Economics of a cap on live cattle exports don’t add up, say experts

From an economics perspective, the concept is likewise gaining little support based on the inherent dangers to free markets of government intervention.

With beef processing plants across the Eastern Seaboard reducing shifts and days of operation, and some, including JBS at Townsville in North Queensland, still to re-open after the Christmas break, frustrated meat workers have lashed out at the buoyant live export trade.

While acknowledging the tough times being faced by meat workers, live exporters said a cap on volumes shipped was not the solution because their trade was not the problem.

Drought, high input costs and a sluggish global market for beef were the key issues affecting the current decisions at abattoirs, Australian Livestock Exporters’ Council chief executive officer Alison Penfold said.

Beef producers were strong supporters of free markets and opposed government intervention at any point in the supply chain, Cattle Council of Australia president Howard Smith said.

Agriculture economist at Deliotte Access Economics Daniel Terrill said there had been no market failure that would warrant governments intervening to cap live trade.

“Such a move would purely be governments picking winners,” he said.

“It is certainly not clear that the contraction occurring is permanent.

“When the drought breaks and supply increases, it is feasible that the processing sector will return to former trading levels.”

Both Mr Terrill and Mr Smith said the beef industry had always been subject to ebbs and flows in supply and demand for both cattle and beef and that resulted in differing points in the supply chain being more profitable than others at various times.

The dangers of government intervention were significant, Mr Terrill said.

“In a market where producers, and processors for that matter, are free to chase the highest value, intervention takes that value away,” he said.

“It means beef cattle farmers will ultimately receive less for their product and that loss of opportunity for increased value will have flow-on effects well beyond the beef industry.”

Government intervention also raised sovereign risk issues, he said.

“It sends a warning to investors this is an unpredictable environment in which to operate,” he said.

“The legacy problems of the control order placed on live cattle exports to Indonesia (in 2011) persist today.”

Live cattle exports accounted for 13 per cent of Australia’s overall cattle turnoff last year.

Traditionally, that figure has sat around 9pc but due to fast-growing demand from Indonesia, Vietnam and other emerging markets, Meat and Livestock Australia has forecast this year it will again be higher at 12pc.

In announcing shift cuts, some larger processors have said competing against live export buyers for the reduced numbers of cattle was challenging.

The Australian Meat Industry Employees Union says 580 workers who are seasonally stood down every year have still not been recalled to work at the Townsville JBS plant and that had created extreme financial pressure in a region already knocked around by public sector cuts and refinery job losses.

Mr Terrill said it was not unprecedented for governments to step in where there were regional economic and social implications following a big employer or industry contraction.

“That is structural adjustment, not market intervention, and would come in the form of tax concessions or subsidies,” he said.

ALEC pointed out live trade sources different lines of cattle to those processed at abattoirs like the one at Townsville.

“This is because our customers in Asia prefer smaller, lighter cattle rather than the larger, heavier bullocks which are the mainstay of the processing sector in northern Australia,” she said.

“Live exported cattle are slaughtered in the early hours of the morning, the beef is in wet markets shortly after and in soups and stews by breakfast.

“This is the food security story that Australia is supporting.”

In the face of sectors of the beef industry seemingly turning against each other in the scramble for what little cattle supply was trickling through, CCA called for calm and longer-term vision.

Only through greater collaboration throughout the whole supply chain could the beef industry reduce the peaks and troughs that everyone experienced, Mr Smith said.