The future of Australia’s cattle industry: grass or grain? Address to ABARE Outlook Conference March 2006

1. The future of Australia’s cattle industry: grass or grain?Address to ABARE Outlook ConferenceMarch 2006 Peter Barnard General Man ager Economic, Planning & Market Services Meat & Livestock Australia

2. Significant growth in feedlotting sector- grainfed cattle have grown from 9% to 34% of turnoff in 13 years- grainfed beef now accounts for around 40% of beef produced

3. Address outline • Nature of feedlotting in Australia • What has driven the increase in feedlotting over the last 15 years? • Is this increase likely to continue?

4. Australia is not a grain feeder, but a grain finisher • 80% of cattle are fed for less than 130 days

5. CRC consumer sensory results related to feedlotting • Feedlotting increased carcase weights and fatness traits (both marbling and fat depth) and decreased ossification scores • In consumer sensory tests feedlot beef had higher flavour and juiciness scores, but this advantage disappeared once adjusted to the same intramuscular fat and age. • In other words, if pasture fed beef could be finished to the same intramuscular fat levels at the same age there would be no difference between feedlot and pasture fed beef. • Put simply, there is nothing magical about the feedlotting effect. • These results support the MSA approach of describing the feedlotting effect using the outputs of carcass weight, ossification score and marbling rather than a feedlot effect per se

6. Cost changes are NOT driving the increase in grain finishing

7. Growth has been mainly to Japan and the domestic market

8. Growing MSA use on the domestic market • Of the 620,000 head of MSA cattle graded last year about 60% were grainfed & 40% grassfed

9. Do not like marbling • Simply want consistent supply of lean tender beef Domestic market use of grain finished beef driven by supermarkets

10. Beef exports to Japan: boost after US BSE – grain and grass

11. Most Australian brands at Japan retail are grainfed Grainfed beef Costco - Grainfed beef Rangers Valley Grainfed beef O’connors - Grainfed beef Rockdale - Grainfed beef Hannan -grainfed beef Hanamasa - Grassfed & Grainfed beef

12. Foodservice is a mixture of grain & grass fed beef

13. Also profitable niche for longfed Aussie beef in Japan (13% of all cattle on feed)

14. Is the future in grass or grain finishing?- grain principallyWhy? • Production advantages • Market trends

15. Production advantages of grain finishing • Allows graziers to turn off cattle younger • freeing up land for more cows or other pursuits (eg cropping) • Allows for stable supply alliances and forward contracts • Woolworths and Coles currently forward contract about 80% of supply • Vast majority of grain finished beef for Japan is through vertically integrated feedlot/processing/exporting/importing operations or forward contracted • Reliable supply all year every year, regardless of season

16. If pastures look like this all year every year grain finishing would be needed less

17. But unfortunately they can look like this or much worse

18. .. and it is becoming drier Rainfall shifts in mm/decade 1950-2003 (BoM and DPI&F).

19. % of consumers mentioning attribute as a purchase driver 100 2002 2003 2004 2005 80 60 40 20 0 Safety Deliciousness/ Freshness Price Healthy Taste Taste increasing in importance by Japanese consumers

20. Potential grainfed beef export growth • Total grainfed beef exports to more than double by 2014 compared to 2003 • Up almost 30% on extraordinary 2005 level • Could prove conservative, given expansion in feedlot capacity already in the pipeline

21. Expenditure on beef by Australian consumers

22. Improved eating quality is one of the reasons behind the 70% rise in consumer spending on beef the domestic market Overall how would you rate the quality of beef you buy nowadays? 7 out of 10 or better 80% How would you say the quality of beef has changed in the last 3 years? Improved a little / a lot 42%

23. Grainfed beef on the domestic market • Estimated 70-80% of cattle by major supermarkets are currently grainfed • Generally 50-70 days • Estimated 45% of beef on domestic retail and food service is grainfed – likely to rise to about 60% • Plus forecast 15% expansion in local consumption by 2010 – mainly through supermarkets and restaurants

24. Australian grain can be more costly

25. Security of stockfeed supply • Feedlot demand for grain will probably double before 2020 • 1 in 2 Australian grain producers producing for meat by 2020 (Grains Industry ‘Single Vision’) • Yet grains needs are not always met and ethanol production needs could further deplete feed grain supply • Feedlot industry cannot cope with regular sharp jumps in grain prices – as competitors (US and South America ) pay world parity prices • The beef industry to remain internationally competitive needs guaranteed access to world parity priced grain

26. Conclusion • Grass or grain? Not the right question. • Australian system is built on integration between pasture and lotfeeding • Beef & dairy are the only industries that use feed grain who are internationally competitive on global markets • Efficiency of pasture production drives this • Australia does not have a comparative advantage in feed grain production • For grain finishing to further expand to meet customer needs access to world parity priced grain is required