Submission in response to the Green Paper on Developing Northern Australia
18 August 2014
Contents Page
1. Introduction
2. Northern beef situation analysis
3. Barriers to development
3.1 Profitability
3.2 Productivity
3.3 Service provider capacity
3.4 Impact of invasive plants & animals
3.5 Market diversification
3.6 Poor integration of beef value chains
4. Addressing barriers to development
5. Improving on-farm productivity
6. Building industry capability
7. Market access and market development
8. Infrastructure and regulatory priorities
9. Conclusions
10. References
1. Introduction
This document represents MLA’s submission to the Green Paper on Developing Northern Australia and is focused specifically on issues related to the northern beef industry. The submission does not seek to make specific recommendations regarding government policy directions in relation to developing northern Australia, but rather to provide additional information that may assist the Working Party in their deliberations for the White Paper. MLA would be happy to provide more detailed information should this be required.
MLA welcomes the Government’s commitment to the development of northern Australia and agrees with the focus on the six broad policy directions of:
· Infrastructure
· Land
· Water
· Business, trade and investment
· Education, research and innovation
· Governance
Given MLA’s role as the industry’s marketing and research service provider, this submission will provide more specific information on the following topics:
· RD&E and innovation
· Industry capability building
· Market access and market development
MLA has for many years developed and delivered a range of research, innovation and marketing programs that directly benefit northern beef producers. These include, but are not limited to:
· Live export RD&E and market access initiatives
· RD&E focused on key issues impacting northern beef producers
· Benchmarking studies to identify opportunities to improve on-farm productivity for northern beef producers
· Extension and business skills development programs targeting northern beef producers
· Market diversification modelling specifically targeted at identifying new market opportunities for northern beef value chains
· Market intelligence and market development in key markets such as China and Indonesia that provide growth opportunities for northern beef
While these MLA programs have already delivered benefits to northern beef producers, there is clearly room for improvement. MLA also welcomes the opportunity to collaborate more closely in the future with other initiatives and organisations that are similarly seeking to underpin the development of northern beef including:
· AgNorth CRC
· Northern Australia Research Council (NABRC) northern beef RD&E strategy
· Western Australia Government Royalties for Regions agricultural initiatives that will include a key program of work on northern beef value chains
· Committee of Northern Agriculture Ministers – Northern Australia Beef Industry Roundtable
MLA considers it critical that these various initiatives are well co-ordinated across jurisdictions, sectors and industry players and that unnecessary duplication and resulting dissipation of scarce resources are avoided.
2. Northern beef situation analysis
Beef is a high value agricultural commodity and 59% of the national beef herd is located in northern Australia (and represents 57% of the total agricultural production of northern Australia). The Queensland beef industry, representing 47% of the national herd, is the state’s largest agriculture sector employing around 34,000 people across its supply chain. The gross value of production (GVP) of Queensland’s beef industry is $3.17b (‘farm gate’). In the Northern Territory, the sector is worth $363m and employs 1,900 people. The northern Western Australia sector is valued at $123.3m (Australian Bureau of Statistics, 2012).
The northern beef industry has approximately 5,500 beef producers (excluding those with < 200 head). About 30% of these 5,500 producers run more than 1600 head, and these same producers account for 70% of northern beef production.
A recent situation analysis of the northern beef industry commissioned by MLA (2013) assessed the period from 2001-2012 with the key findings as follows:
· The majority of northern beef businesses are not economically sustainable at present. This is not a recent phenomenon, with recent average business performance, before financing, similar to longer term averages.
· Whilst profits before financing are largely unchanged (on average over the 12 year period analysed), after financing, performance is deteriorating due to increased debt with no increase in profit.
· Income has decreased over the period analysed, mostly a function of declining beef prices rather than a decline in productivity (kg beef/AE). Costs have reduced as income has reduced, through belt tightening and improved labour efficiency, resulting in little change in profits.
· Profitability of the top performers has declined over the longer term suggesting that industry profitability is decreasing. There is considerable variation in performance between beef businesses within the industry. The Top 25% performers (across all regions, herd sizes and markets) consistently outperform the average (due to higher livestock productivity and better labour efficiency) and have businesses more likely to be economically sustainable over the long term. This indicates that there are successful business models for producing beef in northern Australia.
· Whilst profits before financing are largely unchanged (on average over the 12 year period analysed), after financing, performance is deteriorating due to increased debt with no increase in profit.
· There is wide variation across the industry in what it costs to produce a kilogram of beef (cost of production) and the situation analysis demonstrated that there is significant scope for improvement.
· Comparison of profitability between northern beef businesses that supply different markets (live export, slaughter and store) revealed that when the effect of scale is excluded, producers primarily supplying the slaughter market recorded the highest profit per adult equivalent, due primarily to better productivity.
· There is large variation in average profits between regions of northern Australia with higher average profits from sub-coastal and inland Queensland and from inland areas of the Northern Territory.
· Operating scale (number of AEs under management) has a significant influence on business performance and lack of operating scale is a major impediment for small northern beef businesses (those with < 3,000 adult equivalent).
Global beef demand, particularly from Asia, is expected to rise rapidly to 2050, providing significant opportunities for Australia’s northern beef industry. Research by the Australian Farm Institute (2007) found the scale of projected increase in importation demand for beef from Asia will reach 86% of Australia’s total beef production by 2020. Furthermore, global world beef imports are projected to be around 300% higher in 2050 than they were in 2007, with China’s increased import demand accounting for 66% of this rise (DAFF, 2012).
While the industry has exciting growth opportunities, it is acknowledged that these markets will remain highly competitive, especially with respect to alternative protein options. However, it is further acknowledged that there will be many challenges and success will depend on ensuring northern beef value chains are able to become more competitive in higher value markets and market segments. It is unlikely that Australia’s northern beef industry will be competitive in purely commodity based markets and new approaches will therefore be required.
3. Barriers to development
Profitability
As noted, the MLA situation analysis found that the majority of northern beef businesses are not economically sustainable at present. In addition, profitability (return on assets) of even the top performers has declined over the longer term and this has been heavily influenced by the dramatic increase in land values of up to 350% in the period 2000 - 2008. The industry is now typified by high levels of debt and low levels of return on investment in light of these land values.
Productivity
There are numerous existing technologies and tools available to producers to improve on farm productivity that have been successfully adopted by the higher performing beef enterprises in northern Australia. However there appear to be barriers to more widespread adoption of technology and practices by individual businesses related to:
· Producer awareness and ability to identify the components of their beef production businesses that most need, or can benefit from, technical improvement
· Low business/financial management and marketing skills of many northern beef producers combined with variable commitment to build their capacity as skilled business managers
· Preference for one-on-one delivery of extension services (that are no longer adequately resourced by state extension services) over electronic forms of communication such as websites and webinars
· Willingness of producers to pay for education, skills and capacity building
· Lack of sufficient skilled service providers to deliver the business and financial management skills courses that producers require
Service provider capacity
Service provider capacity has its own set of limitations including:
· Low number of students enrolling in agriculture related undergraduate courses and the flow on impact on the number of graduates seeking to undertake further study
· Reduction in overall funding within the State DPIs, CSIRO and universities which impacts via:
- Reduced employment opportunities
- Support for staff to attend conferences and other forms of capacity building are cut as overall funding is reduced - with increased expectations of MLA to support these types of requests.
Impact of invasive animals & plants
Northern Australia is impacted on by a range of pest animals and weeds with the following being the more major issues:
· Feral pigs adversely cause significant environmental damage and are found in all states, but are most numerous in NSW, the NT and QLD, costing the economy over $100 million annually. Feral pigs can harbour or spread exotic diseases; feed selectively on plant communities; create drainage channels in swamps; erode soil and fouling watering points with their wallowing; eat frogs, reptiles, birds and small mammals; and spread weeds and possibly disease
· Wild dogs are widespread in Queensland, the Northern Territory and much of Western Australia. Wild dogs are estimated to cost Queensland producers $65 million annually (2009 figures). They cause significant environmental damage and are widely distributed around Australia. Pure dingoes are mainly found in northern Australia and contribute to calf and managed goat losses; harass livestock; and are potential hosts of exotics diseases.
· There are around 22 prominent northern weed species currently affecting Australian grazing industries, and 12 emerging weeds that have the capability to significantly impact. Prominent weeds need investigation of management, ecology and bio-control. The most comprehensive analysis of the economic impact of weeds in Australia was that conducted in 2004 (Sinden et al. 2004) which estimated that the economic impact of weeds on the natural environment and agricultural industries in the period 1997-2002 was approximately $4 billion per year. The cost to livestock industries was estimated at $2.2 billion per year, including costs of control and yield losses.
Market diversification
One of the challenges for the northern Australia beef industry is the ability to access more diverse market opportunities due to the specific characteristics of the livestock that are typically produced in this region. This has resulted in a perception that northern beef are only able to meet more limited market specifications. However recent analysis using the MSA index and results from the Braham Beef Information Nucleus (BIN) program indicate that there is significant scope for improvement in eating quality, particularly by focussing on increasing marbling and reducing ossification. A key will be to examine the correlations between different markets and to determine whether selection for increased eating quality and carcase performance can be achieved without compromising fitness and herd fertility. There are already investments in the Braham BIN and in northern reproductive rate that may be extended to include a greater focus on eating quality from both pasture and grain finishing options.
In collaboration with DAFWA and the WA Beef Council, MLA has also undertaken extensive modelling of the market diversification opportunities for northern beef in WA and the findings of this report (due September 2014) are expected to provide valuable insight that can be applied more broadly across northern Australia. It is noted that the recent Northern Australia Beef Roundtable held in Broome (March 2014) identified a number of innovative options in relation to the further development of market opportunities for northern beef.
Poor integration of beef value chains
Due to the reliance on live export trade, and the disruptions to these markets that have occurred in recent years, the northern beef industry has not yet established fully integrated value chain business models that connect producers, processors and end customers to a wider range of export markets. MLA believes this to be a high priority and is seeking opportunities to collaborate with state departments, the proposed AgNorth CRC, and commercial value chain partners to explore new business models that will create greater opportunities for the northern beef industry.
4. Addressing barriers to development
The recent Northern Australia Beef Roundtable attended by MLA in Broome (March 2014) identified a number of themes that need to be addressed to underpin the further development of the northern beef industry:
· Market development and diversification (including enhancing Indonesian trade relations and continued implementation of MLA’s Indonesian initiatives)
· China market development and investment attraction
· Stronger industry-government collaboration in relation to research and development to support northern beef industry development and growth
· Uncertainty regarding pastoral land tenure as a barrier to diversification and investment
· Red tape reduction and changing the culture of government regulators to one of supporting a business enabling environment
· Port and road infrastructure and the need for greater efficiency in loading and unloading both live cattle and boxed beef from Australia to Asia
· Sharper intelligence gathering to support strategic planning and further attaining deeper insights to consumer and cultural preferences in key export markets in order to build international competitiveness and to help the northern beef industry to get in front of the demand curve
The Roundtable workshopped project options in support of these themes and these included:
· Continued support for Australian Department of Agriculture ESCAS review and streamlining of the processes
· Queensland review of red tape in the beef industry