Abstract:
MARKETS FOR AUSTRALIAN BEEF (Invited Paper) C. J. KING* I. INTRODUCTION The considerable speculation in recent months concerning the future of Australian beef exports to North America raises issues important to Australia. They are important to the Commonwealth, which is anxious to protect and still further develop this new-found earner of high export income; they are important to those States planning public works in remote areas, and to private and public abattoir authorities faced with peremptory notice to remodel and re-organise export killing works and veterinary inspection methods relating thereto; and finally they are important to producers planning further capital investment in this industry. These are matters of immediate practical concern. But this by no means exhausts the number of those directly or indirectly involved in the industry' future. There s are the contentious problems of chemical residues and additives, an increasing Australian population, change in consumer tastes, the possibility of new markets yet to be explored, and of stock diseases to control and possibly eradicate. Ample funds seem now to be available for research into these and other matters affecting the beef industry' future.1 s It should therefore be a profitable exercise to review briefly the present position of the beef industry, and from this base to consider some further projections. II. ECONOMIC IMPORTANCE Beef is rapidly increasing in importance to the Australian economy. Largely the increased return in exports is associated with the dramatic development of trade with the United States in the last eight years. There was no such trade at all as late as 1956-57. Trade began with the tentative, partly exploratory 6134 tons of beef and veal that were shipped to the United States of America in 1957-58, following relaxation of the Fifteen Year Meat Agreement with the United Kingdom. The growth of the later trade is at once apparent: from 57,311 tons (1958-59), 87,851 tons (1959-60), 76,267 tons (1960-61), 151,196 tons (1961-62), to the astronomical figure by Australian standards of 208,811 tons in 1962-63 and 23 1,000 tons (est.) plus 26,000 tons of mutton in 1963-64.2 If we take into I 1. Evidence suggests that beef cattle on sheep properties are becoming an increasingly important sideline. Most of the expansion in the last five years (500,000) has not been in the Northern Territory and Queensland (20% increase only). The major growth has been in the Southern States. Total beef cattle numbers have risen to 13.4 million. 2. The February, 1964, Agreement between the United States and Australian Governments provides for the export-of 242,000 tons of beef and veal and mutton to the United States in 1964-65 - a reduction of 15,000 tons on the est. 257,000 exported in 1963-64. In fact, it is unlikely that exports will reach the quota. The Agreement allows for an increase of 9,000 tons in 1965-66 and a further 9,000 tons in 1966-67. Agreement may be terminated by written notice at least 180 days before the end of each calendar year. *Department of Agriculture, Sydney, N.S.W. 219 account that these exports largely comprised quick-frozen boneless beef and veal, the equivalent on a carcase bone-in basis would be about one and a half times as great. Moreover, the total value of cattle slaughtered in Australia over the same period has increased to the stage where for 1963-64 the figure is estimated at &205-million, only & 3 l-million less than the total value of wheat production. In short, beef, including veal, is now firmly established as Australia's third most important rural product and could rival even wheat for the second place within a few years. In its pastoral activities Australia possesses great advantages and tremendous capacity for still further growth. Australians are among the highest meat consumers in the world. More than 20% of total expenditure on foodstuffs in Australia is spent on butcher's meat (including frozen and pre-packaged); of every Z 1 of personal expenditure in Australia, about 9d. is spent on meat. The consequences are that with rising population and increasing consumer spending power, the domestic market is likewise expanding. Considering this general position in further detail, it is as well to look at the domestic consumer pattern as a first step. III. DOMESTIC CONSUMPTION PATTERN Trends in the consumption of meat in Australia since the war are interesting. Aggregate consumption of beef, lamb, mutton and pork per head of population has remained fairly stable, per capita consumption in 1962-63 being about the same as in 1949, i.e. approximately 200-205 lb. There have been fluctuations, particularly a pronounced hump in consumption figures between 1957 and 1960. However, the longer term significance of such fluctuations is questionable. During the ten year period, 195 l-52 to 1961-62, total meat consumption (excluding pig and poultry meats) averaged 205.3 lb, with a coefficient of variation of only 3*5%.3 Whilst per capita consumption of all meats combined has thus remained fairly constant, the relative consumption of beef and sheep meats has varied considerably in response to relative price changes between the two, e.g. an increase in beef consumption of about 5 lb between 1961-62 and 1962-63 was accompanied by a 5 lb fall in the consumption of mutton, the consumption of pork and lamb remaining about the same. Despite wide fluctuations in the relative quantities of beef, lamb and mutton consumed, recent investigation has shown that relative expenditure on each of these types of meat in Australia remains fairly constant. Each year since 1949, 54-62% of domestic expenditure on meat has been on beef, 15-20% on lamb, 14-19 % on mutton, and 6-9 % on pork.4 What seems to happen, then, is that when the supply of beef on the domestic market falls and prices rise, there is a swing over to sheep meats, while upper income groups simply increase their expenditure on beef and consume the same quantity. Thus whilst the average per capita consumption of beef falls, the average per capita expenditure on beef retains its position relative to other meats. 3. J. van der Meulen, 'The Demand for Meat on the Retail Level', unpublished paper, University of New England, 1963. 4. Ibid. 220 Applying these basic data, we may now consider some consumption projections. This is no easy task. There is in most cases no more refined method of forecasting than to assume that current trends will continue and that current trends in consumer tastes can be extrapolated and there will be no significant changes in quality. In view of this, any projections should at best be regarded as 'informed speculation'. If personal incomes in Australia continue to increase at the rate they have since the early 1950' the level of annual total personal income by the end of the s, 1966-67 financial year should approximate ;f: 7000 million. If expenditure on meat remains at about 9d. in the 2, about &260 million will be spent on meat. If 58 % of meat expenditure is allocated to beef, Australians will probably be spending an average of something like Z 150 million annually on beef by 1966-6,7. But there is the important further assumption that the continuing upward trend in the demand for quality beef will also be maintained. This latter is the crucial consideration. Based on recent experience in Australia and America, there seems clear evidence that domestic consumers will pay higher prices for beef, provided only that improved quality can be guaranteed. This implies two things: (a) producers need a greater incentive to improve quality; (b) consumers need a guarantee that they are going to receive quality. Price differentials are therefore important. The probabilities are increased prices all round, on a generally upward plane. The projection is that in the short term, and certainly in the longer term, we will require on the local market a much more elaborate system for the grading, wholesaling and retailing of beef than has hitherto been used in Australia, that is, if the production of better quality beef is to be encouraged and consumers are expected to pay perhaps even higher prices than they do today. This means, when translated into practical terms, younger and more uniform quality stock. However, this domestic market, important as it is, requires only part of the total Australian output. Markets have still to be sought for the balance and here quality considerations are markedly different. It is to th.is latter market and to the overwhelmingly important export trade in general that consideration should now be given. IV. THE EXPORT MARKET Australia, with 47% of the total, was by far the largest exporter of beef to the North American market in 1963; next followed New Zealand (21%), Argentina (8%), and Ireland and Mexico (7%). How are we to reconcile these relatively large exports and imports with the fact that the United States of America is now seeking overseas markets for its surplus quality beef?5 Is this market permanmt or transient? A great deal depends upon the answer. The salient points to note are threefold. Firstly, despite international boundaries, the North American continent has for supply purposes one cattle herd, comprising the herds of the United States of America, today standing at 106 05 million, Canada 11.5 million, and Mexico 23 5 5. The U.S.D.A. under pressure to help domestic producers to permit the export of beef under the foreign aid export of American beef under Public Law 480 will Government and may be paid for by the importer in 221 out of a price slump has decided programme. This means that the be financed by the United States 'soft' currency. million. This adds up to a total herd of over 140 million, compared with Australia' s 18 million (13 .4 million beef cattle). Secondly, the significant feature of this North American industry is that it serves an enormous concentration of population and a quality-conscious market wholly unlike that in Australia, where so much is left to chance. Like the Australian industry, it, too, is subject to cyclic movements. Since the war there have been two such cycles, with a third very near the peak of its accumulative phase. No real limits can be set to North America' cattle expansion if the price incentives keep s rising. But there comes a point when with normal demands satisfied, market prices collapse, losses are incurred, and a downward trend develops with the liquidation of breeding cows. This stage, if not already reached, is close at hand. The third point to note is that in Canada and other states, the object is to use a vast proportion of the production of grain to produce prime and choice carcases. In consequence, there has developed an enormous feed lot industry in which cattle are fattened and killed off at an early age (16-24 months), much as is the case with the broiler industry. Without entering into any detailed description, suffice it to note for our purposes that whilst there has been an increase of the United States of America population from 165 million in 1955 to 190 million in 1963, the total production of cow and bull beef for manufacturing purposes has dropped off 40% in the last 6 years. Part of this decline was due to a decrease in the dairy cattle population from 36 million in 1948 to less than 28 million in 1964, part to the fact that 'practically every critter that is feedable is moved into feed lots, including most of what formerly were called two-way cattle.' On a per capita basis, cow and bull beef production in the United States of America fell from 24 lb per annum in 1957 to 16 lb in 1962. These, then are the reasons for the tremendous growth in our exports to supply types of meat which within the American meat industry lose their identity: (a) hamburger and ground meat; (b) manufactured smallgoods, including all types of sausage, pre-cooked meals, pressed meat loaves, cooked meats for canning and soups; (c) meats for hotels, restaurants, institutions, and so on; (d) insignificant amounts of meat for the retail trade, with Australian identification (principally lamb). The Americans were quick to learn, and Australian exporters also quick to realise, that Australian lean boneless beef is ideal for blending with the local fatter trimmings from the American trade. Whether or not this complementar y relationship was taken into account in recent discussions between the Australian and American Governments is not known, but the economics of the situation are clear enough. The U.S.D.A. in a recent analysis of the cattle situation, compared to that of a year earlier, found in general that the price of cattle had fallen about $3 -75 per cwt. Of this amount it is estimated that about 20 cents was due to increased supplies of poultry and pork, about 50 cents due to the increased volume of imports, but the significant factor was the approximate $3 due to the increased production of domestic beef (prices have since risen by about $2 per cwt). There have been bills proposed before Congress to limit imports; nevertheless it must be assumed that the agreement completed earlier this year will safeguard Australia 's situation for the next few years. Exports are to be pegged within flexible arrangements. 222 With this market relatively assured, Australia can now turn to its traditional European markets, and here again the situation shows promise, with selling opportunities available here and now in the United Kingdom, France, Germany, Switzerland, Greece, Scandinavia, the Near East and Japan. There can be no telling what this latter market may require. Japan' per capita annual meat consumption, s for example, has increased from 3% lb in 1957 to 12 lb in 1963. With rising standards of living in Europe, increasing sophistication in consumer habits, and Americanization of restaurant practices, it is natural to assume that Australia can expect increasing demand for its beef. Whilst there is no room for complacency, a successful industry can afford to experiment and take risks, where these are not possible in times of depression. Australia's beef industry is small by world standards, and its development has been slow. South America, its principal competitor, is faced with problems and population pressures of unprecedented proportions. The Argentine, for example, so long the principal supplier of the United Kingdom's import requirements, is undergoing vast changes in its hacienda economy, and there have been also the problems of disease. How far and how soon can we expect expansion in Australia's beef and veal industry? This is the question the answer to which we would all like to know. V. CONCLUSIONS (a) On the favourable side (i) United States meat exports. These should be regarded primarily as complementary not competitive. Probably the agreement will continue for three years as foreshadowed, and beyond.' (ii) Exports other tha$n to the United Kingdom anId the United States uf America. Under March, 1964, legislation, the Australian Meat Board has been re-constituted to enable risk ventures in operating on overseas markets to be undertaken, and to use promotion on both local and overseas markets. Finance is to be provided by a stock tax of 5/- on all cattle and 6d. on all sheep and lambs slaughtered. Total collection is estimated at ;f: 1.7 million. (iii) General agricultural development. This enables more economic production. Australia's position is one of 'comparative economic advantage'. (iv) Rising standards of living in Australia and othler industrialized countries, and sophistication in dietary patterns in Western Europe, etc. (v) Advantages of freezing over chilling in Australia' meat export trade. Difficulties of shipping which now limit s exports of chilled beef are being overcome by use of refrigerated cargoes. It is unimportant whether identification is retained in exports to underdeveloped countries. (vi) Export compan' ies. With companies geared to handle large-scale exports, further inventiveness and improvements in packaging can be expected. 6. The Finance Committee of the United States Senate has approved a bill for consideration by the Senate which would impose quotas on meat imports limiting them to the 1959 to 1963 average. The quotas which would operate from January, 1965, would be about 25% below the 1963-64 level of imports. If enacted, the bill would force the United States to cancel the present voluntary meat import agreements with Australia, New Zealand, Ireland and Mexico and would harm efforts to negotiate international agreements for other farm products. However, it is currently believed (July, 1964) that President Johnson would veto any meat imports legislation. 223 (b) On the unfavourable side (i) Fifteen Year Meat Agreement with the United Kingdom. This will expire in 1967 and with it Australia' guaranteed unrestricted right of entry. The United s Kingdom has attempted to limit the volume of meat entering its market. (ii) Possibility of drought and recession. A run of good seasons has continued since 194647. For how long can we expect these good seasons to continue? (iii) Possibility of self-sufliciency conlcepts. These are again arising to impede Australia's normal channels of trade. The European Economic Community and the inability of underdeveloped countries to finance imports must be considered. (iv) The fear of exotic diseases being introduced, e.g. foot and mouth disease. (c) Predictions (i) There will be further increases in Australia' beef cattle herds particularly s in the better rainfall and more developed areas of the South. It is unlikely that increases will come in the Northern Territory, due to drought and pastoral deterioration. There may be a slow increase in Queensland as public works programmes are undertaken and disease and breeding problems are overcome. (ii) No recession in prices is likely, in fact there will probably be increases. (iii) There will be changes in quality standards. Increasingly young cattle will be slaughtered, grading will be introduced, and quality guarantees provided, but it is doubtful whether supplementary feeding after the United States of America pattern can be applied. APPENDIX 1 Australian meat exports to all destinations Carcase Weight (t) as Percentage of Production 224