Outlook for the Australian beef industryPhillip Island August 2009

JOHN WYLD, Board MemberMeat & Livestock Australia

Box Plains – Tarwin Lower

Young Koolomurt Bulls

Address outline

• The short term challenge – the global economic crisis

• Medium to longer term market prospects

• Longer term industry issues / challenges

•Tighter Credit Availability

•Currency Turmoil

•Economic Recession– Trade Disruption– Demand Downturn

CREDIT CRISIS

Impact of the GCC on the beef trade

• De-pipelining in all markets – minimise stocks to minimise credit & exposure

• Shaken up the trade as line of credit tougher, & importers caught with dear product

– some importers will not survive

• Russia buying ceased for a while

• Korean buying low– not helped by stocks of cheap US beef

Consumer sentiment plunges globally

2004 2005 2006 2007 2008 200980

90

100

110

120

130

140

Roy MorganConsumer Confidence Rating

97 99 01 03 05 07 090

50

100

150

Conference BoardConsumer Confidence Index

United States Australia

Impacts of the GCC on the meat consumer

• Overall fall in expenditure on food and meat

• Shift from dearer foods to cheaper foods– eg. from beef to poultry

• Less eating out & more at home– Fall in food service sales– Rise in retail sales

• Shift from dearer foodservice to cheaper food service– From middle to upper level restaurants– To fast food

• At retail, shift from steaks to sausages & mince

Importantly – it is happening everywhere at the same time!

Lack of creditDe-stocking

US returndrought dairy cow kills

US demand 8%

Strong Middle East & Asia

demandlow global supply

2009

cattle price

▼2%

2009

lamb price

▲21%

GFC positive for lamb, but not beef. Why?Its a matter of supply and demand balance

Medium to longer term prospects

Remember the global food price inflation crisis of 2007/08?

Venezuela

Argentine

Africa

Indonesia

Mexico

Remember the global food price inflation crisis of 2007/08?

Venezuela

Argentine

Africa

Indonesia

Mexico

The current global turmoil only gives the world a short respite from these pressures

Driven by the industrialisation of the population hubs of China & India

shortage of agricultural land & need for more land for grain production – for ethanol & food

Meat consumption is driven by two basic factors - income …. and population

1950 1970 1990 2010 2030 20500

2

4

6

8

10billions

Growth in world population

1980 2000 20160

20

40

60

80US$ (trillions)

Growth in world GDP

Current crisis

Projected beef import growth 2008 to 2018: FAPRI

EUChi

na CIS

Japa

n

Indo

nesia

Mex

ico

Philip

pine

s

Korea

othe

r0

100

200

300

400

500'000 tonnes cwt

Longer Term Challenges:

CompetitionNutritional IssuesAnimal WelfareMarket AccessEnvironment – Climate Change

Competitive challenges

Brazil & other beef exporters will compete fiercely with Australia to exploit available opportunities

2000 2005 2010 20180

500

1000

1500

2000

2500

3000'000 tonnes cw

2000 2005 2010 20180

2

4

6

8

10

12million tonnes cw

Growth in Brazil beef production Growth in Brazil beef exports

Nutritional issues

2000 2004 20080

1

2

3

4

% of US population claimingto be vegetarian

Vegetarianism on the rise?

Animal welfare

Animal activists/welfare

• Increased pressure from animal activist/welfare groups:– sophisticated and well funded campaigns

Online Community networks/events/youth groups

– Influencing community support and perceptions of the trade– Petitons/letter writing campaigns to Government

Market access

Every Market we service has barriers

E.g. Japan 38.5% import duty

EU 7,500 tonne quota plus 20% duty

80% over quota

WTO Doha Round

- On ‘life-support’ - cautious optimism to outright pessimism

- No appetite by some of the 153 members for trade reform

- The likely outcome…..

• Lower ambition

than sought

Free trade agreements

The World does have an appetite for FTAs (400+)

Environment

Australian greenhouse gas emissions• Agriculture’s contribution to national emissions

Cattle are far more polluting under Kyoto protocol methodologies than other types of livestock

Grasscattle

Pigs Poultry0

5

10

15

20

25

Tonnes CO2-e per tonne of production

Impact of CPRS on the beef industry with agriculture included

Beef Pork Poultry

0

-5

-10

-15

-20

-25

-30

-35

% change in gross value of production

2020

2030

Grass Grain

0

-5

-10

-15

-20

-25

-30

-35

% change in gross value of production

2020

2030

Beef industry attracting unfavourable publicity generally over the environment

Favourable future, Australian industry well positioned

• Beef consumption & trade expected to grow

• Australia is one of the world’s most efficient suppliers of grassfed & grain-finished beef

• Good product quality & rising – Meat Standards Australia/Eating Quality Assured

• Top disease freedom

• Safe meat & product integrity– LPA, supply chain QA, NLIS

• We ignore the challenges we face at our peril

• But MLA & Industry well aware and working hard

Thank you