FEATURE

Australia risks missing a big livestock export and animal welfare opportunity

Mick Keogh and Adam Tomlinson, Australian Farm Institute

Trade in live animals is increasing globally, and is likely to accelerate in the future as consumers in developing nations increase their consumption of animal protein. This presents a strong opportunity for Australian livestock industries, and also an opportunity to play a leadership role in contributing to the improvement of animal welfare standards in developing nations.

Abandoning livestock exports from Australia, as some propose, makes little sense from either an economic or an animal welfare perspective. There is clear evidence it would have a negative financial impact on the majority of farm businesses in Australia, and lead to increased sourcing of livestock from other nations, all of which have lower livestock management and animal welfare standards than Australia. Perhaps more importantly, this would also result in declining animal welfare standards in nations that are currently important livestock markets for Australia.

This article outlines trends in the international trade of livestock, and in particular the structural changes in supply chains that are resulting in livestock importing nations increasingly favouring live animal rather than meat imports. It also examines the impact of recent policy developments in Australia, highlighting that they have resulted in much more widespread financial harm to Australia’s farm sector than has been recognised to date.

Global trade in livestock

The very strong growth in global demand for animal protein, which is an inevitable consequence of increasing consumer wealth in developing nations, has been the subject of a great deal of academic and media interest over recent years. This growth is creating seismic shifts in world agriculture, and has been identified as one of the key factors contributing to the major changes in global agricultural commodity prices since 2001.

What is perhaps not as well understood is that the growth in demand for animal protein over the past decade has resulted in major changes in demand for feedgrains, as developing nations attempt to boost their own livestock production sectors. This also affects livestock imports, as developing nations unable to meet growing protein demand from domestic production look to alternative means of meeting that demand and simultaneously taking steps to boost domestic economic activity.

Global trade in livestock grew dramatically over the past five decades, from around 15 million head in 1961 to almost 70 million head in 2010, worth more than US$13 billion according to the Food and Agriculture Organization of the United Nations (FAO). The most spectacular growth has been in live pig exports, much of this being inter-European trade as pigs produced in Western Europe are increasingly transported to lower-cost eastern European nations for slaughter and processing. World trade in live sheep, cattle and goats (Australia is an exporter of each of these species) has been between 30 and 35 million head annually over the past two decades, and in value terms has grown dramatically to over US$9 billion per annum (see Figure 1).

Figure 1:  Global live sheep, cattle and goat exports (1961–2010).
Sources:     FAO, AFI analysis. 

Over 100 nations around the world are involved in large-scale importing or exporting of livestock, with all forms of transportation employed, and the trade occurring in all the major regions of the world. From an Australian perspective, the key focus has been on live cattle and sheep exports.

The number of live cattle traded internationally grew by 1.3% per annum over the decade from 2000 and 2010, although growth in the annual value of the trade exceeded 5% per annum over that period. France is the world’s leading exporter of live cattle, being the source of around 13% of world exports (see Figure 2). According to the United Nations Comtrade database, the markets for cattle exported from France include Europe and Africa, and in 2012 France exported cattle to 35 countries. Other leading live cattle exporters include Canada, Mexico and Brazil, with Australia being responsible for less than 10% of world cattle exports. In 2012, Australia exported live cattle to 22 countries, predominantly utilising ocean transport. Brazil is another live cattle exporting nation with a heavy reliance on ocean transport, supplying cattle to 10 nations in 2012.

Figure 2:   Live cattle exports by country, 2010.
Sources:     FAO, AFI analysis. 

The total number of live sheep traded internationally has been relatively stable in recent years. Australia is still the leading exporter of live sheep, but the proportion of live sheep exports originating from Australia has declined from around 50% of global trade in 2001 to 20% in 2010 (see Figure 3). The fall in live sheep exports has coincided with a large decline in Australia’s national flock, with many farmers reducing sheep numbers or switching to other enterprises during that period. The ‘gap’ in live sheep markets created by the decline in Australian live sheep exports has been filled by exports from nations such as Somalia and Sudan.

 

Figure 3:   Live sheep exports by country, 2010.
Sources:    FAO, AFI analysis. 

Live animals are traded internationally for slaughter, feeder or breeding purposes. There are countries actively involved in the live animal trade such as New Zealand that regulate the live animal export trade to only include animals for breeding purposes. In 2012, New Zealand’s live export trade of cattle and sheep was worth over NZ$108 million. New Zealand’s major live export markets include cattle trade with China, Vietnam and the Philippines. While live animals that are exported originally for breeding purposes are initially traded according to strict standards, detailed monitoring of the handling conditions of breeding animals post-arrival in the foreign country is not currently undertaken by any live animal exporting country.

The Middle East and Africa are the largest markets for both live cattle and live sheep exports, accounting for around 20% and 75% of international imports respectively. The main factors driving the demand for live animal imports in this region include relatively small domestic livestock industries, religious customs, the absence of infrastructure such as electricity in the poorer nations and government policies favouring livestock imports as part of economic development and effective supply chain strategies.

Table 1 summarises the characteristics of the live animal trade of the major live animal importing countries in the Middle East and Africa. It highlights the diversity of countries operating in the live animal trade which includes countries from within the Middle East and Africa region along with countries from Europe, the Americas, Asia and Oceania.

Table 1:    Major supply sources, population size and religious characteristics for major Middle Eastern and African importers of cattle and sheep.(i)

Import destination Live animal type 

Trade quantity (head) 

 Largest supplier 2nd largest supplier  3rd largest supplier  National population (millions)  Muslim (%) 
 Turkey Bovine  471,571  France  Hungary  US  73.99  99.8%
 Lebanon Bovine  262,965 e  Spain  Brazil  Colombia  4.42  59.7%
 Yemen Bovine  148,731*  Somalia  Ethiopia  Djibouti  23.85  99.0%
 Israel Bovine  131,098  Australia  Jordan  Lithuania  7.90  16.9%
 Egypt Bovine  67,489  Australia  Brazil  US  80.72  90.0%
 Saudi Arabia Sheep and goats 4,147,840 e*
 Sudan  Somalia  Syria  28.28  100.0%
 Nigeria Sheep and goats 1,426,117*
 Algeria  Chad  China  168.83  50.0%
 Bahrain Sheep and goats  475,281*  Australia  Saudi Arabia  Somalia  1.32  81.2%
 Yemen Sheep and goats  415,841*  Somalia  Ethiopia  Djibouti  23.85  99.0%
 Oman Sheep and goats  224,241  Somalia  Iran  Australia  3.31  75.0%

Note:           i Excludes some large import destinations, such as Kuwait and Qatar, due to data limitations   *2011 data, otherwise 2012   e = estimate
Sources:     United Nations Comtrade database, World Bank, CIA World Fact Book, AFI analysis.

Nations in the Middle East and Africa have predominantly Muslim populations, for whom religious beliefs require that meat be ritually slaughtered and preferably traded fresh in local markets. A further factor driving the demand for live exports is that, according to the OECD’s World Energy Outlook 2012, large live animal importing countries such as Yemen and Nigeria have 15 million and 79 million people respectively living in homes without electric power. The lack of electricity is one contributing factor that prevents the establishment of modern supply chains based on the import of frozen or chilled meat.

Israel is a unique Middle Eastern destination for live cattle imports, with a minority of Muslim residents and developed infrastructure. A driver for the live cattle industry in Israel is the desire to optimise the use of local slaughtering capacity and to capture more value from livestock supply chains.

Structural changes in supply chains are impacting on the demand for commodities

In recent years there has been a structural shift in the global trade of bulk agriculture commodities (see Figure 4). Nations that rely upon agricultural imports for their food supplies are increasingly seeking to import raw or minimally processed commodities that are then processed within that nation, prior to distribution and sale to consumers. This trend towards the increased importation of raw or minimally processed products is observed for most major commodities including grains, oilseed and sugar, as well as meat. For grains this shift is demonstrated by the fact that the growth in global bulk wheat exports has been consistently higher than the growth in flour exports. Major grain importing nations have developed flour milling capacity for a range of reasons, and this is increasing demand for the raw commodity rather than processed product.



Figure 4:    International trade of commodities and semi-processed commodities.
Sources:     FAO, AFI analysis.  

Governments of major agricultural importing nations have been generally supportive of this shift towards the importation of raw agricultural commodities, as it creates more jobs in the domestic economy and allows a greater level of control over food supply chains. The most obvious example of this is Chinese imports of soybeans from Brazil for processing in China, a trade that has grown from virtually nothing in 2000 to annual imports approaching US$50 billion in 2012.

Other African and Asian countries are also increasingly implementing national initiatives that aim to boost industrialisation and control the processing of agricultural commodities. Market forces commonly support the importation of raw commodity rather than processed product in import regions such as the Middle East, as generally lower costs for energy and labour in these regions increase the cost competitiveness of commodity processing industries.

In the case of meat, the growth in demand for relatively unprocessed product that can be processed within the importing nation is reflected in the growth in demand for live animal imports (observed for cattle, sheep, goats and pigs) and also in demand for minimally-processed meat (entire or half carcasses) which can be further processed in the importing country.

This is an important factor in the demand for live cattle imports by Indonesia. Live cattle imports have necessitated the establishment of cattle feedlots, beef processing facilities and associated transport and service industries within that nation, creating employment and economic activity that would not exist if beef was imported in a processed form. Local farmers in close proximity to feedlots in Indonesia, for example, benefit by becoming suppliers of fodder to the feedlots.

Recent developments in the Australian live animal export industry

The Australian live animal export industry has undergone significant changes in recent decades. Numerous industry reviews have been conducted, including the Independent Reference Group in the late 1990s, the Keniry Review completed in 2003 and more recently the Farmer Review, and reviews by various Industry Government Working Groups.

Some notable changes to the industry that have occurred as a result of these review processes include the requirement for the heat stress risk assessment of live animals under the Australian Standards for the Export of Livestock; the roll-out of the Exporters Supply Chain Assurance System (ESCAS), and the revision of the Australian Animal Welfare Standards and Guidelines, which is the code of practice for the Australian industry. All of the standards imposed on the Australian live animal export industry adhere to international codes of practice governed by the World Organisation for Animal Health (the OIE).

ESCAS was established in 2011 to increase the transparency of the live export supply chain and the handling standards of animals originating from Australia but traded in foreign markets. The establishment of ESCAS was a direct result of evidence of appalling treatment of cattle, that originated from Australia, in some Indonesian abattoirs. The ESCAS framework has been a major positive development in the live animal export industry, with reforms designed to assure the welfare of livestock exported from Australia.

Australian exporters seeking a permit to export feeder and/or slaughter livestock must now show that their supply chain:

meets OIE guidelines for animal welfare

enables animals to be effectively traced or accounted for by exporters within a supply chain through to slaughter

has appropriate control through reporting and accountability

is independently verified and audited.

The work that has been undertaken to improve the practices of the Australian live animal export industry has resulted in an industry that is considered to be world leading in terms of transparency and governance. No other live animal exporting nations have implemented the level of monitoring required by the Australian system. The resulting increased level of communication along supply chains also provides the additional advantage of allowing exporters and farmers to obtain feedback from foreign consumers on product preferences.

Despite this positive progress, recent examples of the inhumane handling of Australian animals in countries such as Egypt and Pakistan, demonstrate that animal welfare represents a continuing issue for the industry. These incidents are illustrative of the difficulties associated with imposing Australian standards in foreign countries with different cultural norms and traditional practices. It is worth noting however, that Egypt had not agreed to implement ESCAS at the time of the most recent incident and that live animal trade with Egypt has been voluntarily suspended by Australian livestock exporters and will not recommence unless ESCAS is implemented.

Assessing the impacts of recent livestock export policy changes

In June 2011 the Australian Government suspended live cattle exports to Indonesia in response to the public airing of video footage showing animal cruelty during the slaughter of some cattle sourced from Australia in several Indonesian slaughterhouses. The trade was resumed a few months later, following the roll-out of ESCAS across Indonesia, but the trade disruption had a number of consequences for the Australian beef industry.

Most importantly, the abrupt policy changes implemented by the Australian Government created uncertainty within the Australian beef industry and amongst livestock exporters and importers, that has consequently reduced confidence and investment in the industry. The industry has also been impacted by policy decisions in other nations such as reduced quotas and changed weight specifications, and as a result of these factors, Australia’s live cattle exports have dropped by over 35% since 2009.

During the first half of 2013, the flow-on impacts of these changes in the live cattle export market became evident throughout the Australian beef industry. The dramatic fall in confidence and limited market options for northern Australian cattle, in combination with adverse seasonal conditions throughout much of northern Australia and in particular Queensland, resulted in farmers in the worst-affected regions having no other choice but to sell cattle for slaughter domestically. The result was a flood of cattle onto domestic markets, and monthly Australian cattle slaughter numbers reached 30 year highs (see Figure 5). As a result, domestic cattle prices fell by over 30% from July 2012 to May 2013. What was most significant about this fall in Australian cattle prices was that it occurred at a time when international beef prices were at historically high levels. The result was the biggest divergence that has been observed between Australian and United States cattle prices for a considerable period. This highlights the flow-on impact that these developments in the live cattle export market have had on the entire Australian beef industry, and serves as a reminder that the Australian beef industry cannot assume that a cessation of live exports would simply result in an increase in processed beef exports, as some economic analyses have assumed.




Figure 5:    Price trends for US beef cattle, Australia’s eastern young cattle indicator and monthly national cattle slaughter at Australian processing facilities.
Sources:     FAO, AFI analysis. 

Demand outlook for meat remains positive and will continue to influence live animal trade

The demand outlook for meat in agricultural resource constrained regions such as the Middle East and some parts of Asia will increasingly present opportunities for the Australian live animal export industry. In many instances the governments of these countries are trying to stimulate domestic production to close the gap on imports. These regions are however generally lacking the infrastructure and natural environment to produce sufficient animal numbers to fulfil domestic demand.
For example, the Indonesian Government has set a goal of being 90% self-sufficient in beef production. However, projections by the OECD-FAO indicate that Indonesia is not likely to reach this goal before 2022, with challenging infrastructure and climate limitations being major factors for the ongoing shortfall in domestic production relative to domestic demand (see Figure 6). Recent extreme beef prices in Indonesia, and the move by the Indonesian Government to increase or even totally remove quotas on live cattle imports reinforce this.



Figure 6:   Supply and demand outlook for beef in South East Asia and Australia.
Note:           p = projection
Sources:     OECD-FAO, AFI analysis. 

Similar to beef, the OECD-FAO outlook predicts the consumption of sheepmeat will also grow and that annual growth rates of between 0.5% and 3% are expected in major sheep importing countries in the Middle East and Africa region.

Conclusion

Trade in livestock occurs between nations located in every continent of the world, and the globalisation of food supply chains is increasing this trade, as the demand for meat products increases in developing nations, and governments and businesses in those nations structure their supply chains for greater control and to minimise costs.

The Australian live animal export industry is internationally recognised as a world leader in animal welfare standards, supply chain transparency and governance, and is well positioned to take advantage of the inevitable growth in the international live animal trade, and to bring about improvements in animal welfare standards in importing nations as a condition of access to Australian livestock. Reinforcing this, the Australian livestock industries are the only national exporters of livestock that have active animal welfare improvement programs operating in destination markets, funded by the industry.

The opportunity for both economic and animal welfare benefits is being placed at risk by the continued calls by animal welfare groups and some policy-makers for a cessation of live animal exports from Australia, in the mistaken assumption that the withdrawal of Australia from these markets will somehow result in improvements in animal welfare standards in importing nations, and a transfer of export demand to Australian processed meat products.

As is starkly evident in the case of live sheep exports, neither of these assumptions is correct. The reduction in supplies of live sheep from Australia has not reduced demand in importing nations, but simply resulted in that demand being met by exports from nations that have minimal, if any, national animal welfare standards, and no interest or capacity to take an active role in improving animal welfare standards in importing nations. Similarly, the assumption that a cessation in live animal exports from Australia will result in increased demand for processed meat exports flies in the face of global supply chain developments driven by inexorable economic forces, and relies on the assumption that alternative sources of live animal exports are not available, which is clearly incorrect.

Recognising these realities, it is critically important that Australian policy-makers, livestock industries and responsible animal welfare groups work cooperatively to continually improve Australian animal welfare standards and systems, and maximise the leverage that is available to improve animal welfare standards in importing nations. A commitment by all three groups to work cooperatively, and to avoid sudden, confidence-destroying policy changes is clearly the best mechanism available to bring about substantial global improvements in livestock welfare. 

Readers are invited to continue the discussion on the Institute’s blog. 

Images:  Kate B Dixon, ogwen, Wellard Rural Exports

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