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Indo weight limit relaxation raises competitive tension between livex, processors

Jon Condon, February 28, 2017

A greater level of competitive tension between live exporters and beef processor cattle buyers is inevitable, following last week’s announcement that Indonesia will relax its current weight limits on live export cattle by an additional 100kg liveweight.

Coinciding with the Australian visit by Indonesia’s President Joko Widodo, Indonesia confirmed on Friday that maximum permissable average weights per shipment will rise from 350kg to 450kg. Beef Central first flagged the likelihood of such a move in this article in mid-January.

The weight relaxation brings competition between live exporters and Queensland processor buyers in much closer alignment, for the first time in seven years. Equally, Queensland lotfeeders looking for heavy feeders 380-500kg are also likely to feel the competitive effect of live export weight limit relaxations, when trying to source northern replacement feeders.

Since the imposition of Indonesia’s 350kg weight limit on Australian live export cattle back in 2010, the live export industry has frequently claimed that the processing and live export sectors are not in direct competition for the same stock, due to weight separations.

Weight limits were first imposed by Indonesia in 2010 in an attempt to foster the development of the ‘value-adding’ component of feeding Australian cattle. The original limitation on no individual cattle exceeding 350kg was later modified to a 350kg average liveweight maximum per shipment. That allowed some heavier cattle to be included if importers wanted, but equally meant that some lighter cattle had to be included, to compensate.

Prior to the weight limit being imposed, it was not uncommon for some Australian cattle in shipments to Indonesia to be as heavy as 500-600kg – in direct competition with Australian processors’ requirements.

One of the big questions that now looms is, what impact does the weight relaxation have on northern processing this year, and further ahead?

While the effects will arguably echo down the Queensland coast to processing operations clustered around Rockhampton and further south, the two plants most directly exposed to the mounting livex challenge for heavier cattle, from both Indonesia and Vietnam, are JBS Townsville and Borthwicks at Mackay.

Townsville is yet to start its killing operations in 2017, due to concerns over cattle supply after two years of severe drought. But JBS earlier flagged the third week in March as a possible starting date. While JBS declined to comment for this article, there’s a view that the Indonesian export liveweight weight issue will inevitably add complexity to decisions over operations at the plant this year.

Further south, the Borthwicks Mackay plant has been killing only three days each week on average since it started 2017 operations, also hampered by livestock supply.

Processing Jobs under jeopardy

Federal MP George Christensen has both these large beef processing plants in his sprawling Dawson electorate in North Queensland. Combined, the JBS Townsville and Borthwicks Mackay plants employ close to 1000 personnel, when operating at capacity, and are among the largest employers in their respective cities.

“I’m all for competition in the marketplace between live export and domestic processing,” Mr Christensen said. “But at the same time I would not want to see that at the expense of the established northern beef processing industry. It needs to be on a level playing field.”

“Take the northern plants away, and live exporters have the market to themselves,” he said.

At some point, the future of the live export trade-exposed northern meat processing industry must come under scrutiny by government and industry.

With northern processors and live exporters now likely to compete for virtually the same raw material in the paddock, based on weight, the live exporter is likely to win every time, based on lower cost-to-operate. That means the live exporter effectively prices the market, and processors, with higher cost-to-operate through labour costs, regulatory, environmental and other burdens, could become increasingly less competitive.

Some plants may ultimately face closure, following the recent trend seen in southern Australia where the cost burden forced by cattle shortage has become too great for a number of red meat processors.

And history clearly shows that once a meat processing establishment shuts its doors, the chances of re-opening become increasingly less over time, as key staff drift away and dormant facilities fall into disrepair.

Some market watchers remain sceptical that Indonesian importers will in fact chase large numbers of Australian cattle at heavier weights this year, however – purely because of the price of all Australian cattle, and the vigorous competition in the Indonesian marketplace from cheap Indian buffalo meat.

The difference between a 300kg and a 450kg steer sold out of Townsville in the current strong cattle market would be as much as $500 a head, which in fact may be a deterrent to purchase large numbers of heavier cattle for export.

 

 

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