This is the third instalment of a three-part blog series which summarises the importance of the live cattle trade to Australia. The information contained within this blog was sourced from a Mecardo report commissioned by Livecorp/MLA and released in November 2018 entitled “Value analysis of the Australian live cattle trade – key highlights”.
In part two of this series we highlighted the live cattle export value chain and demonstrated the reliance that participants across the supply chain have on annual revenue earnt from their involvement in the live cattle export industry.
In part one of this blog we outlined the structure of the Australian beef sector with specific reference to the flow of live export cattle through the system from farm to offshore destination. The importance of the live cattle trade to farmers, particularly in Australia’s northern regions, in terms of the proportion of annual cattle sales was evident.
This final blog on the Australian live cattle export industry will focus on five major export destinations for Australian live cattle exports; Indonesia, Vietnam, China, Israel and Turkey. We will assess the value of the live cattle for Australia’s trading partners and answer the question – why do Australia’s export market destinations want to import live cattle?
Australia’s key live export market destinations
Five key live cattle import destination countries were selected across the Asian and Middle Eastern/ North African zone for case studies based on average values of cattle exported from Australia over the last five years. The top five destinations for Australian live cattle, in terms of the value of exports, over the 2012-2017 period is outlined in the diagram below.
Turkey replaced the Russian Federation in the case studies on export destinations as recent years have seen Turkey re-emerge as a consumer of Australian live cattle while the Russian flows have been in a declining trend.
Australia’s most important live cattle trade destination, holding the top spot in terms of market share of both volume and value of live cattle shipped. Over the 2012-2017 period Australia was the sole supplier of live cattle to India. The importance of this trade relationship cannot be understated. The exclusive supply between Indonesia and Australia demonstrates trust and reliance in the trade partnership. Additionally, Indonesia is the biggest importer of Australian grain and the by-product generated by grain processing is used to sustain the Indonesian livestock industry.
Australia’s second top destination in terms of volume of head and third top spot in terms of the value of trade. Analysis of live cattle trade data for the 2012-2017 period shows that Vietnam import most of their cattle from Australia at an average of 67.9% of market share for the period. Thailand holds second place at 20.9% and New Zealand in third spot at 12.4%. The fourth and final source of imported cattle into Vietnam was Laos PDR, which provided 1.8% of the market share. Anecdotal evidence suggests informal beef trade also occurs between Vietnam and neighbouring countries.
Australia’s third top destination in terms of volume and second top spot in terms of the value of trade. Analysis of Chinese imports of live cattle for the 2012-2017 period shows that Australia is the top source country, averaging 58.7% of the value of Chinese live cattle imports, most of which are breeding stock. During the 2012-2017 period, China has only imported live cattle from four nations – Australia, New Zealand, Chile and Uruguay.
Australia’s fourth top destination in terms of volume of head and fifth top spot in terms of the value of trade. Israel imports live cattle from a wide range of countries. Analysis of the live cattle trade data for the 2012-2017 period shows that Australia has averaged second-place position at 23.9% of the flow (based off a value of trade measure), behind Jordan at 34.2%.
Australia’s eighth top destination in terms of volume of head and seventh top spot in terms of the value of trade. Turkey sources live cattle from a wide range of locations, however, the main suppliers are countries from South America and Europe. Live cattle import trade statistics indicate that over the 2012 to 2017 period, Australia sat in 10th spot at 4/6% of the market share of live cattle imported by Turkey. In recent years, volumes of live cattle consignments from Australia have increased.
In recent years, South American and European participants in the live cattle export industry have identified the importance of expanding market access in the South East Asian and Middle Eastern regions, particularly with the growth anticipated for countries within these zones. Notably, Brazil and Romania have been actively pursuing an increased presence within Asia and the Middle East, respectively.
Why do Australia’s trading partners want to import live cattle?
Of the five export destinations, Vietnam is the only country that produces more beef than it consumes. All other destinations demonstrate an inability to supply the volume of beef consumed through domestic production. In 2017, China processed around 90% of their consumption requirements. However, due to their very large population levels, this shortfall equated to a staggering 0.8 million tonne of beef product for the 2017 season.
As population and wealth continue to expand, it is unlikely that countries such as China, Vietnam and Indonesia will be able to increase their local production to fulfil the quantities of beef demanded. These countries will rely on imports of beef products or live cattle to fill this gap.
Australian breeders (heifers & bulls) are also imported into developing countries to improve their domestic herd. This is particularly true for the Southern Australian cattle production system. Indeed, it is evident in the fact that global participants in the cattle industry actively seek out, and pay a premium, for the quality and performance attributes of Southern Australia’s beef and breeding cattle herd.
COLD STORE ACCESS
To end live cattle imports and rely solely on chilled/frozen imported product, a country will need to demonstrate suitable cold store capacity to enable all the population access to the boxed beef product. Households in three of the five importing nations from this case study have low average annual electricity usage and when measured against household numbers and this suggests low access to appliances like fridges and freezers across the entire population, particularly in rural areas. At-risk countries include Indonesia and Vietnam, while China is also at-risk but to a lesser extent.
Indicative electricity use per household models developed by the UN suggests that 1,800kW/h per annum is the threshold for households to have access to refrigeration. Indonesia is unable to provide this level of electricity access to its entire population, while China, Vietnam and Turkey have only reached the threshold within the last decade.
The live cattle export trade is an important component of the supply chain in these nations, facilitating, accessibility of beef products to segments of the population with none, or limited, cold storage capacity and a reliance on wet markets.
Australia’s export market destinations derive additional economic benefit from employment in local feedlots, meatworks and associated industries such as transport when they elect to import live cattle either as feeders or direct to slaughter.
Importing and exporting industry participants, as well as the Australian Government, have invested significantly in improving training and facilities in importing countries to meet the requirements of the Livestock Exporter Supply Chain Assurance System (ESCAS). Skills transfer and training initiatives in importing countries have led to a much greater understanding of the importance of animal welfare and the application of good practice animal handling and slaughter techniques.
These skills are transferred along the wider livestock supply chain, developing individual participants and adding value to businesses through increased efficiencies and worker safety.
LOW-COST MEAT SOURCE
There is a cost advantage to import live cattle, fatten and slaughter in-country compared to importing processed beef products. Lower operating costs of meat works in many of Australia’s cattle export destinations drives this preference. Australia has one of the highest cattle processing costs in the world.
Brazil processes one beast for $172, while the United States costs $290, Indonesia costs between $20 and $100, and Australia costs is $360 per beast.
Imported animals keep local prices of meat products from inflating and enables a nation to offer lower priced beef protein to the population. The higher cost of importing boxed or chilled beef would be passed onto consumers and likely make beef products less affordable for the lower income population.
Countries that import live cattle want access to the entire beast so that they can take advantage of the value of the co-products during the processing phase. Having access to the other component parts of the animal, such as the hide, can sustain other associated industries (e.g. tannery and leatherworks). These industries provide additional employment opportunity and add to the nation’s gross domestic product and level of wealth.
RELIGION AND TRADITION
In Middle Eastern markets, such as Israel, and in predominantly Islamic countries, like Indonesia and Turkey, religious and cultural factors drive the demand for live cattle over boxed beef. In these countries, many consumers value a ‘fresh’ product, defined as cattle slaughtered the day prior to consumption. Religion is a significant driver of demand for live exported cattle and determines the supply chain practices.
Although the Australian supply chain can meet the guidelines to ensure that the product is certified for religious requirements, many countries have a preference to slaughter and process animals locally under trusted religious officials and known suppliers.
Additionally, some religious requirements, particularly around key annual festivals, dictate the slaughter of live animals.
In many countries that import live cattle, traditional cooking styles dictate consumer preference for the type of meat they purchase. The predominantly Bos Indicus breeds of cattle, which are well suited to Australia’s northern region, are particularly sought after by South East Asian consumers due to the performance of this meat in many traditional dishes.
Meat that is sourced fresh at wet markets, which is lean and durable during the cooking process, is particularly favoured by the South East Asian palate.
Live cattle trade – a win/win for all concerned
The live cattle export trade contributes a vital element to regional economies across cattle production regions, with particular importance in the Northern Territory and North of Western Australia. It allows tropical breeds that are well suited to the Northern Australian climate to be delivered into an Asian market that prefers this type of breed, to the benefit of all supply chain participants.
Value chain analysis highlights that the bulk of the live cattle revenues are retained by the producer, ranging between 40-57%. This equates to an estimated $620 million of revenue retained by Australian cattle farmers. This is particularly true for the Northern Territory and North Western Australia, where the value of cattle underpins the land value itself. In many remote cattle stations, the live export trade supports the cattle value, which in turn, flows through to the ability for the cattle farmer to borrow against.
When drought arrives, Australian cattle farmers become extremely vulnerable and are often faced with a must sell scenario. The live export sector contributes to the effective management of the resulting de-stocking program. Over the long term, live exports as a percentage of slaughter rests between 8 – 12%. During the severe drought of 2014/15, Australian cattle farmers aggressively de-stocked the herd. While slaughter levels increased to maximum capacity, live export also played its part, increasing to 15.4% as a percentage of cattle slaughtered. As a competitive buyer within the beef supply chain, the live export industry supports domestic cattle prices at times when the market is saturated with stock, providing an alternative sales outlet for Australian farmers liquidating their herd.
The live cattle export trade sustains a raft of industry support services including veterinary, transport and agency businesses. This is identified across Australia but is particularly important in the vast expanse of Northern Australia where services are separated by often significant distances. Any reduction in the trade would place enormous pressure on the continuation of these services, particularly in remote communities where the live cattle export sector is the only, or one of the few, industries offering employment opportunities, particularly in indigenous communities.
Direct employment on farm because of the live cattle export sector is calculated to have averaged 2,029 for the 2012-2017 period. However, total employment relevant to the sector (which encompasses farms, transport operators, fodder suppliers, livestock agencies, export companies, shipping contractors, port operators, veterinarians and financial service industries) to an average of 9,799 full time equivalent positions for the 2012-2017 period.
Australia’s trading partners rely on the live trade to meet their beef requirements and ensure a reliable supply of product for their population. Capacity constraints including the availability of suitable land, electricity for cool stores and household access to refrigeration make the purchase of live cattle an essential component in meeting their local demand for beef.
There are several reasons as to why Australia’s trading partners source live cattle as a preference. It is seen as a way to increase their local employment through feedlots and abattoirs, where most practices are undertaken manually/by hand. Australia’s live trade regulations have contributed significantly to the growth in animal welfare, handling and husbandry skills in partner countries. The trade also keeps a cap on beef prices as they utilise their by-products to feed cattle, along with the benefit of cheaper labour costs in the importing country. It also provides comfort around the cultural and religious requirements of slaughtered cattle.