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Australian cost of production significantly below UK

In light of the news the Government was close to agreeing a deal with Australia including a zero tariff arrangement on all products, Cedric Porter takes an in-depth look into the facts and figures behind UK and Australian beef production

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Australian cost of production significantly below UK


Australian beef producers do have much lower costs of production than their British counterparts, but some costs are higher, while there is more alignment between finished product prices.

 

Comparing the cost of production between different systems was not an exact science because of different systems and the lack of data. The closest liveweight comparison we could find was AHDB figures from 2016 and Australian government figures from 2016/17.

 

Australian beef production is regional. The heat of the north of the country means most production there is based on Bos Indicus breeds which are suitable to more extensive systems. Conditions in the south mean that breeds more familiar to British producers can be reared.

 

The average cost of production in the north is 127p/kg liveweight, according to figures from the Australian Bureau of Agricultural & Resource Economics & Sciences (ABARES) and using a currency conversion rate of £1=Aus$1.70 the average cost in the south was 148p/kg, resulting in an average of 138p for the two regions.

 

In the UK, the average total cost of producing stores in 2016 was 213p/kg liveweight, according to AHDB. Comparing GB finished prices with Australian ones was a little tricky because the Australian figures were published in liveweights and British in deadweights. But assuming the liveweight value is 60 per cent of the deadweight one, then the cost of production for British finished 16 to 24 month cattle was two thirds higher than the average Australian cost.

 

Figures

 

There were lower costs for some items for UK stores, with lower vet, fuel and machinery bills and labour costs. Australian producers have much lower feed costs, with British store producers spending more than twice as much as their Aussie competitors. There were lower vet, fuel, machinery and maintenance costs for British finishers, but feed costs were three times higher and rent bills were more than 150 per cent higher.

 

One of the most significant differences was the cost of purchased livestock. Australian producers paid just 21p/kg liveweight. British store producers paid 124p/kg liveweight for stock and finishers the equivalent of 97p/kg. If those stock purchases were removed, then store producers have lower costs of production than their Australian counterparts, while the finisher cost was 15 per cent higher.


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Australia beef and lamb facts

  • The country has 24.6 million beef cattle producing 2.1 million tonnes of beef a year. That is a four per cent share of global production
  • Exports of 1.2 million tonnes a year worth £6.25 billion
  • 17 per cent share of global beef export market – second after Brazil at 22 per cent. UK has 2.4 per cent
  • 62 per cent of beef exports are frozen and 38 per cent chilled
  • Top three beef markets are China, Japan and USA
  • The average Aussie eats 22kg of beef a year, compared to 12kg for the average Brit
  • The Australian sheep flock is 64 million head, the third larges tin the world after China and India and 31 million larger than UK
  • Annual production is 650,000 tonnes, compared to 287,000 in UK
  • Sheep meat exports are 432,000 tonnes, the largest volume in the world and 36 per cent of total exports, ahead of New Zealand at 30 per cent
  • China, the US and Malaysia are the main markets and Australia accounts for 14 per cent of UK sheep meat imports

Source: MLA, AHDB, IHS-Markit & OECD/FAO

High cost British production

Other international benchmarking data shows Australian costs of production were much lower than in the UK.

 

The global Agribenchmark project looked at nine Australian suckler cow beef enterprises in 2019 and calculated total costs of between US$98 (£69) and US$217 (£153) for every 100kg of liveweight production, at an average of US$166 (£117).
This took into consideration the cost of land and labour as well as insurance, taxes, vet bills, feed and fuel. It also accounted for building and machinery costs including maintenance and depreciation.
That compared with US$400 (£283) and US$490 (£346) for the two UK farms monitored, an average of US$445 (£314). Only Germany and Austria had higher costs of production than the UK in the sample of 18 countries studied.
Australia had the third lowest costs ahead of only Argentina and Ukraine. Irish costs of production were US$200/100kg (£141/100kg) liveweight lower than in the UK, with Brazilian costs also lower by a similar margin.
Other Agribenchmark calculations suggest that the average cost of lamb production in the UK was two thirds higher than the average Australian costs in 2019 at US$431/100kg (£304/100kg).
Commenting on the Agribenchmark figures, Tom Forshaw, senior analyst at AHDB, said: “A typical large-scale Australian unit would be finishing somewhere in the region of 27,000 head of cattle per year, purchasing predominately British breeds and located near to the grain-producing regions of Australia. A forage-based finishing diet may be supplemented with grains and cottonseed.”
Few supplements were fed to Australian sheep, which were pasture-reared across large areas in flocks of between 1,000 to 8,000. Wool was an important product, with lambs kept until they can be shorn.

Finished price alignment

British and Australian beef producer selling prices were more in line. In the week to May 20 2020 the average Australian medium steer was making Aus$3.99/kg liveweight in the country’s stockyards, according to Meat and Livestock Australia (MLA).

 

That works out at 218p/kg using the current exchange rate of £1=Aus$1.83. The other side of the world, medium steers in British auction rings were averaging 227p/kg lw, according to the AHDB. Although the British liveweight price was only four per cent higher than the Australian price, a cost difference of 50 per cent does give Australian producers a larger margin for profitability.

 

MLA was quoting an average medium steer deadweight price of Aus$7.40 last week – the equivalent of 404p/kg. Coincidentally, that was the same average price AHDB were quoting for GB medium steers.

 

The producer price was an important part of the equation, but the selling price is key, especially in export markets. Last week 85 per cent Australian lean beef trimmings were being sold in US wholesalers at the equivalent of £3.96/kilogramme, according to market monitoring service and Farmers Guardian sister company Urner Barry. In UK markets, standard trimmings were fetching £3.35/kg and that with a provenance such as Angus was selling at a 40p/kg premium.

 

There is other evidence that Australia is not the lowest priced exporter of beef. In 2019 to 2020 the average export price of Australian beef was US$5.86/kg (£4.14/kg), according to figures from IHS-Markit, that compared to
US$4.82/kg (£3.40/kg) for the EU, US$4.45/kg (£3.14/kg) for Brazil and just US$2.85/kg (£2.01/kg) for India,
which accounts for 12 per cent of world beef exports. Those are average prices masking what products were being exported.

 

“Cost of production is important, but it is not the only thing, because selling price is crucial,” said Duncan Wyatt, lead red meat analyst at AHDB.

 

“Australia has some good markets in the US and Asia for commodity beef. Australia would compete with countries such as those in South America in the UK market as much as with UK and Irish producers.”

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