The future of Australia’s cattle industry: grass or grain?

Address to ABARE Outlook ConferenceMarch 2006

Peter BarnardGeneral Man agerEconomic, Planning & Market ServicesMeat & Livestock Australia

Significant growth in feedlotting sector- grainfed cattle have grown from 9% to 34% of turnoff in 13 years- grainfed beef now accounts for around 40% of beef produced

1991 1995 2000 20050.0

1.0

2.0

3.0million head

0

12

24

36%

marketings grainfed as % of adult slaughter

Address outline

• Nature of feedlotting in Australia

• What has driven the increase in feedlotting over the last 15 years?

• Is this increase likely to continue?

Australia is not a grain feeder, but a grain finisher

<50 days 50-100 days 100-130 days 130-200 days > 200 days

Days on feed

0

10

20

30

40

50% of lot fed cattle marketed

80% of cattle are fed for less than 130 days

CRC consumer sensory results related to feedlotting• Feedlotting increased carcase weights and fatness traits (both

marbling and fat depth) and decreased ossification scores

• In consumer sensory tests feedlot beef had higher flavour and juiciness scores, but this advantage disappeared once adjusted to the same intramuscular fat and age.

• In other words, if pasture fed beef could be finished to the same intramuscular fat levels at the same age there would be no difference between feedlot and pasture fed beef.

• Put simply, there is nothing magical about the feedlotting effect.

• These results support the MSA approach of describing the feedlotting effect using the outputs of carcass weight, ossification score and marbling rather than a feedlot effect per se

Cost changes are NOT driving the increase in grain finishing

1990 1992 1994 1996 1998 2000 2002 20040

2

4

6

8Ratio

Ratio of beef to feed grain prices

Growth has been mainly to Japan and the domestic market

1992 1995 2000 20050

200

400

600

800cattle on feed '000 head

Japan Korea Domestic Other

Growing MSA use on the domestic market Of the 620,000 head of MSA cattle graded last year about 60% were

grainfed & 40% grassfed

99/00 00/01 01/02 02/03 03/04 04/05 05/060

200,000

400,000

600,000

800,000

1,000,000

Domestic market use of grain finished beef driven by supermarkets Do not like marbling Simply want consistent supply of lean tender beef

Beef exports to Japan: boost after US BSE – grain and grass

89 91 93 95 97 99 01 03 050

100

200

300

400

500exports '000 tonnes sw

0

10

20

30

40

50% grainfed

grassfed beef exports grainfed beef exports grainfed share

Most Australian brands at Japan retail are grainfed

Grainfed beef

Hanamasa - Grassfed & Grainfed beef

Rangers Valley Grainfed beef O’connors - Grainfed beef

Hannan -grainfed beef Rockdale - Grainfed beef

Costco - Grainfed beef

Foodservice is a mixture of grain & grass fed beef

Also profitable niche for longfed Aussie beef in Japan (13% of all cattle on feed)

Is the future in grass or grain finishing?- grain principally

Why?

1. Production advantages2. Market trends

Production advantages of grain finishing Allows graziers to turn off cattle younger

– freeing up land for more cows or other pursuits (eg cropping)

Allows for stable supply alliances and forward contracts– Woolworths and Coles currently forward contract about 80% of

supply– Vast majority of grain finished beef for Japan is through

vertically integrated feedlot/processing/exporting/importing operations or forward contracted

Reliable supply all year every year, regardless of season

If pastures look like this all year every year grain finishing would be needed less

But unfortunately they can look like this or much worse

Rainfall shifts in mm/decade 1950-2003 (BoM and DPI&F).

.. and it is becoming drier

Safety Deliciousness/Taste

Freshness Price Healthy0

20

40

60

80

100% of consumers mentioning attribute as a purchase driver

2002 2003 2004 2005

Taste increasing in importance by Japanese consumers

Potential grainfed beef export growth

2003 2005 2014 % on 2003Japan 111 200 220 98%Korea 8 20 40 400%other 15 16 40 160%

Total export 134 236 300 123%

Total grainfed beef exports to more than double by 2014 compared to 2003

Up almost 30% on extraordinary 2005 level Could prove conservative, given expansion in feedlot capacity

already in the pipeline

Expenditure on beef by Australian consumers

95 96 97 98 99 00 01 02 03 04 05p0

1

2

3

4

5

6

7A$ billion

A 70% increase in expenditure over the last decade

Improved eating quality is one of the reasons behind the 70% rise in consumer spending on beef the domestic marketOverall how would you rate the quality of beef you buy nowadays?

7 out of 10 or better 80%

How would you say the quality of beef has changed in the last 3 years?

Improved a little / a lot 42%

Grainfed beef on the domestic market Estimated 70-80% of cattle by major supermarkets are

currently grainfed– Generally 50-70 days

Estimated 45% of beef on domestic retail and food service is grainfed – likely to rise to about 60%

Plus forecast 15% expansion in local consumption by 2010 – mainly through supermarkets and restaurants

Australian grain can be more costly

1990 1995 2000 20050

50

100

150

200

250

300

350A$ per tonne

Average Australian feed grain price Average FOB price for US No.2 yellow corn

Security of stockfeed supply Feedlot demand for grain will probably double before 2020

– 1 in 2 Australian grain producers producing for meat by 2020 (Grains Industry ‘Single Vision’)

Yet grains needs are not always met and ethanol production needs

could further deplete feed grain supply

Feedlot industry cannot cope with regular sharp jumps in grain prices – as competitors (US and South America ) pay world parity prices

The beef industry to remain internationally competitive needs guaranteed access to world parity priced grain

Conclusion Grass or grain? Not the right question.

Australian system is built on integration between pasture and lotfeeding

Beef & dairy are the only industries that use feed grain who are internationally competitive on global markets

– Efficiency of pasture production drives this

Australia does not have a comparative advantage in feed grain production

For grain finishing to further expand to meet customer needs access to world parity priced grain is required