With yet another report of Australian cattle being mistreated in a foreign slaughterhouse, this time in Israel, the question must be asked whether the export of live animals from Australia is sustainable? Not only is it sustainable as far as numbers are concerned, particularly following the dreadful drought in Queensland and New South Wales, which has decimated numbers . We need to consider that between February 2012 and June 2015 there have been sixty ESCAS Regulatory Compliance Investigations. All have been or are being investigated.   The Federal Dept of Agriculture, Food and Fisheries (DAFF) who pick up the bill at present, have served notice on the exporters that they are going for cost recovery. In other words the exporters are going to pay. This is government policy throughout Australia—the user pays. No other country involved in the export of live animals has an Exporter Supply Chain Assurance scheme (ESCAS) type scheme.
image001

A common sight in Vietnam. How do we stop generations of habit? Only the mode of transport has changed. The animal is alive and destined for some village somewhere far away from ESCAS.

The Australian Livestock Exporters Council (ALEC) CEO Allison Prescott has been telling the international press that a significant investment is being made in building and upgrading slaughtering facilities and feedlots in Vietnam and exporters from Australia were expecting the trade between the two countries to continue to grow into a long-term and sustainable market. The question must be asked, who pays for the upgrades? And where are the cattle going to come from?

Somebody has to pay for ESCAS, we all know that. Since its inception I have thought, I don’t know why, that the exporters paid for the implementation, inspections, investigations and that sort of thing.

Having had it knocked into me over a lifetime that in the end the producer finishes up carrying the cost of any change, ‘price takers not makers’, no control over the market and so on. So I thought, again wrongly, that cattle and sheep producers in Australia were paying for ESCAS through the prices they receive or do not receive for their stock.

That is what I thought until I came across this from VALE  ‘Vets Against Live Export’  (VALE).   ( I know nothing about VALE. Whether they have political affiliations or allegiances with other organisations against the live export of animals I do not know. I have simply reproduced their web site)

This is part of the VALE argument:

When ALEC became angry about proposed increased charges to cover Dept of Ag (DAFF) administrative costs, the Federal Minister of Agriculture, Mr Joyce, a strong supporter (and promoter) of the live export trade was was forced to respond .

DAFF produced their figures and it turns out that DAFF currently spends $10.1m a year in live animal export certification and ESCAS services, but only recovers $6.5 million to pay for those services. No guess as to who pays the shortfall….the Australian taxpayer. And now the exporters want this subsidised or they will go broke.

When is the Australian Productivity Commission going to examine the true economic gain or loss from this trade? Such a review is long overdue. Many businesses would love to be propped up to the tune of 3.5 million/year taxpayer money. If the live export industry is so essential to the Australian economy (as is always claimed) then it shouldn’t be so extensively subsidised….any industry can be profitable with government handouts!

And then of course, there is the not-for profit policing of ESCAS done by Animals Australia….another free “service” to the industry…but one they would happily dispense with!

Photo: Fairfax

So that’s what VALE thinks. I think they think live export stinks. I know nothing about VALE. I have been to their website and I understand, from a professional perspective, as vets, why they hold the opinions they do. Some of what they have written if it were not true, one would think they would have been sued by now.

So it looks like the Department of Agriculture, Food and Fisheries (DAFF) is doing what all governments are doing around the country and going for a cost recovery system, the user pays.

Let’s not beat about the bush, the exporters are the ones making the real money or they wouldn’t be in the business of building new boats and port infrastructure. As we shall see later, if it all becomes too hard for the exporters in Australian cattle and sheep, there are plenty of other markets. The live exporters must know that the only money the government has, any government, is what they derive from taxes and charges on the people. So what ALEC wants is a taxpayer subsidy. What about the producers I say?

There is an article this week, 25 June, in the Farm Weekly – Weekly News by Colin Bettles, titled “Industry works on new live export programme”. Apparently the movers and shakers in the meat industry in Australia, ALEC, MLA, and Live Corp and no doubt others, have been discussing a replacement for ESCAS to be known as, wait for it, Livestock Global Assurance Programme (LGAP). It’s all very confusing, it looks like they are trying to develop a system according to Bettles, ‘equivalent to ESCAS standards or better, according to OIE requirements.’

Who is OIE? I didn’t know either so I got this from Wikipedia: The World Organisation for Animal Health (OIE) is the intergovernmental organisation responsible for improving animal health worldwide. The need to fight animal diseases at global level led to the creation of the Office International des Epizooties through the international Agreement signed on January 25, 1924. In May 2003 the Office became the World Organisation for Animal Health but kept its historical acronym OIE. . Seems to me that the industry is just looking for other ways to spend growers money. Perhaps even trying to become, unknowingly, a twenty first century Don Quixote?

So what about Vietnam?

Apparently live exports from Australia to Vietnam increased by 171% between 2013 and 2014, from about 67,000 in 2013 to about 181,500 in 2014.

It must be difficult in a country like Vietnam to enforce the adoption of  ESCAS. In the last few weeks there have been allegations of animal cruelty ‘up country’ in Vietnam. What is more disturbing is that apparently the cattle export industry has known for some considerable time that there have been ‘leaks’ in the system where cattle have been sold and moved away from ESCAS approved facilities. By motor bike in the middle of the night with men with their faces covered?

Recent reports are that even though new facilities, specifically for the processing of cattle have been built close to Hanoi, they are not up to the standard of those in the Developed World. It’s not surprising that ‘leaks’ have occurred, because beef consumption in Vietnam is an interesting subject. Maybe I have been somewhat naïve when considering the growth of live cattle exports to Vietnam from Australia?

I’ll tell you why; there has been so much publicity about Vietnam becoming our second biggest live cattle market taking over 180,000 cattle, I fell into the complacency trap of assuming, quite wrongly as it turns out, that Australia, complete with its ESCAS, was the answer to the Vietnam beef market needs.  Nothing could be further from the truth.

Progress —Vietnam is on the move.

Progress, is being achieved in Vietnam. I read recently that Australian cattle are going into feedlots, so they don’t want just slaughter-ready cattle. What do they feed to the imported cattle because Vietnam is a small country? No doubt there is a lot of roughage from rice straw but what is quite remarkable is the increase in the consumption of soybean meal. In 2007 Vietnam used 2.7 million metric tonnes and it was all imported. The estimate for 2013 was that it used 3.5 million metric tonnes of which amazingly more than 2 million tonnes was produced in Vietnam. That short sentence on soybean doesn’t do justice to the really impressive growth that is taking place in Vietnam in the growing, importing and processing of a variety of oil crops and other crops to make complete rations for cattle and other livestock. The value of livestock feed imports for 2014 was estimated at US$4.5 billion.

We must be aware of and treat with respect that their objective, like Indonesia and China, is to be self sufficient in beef and milk. It may take them some time to get there but look at what they did with soybean, they have shown they can achieve.  The rest of the world, especially America has recognised the opportunity for investment in Vietnam. Archer Daniels and Cargill are prominent in Vietnamese agriculture. Put Cargill Vietnam into your search engine and you will see what I mean.

Vietnam is a small country with a population of about 89 million. According to the Thanh Nien News of March last year, beef only accounts for 6 per cent of the meat consumed in Vietnam compared to a world average of 23 per cent. Demand for beef is increasing as the standard of living slowly improves, but pig meat remains by far the main meat source.

The ABC in May this year has reported a record price for Australian cattle to Vietnam of A$2.50 a kilo. There was also a comment from Andy Gray of the Northern Territory Cattle Exporters Association that even the older bullocky types were making A$2.20.

Comparing last year to this year, there has been a big change in the exchange rate between the Australian dollar and the VND (Dong). Last year A$1.00 was worth VND20,000 This year A$1.00 is worth VND16,461. A decrease of about 17%.

 I’m assuming that last year Vietnam paid about the same price for cattle as Indonesia if that is the case, the Vietnamese last year, were paying about A$2.00 kg lwt or VND40,000. This year Vietnam is paying A$2.50 kg lwt or VND41,152 a difference of VND1,152 which is A$0.07.

The interesting bit is that if the contracts were written in US dollars then last year the Vietnamese, at an A$ to US$ exchange of .98 paid US$1.96 kg lwt this year at A$2.50 and exchange rate hovering round .78 makes the price in US$1.95 kg lwt.

So as far as the Vietnamese are concerned the price of cattle from Australia is the same this year as last year.

I have no idea how ABARES calculate the graph below. I imagine they are now some way out with their forecast for 2014-15. When the actual figures come out for 2014/15 it will be interesting to see if cattle producers have regained the ground they have lost over the last decade.  Prices for slaughter cattle  have recovered sufficiently to be comparable with 2004-5. At present they are nudging and in some cases exceeding 500¢

image005

What makes the beef market in Vietnam even more interesting is that as well as importing 181,500 cattle from Australia last year, there was also an increase in the imports of frozen beef from the EU, NZ, USA and Japan, the latter with Kobe beef. So don’t let anyone tell you there isn’t a market for all cuts of boxed beef in Vietnam.

As if that wasn’t enough the Vietnamese Livestock Association reported in the Tuoi Tre News, that hundreds of thousands of cattle were being driven over the central and south western borders from Laos, Cambodia and Thailand. Hard to imagine that, but that is what is being reported. How many cattle find their way into China from Vietnam is unknown. When they all get mixed up together as they must somewhere along the line, the only way to identify Australian cattle in the hurly burly of a meat works or a feed lot will be the ear tag. Another thing I found out about Vietnam is that  foot and mouth disease is endemic.

That may seem like at lot of beef for just 6% of the market, but the Chairman of the Vietnam Breeding Association told the Thanh Nien News that because of the demand for beef the national cow numbers had decreased from 7 million in 2006 to below 5 million in 2014. So there is evidence, just like in Indonesia, that Vietnam is literally eating into its future capacity to increase production and so become self sufficient. Similar to Indonesia and in spite of their objective to be self sufficient, it is difficult to imagine a Vietnam that will not rely on imported beef for many years. Whether that be in boxes or live, is yet to be determined.

Can we produce more?

I am concerned that as an industry we are starting to believe our own rhetoric and that of our politicians about how important we are and how important it is that we are leading the world in being ‘clean and green’. The cattle country in Brazil is not exactly dirty so we are open to challenge on that claim of being better than the rest. We are telling the world that we are the only country to have an ESCAS, and that is an advantage, yet in reality there are countries which will not accept ESCAS and no longer trade with us. Others, like Somalia, now supply some of those markets.  There seems to be an assumption among some of the spruikers that we also have the capacity to substantially increase production, yet there are no figures to substantiate that claim.

As I write we are hearing more of the details of the new Free Trade Agreement (FTA) with China. Someone recently, from Canberra of course and I think from the National Farmers Federation (NFF), declared the FTA with China will revolutionise agriculture in Australia. If it wasn’t the NFF then I apologise; but it sounds like something they would say.

These claims of a revolution are being made as we witness the gradual rundown of the CSIRO and there seems to be crisis after crisis when it comes to funding CRCs in agriculture. A decade or more ago we spent millions building new regional offices for our West Australian Dept of Agriculture (or whatever they happened to be called on the day), they were modern and functional establishments, designed to provide the facilities for scientists, advisers and technicians to meet the needs of agriculture at the time and those needs haven’t changed —if anything they have increased as climate variability bites, and as weed and disease resistance become an ever-increasing challenge and as if that wasn’t enough, we struggle to be internationally and nationally competitive. Those offices are now almost empty.

We are going to feed Asia and to do that the Dept of Agriculture budget in Western Australia this year has been cut by $10 million because the State Government is short of money. In May of this year the public sector union stated that 139 jobs would go this year and another 100 next year. I know this is not all the story as there has been a gradual run-down with offers of redundancy and early retirement going on for years. Experience has been lost and the culture of the organisation, which has a proud history, is in danger of fading away. Biosecurity services of all things, are under threat. By the end of 2015 staff numbers in the WA Dept Of Agriculture will be down to 700 from 1400 in 2009. So obviously the Government believes that the state that provides 80% of Australia’s wheat exports, hundreds of thousands of live cattle and so on can manage with half the scientists and support staff it has had in the past and still continue to excel and meet the challenges of the Asian Century — that shows that the West Australian government have an appalling lack of knowledge and understanding of agriculture.

It would be interesting to learn what is happening to the Departments of Agriculture or equivalent in other states.

Nobody in both the Federal and State Governments seems to be able to to understand that Australian agriculture, to progress, must have research that is not tied to commercial exploitation. Politicians tend to be frightened and not trust people in white coats talking about things they don’t understand. They should trust them, because historically not only Australian agriculture but the world’s agriculture knows that Australian agricultural and veterinary research is as good or better than that of any country in the world. We need that research now more than ever.

Within the next week or so the Federal Minister for Agriculture will issue a White Paper on Australian agriculture. Let’s hope it is or can be made into a practical business plan for a profitable future for agriculture in Australia.

Think Vietnam – Think China.

For as long as I can remember, probably since the end of the war in Vietnam, Vietnam has been considered to be a gateway, trade route, call it what you will, into China. In a former life, several decades ago, I remember it being discussed that ‘aid’ in the form of ‘goods’ to Vietnam, could well finish in China.

So I am a sceptic when it comes to claims that China, whether it be via the FTA or by direct investment in Australia, can improve the lot of Australian agriculture. We are selling everything we produce at present, maybe not at the prices we want, but can we assume China and the rest of the world will pay more in the future? We know there is a steady decline in the amount we are producing.  Australian wheat yields for example are declining as world yields continue to increase, the trend has continued after 2010, why is this? We need to know and we won’t find out by reducing our R & D:

Trends in Australian and global wheat yields per hectare since 1980. The Australian trend lines are from 5 year moving means with and without drought. The light blue line shows global annual average yields per hectare, while the magenta line shows the calculated (straight) line trend for those yields. This graph was presented at the Australian Agronomy Conference 2012. Pristine Technology – Donald revisited.

The Australian beef herd is increasing slowly, though it’s probably taken a hit since this graph was produced:

Part II. b. charts 001_edited-1

 

This is what the MLA thinks about cattle numbers in the future. Sorry the numbers are a bit blurred but cattle numbers are going to increase marginally on 2015 but numbers are down 2% on 2014 to 2020, slaughterings are projected to be down and live export numbers are projected to decrease by 21%. We just don’t have and will not have the cattle to meet the much heralded demand from China in the future, not unless we reduce what we sell to some of our current and loyal markets.  If anyone wants to have a look at the projections for themselves just search for: MLA-Cattle Industry Projections 2015.

image022

The national sheep flock is forecast to remain at 2015 numbers. My view is that will depend on whether the ‘new generation’ of farmers want to, or even know how to keep sheep after almost a working lifetime without them. I notice that if WA exports and slaughters as many sheep this year as last year then the State’s flock will decrease. Given the dry year we are having and the large numbers in the sale yards recently, I doubt numbers will increase in WA this year.

image014

Forecast MLA. ABS. MLA comments: Through to 2018, the sheep flock is forecast to increase gradually, based on the assumption of “average” seasonal conditions from 2014 onwards. By June 2018 the Australian sheep flock is forecast to reach 74.25 million head, expanding each year from a low of 72 million in 2014.

Even the greatest optimist cannot substantiate an argument, I believe, that we are going to increase our production of wheat, cattle or sheep over the next decade or more.

There has been a lot of talk of prices going up, will go up, must go up as the population of the world increases so too will demand. That’s what we were taught in the sixties.  The reality is that real values for everything agriculture in Australia produces have declined as the world population has doubled!

Why am I sceptical about China?

I am fortunate that I have the time to read the world agricultural press and where ever I go  on my literary adventures it appears that China is doing long term deals for food, especially meat. They are doing them with any country that will come to the table, so to speak. Welsh lamb is a good example. Claimed by the Welsh to be the best lamb in the world and on a world scale they don’t produce a lot of it. Now, we are told after years of negotiations and inspections of abattoirs, the Welsh and the Chinese have signed a deal. The UK remains an important market for NZ and I think some Australian lamb so they will be importing and exporting lamb.

This week Belgium announced it had reached agreement to increase pig meat exports to China. Britain is also rapidly increasing its export of pork to China and at the same time helping the UK pork industry because China is taking parts of the pig that would otherwise have been thrown out or gone into pet food.

It went unannounced and unnoticed in this country but a few months ago a Chinese company WH, the biggest pork processor in the world, bought  Smithfield Foods the biggest pork processor in the United States and a substantial pig producer in its own right. Smithfield Foods is an international business. Its second quarter results for this year were a record US$3.3 billion, much of the increase attributed to their business in Romania and Poland, this was in spite of Russia  banning imports from both countries. The WH Group listed on the Hong Kong Stock Exchange in August 2014.

Total exports of pig meat from the United States to China last year was 221,000 tonnes down ~30% on the previous year due to price. Now the situation is reversed, live hogs cost around 12 yuan ($2) per kg in China, versus 6 yuan in the United States, so Smithfield on their own, intend exporting some 120,000 tonnes of pork to China and they are going to set up processing plants in China based on American technology. China is developing a taste for things like American sausages, bacon and ham.

So China has many deals for food going all over the world. In previous articles we have identified that by 2050 China will have 20% of the population of the world and about 10% of the arable land area, so it must make plans for the future. My concern is that if we in Australia become China-centric, which I believe our current government is becoming or even is already—then we are in danger of losing sight of what else might be going on in the rest of the world—and more importantly we could become largely dependent on China for a living.

A warning from a man who knows.

Dr. John Lee is an adjunct associate professor at the University of Sydney, a senior fellow at the Hudson Institute in Washington DC, and a Director of the Kokoda Foundation defence and security think-tank in Canberra. In an article in the ‘China Spectator’ in April of last year, Dr Lee reminded us that as China negotiated the FTA with Australia it reaffirmed that it will preserve protective policies designed to ensure China is almost self sufficient in beef, poultry and pork, furthermore Chinese policy still states that it wants to be a net exporter of meat products, wheat and rice by 2025. Dr Lee asks if this is the reason why no concessions have been given to Australian rice and wheat farmers in the FTA?

So why, Dr Lee asks, does China want ever increasing amounts of Australian beef? The answer is simple, their domestic supply cannot keep up with the burgeoning demand, so they must get it from somewhere. The same policy has been applied to milk products and explains why Chinese tourists stock up with milk powder when they visit Australia. In 2008 several children were killed and hundreds of thousands were poisoned by contaminated milk powder. Those responsible paid for their malfeasance with their lives. But does this mean, Dr Lee asks, that China ‘has given up the farm’ in some sub-sectors by signing the FTA?

Apparently not at all. The Maoist mindset of self-sufficiency is still pervasive in Chinese industrial and economic policy. We should remember that China has signed many FTAs and trade agreements— but they have not prevented the Chinese from resorting to ad hoc regulatory hurdles to restrict imports if the Chinese government believes all is not going their way. One example given by Dr Lee was the banning of beef from America in 2003 when one case of BSE was discovered in Washington State, China has yet to comprehensively relax that ban. The real reason for the ban was at the request of local beef producers. Dr Lee says he doesn’t want to be seen as a ‘lead balloon’ when it comes to the China FTA. ‘But we should tone down the commentary about the special economic relationship that we are forming with China, or that China is about to dramatically embrace domestic reform and the global liberal economic order. Beijing knows exactly what it seeks to gain by signing agreements and offering concessions — and under what circumstances such concessions through other regulations will be drawn back. We should too.

So when China tells our government they can take all the beef we can produce, we should at least approach with caution.

I believe in the old adage of ‘Don’t put all of your eggs in the one basket’. The northern live cattle industry got this salutary lesson when exports to Indonesia were stopped, the lesson was even more memorable when they realised the mistake of having an almost pure Bos Indicus herd which, when processed, was unsuitable or heavily discounted in other markets both at home and abroad. So should those who produce pure Bos Indicus cattle for live export start doing what the Brazilians and others in South America have done for years and that is start getting some Bos Taurus blood into their herds? I believe they should. Then they will have cattle suitable for all markets. Brazil still supplies prime steak to London hotels because they have Brangus and Brafords etc, for specific markets.

We are not alone in the live cattle business.

In 2014 we exported about 1.2 million cattle the MLA estimates for 2015 are 850,000, so about the same as we exported in 2010. But just look below at what the rest of the world is doing without an ESCAS around their necks. From the same source; FAO and Australian Farm Institute:

France is the world’s leading exporter of live cattle, being the source of around 13% of world exports (see Figure 2). According to the United Nations Comtrade database, the markets for cattle exported from France include Europe and Africa, and in 2012 France exported cattle to 35 countries. Other leading live cattle exporters include Canada, Mexico and Brazil, with Australia being responsible for less than 10% of world cattle exports. In 2012, Australia exported live cattle to 22 countries, predominantly utilising ocean transport. Brazil is another live cattle exporting nation with a heavy reliance on ocean transport, supplying cattle to 10 nations in 2012.

Fig 2. Live cattle exports by country, 2010. Sources: FAO, AFI analysis.

 

Is the growth in Vietnam sustainable?

Considering all of the above the answer has to be yes — but here have to be some caveats already identified by Vietnam officials.

Having just read about Vietnam importing the ultimate in beef, Kobe beef, I read that the chairman of the Vietnam Livestock Association Nguyen Dang Vang, has repeatedly called upon the relevant authorities to reduce the importation of frozen meat and especially animal organs as he believes they are a danger to the health of both the livestock industry in Vietnam and the general population.

Vietnam’s poultry industry is facing strong competition from the ever-increasing quantity of cheap imports. On the face of the information supplied it looks like Vietnam is importing everything but the squeal.

A director of a Vietnamese livestock company commented that imported products, that means Australian cattle and all the boxed beef and pig meat they import are the same price as the domestic live animals making it hard for them to compete.

It beggars belief, for me anyway, this is how the story goes. In the first nine months of 2014 Vietnam imported frozen meat worth $85 million from 19 countries, an increase in $12 million on the previous year. Most of the products were chicken heads, wings, feet and animal offal.

Picture: Caltrade, a Canadian company that exported chicken feet to Vietnam and China.

The import prices of these products ranges from $0.07 to $1.50 kg and were favoured by organisations that supply large quantities of meals like hospitals, schools and factories. There are nearly 90 million people crammed into a very small country — so a lot of mouths to feed. Their borders are open.

The end of the story brings us back to the beginning. With the best intentions in the world, is it reasonable for the Australian Livestock Exporters Council to be responsible for Australian cattle once they have been offloaded in countries as economically diverse as Vietnam? And at the same time pay for ESCAS inspections and investigations and for the almost inevitable breeches of the rules. ALEC will pass the cost of ESCAS on to the producers that’s inevitable. Producers – price takers again.

I think the question becomes one of whether we think strategically and build for the future, that means more slaughtering facilities and more jobs. It also means slowly changing the breed structure of the northern cattle herd with the infusion of Bos Taurus, so that the meat, whether on the hoof or the hook is acceptable in all markets around the world. America is an important beef market for Australia. It has just been announced that America will now accept beef from certain regions in Brazil, effectively lifting a ban that has been in place for decades.

 

 

 

Roger Crook

About 

Over the last fifty years or so Roger has worked in agriculture, since 1967 in Australia. From farm labourer, to station and farm manager, then progressively to a senior management position in agribusiness as the marketing and sales manager of what was at the time the biggest agricultural chemical company in Australia, ICI (Australia- Rural Division), Roger has both a practical farming and comprehensive agribusiness background.
After a brief spell as the marketing director of a big public relations company in Perth, Roger formed his own consultancy specialising in agribusiness communications and the marketing of Australian agricultural intellectual property overseas.
Roger says he will only ever be 'semi retired'. He believes Australian agriculture is at the crossroads so he has set up the 'Global Farmer' as a forum to both pose, debate and hopefully answer some of the challenges being faced by the Australian family farm and so by Australian agriculture.

Want to read Roger's life story?