BEEF processors in Rockhampton for Beef 2015 last week were surprised, to say the least, over what were seen as provocative comments made by Wellards live export representative Scot Braithwaite over the future of the two competing sectors.
Several individual processors spoken to by Beef Central afterwards were seething that a representative from a competing sector would use such an occasion to ‘run-down’ a livestock market competitor. They challenged many of the claims made during his address as being inflammatory, misguided, or without basis.
Beef Central sought reaction from several individual beef processors, none of whom chose to comment on the record.
Australian Meat Processor Corporation chairman Stephen Kelly, who did not hear the comments first hand, gave a more measured response, but said he was nevertheless surprised at what was said.
Click here to view Beef Central’s article published today on Scot Braithwaite’s earlier address.
“It’s true that the processing sector has not always been supportive of the live export industry either, but both sectors have to this point managed to cooperate over the past few years – particularly after what happened in Indonesia in 2011,” Mr Kelly said.
“There is a recognition that both industries can co-exist, without too much impact on one another,” he said.
Mr Kelly said it appeared Mr Braithwaite was representing Wellards, the largest live exporter in Australia, and the live export sector more broadly, and apparently wanted to make a case that ‘the live export sector has a very exciting future.’
“It may well have: certainly live export numbers have grown rapidly over the past 12 months – but so too has the volume of beef processed within Australia for international and domestic markets,” he said.
“It is not as if live exports has in any way ‘leapfrogged’ the processing sector in terms of recent growth in activity.”
MLA statistics show that adult slaughter numbers in Australia have risen by 25pc between the 2012 and 2014 years. Live export growth has been even larger, in percentage terms, but of course that includes the monumental residual effect left by the earlier Indonesian trade closure.
Equally, both channels were likely to find it difficult – if not impossible – to maintain current throughput for the immediate years ahead.
“The live trade is by-and-large regionally focussed, particularly across the northern parts of Australia, where there certainly is a lack of processing capacity,” Mr Kelly said.
“That obviously has been a welcome market for cattle producers in that area. But to suggest that live exports may become the dominant market for Australian cattle is very far-fetched – with or without the arrival of a China live export trade.”
Heavy investment in efficiency, quality
It was Mr Braithwaite’s arguments centred around efficiency and investment – specifically how much more efficient it was to export cattle live for slaughter overseas, than killing them in Australia – that offended processors most.
Mr Kelly said the suggestion that processors had spent ‘only $100 million’ (a reference to the AA Co Darwin plant) in recent years on facilities, in comparison with “$600m spent on new livestock export ships or modernising older ones” was patently incorrect.
He used his own company, NH Foods Australia, as an example. NH Foods (formerly Nippon Meat Packers Australia) is part way through a two-year, $50 million project to upgrade the company’s Oakey beef plant in southern Queensland, including biogas collection for green energy, cold storage and chilling capacity. An additional $20 million is being spent upgrading chilling and freezing capacity at its Wingham plant. That’s $70m for one processing company, alone.
Another large processor, JBS, has spent hundreds of millions in recent years on infrastructure development, mostly to do with efficiency and quality improvement.
“My guess is that across the beef processing industry, it would be at least five times the $100m figure suggested by Mr Braithwaite, and perhaps closer to six or seven times,” Mr Kelly said.
“All Australian beef and sheepmeat export plants are going through upgrades, constantly. Live exporters are being forced to upgrade shipping infrastructure for a number of reasons, including reducing transit times, improving animal welfare, and increasing capacity. For processors, that expenditure is more about efficiency and improving product quality performance, rather than expanding volume.”
Even though there had been substantial increase in slaughter numbers in the past few years, with the exception of the new Darwin plant, most of the capital spent in processing had not been on expansion.
“But all beef plants require constant, and considerable capital investment. That’s just the nature of the beast.”
Mr Kelly rejected the notion that live export, simply by nature of having ‘the most efficient supply chain’ might become the dominant cattle market for producers.
“To go out on a limb and state that one sector is more efficient than another, and will be in future, is a little simplistic. There are some very efficient processors within the Australian beef industry, and there are myriad factors that affect the supply chain and the broader market for cattle, beyond Australian processing efficiency,” he said.
“Both live export and processing sectors have had a history of impediments put in their way – Indonesia for live exports, and more recent China and Russian trade access issues for beef – where markets are closed through no fault of the local industry. It is in nobody’s interest for one sector to become ‘dominant’ over the other.”
“However a competitive environment in competing for livestock will maximise returns for producers, who after all, are the key ingredient to the success of both sectors.”
Mr Kelly said while there certainly seemed to be opportunity in Asia for live cattle, lotfeeding investment and perhaps investment in increased abattoir capacity, he qualified that by saying that Indonesia itself did not appear to have an individual plant processing more than 200 head a day. The majority were in fact processed in plants of 50-head capacity per day. Efficiency, under these terms, was all about labour.
“Their customer base is perhaps not as sophisticated as that of most export processors in Australia,” Mr Kelly said. “Big global customers like McDonald’s require certain standards, and as Australian processors we are obligated to comply with that.”
He said it was possible to go back through history and find similar complaints being made between industry sectors.
“You can go back to the early 1900s and find references to processors complaining about the impact of live cattle being exported to the Philippines. It’s been going on for years, and the sheep industry has seen similar challenges.”
“This is nothing new. But despite that, both have continued to co-exist. The processors have always said, they have nothing against live exports, so long as it is a level playing field in regard to issues like import tariffs, and regulatory and inspection costs.”
While there were multi-nationals operating in the Australian beef processing sector, logic would suggest they would ‘follow the trail’ if there was a great opportunity emerging in feedlot/abattoir investment in Asia.
“However the biggest problem we have is that if you go and try and build a feedlot or abattoir in Vietnam or Indonesia, you can’t do it in your own right. You cannot buy land. There are a number of such restrictions in these countries, whereas we allow foreign investors to participate in the Australian supply chain freely, without such limitations,” Mr Kelly said.