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No case for restrictions on pork imports

by 5m Editor
21 December 2007, at 10:07am

AUSTRALIA - The Productivity Commission has found there is no case for immediate trade restrictions to protect Australia's pork industry. However, producers feel this is jeopardising their survival.

Its initial report has identified a sudden increase in imported pig meat, but says that is not the main reason Australian pig farmers are hurting.

The Commission has found Australia's pig producers are suffering considerable financial losses, national production is down by 10 per cent, and people are leaving the industry. But the Commission says it has been triggered by the high feed grain prices, not by increased imports undercutting and pushing down domestic prices.

Extraordinary

However, the Productivity Commission notes that the situation has been triggered by a set of extraordinary circumstances - primarily the increases in feed grain prices and not by increased levels of imports significantly. As a result, the PC does not consider import restrictions a viable option.

It says that even if imports were entirely prohibited, the ability of price rises to accommodate such high feed grain costs would be limited by demand forces (including substitute meats) and could not match the full amount of the cost increases. Production would still fall and some producers would still be forced to exit the industry. This determination against provisional action does not rule out a recommendation for safeguard measures proper in the final report, to be completed by end March 2008.

It says that pig producers worldwide are facing a similar cost-price squeeze caused by high feed costs, although probably not to the same extent as Australian producers. Higher global production costs can be expected to affect world pigmeat prices as production cuts come into effect.

The PC report also notes that those producers who have indicated their intention to remain in the industry may face easing conditions over coming months. Moreover, market mechanisms might be expected to have come into play to secure adequate fresh and bone-in pork supplies — for example, by contracts between pig producers and fresh meat suppliers — limiting further industry exits and downsizing.

It says there is evidence that a number of pig producers have adopted a ‘wait-and-see’ approach - at least for the next few months. They will be assisted by a recent rise in pig prices, and a slight weakening of the Australian dollar against the United States dollar.

However, Australian pig industry representatives continue to warn of an ‘over-shooting’ scenario in which domestic production would fall below long-run equilibrium levels. This would undermine industry viability in the long term.

The PC concludes that its current decision is based on preliminary analysis. Since the commencement of the inquiry, policy changes have been announced by some foreign governments which could, directly or indirectly, affect prices of their exports to Australia and could, in turn, directly impact upon competitive conditions in the Australian market.

The Commission's final report will consider other possible policy changes that could help to reduce underlying cost pressures, and reinforce the efforts of producers to reduce costs and become more competitive against imports.

Bitter disappointment

Andrew Spencer from Australian Pork Limited is bitterly disappointed by the finding. He said the industry wasbeing used as a symbol of Australia's free trade and pig producers are paying for it.

Missing bonus
Meanwhile, Aussie Pork producers say they are missing out on Christmas benefits, because of imports and the cost of grain. APL says pig farmers are being forced to keep their prices down to compete, even as feed costs rise.

Malcolm Cowan, from the Tasmanian Island Pork Alliance, says farmers cannot take advantage of higher demand for pork products during the festive season.

"With the ceiling that imports are putting on the price that producers can get for their pigs, then they're getting squeezed. Demand has gone up, but a lot of that demand has been soaked up by imports," he says.

Further Reading

- You can view the full PC report by clicking here.

5m Editor