australia, and at the moment it just seems like rhetoric.”

Julie Bishop said the Coalition had established a task force headed by NSW senator Arthur Sinodinis to identify areas where a future Abbot Government could remove $1billion worth of red tape and regulation from the Australian economy every year.

She said the coalition was focused on 'small government and lower taxes' and, in addition to abolishing the carbon tax if it wins Government, would also move to cut taxes once it was able to deliver the budget back to surplus.