Chapter 5
Economic impact of the live export trade within Australia
5.1
As noted in Chapter 2, the committee received a significant amount of
evidence during this inquiry regarding the economic significance of the live
export trade to the Australian red meat industry generally and to key livestock
producing regions in particular. This chapter will consider evidence received
regarding the domestic economic impact of the live export trade within Australia,
with particular reference to its impact on:
- regional and remote employment, especially in Northern Australia;
- local livestock production and prices; and
- the processing of livestock within Australia.
5.2
Much of the evidence received by the committee focussed on the live
export of cattle to Indonesia and the impact of the temporary suspension of
that trade. This chapter will also consider the assistance provided to the
industry by the Australian Government following the temporary suspension.
Australian livestock exports
5.3
Australia is the world's largest exporter of livestock. In 2010,
Australia exported live cattle to 19 countries, live sheep to 16 countries and
live goats to 9 countries. Australia also exported breeding livestock worth
$149 million in 2010.[1]
5.4
Australia's largest markets for live exports by value in 2010 were:
- Live cattle
- Indonesia ($316 million, 60 per cent of exports);
- Turkey ($53 million, 10 per cent of exports); and
- Egypt ($48 million, 9 per cent of exports).[2]
- Live sheep
- Kuwait ($112 million, 35 per cent of exports);
- Bahrain ($54 million, 17 per cent of exports); and
- Qatar ($41 million, 13 per cent of exports).[3]
- Live goats
- Malaysia ($8 million, 80 per cent of exports);
- Singapore ($600,000, 6 per cent of exports); and
- Brunei ($258, 000, 2.7 per cent of exports).[4]
5.5
Australia is also the major, and in some cases sole supplier of
livestock to some overseas markets. In 2010, Australia supplied 100 per cent of
cattle for feeder and slaughter to Indonesia and Japan.[5]
Contribution to GDP
5.6
Much of the evidence received during this inquiry emphasised the
significant contribution Australia's livestock export trade makes to the
Australian economy and to the Australian rural sector. A number of submitters
drew the committee's attention to a report prepared by Hassall and Associates
Australia which states that during the period 2000-2004 the export of livestock
and the payments for services required to transport livestock to export markets
averaged $1.1 billion.[6]
Other witnesses referred to the Centre for International Economics' (CIE)
findings that Australia's live export industry has contributed an average of
A$1 billion a year in export earnings since 2005-06, with 74 per cent, or A$742
million, of these earnings going directly to livestock producers.[7]
In 2010, the live cattle, sheep and goat industries exported 3.9 million head
of livestock and generated export revenue in excess of A$1 billion.[8]
In 2010 Australian live exports of cattle, sheep and goats were valued at $863
million and said to account for 2.7 per cent of Australia's agricultural
exports.[9]
5.7
To place this in its wider context, the committee notes that in
2007-2008 Australian live exports of cattle and sheep were valued at $737
million while the combined value of exports of beef, lamb and mutton during the
same period was valued at slightly more than $5.4 billion.[10]
Red meat production and live exports of sheep and cattle together accounted for
nearly 22 per cent of the total gross value of Australian agricultural
production over this period.[11]
5.8
However, the committee also received evidence that suggested the
economic significance of the industry has been overstated and misrepresented.
Mr Che Wall, a sustainability practitioner and advocate emphasised the small
size of the export industry. Mr Wall argued that:
Live export of beef cattle represents only 0.3% of GDP so any
immediate disruption to the subsector would not have material impact on
Australia's economy even if one did not consider the indirect benefits that
stopping the live export trade would bring ...[12]
5.9
Mr Wall also stated, that while the relative contribution of live export
of sheep is higher, it is still of minimal impact to Australia's economy. He
concluded that "the perceived threat of immediate harm to the Australian
economy through either stopping or improved stringency of regulation in the
sector is misguided and misleading".[13]
5.10
Other submitters expressed the view that the live export industry
represents a cost to the Australian economy. In evidence, Mrs Jodie Jankevics,
a campaign officer for the World Society for the Protection of Animals (WSPA)
argued that ending the live export trade would be an investment in Australia's
economy.[14]
Ms Jankevics told the committee that, according to a report by independent
assessor S G Heilbron:
... overall live exports cost Australia $1.5 billion in lost
GDP, $270 million in lost household income and around 10 ½ thousand lost jobs.[15]
5.11
RSPCA Australia cited a 2010 study commissioned by Queensland's major
beef processors to investigate the impact of the live export trade on the
Queensland beef industry. RSPCA Australia noted that study's finding that
"the growth in the live cattle trade over the last 15 years has damaged
the beef-processing industry to the extent that it now threatens the processing
sector's long term viability."[16]
RSPCA Australia also pointed to the study's conclusions that:
- in 2008-09, live cattle exports cost Queensland $140 million in
lost value added (Gross State Product) and 1,200 lost jobs;
- by 2013, the economic cost to Queensland would be $260 million
Gross State Product and 2,180 lost jobs; and
- ending the live trade from Queensland and the Northern Territory
would generate $382 million additional Gross State Product for Queensland and
an additional 3,112 jobs.[17]
5.12
The committee notes that the above claims are based on an assumption
that live exports would be replaced by an on-shore industry which would produce
the same volume of processed meat.
Impact on regional and remote economies
5.13
Evidence to the committee placed significant emphasis on the regionally
specific nature of the industry and its importance to regional economies in
Western Australia, the Northern Territory and Queensland. The committee notes
that the economic importance of the red meat industry generally is more significant
at the regional level where farming, particularly livestock production,
represents a large proportion of total economic activity.[18]
5.14
In a combined submission to the inquiry, MLA and LiveCorp told the
committee that over three-quarters of Australian livestock exports depart from
northern and Western Australia. During the period 2006-2009, 80 per cent of
live cattle exports and 75 per cent of live sheep exports departed from
northern and Western Australia. The majority of goats for live export came from
New South Wales (33 per cent) and South Australia (27 per cent) respectively.[19]
5.15
MLA and Live Corp told the committee that the live export industry is
the sole source of income for many producers in northern and Western Australia.
For example, in 2007 over 75 per cent of properties in the northern live export
zone were partially or completely reliant on live cattle export receipts.[20]
Employment
5.16
As noted in Chapter 2, the industry is a significant employer in
regional and remote Australia. In 2006, the livestock export industry employed
some 13,000 people, predominantly in remote and regional areas of Australia.
The industry contributed $1.8 billion to gross domestic product annually and
paid $1 billion in wages and salaries.[21]
More recently, the industry has been estimated to underpin the employment of
approximately 10,000 people across northern and western Australia.[22]
5.17
The committee also heard that the live export industry is a significant
employer of Indigenous people across northern Australia. The Western Australian
Minister for Agriculture and Food, Forestry and Corrective Services, the Hon
Terry Redman, emphasised the significance of the live export trade for
Indigenous employment:
Of all the pastoral leases up here about one-third are owned
by Indigenous groups. One of the great success stories about Indigenous
engagement up here and self-determination has been in the pastoral leases.
Shutting the trade is certainly depriving them of jobs and income.[23]
5.18
Mr David Galvin, General Manager of the Indigenous Land Corporation
(ILC) told the committee that the ILC is a significant employer of Indigenous
people in the Kimberley, Northern Territory and Far North Queensland and that
these employees are predominantly involved in the live export trade. At the
committee's hearing in Broome, Mr Galvin stated:
We employ 522 Indigenous people across Australia. We have 154
trainees across our properties, and most of them are live-in. People can come
and do their training in beef production et cetera. It is usually a one-year
course up to certificate II. Last year, we also employed 24 Indigenous
contractors. So there is a total of 300 people across the Indigenous Land
Corporation's businesses. They are on properties owned by the Indigenous Land
Corporation and also on Indigenous held land, which is where people have asked
us to come onto the land and run cattle operations for them. Overall, we are
looking at Indigenous employment in the cattle industry predominantly for the
live export trade. These are very conservative numbers; we do not want to
exaggerate here and we are probably underestimating. In the Northern Territory
the figure is about 202 Indigenous people; in the Kimberley, it is 297; in the
Pilbara, 20; and in Far North Queensland, 147. That takes us to about 666, plus
we say there are at least 200 people in associated businesses on those
properties and that includes ILC employees.[24]
5.19
The Shire of Derby/West Kimberley told the committee that a permanent
ban on live exports would have a significant long term impact on Indigenous
employment in the region. In its submission the Shire stressed the strong
affinity between Indigenous communities and the cattle industry and the limited
alternative employment opportunities.[25]
5.20
A number of submitters expressed concern regarding the quantum of job
losses that would result from closure of the trade. MLA and LiveCorp told the
committee that, based on estimates provided by AgEconPlus in 2007, 5,800 full
time equivalent jobs (both direct and indirect) would be lost in first year
following cessation of the trade. Net losses would continue to be significant
in the medium to longer term, with losses of 4,700 in year five and 3,700 in
year ten.[26]
5.21
In his submission to the inquiry, Dr Ray Trewin[27]
argued that the main certainty of a trade ban from an Australian economic
impact perspective is that it would cost internationally-competitive Australian
jobs to competing exporters like New Zealand or Brazil (via live or slaughtered
meat trade competition).[28]
Dr Trewin also argued that:
The loss of jobs directly involved in the live export trade
(graziers, transporters, port workers etc) is obvious and these cannot be
transferred to the slaughtered meat trade as processing is generally an
uncompetitive value 'subtracted' activity ... These job losses would have a
multiplier effect into local communities.[29]
Flow-on benefits to regional and
remote communities
5.22
In addition, the committee heard that a host of other sectors are dependent
on the live export trade, including exporters, port and stevedoring services,
shipping companies, road transporters, veterinary practices as well as
helicopter and other ancillary service providers.[30]
5.23
The Shire of Derby/West Kimberley's submission acknowledged that while industries
such as mining and tourism have, over recent years, generated business and
boosted the local economy, it has been the beef industry which has provided a sustained
level of widespread support for the local economy. Those dependent on the
industry include: permanent and casual station staff, stock feed suppliers,
musterers, drovers, transport companies, holding yards, port facilities, petrol
companies, cattle buyers, auction houses, veterinarians, banks, government
agencies, and fencing contractors.[31]
5.24
The ILC told the committee that through the formation of significant
partnerships with governments and industry across Australia, there has been
significant investment in capital infrastructure on ILC properties, previously
unused land has been brought back into production, generating a range of employment
and training opportunities for Indigenous workers with flow on benefits for
Indigenous communities. Mr Galvin stated that:
Right at the moment, we are running 90,000 head of cattle on
those properties, which are in the Kimberley, the Northern Territory and
Queensland. Our turn-off is about 14,000 head per year, of which half are
steers. We also run a small abattoir at Gunbalanya, which is an Aboriginal
community of some 1,500 people in the Northern Territory. We are processing 30
beasts per week through that, of which half are cattle and half are buffalo. We
hope to take that up to 90 head per week over the next two to three years.[32]
Impact and role of the industry on local livestock production and prices
5.25
The committee heard a range of evidence regarding the impact of the live
export industry on domestic livestock production and prices.
Production in Northern Australia
geared to live export
5.26
The committee heard a great deal of evidence that emphasised that livestock
production in northern Australia in particular is very much dependent on the
live export trade. This partly reflects the nature of the rangelands and the
cost structures associated with producing cattle for the domestic market.
5.27
As discussed in Chapter 2, the committee heard that the live cattle
export industry in northern Australia in particular has developed hand in hand
with the Indonesian feedlot industry. Witnesses explained to the committee that
over a 20 year period, state and federal governments have actively encouraged
northern Australian cattle producers to focus on the Indonesian market. As a
result, the northern Australian herd is predominantly Bos indicus, cattle
producers are primarily focused on breeding as opposed to fattening cattle, and
there has been a significant amount of investment in infrastructure to support
the live export industry. [33]As
discussed in Chapter 2, the committee was told that it would take a significant
number of years to restructure the herd and infrastructure to target a domestic
market.[34]
Impact on domestic prices
5.28
A number of witnesses emphasised the important role that the live export
industry plays in underpinning Australia's livestock industries generally by
underpinning domestic prices and providing valuable alternative outlets for
livestock producers. A number of submissions to the inquiry directed the
committee to a range of studies into the impact of the cessation of the live
export trade which tend to project consequential reductions in beef, lamb and
mutton prices and note the negative regional impacts that would flow from this.[35]
5.29
The committee heard that the live export trade contributes four per cent,
or eight cents a kilogram live weight, to grass fed cattle, eight per cent or 12
cents per kilogram to the price of lambs and 18 per cent or 15 cents per
kilogram to the price of older sheep.[36]
The Centre for International Economics has estimated that the average impact of
the trade on farm level Gross Value of Production (GVP) for the period 2005-06
to 2008-09 to be -1.5 per cent for the cattle industry and -5.9 per cent for
the sheep industry.[37]
5.30
The committee notes reports that domestic beef prices dropped by five
per cent or 10c a kilogram following the suspension of trade with
Indonesia.[38]
Hydros Consulting also observed an apparent drop in the price of cattle
destined for other markets as a result of the export restriction while the
costs of production had either remained the same or increased. Hydros
Consulting note in their report:
Prices appear to have declined from $2.10 per kg prior to the
export restriction to $1.60 per kg in recent sales to other markets. For a
320kg animal, this is a reduction of revenue of approximately $160 per head. At
the same time, the costs of production have either remained static or
increased, and other costs incurred, such as addition transport costs to other
markets.[39]
5.31
The committee notes the views expressed by Mr Brad Bellinger to the
Farmer Review regarding the role of the live export trade in providing vital
competition within Australia's restricted domestic beef market. He noted that
the Australian processing sector is dominated by two companies who control 47 per
cent of the cattle kill capacity. He submitted that this is compounded by the
dominance of two major supermarket chains selling 50 per cent of beef in the
domestic retail market.[40]
5.32
The Australian Merino Society (AMS) made similar observations in relation
to the sheep industry and emphasised the importance to the industry of
maintaining both a healthy live export industry and a healthy domestic market
for sheep meat. The AMS said that its members are currently achieving weaning
rates in excess of 100 per cent (usually in the range of 90 to 130 per cent) and
members have had more sheep to sell annually than used to be the case. The AMS
stressed the importance of ensuring that potential markets are not
unnecessarily constricted. The AMS further argued that many producers in the
eastern states:
... have not considered the potential impacts on their
markets and prices that they currently receive for surplus stock, if large
numbers of WA sheep and cattle, that are currently exported live, were to
compete in their markets for abattoir space and grazier re stocking. We believe
that there would be considerable downward pressure on the prices that they
would receive for their livestock as most WA livestock is destined for the
export market. A removal of the option of live export would necessitate
significant numbers of WA livestock competing in existing eastern states
markets.[41]
5.33
The Western Australian Department of Agriculture and Food also expressed
concern at the limited potential for the domestic sheep meat market to absorb
surplus supply caused by a cessation in live exports. [42]
In its submission, the WA Department disputed the findings of the 2009 ACIL
Tasman report that found there would be minimal change in lamb and mutton
prices as a result of the closure of the live sheep export trade. The WA Department
referred the committee to the 2011 CIE study that found "on average across
Australia, lamb and mutton prices would decline by 12 and 15 per cent
respectively due to the cessation of live exports" and noted the regional
impacts flowing from this.[43]
Significance of live export trade
to Indonesia
5.34
The committee heard that the live cattle trade with Indonesia accounts
for 75 per cent of Australia's live cattle export trade. The committee was
told that the average annual value of live exports is in the order of
$1billion, minus the costs involved in the acquisition, preparation and
transportation of the animals.[44]
Impact of the temporary suspension of live export of cattle to Indonesia
5.35
The announcement of the temporary suspension of live exports of cattle
to Indonesia on 7 June 2011 caught many in the industry off guard. Mr Phillip
Hams described the impact of the announcement as being like a train crash. He
said:
I was laying in bed at 12 o'clock one night when the news
came on the ABC ... that the ban had gone on for the next day. Outside not too
far from where I stay four helicopters parked up and a whole heap of RTA road
trains parked up. There were probably 30 people ready to roll the next day and
at 12 o'clock the new comes. It was like a train crash-it just goes, 'Whoompa!'[45]
5.36
The Hydros Consulting report commissioned by DAFF to help inform the Government
in relation to assistance packages for the industry, states that at the
announcement of the ban many producers had not yet sold the majority of their
cattle.[46]
The report states that smaller to medium producers typically export their stock
at later times than very large producers, due to the need to aggregate stock
between producers. This, together with transport problems associated with
delays in reopening roads after the late wet season in 2010-2011, meant that
many of these producers, particularly those not located close to a sealed road,
had sold very little of their stock bred for the Indonesian market prior to the
export restriction.[47]
5.37
The committee received a great deal of very sobering evidence about the
social impact of the Four Corner's program and the temporary suspension
of cattle exports to Indonesia. The uncertainty immediately following the
announcement of the suspension led to significant and immediate flow-on effects
in the form of cancellations of jobs and contracts, reduced shifts and the
suspension of training programs due to commence.[48]
In addition to the immediate financial stress and uncertainty, a number of
witnesses told the committee of the impact on family members, particularly
their children. They spoke of the stress resulting from harassment by other
students, their desire to keep as much of the reality from students undertaking
their final year of education and the stress of not knowing if they would be
able to meet school fees or if they might need to move children to more
affordable schools.[49]
Many with younger school age children had needed to let home tutors go and take
on this role themselves, often finding it difficult to balance this with their
active role assisting in the day to day management of a family operated
property.[50]
5.38
Mr Setter, AACo, summed up the socio-economic impact immediately after
the ban by telling the committee:
It is real that there are people who are hurting. Most of
Northern Australia does not have electricity that comes through a power line;
they have to buy diesel to produce it themselves. There are plenty of stories
of people who do not have enough money to buy diesel to run the lights in their
homes, plenty of stories of people looking to pull children out of boarding
school because they cannot afford to pay the bills and the flow-on effect for
people who were virtually on a suicide watch by neighbours because of the
depression that is starting to set in. There are grave concerns, particularly
through some of the areas of the northern Kimberley.[51]
5.39
The committee was told that the majority of pastoral stations in the
Kimberley, for example, are owned and operated by small family businesses or
Indigenous groups. The committee was told that these station owners will take
some time to recover from the impacts of the suspension of the trade and that
there will be flow on consequences for regional and remote communities for some
time to come.[52]
5.40
Mrs Elsia Archer, President of the Shire of Derby/West Kimberley told
the committee that, the suspension of the live cattle trade was likely to have
a major impact on local governments and local communities "because some of
the pastoralists may not be able to pay their rates this coming year". She
said:
As you would know, local governments are not very flush with
money. The money we gather from pastoralists is used to grade roads, their
roads. If roads do not get graded, they will not be able to bring the cattle
trucks out, so it has an ongoing effect. Where we sit at the moment, we do not
know whether they will or whether they will not but I can see hardship in some
places. It is not just the cattle people who are suffering from all that has
happened.[53]
Australian Government assistance
5.41
In recognition of the impact of the temporary suspension of live cattle
exports to Indonesia, the Australian Government initiated a number of financial
assistance measures.
Income Recovery Subsidy payments
5.42
On 27 June 2011, the Australian Government announced a $3 million financial
package for individuals who had experienced loss of income due to the
suspension of the trade.
5.43
This package included priority assistance through Job Services
Australia, which was managed by the Department of Education, Employment and
Workplace Relations. DAFF advised the committee that:
Job Services Australia providers have access to an Employment
Pathway Fund, which they can use to purchase a wide range of services and
assistance that help redundant workers access the support they need to find new
work. This fund can be used for training courses, language assistance, travel
assistance, skills assessments, mentoring and counselling support, as well as
employer incentives.[54]
5.44
As at 9 September 2011, 22 people had applied and been paid the Income
Recovery Subsidy and 71 job seekers had registered for priority assistance
through Job Services Australia.[55]
5.45
At the committee's public hearing on 14 September 2011, Mr Tom Aldred,
DAFF, confirmed that there had not been a lot of applications under the Income
Recovery Subsidy. He said:
The applications can be retrospective or prospective, so it
may be that case that payments will still be made for up to 13 weeks after the
closing date for applications, which was, I believe, 5 September. So it is
possible that there will be further payments. But the uptake has not been high.
People may well have made applications for Newstart arrangements. This one was
put in place particularly for people who may fail the Newstart test because of
their asset limits.[56]
Live Export Business Assistance
Package
5.46
On 30 June 2011, the Government announced a $30 million Live Exports
Business Assistance Package to support pastoralists and other businesses facing
short-term financial hardship as a result of the suspension. Under the package,
the government provided payments of $5,000 for eligible businesses. Further
grants of up to $20,000 were also available. Applications for business
assistance payments closed on 30 September 2011.
5.47
This package was intended to assist northern Australian cattle producers
to actively manage their cattle and properties, and make decisions on business
costs like feed, hay covers, transport and repairs and maintenance before the
next wet season.
5.48
As at 9 September 2011, 483 applicants had been paid a total of $2.41
million under the Business Assistance Payment and 174 applicants had been paid
a total of $3.31 million under the Business Hardship Payment.[57]
Subsidised Interest Rate Scheme and
grants for financial advice
5.49
On 10 August 2011, the government announced that it would provide access
to new working capital through the provision of a Subsidised Interest Rate on
new loans of up to $300,000 for a range of businesses directly affected by the
temporary suspension, as well as grants for financial assistance advice of up to
$5,500.
5.50
Under this scheme the Australian Government offered to subsidise the
interest on new and extended borrowings for up to two years for businesses
affected by the temporary suspension. The scheme is intended to assist cattle
producers and other businesses directly involved with the live cattle export
trade to Indonesia such as transporters, vets, hay producers, heli-musterers
and agents to manage the ongoing costs of their businesses.[58]
5.51
Eligible businesses are able to access a subsidy over a two year period
on new borrowings of up to $300,000 at a subsidised interest rate of up to
eight per cent in the first year and four per cent in the second year. The
maximum total subsidy available under the scheme is $36,000. The committee
notes that new loans, or the new portion of an extension to existing
facilities, drawn since the announcement of the temporary suspension on 7 June
2011, may be eligible for assistance under this program. [59]
5.52
The Australian Government also announced the availability of financial advice
grants of up to $5,500 to help eligible cattle producers gain assistance with
medium term decision-making about their business costs. The grants can be used
to pay for financial advice and planning, business advice and planning, legal
advice and advice directly related to agriculture.[60]
5.53
DAFF told the committee that the Rural Financial Counselling Service has
extended the services provided by its counsellors in Western Australia and
South Australia to assist the northern Australian live export industry. DAFF
said:
RFCS WA has made counsellors available to travel to the north
of Western Australia to attend cattle sales and producer days. RFCS SA is
providing short-term, face-to-face services in the Northern Territory, with
support of the Australian and northern Territory governments. A rural financial
counsellor from South Australia has been based at the Cattle Council of
Australia office in Darwin since mid-July. Since 11 September 2011 this
counsellor has recorded 65 customer contacts.[61]
5.54
DAFF advised that it is not possible to separate the cost of providing
these additional services from the cost of the existing level of service as the
assistance does not equate to a payment of a set amount as with the other
assistance packages.[62]
Take up of financial assistance
5.55
The committee received considerable evidence regarding the reluctance on
the part of cattle producers and other businesses to take up the financial
assistance offered by the Australian Government.
5.56
Hydro Consulting noted that many producers were reluctant to take up the
Income Recovery Subsidy payments because of the stigma associated with what was
perceived as a welfare payment. In their report Hydro Consulting said:
The $5,000 payment which has been offered to producers
appears to have not been taken up to any significant extent. There appears to
be is a marked reluctance by many producers, due to the perceived social stigma
associated with claiming social security benefits, to contact Centrelink.
Therefore, despite this assistance being identified by Government as a business
payment (which are often delivered through Centrelink in other instances), the
issue of the payment being processed through Centrelink helps create an
impression that this is similar to a social security benefit.
5.57
Evidence heard during this inquiry confirmed that the payments were not
only perceived as welfare, but were considered to be inadequate to address the
financial issues being faced by cattle producers. Mr Setter, AACo, told the
committee that:
In the short term, offering people welfare payments and
things like that that do not even cover the cost of running their generators
for the day is not a solution. The minimal welfare packages that have been
announced do not even allow people to run their generators.[63]
5.58
Mr Jack Burton, from Kilto Station in the West Kimberley, told the
committee:
I am the CEO of a company that runs 50,000 cattle. It is a
family operation. This is what we love about this compensation-type thing—my
current interest bill is well in excess of $100,000 a month![64]
...
For someone who has over $1.2 million in interest payments a
year to be offered $20,000 is ... hilarious. They said, 'Why didn't you apply?'
Why bother? I have got a $1.2 million wage bill. [65]
5.59
These sentiments were echoed by the Northern Territory Chief Minister, the
Hon Paul Henderson, who told the committee:
From talking to Emily last night I know that the payment of
$25,000 that people have accessed is just a drop in the bucket, quite frankly,
when there are payrolls to meet and bills to pay. I would have thought that it
should be in the vicinity of around $200,000, and if it needs to be repeated it
should be repeated. People are saying, 'We don't want welfare; we want our
livelihoods back, we want the trade back.' These are proud people. They do not
want to go down to Centrelink and get a Centrelink payment; they actually want
to work.[66]
5.60
The committee notes that it is not just cattle producers who have
concerns about the level of assistance provided to the industry to recover from
the suspension of the trade. Many service industries, such as transport, export
agents and ports have shed staff or dramatically reduced staff hours in an
effort to contain costs.
5.61
Other businesses have found that sales they had budgeted for and
supplies they had ordered based on normal market projections have become a
potential liability. Mrs Cynthia Bakalian, who with her husband Steven owns
Northern Feed and Cube, stressed that while the financial assistance to date
had been welcome, in the broader context of the financial impact on their
company's business, it was insignificant. Mrs Bakalian told the committee:
I want to thank you guys for the assistance package. It
certainly helped. The $25,000 paid one month's interest, or one two-week
payroll—well, almost. Honestly, it is appreciated and for many of the really
small guys it put food on their tables, and for that I am honestly grateful.
But really, guys, for many of our businesses we need more well-structured,
long-term assistance with the losses we have suffered and the money that can
never be recouped.[67]
5.62
Northern Feed and Cube makes hay cubes and pellets for the live cattle
export trade. Mrs Bakalian told the committee that the company was struggling
to meet loan repayments and had needed to let staff go. In addition, the
company had committed to buying several thousand tonnes of hay which it would
now need to store over the wet season. Mrs Bakalian described the enormity of
the challenge faced by their company as they seek to protect that hay during
the wet season. She told the committee that the company would need to purchase
a further 10 tarps at cost of $8,000 each if it was not to lose this unintended
stockpile of hay.[68]
5.63
In discussions with the committee about the availability of assistance
to businesses who face similar difficulties to Northern Feed and Cube, Mr
Aldred, DAFF, told the committee:
The department will operate according to the guidelines
associated with the various elements of the package. But there is certainly
flexibility in the business assistance payment and the business hardship
payment, which total $25,000. The recipients of those are able to use them for
whatever nature of accounts or expenditure is necessary.[69]
5.64
Other witnesses questioned why a form of exceptional circumstances
payment or disaster relief payment could not be made available to the cattle
industry. The Northern Territory Chief Minister, told the committee that:
We need significant assistance from the Commonwealth to
ensure sustainable livestock in suitable conditions. After Cyclone Yasi in
Queensland, an industry support and recovery package was put together for
Queensland banana growers and other people on the land that provided for
significant payments under disaster relief arrangements. This is not a natural
disaster, but it certainly is a disaster that has been caused by a decision of
government, and an industry support and recovery package needs to be put in
place. Producers are significantly suffering at the moment, and I will be
writing in those terms to the Prime Minister.[70]
...
There should be cash payments up-front and significant
payments to help with a lack of access to cash. There is just no cash out there
in the economy at the moment, so people who are ordering fuel or ordering feed
are not on 30-day terms anymore; it is cash. With no cash there is no fuel, and
we are in the dry season. People have fuel on stations, but once the fuel to
power the pumps for the bores starts to run out, the cattle are going to be
without water. Cash is king. That is what is required. Under the NDRA
arrangements, significant cash payments should be available to people who can
demonstrate that they cannot access cash at the moment.[71]
5.65
A number of witnesses impressed upon the committee the need to return
confidence to the industry to protect investments and enable businesses to keep
going. Mr Stefan Hart told the committee:
Compensation is only going to fix the problem for a short
amount of time. We need to find a way to get the security back in the industry
again so people feel safe, so that when they spend their money they know that
their investment is going to pay off. All my contract work has been put on hold
because, even though the trade has restarted, people are still scared that it
could happen again. We need to get that security back so that people are happy
to spend their money, knowing they can afford to make their interest payments
because they can sell their cattle.[72]
5.66
DAFF told the committee that while applications under the assistance
programs had been slow to start, as the closing date for the program approached,
the number of applications had increased. At the committee's public hearing on
14 September 2011, Mr Aldred told the committee:
We would expect over the next few weeks for expenditure to
increase for a couple of reasons. Firstly, our experience is that with a
closing date of 30 September a lot of people will actually come in at the last
minute or in the closing few weeks. We certainly saw a spike starting last
week. The second element is that, from the figures we have provided you, there
are 483 as at last Friday who had accessed the business assistance payment of
$5,000. So there is a likelihood that the balance between those and the ones
who have already applied for business hardship payments will apply—that is 174.
There is a cohort there of around 300 who have accessed the business assistance
payment but who have not yet accessed the business hardship payment and, for
all intents and purposes, we would expect them to do so.[73]
5.67
Mr Aldred also told the committee that, since the announcement of the
Subsidised Interest Rate program on 10 August 2011, Centrelink had received 35
calls enquiring about the program. Mr Aldred explained that these callers had
been registered and would be contacted with details about how to access the
program.[74]
5.68
Mr Aldred also confirmed that DAFF was using a range of different
mechanisms to try to raise awareness of the forms of assistance available and
to try to encourage people to apply, ranging from "facilitating additional
service through the Rural Financial Counselling Service to asking the farm
organisations to assist and attending field days or workshops".[75]
Managing interest repayments
5.69
The committee notes that many of the witnesses it heard from were
experiencing difficulty meeting interest repayments.[76]
The Hydro Consulting report notes that debt levels among many cattle producers
appears to be at historically high levels. Many producers appear to have
extended borrowings to undertake capital improvements in anticipation of a good
season.[77]
The report also notes that most of the borrowers contacted as part of that
study have been contacted by their banks to discuss the current situation. Some
banks have requested local valuers to value properties since the export ban and
a number of banks have asked borrowers to demonstrate that they are doing all
they can to mitigate the current cash flow situation.[78]
5.70
The report observes that the combination of decreased property values
and decreased cash flow may lead banks to increase their margins. The report
states:
Banks could potentially now be more conscious of the risk
associated with the live cattle reliance on the Indonesian market and are
likely to ascribe higher risk (and thus increased margins and lower debt
levels) in future.[79]
5.71
DAFF expressed confidence that its discussions with financial
institutions to date had not indicated they were contemplating the imposition
of penalty interest rates or similar actions.[80]
However, the committee noted that many witnesses were clearly anxious about the
stance financial institutions might take in the longer term. Mr Haydn Sale told
the committee that interest rate subsidies would be of great assistance to
cattle producers. In outlining the key measures that would bring relief to
producers, he said:
No. 1 is interest rate subsidies on existing loans because we
are under enormous pressure from banks and we are down tremendously on
income—so we have to just survive into next year. A bank is going to be a lot
happier about having its interest paid by the government rather than us having
to have that extra debt. We do not have that option so we are really in a
corner.[81]
5.72
The committee notes that the Hydro Consulting report made a number of
suggestions to assist borrowers in their dealings with financial institutions
and considers that these measures are worthy of further consideration.
Domestic processing of livestock currently bred for the live export market
5.73
The crisis facing the live cattle export industry following the
temporary suspension of trade to Indonesia has highlighted the dependence of
this sector of the industry on the Indonesian market and the limited options
available to cattle producers in northern Australia to sell their stock. As
noted earlier, Australia supplies 100 per cent of live cattle imported by
Indonesia and this trade accounts for 60 per cent of Australia's live cattle
export trade.
Feasibility of transporting
northern livestock to existing meat processing facilities
5.74
As noted in Chapter 2, many witnesses who support the phasing out of the
live export trade emphasised the desirability of processing livestock close to
the point of production. However, the committee also heard a range of evidence
indicating that in the short to medium term there are significant limitations
on the extent to which stock produced for the live export market can be
redirected to domestic processing facilities.
5.75
The committee notes that there are limited processing facilities
available in northern Australia. The only large scale northern Australian
facilities located outside capital cities are those in Rockhampton and Biloela
in Queensland. There are currently no processing facilities in the Northern
Territory and no processing facilities in the north of Western Australia.[82]
The only alternative for producers to send livestock to domestic processing
plants is to transport them significant distances by road.
5.76
The transport and other costs associated with the shipment of cattle to
other domestic markets is considered not to be viable by many producers, given
the lower beef prices domestically and the lower demand for Bos indicus beef in
southern markets. Hydro Consulting reported the following transport and other
costs associated with the shipment of cattle to domestic markets:
$150 per head from Kimberley to Harvey, $250 per head from
Northern Territory to Murray Bridge and $136 per head from Northern Territory
to Longreach.[83]
5.77
Mr Nigel Westlake, Manager of Mount House Pastoral Partnership, told the
committee that if Mount House Station, in the Gibb River in the north of
Western Australia, was to send its cattle to the nearest meat processing facilities
in Harvey in the south-west of Western Australia, the freight costs would be
more than half the value of the animals. He emphasised that this did not
include the incurred losses to transport them over such a long distance. He
said that when the Kunnurra abattoir was operating, cattle from Mount House
Station had been sent to Kunnurra by road for a fraction of the cost to
transport them to Harvey.[84]
5.78
Other witnesses told the committee of the difficulties associated with
transporting livestock by road. The committee heard that a lack of sealed road
often means that animals are unable to be transported via the most direct route
and that this adds to the cost of production and the stress for the animals.
For example, a number of witnesses referred to current poor state of certain
roads in Western Australia that could potentially cut transport distances by as
much as a thousand kilometres.[85]
Mr Phillip Hams told the committee that the cessation of the live trade to Indonesia
had demonstrated the difficulties associated with diverting cattle from
northern Western Australia from live export markets to domestic markets. He
said:
... the West Kimberley region is ideally situated and has the
soil types and the range lands to produce cattle for export. ... [But] you
could not find a worse spot in Australia if you tried to start to back up and
do something else with those cattle.[86]
Support for the reestablishment of
meat processing facilities in Northern Australia
5.79
Witnesses in favour of phasing out the trade emphasised the benefits of
focussing greater investment into Australia's meat processing sector, stressing
the positive impact this would have on the Australian economy through the
development of more processing facilities, an increase in the export of boxed
and chilled meat as well as opportunities for the industry to value-add and
diversify.[87]
5.80
The Community and Public Sector Union (CPSU) argued that a ban on live
exports "has the potential to re-enliven Australia's meat processing
industry and bring back to regional towns, many of the jobs that have been
lost".[88]
The CPSU further argued that local processing of Australian cattle would ensure
that high levels of animal welfare and hygienic meat productions are applied
throughout the slaughtering process.[89]
5.81
A number of submitters advocated government investment in
re-establishing meat processing facilities in northern Australia. Mr Rod Botica
argued that access to processing facilities in Broome, Derby and Wyndham would
provide a market for northern cattle producers, support Australian jobs and
guarantee best practice slaughter standards.[90]
5.82
Ms Di Johnstone also argued that existing facilities, such as the
facility at Katherine, might be reopened with government assistance, emphasising
the benefits to the surrounding regional communities. Ms Johnstone told the
committee that the Katherine facility was due to be reopened in 2010, but this
had not happened because of a lack of government support on issues such as
upgrading power and water supplies.[91]
5.83
Ms Emily Brett, a cattle producer from Katherine also argued that there
is a need for an abattoir in the Darwin region for slaughtering cattle over
350kg, which are unable to be exported to Indonesia. Ms Brett noted that:
At the moment we have to truck these cattle all the way to
Queensland, New South Wales or South Australia to be slaughtered. The cattle
lose a great deal of weight and condition during transportation and we as the
seller therefore lose a lot of money, as we are paid on weight. We often
receive very little return for our animal, as the costs far outweigh the price
we receive. We fear that there could be animal welfare issues generated by
people being forced to transport their cattle such long distances, particularly
when they are under financial pressure.[92]
5.84
Other witnesses argued that the establishment of processing facilities
would provide cattle producers with greater certainty and stability,
particularly in the context of the Indonesian Government's policy to move
toward greater self-sufficiency. Dr Linda Fleeman submitted that the live
cattle trade to Indonesia could be:
... halted abruptly and arbitrarily at any time by Indonesia
(or other importing countries) and Australian farmers have no 'fall-back
position'.[93]
Challenges associated with
establishing meat processing facilities in northern Australia
5.85
The committee also received evidence to suggest that there were a number
of factors which would make it difficult to re-establish viable processing
facilities, particularly in northern Australia.[94]
5.86
The CCA submission noted that a number of private and
Government-operated processing facilities in the far north and north-west of
Australia have closed. The CCA argued that these closures had largely stemmed
from the high per unit cost of production, and that the highly competitive
nature of the meat processing sector.[95]
5.87
The CCA submission cited a 2010 feasibility study conducted by the
Western Australian Beef Council[96]
which identified a number of potential limitations to the financial success of
a processing facility, including:
- Numbers – to be feasible, an abattoir in the north-west
would need a throughput of 400 animals per day – the equivalent of 75 per cent
of live exports from that region.
- Weights – there are economies of scale in processing heavy
carcases, and it is costly to add weight to animals in remote areas of northern
Australia. A successful processing sector would require a successful
backgrounding and feeding sector to supply consistent numbers of suitable weight
animals. This would be a major structural adjustment for the industry.
- Labour – attracting and retaining skilled labour is a
major impediment. The processing sector already relies heavily on skilled
migration and long stay visa programs to meet labour requirements. Likely
centres for processing facilities such as Broome and Darwin are also high cost
centres.
- Seasonality – the highly seasonal nature of weather
patterns in the north and the impact of this on roads and access – and
therefore cattle supply – impact on the viability of processing.[97]
5.88
These concerns were echoed by Ms Raelene Hall, a cattle producer from
Western Australia, and Ms Jenny Deveraux, a cattle producer from the Northern
Territory.[98]
Ms Hall argued that apart from the initial problem of finding investors willing
to invest in an abattoir:
Finding workers for abattoirs was and will always be a
problem especially when competing with the mining sector for workers. They
can't compete financially in terms of the type of work on offer and the benefits.
Are they going to be able to process the numbers that may come in during the
northern dry season? Are consumers going to want to eat the Bos Indicus breeds
from the north – research and history shows not. Will a glut force prices down
until selling stock becomes unviable? More than likely.[99]
5.89
Ms Deveraux noted plans to establish an abattoir in the Northern
Territory and argued that:
Whilst this is a welcome development, the facilities as I
understand it, will be tailored to take that company's surplus and out of
specification cattle. A viable long-term solution still needs to be identified
to take surplus stock, out of specification (heavy cattle, bulls, buffalo, cull
cows etc) to provide industry with alternative[s] and certainty.[100]
5.90
These concerns were also echoed by Ms Jo-Anne Bloomfield who noted that
the abattoir is only expected to offer 10 per cent processing capacity for
animals outside of its own operations.[101]
Current proposals
5.91
During this inquiry, the committee heard of two proposed meat processing
facilities currently under consideration. The committee notes that both of these
proposals are intended to complement the existing live export trade.
5.92
Mr David Farley, the Chief Executive Officer of the Australian
Agricultural Company told the committee that the company is proposing to build
an abattoir near Darwin. Mr Farley told the committee that there two primary
reasons behind the company's decision, including
-
improved management of breeding age cattle (the company's goal is
to lift the herd's fertility by getting the older, non-productive cows out);
and
- saving on the logistic cost of sending cattle south (which
currently costs the company between $160-$200 per head).
5.93
Mr Farley told the committee that:
The proposal is to run the plant for seven months on a double
shift and then four months on a single shift, starting very early in the
morning, finishing before lunchtime. That is the shift through the wet season.
Our enterprise has the ability to stage cattle. We have geared our enterprise
and now, with the use of the northern flood plains, the use of improved
pastures, the use of cavalcade and the new grasses in the north, we will be
able to position the cattle in the north for slaughter through the wet season.[102]
5.94
Mr Burton told the committee that his company is a proponent to build an
abattoir in the Derby Shire.[103]
Mr Burton described the proposal as a boutique abattoir and told the committee:
We have got a pilot project that will be completed in two
months. That will kill 15 a day. It is a pilot project to test out our markets.
We expect that within 24 months we will have built a facility that will kill
100 to 120 a day. So it is complementary to the live export, not in replacement
of it. ... Basically the opportunity exists for someone to process animals that
are not suitable for live export. That 20,000 to 30,000 head a year will be
animals that are not suitable for live export. That is what the whole focus of
this facility will be.[104]
5.95
A 2010 feasibility study noted interest in the establishment of
processing facilities in northern Western Australia. However, the study also
noted the challenges facing such a facility, particularly given the seasonal
nature of supply and the variability of throughput. The study concluded that a
facility in northern Western Australia would not be viable without active
Government support.[105]
5.96
The study also noted that the greatest value of an abattoir accrues to
producers in the immediate region and diminishes with the distance that needs
to be covered by live animal transport. The study also recognised the need for
the industry and governments to continue to investigate options for stimulating
commercial development of processing streams within the northern and western
production area, and that there would be flow-on effects in the form of
throughput for southern processing facilities.
[106]
5.97
The committee considers that such facilities would complement the
existing live export trade and provide a valuable alternative option for
producers which could, in turn, lessen northern Australia's dependence on the
Indonesian trade.
Committee view
5.98
The committee notes the significance of the live export industry to the
Australian economy and to regional economies in particular. The committee notes
that it is a significant source of employment in these communities, both
directly and through ancillary industries.
5.99
The committee also considers that there are key synergies between the
live export industry and the domestic meat processing industries. The committee
is not persuaded that phasing out of the live export industry will reinvigorate
the domestic processing sector. The committee considers that there is more to
be gained from working to understand and strengthen the complementary
relationship between the two industries.
5.100
However, the committee agrees that cattle production in northern
Australia is too heavily reliant on the live export trade and, as the events of
the last six months have demonstrated, is currently very vulnerable.
5.101
The enormity of the challenge of providing effective and meaningful
assistance to the industry, following the temporary suspension of live exports
of cattle to Indonesia is reason enough to ensure that this type of crisis is
not repeated. While the committee acknowledges that the government assistance
to date has been appreciated by some, for many it has proved poorly directed
and inadequate to the task of surviving the massive jolt that the industry has
sustained. The committee notes that the effects of this jolt are likely to be
felt for some time to come.
5.102
The committee considers that the Australian Government must continue to
work closely with the industry and communities to support producers and
businesses through what is expected to be a long period of recovery.
5.103
At the same time, the committee considers that steps must be taken to
provide a more secure basis for the industry through the diversification of
market options for northern cattle producers. The committee considers that the
establishment of meat processing facilities such as those proposed for Darwin
and Broome offer the key to such market diversification, by offering greater
accessibility to processing markets for older and heavier cattle.
5.104
The committee notes that the establishment, or re-establishment ,of
processing facilities in northern Australia is not without significant
challenges and notes that the 2010 Western Australian feasibility study
concluded that a meat processing facility in that state would not be viable
without active government support. However, the committee considers that the
recent crisis has demonstrated clearly that it is absolutely essential that the
industry and all levels of government continue to investigate options for the
development of commercial processing streams within northern Australia in
addition to existing live export markets.
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