Agribusiness Newsletter
November/December 2009
Contents
Meat Industry
- Domestic market offers hope for beef industry
- Record exports of live cattle to Indonesia
- Russian iron curtain threatens Australian beef export markets
- Hope for abattoir on King Island
Wine Industry
- Australian Wine and Brandy Corporation ('AWBC') strikes a positive note
- Vineyards under threat
- Collaborative plan to tackle the industry's oversupply problem
- Fosters has no intention of selling off its wine division
- Foster's Group Ltd announces a joint venture with Vok
- Climate change and choice will dictate major industry preferences
Fishing Industry
- International ruling's savage blow to Australian tuna industry
- Australian breakthrough - breeding in captivity
Dairy Industry
Grain Industry
Meat Industry
Domestic market offers hope for beef industry
- A strong A$ and ongoing recessionary pressures in Japan, Korea and the US, Australia's three largest export markets, has dampened any short term prospects for the export beef industry.
- As a consequence:
- Premium meat cuts are being diverted to the domestic market. Although volume sales to Japan have remained solid, these are dominated by low value cuts.
- Lot feeders have wound back their operations and are now concentrating on short-fed domestic programs, rather than the heavier long term export feed program.
Record exports of live cattle to Indonesia
- Despite the high A$, exports of live cattle to Indonesia have sky rocketed. Exports of live cattle to Indonesia now make up 80% of Australia's live export trade. It is expected that exports to Indonesia will surpass last year's record of 652,000.
- However, continued exports into Indonesia are threatened by the Indonesian Government's decision to offer domestic producers a loan subsidy as an incentive to increase the number of breeding units in that country. Indonesia is aiming to produce all its 'boxed beef' domestically by 2014.
- Australia's live cattle trade to Indonesia is worth $341m (07/08) and its boxed beef exports $99m (08/09).
Russian iron curtain threatens Australian beef export markets
- The Russian Government is planning to impose a three year quota on Australian beef. In a normal year, Australia exports 70,000 tonnes of beef to Russia. This has fallen to 10,000 tonnes in the last year as a result of the global financial crisis. There are murmurings that this will be the level at which the quota may be set.
- Although Russia operates a global import quota of 450,000 tonnes of frozen beef, this is on a per annum basis and does not apply to specific countries.
- Over the past few years Russia has become an important market for Australia, especially in light of reduced exports to Japan and Korea.
Hope for abattoir on King Island
- There is speculation that Swift Australia, who owns the King Island abattoir, may offer a $12m low interest loan to keep the abattoir open. The abattoir was recently closed due to high running costs, threatening the future of 100 workers.
- King Island processes up to 180 cattle per day, 20% of Tasmania's beef production. Approximately 140 producers supply beef to the abattoir.
Wine Industry
Australian Wine and Brandy Corporation ('AWBC') strikes a positive note
- Despite what one commentator referred to "a lot of negativity", others are adamant the latest AWBC export figures show "the Australian wine industry is still a wonderful success story."
- According to the AWBC, the big movers in the past 12 months are China (up more than $50m), Germany (up $10m), Hong Kong ($9m) and the US ($7m).
- Surely these figures must give our winemakers a lot of heart. We are still exporting $2.4bn worth of wine annually, and the US ($727m) has maintained its position as the number one export destination in value for Australian wines ($54m ahead of the UK) despite some reported doom and gloom.
- Australian wine exports, according to the AWBC, increased in volume but declined in value in the past financial year, mainly because of increased shipments of bulk wine that were bottled abroad.
- Wine exports increased 6% to 750m litres but the value, $2.43bn, was down 10%, representing a 15% decline in average price to $3.24 a litre.
- Nonetheless, despite the global financial crisis, exchange rate volatility, and what the AWBC called "demand imbalances", the volume of wine exported in 2008-9 was the second highest on record behind 2006-7 when the average price was $5 a litre.
Vineyards under threat
- In a "special report" headed "industry plunges into deep crisis and vineyards are abandoned", The Advertiser claims "wine companies are being forced to close their businesses and abandon vineyards as demand for their product dries up".
- There are reports of "hundreds of jobs" being threatened by the crisis, and Great Southern, Australia's largest agricultural investor until it went into receivership in May, has announced the shutting of gates to 750ha of SA vineyards.
- Constellation Wines has said it will close its Stonehaven Winery at Padthaway in the State's South-East this month, having earlier in the year closed its Leasingham Winery at Clare in the Mid-North.
- Wine Grape Growers' Australia executive director Mark McKenzie says "a large percentage" of the grape growing and winemaking community was in "severe financial stress".
- Industry leaders are saying because Australia has 20,000ha of vineyards more than needed, they expect 6000ha to 8000ha will be barren this year because of climatic and economic problems.
Collaborative plan to tackle the industry's oversupply problem
- Winemakers' Federation of Australia, Wine Grape Growers' Australia, Australian Wine and Brandy Corporation and Wine Research and Development Corporation have together defined initiatives to drive transformational change under a Wine Restructuring Action Agenda ('WRAA').
- It's the first time the industry has formally recognised and quantified the problem, acknowledged the responsibility of fixing it, examined issues specifically and regionally, and developed and resourced a detailed action plan.
- Emphasis will be placed on attaining regional and individual vineyard viability through improved data management and profitability assessment.
- It's expected WRAA briefings at 14 regional centres involving discussions on compiling data for the new regime will start early in 2010.
- There will also be talks with the Federal Government on aspects of the WET rebate system and about improved exit packages for non-viable growers.
- Market development and investment will be refocused on emerging Asian prospects.
- Growers of grapes and wine producers are being urged to cut production by 20%, which will mean the retirement of up to 40,000ha of vines in order to cut the annual grape harvest by as much as 500,000 tonnes.
- Despite the economic need to induce transformational change on a fragment industry of multiple stakeholders, no solutions are expected to be easy or quick.
- While industry leaders say some form of government assistance will be critical in accelerating change, they insist anything approaching a substantial bailout - for example a government sponsored vine pull scheme - is not an option.
Fosters has no intention of selling off its wine division
- So says the division's newly appointed managing director, David Dearie, after more than 20 Fosters-owned labels won gold at the Royal Adelaide Wine Show, including a 2007 Wolf Blass White Label Chardonnay that was the Show's best wine. Best red blend of the Show and overall best red was the Wolf Blass 2008 Yellow Label Shiraz Viognier, which also won the Montgomery Trophy for this year's best red wine retailing under $20 a bottle.
- Mr Dearie says his wine division is looking for new land for vines even though it's committed to selling $243m worth of current holdings on 5000ha, the aim being to lay foundations for future flexibility in production at both the front and back ends of the market.
- He has reported as saying there were no grounds for writing down the expected value of the 36 vineyards based on proceeds from 10 sold so far.
- "Now we're back to having a dedicated wine business we're fully focused on that, and in being aware of opportunities for land purchases we believe will serve us well in the future," Mr Dearie said.
Foster's Group Ltd announces a joint venture with Vok
- David Dearie (the division's newly appointed managing) says that from December 1, the Foster's Group will transfer 13 Australian wine brands to Vok Beverages Pty Ltd to market and manage, while Fosters continues to produce wine for the 50/50 venture.
- He says the arrangement will allow Fosters to focus on winemaking and marketing for its core portfolio, as Vok works to capture new opportunities for the transferred brands, Queen Adelaide, Half Mile Creek, Minchinbury, Matthew Lang, Andrew Garrett, Magileri of McLaren Vale, Rouge Homme, Great Western, Cartwheel, Fishers Circle, Galway Pipe, Boronia and Yarra Ridge.
Climate change and choice will dictate major industry preferences
- So say industry experts who expect vermentino, nebbiolo, pinot grigio, viognier and arneis to erode the popularity of shiraz and chardonnay over the next couple of decades.
- South Australian-based Fosters Group red wine maker Glenn James says "more and more sections of the industry are devoting time to looking at climate change and grape varieties that require less water, and just like it hot".
- He says that in Australia the tendency has been to expect quality wines to come from cooler areas, and bulk wine from hotter, drier regions, but "there are parts of southern Italy, Spain and other Mediterranean countries that are very hot and dry that produce wines of really good quality".
- Mr James points out that in any case many Australians of their own volition were becoming more adventurous in their choices of wine, so that varieties like temperanillo and Sangiovese were becoming increasingly popular.
Fishing Industry
International ruling's savage blow to Australian tuna industry
- The Commission for the Conservation of Southern Bluefin Tuna meeting in South Korea, has decided on a 20% global quota cut. However, it's decided on a 30% cut for Australian fisheries, which harvest 5265 tonnes annually (40% of the world's catch).
- Port Lincoln fishers accept that quota cuts may be necessary in the face of a report indicating a likely collapse of the industry because spawning stock of tuna in some areas is only 5% of the levels of the 1940s. But they say Australia has clearly been discriminated against by other members of the Commission that includes Japan and Taiwan.
- The decision forcing major cuts to Port Lincoln's quotas worth $180m is expected to result in significant job losses.
- While the quota cuts will raise prices, Australian Tuna Association chief executive Mr Brian Jeffries says this "certainly can't compensate for the disruption to people's lives and a whole range of other social effects".
- Clean Seas Tuna, one of Port Lincoln's key holders of a quota allocation, will be particularly hard hit by the international ruling, but on the other hard is advantaged as it is about to become the first company in the world to farm bluefin tuna commercially. It's in the process of raising $26m to expand its production facilities.
Australian breakthrough - breeding in captivity
- According to Time magazine, breeding the fickle but very valuable bluefin tuna in captivity at Arno Bay in SA, is beaten only by NASA's Ares rocket, the next vehicle to take humans to the moon and henceforth to Mars and other destinations in the galaxy.
- Port Lincoln fisherman and former French Foreign Legionnaire Hagen Stehr whose company Clean Seas Tuna achieved what many scientists declared was impossible, said: "If you had to run second to any bastard then NASA would be the one."
- He said scientists who watched the world's first spawning of bluefin tuna in captivity at 8.47am on March 12, this year "had tears in their eyes", an event that Time hailed as "first history".
- Clean Seas Tuna spent more than $40m cracking the lifecycle of tuna and solving propagation issues, but this is expected to be returned to the company many times over through sales around the world, as wild tuna catch quotas continue to be reduced.
Dairy Industry
Toward profitability
- Continuing improvements in the milk prices being received by Australian producers are resulting in increasing numbers of farmers moving from a loss making to break even financial position, with reports of some producers achieving profitability, albeit at a low level.
- While the price increases are most welcome, there is a sense across the industry that the market is in a fragile condition and that unexpected shocks could result in a rapid turnaround in the current upward trend of market prices. Such a situation was seen recently in Western Australia, when a major dairy processor lowered the price being offered for delivery in November and December, in response to concerns that the state's milk market is over supplied.
Early hot weather concerns
- The arrival of hot weather earlier than expected, has focused dairy farmers' attention on the hot summer months ahead. Industry representatives report widespread concerns about the severity of the heat wave being experienced across southern Australia, and the lack of opportunity for dairy herds to adapt to the conditions that are reminiscent of high summer.
- Representatives of the Bureau of Meteorology have observed that recent hot weather is not normally experienced until January and that a number of records are likely to be broken as a result of the prevailing weather patterns.
- The effect of the hot weather is also being felt at the saleyards. Reports from livestock agents indicate that the supply of dairy cattle has jumped as producers look to offload stock before high summer. Predictably, prices have fallen in response to the increased supply and the current diminished interest of exporters, resulting from the depressing effect of the high Australian dollar.
Grain Industry
Yields slightly below expectation
- As the harvest progresses across the Australian grain belts, early feedback is being received on the likely final crop yields. At this stage, reports across all states indicate that overall yields will be below previous expectations. In some cases, the reductions will be in the order of 10%. A small number of areas, such as the Eyre Peninsula in South Australia are reporting bumper yields. The reduction in yields in Western Australia is being attributed to mild frost damage in some regions, while in Victoria the recent spell of unseasonably hot weather is being blamed.
More competition from Eastern Europe
- Estimates of total world wheat production were recently increased to 671 million tonnes, which is predicted to maintain downward pressure on world wheat prices. In particular, exporting countries based around the Black Sea, including Russia, Ukraine and Kazakhstan have been identified as providing increased competition in world markets and undercutting exporters such as the USA, Canada and Australia.
- The increased competition faced by Australia in international markets has prompted a number of industry participants to call for the formation of an industry body to promote Australian wheat internationally, now that Australia no longer has a single desk exporter to undertake this function. It is reported that competitor countries are making a more concerted effort to market their wheat crops and Australian exporters need to do more to inform the international market of the advantages of Australian wheat and thus differentiate it from other country's offerings.
Contacts
AdelaidePeter Macks t +61 8 8211 7800 Level 10 t +61 8 8211 7800 BrisbaneGrant Sparks t +61 7 3371 7244 Level 3 t +61 7 3831 2700
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MelbourneJoe Dicks t +61 3 9269 4209 Rod Slattery t +61 3 9269 4204 Level 21 t +61 3 9269 4000 PerthSimon Theobald t +61 8 9382 8933 Level 21 t +61 8 9382 8933
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SydneySteve Parbery t +61 2 8116 3000 Andrew Smith t +61 2 8116 3060 Level 46 t +61 2 8116 3000
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