Insights and opportunities
Retail Prices
Between March 2000 and September 2014 there has been a relatively strong increase in retail prices for the majority of meats within Australia (Figure 14). Beef has historically received the highest retail price, closely followed by bacon and ham.
Between March 2000 and September 2014 the price of beef rose 56% from $10.47/kg to $16.33/kg. Whereas this is good news for producers and retailers it is less rosy for consumers. If prices continue to rise, it may lead to protein substitution where consumers decide to purchase other less expensive meats such as chicken rather than buying beef.
Indonesian Quotas
As seen in Figure 8 the largest live export market for Western Australian cattle is Indonesia. This market has been relatively volatile in recent years following the suspension of the live trade by the Federal government in 2011, the following implementation of ESCAS and the restrictions brought on by the size and timing of quotas issued by Indonesia.
Currently the live cattle trade with Indonesia is controlled by quarterly quotas issued to importers.
During the second quarter of 2015 (April to June) a total quota of 250 000 cattle was issued to importers.
The live cattle trade was surprised and dismayed when the Indonesian government slashed the third quarter (July to September) cattle quota to 50 000 cattle in order to increase Indonesia’s self sufficiency and food security.
This took both Indonesian importers and Australian cattle producers by surprise as they were expecting approximately 200 000 cattle permits.
The reduction in cattle permits subsequently led to an expectation of reduced beef supplies in Indonesia and hence a sharp spike in retail beef prices. In order to combat rising prices the government issued permits for a further 50 000 slaughter ready cattle (as opposed to feeder cattle) however there are reports these were not successfully filled (Farm Weekly- Indonesia Considers Import Rise).
At the beginning of the fourth quarter (October to December) the Indonesian government made a welcome announcement of an allocation of 200 000 cattle permits for the final quarter (Farm Weekly- Indonesia increases Q4 quota).
However due to the slow release of fourth quarter permits, shipping capacity is tight as it has already been contracted to other markets and Indonesian feedlots are short of cattle. This may further drive prices higher in Indonesia.
Currently Australia is the only supplier of live cattle to Indonesia. The Indonesian government is reported to be seeking to reduce its dependency on Australian cattle. In order to do this, media reports indicate they are aiming to open up the market to India and the Philippines (despite their FMD status) and possibly New Zealand. This may help resolve their price hikes and the beef shortages going into next year (Farm Weekly- Indonesia eyes import options).
In 2016 Ramadan in Indonesia commences in early June, meaning they need to fill beef stocks during the fourth quarter in 2015 and the first quarter 2016. This may prove difficult leaving them short during the important Ramadan period (Farm Weekly- Indonesia faces beef shortfall).
A large quota during this time of year also poses challenges to the Australian industry. Live cattle to Indonesia are predominantly sourced from Northern Australia. The fourth quarter (October to December) occurs during the end of the dry season where feed availability may be limited and cattle are generally lighter, leading to less cattle being available that are ready for sale. This is then followed by the wet season during the first quarter when mustering all but ceases making sourcing adequate numbers of cattle difficult.
Recently Federal Trade and Investment Minister Andrew Robb visited his counterpart in Indonesia to discuss an annual quota system. This would improve trade stability and allow better forward planning at all sections of the supply chain (Farm Weekly- Robb hopeful of annual cattle quota).
US Quotas
The USA is one of Australia’s largest beef markets and had grown remarkably in recent years. It was Australia’s largest market in both value and volume terms during 2014/15 though Western Australia’s third largest market by value and fourth by volume.
Under the 1995 Uruguay Round Agreement on Agriculture and the 2005 USA- Australia Free Trade agreement, Australia can export beef tariff free to the USA as long as it remains below a certain quota. During 2015 that quota is 418 214 tonnes (Department of Agriculture and Water Resources).
As of July 2015 Australia had already exported 267 555 tonnes (shipped weight) to the USA (Based on data from ABS, analysed by DAFWA) which is 64% of the quota.
When Australia reaches 85% of the quota, which is 355 482 tonnes, prior to October an allocation system is triggered so as to manage exports. Under this system the remaining 15% is allocated according to exporter’s prior records of shipments. This quota is tradeable so exporters without any quota can buy some off those that have quota available (The Land- US beef quota close to trigger volume).
Once the quota is reached Australian beef exported to the USA will be subject to a 21.12% tariff for the remainder of 2015 (ABC- Quota restrictions could be triggered, as Australian beef exports to US continue to grow).
Quota usage exceeded 85% on 31 August 2015 (Department of Agriculture and Water Resources).
French bluetongue virus outbreak
There has been another outbreak of the Bluetongue virus in France this year. It has been discovered on a farm in central France at Les Brulards. Authorities have imposed a 150 km protection zone which contains 4.6 million cattle, 700 000 sheep and 160 000 goats.
The virus can be spread by the movement of infected stock or through the movement of Culicoides midges also known as aerial plankton.
So far it is thought that there are inadequate supplies of vaccine for the disease, raising concerns that the disease could spread throughout Europe.
The French strain is generally thought to be serotype 8 which is a very aggressive strain. It caused large losses especially to the sheep industry in 2006 to 2008. Approximately 25% of sheep and 1% of cattle were killed by the strain between 2006 and 2008. Whilst fatalities in cattle are much lower, the impacts are still disastrous with movement restrictions, loss of trade, reduced milk yield, decreased reproductive performance, stillborn calves and costs associated with disease control and surveillance.
Another serotype (four) of the virus has also been found in Hungary and Romania earlier in September (The Cattle Site- French Bluetongue Could "Blow Up" Significantly).