Profitability Across Value Chain

Profitability Across Value Chain

The beef value chain is an inter-reliant system of different sectors, with profit moving between them as market and seasonal conditions shift. The Framework currently tracks farm business profit. However, an economically sustainable industry needs a positive rate of return generated through all stages of cattle raising and beef production.

Increasing productivity and profitability across the industry will improve long-term sustainability and help offset the ongoing cost price squeeze.

The extreme weather events seen in 2019-20, such as drought and bushfires, have kept pressure on producers to closely manage on-farm productivity. Many producers are supplementing farm income with off-farm earnings or producing other commodities on their farm. These factors make it difficult for the Framework to track on-farm profitability solely for beef.

Australian feedlots have also contended with drought and the associated high cost of feed and water, and rising energy prices. While drought has broken in key cattle regions, feedlots are now contending with elevated feeder cattle prices.

In beef processing, the high cost of labour, regulation and energy puts pressure on Australia’s ability to be price competitive in global markets.

Other external factors that contribute to profitability of the whole value chain include the movements in the Australian dollar, as well as changing global supply and demand.

The industry has a goal to double the value of Australian red meat sales by 2030 compared to a 2020 baseline. This will require increasing the volume and value of beef sold to our markets supported by reducing costs through efficient management systems and practices. In 2018-19, Australia’s red meat and livestock industry accounted for 1.5% of Australia’s GDP. In comparison, wholesale trade accounted for 4.1%, manufacturing 6%, construction 7.8% and mining 9%.

This effort is supported by a focus on delivering timely and accurate tools, technology and information, encouraging best practice, and continuing research to raise the profit ceiling.

Industry position

At an industry level RMAC supports investment, policy settings and practices that foster a prosperous and profitable industry.

Red Meat 2030, identifies that the industry can improve its economic resilience by reducing tariff and quota barriers to trade, reducing non-tariff barriers to trade, building on our approach to biosecurity and food safety, promoting investment in industry, and remaining competitive with global markets.

What is the data telling us?

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A challenge for reporting on-farm profitability is that profit is not the main motivator for all producers. Some producers are motivated by their values or their lifestyle. These factors influence the data. For this reason, the Framework reports on rate of return for all producers and the top quartile.

The Framework uses five-year rolling averages from ABARES to report on this indicator. The last few years have seen an increase in the average rate of return for all producers, and the top quartile. The difference in rate of return between the top quartile and all producers has been increasing slightly over the past three years, at 4% for FY2019.

This increase has been influenced by high global demand for red meat, which further increased as a result of the African swine fever outbreak in Asian countries. Drought has been a significant factor for farm profitability. Low crop production has contributed to higher prices for fodder and feed grains across the country. This has been compounded by the reduced availability of pasture for livestock farms.

Snapshot of activity

State and federal agriculture departments, private consultants and industry service providers drive profitability programs in the red meat sector.

Driving adoption of research and best practice

MLA has increased the focus and investment in the Adoption program, which aims to increase industry prosperity through on-farm adoption of research and technology. The MLA Adoption Strategy, which is driven through the Cattle Council of Australia (CCA), details key areas of focus including:

Ensuring the all applied on-farm R&D projects have a pathway to adoption, ideally as part of the R&D project.

Adoption programs which are based on long-term practice change through support of implementation on-farm.

Building the capability of the advisory sector, which are the critical component to support producers and deliver adoption programs.

Identifying new methods to raise awareness and undertake training (e.g. online platforms).

Profitable Grazing Systems (PGS) is MLA’s long-term supported adoption program that matches producers who want to improve their business and bottom line with like-minded advisors. The adoption program boosts on-farm productivity and profitability by providing advice and training on topics like genetics and reproduction, feed base, managing people and business, or making the most of the value chain. PGS has been delivered to 54 groups of cattle, sheep and goat producers across Australia so far, reporting an average 39% increase in profit achieved from the pilot.

MLA’s Producer Demonstration Sites (PDS) is another long-term practice change program, which aims to increase adoption of practices and technologies that improve business profitability, productivity and sustainability. Examples for beef producers include PDS projects about post-weaning management strategies, pain relief, and implementing fixed-time AI and best practice reproduction management (e.g. Critical mating weights and Estimated Breeding Values).

The feedlot sector is prioritising developing tools to increase productivity and reduce costs, through automation and remote monitoring of routine feedlot processes. Adoption is driven through the Australian Lot Feeders’ Association (ALFA). In 2019, MLA worked with Bindaree Beef Group to develop – and make commercially available to feedlots – an auto-delivery system “DeliverEase”, to increase utilisation and reduce waste.

Unlocking productivity and profitability benefits from genetics

MLA identified the uptake of genetics by commercial livestock producers as low compared with other sectors. Low adoption is being addressed by activities funded via the National Livestock Genetics Consortium and MLA’s genetics adoption strategy, which forms part of the broader MLA adoption strategy. One such activity is the development of MLA’s genetics marketing campaign, which draws a link between genetics and the commercial profitability of the Australian livestock industry. It also provides tools and resources to help producers get started with genetics. It also directs producers to take the next steps by participating in adoption programs such as Bred Well Fed Well, which offers an introductory one day course on genetics and nutrition. The course has practical componets including assessing bull genetics, designing a breeding objective, and condition scoring cows.

The three-day Breeding EDGE program helps beef producers to develop a breeding objective, or improve an existing strategy. Topics include reproduction issues, genetics, determining breeding objectives, livestock selection and managing the herd to capture benefits. Breeding EDGE is part of the wider EDGEnetwork program, which was developed by MLA to help producers improve their livestock enterprises.

Promoting grazing land and pasture improvement

MLA’s Feedbase Investment Plan (FIP) has been completed, with the five-year project improving the scientific understanding of feedbase constraints and opportunities for red meat producers in southern Australia.

During FIP research, producers identified four common areas of concern: weeds, soils, pasture nitrogen and pasture productivity. Key feedbase activities as part of the larger MLA adoption strategy enable practice change and facilitate implementing this research. A decision-making platform called Pasture Paramedic (PP) is being used to assess and evaluate the condition of pasture in the medium and high rainfall zones of southern Australia. This is currently being developed for more regions of Australia. MLA considers PP to be the starting point for a wider range of activities in this space. Profitable Grazing Systems training packages are currently available, with further packages to be developed, once producers identify feedbase gaps and opportunities provided by the PP.

PDS projects are demonstrating the ability of new pasture species or cultivars and associated grazing management practices to increase profitability. May 2020 projections from five trial sites suggest that these learnings could increase the profitability of the red meat supply chain by at least 10%. Other PDS projects are demonstrating that high-quality forage crops and perennial pasture systems can be utilised to meet target weights for finishing steers and increase overall farm profit.