Australia is enjoying a resources boom with overseas demand at unprecedented levels. Many of the same factors are now driving agriculture out of the drought and into a new era of innovation and prosperity.
By Graham Peart
When US President George Bush delivered his State of the Union address in January, he wasn’t thinking about Australian farmers. But his plea to diversify the US’s energy supply could set the scene for a major revival in Australian agriculture. Riding on the back of increasing demand for our exports from booming Asian economies, the outlook is very positive for primary industries that have been battered by the drought. Motivated by a desire to reduce US dependence on foreign oil and, some say, because of environmental issues, Bush wants to reduce petrol usage in his country by 20 percent in the next 10 years. That means 133 billion litres of alternative fuels would need to be produced by 2017.
But how does this affect the Australian farmer? One of the major alternative fuel sources is ethanol, which is made by fermenting and then distilling starch and sugar crops – corn, sorghum, potatoes, wheat, sugarcane and fruit and vegetable waste. Ethanol plants are rising out of the ground all over the US – there are currently 114 plants with a further 78 under construction. The price of US corn has already doubled from $US2-$4 a bushel, with other grains, such as soybean – which has increased from $US5-$8 a bushel – following suit.
John Chudleigh, a cattle farmer on the New South Wales Central Tablelands, has been writing and commenting on trends in agricultural commodities for more than 30 years and is a former principal of Orange Agricultural College. He says that in 2007 the US will plant 89 million hectares of grain – compared with a record planting of 111 million hectares 25 years ago. He says it’s only a matter of time before the Australian industry – which contributes around 12pc of the world trade and has about 13 million hectares under grain – follows the same trend, as alternative fuels increasingly soak up raw materials. The CSIRO’s Plant Industry is already helping grain growers increase productivity and improve grain quality. In the wheat industry, for example, projects include producing new salt-tolerant and disease-resistant varieties. But the booming grain industry is only part of the story. “There will be a lot of pressure to convert cattle pastures into grain-growing, which will further reduce US beef production and will increase demand for imported beef,” John says.
Enter the Australian farmer again – and the country’s 29 million cattle. Our beef prices are already looking positive. In February the Australian Agricultural Company (AAco) predicted moderate price rises during 2007 due to rising beef consumption locally and in the US and regulations restricting US beef exports to Japan and Korea. Meat and Livestock Australia (MLA) is waxing lyrical about the future of beef, with local expenditure on red meat growing by $480 million last year and demand from overseas at near record levels. “Mad cow disease in Canada and the US has been another trigger greatly helping beef prices and exports from Australia to Asia,” John says.
OBE Beef is Australia’s largest organic beef project with 80,000 head in Queensland’s Channel Country. The company has benefited from health scares and now has a lucrative deal supplying beef burgers and meatballs through an organic food chain across the US. OBE’s business development manager Dalene Brook says Australia’s disease-free status sets us apart from many of our competitors. “We can’t compete with South America on price, for example, but we can on our disease-free status,” she says.
The US used to export 10pc of its annual beef production in competition with Australia. “This is now down to 3.5pc, leaving a big gap for us to fill,” John says. AAco’s long-term strategy includes plans to double the size of its cattle herd by 2015, acquiring additional grazing lands and improving the yield by up to 20pc on selected properties.
Higher grain prices will, in turn, have a dramatic affect on cattle feedlot profits. “Feedlotters will try to drop feeder steer prices and will cut many cattle back to a short finish and thus cut average carcase weights and overall beef production,” John says. This will leave Australia with most of the high-priced Japanese and Korean beef markets to which we supply both grass-fed and feedlot beef. The impending high profits from grain-growing are expected to cut into sheep-grazing areas to some extent, but the potential for lamb and mutton producers to reap their own rewards from the world market remains huge. “Lamb has become a delicacy in restaurants and in the world trade,” John says. “Rack of lamb is now entrenched on the menus of top-class restaurants and this won’t change. The rich like and want lamb.”
Australia and New Zealand are the only two serious exporters of lamb and mutton and sell to at least 70 countries that often buy specific cuts depending on their budget. The MLA says domestic expenditure on lamb went up 10.6pc in 2006 to $1.9 billion. And lamb exports are forecasted to increase five percent this year, which will mean two consecutive record years. John also points to great forces at work in favour of wool – demand from China, the end of surplus supplies and increased demand for natural fibres – that could prove to be a turning point for that beleaguered industry. Since January, wool prices have increased a significant 30pc. “New millionaires in China need to impress their neighbours,” John says. “There’s no room for big houses and there are few roads to drive sports cars, but wool suits are all the go if you want to make a fashion statement. India, Russia and Eastern Europe are calving a whole new crop of first-generation millionaires who demand fashion goods that include wool.”
Demand has also increased locally. “Outdoor sports shops 10 years ago sold almost no wool – not even woollen socks,” John says. “Now there are racks of not wool but Merino garments and the shop owners say they just walk out the door.”
The Reserve Price Scheme artificially inflated the price of wool, with its ultimate collapse bankrupting woolgrowers and manufacturers. In response to low prices, sheep numbers halved and the manufacturing mostly moved into new hands with new technology in China, India and Turkey (there are now about 95 million head). The Australian Sheep Industry Cooperative Research Centre (Sheep CRC) believes more productive sheep will emerge from the drought. Professor James Rowe, chief executive officer of the Sheep CRC, says the clearing of large numbers of sheep off farms allows farmers the opportunity to restock with the most profitable sheep for the first time in history. “While nobody likes a drought and it is intensely painful for many, we are also positioning the Australian wool industry for emerging global consumer demand,” he says.
In the background, Australia’s little-known goat industry remains the largest exporter of goat meat in the world, diligently harvesting feral goats. In 2005-2006, Australia exported 44,000 head of live goats (live sheep were 4.5 million and cattle were 515,000 head in comparison) and 18,000 tonnes of goat meat worth about $80 million (sheepmeat was 287,000 tonnes worth $1.2 billion and beef was 890,000 tonnes worth more than $4 billion). More than half of this went to the US and a quarter to Taiwan.
For many years farmers have mustered and trucked out herds of feral goats, but many are now starting to better manage this wild resource. Mustered feral goats are now drafted and only heavier animals sold, with lightweight animals kept in goat-proof paddocks and fattened. Nannies are kept and joined to boer goats giving heavier carcases and faster growth rates. Animals sell for $30-$45/head (sheep are $60-$80/head), but the MLA says the value they offer in terms of controlling weeds can mitigate chemical and labour costs farmers would otherwise spend on weed control. The MLA says the goat industry has the potential for five percent compound growth each year for the foreseeable future.
Chief executive officer of the National Farmers’ Federation (NFF) Ben Fargher says the pastoral zone is an important and stable part of Australian agriculture, and he predicts an up-beat outlook for all its sale products. Ben grew up on the family farms north of the Flinders Ranges in pastoral South Australia and on a sheep/wheat/cattle property in Warren, NSW. “Live exports of both cattle and sheep have seen a major income boost,” he says. “For the northern cattle industry, it has given them prices similar to southern Australia and a big lift in profits and capital values. Part of this profit has allowed them to invest in new technology, improved cattle handling, better animal welfare and much better transport.” Sheep exports, particularly out of Western Australia and South Australia, have achieved similar results on top of a successful export boxed-mutton industry.
Ben says Australia’s disease-free status is extremely important to most exports – not simply those that are organic. “An outbreak of mad cow disease or foot and mouth disease would cost farmers and the nation $20-$50 billion,” he says. “The bio-security of keeping diseases out and a swift, professionally trained response to any incursion is essential.”
According to Ben, pastoralists are a resilient, tough and innovative group of people, otherwise they wouldn’t still be there. “Many have innovated into seasonal tourist enterprises to share their special environment,” he says. “Others have moved to organic beef, integrated supply chains, composite genetics and new production techniques.”
The same could be said for the country’s livestock. The harsh conditions of the drought mean only the more hardy and adaptable animals have survived. In good times, Australia could run about 50 million more sheep or five million more cattle and, if world grain prices keep heading north, our 13 million hectares under grain is sure to increase. This extra capacity will help feed the seemingly insatiable US and Asian demand for Australia’s meat and wool. And there is some simpatico in the idea that Australian farmers could soon be using renewable resources to help power the cars of America.
This story excerpt is from Issue #52
Outback Magazine: Apr/May 2007