Bulletin 2007 Waaffi August

75
WESTERN AUSTRALIAN AGRI-FOOD AND FIBRE INDUSTRY OUTLOOK BULLETIN 4721 ISSN 1448-0352 AUGUST 2007

Transcript of Bulletin 2007 Waaffi August

Page 1: Bulletin 2007 Waaffi August

WESTERN AUSTRALIAN AGRI-FOOD AND FIBRE INDUSTRY OUTLOOK

BULLETIN 4721 ISSN 1448-0352

AUGUST 2007

Page 2: Bulletin 2007 Waaffi August

Copies of this document can be obtained from:

Food and Trade Development Directorate Department of Agriculture and Food 3 Baron-Hay Court South Perth Western Australia 6151 Australia

Telephone: (+618) 9368 3382 Facsimile: (+618) 9367 7389

This document is available on the Department of Agriculture and Food website:

http://www.agric.wa.gov.au

Look under AGRIBUSINESS + MARKETS, click on AGRIBUSINESS

IMPORTANT DISCLAIMER While all reasonable care has been taken in the preparation of the material in this report, the Western Australian Government and its officers accept no responsibility for the errors it may contain, whether caused by negligence or otherwise, or for any loss, however caused, sustained by any person who relies on it. Information contained in this document is accurate as at 30 August 2007.

© State of Western Australia, 2007

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TABLE OF CONTENTS Page

EXECUTIVE SUMMARY ................................................................................................ 1

1. WA Agricultural production and exports .......................................................... 2

2. GRAINS ................................................................................................................ 5 2.1 World grain outlook ...................................................................................... 5

Wheat ........................................................................................................... 5 Coarse grains ............................................................................................... 5 Barley ........................................................................................................... 6 Oilseeds ....................................................................................................... 7

2.2 WA grain outlook .......................................................................................... 8

3. ANIMAL AND ANIMAL PRODUCTS .................................................................... 10 3.1 Cattle Industry .............................................................................................. 10

Local industry overview ................................................................................ 10 Supply and demand ..................................................................................... 10 Prices ........................................................................................................... 14 Exports ......................................................................................................... 17 Beef exports ................................................................................................. 17 Live cattle exports ........................................................................................ 18 Outlook summary ......................................................................................... 22

3.2 Sheep meat and live sheep .......................................................................... 23 Introduction .................................................................................................. 23 Supply .......................................................................................................... 23 Exports ......................................................................................................... 24 National projections ...................................................................................... 25 Lamb ............................................................................................................ 25 Mutton .......................................................................................................... 25 Live sheep .................................................................................................... 25 European Union ........................................................................................... 26 Changes in Australia’s lamb industry ........................................................... 26 Retail prices ................................................................................................. 26

3.3 Pig Industry .................................................................................................. 27 Supply and demand ..................................................................................... 27 Imports ......................................................................................................... 29 Industry issues ............................................................................................. 29 Prices ........................................................................................................... 30 Live pigs ....................................................................................................... 31 Outlook ......................................................................................................... 31

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TABLE OF CONTENTS …..continued Page

3.4 Wool ............................................................................................................. 32 Supply .......................................................................................................... 33 Demand ........................................................................................................ 35 Price ............................................................................................................. 38 Outlook ......................................................................................................... 40

3.5 DAIRY .......................................................................................................... 41 Supply .......................................................................................................... 43 Demand ........................................................................................................ 43 Prices ........................................................................................................... 44 Exports ......................................................................................................... 44 Outlook ......................................................................................................... 45

3.6 GOAT INDUSTRY ........................................................................................ 45 Supply .......................................................................................................... 45 Demand ........................................................................................................ 46 Goat meat ..................................................................................................... 46 Mutton prices ................................................................................................ 47 Warm winter in the Northern Hemisphere .................................................... 47 Drought ......................................................................................................... 47 Exchange Rates ........................................................................................... 47 Domestic goat meat ..................................................................................... 48 Live goats ..................................................................................................... 48 Goat fibre ...................................................................................................... 49 Outlook ......................................................................................................... 50 Goat meat ..................................................................................................... 50 Live goats ..................................................................................................... 50

4. HORTICULTURE .................................................................................................. 51 4.1 Fruits ............................................................................................................ 52

Citrus ............................................................................................................ 52 Pome fruits ................................................................................................... 53 Stone fruit ..................................................................................................... 55 Strawberries ................................................................................................. 57

4.2 Vegetables ................................................................................................... 58 Carrots .......................................................................................................... 58 Potatoes ....................................................................................................... 60 Other export vegetables ............................................................................... 61

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TABLE OF CONTENTS …..continued Page

5. TRADE AGREEMENTS ........................................................................................ 63 Agricultural trade − Review of Developments at the World Trade Organisation (WTO) DOHA round − (Multi-lateral Trade Agreements) ............... 63 Impact of the draft modalities on Australian trade ................................................. 63 US Trade Policy .................................................................................................... 64 US-South Korea FTA ............................................................................................ 64 China’s emergence as a world super power ......................................................... 65 FREE TRADE AGREEMENTS ............................................................................. 65 China FTA ............................................................................................................. 65 JAPAN FTA ........................................................................................................... 66 ASEAN/Australia/New Zealand FTA ..................................................................... 66 Gulf Cooperation Council Countries (GCC) FTA ................................................... 66 Chile FTA .............................................................................................................. 66 Malaysia FTA ........................................................................................................ 67 Australia-Vietnam Joint Trade and Economic Cooperation Committee (JTECC) ............................................................................................ 67 Australia-Mexico Investment Promotion and Protection Agreement (IPPA) .......... 67 Australia-Indonesia Trade and Investment Relationship ....................................... 67 Australia-EU future direction for bilateral cooperation ........................................... 68

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EXECUTIVE SUMMARY The competition for grain acreage between food, feed and fuel is resulting in unprecedented grain prices. However, strong grain prices are being matched by a strong Australian Dollar. The added uncertainty over Australian grain marketing arrangements, in particular wheat, might make it a challenge for growers to fully reap the rewards of the current bullish market.

Grain production in WA this season looks set to be clearly separated with those areas south of a line from Dandaragan to Kondinin experiencing reasonable to excellent conditions, as opposed to areas north, which unfortunately need exceptional rainfall during August, September and October to reach anywhere near average yields. Currently, the State’s crop production is forecast to be 8.9 million tonnes.

Australia-wide beef exports are dominated by Japan, which takes 44.2 per cent of total exports by value, followed by Korea with 18.1 per cent. WA exporters have focused on Korea, which imports 31.7 per cent by value of total beef exports from WA, compared to 24 per cent for Japan.

ABARE Outlook 2007 has forecast pig meat prices to increase by 14 per cent to average 265¢/kg, reflecting lower Australian production and firm domestic demand. Singapore remains the major market for Western Australia’s (WA) pork exports.

For many years, Denmark and Canada dominated the value of imports of pig meat into WA, but lately their impact is declining as the US expand its exports.

The Federal Government has endorsed the pork industry’s Model Code of Practice for the Welfare of Animals. The new code was developed via an extensive and robust consultation process involving animal welfare groups such as Animals Australia and the Royal Society for the Protection of Cruelty to Animals (RSPCA), industry, State and Territory governments and the Commonwealth Scientific and Industrial Research Organisation (CSIRO).

The prospects for the 2007/08 season are relatively positive for wool prices, with prices forecast to average similar levels to the latest season (2006/07). In China, the largest retail market for Australian and WA wool producers, local retail consumption of wool product was lower in the first half of the season, as manufacturers focused on more lucrative export markets. China’s changes to their tariff quota (TRQ) on wool imports could cap Australian auction prices in the near future. However the full impact of the TRQ changes may be avoided due to the forecast 4% fall in Australian wool production in the coming year.

World prices for dairy products have achieved record high levels throughout 2007, with the expectation of prices remaining high for the next 18 months to two years. Dairy farms in Western Australia have been benchmarked favourably by the International Farm Comparison Network based in Germany, and also nationally with a local benchmarking project conducted by Redsky Agri.

Apart from good demand from Malaysia and Brunei, there are new markets opening in Indonesia and the Philippines for breeding goats. In May 2007, an inaugural shipment of 3,490 breeding goats was consigned from Australia by air freighter to Jakarta.

The Western Australia’s horticulture industry is thriving on local and Eastern States market opportunities, but is facing difficult times in international markets with strong competition and a higher Australian dollar impacting on exports. There is a growing trend for consumers to source fresh produce from local and independent markets that guarantee freshness and quality with a link to local producers.

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1. WA Agricultural production and exports Contact: Graham Annan, Statistical Analyst; Tel: (08) 9368 3687

Over the past five years, the Western Australian grains industry has averaged approximately half of WA’s gross value of agricultural production (GVAP1). The second largest contributor was the meat industry (including processed meat and live exports) which contributed 19 per cent of the total value, followed by wool (11%), and horticulture (1%).

Table 1. Gross value of agricultural production (GVAP) for Western Australia

2004/05

$M

2005/06

$M

2006/07(e) $M

Change:2005/06-2006/07

2007/08 (f) $M

Change:2006/07-2007/08

Crops and crop products Wheat 1,763 2,028 1,678 -17% 1,743 4% Barley 433 453 337 -26% 482 43% Oats 51 96 44 -54% 63 43% Lupins 150 199 74 -63% 95 28% Other legumes 19 28 27 -3% 18 -33% Canola 161 241 162 -33% 212 31% Sugar cane 6 5 12 140% 9 -25% Vegetables 190 217 220 1% 225 2% Fruit and nuts 170 174 179 3% 181 1% Grapes 123 94 122 30% 124 2% Hay 72 84 92 10% 90 -2% Pastures 66 83 85 2% 75 -12% Nurseries 110 112 109 -3% 107 -2% Other 36 60 37 -38% 40 8%

Total crops and crop products s 3,350 3,873 3,178 -18% 3,463 9% Livestock disposals

Cattle and calves slaughtered 402 369 397 8% 399 1% Live cattle exports 169 183 199 9% 201 1% Sheep and lambs slaughtered 224 289 216 -26% 217 0% Live sheep exports 173 223 218 -2% 189 -13% Pigs 106 97 100 3% 101 1% Poultry 106 107 113 5% 114 1% Other 8 8 9 13% 8 -11%

Total livestock disposals 1,187 1,276 1,251 -2% 1,228 -2% Livestock products

Wool 563 508 582 -10% 590 15% Dairy 121 110 134 -9% 138 22% Eggs 35 27 41 53% 42 1% Other 3 0 5 2200% 5 9%

Total livestock products 722 645 762 18% 775 2% Total GVAP 5,259 5,794 5,191 -10% 5,466 5%

Source: ABS, Department of Agriculture forecast. Note: Figures are rounded.

1 GVAP is defined in Glossary (page 56).

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Table 2. Major statistics for Western Australian agriculture

2004/05 2005/06 2006/07(e)

Change:2005/06-2006/07

2007/08 (f)

Change:2006/07-2007/08

Area sown Wheat 000 ha 5,118 4,901 4,600 -6% 4,100 -11% Barley 000 ha 1,313 1,192 1,070 -10% 1,150 7% Oats 000 ha 243 276 210 -24% 207 -2% Lupins 000 ha 677 694 350 -50% 325 -7% Canola 000 ha 428 458 400 -13% 405 1%

Grain production Wheat '000 t 8,619 9,436 6,992 -26% 6,970 0% Barley '000 t 2,489 2,532 1,605 -37% 2,243 40% Oats '000 t 460 605 273 -55% 361 32% Lupins '000 t 792 1,104 280 -75% 358 28% Canola '000 t 488 650 376 -42% 487 29%

Livestock numbers (as at 1 July) Milk cattle '000 133 116 123 6% 126 2% Beef cattle '000 1,961 2,011 2,316 15% 2,450 6% Sheep and lambs Mil 25 26 23 -10% 24 3% Pigs '000 291 226 277 22% 292 6% Chickens Mil 8 8 8 3% 9 4%

Disposals Cattle '000 511 434 449 3% 450 0% Calves '000 4 4 4 0% 4 -3% Cattle exports '000 280 290 310 7% 295 -5% Sheep Mil 2.2 2.1 2.6 23% 1.8 -31% Lambs Mil 2.5 2.8 2.5 -10% 2.2 -13% Sheep exports Mil 2.8 3.4 3.3 -4% 2.7 -17% Pigs '000 647 599 568 -5% 550 -3%

Livestock products Beef '000 t 132 114 115 1% 117 1% Mutton '000 t 44 46 54 17% 37 -31% Lamb '000 t 49 58 51 -13% 44 -13% Pig meat '000 t 44 41 39 -5% 37 -4% Chicken meat '000 t 48 49 49 0% 51 5% Total wool '000 t 118 121 116 -5% 120 3% Whole milk mL 396 396 395 0% 398 1%

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Table 3. Value of Western Australian agricultural exports (FOB)

2004/05

$M

2005/06$M

2006/07(e) $M

Change:2005/06-2006/07

2007/08 (f) $M

Change:2006/07-2007/08

Wheat 1,785 1,738 1,614 -7% 1,696 5% Barley 481 461 323 -30% 340 5% Oats 45 32 30 -6% 13 -58% Malt 55 52 52 0% 94 82% Other cereals/products 119 125 148 18% 149 1% Canola 246 182 211 16% 88 -58% Lupins 148 85 105 24% 43 -59% Other grain legumes 17 18 22 23% 21 -7% Lucerne products 27 20 33 61% 35 7% Sugar cane 12 13 8 -35% 4 -50% Vegetables 64 56 51 -10% 48 -6% Fruit 33 33 20 -37% 21 5% Floriculture 11 12 10 -11% 7 -34% Wines 51 52 53 2% 53 0% Other (incl. cotton) 12 14 29 105% 26 -12%

Total crops and crop products 3,107 2,892 2,711 -6% 2,638 -3% Cattle and calves 164 174 192 10% 209 9% Sheep and lambs 188 177 234 32% 228 -3% Other (incl. horses) 6 6 9 52% 8 -18%

Total livestock 359 357 435 22% 445 2% Beef and veal 119 149 121 -19% 129 7% Lamb 106 111 132 19% 105 -21% Mutton 65 79 80 0% 98 23% Other edible meat/offal 74 88 87 -1% 70 -19% Leather, skins and hides 34 46 48 5% 61 26% Animal fats and oils 18 18 17 -4% 18 4% Wool 504 493 494 0% 521 6% Dairy products (incl. ice cream) 79 78 72 -8% 68 -7% Other (incl. pet food, eggs and honey) 12 13 14 8% 16 11%

Total livestock products 1,011 1,076 1,065 -1% 1,085 2% Total WA Agricultural Exports 4,476 4,325 4,211 -3% 4,168 -1%

Source: ABS, Department of Agriculture forecast. Note: Figures are rounded.

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2. GRAINS Contact: Richard Williams, Market Analyst, Grains; Tel: (08) 9368 3675

The competition for grain acreage between food, feed and fuel is resulting in unprecedented grain prices. If current price trends continue, there is speculation that some countries could be priced out of the market with regard to grain foods. However, the uncertainty over Australian grain marketing arrangements, in particular wheat, might make it a challenge for growers to fully reap the rewards of the current bullish market. For example, execution in the early part of 2007/08 shipping period may be delayed due to an inability of marketers to acquire sufficient amounts of grain, given the predicted high levels of warehousing likely during the 2007/08 harvest in WA. The impact of the Australian dollar on export grain prices is now unclear given recent volatility. This time last year the $US/$A exchange rate was around 76 cents – during August 2007 the rate has varied between 87 cents to 78 cents.

2.1 World grain outlook

Wheat The downward trend of world wheat stocks since 2001/02 looks set to continue (Table 1). If USDA estimates are correct, the stocks to use ratio will fall below the current lowest ratio of 21.7 per cent recorded in 1965-1966. The low stocks to use ratio is a result of the trend for consumption of wheat to be larger than what is available, and in order to meet such demand, global wheat reserves have been used.

Table 1. World Wheat Supply and Demand, 2000/01-2007/08 (million tonnes)

2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08f

Production 581.5 581.1 567.6 554.6 628.8 622.6 593.0 612.3

World trade 104.1 110.8 110.1 104.5 113.0 112.5 111.3 107.0

Total consumption 583.9 585.2 603.9 588.5 610.1 618.6 619.3 617.5

Ending stocks 206.5 202.5 166.2 132.3 150.9 149.2 124.2 116.6

Stocks/use 35.4 34.6 27.5 22.5 24.7 24.1 20.1 18.9

Source: USDA and Tony Temple (Mercantile Consulting) 2007.

Coarse grains Corn accounts for 70 per cent of the total global coarse grain market, followed by barley with 16 per cent, sorghum at 6 per cent, oats 3 per cent and rye at 2 per cent. Global coarse grain production has stabilised from recent falls in production with forecasts of just over 1,065 million tonnes (Table 2). The increase is linked mainly to corn production in the US, with minor fluctuations to barley forecasts across the major producing countries like Australia, Canada, EU and Russian Federation. Despite over a billion tonnes of production, the coarse grain stock to use ratio remains very tight.

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Table 2. World coarse grain supply and demand, 2000/01-2007/08 (million tonnes)

2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08f

Production 862.3 893.8 875.7 916.1 1016.6 978.3 977.1 1065.6

Total consumption 884.5 907.0 902.7 946.3 979.0 992.6 1009.8 1059.2

Ending stocks 210.0 196.9 169.9 139.7 177.9 163.7 130.9 137.3

Stocks/use (per cent) 23.7 21.7 18.8 14.8 18.2 16.5 13.0 13.0

Source: USDA and Tony Temple (Mercantile Consulting) 2007.

A major influence on coarse grain supply and demand is bio-fuels. Perhaps the best example of how new demand for bio-fuels might influence future grain plantings and price is corn production in the US. Percentages of US corn carryover and exports have remained constant over the last four seasons (Table 3). However, the consumption pattern domestically in the US has changed. It is estimated that food/seed/industrial use of corn has doubled in size from 2004/05 to 2007/08. The increase is being associated with increased demand for corn in the processing of ethanol.

Table 3. US usage of corn 2004/05 to 2007/08 (% and thousand tonnes)

2004/05 2005/06 2006/07 2007/08f

Carryover (per cent) 7 14 13 7

Exports (per cent) 14 14 14 12

Food/Seed/Industrial which includes ethanol (per cent) 31 31 37 48

Feed and residual (per cent) 48 41 37 33

Total consumption (thousand tonnes) 12,943 14,981 15,492 17,028

Sources: Tony Temple (Mercantile Consulting) 2007.

Barley The barley market is predicted to remain tight. The supply and demand situation is illustrated by the continuing, though cyclical, falling of stocks to use ratio (Table 4). The tight supply has not been helped by European crop problems. However, some analysts are suggesting that once Australia’s new season crops become available, the situation may improve. Another positive feature is the forecast increase in Canadian barley production.

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Source: USDA and Tony Temple (Mercantile Consulting) 2007.

Oilseeds There are seven major oilseeds produced globally, with soybean the dominant oilseed holding around 57 per cent share of world oilseed production (Table 5). Other estimates of oilseeds contributing to global production are: canola – 12 per cent; cottonseed – 11 per cent; peanuts – 9 per cent; sunflower seed – 7.5 per cent; palm kernel – 2.5 per cent; and copra – 1.0 per cent.

In 2007/08, consumption is forecast to be larger than production, with the shortfall met through use of reserves. Like the situation with corn in the US, the production of bio-diesel, in this instance and particularly in the EU, is having a major influence on the price of soybeans and canola. The market tightness is well illustrated by the weekly prices of oil on the Rotterdam exchange. Recently, the price of sunflower oil surpassed US$1,000 per tonne, with canola, soya and crude palm oil all trending upwards as well. Interestingly, the effect of idle bio-diesel production capacity in the EU has yet to have an impact on market dynamics.

Table 5. World oilseed supply and demand, 2002/03-2007/08 (million tonnes)

2003/04 2004/05 2005/06 2006/07 2007/08f Opening stocks 53.4 48.0 64.9 73.1 80.3 Total production 324.4 372.0 383.4 395.1 387.5

Soybeans 185.5 216.4 222.0 236.5 224.4 Cottonseed 36.0 45.0 42.7 44.2 44.0 Sunflower seed 27.0 26.4 30.2 30.1 28.6 Rapeseed/canola 39.1 46.4 49.4 46.9 51.0 Other 36.8 37.8 39.1 37.4 39.5

Availability 377.8 420.0 448.3 468.2 467.8 Usage 329.8 355.1 375.2 387.9 401.5 Ending stocks 48.0 64.9 73.1 80.3 66.3 Stocks/usage 14.6 18.3 19.5 20.7 16.5

Source: Thomas Mielke (Oil World) 2007.

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2.2 WA grain outlook Grain production in WA this season looks set to be clearly separated with those areas south of a line from Dandaragan to Kondinin experiencing reasonable to excellent conditions, as opposed to areas north, which unfortunately need exceptional rainfall during August, September and October to reach anywhere near average yields. Currently, the State’s crop production is forecast to be 8.9 million tonnes. The wheat production forecast is 5.6 million tonnes and barley production is forecast as 1.9 million tonnes (Table 6). On the back of good July rainfall, canola prospects have improved to an estimated around 0.5 million tonnes. Lupin production is likely to be small with the majority expected to be kept on farm. The production estimates for oat and field pea are just over 400,000 tonnes and 94,000 tonnes respectively.

Table 6. WA crop production, 2004/05-2007/08 (million tonnes)

Crop 2004/05 2005/06 2006/07 2007/08f Wheat 6.76 10.19 4.19 5.33 Barley 1.77 2.67 1.38 1.94 Canola 0.42 0.57 0.27 0.48 Lupins 0.68 0.88 0.22 0.33 Oats 0.36 0.51 0.23 0.40 Field peas 0.07 0.08 0.06 0.08 Other 0.06 0.06 0.04 0.03 Total 10.12 14.95 6.39 8.59

Source: DAFWA Forecast as at 20 August 2007.

Nationally, in the June 2007 Commodity Outlook, ABARE forecast Australian wheat production to be around 22.5 million tonnes. This is a significant increase from the production in 2006/07 of 9.8 million tonnes. Positive production forecasts in New South Wales, Victoria and South Australia suggest there is a likelihood that domestic wheat stocks will recover after the forthcoming harvest. ABARE are forecasting exports of coarse grains to increase by 74 per cent in 2007/08 on the back of increased production. Australian barley exports have been predicted to exceed five million tonnes. Assuming average yields, production is forecast to rise to exceed nine million tonnes.

The generally bullish market for grain prices is being reflected in prices available to growers (Table 7). However, uncertainty surrounding market arrangements, particularly for pooled wheat, may have an impact on grower’s final returns. The deregulation of the South Australian export barley market from 1 July 2007 has already prompted analysts to report that cash prices in South Australia have exceeded those on offer in Western Australia. Cash prices of wheat may also be impacted by the regulation of bagged and container export trade on 27 August 2007.

Table 7. WA grain pool prices (finalised and quoted) for 2002/03-2007/08 (rounded to closest A$ per tonne)

Grain type 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 Wheat (APW 10 per cent protein) 258 233 199 192 235* 300*

Barley – malting 308 199 222 212 300 270 Barley – feed 238 179 172 177 245 245 Lupins 269 218 190 184 295 Not availableCanola 510 424 342 338 463 470

* Quoted at 10.5 per cent protein. Source: DAFWA, August 2007.

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In terms of grade spreads, based on AWB National Pool estimates, strong international demand exists for quality wheat but this has not yet been translated into price differentials based on protein spreads. This is despite a smaller Canadian crop, quality issues in US hard red winter wheat and European crops. David Johnson, AWB General Manager National Pool was recently quoted as saying: “The world wheat market is being lead by European quality and yield issues, former Soviet Union production concerns and decreased production in Canada”.

Of interest to some growers in Western Australia is the price of durum (APDR). The early August National Pool estimate for APDR was $340 per tonne FOB GST exclusive. The high durum price is a reflection of low yields and poor quality in Europe, and also in Syria and Greece. Prices are expected to be supported, but the durum market remains volatile.

Table 8. AWB National Pool Estimates for 2007/08 ($/tonne FOB GST exclusive)

AH 11.5 per cent

APW 10.5 per cent

ASW 10 per cent

ASWN 10.5 per cent

ASF1 8.5 per cent

AGP 10 per cent

FEED Flat price

304 300 292 308 302 280 220

Source: AWB Limited, 21 August 2007.

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3. ANIMAL AND ANIMAL PRODUCTS

3.1 Cattle Industry Contact: Wim Burggraaf, Livestock and Meat Market Analyst; Tel: (08) 9368 3150

Local industry overview The beef industry in Western Australia (WA) has gone through a volatile period over the past few years. Unfortunately, the cattle herd languishes at around 1.8 to two million head, which has been the case for more than five years.

Despite some difficulties and recent advances, the key issue remains to establish viable export markets that would enable WA beef producers to develop reliable supply chains that deliver a consistent quality and quantity of cattle each year. If WA develops a reputation of being a reliable and affordable supplier of beef, then more buyers may be attracted.

High processing efficiencies, particularly in the large abattoirs in the Eastern States, enable them to offer higher prices for stock. WA abattoirs also need to strive to improve efficiency to ensure processing costs are minimised in order to maximise profit. This should enable the whole beef industry to thrive, such that herds can grow and improve genetics, and the beef industry can expand, support export growth and drive higher returns in all sectors.

Earlier this year, the WA Minister for Agriculture and Food, the Hon Kim Chance MLC, undertook discussions with John Fletcher, the CEO of Coles Supermarkets Pty Ltd. Consequently the Minister, via the Department, invited each of WA’s major processors to meet with three senior meat buyers from Coles with a view to increasing sales of WA meat to Coles stores across the State. Coles has yet to announce which companies will be able to stock the WA stores.

Several companies are evaluating opportunities to develop new processing capacity in WA.

Supply and demand WA beef exports have grown substantially from 2000/01 through to 2004/05 where export values peaked at $147.8 million (Figure 1). Unfortunately, the collapse of EG Green saw exports decline from 33,500 tonnes to 26,600 in 2005/06. In 2006/07, there was only a small rise (778 tonnes) in export volume, but the value of exports improved by 5.7 per cent to $128.9 million, driven largely by the exports to Korea, which is WA’s major market.

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WA Beef Exports

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Figure 1. WA beef exports. Source: Australian Bureau of Statistics (ABS), Department of Agriculture and Food WA (DAFWA).

Australia-wide beef exports are dominated by Japan, which takes 44.2 per cent of total exports by value, with Korea at only 18.1 per cent. WA exporters have focussed on Korea, which imports 31.7 per cent by value of total beef exports from WA compared to 24 per cent for Japan (Figure 2).

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Figure 2. WA major beef markets. Source: ABS, DAFWA.

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Korea is the major market for WA beef as New Zealand has displaced Taiwan in the top five markets. Figure 3 describes WA’s percentage of the total Australian beef exported to major markets to the end of 2006/07. In 2006/07, New Zealand imported 28.2 per cent of beef from WA, while Indonesia imported 21.7 per cent and Korea 4.6 per cent, Japan 1.4 per cent and the US only 0.8 per cent.

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Figure 3. WA percentage of total beef exports. Source: ABS, DAFWA.

The 2007 Outlook for World Agricultural Commodity Markets suggests that beef consumption and production is expected to grow steadily with forecasts of 1.4 to 1.9 per cent per annum, largely because of the growing demand in Asia. Exports could grow sharply by 15-30 per cent from 2006 to 2015. The Food and Agriculture Policy Research Institute (FAPRI) expects beef prices to stay at the current relatively high level, 14 per cent above the average of the past decade.

Brazil is the world’s largest beef exporter and is expected to gain world market share with exports increasing from 1.8 million tonnes to 2.4-2.8 million tonnes as it recovers and controls Foot and Mouth Disease (FMD). Opinions differ concerning Australia and Argentina. FAPRI takes a more optimistic view of Australia’s growth potential than the Food and Agriculture Organisation (FAO). On the other hand, FAO expects Argentina to step up its exports, while FAPRI and the USDA see little change in overall exports from Argentina.

The European Union (EU) is expected to continue to be a net importer of around 0.3 to 0.5 million tonnes of beef per annum. The EU’s own forecast is for an increase in net imports to 0.7 million tonnes. The US, currently facing export problems due to Bovine Spongiform Encephalopathy (BSE), is forecast to resume beef exports to Asian markets, reducing net imports from 1.3 to 0.5 million tonnes.

By 2015, it is expected that China will come close to the US or Brazil in terms of beef production. Both production and consumption are projected to grow by 5 per cent annually. FAPRI expects China to become a major beef importer with imports of 0.5 million tonnes by 2015. The other main importers – Japan, Korea, Mexico and Russia – should also increase import demand.

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According to the Australian Bureau of Agricultural Research and Economics (ABARE), Australian beef production and exports will fall in 2007/08. In response to poor seasonal conditions, the rate of cow and heifer slaughter increased significantly. In the March quarter of 2007, the proportion of female cattle slaughtered increased to 47 per cent. However, assuming improved conditions in the coming year, cattle producers are expected to retain stock for herd building. As a result, cattle slaughter in 2007/08 is forecast to fall by 8 per cent to 8.3 million and beef production by 2.1 million tonnes.

WA cattle and calf slaughter in 2006/07 reached 452,857 head, producing 115,508 tonnes of beef and veal (Table 1). Slaughter numbers in 2006/07 were up by 2.7 per cent on 2005/06 and beef and veal production were up 1.7 per cent. On average over the past 13 years, 53.7 per cent of cattle slaughtered in WA were females, 45.1 per cent were males and 1.2 per cent were calves. When the beef industry kills more cows than steers, it is difficult to expand the herd, and if live cattle exports grow, this will continue to stifle supply for beef processors.

Table 1. Western Australian beef industry production

2002/03 2003/04 2004/05 2005/06 2006/07(p) 2007/08(e)

Beef cattle (‘000) (Est. at 1 July) 1,980 1,815 1,961 1,985 2,008 1980

Adult cattle slaughtered (‘000) 429 463 511 429 449 460

Calves slaughtered (‘000) 5.3 4.7 4.3 3.7 3.7 3.5

Cattle exported live (‘000) 317 310 280 282 310 332

Cattle turn-off (‘000) 752 778 795 715 763 796

Beef produced ('000 t) 105 117 132 112 115 120

Gross value of production (A$m) 478 498 571 510 528 550

Source: ABS/DAFWA (p) provisional, (e) estimate.

The Australian herd is expected to reach 28 million by June 2008, which is a substantial increase of 400,000 from the previous year. Low opening cow numbers in June 2007 leading to a reduced calf crop in 2007/08 will likely limit the herd growth.

The Australian beef processing sector recently underwent a major change. The largest abattoir in Australia by far, Australia Meat Holdings in Queensland, has been taken over by a Brazilian company. This icon plant in Australia is now controlled by J&F Particpacoes South America in an agreement to buy Swift and Co, the third largest processor of beef and pork in the US and Australia. J&F, controlling shareholder of Brazilian JBS (Friboi), and HM Capital Partners, a US based private equity firm, announced they had signed an agreement under which J&F will acquire Swift and Co for US$1.4 billion. JBS’s current market capitalisation is US$3.2 billion. This strategic combination is forecast to generate the world’s leading beef processor. JBS has a current slaughter capacity of 22,600 head per day.

US slaughter continues to be relatively volatile. Total slaughter mirrored 2006 and has trended upward to June 2007, peaking at 686,000, only 63,000 less than the high of 749,000 in June 2003 (Figure 4). US cow slaughter numbers rose in the first two months of 2007 and then stabilised through to May before declining dramatically by 14 per cent through to July (Figure 4),

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US Total Slaughter

500525

550575

600625

650675

700725

750

03 04 05 06 07

US Cow Slaughter

80859095

100105110115120125130

03 04 05 06 07

Figure 4. US slaughters. Source: ABS, DAFWA.

Prices Indonesia and New Zealand pay the highest prices of the top five markets for WA beef.

WA Export Beef Prices by Major Market

2,000

4,000

6,000

8,000

10,000

12,000

14,000

01/02 02/03 03/04 04/05 05/06 06/07

$/to

nne

Korea Japan Indonesia USA NZ

Figure 5. Source: ABS, DAFWA.

Figures 6 and 7 show the trends in wholesale prices for Japanese full sets in Japan. Prices for lot fed beef have fallen significantly over the past few years, and in 2007, prices have stayed around A$10/kg. A similar trend is happening with grass fed fullsets at around A$8.75/kg, although there is some more volatility in the grass fed market.

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Lot Fed Jap Fullsets (AUc/kg)

900950

100010501100115012001250130013501400

03 04 05 06 07

Grass Fed Jap Fullsets (AUc/kg)

750800850900950

1000105011001150120012501300

03 04 05 06 07

Figures 6 and 7. Japan prices. Source: ABS, DAFWA.

Korean dairy steer prices peaked in the first two months of 2007, but have since declined dramatically, falling by 28 per cent from A$12.80/kg to A$9.20/kg (Figure 8). US cow prices rose in the first two months of 2007, but from then on, there has been a gradual decline from A$3.26/kg to A$2.90/kg, a drop of 11 per cent (Figure 9).

Korean Dairy Steer (AUc/kg

500600700800900

10001100120013001400

03 04 05 06 07

US Domestic Cow 90CL (AUc/kg)

240

270

300

330

360

390

420

03 04 05 06 07

Figures 8 and 9. Source: ABS, DAFWA.

National Livestock Reporting Services (NLRS) provides weekly ‘over the hooks’ prices for Japanese ox, Korean (medium steers) and US cow prices (Figures 10, 11 and 12). Prices for each of these categories have been extremely volatile in 2007. Japanese ox prices started at A296¢/kg, before rising to A313¢/kg in March, then declining again in May to A294¢/kg and then rising again to a high A316¢/kg in July. As shown in Figures 10, 11 and 12, similar trends followed for Korean steers and US cow, with the US cow price rising substantially from May to July 2007, up 14 per cent in two months.

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Jap Ox OTH

270

280

290

300

310

320

330

340

350

03 04 05 06 07

Korean Steer OTH

250260270280290300310320330340350

03 04 05 06 07

US Cow OTH

200

210

220

230

240

250

260

270

280

03 04 05 06 07

Figures 10, 11 and 12. Source: ABS, DAFWA.

Figure 13 shows the volatility in live weight prices for trade steers from February 2003 to June 2007. On average, Northern Territory live export steer prices are 173.6 Ac/kg, WA trade steers average 170.4¢/kg and Australia-wide, the average prices for trade steers is 182.5¢/kg live weight. From the high of Australia’s average and the low of WA’s average, there is a discrepancy of 12.1 cents.

Trade Steer Prices (Ac/kg lwt)

140

150

160

170

180

190

200

210

220

230

Feb-

03

Apr

-03

Jun-

03

Aug

-03

Oct

-03

Dec

-03

Feb-

04

Apr

-04

Jun-

04

Aug

-04

Oct

-04

Dec

-04

Feb-

05

Apr

-05

Jun-

05

Aug

-05

Oct

-05

Dec

-05

Feb-

06

Apr

-06

Jun-

06

Aug

-06

Oct

-06

Dec

-06

Feb-

07

Apr

-07

Jun-

07

NT WA AU

Figure 13. Source: ABS, DAFWA.

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Exports

Beef exports According to ABARE, US beef exports to Japan in 2007/08 are forecast to remain well below pre-BSE levels despite the recent decision by the World Organisation for Animal Health (OIE) classifying US beef a ‘controlled risk’ for BSE. This status is the middle ranking in the OIE’s three tier classification scheme, and applies to a country with a record of having BSE cases, but with a proven ability to control the disease, or to countries that have not had cases but have a high risk of the disease being present. For countries with a ‘controlled risk’ ranking, the OIE recommends that countries permit imports of all beef from cattle under 30 months of age and allow beef not containing specified risk materials from cattle over 30 months of age.

At this stage, it is unknown whether or not, or when, Japan will alter any of the key conditions of tits import protocols. It is assumed that current protocols will remain unchanged in 2007/08, therefore preventing any significant increase in US exports to Japan. Considering Japan’s existing protocols, the available supply of US beef suitable for export to Japan is limited with only 5 per cent of US fed cattle having documentation proving chronological age. Additionally, the A40 carcase classification accepted by Japan is very stringent, such that on average, less than 9 per cent of US cattle slaughtered would be classified as A40 carcasses or below. This impacts directly, and positively, on Japan’s demand for Australian beef.

Japan needs to import beef from Australia for as long as the strict protocol on US beef is in place. Despite this, Australian exports to Japan are forecast to fall by 6 per cent in 2007/08 to 380,000 tonnes from 406,000 tonnes in the previous year. The reason for the slump in Japanese imports is due to saleyard cattle prices and associated costs of supplying beef. Australian export prices for grain and grass fed beef are expected to remain high, averaging 518 and 477¢/kg respectively.

ABARE reports that the US and Korea undertook a free trade agreement (FTA) in April 2007, under which Korea has agreed to phase out its 40 per cent tariff on US beef over the next 15 years. Under this agreement, a safeguard provision is to apply if imports from the US exceed 270,000 tonnes in year one – that is 20 per cent above pre-BSE levels, and rising by 6,000 tonnes a year to 360,000 tonnes to apply from year 15 onwards.

The US and Korea are yet to resume negotiations on ‘bone-in’ beef product and other import quarantine issues. Korea has acknowledged the recent OIE decision to classify US beef as ‘controlled risk’ for BSE, but they will conduct their own safety evaluation of US beef. The impending ratification of the FTA between the US and Korea in the US Congress is likely to enhance the incentive for Korean officials to alter current protocols.

Given these developments, Korea is expected to soften its import protocols to allow imports of bone-in US beef, which will significantly improve the US’s ability to increase exports to that market. Bone-in products have traditionally accounted for 55 per cent of total Korean imports with the vast majority being US short rib. Assuming the US is able to gain access in the short term, their comparative advantage in producing large volumes of rib cuts will probably result in higher exports of US beef to Korea.

Despite this potential advantage, the current high US beef prices may constrain Korean imports. The Korea Economic Daily reported that US tenderloin beef had been offered wholesale at 41,000 won (A$55/kg), which is almost double the price of Australian tenderloin and more expensive than Korean hanwoo beef at 38,000 won. Exports from Australia are forecast to drop by 29 per cent in 2007/08 to 110,000 tonnes.

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Higher domestic prices for manufacturing beef in the US and Uruguay are expected to lead to increased US import demand for Australian beef. Cow slaughter is forecast to decline in 2007/08 in the US as pasture conditions improve, and this should create an incentive for US producers to rebuild herds, therefore pushing up manufacturing beef prices. Unfortunately, with the Australian female cattle slaughter also estimated to decline in 2007/08, Australia’s supply of grinding beef will be limited. Australian beef exports to the US are likely to fall by 10 per cent in 2007/08 to 275,000 tonnes. Export prices should increase by 6 per cent to average at A$3/kg.

Despite the ongoing problems in US exports to Korea with the recent detection of spinal column material showing up in some imported cartons, Meat and Livestock Australia (MLA) suggests the A$ against the US$ has taken over as the biggest influence on the beef industry’s export fortunes.

Live cattle exports Australian live cattle exports, according to ABARE, are forecast to increase by 8 per cent in 2007/08, reaching 640,000 head. However, Australian Bureau of Statistics (ABS) reports that to the end of June 2006, cattle exports reached 642,000. ABARE suggests above average seasonal conditions in the northern part of Australia have resulted in higher calving rates, which increased the supply of cattle for export.

Australia’s major market, Indonesia, is likely to increase imports of cattle because of strong economic growth and further investment in Indonesia’s feedlot infrastructure. Australian live cattle exports to Indonesia increased by 40 per cent in the first four months of 2007 to around 125,000. By the end of the 2006/07 financial year, the total grew to 413,000 head, a 15 per cent increase on the previous year.

Live cattle export numbers and values improved in 2006/07. As shown in Figure 14, WA live cattle exports from 2000/01 to 2005/06 have steadily declined from 359,000 to 292,000 head. However, in 2006/07, there was an increase to 302,000 head, up 3.4 per cent while the value of exports increased by 8.95 per cent.

WA's Live Cattle Exports

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

00/01 01/02 02/03 03/04 04/05 05/06 06/07

head

s

0

50,000

100,000

150,000

200,000

250,000

$'00

0's

heads $'000's

Figure 14. Source: ABS, DAFWA.

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Indonesia is the dominant market live cattle exports from WA (Table 2) accounting for 62.2 per cent by value (Figure 15). Because of disputes arising from the Cormo Express incident on 10 October 2003, Saudi Arabia withdrew from importing Australian cattle in 2003/04 and 2004/05. This has now been remedied and Saudi is now WA’s third largest live cattle market. Recent changes have seen Jordan overtaken by the Philippines in the top five live cattle markets.

Table 2. Export from WA to Indonesia − live cattle prices (cents/kg live weight)

Weight (kg) Broome Darwin Fremantle Pt

Hedland Geraldton

Light Indonesia Steer 280-330 175 175 - 165 -

Heavy Indonesia Steer 380-450 160 165 - 155 -

Light Indonesia Heifer 260-360 160 160 - 155 -

Heavy Indonesia Heifer 340+ 150 155 - 140 -

Export Cows 350+ 125 125 - 120 -

Export Bulls - 125 125 - 120 -

Source: Landmark, week ended 5 August 2007.

Top 5 WA Live Cattle Export Markets

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

00/01 01/02 02/03 03/04 04/05 05/06 06/07

$'00

0's

Indonesia Israel Saudi Arabia Malaysia Philippines

Figure 15. Source: ABS, DAFWA.

Figure 16 describes WA’s percentage of the total Australian live cattle exported to the end of 2006/07. In previous years, all live cattle exported to Saudi Arabia were sourced from WA. In 2006/07, Israel imported 92.5 per cent of live cattle from WA, while Saudi Arabia imported 85.7 per cent from WA, Indonesia 47.4 per cent, Malaysia 44.9 per cent and the Philippines 25.2 per cent.

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WA% of Total Australian Cattle Exports to Major Markets

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

100.0%

1Indonesia Israel Saudi Arabia Malaysia Philippines

Figure 16. Source: ABS, DAFWA.

Figure 17 shows the monthly A$/head prices for live cattle up to the end of 2006/07. It seems that over time, the prices of live export cattle are becoming less volatile.

WA Live Cattle Export Prices (A$/head)

$400

$500

$600

$700

$800

$900

$1,000

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

01/02 02/03 03/04 04/05 05/06 06/07

Figure 17. Source: ABS, DAFWA.

Average hide prices in 2007 fell in the first four months from A$64 to A$56, before rising again in May to A$64 and then falling away again in July to A$56 (Figure 18, 19 and Table 3).

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Hide Prices ($/hide)

45

50

55

60

65

70

75

80

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2003 2004 2005 2006 2007

Figure 18. Source: National Livestock Reporting Services (NLRS).

Tallow prices were relatively stable over the first four months of 2007, averaging A$626/tonne before rising to a high of A$818/tonne in June, the highest price since data was first collected in 2003. The price declined back to A$761/tonne in July (Figure 19).

Tallow Prices ($/tonne)

400450500550600650700750800850

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2003 2004 2005 2006 2007

Figure 19. Source: NLRS.

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Beef Co-Product Values (2006/07)

120130140150160170180190200210220230240250260

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

$/hd

Jap grass Jap grain Steer Cow

Figure 20. Source: MLA, Kurrajong Meat Technology.

Table 3. Western Australian cattle industry exports

2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 (e)

Beef (‘000 t) 26.7 30.0 33.5 26.6 26.7 29

Beef (A$m) 101.9 119.4 147.8 120.5 127.2 130

Offal (A$m) 7.5 13.2 18.9 19.3 16.3 17

Live cattle (A$m) 177.3 164.5 174.3 192.1 214.2 230

Hides and leather (A$m) 33.8 20.2 28.8 22.7 21.5 24

Tallow (A$m) 14.4 15.8 7.7 12.2 8.5 11

Total exports (A$m) 335 333 378 367 388 412

Source: ABS, DAFWA. (e) estimate.

Outlook summary The recent 2007 ABARE Outlook shed a positive light on the beef industry for 2007/08. Saleyard prices are tipped to rise by 10.2 per cent and average 323 cents/kg dressed weight, on the back of keen re-stocker demand and cattle shortages (Table 4). After a decline in cattle numbers in 2006/07, the industry can look forward to a small 1.4 per cent rise in cattle numbers. On the other hand, slaughter numbers and beef production are forecast to decline by 7.5 per cent to eight per cent.

Demand for Australian beef in 2007/08 from the major markets of Japan, Korea and the US is set to decline by 6.4, 29.0 and 10.1 per cent respectively, and overall exports will decline by 9.1 per cent. On the whole, export value has remained relatively stable over the past two years, and that trend is forecast to remain in 2007/08.

Overall, the WA cattle industry generated A$387.7 million in export revenues in 2006/07 with beef exports of A$127.2 million and live cattle exports of A$214.2 million, plus A$46.3 million of by-products. With further investments into the industry by producers and processors, and

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mechanisms in place to even out supply of quality cattle, the State’s beef industry should be able to continue to grow further in volume and value.

Table 4. ABARE outlook for the Australian beef industry (June 2007)

2005/06 2006/07 % change 2007/08 % change

Saleyard price-nominal ¢/kg dwt 322 293 - 9.0 323 10.2

Cattle numbers million 28.5 27.6 - 3.2 28.0 1.4

− Beef cattle million 25.7 24.9 - 3.1 25.4 2.0

Slaughterings ‘000 head 8401 9013 7.3 8300 -7.9

Production kt 2077 2228 7.3 2058 -7.6

Exports – US kt 295 306 3.7 275 -10.1

− Japan kt 388 406 4.6 380 -6.4

− Sth Korea kt 121 155 28.1 110 -29.0

− Total kt 892 979 9.8 890 -9.1

US import prices US¢/kg 276 283 2.5 299 5.7

Japan import prices US¢/kg 430 477 10.9 483 1.3

Export value (total) A$m 4272 4372 2.3 4374 0.0

Export live cattle ‘000 head 549 592 7.8 640 8.1

Source: ABARE.

3.2 Sheep meat and live sheep Contact: Ed O’Loughlin, Principal Economist; Tel: (08) 9368 3227

Introduction The sheep meat industry has experienced excellent growth in both the value of production and the value of exports in recent years. Strong export demand is forecast to continue, and the Western Australian industry can continue to perform competitively if constraints in the processing sector can be overcome. However, the dry conditions throughout most of the agricultural area in 2006 and into 2007 will interrupt industry growth, and it will take at least two favourable seasons for the State’s sheep numbers to recover to the recent level of 25 million (June 2004 and June 2005). The forecast population at June 2007 of between 21-22 million would be the lowest since 1964.

The contribution of the sheep meat industry (meat and live exports) increased from A$397 million in 2004/05 to an estimated A$504m in 2005/06. The value of exports has been a key driver over this period, and this performance ranks the sheep meat industry among the highest performing sectors in the agricultural industry. Producer prices for lambs have generally been at attractive levels since 2002/03. In 2006, there was a wide margin between prices received for good quality, finished lambs and underweight lambs as a result of seasonal conditions.

Supply There was a steady rebuilding of sheep numbers in Western Australia from 2002 with the main incentive coming from the prime lamb industry. Alliances between lamb producers and export processors assisted the development of the lamb industry, and these provide a basis

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for future growth. However, throughout most of the agricultural area, the dry season resulted in reduced turnoff of lambs in 2006, and will reduce turnoff further in 2007. In contrast, sheep slaughterings increased in 2006.

Table 1. Western Australian sheep meat statistics

2003/04 2004/05 2005/06 2006/07 2007/08 (f)Numbers as at 30 June (‘000) 25,063 25,592 23,042 21,500 (f) 21,500 Sheep slaughtered (‘000) 1,845 2,205 2,121 2,614 1,800 Lambs slaughtered (‘000) 2,392 2,467 2,798 2,523 2,200 Sheep/lambs exported (‘000) 2,733 2,792 3,401 3,332 2,700 Turnoff (‘000) 6,970 7,464 8,320 8,469 6,700 Mutton produced (‘000 t) (c.w.) 37.1 43.8 45.9 53.6 37.0 Lamb produced (‘000 t) (c.w.) 47.2 49.1 58.1 50.6 44.0 Gross value of production (A$M): − lamb and mutton − live exports

216 184

224 173

- -

- -

- -

Total 400 397 504 436 - Saleyard prices − lambs (20-22 kg, c.w.) − sheep (18-24 kg, c.w.)

383 180

352 166

341 172

324 135

375 200

Source: ABS, DAFWA; (f): forecast; (c.w.): carcase weight.

Sheep numbers and turnoff in Western Australia are shown in Table 1. The lamb and mutton sectors have experienced a period of growth and higher returns in recent years. However, the live export sector contracted due to the cessation of exports to Saudi Arabia, the major market, between 2003 and 2005, and to tighter supplies available for shipment. The resumption of trade to Saudi Arabia in July 2005 has been the key factor in the recovery of live exports since 2005/06.

Exports The value of exports of the sheep meat industry in Western Australia in 2006/07 was $467 million, which was 2 per cent lower than in the previous year (Table 2). The reduced turnoff in 2007/08 and the higher Australian dollar are likely to reduce the value of exports in this period.

Table 2. Western Australian sheep meat exports

2002/03 2003/04 2004/05 2005/06 2006/07 Lamb (‘000 t) (s.w.) 15 20 22 26 22 Lamb (A$m) 78 106 111 131 107 Mutton (‘000 t) (s.w.) 16 19 27 27 35 Mutton (A$m) 51 65 79 80 98 Sheep meat (‘000 t) (s.w.) 31 39 49 53 57 Sheep meat (A$m) 129 170 190 212 205 Sheep offal (A$m) 14 10 4 4 3 Skins (A$m) 12 13 16 25 27 Live sheep (A$m) 268 188 177 234 232 Total (A$m) 422 382 387 476 467

Source: ABS, DAFWA. (f): forecast; (s.w.): shipped weight.

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At the national level, Australian exports of lamb reached a record 150,000 tonnes (shipped weight) in 2006/07, a 5 per cent increase on the previous record set in 2005/06. The United States remains as Australia’s largest export market for lamb, with exports reaching 42,000 tonnes (shipped weight) in 2006/07, and representing 28 per cent of total exports. Further growth is forecast in 2007/08. In contrast to the United States, exports to most other markets are forecast to fall in 2007/08 because of the lower availability of Australian lamb.

National projections Meat and Livestock Australia (MLA) released industry projections in January 2007, and the key findings included:

• Prospects for the prime lamb industry remain bright, as local and overseas consumers look to Australia to supply the steady growth in global demand for the product. However, expansion of the Australian industry is likely to be slower than previously anticipated because of the impact of the dry seasonal conditions throughout much of southern Australian on sheep numbers and productivity.

• Lamb prices are expected to be at historically high levels, especially in 2007/08, with lower production and ongoing strong demand.

• The Australian sheep flock is forecast to fall significantly in 2007, and is estimated to be 95 million at June 2007.

Lamb

• An emphasis on rebuilding flock numbers from 2007 onwards – if seasonal conditions are favourable – will see an increased number of ewe lambs retained by producers for breeding purposes.

• From 2009 onwards, increased lamb slaughter and carcase weights are expected to contribute to a steady growth in lamb production.

• Following an estimated 7 per cent rise in domestic consumption of lamb in 2006, consumption in 2007 is likely to be constrained by reduced production and competition from export markets.

• Australian lamb shipments to the US are forecast to reach record levels in 2007 to 42,000 tonnes, shipped weight. Further export growth to the US is forecast over the medium term, as underlying demand for the product expands.

• US sheep meat production is forecast to fall further, and supplies of lamb from New Zealand to the US are likely to remain steady in 2007.

Mutton

With almost 80 per cent of Australian mutton exported, the significant decline in mutton production forecast for 2007 will be reflected in exports, with a 15 per cent fall predicted. Shipments are likely to be down to all major markets, but more so to the most price-sensitive destinations, such as the Middle East and Africa.

Live sheep

• Despite the limitations placed on exports by supply issues, demand prospects for live sheep are strong, with ongoing growth in spending and food imports throughout the Middle East, and limited capacity to expand global sheep supplies.

• The main restraints to an increase in the Australian live sheep trade over the medium and long term are likely to remain the available supply of suitable Australian sheep and lambs, and the tightening of shipping capacity due to more stringent regulations for live sheep vessels.

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European Union Australian sheep meat exports to the European Union (EU) are restricted by an import quota of 18,786 tonnes, shipped weight, and prohibitive above-quota tariffs. The EU product specifications can readily be met by the Australian industry.

Australia’s case for an increase in quota has regularly been advanced in trade negotiations in the World Trade Organisation rounds. Representatives of lamb producers are again pressing for an increase in quota in the negotiations of the Doha Round.

The total EU quota of 282,752 tonnes is allocated mainly to New Zealand (227,854 tonnes), Argentina (over 20,000 tonnes) and Australia. In 2005, when an additional 10 countries joined the EU, Australia received a quota increase of only 136 tonnes.

The EU is currently 80 per cent self-sufficient in sheep meat production.

Changes in Australia’s lamb industry An assessment by ABARE (April 2007) noted that:

• Strengthening lamb prices over the past 12 years have stimulated significant growth in slaughter lamb production in Australia.

• The case study illustrated the benefits that can be captured by producers who have flexible management practices and a willingness to diversify.

• By responding to market signals and changing farm enterprise mix and flock management, the average slaughter lamb producer has achieved a superior financial outcome than other sheep producers.

In the south west region of Western Australia, the average farm cash income for slaughter lamb producers in 2005/06 was 27 per cent higher than the average sheep industry farm.

Over the 10 years to 2004/05, at the national level the composition of the flock changed with ewes comprising 60 per cent of the flock compared to 48 per cent in 1994/95. In the past two decades, the best performing producers in the slaughter lamb industry have generated considerable growth in labour productivity (ABARE, May 2007).

Retail prices The Australian Food and Grocery Council (AFGC) advised consumers that they should expect price increases across a range of food and grocery categories (Media Statement, 12 July 2007). The AFGC noted that:

• apart from seasonal issues, there are other factors that are now impacting on the cost of producing food items;

• input costs for fuel, fertiliser, labour and other items have increased substantially, and farmers and manufacturers have been absorbing these cost increases;

• at some point, this becomes unsustainable and to remain viable, companies have no choice but to pass some of the costs on; and

• increased food and grocery prices are a reality that people will have to expect if the supply is to be maintained.

Similarly, McKinna Pty Ltd has expressed concerns about recent major reviews that have been conducted by leading supermarkets of their supply chains, and the impact of their cost savings on processors and farmers (Financial Review, 16 July 2007).

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3.3 Pig Industry Contact: Wim Burggraaf, Market Analyst − Livestock; Tel: (08) 9368 3150

Supply and demand A recent report from the 2007 Outlook for World Agricultural Commodity Markets in May suggests pigmeat prices fell by 10 per cent in 2006, largely due to over supply in the market. Growth in world pig meat is forecast to decline to 1.5 per cent per annum as demand slows in developing countries (mainly China) and remains stagnant elsewhere. The Food and Agriculture Policy Research Institute (FAPRI) expects prices to drop slightly further from the high level observed in 2004 when consumers switched to pig meat following the avian flu and the US Bovine Spongiform Encephalopathy (BSE) discovery. However, pig meat prices are generally expected to follow the moderate upward trend of other meats.

The US saw dynamic growth in pig meat net exports in recent years from 0.2 million tonnes to 0.9 million tonnes in 2006. Brazil’s net exports could grow from 0.8 million tonnes to 1.1 million tonnes, depending on domestic demand. It is expected that China’s expansion will slow given the high per capita consumption already attained.

Most institutions suggest net exports of pig meats in the European Union (EU) are estimated to stabilise at 1.5 million tonnes, however the EU’s own recent estimate predicts a lower net export of 1.2 million. By contrast, Canada, which has a robust growth of production and slow growth of consumption, could boost its pig meat net exports from one million tonnes to two million tonnes by 2015.

As expected, Singapore remains the major market for Western Australia’s (WA) pork exports. Figure 1 shows the dominance of the Singaporean market over the past eight calendar years.

Top 5 WA Pig Meat Markets

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

01/02 02/03 03/04 04/05 05/06 06/07

$'00

0's

Singapore New Zealand Indonesia Japan Thailand Other

Figure 1. WA Pig Meat Markets.

In 2006/07, exports to Singapore accounted for 94.1 per cent of total exports from WA, slightly less than last year’s 95.6 per cent. The overall value of WA pig meat exports in 2006/07 reached A$29.7 million, down 7.8 per cent on the previous year. New Zealand continues to be the second biggest market from WA, but the value of exports is negligible at A$565,000.

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The United States Department of Agriculture (USDA) anticipates an increase in production of pork in 2007/08, but exports are likely to decline with weaker sales to Mexico and Russia, resulting in a decline in pig meat prices.

Despite a recent shudder in the pork market, when China suspended imports of US pork from four abattoirs due to traces of the feed additive ractopamine a feed additive, Chinese demand has helped offset the pressure on prices. Domestic pork prices in China are reaching record highs due to a 3 per cent drop in pork production and strong demand. These fundamentals have seen US exports to China increase 50 per cent from last year’s levels. This market will be critical to help absorb increased US pork supplies this year.

As reported by Meat and Livestock Australia (MLA), pork accounts for 64 per cent of total annual meat consumption per capita in China and prices continue to rise. Consequently, the Chinese Cabinet has held an emergency session of Parliament to overcome this issue. The Chinese government is offering subsidies and insurance to pig breeders in an attempt to boost production. It seems Chinese import demand for pork will continue to grow. Imports of pig meat by China from Australia are negligible.

WA % of Total Australian Pig Meat Exports

0.0%

5.0%10.0%

15.0%

20.0%25.0%

30.0%

35.0%40.0%

45.0%

Singapore New Zealand Indonesia Japan Thailand

Figure 2. WA percentage of total Australian pig meat exports.

Indonesia has overtaken Singapore as the largest market in regards to the percentage of the total Australian pig meat exports arising from WA at 41.9 per cent, followed closely by Singapore (34.4%), Thailand (4.4%), Japan (1.1%) and New Zealand (1.5%), as shown in Figure 2.

Singapore accounted for 54.5 per cent of all Australian pork exports by value ($A82.5m) in 2006/07. Other major markets were New Zealand 25.5 per cent (A$38.6m), Japan 6.1 per cent (A$9.3m), South Korea 2.5 per cent (A$3.8m) and Hong Kong 1.8 per cent ($A2.8m).

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WA Agri-Food Industry Outlook − August 2007

29

WA Pig Meat Prices to Top 5 Markets

0

5,000

10,000

15,000

20,000

25,000

00/01 01/02 02/03 03/04 04/05 05/06 06/07

$/to

nne

Singapore New Zealand Indonesia Japan Thailand

Figure 3. WA Pig Meat Prices.

Imports

Pig meat imports from the major Northern Hemisphere markets of Denmark, Canada and the US are likely to be a lot higher than in previous years. Total pig meat import values into WA in 2005/06 reached $26.5 million, while in 2006/07, the total value of WA imports was $22.3 million.

For many years, Denmark and Canada dominated the value of imports of pig meat into WA, but these are declining lately and the US is expanding its trade as indicated in Figure 4.

Value of Imports of Pigmeat into WA

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

00/01 01/02 02/03 03/04 04/05 05/06 06/07

$

Denmark Canada USA China Croatia

Figure 4. Value of imports of pigmeat into WA.

Industry issues The Federal Government has endorsed the pork industry’s Model Code of Practice for the Welfare of Animals, despite a push from animal welfare groups to have the use of sow stalls banned on the basis that these are unnecessarily cruel. Representatives of the States, Territories and the Commonwealth have agreed to support the code of practice, which will allow sow stalls to be used for a maximum period of six weeks, to be implemented over the next 10 years.

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Dr Rebecca Morrison recently reported that individual sow housing has been a contentious animal welfare issue for some time because of the restriction of movement. Industry has therefore agreed to move towards group housing to reflect community concerns. Group housing of sows is already incorporated in many pork enterprises, but further research needs to be undertaken to ensure good welfare and reproductive performance can be attained.

Industry supports the new code, notwithstanding the substantial costs incurred by farmers and their families in making these changes to the farming and housing of pigs. Limiting the use of gestation sow stalls and replacing the reliance on sow stall dimensions with a requirement to assess the adequacy of sows and their suitability to the stall is likely to see new sow stalls being larger. Space allowances for other pig stocks have also been increased, and these must be in place by 2012.

The new code also encompasses regulation of standards regarding competency and skills training for stock handlers. Their animals and their health and wellbeing are fundamental to pig farming practices. Industry leaders strongly support the time frame that has been proposed for the planned changes, and claim that to force these changes would have a detrimental and significant welfare impact on both farmers and the animals.

It should be noted that the new code was developed via an extensive and robust consultation process involving animal welfare groups like Animals Australia and the Royal Society for the Protection of Cruelty to Animals (RSPCA), industry, State and Territory governments and the Commonwealth Scientific and Industrial Research Organisation (CSIRO).

Prices

Aust Pork Prices 2007

220230240250260270280290300310320

Jan Feb Mar Apr May Jun Jul Aug

c/kg

cw

t

NSW QLD VIC SA WA

Figure 5. Australian pork prices. Source: National Livestock Reporting Service (NLRS).

As shown in Figure 5, pork prices plummeted across Australia, except in WA. In the year to August, pork prices in Victoria, Queensland, New South Wales and South Australia declined by 15.1, 21.8, 17.7 and 13.7 per cent respectively. Similarly, bacon prices for these same States have declined by 18.8, 24.5, 21.7 and 22.1 per cent (see Figure 6).

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31

Aust Bacon Prices 2007

200210220230240250260270280290300

Jan Feb Mar Apr May Jun Jul Aug

c/kg

cw

t

NSW QLD VIC SA WA

Figure 6. Australian bacon prices. Source: (NLRS).

Despite some volatility in Queensland and New South Wales, sow prices have remained generally stable, as shown in Figure 7.

Aust Sow Prices 2007

80

90

100

110

120

130

140

150

160

170

Jan Feb Mar Apr May Jun Jul Aug

c/kg

cw

t

NSW QLD VIC SA WA

Figure 7. Australian sow prices 2007. Source: (NLRS).

Live pigs There has been no trade in live pigs from Australia since 2005/06, as live pig exports from WA concluded in 2004/05.

Outlook ABARE Outlook 2007 has forecast pig meat prices to increase by 14 per cent to average 265¢/kg, reflecting lower Australian production and firm domestic demand. Higher prices for other meats (beef and lamb) are expected to underpin increased pork demand and push

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32

pork prices up by a further 4 per cent into 2007/08 to average 275¢/kg. In the second half of 2007/08, however, prices are estimated to ease in line with increased competition as supply of other meats increase.

Over the period 2011/12, ABARE forecasts pig meat saleyard prices to fall in real terms driven largely by increased imports from Denmark and Canada and declining retail prices for substitute meats, especially beef and lamb. In 2011/12, pig meat saleyard prices are projected to average 200¢/kg carcass.

The Australian sow herd is forecast to decline to 280,000 by 2011/012, some 5 per cent less than the June 2007 estimate. As a consequence, pig meat production is projected to fall to 355,000 tonnes.

Australian imports of pigmeat are estimated to increase by a further 2 per cent in 2007/08 due to high domestic saleyard prices for pork and the rising A$. Additionally, lower pig meat prices in the US and Canada will be conducive to a small rise in imports. The trend to higher imports is expected to continue with imports reaching 107,000 tonnes in 2011/12, a rise of 23 per cent above 2006/07 estimates.

Australian pork exports are forecast to decline in 2007/08 as a result of the A$ rise against the US$ and reduced Australian production. Exports are likely to fall to 40,800 tonnes as higher Australian pig meat prices and increased overseas competition reduces export demand. According to ABARE, pigmeat exports will have fallen to 33,000 tonnes by 2011/12, 21 per cent less than the 2006/07 amount.

ABARE Pig Meat Outlook

2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12

Breeding sows 000's 329 305 296 300 297 292 287 281

Saleyard price Ac/kg 243 232 265 275 260 250 235 225

Slaughter 000's 5342 5370 5200 5300 5226 5150 5075 4975

Production KT 389 389 374 381 375 369 362 355

Consumption kg 23.9 22.8 23.2 23.6 23.5 23.6 23.7 23.7

Imports KT 81.5 72.3 86.9 88.4 92.0 98.0 102.0 107

Exports KT 43.5 43.3 41.5 40.8 40.0 38.5 35.0 32.5

Retail price Ac/kg 1071 1158 1170 1214 1220 1235 1245 1260

Source: ABS/ABARE.

3.4 Wool Paul Deane, Market Economist

The prospects for the Western Australian wool industry are determined by the trends and drivers in the global market for apparel wool. On the demand side, these trends and drivers are from apparel retail through to wool textile processing, and finally raw wool demand for Australian and Western Australian wool. On the supply side, this is from the supply of wool from the major sources of the type of wool produced in Western Australia, which is predominately medium merino wool.

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Overall, the prospects for the 2007/08 season are relatively positive for wool prices, which are forecast to average similar levels to the latest season (2006/07). Woolmark Market Intelligence forecasts are for prices to have peaked in June 2007 and be in a relatively mild downtrend through the first half of the 2007/08 season. Driving this are mildly less conducive global conditions for global growth and consumption, and a slowdown through the wool textile pipeline compared to the very buoyant conditions in 2006.

However, offsetting this is a forecast 11 per cent decline in Australian merino wool supply in 2007/08, helping to keep prices higher than what would have otherwise been the case.

Supply Global wool production fell by an estimated 2 per cent or 30 mkg clean in the 2006/07 season to 1,196 mkg clean. This is the fifth consecutive season where global wool production has hovered around 1,200 mkg clean. For medium merino wool, production within the top seven wool producing countries (Australia, China, New Zealand, Argentina, Uruguay, UK and South African) fell an estimated 32 mkg clean or 12 per cent in 2006/07. This was predominately due to the drought in Australia.

Australian shorn wool production fell by 8 per cent in 2006/07. WA shorn wool production in 2006/07 is estimated to have fallen by 14 per cent or 17 mkg greasy year-on-year.

This change in Australian and WA wool production, combined with underlying supply trends in the market, played a significant role in shaping prices in the latest season. Traders and processors became concerned about a shortfall in production, particularly for wool in the 19-23 micron range.

Superfine wool prices have generally under-performed by historical standards over the last five years due to rapid increases in production. Conversely, medium wool prices have breached multi-decade highs in key user currencies in the last 12 months, driven by the longer term decline in production in this segment.

Australian auction offerings were maintained in 2006/07 at similar levels to those in 2005/06, despite the estimated 7.6 per cent decline year-on-year in Australian shorn wool production. This discrepancy arose as growers released on-farm and in-store stocks from previous production years. In-store grower stocks in Australia had their largest decline for many seasons, from a combination of drought (which increased cash flow requirements of growers, encouraging them to sell their stocks of wool) and higher prices. Importantly, this ‘buffer’ in supply will not be available in the 2007/08 season.

According to the latest data from AWTA, in-store grower stocks declined by around 155,000 bales during the 2006/07 season. Most of this decline (just over 200,000 bales), was in the second half of 2006/07. Such a dramatic decline since January 2007 is consistent with anecdotal reports by brokers, with many reporting in-store stock levels drastically lower compared with levels 12 months ago. Stocks of medium merino wool (20-25 micron) in Australia have been run down since 2004, and are now around levels reached in 2002.

Australia-wide, AWTA tested 456.3 mkg greasy in the 2006/07 season, 14 mkg or 3 per cent less year-on-year. This broad decline masked a more dramatic decline in the amount of wool tested for the bulk of merino wool production (19-23 micron) in Australia, justifying the supply concerns in the market.

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Trends in WA test data were an important driver of change at the national level, especially in the decline in medium merino wool. Very poor seasonal conditions throughout 2006 dramatically altered the micron profile of the WA clip, which, when combined with the overall drop in production, had a profound influence on test volumes by micron group.

Percentage of Medium Merino Wool Tested20-25 micron

41%47%

57%52%

78% 81% 83%

38%46%

61%

0

10

20

30

40

50

60

70

80

90

NSW WA VIC SA AUSTRALIA

2005/06

2006/07

Source: AWTA

% of total

For the 2006/07 season, AWTA test volumes in WA declined by 35 per cent to 41 per cent for 21 to 23 micron wool, while 18 micron wool volumes more than doubled. Such large changes, given WA produced around a third of all Australian medium merino wool in 2005/06, ensured that a similar pattern occurred at a national level.

Nationally, AWTA test volumes for the bulk of the medium merino wool clip – from 20 to 22 micron – declined to 186.5 mkg greasy, a 36 mkg or 16 per cent decline year-on-year.

AWTA tested 152 mkg greasy of fine wool (< 19.5 micron) in the 2006/07 season. The proportion of fine wool tested in Australia surpassed the 35 per cent mark for the first time. In recent seasons, the proportion of fine wool tested in Australia has hovered between 30-32 per cent.

Test Weights of Australian Fine WoolTest Weights of Australian Fine WoolBy season, mkg greasyBy season, mkg greasy

0

4

8

12

16

20

00/01 01/02 02/03 03/04 04/05 05/06 06/07

Source: AWTA

mkg greasy

0

5

10

15

20

25

30< 16.5 micron 16.6 – 17.5 micron

+34%

+23%

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35

Within the fine wool category, the increase in the 2006/07 season has been driven by wool finer than 18.5 micron, given the amount of wool tested in the 19 micron category increased by just 1.3 mkg greasy or 1.8 per cent. The amount of wool tested in the 18 micron category (17.6-18.5 micron) rose to 54 mkg greasy, an 8 mkg or 18 per cent increase nationally. The amount of wool tested between 16.6-17.5 micron (17 micron category) increased by 5 mkg greasy or 23 per cent, while for wool finer than 16.6 micron the increase was 2.3 mkg greasy or 34 per cent.

Demand Economic growth is an important driver of demand for apparel wool. The global economy expanded vigorously in 2006, and was at a level usually considered supportive for wool demand and prices. In 2006, global economic growth rose to 3.9 per cent, compared with 3.3 per cent in 2005, the second highest level since the 2001 recession. However, there were significant differences between the major wool consuming countries:

• The economic expansion in the US slowed at the start of 2007 in the face of headwinds from the downturn in the housing market, but oil price declines since August helped sustain consumer spending.

• In Japan, activity regained traction toward the end of 2006, after a soft period earlier in the year, and consumer spending was much stronger during the first half of 2007.

• Robust growth continued in the UK, and in the Euro area, and growth accelerated to its fastest pace in six years in 2006 as domestic demand strengthened – though there was some volatility in Germany due to the January VAT hike.

• The Chinese economy continued to power ahead, and economic growth reached an 11-year high of 11.9 per cent in the March quarter.

-10

-5

0

5

10

15

20

25

China US UK Germany Italy Japan

2005 2006 2007 latest% change year-on-year

Source: CTCOE, ONS, German - Official Statistics, Bank of Korea, Japan Family Income and Expenditure Survey, Chinese National Commercial Information Centre, US-BEA, ABS

Apparel Retail Sales (All fibres)(Real Terms)

For apparel sales in 2006/07, retail sales were assisted by the positive fashion trend towards natural fibres, which saw a good sell-in to the vital A/W 2006/07 season. In many markets, 'wool is cool'. In the just completed autumn/winter season, wool was a key part in both fashion apparel and in interiors, and the continued trend towards cosiness and cocooning added to a leap in interest in natural, ethical products driving awareness of wool as a fibre.

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Major retailers around the world, from the US to Japan, to Italy, Germany and the UK, featured wool in the windows of their flagship stores, trying to capture the shift in consumer desires for natural, “green”, ethical fabrics and fibres.

However, despite the strong buy-in of wool garments in August and September 2006 by retailers, sales were dented somewhat by the unseasonably warm weather. This frustrated sales of heavier winter wool clothing and accentuated the shift in consumer demand towards fine wool apparel.

In China, the largest retail market for Australian and WA wool producers, consumption of wool product was generally disappointing in the first half of the season, as manufacturers focused on more lucrative export markets. However, China’s overall apparel retail sales (all fibres) continue to record double digit growth, consistent with upbeat economic and income growth.

In the US, apparel retail sales growth decelerated through to the first quarter of 2007. Apparel retail was generally tepid in the autumn/winter period, driven by consumer caution and warm weather, despite heavy discounting, but up-market luxury apparel was better able to withstand the headwinds occasioned by rising interest rates and a slowing housing market. Judging by import data and trade reports, knitwear was a key luxury items in this season. In menswear, the top sellers were fine knits, such as cashmere and merino wool sweaters, and luxury outerwear. In women’s, dresses and skirts sold well.

In Western Europe, the UK apparel market continues to out-perform. Meanwhile, apparel sales in Germany and Italy moved into positive territory in 2006 thanks to better business conditions and employment prospects, with Germany most upbeat in the December quarter 2006 as consumers tried to beat the January VAT increase.

Output Stocks at CombingOutput Stocks at Combing

too low

too h

igh

M03 S03 M04 S04 M05 S05 M06 S06

50

-50

0

Balances of responses

2006

Source: Woolmark Business Survey

In Japan, wool apparel sales were disappointing over autumn/winter 2006/07, despite a very strong retail presence. But this is compared with a stronger 2005 that was so bitterly cold that retailers ran out of stocks of wool coats. Sales in 2005 were also boosted by the government’s ‘warm-biz’ campaign, which promoted warmer dressing in offices over winter to reduce energy consumption. Latest consumer spending data highlight a recovery in menswear in the first quarter of 2007, with suit sales particularly strong.

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With a relatively robust retail environment and a prolonged period of strong global economic growth, it was perhaps not surprising that wool textile pipeline was its most positive in five years in 2006 and into the first months of 2007 as manufacturers and processors geared up for what was hoped to be positive retail sales.

The results from the Woolmark Business Survey throughout 2006 were positive, but particularly so late in 2006. The quarterly survey results from over 250 wool textile mills in China, Europe, East Asia, India and Australia showed that pipeline sentiment and order levels improved notably. Also, providing a stimulus to raw wool prices were very low wool combing stocks in China throughout much of 2006.

However, results from the survey for the second half of the 2006/07 season, while still reasonable, are less upbeat than in 2006.

The latest results from the Woolmark Business Survey show that good retail demand for the coming autumn/winter season is supporting global fabric demand and output. But in all sectors, most notably upstream at spinning and combing, demand has passed its peak.

0

20

40

60

80

100

1-Jun-02 1-Jun-03 1-Jun-04 1-Jun-05 1-Jun-06 1-Jun-07

mkg clean

0

120

240

360

480

600

A$ million

Demand for WA wool steady WA wool exports

Source: ABS, The Woolmark Company. Data to June 2007. Note: Data reflects rolling 12 month aggregates

Export value (RHS)

Export volume (LHS)

Western Australian raw wool demand (as measured by the value of WA wool exports) has been relatively steady over the last five seasons, with demand flat at around A$0.5 billion annually. In the short term, the 12 month cumulative value of WA exports appears to have peaked at A$557 million in March 2007, which is a similar value to that reached in the last major price spike in the 2002/03 season.

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Price Australian wool prices rose strongly in the 2006/07 season, with US$ wool prices surpassing levels reached in the 2002/03 season and reaching multi-decade highs. Wool prices in A$ terms rose but did not reach the historical highs seen in US$ as the A$ strengthened against the US$.

Trends in WA Wool PricesA cents per kg clean

300

500

700

900

1,100

1,300

1,500

Jan-0

4Ju

l-04

Jan-0

5Ju

l-05

Jan-0

6Ju

l-06

Jan-0

7Ju

l-07

A cents/kg clean

Western price guidesSource: AWEX,WMI = Western Market Indicator, MC = Western Merino Cardings Indicator

300

500

700

900

1,100

1,300

1,500

Jan-0

4Ju

l-04

Jan-0

5Ju

l-05

Jan-0

6Ju

l-06

Jan-0

7Ju

l-07

A cents/kg clean

300

500

700

900

1,100

1,300

1,500

Jan-0

4Ju

l-04

Jan-0

5Ju

l-05

Jan-0

6Ju

l-06

Jan-0

7Ju

l-07

A cents/kg cleanWMI & 19 micron 21 & 22 micron 23 micron & MC

23um

MC

WMI

19um

22um

21um

The price rises in the 2006/07 season were the continuation of an upswing in Australian wool prices which began in January 2006. After a lull in mid-2006, prices rose sharply over the five weeks to early November 2006 (+14%), and by a similar amount over January 2007. A further surge, driven by fears about a looming supply shortfall, pushed the AWEX Western Australian Market Indicator (WMI) to 1,010 Aus ¢/kg clean in late May 2007. In June, prices fell slightly due to an unexpected increase in auction offerings and further appreciation of the Australian dollar against the US dollar. The WMI ended the season at 944 Aus cents per kg clean, 28 per cent higher than at the start of the season.

While the price increases were strong, Australian wool prices in the 2006/07 season did not rise to the same extent in Australian dollars as in the 2002/03 season, when the last price upturn occurred. In 2002/03, the WMI peaked at 1,210 Aus ¢/kg clean in early January 2003. The high wool prices in the 2002/03 season were also due to supply concerns from a drought in Australia, but were also boosted by a weaker Australian dollar (trading at around US 58 cents). The other main difference was the fundamentals on the demand side. These were much weaker in 2002/03, while for the 2006/07 season, strong demand has been coupled with supply concerns. This perhaps justifies the higher US$ price than in 2002/03, with the WMI peaking at 710 US ¢/kg clean in 2002/03 but at 850 US ¢/kg clean in June 2007.

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Wool Exports to China

30%

40%

50%

60%

70%

80%

1-Jun-03 1-Jun-04 1-Jun-05 1-Jun-06 1-Jun-07

Australia Western Australia

Source: ABS

% of total exports

For Western Australian wool producers, the wool price in US dollar terms is the key price to watch. This is because the Chinese currency is partially pegged to the US dollar, and China now accounts for nearly 70 per cent of West Australian greasy wool exports and is the largest consumer of apparel wool at retail. The US consumer is the third largest user of wool at retail. Further, the US$ tends to be the global currency and a large amount of trade in any commodity is invoiced in US$. All this means that for a large amount of Western Australian merino wool production, the price of wool yarn and garments ultimately must compete at price points in US dollar terms.

WA Wool PricesUS dollar terms (c/kg clean)

758

786

831

865

910

950

800

Season Ending Price

+42%+25520

+48%+25522

+235

+275

+255

+265

+260

2006/07 Season

Δ

2006/07 SeasonΔ (%)

+50%21

+39%19.5

23

19

WMI

+45%

+39%

+48%

Source: The Woolmark Company, AWEX, RBAWMI = AWEX Western Market Indicator

450

550

650

750

850

950

1050

Jan-

03

Aug-

03

Mar-0

4

Oct-0

4

May-0

5

Dec-0

5

Jul-0

6

Feb-

07

US cents/kg clean

19um

21um

By micron range, Western Australian medium merino wool prices outperformed fine wool prices in 2006/07, a reflection of the supply situation (drought) in 2006 in Australia and WA. However, this is also part of a medium term trend. Fine wool prices, especially superfine wool prices, have been subdued due to large increases in supply. Between the 1996/97 season and the 2006/07 season, Australian auction offerings of 18 micron wool increased by 86 per cent and the season-average price increased by 11 per cent, while auction offerings of 23 micron wool have fallen by 64 per cent and the season-average price has risen by 41 per cent.

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Outlook A key difference facing the market at the beginning of the 2007/08 season versus the start of the 2006/07 season is the much higher starting point of prices. This adds to the downside risk for prices, especially over the next five months. Western Australian and Australian merino wool prices appear to have peaked (in May/June 2007) and are trending downwards.

This mild downward trend has picked up pace in the first auction after the three week recess, with the western market falling by 6 per cent due to uncertainty about China’s quotas. Woolmark Market Intelligence forecasts are that prices have peaked and will continue a relatively mild downtrend through the first half of the 2007/08 season. There is likely to be some volatility around this trend. Driving this are mildly less conducive global conditions for global growth and consumption and a slowdown through the wool textile pipeline compared to the very buoyant conditions in 2006.

However, despite some easing of prices expected in the first half of 2007/08, fine and medium merino wool prices are forecast to remain relatively solid in 2007/08, especially when compared with prices experienced in 2004 and 2005, averaging similar levels to that achieved in the 2006/07 season. Prices are forecast to remain relatively strong, despite some easing on the demand side, because Australian wool supply (production + stocks) is forecast to drop by 30 mkg greasy or 11 per cent year-on-year in 2007/08.

One key market risk facing any Australian exporter currently is the continuing rise of the Australian Dollar, which tends to reduce the price paid to the exporter (Australian woolgrowers) in local currency terms.

Because almost all Australian merino wool is exported and ultimately consumed in other countries, movements in exchange rates between Australia and countries such as China, USA and Japan and movements in wool prices dictate the price consumers ultimately pay at retail. Further, because yarn and garment manufacturers in the textile pipeline find it incrementally more difficult to pass on rises in input prices, raw wool prices tend to not rise indefinitely regardless of how tight supplies are. This is why evaluating wool prices in key user currencies is important, as this removes the ‘noise’ created by exchange rate movements.

On the supply side, the outlook for the majority of WA wool producers is decidedly supportive of good prices.

For 18 and 19 micron wool producers, the supply outlook has not looked this positive for some time. In both these categories, the medium term trend has been for either stable production levels (18 micron) or mildly declining production volumes (19 micron).

This has meant that 18 and 19 micron wool stocks did not increase by the magnitude of 17.5 micron and finer wool over the last four to five seasons. This has allowed, due to the strong demand conditions experienced in 2006/07 and supply concerns late in the last season, for in-store grower stocks of 18 and 19 micron to fall rapidly over the last six months. Stock levels as a result have fallen well below 2004 levels and in the case of 19 micron wool, in-store stocks are back to levels last seen in the 2002/03 season.

Combined with reports of much lower on-farm stocks and forecast declines in shorn production for 18 and 19 micron in Australia for the full 2007/08 season, this bodes well for prices over the next 12-18 months.

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Similarly, Australian in-store stocks of medium merino wool are starting the season at their lowest level for several seasons. In particular, Australian in-store stocks of 20-22 micron wool have reduced at a more rapid rate since December 2005 than 23-25 micron stocks.

For Australian medium merino wool production, a slightly (+3% clean weight) increase is forecast in Australia for the 2007/08 season, despite an overall forecast fall of 4 per cent for the entire clip.

This increase in medium merino clean wool production in Australia is the result of a forecast increase in the proportion of wool in this segment and an improvement in clean yields – both the result of improving seasonal conditions in south eastern Australia. The Western Australian micron profile is not forecast to alter significantly in 2007/08 compared with 2006/07, given the tough start to the season in most areas. This has helped to curtail any large rebound in medium merino wool production. The majority of this increase in medium merino wool production in Australia is not expected to occur until the second half of the 2007/08 season as fleece weights rebound. This should mean that medium merino wool prices will continue to perform well against fine wool for at least another five months.

Inversely for fine wool, as sales progress into calendar year 2008, the influence of the 2006 drought should have subsided, with shearings in the second half of the 2007/08 season expected to yield a broader micron profile from the improvement in seasonal conditions in parts of Australia. This, combined with a forecast cyclical upturn in wool prices around midway through calendar year 2008, should see fine wool prices starting to strengthening at a time when wool prices are generally strong on a seasonal basis – May and June 2008.

3.5 DAIRY Contact: Andrew Weinert; Tel: (08) 9780 6266

There is realignment or a correction taking place in the dairy industry at the moment as the world market responds to the changes in agricultural policy. This is resulting in significant price rises and extremely strong demand that is not being met by local producers.

The significant changes are:

• the reduction in intervention payments (government support of farm gate prices at times when the market does not support the production of specific products);

• the change from production-based farm subsidies to single farm payments; and

• the reduction of all variable export subsidies for all dairy products to ZERO (these subsidies could be reinstated at any stage and are reviewed fortnightly).

These changes have resulted in the reduction of stocks of commodity dairy products in both the EU and the USA. This is now being reflected in the world prices rising up to levels equivalent to internal EU and USA prices.

World prices for dairy products have achieved record high levels throughout 2007, with the expectation of prices remaining high for the next 18 months to two years.

Australia’s (including Western Australia) dairy production has been impacted over the last 12 months by two factors − the reduction in farmer numbers and high prices for feed for dairy cows, both a result of the dry season. Western Australian production is currently 8 per cent lower than this time last year. Australia’s national milk production is down 5 per cent on the previous year, which amounts to approximately 500 million litres; this is more than the total of Western Australia’s production.

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A new impact (positive) of increased farm gate prices will come into play over the next 12 months across Oceania. In July 2007, the major cooperatives have released opening season prices 30 plus per cent higher than last year’s prices.

There has been continuing investment in large dairy farms in Western Australia with the major investment group now in the preparatory stages of establishing their fifth farm. Local farmers are increasing their herd numbers to improve profitability, while industry leaders are promoting the opportunity for new investment at farm level to take place. The new price levels will improve the financial viability of these investments. Dairy farms in Western Australia have been benchmarked favourably by the International Farm Comparison Network based in Germany and also nationally with a local benchmarking project conducted by Redsky Agri.

The Australian processing sector is looking at a strong investment phase with international dairy commodity prices at all time highs. The changes in policy and stock levels in the EU are having significant effects on investment decisions nationwide. Challenge Australian Dairy is commissioning its new processing equipment. Harvey Fresh is expanding its operations to incorporate sales to major supermarket chains such as Woolworths and international clients, and several boutique dairy operations, such as Margaret River Cheese, the Old Cheddar Cheese Company and Casa Dairy, are expanding their operations. Internationally, there are possibilities of changes in corporate structures of the two multinational players operating in the State. National Food’s owners, San Miguel, are in discussions with Kirin about new ownership models and there are reports of Fonterra’s Australian operations changing their corporate structures, possibly including the purchase of Dairyfarmers’ Cooperative, which is based in NSW.

There has been an increase in demand for fresh milk concentrates in South East Asia due to rapid rises in prices for powdered milk products and butter. This demand and confidence in the local dairy market has resulted in price rises for raw milk by all the major processors. Internationally, the outlook is good. Demand is strong, interest rates are low and stable. The prices for cheese and butter have increased in line with the price rises of skim milk and whole milk powder. One effect of the high skim milk prices is the rapid increase (doubling to tripling) in whey powder prices, as it is substituted for skim milk powder that is now more expensive or not available. The exchange rate has risen to US $0.85-$0.87 to the Australian Dollar and the value of the Australian Dollar has increased against the Euro to E$0.63 – the highest in many years. This is normally a depressing factor on international prices, but this time the price rises have outstripped the exchange rate change.

Stock levels of butter and skim milk powder in the EU and USA were lower than they have been for many years. Butter stocks are dropping in Europe due to policy changes, reducing intervention prices in times when demand is low. Butter stock levels in Europe and the USA are 100,000 tonnes lower than at this time last year. An interesting development in the last month is that the USA is exporting butter to Europe, which is a new phenomenon. There may be changes in demand for cheese from Japan in the medium term as there is government support for the building of cheese factories in Hokkaido. This may be countered by reduced supplies from Europe. European skim milk powder stock levels are at zero and have remained there since June 2006. The US levels are the lowest since before 1999 and are still dropping, being 30,000 tonnes lower than this time last year.

These changes are having effects on the worldwide dynamics of the dairy supply chain. Demand for dairy products has increased worldwide, while the Australian supply has remained constant. Australia’s total production of milk, in the six months to January 2007,

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decreased 2.5 per cent from the same period in 2006. In Western Australia, year on year production has reduced as a result of the dry season this year. Summer production figures dropped as expected and winter production levels are expected to increase slightly.

The demand for dairy heifers for the export market still exists. Orders are also being received from Mexico and Turkey, which has been a regular destination for Western Australian dairy heifers.

Supply The supply of dairy product on a worldwide export or traded basis has reduced due to political changes in Europe (modifications of their support payments, export refund policies and the inclusion of new member States). The inclusion of 10 countries into the EU has increased the volume produced by the EU by 14 per cent, yet this milk is not excess to demand, and these changes are affecting the internal dynamics of milk trade in Europe. There is pressure from within Europe to use milk produced by the new member States. There are also reduced supplies from Australia due to drought conditions, and there were poor seasonal conditions in New Zealand that have restricted world supply.

The volume of milk produced in Western Australia has decreased on the previous year due to the dry season and the ongoing management changes that favour seasonal production (more volume in the winter months and less in the summer months). These changes reflect accounting based management versus quota lead management. Production changes in the near future are likely to be more weather related than management (constant volume) based.

International literature discussing the production of milk in Australia focuses on the effect of the drought on Australia’s Eastern Seaboard. Western Australia’s strength in the dairy industry is the repetitive and predictable weather patterns that provide a Mediterranean climate with cool wet winters and warm dry summers. Western Australia is a reliable producer of dairy products with room to expand, which is due to a combined grain harvest of over 10 million tonnes and a large fodder harvest that provides supplementary feed for cows.

Demand Global demand for dairy products is expected to strengthen further over the next few years. Skim milk powder stocks in the United States are down from a high in mid-2003 of 600,000 tonnes to 42,000 tonnes in March 2007, and European stock levels have been cleared. Butter stocks are dropping on a year on year basis, particularly in Europe where the levels are 70,000 tonnes lower than 12 months previously.

The demand for drinking milk in South East Asia is increasing. Western Australia is ideally situated to supply these markets and has been doing so for decades. The demand for cheese on the export market could change, specifically as a result of Japan’s development of cheese processing factories, brought about by changing consumer patterns. The full effect of this will take years to be expressed. Investment in processing in Western Australian is being focused on the supply of dairy products to South East Asia. The demand for quality dairy products in this area is rising and Western Australia is the closest supplier to the market.

The volatility of the currency markets has had an impact on off-shore investments and trade in the dairy industry in Western Australia. These effects are expected to continue, with concern also being raised at the high price of oil. The increase in international demand for corn as a substrate for ethanol production is likely to increase the international input costs for milk. The long-term effect on costs is unknown. Milk produced in Western Australia is

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supplemented with grains to a level of approximately 20 per cent, although the majority of milk is produced on grass. This will remain a long-term sustainable advantage for milk producers in Western Australia.

Prices All dairy prices have increased to unprecedented levels over the last six months. These are associated with the following conditions:

• Low stock levels in the EU and USA.

• Significant reductions in subsidy support at the farm, processor and exporter level in the EU.

• Drought conditions in Australia.

• Floods in South America; and

• Increased demand in Asia.

The major change in the last three months has been the increase in butter prices with the growth continuing. The latest quoted prices for butter are USD$ 4,800 per tonne, and on 6 July, these equated to a farm gate price for the fat portion of the milk only at approximately AUD$ 0.25 per WA litre. This is more than a total return for milk for the last seven years. Skim milk powder prices appear to be levelling off at approximately AUD$ 5,600 per tonne. The farm gate return for this is much higher than the butter return and will result in huge farm gate returns if sustained, the question will be − for how long is this price level going to remain?

It can be noted that these events have raised Oceanic prices to those that have been sustained in the EU for some time. So it could be seen as market equalisation, rather than an unprecedented rise in prices.

According to ABARE, these price levels are expected to remain for the next 18 months.

Risks related to these prices include:

• substitution of other products for the desired functionality;

• increased production in other areas;

• a relaxation of the quota system that holds back production in Europe;

• the imposition of trade barriers in our traditional markets; or

• other unexpected turns of events.

Exports Demand for all dairy products is at an all time high with large numbers of enquiries received from around the world. Processors with contracts to supply fresh milk to South East Asia are growing this business.

The US has started to invoke some dairy export incentive program subsidies for dairy products, although these have not reduced the high world prices ($US). The US is exporting product to Europe, which is the reverse of the situation for the last few decades.

This is positive for Australian exporters as there is no market distortion coming from either of these sectors.

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Outlook The continuing changes in EU policies, which are reducing on-farm subsidies, intervention pricing and export refunds, are improving the outlook for Western Australian dairy processors.

In the short term, the demand for all dairy products is extremely high and is expected to continue for 18 months. In the US, production costs are increasing due to the demand for corn as a feed stock for the biofuel industry. The long-term outcomes of these changes have not been analysed.

The changes in European policy related to internal support and export subsidies also are beneficial to Western Australian producers. Western Australia’s low cost, pasture based dairy industry is expected to remain a competitive option for worldwide supply of dairy products.

The biggest question at the moment is: How can existing producers meet the demand for milk followed by: “How can the industry grow to a level that will support processing plants that are world scale?” This is necessary for the long-term survival of the dairy industry.

The outlook for the dairy industry in Western Australia is positive.

3.6 GOAT INDUSTRY Contact: Tim Johnson; Tel: (08) 9368 3585

Supply The Meat and Livestock Weekly (MLA) website (6 July 2007) reported that drought breaking rains throughout the Eastern States in March had tightened supply. Figure 1 shows that abattoir processing throughput fell sharply from 90,000 goats per week to below 50,000 per week during April. This trend follows similar seasonal declines of the previous two years and it is anticipated that deliveries of goats will not increase until the end of winter in August. Most goat abattoirs use this quieter period to complete plant maintenance activities before increases in deliveries resume in August/September.

Figure 1. Goats processed in Eastern States (2005 to 2007). Source: National Livestock Reporting Service.

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Western Australia has a similar pattern of delivery during normal seasons. When the southern rangelands receive normal winter rain events, goat deliveries are disrupted and sometimes stall altogether, as was the case in 2004 (see Figure 2). However, in the past three years, due to relatively dry winter weather, goat deliveries to abattoirs continued albeit on a reduced scale compared to the spring flush period.

Western Australian Goat Slaughterings

05000

1000015000200002500030000350004000045000

July

AugSep

tOct

Nov Dec Jan

Feb Mar AprMay Ju

n

Months

Num

ber 2003/ 04

2004/ 052005/ 062006/ 07

Figure 2. Western Australian goat slaughterings.

Demand According to MLA, Eastern States prices, Over the Hook (OTH) prices, for the first quarter of 2007, were about 12¢/kg higher than the same period in 2005. This was mainly due to lesser numbers being available (due to summer rains). The number of goats processed by abattoirs in first quarter of 2007 was about 26 per cent lower than the same period in 2006, which was an exceptional year of processing.

OTH prices for goats for the January to March period were similar to the same period in 2006. However, in April 2007, prices dropped 14¢/kg compared to April 2006, when demand was stronger due to rainfall restricting access to goat populations. Also in April 2007, the Australian Dollar broke through the 83 cent barrier at a 17 year high.

Goat meat

Table 1. Comparison of Australian goat meat exports (tonnes)

State 2005/06 2006/07

New South Wales 319 312

Victoria 5,391 4,626

Queensland 6,430 7,372

South Australia 1,462 2,024

Western Australia 4,302 3,658

Australia 17,904 17,992

Source: DAFF.

MLA reports that the following factors are affecting the international demand for Australian goat meat at the present time.

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Mutton prices In late 2006, high numbers of sheep were processed due to the drought in the Eastern States, leading to large volumes of mutton being traded on the international market. At that time, goat meat was trading at three or four times the price of mutton, which caused competition in those markets (in particular the US) seeking meat for slow wet cooking techniques. It is reported that some of this cheap mutton is still in cold storage and continues to be a substitute for goat meat.

Warm winter in the Northern Hemisphere Traditionally, our largest markets Taiwan and the US consume most goat meat during the colder weather. The period from December 2006 until February 2007 was relatively warm, which caused Chinese consumers to seek alternative cuisine to traditional hot pot dishes, reducing their demand for goat meat.

Drought The drought conditions experienced throughout eastern Australia has concentrated goat numbers around watering points, allowing easier mustering activities. This situation has resulted in large numbers of pastoral goats being delivered to processors.

Exchange Rates About 95 per cent of Australian goat meat is traded in international markets. The present value of the Australian dollar compared to the US dollar (highest in 18 years) is causing some concerns within the industry. It remains to be seen as to whether the higher prices have any significant impact upon the international demand for goat meat during the peak demand period of September through to early 2008.

Table 2. Major destinations for Australian goat meat exports

Country 2005/06 tonnes

2006/07 tonnes

USA 9,800 10,458

Taiwan 5,488 4,370

Caribbean 1,265 1,454

Canada 826 1,083

Japan 177 157

Singapore 21 24

Korea, South 132 192

Malaysia 61 65

Mauritius 32 69

Total 17,802 17,872

Source: DAFF.

Table 2 shows an increased demand in Canada, The Caribbean, South Korea and the US. Although Taiwan declined by about 20 per cent, on a year on year comparison, it remains as a reliable and high value market. The main reasons offered for this decline included the warmer winter period experienced in 2006 and the higher value of the Australian Dollar.

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Eastern States OTH prices at 6 July remained generally unchanged; trading continues to be slow with the higher Australian dollar contributing to this situation. Buyers are currently offering maximum price levels at 240 ¢/kg carcase weight, with averages at around 225 ¢/kg.

In Western Australia currently, prices remain at levels created in mid January 2007 ($28 to $30 per head).

Domestic goat meat

Table 3. Indicative prices for goat meat from local markets throughout Australia

Average A$ cents/kg Grade Price range*

A$ Cents/kg dressed wt Australia Western Australia#

Capretto under 8 kg 300 300 500

8.1 to 10 kg 140 to 230 190 500 for < 9 kg

10.1 to 12 kg 200 to 240 225 200

12.1 to 16 kg 200 to 240 230 200

16.1 to 20 kg 200 to 240 227 175 to 190

20.1 kg and above 200 to 240 220 175 to 190

* Prices ¢/kg carcase weight, skin off, A$. Source: MLA 'National Over The Hooks Goat Report' week ending 6 July 2007. # WA price is price offered at two export abattoirs in Geraldton and Gingin. Geraldton offers price/head basis while Gingin offers based on carcase weight, skin off.

Live goats The MLA website shows 43,767 live goats were exported during 2005/06, at a value of about $7 million (Table 4). In 2006/07 to date, this figure reached 72,339 by end of May (figure for June 2007 is not available) at a value of about $11.5 million. Malaysia continues to be the principal market, importing Boer and Boer cross goats for breeding and rangeland goats for slaughter purposes. Over the past five years, Malaysia has imported an average of about 36,000 goats per year from Australia. Present prices range from $300 for Boer breeding goats to $50 per head for Boer cross males and females. Apart from good demand from Malaysia and Brunei, there are new markets opening in Indonesia and the Philippines for breeding goats. In May 2007, an inaugural shipment of 3,490 breeding goats was consigned from Australia by air freighter to Jakarta.

Table 4. Live goats exports

State 2005/06 2006/07*

NSW 1,116 10,058

NT 5,660 4,311

Qld 1,385 17,507

SA 13,344 19,701

Vic 3,560 5,972

WA 18,702 14,790

Total 43,767 72,339

Source: ABS. Until May 2007*.

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Western Australia’s contribution to total live goat exports has declined over recent years (Table 5). For a long period (early 1990s until 2004), WA contributed an average of 60 per cent of Australian goat exports, but this declined to 54 per cent in 2005 and 27 per cent in 2006. Of the national total, South Australia is an increasing supplier of slaughter goats (about 30 per cent) while New South Wales and Queensland are supplying the increasing demand for Boer cross breeding goats.

Table 5. Exports of Live Goats from Australia and WA

020,00040,00060,00080,000

100,000120,000140,000

Number

2000 2001 2002 2003 2004 2005 2006

Year

Exports of Live Goats 2000 to 2006

AustraliaWest.Australia

Goat fibre

Cashmere A recent industry report (www.GSchneider.com) has indicated that China, the world’s largest cashmere producer, is attempting to reduce the number of cashmere goats on the grasslands of Inner Mongolia. The strategy has been to cull high numbers of lower producing goats and replace these with a much reduced number of heavier cashmere producing goats. To achieve this plan, cashmere goats from Liaoning province (adjacent to Korea) have been used to infuse or replace the lower producing goats within Inner Mongolia.

The 2007 season, is the first opportunity for industry to view the results of this crossbreeding scheme. Textile specialists have commented that the ‘Chifeng’ cashmere is slightly 'coarser' than the traditional Inner Mongolian cashmere. Chifeng cashmere, for instance, which was 15.2/15.3 in micron, has now become 15.5. To date, there has been no information provided on the fleece weights of the new crossbred cashmere goat.

The Government of Mongolia is considering the possibility of introducing a new tax on various raw materials including Cashmere.

The increased tax is believed to be about the equivalent of USD 4.30 per kg on each kilogram of dehaired cashmere or USD 8.60 per kg on each kilogram of greasy cashmere exported from Mongolia.

The existing tax was applied only on greasy cashmere, equal to USD.3.44 per kg.

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Mohair In May 2007, a new competitor began bidding alongside the three established buyers of Australian mohair. The company, from Hong Kong, was actively seeking lines of longer length for application as fashion wigs. Prices paid were about $1-$5 premium above market rates.

Overall, auction prices paid in NSW in June reflected a downturn in the international market for mohair. Recent sales averaged $11.65/kg, with best fine kid fibre achieving nearly $23/kg and adult lines about $11/kg. Industry commented that these prices were reasonable given the high Australian dollar and uncertainty experienced within the South African industry, the world’s largest producer.

In South Africa in June, the last sale for the season reported a moderate decline of about 4 per cent across all mohair classes. However, demand was strong with clearance rate of 90 per cent or more on all lines (kids, young goats and adult).

Outlook

Goat meat Australia exports about 95 per cent of its goat meat product to about 15 countries on a regular basis. The present market situation has some short term challenges, which have been described in this article. It is anticipated that over time, these constraints can be worked through to enable Australia to meet the expanding international demand for goat meat

Live goats The demand for Boer and Boer cross goats for breeding stock from Malaysia is likely to continue during 2007. In addition, new markets have recently been developed in Indonesia and the Philippines for Boer and Boer cross breeding goats. The challenge for Australian producers is to build numbers to meet the likely demand in the short term.

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4. HORTICULTURE Contact: Dick Taylor, Development Officer; Tel: (08) 9368 3686

The gross value of Western Australia’s horticultural production in 2006/07 is estimated at A$630 million, up from A$598 million in 2005/06. The value of horticulture exports in 2006-07 is estimated at A$209 million, including sales to the Eastern States of around A$80 million. Western Australia’s horticulture industry is thriving on local and Eastern States market opportunities, but is facing difficult times in international markets with strong competition and a higher Australian dollar impacting on exports. The dry winter in 2006 led to reduced water supplies for irrigation and early maturity in fruit and vine crops. Increased growing costs and labour shortages have also impacted on the industry.

The vegetable industry is the largest horticultural sector in Western Australia, and its production value is expected to increase slightly to A$220 million in 2006/07. Western Australia’s vegetable exports declined 6 per cent in value in 2006/07 to A$48 million. Carrot exports continued to recover, but there was a further decline in exports of other vegetables, particularly celery and cauliflower. Competition from China in Singapore and Malaysia markets and a strong Australian dollar has led to a sharp decline in exports of cauliflowers in the past five years, while the rejection of shipments of celery to the UAE by AQIS because of live springtail insects has virtually closed that market and resulted in lower celery exports.

The gross value of the Western Australian fruit and nut industries is expected to be around A$179 million in 2006/07. Stone fruit production recovered in 2006/07, but declining returns from export meant more fruit was directed to the local market. The loss of official market access to Taiwan continues to impact on the stone fruit industry and is unlikely to be resolved in the short term. The early maturity on some lines led to shortages late in the season with consequent higher prices and the import of some fruit to meet demand.

The Eastern States remain an important market for fruit and vegetable producers able to supply product to supermarket specifications. This is likely to increase in 2007/08 if water allocations are cut for Eastern States producers, which seems likely in many areas. The domestic demand for fruit and vegetables remains steady, with further adjustment likely in the retail sector, including supply arrangements. The major supermarkets are focusing on improving performance through gaining greater supply chain efficiencies in packaging, distribution and transport, costs which are often absorbed by the grower. This often involves sourcing interstate or overseas product at the expense of product from the local industry. However, there is a growing trend for consumers to source fresh produce from local and independent markets that guarantee freshness and quality with a link to local producers.

The fresh food sector is being promoted as a means of increasing consumer well-being and health, and a way to reduce the ever increasing health costs to the community. The importance of the local fruit and vegetable industry to the State is to be supported by a campaign to be launched in September called ”Buy West, Eat Best”.

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4.1 Fruits

Citrus Contact: Nathan Hancock; Citrus Industry Development Officer; Tel: (08) 9368 3780

Citrus yields were severely affected by albedo breakdown and splitting of mature fruit in 2005/06. This year, the incidence of albedo breakdown is minimal, and quality across all varieties is excellent. Prices are firm, although movement of fruit from the market floor is traditionally slow for this time of year.

The Ord River region produced over 1,000 tonnes of red grapefruit in 2006/07. Planned improvements in infrastructure will increase efficiencies in the harvesting and packing of future crops. Harvest was completed in May, and fruit was sent to Singapore, Hong Kong, Taiwan, The Netherlands and Canada as part of market development for Western Australian red grapefruit. These will be difficult markets to succeed in as South Africa is already established as a low cost supplier. However, it is expected that the quality of the product will give growers some leverage.

Results from trials of fruit fly cold disinfestation of citrus completed by DAFWA in conjunction with Horticulture Australia Limited are to be considered by the Ministry of Agriculture, Forestry and Fisheries in Japan. It is hoped that this work will gain Kununurra access to the Japanese market, which is a large consumer of grapefruit, currently importing on average 220,000 tonnes per year. Forecast production from the area is 10,000 tonnes of grapefruit under current management plans.

Harvest from properties in the Moora district will begin in 2007/08. West Gingin is also expanding with existing growers continuing to plant varieties of Navels and easy peelers such as mandarins and hybrids. Opportunities exists for increased Valencia production, which has declined in recent years as growers favoured planting of fresh eating varieties. Demand for orange juice concentrate is at record high levels, which is reflected in the price.

Citrus production in Western Australia is expected to reach 19,000 tonnes in 2007/08 which is just over 3 per cent of Australia’s forecast production of 600,000 tonnes. Australia exported 160,000 tonnes of citrus in 2005/06, consisting predominantly of Navel varieties (63 per cent) to the United States (30 per cent of Navels exported went to the UA).

Ironically, in a year dominated by fears of nil water allocations the citrus industry, the Eastern States is having a bumper year, with high quality fruit and record packouts. It is estimated that in 2006/07, 32,000 tonnes of citrus will be exported to the US, with 48 per cent of that from the drought affected area of South Australia’s Riverland. Exports to the US in 2005/06 were down to just 21,000 tonnes due to frosts affecting growing areas in Australia.

Citrus outlook in brief:

• In Queensland, more than 55,000 citrus trees have been planted since the ban on commercial planting was lifted on 1 July. Crops in the Emerald area (Qld) were destroyed after the discovery of citrus canker three years ago.

• Brazil and the US, who are traditionally competitors in the orange juice market, have become allies in the fight against citrus greening. Citrus greening or huanglongbing (yellow shoot) is considered one of the most serious threats to the citrus industry. A bacterial disease, citrus greening affects all types of citrus species and causes infected trees to yellow, decline, and possibly die within a few years of infection. Spread by an insect, the Asian citrus psyllid, citrus greening has significantly impacted on citrus

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production in Asia, Africa, and Brazil. Citrus greening has spread from eight to 23 counties since it was first found in Florida just a little more than a year and a half ago. Once citrus trees are infected, the fruit yield, rate, and quality are greatly reduced. The trees also become susceptible to other diseases and health problems. In some areas of Brazil, citrus greening has affected as much as 70 per cent of the fruit rate and yield.

• Export of South African Navel oranges to the US are expected to be down by 10 per cent due to wet weather conditions. Clementines will be more affected by the rain and will probably have a 20-30 per cent decline in volume.

• Extreme cold weather throughout South America’s Southern Cone – in Chile, Peru, Bolivia and Argentina – has created serious problems for the region’s citrus growing areas. Buenos Aires saw snowfall for the first time in 90 years. Chile’s lemon growers’ association confirmed significant citrus crop damage, and reports from Argentina’s top citrus growing area around Tucumán also revealed major damage to citrus crops. Damage to lemons had occurred in at least three of Chile’s four top citrus growing areas.

• Frosts in Arizona, the major lemon growing area in the US, have reduced the crop to 30 per cent of normal production. Combined with the reduction of yield from South America, this should see lemon prices increase as demand begins to outstrip supply.

• Florida citrus has been quarantined due to an outbreak of citrus canker.

Pome fruits Contact: Glynn Ward, Development Officer; Tel: (08) 9368 3568

The pome fruit industry in Western Australia is experiencing difficult conditions as returns from the exports decline in the face increasing competition in global markets, a higher exchange rate, competitive domestic markets and increasing production costs.

The production of Western Australian pome fruit has fluctuated over the last 10 years as some growers leave the industry and others re-plant using modern systems and new varieties that are in demand (Table 1).

Pear production levels are expected to remain constant while apple production is expected to increase to over 45,000 tonnes by 2008, based on existing tree numbers. The production of Cripps Pink (Pink Lady™), Cripps Red (Sundowner™), Fuji and Royal Gala continues to increase as a high proportion of young trees of these varieties reach their full bearing potential.

Climatic conditions during the 2006/07 growing season have influenced production levels and the quality of fruit. Fruit yields are similar to the long-term average yields. There has been a recorded 15 per cent increase in demand for Pink Lady™ apples on the UK market, with Western Australian producers targeting August-September supply. However, fruit quality has been affected by sunburn and poor colour development in some areas, which has reduced the amount suitable for export.

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Table 1. Pome fruit tree numbers and production in Western Australia

Fruit 2001 2002 2003 2004 2005

Tree numbers 843,407 898,000 887,000 976,000 874,000 Apples

Production (t) 45,105 44,786 38,869 37,745 35,871

Tree numbers 129,871 131,000 117,000 133,000 145,000 Pear

Production (t) 11,574 9,650 9,135 9,708 8,893

Tree numbers 19,500 NA NA NA NA Nashi

Production (t) 333 NA NA NA NA

Source: ABS, DAFWA.

NA: Figures not available. As 2006 was a Census Year, figures not available until November 2007.

Western Australian apple exports declined from A$7.0 million in 2003/04 to A$3.3 million in 2005/06, and recovered slightly to A$4.7 million in 2006/07 (Table 2).

Western Australia has maintained its share of Australian overseas apple exports. Eastern States markets are also a valuable outlet particularly when production is lower in other States, as occurred in the past two years because of adverse weather conditions.

There could be increased opportunity to supply apples to the east where critical water shortages in some areas could curtail production. This diversion of fruit to the east also alleviates pressure on local market prices when export returns are low.

Western Australian apple exports face difficult conditions with the high Australian Dollar likely to last for some time and increasing competition from Chile and South Africa in traditional South East Asian markets. Exporters have been looking to diversify into other markets, including the Indian sub-continent where there has been steady inquiry for WA apples, although business arrangements can be a deterrent.

The export of Australian Red Delicious types to India in cartons has increased steadily. However, Western Australian shipments have declined from the level three years earlier. Shipments of Western Australian apples in bulk bins for re-packing in India have increased in recent years. This has allowed Western Australian growers to increase profits by reducing packing costs for Hi Early apples. Bulk bin shipments to India peaked at 275 tonnes in 2005/06 before declining to 175 tonnes in 2006/07. A lower level is expected in 2007/08 due to increased competition and lower prices of US and southern hemisphere apples (e.g. Chile, New Zealand, Argentina). However, there is an expectation that this market will expand to include a wide range of varieties over time.

Table 2. Value of pome fruit exports ($million)

Fruit 2003/04 2004/05 2005/06 2006/07

Australia 20.3 17.2 12.1 12.0 Apples

WA 7.0 4.9 3.3 4.7

Australia 34.8 28.9 30.5 19.9 Pears (inc. Nashi) WA 1.5 0. 7 0.5 0.6

Source: ABS, DAFWA.

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The UK and European markets for Pink Lady™ are under-supplied, and issues in timing of supply from a number of southern hemisphere producers need to be coordinated. Pink Lady™ exports recovered to A$3.6 million 2006/07 compared to A$1.8 million the previous year and A$3.5 million in 2004/05. Exports in 2007/08 are expected remain strong with exports increasing through July-September 2007.

Production techniques are being researched and developed with special emphasis on integrated fruit production, fruit thinning and the use of dwarfing and intensive systems for future plantings. Growers are looking to increase tree planting densities from an average of 800 trees per hectare to between 2,500 and 3,500 trees per hectare. This will allow for increased efficiency in the production cycle with the effects being seen over the next five to 10 years with a more cost-effective industry. Research projects are also targeting methods to increase and maintain colour in Cripps Pink apples to achieve higher pack-outs for exports to Europe as Pink Lady™ apples.

A constant and developing area for Western Australian pome fruits is export to the Eastern States, where good prices are paid for quality fruit. There have been some issues of damage in transport affecting outturn which is being investigated. Exports of Granny Smith apples and Packham pears remain constant. In the longer term the apple trade to the Eastern States could be under threat with the possible import of apples from New Zealand.

Western Australia is free from the major apple diseases of fire blight, apple scab and the pest codling moth. Therefore, considerably less pest control sprays are used in Western Australian orchards compared to other apple producing States and countries. This offers Western Australia a potential market advantage. Growers are also adopting a more integrated approach to pest control with the use of increased monitoring of pests for early identification in order to reduce application of chemical controls.

Both apple and pear exports from Western Australia are facing increased competition in all markets from Chile and South Africa in the southern hemisphere season, as well as stored Red Delicious from the US and Fuji apples from China. The pome fruit industry needs to continue to investigate new markets and new methods of production and marketing to compete on the world market.

Stone fruit Contact: Glynn Ward, Research Officer; Tel: (08) 9368 3568

Improved weather conditions during 2006 meant a return to more normal yields for most stone fruit varieties in 2006/07. There was good demand and firm prices on the local market for good quality fruit, particularly peaches. The early finish to the season in WA resulted in the import of stone fruit from New Zealand, mainly apricots for the first time to meet local market demand.

Plum plantings that had been on the increase in recent years now appear to have levelled off. The loss of export markets has led to some growers removing plum trees, which may curtail growth in production to around 7,000 tonnes in 2007/08.

Western Australian production of nectarines has increased significantly in recent years (Table 1) and is expected to rise to about 4,000 tonnes by 2007/08. Peach production is expected to remain at around 2,500 tonnes, while apricot production may grow slowly, reflecting increased grower interest and local market demand.

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Table 1. Stone fruit tree numbers and production in Western Australia

Fruit 2001 2002 2003 2004 2005

Tree numbers 305,000 319,000 306,000 359,000 361,000 Plums

Production (t) 7,756 4,194 6,205 5,977 6,065

Tree numbers 106,000 79,000 87,000 101,000 99,000 Peaches

Production (t) 2,463 1,877 2,137 2,214 2,480

Tree numbers 164,000 137,000 203,000 169,000 190,000 Nectarines

Production (t) 3,918 2,850 3,757 3,310 3,520

Tree numbers 15,000 14,000 13,000 12,000 13,000 Apricots

Production (t) 469 422 329 321 294

Source: ABS, DAFWA. Note: As 2006 was a Census Year, figures are not available until November 2007.

Plums are Western Australia’s main export stone fruit crop (Table 2). However, the value of exports has declined from a record high of A$12.7 million in 2000/01 to A$2.6 million in 2005/06. Exports recovered slightly in 2006/07 to A$3.3 million. The decline in exports has been to a combination of strong competition from other southern hemisphere suppliers, the high value of the Australian dollar and loss of the Taiwan market. It was compounded in 2006 by the very light crop. The closure of the Taiwan market to most Australian stone fruit in January 2006 because of the ban on Queensland fruit fly as a prohibited pest has had a major impact on exports.

Large volumes of stone fruit from eastern Australia redirected to Western Australia’s main export markets increased competition. The market in Taiwan has remained closed pending the development of acceptable protocols for disinfestation or acceptance of Western Australian area freedom for Queensland fruit fly, which are not expected until 2008/09 at the earliest. The continued water shortages in the major production areas of Victoria, New South Wales and South Australia are expected to reduce production, increasing the demand for Western Australian stone fruit on both domestic and export markets.

Hong Kong remains the main export market for Western Australian plums, followed by Malaysia and Singapore. Exports to the Middle East, principally the UAE, have declined in recent years, while a small volume is still exported to the UK.

Table 2. Value of stone fruit exports (A$ million) – fresh only

Fruit 2003/04 2004/05 2005/06 2006/07

Australia 12.2 15.8 14.2 11.0 Plums

WA 8.2 8.5 2.6 3.3

Australia 3.4 3.8 4.1 3.2 Peaches

WA 1.5 1.3 0.5 0.4

Australia 11.7 15.1 16.1 11.1 Nectarines

WA 1.0 0.7 0.1 0.1

Australia 0.3 0.9 0.7 0.9 Apricots

WA 0 0 0 0.04

Source: ABS, DAFWA.

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For the past three years Australia had been increasing its exports of nectarines, but strong competition on export markets, problems with access to Taiwan and high domestic prices have seen the level of exports decline over the past two years. Peach exports also declined substantially in 2006/07.

The outlook for Western Australian stone fruit exports is still positive, provided the industry can adjust to the new international market environment and achieve market specifications in terms of variety, quality and competitive pricing. There is growth in demand, particularly in the Middle East, for nectarines and peaches and also export opportunities with the growth in the supermarket sector in Asia.

Issues that could influence the performance of Western Australian stone fruit in 2007/08 are a drier winter and lower availability of labour. Lower rainfall will lead to water shortages in some areas and early moisture stress, resulting in reduced yield and early fruit development and maturity of some varieties.

Achieving official market access to China and Taiwan is important to bring stability to the Australian industry as well as developing alternative markets, particularly for plums and nectarines.

Strawberries Contact: Dennis Phillips; Tel: (08) 9368 3319

The strawberry industry in Western Australia accounts for over half of Australia's strawberry exports by volume and value, and State production has more than tripled in 10 years. Exports fell 25 per cent in value in 2006/07 to A$6.3 million due to a combination of lower volumes (down 29 per cent to 1,247 tonnes), the high Australian dollar, and market access issues. Continued poor terms of trade due to the high exchange rate and air freight rates are expected to limit export values to a plateau around A$8.4 million (FOB) for the foreseeable future.

Strawberries are a high value product and demand remains strong, particularly in the UAE (which has now displaced Hong Kong as the major market), Hong Kong and Singapore, despite the high price. These three markets now account for more than 80 per cent of all strawberry exports from Western Australia. Our seasonal window in these markets is from August to November when production volumes are high and quality is good.

The rejection by AQIS of a number of strawberry shipments to the UAE for the presence of live Collembola (Springtails) during the 2006 season interrupted the strawberry trade to that country. This led to major disruption for some exporters and growers and consignments being redirected to countries not requiring a phytosanitary certificate, or to Australian domestic markets with consequent pressure on prices. The Department of Agriculture and Food has been liaising with AQIS and Biosecurity Australia to have this issue resolved before the commencement of the 2007 strawberry export season.

AQIS has recently advised that the UAE will allow a tolerance of five Collembola of the Hypogastruridae family on any piece of fruit or vegetable and a maximum tolerance of 10 per carton. This level of tolerance should be acceptable to the strawberry industry.

Forecasts of domestic and export volumes and prices are critically influenced by the volume of interstate trade from September to November. Accurate statistics on interstate exports from Western Australia are not kept, but estimates suggest values in excess of A$16 million

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in a good season. The 2006/07 season saw increased interstate sales, but late season competition from Queensland and an early entry to the market by fruit from Victoria added to the competition. Supplies to the Western Australian domestic market were heavy from September to October and compounded by the disruption to sales to the UAE. Volumes fell in November because yields were reduced when many growers planted too late because of disruptions to runner supply.

Prospects for interstate sales look promising for the coming spring because crops in Victoria are likely to be significantly delayed due to record low temperatures and snow falls in recent weeks. However, supplies from Queensland are likely to be exceptionally heavy in September, due to an unprecedented increase in plantings in that State. Yet there should be a wide window between the finish of the Queensland season and Victorian supplies entering Eastern Australian markets.

In 2006/07, plantings in WA were again at high levels of around 11.5 million plants, but many growers in Wanneroo lost significant proportions of their crops to root disease before they commenced production, and some incurred substantial losses. Without these losses, the domestic market would have been even more heavily supplied.

Reduced supply from the Albany area in autumn this year was compounded by many growers running out of water for irrigation because of the drought in winter 2006. Prices in the Perth market were at record levels in autumn and into the early winter of 2007, with the result that some fruit was imported to meet market demand.

All new season crops had been planted by mid-June with plant orders similar to 2006/07. Most growers experienced delays in planting due to another season of disrupted runner supply caused by wet weather in the runner growing district in Victoria, combined with a low level of tolerance by WAQIS for runners contaminated with soil from this source. These delays in planting are likely to result in reduced yields, mitigating against another over-supply in spring 2007/08. This yield depressing effect is likely to be offset by far fewer losses from root disease this season because of improved pre-plant soil treatment methods. Record low rainfall and high levels of sunshine have produced ideal growing conditions so far this season, and this is likely to contribute to early production and high yields.

Labour shortages are becoming critical in this industry and this is likely to impact further by reducing the proportion of crop which can be harvested. On balance, however, the most likely scenario for the 2007 strawberry season is for heavy supplies again in the October to November period when demand is high.

4.2 Vegetables

Carrots Contact: Allan McKay, Research Officer; Tel: (08) 9368 3820

In 2006/07, the Western Australian carrot industry continued to recover and at times, supply lagged behind strong demand from export, local and interstate markets (Figure 1). Western Australian carrots have an outstanding reputation for quality and reliability, which contributes to the strong market demand. Carrot quality in 2007 has continued to improve, being enhanced by new investment in production and packaging technology. About 75 per cent of WA carrot production is exported. WA carrot exports are now dominated by three companies – two that are vertically integrated production, packing and exporting operations, and one packer/exporter supplied by contract growers.

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The strengthening of the Australian dollar in the past year and continued expansion in Chinese exports has slowed growth in carrots exports from Western Australia compared to the previous year’s solid recovery, with exports increasing by 2.5 per cent in value in the 2006-07 financial year. Total carrot exports from Western Australia in 2006/07 were 59,100 tonnes valued at A$38.4 million (FOB) compared to A$37.5 million in 2005-06.

Strong growth in shipments to the Middle East (up 24 per cent to $18.5 million) has driven this increase in exports, but exports to Malaysia − where Chinese carrots are providing strong competition − continued to decline and were down 14 per cent to $5.8 million.

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In the past six years, new markets have been developed in Oman, Qatar and Saudi Arabia, while exports into the UAE and Bahrain have doubled. Accounting for only 11.5 per cent of Western Australian carrot exports in 2000/01, the Middle East has increased in importance to the WA industry and accounted for 40 per cent of carrot exports in 2005/06. WA carrot growers have also continued to market high quality product, worth about A$4.0 million (DAFWA estimate), into Eastern States markets.

For the WA carrot industry, the outlook for 2007/08 is for strong demand in local, Eastern States and Middle Eastern markets, while continued competition in south east Asian markets will limit opportunities for expansion of exports to this region.

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Potatoes Contact: Peter Dawson, Project Manager, Potatoes; Tel: (08) 9892 8461

Potatoes are one of Western Australia’s major horticultural crops, with a production value of A$36 million per year. Production is mainly for the domestic market, but exports are expected to become a more important part of the industry in the future, particularly seed potatoes. The ‘value-added worth’ of the industry to the State has been estimated by DAFWA at A$120 million per year.

Domestic fresh market production is controlled by the Potato Marketing Corporation of Western Australia, a statutory marketing authority which matches production to the State’s demand of 50,000 tonnes. Strong demand in the latter half of 2006/07 has resulted in shortages with improved prices for growers.

In Western Australia, around 20,000 tonnes of potatoes are processed into crisps and French fries at factories operating in Perth and Manjimup.

Potatoes are also grown for various export processing markets. Crisp potatoes bound for processing factories in Malaysia and Singapore dominate exports, but exports have fallen in the past two years. Sales to Malaysia rose slightly to 3,204 tonnes valued at A$1.8 million in 2006/07, but sales to Singapore fell 43 per cent to 2,574 tonnes valued at A$1.1 million and sales to Indonesia were down 60 per cent to A$114,400 (180 tonnes). The introduction of a 25 per cent tariff on fresh potato imports into Indonesia in January 2005 has made Western Australian crisp potatoes less competitive in that country compared with local production which has increased to now almost satisfy snack food processors’ requirements.

Total fresh potato exports for table or processing were lower in 2006/07 with 7,053 tonnes valued at A$4.04 million exported, compared to 10,556 tonnes valued at A$5.8 million exported in 2005/06. Fresh potato exports to Mauritius were down considerably to only 130 tonnes, compared to 1,423 tonnes in 2005/06.

Domestic seed potato production of 10,000 tonnes has been bolstered by increased sales to the Eastern States. Industry estimates show that over 2,000 tonnes were sold to the Eastern States in 2006-07. Seed exports have fluctuated in recent years due to production being affected by weather conditions, with 1,468 tonnes exported in 2006/07 compared to 1,538 tonnes for 2005/06. Industry and DAFWA believe this sector offers good prospects for increasing exports and are jointly developing a major supply chain project to identify production, transport and marketing issues through trial shipments to a major South East Asian processor. Currently, new market opportunities are being developed in Indonesia and Thailand.

With tight water supplies likely in several growing areas in the Eastern States in the near future, there has been some interest from major Eastern States producers in establishing growing operations in Western Australia. Providing land and water resources are available, this could lead to an expansion of the industry.

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Other export vegetables Contact: Dennis Phillips; Tel: (08) 9368 3319

Other significant vegetables produced in Western Australia are brassicas, celery and lettuce. The brassicas include a wide range of head crops, leafy greens and Asian vegetables and include broccoli, cabbage, cauliflower and Chinese cabbage. These were exported in large volumes in the past, but over the past five years, the vegetable brassica industry has contracted, particularly for cauliflower and Chinese cabbage, due to strong competition from China in South East Asian markets. The result is that exports in 2006/07 only reached A$1 million (FOB). The extent of this impact can be seen in that cauliflowers exports from Western Australia have fallen from A$20.1 million in 2002/03 to A$424,400 in 2006/07.

Principal export markets by value for broccoli, cabbage, cauliflower and Chinese cabbage in 2006/07 were Singapore, Brunei Darussalam, Malaysia and Taiwan. The supply of Western Australian product to some export markets, particularly Singapore and Malaysia, is heavily dependent upon the availability of product from China, with short times of the year when supply from China is low.

The current level of the Australian Dollar is having an even greater impact on the competitiveness of Australian vegetable brassicas in export markets in 2007. Increased shipping rates and higher exporter costs are adding further costs during times of significantly increased competition. On the domestic market, prices fluctuate depending upon demand, with steady supply of both broccoli and cauliflower to Eastern States markets.

Increasing input costs remain a major issue for vegetable brassica producers, particularly for fuel, labour and fertiliser. Coupled with fluctuating prices, the increasing cost has led to a major restructure of the vegetable brassica industry, with many producers growing non-vegetable crops or leaving the farming industry. A core group of vegetable brassica producers continues to implement research advances which are assisting them to improving their competitiveness in domestic and export markets.

Celery was also a significant export crop from Western Australia, but it has also declined in volume over recent years. However, it continues to achieve good demand from the UAE and Malaysia. Since April 2006, a more stringent application of export inspection standards by AQIS in relation to the presence of live insects (Collembola) has severely reduced exports of celery from Western Australia. In particular, the UAE market where the zero tolerance is required under its phytosanitary requirement, has seen exports of celery from Western Australia fall from A$722,550 in 2004/05 to A$4,932 in 2006/07, with the trade now virtually ceased.

Over the past year, the Department of Agriculture and Food has been asking the relevant authorities to review the import requirements. AQIS recently posted an Industry Advice Notice that the UAE will now allow a tolerance of five Collembola of the Hypogastruridae family on any piece of fruit or vegetable and a maximum tolerance of 10 per carton. This tolerance level may still pose difficulties for celery exporters at certain times of the year when the insect is more prevalent.

The lettuce industry is undergoing change as consumers demand a larger range of gourmet and fresh cut lettuce and new growing and packing technology is adopted. The Department of Agriculture and Food has developed new production packages and trialled these in the Manjimup area, as well as trialling bulk shipment to export markets as a way of being more competitive.

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Opportunities for revival of other traditional export products are poor in the face of strong price competition from China and the US in key markets. The other factor that would improve Western Australia’s export competitiveness is a significant fall in the Australian dollar exchange rate against our trading partners.

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5. TRADE AGREEMENTS Contact: Valerie Kelly, Trade Policy Analyst; Tel: (08) 9368 3397

Agricultural trade − Review of Developments at the World Trade Organisation (WTO) DOHA round − (Multi-lateral Trade Agreements) With a membership of some 150 members, the World Trade Organisation (WTO) has three main factions: the United States (US), European Union (EU) and a group of developing nations led by India and Brazil, referred to as the G4.

The G4 are currently not functioning in a coordinated and collaborative manner, as highlighted at a meeting held by the G4 in June 2007 at Potsdam, Germany. It ended in disarray when representatives from India and Brazil walked away less than three days into what was intended to be a five day ministerial session. Discussions were to take place on all three pillars of the Doha negotiations, market access and domestic support in agriculture, as well as non-agricultural market access (NAMA) and export competition.

Specific details about the negotiations in Potsdam vary depending on each country’s perspective of the negotiations and what took place. It appears that the US had agreed to lower its cap on trade-distorting farm subsidies to just over USD 17 billion, from its previous offer of about USD 22.5 billion, while India and Brazil sought reductions in US farm subsidies close to USD 13-15 billion. India complained that the USD 17 billion would actually allow the US to increase support by more than 50 per cent above the USD 10.8 billion it spent over the previous year (2006).

Europe's main farm group COPA-COGECA called on the EU's 27 trade ministers to reject the paper. Sources suggest that the EU had offered to cut the highest farm tariffs by 60-65 per cent − still 10-15 per cent below the cuts that Brazil and India's G-20 bloc had been seeking. The group complained: "the EU is being pressed to go well beyond its limit on market access: the new proposals could mean an annual increase in imports of as much as 500,000 tonnes for beef and more than one million tonnes of pig meat, while poultry imports could more than double. In return, nothing positive will have been gained for EU farming or indeed European industry or services". The EU would also have to stretch beyond what it has so far publicly offered, with the highest tariffs slashed by 73 per cent. But countries like Japan, South Korea, Taiwan, the EU and Canada would need to trim their expectations on imports under the draft proposal.

Officials hope all 150 WTO member governments will accept the text as the basis for the concluding round of these seven-plus years of negotiations. Under the proposals, governments would be able to classify four to six per cent of agricultural tariff lines as ‘sensitive’, sheltering them from full duty cuts.

No further WTO meetings are to be held until 3 September 2007.

Impact of the draft modalities on Australian trade Australia has welcomed the release of the draft negotiating texts in agriculture and industrial tariffs and sees this as an important attempt to move the Doha negotiations forward following the breakdown of discussions between members of the G4.

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Also tabled at a meeting by the APEC group in Cairns early in July was US Trade Representative Susan Schwab’s recommendation that State trading enterprises such as Australia’s Single Desk for wheat be tabled as part of the WTO Doha negotiations.

Early indications are that the Australian textiles, car and agricultural industries have rejected the revised draft texts. Under the proposed text for industrial goods, developing countries would have industrial tariffs of less than 12 per cent on average, and developed countries should cut tariffs to below 3 per cent.

Australian exports of processed food and seafood into the EU, China and Japan face high tariffs. For example, Australian butter exports to the EU attract a 90 per cent tariff, while milk power exports to Japan face a 299 per cent tariff steel exports face high tariffs in India, Brazil, China and Thailand, and exports of environmental technology face high tariffs in China and India. Under the proposed texts, developing countries could protect their local industries by excluding 10 per cent of critical sectors from cuts to import tariffs.

Progress on the Doha round is both complex and unlikely to be resolved within the nominated timeframe for all agricultural subsidies to be eliminated by 2013.

US Trade Policy The Bush administration finalised free trade agreements (FTA) with Peru, Columbia, Panama and Korea just ahead of the expiry of its ‘Trade Promotion Authority’ mandate on 30 June 2007.

Worth noting is that where the Clinton administration had signed only one bilateral deal (with Jordan) and one major regional agreement (NAFTA), the Bush administration has pursued 11 bilateral agreements with countries and three major regional initiatives, including the Free Trade Area of the Americas.

The US defends bilateral deals as being complementary to its multilateral negotiating strategy with most bilateral trade agreements seeking at least as much, if not more, market access for US products as they would under WTO rules.

US reaction to the revised text modalities has been less than favourable. (Of note is that US politicians have proposed to allow farmers to earn up to US$1 million before the subsidy is cut out.)

US-South Korea FTA The US-South Korea FTA for agriculture has meant that Seoul agreed to eliminate its 40 per cent tariff on beef over the next 15 years. More significant was the suggestion that South Korea’s stringent import restrictions on US meat (following a ruling by the World Organisation for Animal Health (OIE) that is expected to declare US beef safe) could rewrite existing import rules for American beef.

South Korea has been a major importer of Australian beef over the last four years and the impact of the outcomes of the US-South Korea FTA for the beef sector in particular is likely to be disadvantageous to the Australian beef industry in the immediate future. Australian beef exports to South Korea from 2003-2007 rose from $351.5 million to $842.6 million for Australia and from $16 million to $41 million for Western Australia. (Australian beef exports to South Korea attract tariff rates of 41.2 per cent.)

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China’s emergence as a world super power China’s 11.9 per cent growth over the last year has meant that it is now among the world’s top economies. With a Gross Domestic Product (GDP) of USD 3.1 trillion at the end of 2006, China is now only slightly below Germany, which is growing at a quarter of China’s growth rate.

More importantly, China’s growth could mean that the world’s largest economies, and therefore economic and global power, could shift from the Atlantic to Pacific countries.

FREE TRADE AGREEMENTS Given the uncertainty and prolonged nature of trade discussions at the multilateral level, the tendency has been for countries to seek opportunities for better trade and investment conditions through the negotiation of bilateral free trade agreements.

To date, Australia has concluded FTA negotiations with Singapore, Thailand, the US and New Zealand and is currently still negotiating FTAs with seven countries. Updates on each of these are provided below:

China FTA The ninth round of negotiations concluded with some progress on technical areas, but overall, progress is slow.

• Market access negotiations on goods (including agriculture) remained on hold, pending an improved offer by China. These negotiations began at the seventh round in December, when both sides tabled their offers and requests on goods and their lists of barriers affecting a range of services. Australia stressed at this round that China’s goods offer would need to be greatly improved before tariff negotiations could begin. Despite China’s understanding that detailed tariff negotiations will not proceed until China presents a greatly improved offer, it appears that China is as yet unable to advise precisely when it will be able to come forward with such an offer.

• Non-tariff barriers – there has been some limited progress on this area, however China remains reluctant to deal with these issues. Australia emphasised this is very important for Australian businesses.

• Import licensing system – there are some difficulties for China in progressing this issue.

• Rules of origin – this area has had some progress. China agreed to use the change of classification method, although they have submitted a set of pre-conditions which Australia is now studying.

• Customs procedures − China now agrees to have a round dealing with this issue.

• Government procurement − very slow progress − China is yet to agree to whether negotiations will have a chapter at all on Government Procurement.

• Intellectual property − Australia made it clear this is a very important issue for Australian businesses and has provided text on: (1) setting out a bilateral consultative mechanism on IP; and (2) relating to the protection of confidential information. Australia expressed concerns that progress on IP is too slow.

• Services and investment: Australia tabled 133 barriers, and China indicated it would deal with six.

The next round of negotiations on the China FTA will be held during the week starting 22 October 2007.

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JAPAN FTA The first round of negotiations held in April 2007 was successful in achieving an agreed overall approach to the negotiations, including the structure of working groups. Negotiating rounds would be held every two to three months and cover a comprehensive list of issues, including goods, services and investment as well as e-commerce, intellectual property and government procurement, movement of natural persons and competition.

The second round of negotiations for the Japan FTA is expected to commence early in August.

(The Australian Government has provided $17.0 million over two years for the negotiation of FTA with Australia’s two largest trading partners, Japan and China).

ASEAN/Australia/New Zealand FTA The ninth meeting of the ASEAN-Australia-New Zealand (NZ) trade negotiating committee was held in Palembang, Indonesia from late May-early June 2007. Working group discussions focused on the need to progress tariff, services and investment modalities and economic cooperation.

Australia’s objectives on respective market access interests were further advanced in bilateral meetings with each ASEAN country. Overall, talks were progressive.

Agreement has been reached between ASEAN/Australia/NZ negotiators to commit to trying to conclude substantive negotiations by the end of 2007.

Gulf Cooperation Council Countries (GCC) FTA A preparatory meeting on an Australia-Gulf Cooperation Council (GCC) FTA was held in Riyadh, Saudi Arabia on 2 May 2007.

Discussions covered the overall approach to, and timeframes for, the negotiations. Individual approaches to the negotiations for goods, services and investment, and institutional and legal issues, as well as issues relating to intellectual property and government procurement, were covered.

Overall, this first meeting was positive, with both parties acknowledging the benefits of a comprehensive and ambitious FTA to be completed as a single undertaking, within a reasonable timeframe.

The first round of substantive negotiations for an Australia-GCC FTA will take place in Australia in July. Negotiations will cover issues including market access for goods and services. Australia has agreed to a positive list approach for Services and Investment.

Chile FTA Australia is to now proceed with free trade negotiations with Chile. Trade Minister Truss has assured the horticultural and fisheries (salmon) industries that negotiators are aware of the sensitivities relating to these sectors, and that Australia will not be compromising its science-based quarantine system in favour of FTA negotiations.

(Chile has already successfully negotiated some 50 FTA.)

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Malaysia FTA Personnel changes within the Malaysian negotiating team have resulted in slow progress to date on FTA negotiations.

A date has yet to be set for the next round of negotiations.

Australia-Vietnam Joint Trade and Economic Cooperation Committee (JTECC) The Australia-Vietnam Joint Trade and Economic Cooperation Committee (JTECC) were established in 1990 to review progress in trade and economic cooperation, and to identify ways to enhance cooperation.

The seventh JTECC meeting on 16-17 July 2007 covered bilateral, regional and multilateral issues. Discussions included recent developments at the WTO level, Vietnam’s recent accession to the WTO, as well as regional issues which extended to negotiations on the Australia-NZ/ASEAN FTA.

Ministers noted that as agricultural exporters, both countries shared an interest in the liberalisation of agricultural trade and agreement. Vietnam and the Cairns group would continue to cooperate in the Doha round negotiations.

A plan of action to progress JTECC’s objective was decided upon and the next meeting is to be held in Vietnam on a date to be determined.

Australia-Mexico Investment Promotion and Protection Agreement (IPPA) The Investment Promotion and Protection Agreement (IPPA) between Australia and Mexico was signed in Mexico City on 9 August 2005 and entered into force on 21 July 2007. The Agreement provides enhanced protection, and fair and equitable treatment for bilateral investments in each country.

In addition, a Joint Experts Group (JEG) was established to investigate ways of strengthening economic links and the possible negotiation of a FTA at some future date.

Western Australian agrifood exports to Mexico have fluctuated between $16 million to $22 million (largely determined by drought conditions) and comprise mainly cattle, lamb and mutton, sheep wool and a small quantity of wine.

Australia-Indonesia Trade and Investment Relationship The bilateral trade and investment relationship between Australia and Indonesia was further strengthened at the June 25 Trade Ministers’ meeting in Jakarta. While the focus of this meeting was on progress made on the Australia-Indonesia Trade and Investment Framework (TIF) signed between the Hon Mark Vaile (then Australian Minister for Trade) and Dr Pangestu (Indonesian Minister for Trade) in September 2005, agreement was reached at the June 25 meeting to undertake a feasibility study for a bilateral free trade agreement between Australia and Indonesia.

Indonesia is Western Australia’s third largest market for agrifood exports increasing from $391 million in 2004/05 to $496.4m in 2005/06. Major exports include wheat, live cattle, lamb, beef, dairy products (including milk powder).

Page 74: Bulletin 2007 Waaffi August

WA Agri-Food Industry Outlook − August 2007

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Australia-EU future direction for bilateral cooperation Agreement on a new partnership framework to set the direction for future relations between Australia and the European Union (EU) was reached between Australia and the EU at the end of June 2007.

The new framework will strengthen mutual interests through collaborative, practical and action oriented initiatives which seek to achieve: global security; a commitment to the multi-lateral trading system and interest in expanding bilateral trade and investment; strengthened coordination in the Asia-Pacific region; recognition of the increased global focus on the environment and energy; and expanded cooperation in science, technology, education and training.

Western Australian agrifood exports to the EU are in excess of $496.5m, with major exports which include wheat, cattle, lamb, beef, malt, beef offal and fish.

Page 75: Bulletin 2007 Waaffi August

Agrifood Infonet provides an efficient way to find all relevant agri-food industry and market information.

In summary Agrifood Infonet contains: • Latest agri-food market news and up-

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Contact Details

DEPARTMENT OF AGRICULTURE & FOOD, WA 3 Baron-Hay Court, South Perth, Western Australia 6151 Postal Address Locked Bag 4 Bentley DC WA 6983 Tel: +618 9368 3382 Fax: +618 9367 7389 Website: www.agric.wa.gov.au/agrifoodinfonet Email: [email protected]