Asian boost for sheep, cattle

Headshot of Jenne Brammer
Jenne BrammerThe West Australian

A rosy long-term picture was outlined for the sheep and cattle industries at last week's Australian Association of Agricultural Consultants WA conference.

Elders general manager of live exports Cameron Hall told delegates that there would be challenges in meeting demand and Australian farmers faced stiff competition from other countries such as the US, Brazil and other South American countries as their herds expand.

The key driver of demand for cattle and sheep meat was Asia's growing population and rising middle class, particularly in China but also across south-east and central Asia, Mr Hall said.

With an estimated 2.4 billion more people by 2050, the majority in Asia, this population increase would have a significant impact on the demand for animal proteins.

"There is a rising population, and as people move from lower-class subsistence to middle class, one of the things they do purchase more of is protein," he said.

"They improve their diet and improve it rapidly. That is important from a red meat, grain and dairy sense."

Mr Hall said to keep up the supply to cater for this demand would require a 1.4 per cent annual increase in livestock numbers and carcass weights.

"Australia certainly isn't in the process of significantly increasing livestock numbers at this stage," he said.

For instance, adverse seasonal conditions and strong export demand had driven a significant rise in sheep turn-off over the past three years, but assuming a return to average seasonal conditions, the national sheep flock is expected to gradually rebuild from 71.8 million head in 2015-16 before reaching 76 million head by 2019-20, Mr Hall said.

Meanwhile, the Australian cattle herd is estimated to have fallen from a high of 29.3 million in 2013 to 27 million in 2015, before declining a further 2 per cent to 26.5 million head in 2016.

Mr Hall said the growth in exports from Australia would hinge on the nation's global competitiveness.

"It is three times more expensive to process and pack a beast in Australia than Brazil and twice that of the US," he said.

"Our operating costs, labour costs, regulatory costs are all significantly more expensive than our competitors'.

"Those comparisons are getting worse, not better. There needs to be significant structural change if we are going to be able to remain globally competitive, particularly at a commodity level."

Mr Hall said over the next few years, because of high demand and lack of supply, it was possible a couple of live exporters or meat exporters could fold, which was not in anyone's long-term interests.

Supply would be redistributed back among the remaining players.

He said processors, compared to global models, had room to become more efficient.

"We (processors) generally don't work two shifts in Australia," he said.

"That's not necessarily a great return on that capital investment in such large assets.

"Many of our competitors in Europe and the US all work two or two-and-a-half shifts, with the half shift being maintenance."

Mr Hall forecast strong beef export demand because of the lower Australian dollar and tariff reductions in some big markets as a result of recent free-trade agreements.

He said the US was likely to remain Australia's largest beef export market until 2019.

Beef exports to Japan would lift 7 per cent in the 2016-17 financial year as a result of the FTA and appreciation of the US dollar against the yen, compared to the Australian dollar, according to ABARES.

Mr Hall said although beef exports to China would fall by about 25 per cent in the 2016 financial year because of higher prices for Australian beef and greater competition from South America, this would steadily regain ground until 2019 as the FTA came into effect.

Live cattle exports would also remain high, though Australian feeder and slaughter cattle exports were forecast to fall 14 per cent to 1.1 million head from a record 1.3 million head in 2014-15, reflecting the reduced cattle supply suitable for live export, Mr Hall said.

He said there could be additional demand for feeder and slaughter cattle this financial year from China if supply chains were developed and approved.

Mr Hall said about 31 million live cattle were now being exported and there was potential for that to grow further.

"There is still potential in the markets we supply at the moment," he said. "Indonesia will probably come back to having a more structured approach to the release of permits.

"Whether it's 600,000 cattle or 900,000 cattle per year doesn't matter so much, as long as there's confidence and consistency around how it's going to be done."

Mr Hall said sheep and lamb prices were forecast to increase by 10 per cent this financial year in response to strong export demand.

Meanwhile, he expected wool prices to rise because of falling production and a lower Australian dollar. He expected the Eastern Market Indicator would average about 1200c/kg clean during 2015-16.

Mr Hall said wool production was expected to slip 5 per cent in 2015-16 to 408,000t greasy, driven by a smaller sheep flock of 71.3 million head and lower fleece weights. Production would rebound to 418,000 tonnes in 2019-20 in response to expected flock rebuilding.

Mr Hall said although it faced competition challenges, Australia had many advantages.

"Among our advantages is our geography and diversified product," he said. "The fact we can run northern cattle, southern cattle and a whole range of different production systems gives us a great deal of flexibility.

"A further reason why China likes us so much is they have confidence in our food and production systems.

"And while at times it would seem there has been some political instability at prime minister level over the last couple of terms, we still have a very stable political platform - unlike some of the other major producing zones."

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