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MLA Chairman Don Heatley
The Australian red meat and livestock industry entered a new age of opportunity in 2007–08 due to unprecedented economic growth in Asian economies creating a surge in demand for animal proteins.
However, this defining economic event of our age comes with risks and challenges.
Asian economic growth has impacted on the profitability of every sector of the Australian red meat supply chain. The rampant demand for oil in Asia has driven up oil prices globally and contributed to massive increases in input costs for all sectors, none more so than at the farm level. Their amplified demand for grain as well as government subsidies and mandates for grain in ethanol production has increased feed costs and significantly impacted on our feedlots' ability to compete with lower cost suppliers and proteins. The strong Australian economy, largely driven by the resource boom, saw our dollar appreciate to record highs in 2007–08, reducing the capacity of our exporters to compete in global markets.
We are meeting these challenges head-on to forge new and important markets for our products. We have increased our efforts to maximise production and offset input cost increases to ensure a steady supply of competitive products for consumers globally.
CONSUMERS
In essence, the economic growth is creating an extra two million first time consumers for animal protein suppliers every month.
The demand for resources, fuel and food generated by Asian economic growth has created a new global middle class in developing countries around the world. The World Bank forecast an extra two million middle class consumers per month in the global economy. The importance of this for the Australian red meat and livestock industry is that as people earn more money, they switch from cheaper foods to more expensive foods such as animal proteins.
In essence, the economic growth is creating an extra two million first time consumers for animal protein suppliers.
This has been reflected in the change in dynamics of the global meat trade. Last year, we saw global beef imports into North America and north Asian countries come in behind beef imports to the rest of the world markets in terms of volume. Australian exporters have captured a share in this growing 'rest of the world' market, with Australian exports to Russia, Indonesia, Middle East and China all significantly increasing. In fact these four markets have moved from being three per cent of Australian exports in 2006–07 to nine per cent of our exports in 2007–08.
These developing markets helped minimise the impact of weaker demand in North American and north Asian markets. The strong Australian dollar combined with lower grainfed beef supplies has had a significant impact on our competitiveness in north Asia in particular. This has been compounded by the weak US$ providing opportunity for the US to increase their shipments to the region.
While there is fundamentally strong demand for Australian lamb in the US, in 2007–08 lower lamb supplies, a decline in consumer spending and the low US dollar squeezed exporter margins. However, despite higher prices, demand for lamb continued to lift in the Middle East, China, Japan and elsewhere in Asia to more than offset the decline to the US.
Local expenditure for beef has risen by 66 per cent and 110 per cent for lamb in the past decade – due to robust economic growth and improved quality, marketing and promotion. Australian demand is likely to be tested with inflationary pressure (particularly higher interest rates and fuel prices) expected to continue to place strain on household budgets.
COMMUNITY
The red meat and livestock industry has a great track record in promoting its products; now we must work on promoting our industry.
Surveys conducted in early 2008 showed 53 per cent of Australians consider the environment (second only to inflationary pressures on household budgets) as one of the biggest issues facing our nation in the next five years.
When the Australian Government ratified the Kyoto Protocol in its first official act, it committed Australia to play its part in addressing climate change.
The industry now faces not only the continued challenge of sustainably producing affordable food in increasingly variable climatic conditions, but the new challenges, and potential opportunities, created by the Government and community's desire to see reductions in carbon emissions.
Animal welfare has also featured throughout the year with continued attacks by animal activists on animal production industries. Using science-based facts and positive communications we have been able to counter these extremists, and continue to benefit from high levels of community trust.
The red meat and livestock industry has a great track record in promoting its products; now we must work on promoting our industry. This is essential if we are to maintain the trust of communities, and if we are to attract talented staff into our businesses.
INDUSTRY
While individual enterprises may have little opportunity to influence many of these factors impacting on profitability, there are certainly areas they can influence.
Many of the factors impacting on the industry's profitability are beyond the control of individual operators however there remains considerable progress that can be made in improving profitability on-farm.
With average cattle and lamb prices down 13 and 12 per cent respectively from their recent highs, the dramatic increase in input costs such as fertiliser, fuel, grain and chemicals has resulted in low profitability for many Australian producers. This is reflected in increasing levels of farm debt.
Farm consultants across Australia report huge variations in the cost of production for a kilogram of meat across their client bases operating similar enterprises in similar production zones. Differences range from a $1.01/kg liveweight to $2.66/kg*–an enormous impact on the profitability of these enterprises, and for the most part, directly within the control of individual enterprises. As a collective industry we are responding, and we are continuing to improve our productivity.
The Australian sheepmeat industry provides strong leadership in continuous productivity improvements. The drought and competition for land from cropping has reduced the sheep flock to around 80 million, the lowest since 1920. However, while the flock has declined 32 per cent over the past decade, lamb production has increased 54 per cent.
POSITIVE OUTLOOK
Despite this contradictory environment, long-term indicators for red meat remain extremely positive.
Fast growth in developing economies is creating new markets for the Australian red meat and livestock industry, but also driving up input costs through their increased competition for resources.
Despite this contradictory environment, long-term indicators for red meat remain extremely positive–the world's growing middle class are creating enormous demand for protein, and the Australian industry is well placed to benefit.
We will not be handed these benefits on a platter. Our marketing must reinforce the positive attributes of Australian red meat and livestock and keep our products front of mind with consumers. Our science must provide the framework for our responses to community concerns and Government interventions.
MLA is positioned to deliver on these challenges by providing the information and tools to assist individual enterprises continue to meet the requirements of their customers and increase their profitability.
Don Heatley
Chairman
* Source: Holmes Sackett, Insights 2007
