Contents

Meat Industry

Wine Industry

Fishing Industry

Dairy Industry

Grain Industry

Other

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Meat Industry

King Island Beef brand under threat

• Swift Australia, a subsidiary of parent JBS Swift, initially suspended work at its abattoir on King Island, citing high operational costs. The Tasmanian Government has provided a rescue package to allow the abattoir to continue operation to 3 June 2009, at which stage the results of an internal review into the sustainability of the operation will have been completed. 
• Mr Berry, Swift Australia’s director, has blamed high electricity costs and fluctuating cattle throughput as factors contributing towards the company’s decision to close the abattoir.  Furthermore, in order for the plant to continue operations, approximately $2 million will need to be spent to improve effluent disposal.
• The processing plant on the Island kills approximately 28,000 to 30,000 cattle a year. King Island produces approximately 20% of all Tasmania’s beef. The King Island Beef brand, according to AC Neilsen data, is the most recognised brand of beef in Australia.
• Should the plant eventually be closed, Swift Australia plan to process King Island cattle at its processing plant at Brooklyn, Victoria.  This has sparked controversy in the industry, as many stakeholders claim that meat labelled as King Island Beef, should be processed on the island. A rival processing company, Greenhams, currently sends King Island grown cattle to its Smithton processing plant in Tasmania and sells it using the King Island brand.
• Should this alternative eventuate, this will add approximately 20 cents/kg to cover shipping costs, and will most likely have to be paid by the producers, forcing many of them to review the viability of growing cattle on the island.

Butchers regain top-spot

• According to Meat and Livestock Australia (‘MLA’), butchers sold more beef and lamb than any other retailer in Australia in 2008. This is the first time butchers have outsold one of the major retailers since 2001 and reflects continued improvement in consumer perception of the quality and service offered by butchers. However, 62.5% of all beef is still sold through supermarkets in Australia.
• Summarised in the table below is the red meat retail market breakdown for 2008:

Pig slaughter tally at 20 year low

• The number of pigs slaughtered in Australia decreased by 9.5% in 2008, compared to the previous year.
• With the current low Australian dollar, it is expected that this would have had a positive impact on pork exports. However, exports have not increased due primarily to a shortage of supply and strong pork prices on the domestic market.

Meat exporters to be ‘slugged’

• From 1 July 2009, meat exporters will have to pay the entire cost of inspections by the Australian Quarantine and Inspection Service (‘AQIS’). Currently, food exporters are charged 60% of the cost of inspection with the Commonwealth funding the balance.
• Should this eventuate, it will place a $40 million burden on the meat processing industry. 
• The Australian Meat Industry Council has questioned the move, given current market conditions and in light of Government support for sectors such as car makers. Australia exports 70% of its meat production, equating to about $80 billion in red meat exports.

Harvey Beef’s future in the balance

• The future of West Australia’s largest abattoir, Harvey Beef, is in the balance, after workers rejected a pay deal and the company said it could not sustain present losses indefinitely.
• Australasian Meat Industry Employees’ Union members rejected a new collective agreement, which would have cut 100 workers’ pay by about 20%. Management at Harvey Beef has said that the company needs to reduce labour costs in order to be viable. It employees over 500 people at the Harvey Meat Works.
• Earlier in the month:
  • Harvey Beef terminated 160 workers due to reduced demand for beef and high labour cost;
  • in response to the low demand for beef from export markets, the company has cut production from seven days to five days;
  • in response to the crisis, management has stood down the abattoir’s chief executive, Mr Michael Rapattoni; and
  • in late January, the abattoir suspended operations, as it tried to sell a backlog of meat, following poor export sales to Japan and Korea.
• Senior management from Harvey Beef’s Queensland affiliate will review the processors’ operations in a bid to make it more sustainable.

Lamb prices go through the roof

• Lamb markets across the country have risen sharply in April, with prices now tracking about 100 cents/kg higher than they were this time last year.
• Although there has been strong export demand for lamb, due primarily to the low Australian dollar, once prices increase beyond 500 cents/kg, it makes it hard for meat processors to make money, especially over the winter months when plants close for up to two to three weeks. 
• As a consequence, lamb throughput during March increased 49% on a year basis. Besides high prices, MLA report that a dryer and hotter season also contributed towards increased competition between buyers, thus encouraging more lamb onto the market. Slaughter numbers have also increased - reported to be 23% ahead of last year.

Beef export markets remain buoyant

• Australian exporters shipped 88,660 tonnes of beef overseas during March, an 11% increase on last year. A deeper analysis of these figures confirms that the increase was driven primarily by a surge in exports to the US. 
• Sales to the US in March totalled 31,121 tonnes, a 66% increase on 12 months ago. Grinding beef, used in hamburger production, was the primary reason for this large increase. 
• Sales to countries such as Indonesia and Taiwan also surged by 48% and 45% respectively. Traditionally, cheaper cuts of meat are sold to these countries.
• However, the news is not as bright for the top end meat cuts. Exports to Japan and Korea were down 10% and 17% on the same time last year.

Export halt for Cargill

• Cargill Australia’s export licence to Japan and US was suspended early in April. The suspension follows a discovery of E-coli bacteria in some of its products. Fortunately, the authorities were notified after the mistake was realised and the product was intercepted prior to it reaching consumers.
• Prior to reinstalling its export licence, the company will need to demonstrate ongoing compliance with Australian and Japanese requirements before it can resume exports to Japan.

Indonesian live cattle exports to weaken

• Australian live cattle export shipments to Indonesia increased by approximately 21% in 2008. These shipments are forecast to decrease by approximately 9% in 2009 as a result of tighter cattle supplies, high feed costs and lower economic growth.
• Feedlot sell out prices are expected to fall due to slowing consumer spending. However, the lower Australian dollar against the Indonesian rupiah may assist in offsetting the impact.
• Shipments of Australian live cattle exports to Indonesia in 2009 may be impacted by the announcement from the Indonesian Government to once again import beef from Brazil.
• Demand for Australian beef may decline, should Indonesia commence imports of Brazilian beef during 2009. However, it remains uncertain at this stage the extent to which this could impact demand for Australian beef, as Brazilian imports would largely comprise of frozen beef. 
• Indonesian economic growth is anticipated to improve in 2010 and with this improvement, an increase in demand for beef. Australia may benefit from this increase in demand, as it is well placed geographically to meet export demand of live cattle to be finished in feedlots.

Wine Industry

Alcohol-content tax similar to tax on beer would be ‘catastrophic’ for the wine industry

• The Government’s National Preventative Health Taskforce recommended a volumetric tax to last October’s Henry Review of taxation, two months before the Winemakers’ Federation of Australia (‘WFA’) were allowed to make a formal submission to the health organisation. Australia executive director of WFA, Mark McKenzie, has stated that this would be catastrophic for the wine industry.
• This was despite earlier advice to the Government, that a change from valorem tax (based on price) to volumetric tax would cause an immediate collapse of grape prices. The Government was told:
  • wine cask prices would double;
  • there would be an industry grape glut;
  • exports would be undermined; and
  • there would be massive unemployment.

Drought-proofing the challenging Langhorne Creek region

• If Food and Beverage Australia Limited (‘FABAL’) can drought-proof 820ha of its vines in the Langhorne Creek region, the company’s successful template for management of available water (or variations of it), could be transposed to some 1,500ha of vineyards it owns with other investors throughout Australia.
• Indeed, owners of all vineyards in the nation’s increasingly dry/cool climate regions should be keeping a sharp eye on practices and infrastructure that FABAL is employing to protect its capital assets against on-going drought.
• The company seeks joint ventures with communities to build pipelines and share water. It looks to such resources as dams and other storages including aquifers, bores, desalination, reverse osmosis plants, settling and evaporation ponds, drip irrigation trenches, global positioning systems with biomass imagery, and composted green organic mulch in vineyards.

For sale: 1,570ha of valuable vineyards in South Australia’s South-East

• According to Mr Johnston, the Foster’s Group is selling 40% of its Australian vineyards, which equates to 36 vineyards covering 5000ha with a book value of $243 million. These vineyards represent extensive holdings in the Coonawarra, Padthaway and Wrattonbully regions.
• The sale has been prompted by what chief executive Ian Johnston has described as, "the Group’s poor execution of its wine business in the Americas and the failed multi-beverage model in Australia where sales of different beverages were combined under one sales team".

Sorry Kiwis, but business is business

• Australian Wine Federation president Steven Strachan has clearly implied this in urging Australian consumers to forsake New Zealand wines for local brands. He says that while New Zealand wine exports rose almost 20% last year, Australia’s slumped and grape growers are ripping up vines.
• “Nine of 10 of Australia’s markets are now in decline, and we’re even losing market share on home soil. If ever there was a time for Australians to discover, or rediscover, the simple truth that our wines can not only match the Kiwis’ best, but in some cases better them, then now’s that time,” Mr Strachan says.

Fishing Industry

Marine parks seen as bid to control the industry ‘by stealth’

• Some of the South Australian industry’s most influential and respected individuals, and all of its leading fishers’ associations, are opposing the State Government’s plan for 19 marine parks.  Objectors claim it clouds the future of a world-leading seafood sector.
• They are saying that along 5,600km of coastline, the plan will cost communities dearly in lost income and jobs, will frighten off potential industry investors, especially because of so many uncertainties in the plan, and will force fishing and aquaculture companies to move interstate.
• Australian Fisheries Academy chairman, Mr Hagen Stehr, argues that in its present form, the ‘deeply flawed’ plan to declare 46% of South Australia’s fishing resources marine parks on the basis of a totally unexplained so-called ecological “threat” is ludicrous. 
• Among those hardest hit will be 250 lobster licence holders, 80% of whose fishing grounds will lie within proposed marine parks, boundaries for which are expected to be finalised mid-year.
• The NSW Government’s policy of creating Marine Parks off the coastline has had a severe effect on many of the traditional ‘Fish Co-ops’ that once were a focal point of most coastal communities.  The Government policy has resulted not only in a substantial depletion of available product, but also a number of fishermen leaving the industry.
• Added to this, the higher reliance on estuary fishing means that a large proportion of product now being processed, is at a much lower value per kg.  Furthermore, the prevalence of cheaper farmed and imported product now sold by major retail outlets and provedores has further eroded the traditional local outlet’s survival base.
• PPB has recently been involved with a number of co-operatives in an advisory capacity.  In some cases, revenue has fallen by up to 60% in the past two years, whilst overheads have  remain relatively fixed.
• Survival tactics being adopted range from a general moratorium or reduction in member benefits, to vertical product lines from on-producing fish into table-ready meals and even sausages.  Others are simply closing their doors and their members have joined other co-operatives.
• Generally these businesses are located on Crown leaseholds and have little capital base and therefore hold little value for their members on winding up.  In most cases the leasehold improvements are encumbered to Banks.
• Over the long term, we believe it is likely that there will be some consolidation in the industry as the larger fish markets in the major cities seek to secure their fresh local produce supply lines.

Commercial farming of Southern Bluefin Tuna imminent

• Clean Seas Tuna expects to achieve access to commercial fishing of Southern Bluefin Tuna next year. The start of the company’s second successive summer spawning last month at Arno Bay in South Australia, coincided with the visit of a high-level scientific delegation from Japan’s Kinki university.
• The Japanese professors were the first to close the lifecycle of northern Bluefin Tuna, and will continue this month and next to work with the South Australian company on its southern Bluefin Tuna larval trials.
• Clean Seas and the Japanese agreed last August to share protocols on tuna propagation and husbandry, but shareholders have been warned of risks inherent in current complex research and development.

Dairy Industry

Decision time in Victoria

• While there is hope across the Australian dairy industry that the export market may have bottomed, many Victorian producers, particularly those in the North of the state, fear that their operations are no longer sustainable.
• With recent opening prices reported in the range from $0.24 to $0.29 per litre, some operators consider the prices on offer to be break-even at best or below the cost of production, given that many input costs have not fallen in line with milk prices.
• The other factor weighing on the minds of Victorian producers is the availability of water, either through irrigation entitlements or on farm dams.  With a number of years of below average rain in both the production areas and irrigation catchments, there is widespread concern that another year of low entitlements will result in many producers leaving the industry, as it has become ‘too hard to continue’.
• Such predictions are also of concern to the members of communities located within major dairy areas.  Business owners who service the dairy industry report a sharp downturn in new equipment sales to the sector and that many farmers are choosing to repair existing equipment that would have been replaced in past years.
• The current position of the dairy sector has prompted increased calls for the Federal Government to channel overseas aid payments into the purchase and export of dairy products.

Grain Industry

Mixed outlook across grain belt

• As planting time approaches for the Australian winter grain crop, it is apparent that grain growing areas can be divided into two categories.  Those with good prospects for the season ahead such as Western Australia, Queensland and Northern NSW.  Conversely, there is a real sense of nervousness in South Australia, Victoria and Southern NSW about the approaching season.
• The underlying reasons for differing expectations are the prevailing rainfall patterns and the extent of sub soil moisture going into winter.  Queensland and Northern NSW have enjoyed a return to widespread, heavy monsoonal rainfall over summer, which has translated into a promising build up in the subsoil moisture profile.  However, this monsoonal rain has not extended into Southern NSW, where growers are reliant on a good autumn break to provide sufficient moisture for planting and crop establishment.
• By comparison, Southern NSW is dependent upon the same weather patterns as Victoria and South Australia, to deliver autumn rainfall for the establishment of winter grain crops.   Over recent seasons, the autumn break and associated rainfall has become less reliable. 
• Additionally, last year delivered a hot and dry spring which dashed the hopes of many southern grain growers.  While located in the south, the western Australian grain belt has not suffered to the same weather extremes.
• Unsurprisingly, reports being received that banks operating in the agribusiness sector are more willing to extend credit, for the purchase of crop establishment inputs, to those growers located in regions which are considered to have brighter prospects.

Other

$70 million Water Sale

• Murray Irrigation is selling 50,000 water entitlements, worth an expected $70 million in an anticipated single parcel or in the largest lots possible.
• The permanent water entitlements are presently owned by 100 irrigator members of Murray Irrigation and represent about 3% of the water managed by the organisation.
• Murray Irrigation general manager Anthony Couroupis said, “Murray Irrigation is using, to best advantage, its position as Australia’s largest private bulk water licence holder, and the largest private irrigation company in the country, to offer them this opportunity to realise an appropriate return on the sale of their water entitlements”.
• Various private and government interests, merchant bankers and superannuation funds have already shown interest in the sale of this scarce commodity.

Contacts