Production

Double food production by 2040? Not if there’s no profit (+ video)

James Nason, 20/11/2012

RMAC chairman Ross Keane and industry sectoral leaders answer questions from the floor during last Thursday's red meat forum Fremantle.If state and federal Governments are serious about plans to double Australia’s food production by 2040 to meet projected demand growth, they’d better get equally serious about addressing the long-term unprofitability of farming enterprises first.

That was a recurring message voiced by speakers and industry stakeholders at red meat industry meetings in Fremantle, WA, last Thursday.

Two forums hosted by the Red Meat Advisory Council and Meat & Livestock Australia gave producers and industry stakeholders an opportunity to question industry leaders and to raise issues of concern.

Speakers continually returned to the issue of the declining terms of trade facing agriculture and the need for Australia’s political leaders to be made aware of the profitability crisis that is gripping the primary production sector.

An article that highlighted the deepening financial problems of Australia’s northern cattle industry, written by North Australia Beef Research Council chair Ralph Shannon and published on Beef Central last Wednesday, drew regular comment at the forum. The article underscored the unsustainability of northern cattle operations, pointing out that terms of trade for producers has been falling at a rate of 2pc per annum since 1980. Returns in real terms had been flat-lining since the 1990s, while costs were rising at a faster rate each year (3.5pc p.a.) than productivity (1.3pc p.a.).

A ‘house of cards’

Former WA Farmers Federation president Mike Norton said the lack of profitability and the lack of return on assets was “the big problem” for agriculture.

Recent cost of production analyses for WA dairy farms showed an average return on assets of just 0.5pc per year, and beef and lamb operations were in a similar position, Mr Norton said.

“Nobody in their right mind is going to milk a bloody cow seven days a week for a return on his assets of four or five or six million dollars for half a percent,” he said.

Mr Norton said industry leaders had to get away from the “fire brigade stuff” of addressing problems and issues and look instead to develop policy to take to state and national politicians that gives agriculture a future.

Northern Territory cattle producer George Scott said industry margins were shrinking as costs climbed faster than the CPI (Consumer Price Index ) while returns lagged behind CPI growth.

“Who in our industry is looking out there for blue sky answers – our increase in productivity is not keeping pace, we’ve got a house of cards in northern Australia,” he said.

A similar question was asked by large-scale central and western Queensland cattle producer Graeme Acton, who noted that state and federal politicians often talked about the need to double Australia’s food production in coming decades.

“There is never any talk that we’re going to increase the price or (lower) the cost of production that is eroding our profitability,” Mr Acton said.

“We hear a lot from the mining industry about the cost of doing business with this country, that it is getting too costly and they are going to go offshore.

“Who’s charter is it in this industry to really hammer the Government on the cost of production – and that we really need to see some increase in profitability?,” he asked.

In response RMAC chairman Ross Keane said the responsibility of communicating the message to Government was not beholden to any single agricultural group, but rather to all.

“Are they aware of it? Well we’re telling them,” Mr Keane said.

He told the forum that his message to Governments looking to increase agricultural production was simply this: “Get us profitable first, and then you will find that production will keep up.”

 

MLA chairman Rob Anderson discusses the outcomes of last week’s MLA AGM with Beef Central’s Jon Condon

Unified message

The need for all industry groups to communicate the same message to Government was a common theme of responses.

David Larkin from the Australian Meat Industry Council said meat processors were also struggling with unsustainable returns on investment and believed each sector had to pull together to develop an overall charter of policy improvements to present to Governments.

Cattle Council of Australia executive director David Inall agreed that having all national agri-political bodies honing in on the issue of failing profitability rather than taking a shotgun approach of trying deal with a multitude of issues individually would be effective.

“If we could pick one or two significant issues and focus on those and prosecute them through state and federal government, in support of our members and our levy payers and advice to MLA in the area debt reduction and profitability, then we would all be better off,” he said.

Cattle Council of Australia president Andrew Ogilvie said it was clear that profitability was the biggest problem in the industry.

“What Cattle Council can do is work with our service provider to provide the best tools available to help producers improve their profitability and MLA has a vast array of tools out there that they have developed to help us,” Mr Ogilvie said.

“I know MLA is about to do a review of its R&D programs and I think every producer needs to be involved in that review to give their ideas.”

MLA managing director Scott Hansen told the MLA forum that the levy-funded service organisaiton was investing in research and market information to develop a true picture of the current financial viability of the industry, which had included co-funding the recent northern beef situation analysis report referred to in Mr Shannon’s article.

He said the information was being used to help commercial stakeholders to assess their position in relation to industry benchmarks and to give peak industry councils an accurate picture of industry viability to use in discussions with Governments.

Mr Hansen told Beef Central after the forum that it was clear the industry was at a crunch point in terms of returns and profitability.

“Profitability was a key theme throughout discussions for the whole of today, and I think we all have to be conscious of that,” he said.

“There is a lot of work that needs to be help ensure producers are on a firmer footing with regards to profitability.

He added that MLA was focusing marketing activities on growing demand and working with researchers to create opportunities for productivity and sustainability improvements.

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