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Australia: Livestock and Products Livestock Annual Report 2008

by 5m Editor
1 August 2008, at 12:00am

Prepared by Mike Darby, Agricultural Specialist with USDA Foreign Agricultural Service.

Summary

High prices have received much media attention in recent times and have created a significant challenge for Australian livestock industries. Transport costs for livestock and feed in particular has reduced industry profitability, however post sees this burden affecting all agricultural industries and is unlikely, at this stage, to cause resources or capital to be shifted away from the livestock industry.

The Australian pig meat industry has been under great pressure recently. On the supply side, severe and long running drought has increased grain prices and reduced feed grain availability, sharply increasing production costs. On the demand side, the strong Australian dollar has sharply increased imports, providing strong competition on the domestic market, while constraining returns for exported pig meat. Imports of US pork rose sharply in calendar year (CY) 2007 and CY 2008 and are expected to grow in CY 2009, albeit at a slower rate.

Swine Industry

The Australian pig meat industry has been under much pressure in recent times. On the supply side, severe and long running drought has increased grain prices and reduced feed grain availability, sharply increasing production costs. On the demand side, the strong Australian dollar has sharply increased imports, providing strong competition on the domestic market, while constraining returns for exported pig meat.

Going forward, post expects the grain situation to ease somewhat, although grain prices will likely remain historically high. The value of the Australian dollar is also expected to remain “in positive territory” from an historical perspective, although it may ease somewhat going forward. These conditions will likely continue to provide long term downward pressure on sow numbers, inventory and production. The strong Australian dollar, combined with strong domestic demand will likely see imports of US pig meat continue to grow, albeit at a slower rate.

Inventory

Post forecasts closing inventory for CY 2009 at 2.5 million head, down two percent on the previous year. Historically high grain prices are expected to maintain downward pressure on sow numbers and the national inventory going forward. The number of establishments (farms) producing pigs has also fallen in recent times as less efficient producers exit the industry. Post expects this trend to persist beyond the forecast period.

Production

Post forecasts production to fall in CY 2009 to 361,000 metric tonnes (MT), down slightly on the revised figure for the previous year. This fall is largely in line with the projected decline in slaughter and will likely be driven by a small pig crop.

Imports

Post has forecast imports to increase slightly in CY 2009 to 146,000 MT CWE, or around 112,000 MT in shipped weight (using a conversion factor of 1.3). A strong Australian dollar, which reached a 24-year high in the first half of CY 2008, has greatly assisted the competitiveness of imported pork.

Pork imports have increased significantly since CY 2000 and now represent almost one-third of consumption, according to post estimates. More recently, driven in no small part by changes in exchange rates, imports have grown relatively sharply. The rise in value of the Australian dollar against the US dollar has abated slightly in more recent times and post expects growth in imports to slow somewhat in CY 2009.

Pork Imports and Australian Dollar Value

Source: Global Trade Atlas and ABARE

The United States continues to improve its share of the Australian market, recently becoming the largest supplier of imported pig meat. In the second quarter of CY 2008 imports from the United States surpassed Denmark, having surpassed Canada in the previous quarter. Canada has historically been the largest supplier of imported pig meat.

Australian Quarterly Pork Imports
(MT - CWE)

Source: Global Trade Atlas

Exports

Exports of Australian pig meat are expected to increase to 52,000 MT in CY 2009. This forecast, if achieved would be considered low by historical standards, with the ten-year average estimated at 57,500 MT.

Considering the current strength in the Australian dollar, post does not expect exports to return (in the foreseeable future) to those experienced in 2002/03 (July-June) when Australia exported a record 79,000 MT, according to ABARE data. Export levels reflective of this record would require a sharp change in exchange rates from current levels.

Policy

The Federal Treasurer, the Minister for Trade and the Minister for Agriculture announced on October 17, 2007 a 'safeguards inquiry' into the impact of imports of pig meat on the Australian pork industry. The inquiry was undertaken by the Productivity Commission and examined structural adjustment that has been occurring recently in the industry.

On April 4, 2008, Australia's Acting Minister for Agriculture, Fisheries and Forestry announced the release of the Productivity Commission's final report on the Safeguards Inquiry into the Import of Pigmeat. The Commission found that safeguard measures against pigmeat imports were not warranted. The Commission attributed the serious injury to Australia's industry to higher feed costs, not to imports.

Despite the finding that safeguards were not warranted the commission recognized that most pig producers are suffering reduced profitability and many are suffering financial losses, resulting in reductions in breeding sows and employment levels, with consequent negative impacts on production emerging in early to mid-2008. In the Commission's assessment, the pig farming part of the industry is accordingly suffering serious injury.

Further Reading

- You can view the full report by clicking here.

August 2008