“Ban the Boats” – Australia’s Live Sheep Export Market at the Crossroads

RURAL AND AGRIBUSINESS

In April 2018, Channel 9’s 60 Minutes programme released footage exposing the welfare of sheep exported to the Middle East during the northern hemisphere summer. Some 2,400 sheep were reported to have perished over four voyages in 2017.

This footage has reignited the debate about whether live export for slaughter should be stopped immediately, phased out over time or continue with amended rules and harsher penalties for transgressors.

Given the long-lasting impacts of the then Federal Government’s live cattle export ban, we look at what the impact on stakeholders in the supply chain would be, if a ban on live sheep exports were to occur.

Live Sheep Exports in Context: Industry Value

Australia has exported more sheep than any other country in the world (over 198M sheep since 1961) however sheep for live export have traditionally been a minor market segment in the Australian sheep industry, representing approximately 2.8% of the $4.4bn industry, with the main sectors being wool (45.5%) and lambs for slaughter (37.7%).

From July 2014 to March 2018, 6.25M sheep with an export value of circa $764.27M were shipped from Fremantle to the Middle East, which was approximately 84% of all sheep exported via sea and air from Australia during the same period.

From 2013 to 2018, there have been four (4) reportable mortality events from sheep shipments from Fremantle (where mortality rates exceeded 2%) that were investigated by the Department of Agriculture and Water Resources (DAWR). DAWR determined that the major cause of the mortalities was due to heat stress on vessels commissioned prior to 1991.

On 11 May 2018, the McCarthy Report, commissioned by the Federal Government, made 23 recommendations which included (amongst others) providing greater space for each animal and aiming for a 50% decrease in the reportable mortality rate to 1% for sheep being transported from Australia to the Middle East. To put this in context, the normal paddock death rate in well managed flocks is estimated at 2% p.a. The Federal Agriculture Minister has announced most of these recommendations will be implemented provided the legislative amendments are passed.

Following this announcement, Member for Farrer, MP Sussan Ley, presented her private member’s bill, Live Sheep Long Haul Export Prohibition Bill, to Parliament on 21 May 2018 which seeks to ban all live sheep exports to the Middle East in the northern hemisphere summer months in 2019, before transitioning to a total ban over five years. The bill did not receive sufficient support and has not been voted on at the time of writing.

If live export is banned, what are the considerations?

While abattoirs in WA have the capacity to absorb, process and export the increase in carcasses which arise from a total ban, there are many factors that will influence whether this is a sustainable alternative for the industry:

  • There may not be the infrastructure at the end users’ destination to store and distribute the meat. 
  • Sourcing an appropriately skilled and certified (Halal) labour force and export licenced boning rooms;
  • Significant technical barriers linked to differences in shelf life expiry dates. For example, the GCC (Gulf Cooperation Council) Standardisation Organisationsets the standards for shelf life which limits vacuum packed sheep meat to 70 days, 21 days for chilled, 9-12 months for frozen meat and 4-9 months for frozen offal. UAE and Jordan recognise a 90 day limit for vacuum packed meat.
  • Cultural preferences (colour, frozen or chilled preference) and inconsistent packaging requirements.

Logistically, Australia’s live export industry can be replaced by chilled or frozen carcasses, but this fails to consider the market’s requirements. This will open the door to Australia’s key competitors such as India, Somalia and Sudan, as well as Romania, Georgia and Spain.

It is therefore unlikely that such a shift would achieve animal welfare benefits and would cost WA farmers substantially. It is our view that producers will need to consider other options.

What does the shift towards transitioning live export out mean for producers and businesses in the industry?

Producers

Live export sheep are predominantly merino wethers with a carcase weight of 18 – 24kg. When analysing historic price data, the markets of trade lambs, export wethers and WA mutton follow very similar patterns indicating they are influenced by similar factors. Producers need to consider whether they continue to target the international live export markets in the knowledge that the industry may move towards transitioning away from the live export trade.

One option for producers would be to consider adjusting their flock profile to merino wether dominant on the basis that wool production is greater from wethers than from mated ewes. This however, will require producers to increase their flock size in order to maintain the same breeding base or reduce the number of ewes held which will decrease lamb numbers in subsequent breeding cycles.

The alternative is to move their flock profile to a heavier meat breed, as the domestic market demands a heavier carcase weight, however grazing meat varieties result in substantial reduction in wool margins.

Both options impact farm operating profits by increasing holding costs due to additional husbandry costs and reduces the arable land available for other enterprises such as broadacre cropping given the additional pasture requirements.

From a market perspective, if the sheep are not able to be exported overseas, they would flow into the domestic market for slaughter which would cause a significant supply increase and, subsequently, depress prices which will adversely affect producer revenues and margins.

Supply Chain Participants

The impact of any changes in legislation will be felt across the supply chain.

In the short term, vessel operators will incur costs to ensure their vessels are compliant with the new regulations, such as upgrading ventilation systems.

Exporters will see their profits decrease due to the reduced stocking rates and resultant higher export transport costs per head. This margin reduction will ultimately be passed along to the producer in the form of suppressed prices. In the long run, there will be high capital outlays to refurbish and repurpose existing vessels for chilled or frozen carcasses. Stockmen and veterinarians will no longer be required at the feedlots, wharves or on sea, and livestock road transporters will see their revenues drop due to decreased demand.

In 2016, the ABS reported approximately 62% of sheep in WA were located on upwards of 2,800 farms in the Avon Valley and South West regions of WA. These regional economies may possibly contract following the decline in revenues of producers and associated services (such as transport).

Clearly change is inevitable in the industry with possible far reaching consequences, whether it is a total ban, phasing out over time, or cessation of the trade during the northern summer. Stakeholders in the supply chain will need to be prepared and ensure their operations are robust enough to take advantage of any opportunities or be diverse enough to rely on other activities to sustain them through a period of significant change.

How can we help?

Our Rural and Agribusiness team have worked with many farmers and producers to critically examine their market, products and align the business for success. Please contact one of our Rural and Agribusiness team members below if we can be of assistance.

 

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