Required Report - public distribution

**Date:** 9/2/2003

**GAIN Report Number:** AS3026

AS3026

**Australia**

**Livestock and Products**

**Annual**

**2003**

**Approved by:**

![](media/image1.wmf)Andrew C. Burst, Agricultural Counselor

U.S. Embassy

**Prepared by:**

Mike Darby, Agricultural Specialist

**Report Highlights:**

The drought that affected much of Australia in 2002 and into 2003 is
breaking down. Beef production is expected to remain at relatively high
levels in 2003 and 2004, only marginally below the record set in 2002.
Similarly strong export performance is expected for beef and live
cattle. The pork industry is expected to benefit from falling feed grain
prices. Pork imports and exports are expected to remain at near-record
levels.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Canberra \[AS1\]

\[AS\]

Table of Contents

[**SECTION ONE: SITUATION AND OUTLOOK
3**](#section-one-situation-and-outlook)

[SECTION TWO: STATISTICAL TABLES 4](#section-two-statistical-tables)

[SECTION THREE: NARRATIVE ON SUPPLY AND DEMAND, POLICY AND MARKETING
5](#section-three-narrative-on-supply-and-demand-policy-and-marketing)

[CATTLE 5](#cattle)

[Production 5](#production)

[Consumption 7](#consumption)

[Stocks 7](#stocks)

[Trade 7](#trade)

[Marketing 12](#marketing)

[Policy 13](#policy)

[SWINE 14](#swine)

[Production 14](#production-1)

[Consumption 15](#consumption-1)

[Stocks 15](#stocks-1)

[Trade 15](#trade-1)

[Policy 16](#policy-1)

[Marketing 17](#marketing-1)

[Recent Post Reports on Livestock and Livestock-Related Issues
17](#recent-post-reports-on-livestock-and-livestock-related-issues)

[APPENDIX 1 18](#appendix-1)

[PS& D Tables 18](#ps-d-tables)

# SECTION ONE: SITUATION AND OUTLOOK

Drought conditions that affected much of the Australian continent in
2002 and into the first part of 2003 are breaking down, with
precipitation returning to a much more normal pattern. Fodder
availability for range fed livestock has improved markedly in recent
months; however, fodder reserves and feed prices have yet to return to
more normal levels. Even with a complete return to more normal weather
conditions, the drought's impacts will continue to linger for the next
couple of years.

The drought forced many producers to sell animals, some of which were
already stressed, due to a lack of feed and water. The surge in the
number of animals being marketed led to a general fall in animal prices
and reduced cattle inventory. With the improving weather, cattle
inventories are estimated to have bottomed-out and are expected to begin
rising through the remainder of 2003 and into 2004, as producers seek to
rebuild their herds. This would resume the up trend in cattle numbers
that began in the mid 1980's.

The drought and lower sale yard prices substantially trimmed incomes of
cattle producers in 2002/03, following the record prices and favorable
industry conditions in 2001/02. The relatively high level of financial
returns to livestock enterprises that characterized 2001/02 has
partially cushioned producers from the steep drop in incomes that many
experienced during the drought.

High feed grain prices brought on by the drought also reduced the
profitability of Australia's cattle feedlot and swine sectors and
trimmed inventories of cattle on feed and pigs. Lower feed grain prices
of late are providing some relief to these intensive livestock feeders
whose cost structure is heavily influenced by grain prices.

Beef and veal production is expected to remain at relatively high levels
in 2003 and 2004, only marginally lower than the record output of 2002.
Similarly, exports are expected to stay strong in 2003 and 2004, just
short of the record export level recorded in 2001. The United States and
Japan are the leading markets for Australian beef, taking about
two-thirds of all shipments. Live cattle exports are also expected to
continue at near-record levels through 2004.

Australia's pork industry was also negatively impacted by the drought,
as rising feed costs sharply reduced industry profitability. Pork
production dropped in 2002 and is expected to fall in 2003 before rising
in 2004. Pork exports and imports both remain at near-record levels.
Australia's exports of pork, principally to Singapore and Japan, have
risen steeply in recent years. Pork imports are also up sharply, with
Canada and Denmark the leading suppliers. A preliminary quarantine
import risk analysis released in August 2003 indicates that the United
States may gain some access to Australia for pork.

The Australian dollar has risen sharply against the U.S. dollar since
reaching a low point in early 2001. This reverses a trend of the
Australian currency falling in value against the U.S. dollar throughout
most of the 1990's and into 2000. The longer-term decline in the
Australian dollar was a major contributor to the strong growth in
Australia's livestock and product exports in recent years. The recent
strengthening of the Australian dollar has negatively affected the
profitability of the very export oriented livestock sector. In August
2003, the Australian dollar averaged about US\$0.66.

# SECTION TWO: STATISTICAL TABLES

See attached appendices.

# SECTION THREE: NARRATIVE ON SUPPLY AND DEMAND, POLICY AND MARKETING

## CATTLE

### Production

Australia's cattle production and marketing systems vary considerably
from the north of the country to the south. The cattle industry in the
north is more typically characterized by a relatively small number of
large-scale producers raising mostly Brahman-blooded (*bos indicus*)
animals on land extensive operations. Northern cattle have traditionally
been sold as mature lean meat for processing or for the live cattle
export trade. In the south, European cattle breeds (*bos taurus*) and
their crosses dominate and animals are typically raised on mixed farming
and grazing enterprises, with a significant amount of beef also derived
from the dairy industry. Cattle raised in the south are more likely to
be destined for domestic consumption than the more export-oriented
north. In addition, Australia has a growing grain-fed cattle industry,
which services the domestic and export markets in Japan and Korea.

In fiscal year 2002/03 (July/June), Australian cattle prices averaged
258 Australian cents per kilogram (dress weight), 16 percent lower than
the record high of 307 cents a kilogram in 2001/02, but above the
average price in 2000/01. Pending a return to more normal weather, the
Australian Bureau of Agriculture and Resource Economics (ABARE) projects
cattle prices will rise about nine percent in 2003/04 to an average of
282 cents per kilogram. Longer term, ABARE forecasts cattle prices
falling from the 2003/04 level, to 243 cents in 2007/08.

**TABLE 1: Australian Cattle Prices, (Fiscal Years) 1996-2003**

**(national average dress weight price)**

  -------------- ------- ------- ------- ------- ------- ------- ------- -------
  Saleyard Price 1996    1997    1998    1999    2000    2001    2002    2003

  Aus cents/kg   155.3   162.6   181.0   204.3   237.1   307.2   258.0   282.0
  -------------- ------- ------- ------- ------- ------- ------- ------- -------

Source: ABARE. Indicator year is first year of July-June fiscal year.

**Inventory:** Closing inventory for calendar year 2003 is expected to
total 27.5 million head, 600,000 head higher than the previous year (for
cattle and beef, all years are expressed in calendar year, unless
otherwise indicated.) This figure is slightly higher than projections
from Meat and Livestock Australia (MLA) and ABARE. A return of more
normal weather conditions, combined with relatively favorable cattle
prices, should continue to boost inventories. A greater increase is
likely to be constrained by stronger year-to-date live export
performance and a slow return to more normal carrying capacities.

Cattle inventory is forecast to close higher in 2004, at 28.35 million
head, with the anticipated return to more normal weather increasing both
pasture availability and fodder reserves. Despite a less than complete
breakdown in drought conditions, producers are optimistic about the
medium-term outlook for beef. This would represent the highest inventory
level since the later part of the 1970's.

Opening 2002 inventory is estimated at 27.87 million head, in line with
figures from the Australian Bureau of Statistics (ABS). MLA has revised
2002 cattle numbers downward to 28.0 million head. Post estimates
closing 2002 inventory at 26.9 million head, representing a decline of
about one million head from the beginning of the year and reflecting the
severe drought conditions that characterized 2002.

According to ABARE's historical data, about half of the Australian beef
herd in the 2001 were carried on properties in the northern part of
Australia (Queensland, Northern Territory and northern Western
Australia. This area of the country also supplies about 75-80 percent of
animals for the live cattle trade.

**Production (Calf Crop):** The calf crop is projected at 10.15 million
head in 2003, up over one million from the drought-reduced levels of
2002. In 2004, calf production is expected to remain at a relatively
firm 9.95 million head. The calf crop in 2002 is estimated at 9.1
million head, which reflects well below average fertility and higher
mortality rates. Official ABS calf crop figures are unavailable for the
Australian cattle industry.

**Slaughter:** Cattle slaughter in 2003 is projected at 8.55 million
head, down approximately six percent from 2002. The dip in projected
slaughter rates is due to an anticipated return to herd rebuilding
following the depopulation that occurred during the drought. Post
expects that improving cattle prices and a return to more normal weather
conditions will encourage producers to increase cattle numbers. ABS
slaughter figures for the first half of 2003 show a three percent drop
in slaughter versus the year-earlier figure.

Cattle slaughter in 2004 is forecast to fall to 8.14 million head, the
lowest slaughter level since 1996 (following the 1994/95 drought), and
roughly in line with MLA forecasts. The sharp decline in slaughter
following the drought is similar to historical data following previous
severe droughts.

Cattle slaughter in 2002 is estimated at 9.01 million head, relatively
unchanged from Post's previous report (GAIN Report #AS3004, Livestock
and Products Semi-Annual Report, 2/10/03) and reflecting preliminary ABS
estimates. This is the highest slaughter level since the great herd
liquidation of the 1970's, when annual slaughter reached 12.7 million.

**Cattle on Feed:** Grain finishing of cattle in Australia continues to
expand as producers seek to increase the quality and value of their
products and to meet strong demand for grain-fed beef in Japan and
domestically. In 2002/03, ABARE estimates about 1.95 million cattle were
slaughtered off feed, a slight dip from 2001/02, but still up by a
factor of three over the last decade. ABARE attributes the dip in the
longer-term upward trend to higher grain and fodder prices and reduced
feeding margins. A continuation of relatively high feed prices is
expected to limit growth in fed cattle in 2003 and 2004. Longer term,
ABARE projects about 2.4 million head of cattle will be slaughtered off
feed in 2007/08. To meet this projection, Australian producers will
continue to reduce grass fed steer and bullock production in favor of
more feeder calf production.

Of total Australian adult cattle slaughter, about 27 percent are sourced
from the feedlot sector, constituting about 30 percent of total beef
production. In the early 1990's, about nine percent of the national
adult cattle slaughter was from the feedlot sector, accounting for about
15 percent of total beef production. According to ABARE, about 47
percent of all feedlot cattle are destined for the domestic market, with
the Japanese market taking about 46 percent. Over the last several
years, the proportion of feedlot cattle destined for the domestic market
has grown relative to that shipped to Japan.

**Production:** Beef and veal production in 2003 is projected at 1,946
TMT in carcass weight equivalents (CWE), seven percent lower than in
2002. ABS statistics show only a slight decline in production during the
first half of 2003, versus the year-earlier period. A return to more
normal weather conditions is likely to keep slaughter relatively low in
the second half of 2003. These lower slaughter numbers will be partially
offset by heavier slaughter weights as the drought dissipates.

Production in 2004 is forecast at 1,935 TMT (CWE), in line with the most
recent figures from MLA. Lower slaughter figures are expected to be
partially offset by heavier slaughter weights as seasonal conditions and
pasture availability return to more normal levels. The lower slaughter
and production figures forecast for 2004 reflect a return to herd
rebuilding, following one of the worst droughts in a century.

Beef and veal production in 2002 is estimated at 2,089 TMT (CWE),
largely unchanged from Post's previous report and in line with official
ABS and industry figures.

### Consumption

Beef and veal consumption is projected at 685 TMT in 2003 and is
forecast to fall to 657 TMT in 2004. ABS does not provide official
consumption figures for beef. ABARE provides historical consumption
figures, which places annual beef consumption at about 700 TMT. ABARE
statistics show per capita beef consumption falling steadily from 41.8
kilograms per capita in 1997, to 33.7 kilograms in 2001. In the late
1970's, ABARE estimated Australian beef consumption at almost 70
kilograms per capita.

### Stocks

Beef stocks are estimated at relatively low levels, reflecting the
commercial environment in which beef is produced. ABS does not publish
official beef stock figures. A recent ABARE publication places beef
stocks constant at 30,000 MT over an extended number of years.

### Trade

**Exports:** Beef and veal exports in 2003 are projected at 1,283 TMT in
carcass weight equivalents (CWE), about six percent lower than in 2002,
but still near the record established in 2001. Official ABS figures for
the first half of 2003 show a small increase in exports. The export pace
is expected to slow in the second half of the year, reflecting lower
slaughter rates as producers attempt to rebuild their herds. (Shipped
weight is converted to CWE using a conversion factor of 1.43).

Exports are forecast to rise slightly in 2004 to 1,300 TMT (CWE), in
line with industry projections. Heavier slaughter weights are expected
to offset the slightly lower forecast for the number of cattle going to
slaughter.

Beef and veal exports in 2002 are estimated at 954,843 MT (shipped
weight), slightly below the record level of the previous year.

Australia's beef and veal exports in 2002 were valued at approximately
A\$4.1 billion. Exports account for about two-thirds of domestic
production, with major export destinations being the United States,
Japan, Korea, Canada and Taiwan. The United States was Australia's top
export market for Australian beef and veal in 2002, on both a volume and
value basis. The expectation is that export value (in local currency)
for beef and veal will be down sharply in 2003, due to lower export
volume and the stronger Australian dollar.

**United States:** The United States was Australia's largest export
market for beef in 2002, taking about 41 percent of all volume and
accounting for about 39 percent of the value of all shipments. Beef
exports to the United States are primarily frozen boneless product
destined for manufacturing. In recent years, Australia has lost some
share in the U.S. beef market to product from Canada.

Australian beef exported to the United States is subject to a
country-specific tariff rate quota (TRQ). Under the TRQ, a quantity of
up to 378,214 MT of Australian beef is assessed a relatively low U.S.
tariff of US 4.4 cent/kg. Shipments above this quantity are subject to
an above or over-quota tariff of 26.4 percent. The TRQ is administered
on a calendar year basis.

Australia filled the in-quota portion of the U.S. TRQ in 2001 for the
first time in a number of years. The Australian Government implemented a
controversial TRQ allocation scheme for exports in 2002 that allocates
the U.S. TRQ among Australian shippers (See GAIN Report #AS2033, "New
Export Scheme for Beef to the U.S. Announced" for further information on
the quota scheme.) According to projections by ABARE, Australia is not
expected to again fill the U.S. TRQ until around 2006-07.

**Japan:** Japan has been a leading destination for Australian beef in
recent years, particularly since the Japanese adopted market-opening
measures in early 1990's. Australian beef shipments to Japan consist
mostly of higher-valued products, that primarily compete against
Japanese wagyu and dairy steer beef, and imports from the United States.
The Japanese beef market was severely impacted by the discovery of BSE
in a Japanese dairy cow in September 2001 and subsequent cases extending
through to January 2003. immediately following the BSE discovery,
Japanese beef consumption slumped and prices plummeted, with a
corresponding impact on import volume.

By the second half of 2002, Japanese beef demand was rebounding and
imports began to rise. However, rising imports reached a level (volume)
that triggered a temporary increase in Japan's import tariff, known as a
safeguard or "snapback" tariff. The tariff "snapback", which took effect
on August 1, 2003, increased the Japanese import tariff rate on [chilled
beef]{.underline} from 38.5 percent to 50 percent, or by the equivalent
of 29.9 percent. The safeguard can now be in effect until the end of the
Japanese fiscal year on March 31, 2004. The Australian Government and
the cattle industry argued strongly, but unsuccessfully, for the
Japanese to defer from taking this action.

The Japanese "snapback" was a side agreement to the WTO Agreement on
Agriculture, which allows Japan to invoke a safeguard to protect its
beef industry in the event of a rapid rise in imports. Under this
agreement, Japan's beef import tariff can be raised to the maximum WTO
bound rate, or 50 percent, when quarterly imports of chilled or frozen
beef exceed 17 percent of the volume in the comparable period in the
previous year. The beef safeguard for frozen beef has been invoked
twice, from August 1995 to March 1996 and from August 1996 to March
1997.

**Republic of Korea:** Korea represents a growing market for Australian
beef and is expected to take increasing quantities, particularly chilled
product. Exports to Korea are being driven by recent market
liberalization and a relatively strong domestic economy. Australia faces
stiff competition in the market from the United States and would also
face strong competition from the South American suppliers if their
disease status permitted them access to the market. Korea's beef quotas
were replaced by import tariffs in 2001. The current Korean tariff on
beef imports from Australia is 40.4 percent.

**Canada:** Australia's exports to Canada are dominated by manufacturing
beef. Shipments to Canada have grown sharply in the last several years
due in large part to the closure of the Canadian market to beef from
Argentina and Uruguay because of outbreaks of foot and mouth disease in
2001, and a significant decline in product arriving from the United
States.

Australian beef shipments to Canada are subject to a TRQ, which is set
at 35,000 MT. Shipments above this quantity are subject to a tariff of
26.5 percent. With supply disruptions from South America, Canada has
offered Australian suppliers supplementary permits for over-quota
shipments. However, Uruguay recently regained access to the Canadian
market, which will displace some Australian product. And, the discovery
of one BSE-infected beef cow in Canada in May of this year will further
disrupt trade flows as Canadian product that would normally enter export
channels competes with imports in the domestic market.

**China:** Australia signed new market access protocols for beef and
sheep and goat meat with China on June 26, 2003. The protocols establish
quarantine and inspection requirements for Australia's red meat exports
to China. Up until this point, Australian exports were limited to
supplies for deluxe hotels, embassies and factories for reprocessing. In
2002, Australia's meat exports to China totaled about 4,000 MT, valued
at A\$24 million. According to MLA, the new protocols are expected to be
of most benefit to sheep meat and offal, which currently dominate
Australian exports. According to Australian Government sources, Chinese
officials will conduct an accreditation trip to Australia later this
year. China's tariff on beef from Australia is 18.6 percent.

**European Union:** The EU maintains a TRQ for "high quality beef"
imported from Australia. The "in-quota" tariff is 20 percent, which is
assessed on quantities up to the 7,000 MT. On imports above this
quantity, the EU assesses a tariff of 12.8 percent plus a specific
tariff of 141.4 to 304.1 euros/kilogram (an estimated combined tariff
equivalent of about 45 percent.)

**South American Competition:** Disease outbreaks in South America have
locked these suppliers out of major beef markets in North America and
North Asia, although beef shipments from Uruguay have recently resumed
to both the United States and Canada. South American beef, however,
continues to provide stiff competition for Australia in markets in the
EU, Hong Kong, the Philippines and other Southeast Asian nations,
Russia, the Middle East, and North Africa.

**Australian Dollar:** A major contributor behind Australia's strong
livestock sector in recent years has been the longer-term decline in the
Australian dollar, particularly against the U.S. and Japanese
currencies. The weaker Australian dollar made Australian beef less
expensive and much more competitive in these and other key export
markets. However, depreciating South and Southeast Asian currencies, as
a result of the 1997 Asian financial crisis, adversely impacted
Australia's live cattle exports to this region. In addition, steep
depreciations in the Brazilian and Argentine currencies have made these
two suppliers much more competitive in some of Australia's beef markets.

The Australian dollar is currently valued at about US\$0.65,
representing more than a 30 percent rise since reaching a low point in
early 2001. The Australian dollar traded at relative highs of US\$0.90
in 1989 and around US\$0.80 in 1997, before falling rather steadily to a
low of less than US\$0.50 in early 2001. Relative exchange rates are
very important to Australia's beef and live cattle trade and overall
industry profitability, notably because much of international beef trade
is done in U.S. dollars.

**TABLE 2: Australia's Beef and Veal Exports, 1995, 2000-2002**

**(shipped weight, thousand metric tons)**

  ----------------- ------------- ------------- ------------- ------------
  COUNTRY           1995          2000          2001          2002

  United States     220.9         362.8         401.3         387.2

  Japan             324.0         321.7         320.8         238.0

  Korea             65.4          80.6          64.0          84.8

  Canada            32.9          40.5          48.9          82.4

  Taiwan            31.0          30.0          29.5          34.4

  Others            97.0          93.8          108.7         123.1

  TOTAL             771.2         929.4         973.2         949.9
  ----------------- ------------- ------------- ------------- ------------

Source: ABS, ABARE.

**TABLE 3: Australia's Beef and Veal Exports, 1995, 2000-2002**

**(million Australian \$'s, FOB)**

  ----------------- ------------- ------------- ------------- ------------
  COUNTRY           1995          2000          2001          2002

  United States     517           1,208         1,715         1,599

  Japan             1,563         1,518         1,737         1,242

  Korea             173           244           258           339

  Canada            81            145           196           318

  Taiwan            112           122           134           152

  Others            277           336           446           477

  TOTAL             2,723         3,573         4,486         4,127
  ----------------- ------------- ------------- ------------- ------------

Source: ABS, ABARE.

**Live Cattle Exports:** Live cattle exports in 2003 are projected at
950,000 head, down slightly from the record level of 2002. Despite a
surge in exports during the first half of 2003, a steady return to more
normal weather conditions and reduced cattle inventories are expected to
combine to slow the export pace for the rest of the year. This slowdown
in exports is expected to persist into the first part of 2004, before
rising in the later part of the year. Total live cattle exports for 2004
are forecast to fall slightly to 920,000 head, which still represents a
historically high level.

Live cattle exports in 2002 are estimated at 972,000 head, in line with
official ABS statistics and representing a record level, according to
ABARE's historical data. High inventory levels, extremely low pasture
availability and solid export demand combined to drive live cattle
exports to this record level.

Australia is the world's largest live cattle exporter. Australia's live
cattle exports have grown sharply, rising from about 100,000 head in
1990, to the record of nearly one million head estimated in 2002.
Western Australia and the Northern Territory each account for about
one-third of Australia's live cattle exports, with Queensland accounting
for another 20 percent of the total. About one-quarter of all live
cattle is exported from the Port of Darwin in the Northern Territory,
with Townsville, Queensland; and Fremantle, Western Australia accounting
for 14 percent and 13 percent of all cattle exports, respectively.

Live cattle exports in 2002 were valued at a record of about A\$580
million and accounted for about 11 percent of total estimated adult
cattle turnoff. The leading live cattle export markets are Indonesia,
Egypt, the Philippines, Malaysia, Saudi Arabia and Israel. A substantial
number of live cattle are also shipped to Mexico, Japan, China, Kuwait
and Jordan.

**TABLE 4: Australia's Live Cattle Exports, 1995, 2000-2002**

**(thousand head shipped)**

+----------------+------------+------------+------------+------------+
| COUNTRY        | 1995       | 2000       | 2001       | 2002       |
+----------------+------------+------------+------------+------------+
| Indonesia      | 218        | 297        | 288        | 426        |
+----------------+------------+------------+------------+------------+
| Egypt          | 15         | 208        | 203        | 144        |
+----------------+------------+------------+------------+------------+
| Philippines    | 186        | 224        | 98         | 113        |
+----------------+------------+------------+------------+------------+
| Malaysia       | 38         | 56         | 77         | 91         |
+----------------+------------+------------+------------+------------+
| Saudi Arabia   | 0          | 0          | 21         | 54         |
+----------------+------------+------------+------------+------------+
| Israel         | 0          | 16         | 33         | 48         |
+----------------+------------+------------+------------+------------+
| Others         | 60         | 95         | 102        | 476        |
+----------------+------------+------------+------------+------------+
| ##             | 38         | 9          | 25         | 17         |
| #### Breeding  |            |            |            |            |
+----------------+------------+------------+------------+------------+
| TOTAL          | 517        | 896        | 822        | 968        |
+----------------+------------+------------+------------+------------+

Source: ABS, ABARE.

**TABLE 5: Australia's Live Cattle Exports, 1995, 2000-2002**

**(million Australian \$'s, FOB)**

  ----------------- ------------- ------------- ------------- -------------
  COUNTRY           1995          2000          2001          2002

  Indonesia         134           143           172           254

  Egypt             10            130           154           95

  Philippines       87            118           58            66

  Malaysia          20            26            38            45

  Saudi Arabia      0             0             15            32

  Israel            0             9             15            24

  Others            15            46            62            65

  TOTAL             266           472           514           581
  ----------------- ------------- ------------- ------------- -------------

Source: ABS, ABARE.

### Marketing

**Meat and Livestock Australia and the Levy:** Meat & Livestock
Australia Limited (MLA) is a producer-owned company that provides
services to the red meat (beef, mutton/lamb, goat) industry, including
producers, processors, exporters, live animal exporters and retailers.
MLA's major activities are seeking improvements in market access,
building demand for Australian red meat and conducting research and
development. MLA is primarily funded by a transaction levy paid by
producers on livestock sales. These funds are supplemented by
cooperative contributions from individual processors, wholesalers, food
service operators and retailers. Processors and live animal exporters
pay levies voluntarily to MLA. The Australian government also provides
dollar-for-dollar matching funds for R&D activities.

MLA conducts market research, market promotion and trade support
activities domestically and in major foreign markets. In addition to its
head office in Sydney, MLA maintains offices in: Washington, DC for the
Americas; Frankfurt, Germany for Europe; Tokyo, Japan; Seoul, Korea; and
Bahrain for the Middle East and Africa. In addition, MLA has trade
representatives located in Singapore, Malaysia, Indonesia, the
Philippines, Hong Kong and Taiwan.

A "Livestock Transaction Levy" is collected on the sale of livestock
(cattle, sheep and goats) and the transfer of livestock between the
production and processing stages. The Federal Government establishes the
levy rates, which are currently set at A\$3.50 per head for cattle and
A\$0.90 for calves. Animal Health Australia (AAHC), Australian National
Residue Survey (NRS), and MLA are recipients of the funds generated by
the levy.

There are also a number of industry councils and other associations that
represent various components of the Australian livestock sector,
including the Cattle Council of Australia, Australian Lot Feeders'
Association, Australian Livestock Exporters' Association, and the
Sheepmeat Council of Australia. The newly formed Australian Meat
Industry Council is the national industry body representing the red meat
processing industry and is the result of a merger between the Australian
Meat Council and the National Meat Association. Also, Agriculture,
Fisheries and Forestry Australia (AFFA), the Commonwealth agriculture
department, licenses livestock exporters and ensures compliance with
prescribed rules.

### Policy

**National Livestock Identification Scheme:** MLA has developed the
National Livestock Identification Scheme (NLIS) in order to improve
access to high value export markets, increase trace back effectiveness,
and for improved slaughter performance feedback and product integrity.

Under NLIS, cattle producers will be required to identify cattle with an
approved NLIS identification device. The system provides for a permanent
"whole of life" cattle identification system via the application of an
ear tag or rumen bolus on the property of birth. When fully implemented,
a national database will be capable of electronically tracking
individual cattle through the value chain.

MLA reports that the NLIS system will provide much faster and more
accurate trace back in the event of an exotic disease incursion or in
detecting chemical residues, so as to deal more effectively with such
issues while ensuring a minimum disruption to trade flows. Furthermore,
the system provides many practical benefits, such as inventory control
on farm or at feedlots, as well as carcass feedback for genetic
improvement. This system is already in use for exporting beef to the EU
and MLA believes it will allow Australia to quickly respond when other
markets make similar demands in the future.

Animal health laws in Australia are the responsibility of individual
states. National agreement was reached in March 2003 for a set of
national regulatory standards for NLIS implementation. NLIS is now
mandatory in the state of Victoria, with other state and territory
governments agreeing to implement the system by July 1, 2005.

Some exemptions to the scheme have been created for cattle sent direct
from property of birth to slaughter or live export. "Bobby" calves
consigned direct to sale yards or slaughter are also exempt from the
scheme.

The NLIS scheme has been very controversial. Livestock producers,
particularly large-scale operators in northern Australia, argue that the
system will add significant costs and is currently not needed, except in
a limited number of markets.

**Free Trade Agreement Negotiations:** Australia and the United States
are currently engaged in Free Trade Agreement (FTA) negotiations.
Australia is seeking to use the FTA to garner improved access for its
number one agricultural export item to the United States -- beef.
Specifically, Australia is seeking the speedy elimination of U.S.
tariffs on beef and/or a significant expansion in the current tariff
rate quota. Most of Australia's tariffs on agricultural products
imported from the United States range from zero to five percent. FTA
negotiations are scheduled to be complete by the end of 2003.

**Quarantine Issues:** There are several quarantine issues that affect
bilateral trade in cattle and beef. Australia is seeking a change in the
U.S. requirements that currently restrict entry of Australian feeder
cattle into the United States. And, in August 2003, Australia relaxed
the requirement that imported beef must meet a 30-day aging requirement
before entering the country. This action allows the United States
improved market access for beef.

## SWINE

The Australian pork industry has undergone considerable consolidation.
Nationally, there are currently about 2,500 pork producers, which is
down sharply from the 50,000 that were in business in 1960. The industry
is also now characterized by a relatively small number of very large
operators, with approximately 80 percent of all pork production
accounted for by about 20 percent of producers.

### Production

**Inventory:** Australia's swine inventory at the start of 2003 is
estimated at 2.46 million head, four percent lower than the level of a
year earlier, and down significantly since Post's last report (see
Report #AS3004). A sharp fall in feed grain availability brought on by
the drought and record high feed grain prices put downward pressure on
pig numbers.

Opening inventory for 2004 is forecast to rise substantially to 2.95
million head, a number much more representative of the longer-term
average. A steady return to normal weather conditions is anticipated to
improve feed grain availability, lower feed grain prices, and help boost
inventory.

Post has revised the opening inventory number for 2002 downwards to 2.56
million head, in line with official ABS figure.

The sow beginning stock number for 2003 is estimated at 335,000 head,
six percent below the year-earlier figure. The sow beginning inventory
number for 2004 is forecast at 358,000 head, as producers are expected
to benefit from more favorable weather conditions and lower feed grain
prices.

The beginning sow inventory for 2002 has been revised upwards to 356,000
head, and is now in line with official ABS figures. This number is
significantly higher than the industry's previous estimate of 314,000
head.

**Production (Pig Crop):** The pig crop number for 2003 is projected at
5.40 million head, two percent lower than in 2002. The pig crop in 2004
is forecast to rise two percent, to 5.51 million head. A return to more
normal weather conditions in 2004 is expected to allow the industry to
resume its longer-term incremental growth in inventory numbers. Post has
revised the estimated pig crop in 2002 upward slightly to 5.5 million
head.

Official pig crop numbers are unavailable. The pig crop is generally
derived using inventory and slaughter figures.

**Slaughter:** Slaughter in 2003 is projected at 4.9 million head, 13
percent below the year-earlier figure and in line with ABARE figures.
The effects of the drought on animal husbandry and the decline in the
pig crop contributed to the reduced slaughter. Grain production is
currently forecast to rise substantially from the drought-reduced levels
that characterized 2002/03. Many producers will be encouraged to
withhold stock from slaughter in the second half of 2003 in anticipation
of improved feed grain supplies.

Slaughter in 2004 is forecast to increase to 5.25 million head driven by
improved inventory numbers, a higher pig crop and improved feed grain
availability.

Slaughter in 2002 is estimated at 5.6 million head, unchanged from
Post's previous report and the highest level in over a decade. Sharply
lower grain production in 2002 and soaring grain prices forced many
growers to slaughter stock that otherwise would have been retained.

**Production (pig meat):** Pig meat production in 2003 is projected at
361,000 MT, 11 percent lower than a year earlier and in line with
current figures from ABARE. Production is forecast rise steeply in 2004,
driven by a larger inventory and higher slaughter rates. Lower
anticipated feed grain prices should also substantially increase
slaughter weights in 2004.

Pig meat production in 2002 is estimated at 407,000 MT, the highest
production level in over a decade and in line with the official ABS
production figure.

### Consumption

Pork consumption in 2003 is projected at 382,000 MT, up slightly from
2002 and reflecting the upward trend in consumption of pork. Domestic
consumption is forecast to rise to 395,000 MT in 2004.

Official statistics for domestic pork consumption are unavailable.

### Stocks

The Government of Australia does not have programs to encourage the
accumulation of stocks of pig meat. Stock levels of pork in Australia
are reflective of the commercial environment in which pig meat is
produced.

Official statistics on stock levels of pig meat are unavailable in
Australia.

### Trade

**Exports:** Pork exports in 2003 are projected at 69,000 MT in carcass
weight equivalents (CWE), seven percent lower than a year earlier.
Official ABS data have exports increasing slightly for the first half of
2003. However, an anticipated increase in feed grain availability and a
subsequent fall in slaughter numbers should restrict full-year exports.

Pork exports in 2004 are forecast at 86,000 MT (CWE), a figure more
representative of the export level prior to the drought.

Official ABS statistics have pork exports in 2002 at 59,200 MT in
shipped weight, or the equivalent of 74,000 MT using a conversion factor
of 1.25 to convert to CWE.

Australia's pork exports have grown considerably in recent years, rising
from less than A\$71 million in 1998/99 (July/June) to almost A\$250
million expected in 2002/03. Australia, which typically shipped frozen
pork to New Zealand, the EU and assorted Asian markets, has now
significantly expanded these exports, principally to markets in Japan,
Korea and the Philippines. In addition, Australia's exports of
fresh/chilled pork, which were less than 200 MT in the mid 1990's, have
risen to over 40,000 MT. Most of Australia's fresh/chilled pork exports
are destined for Singapore and Japan.

Australia's pork exports to Japan will be impacted by a Japanese
"snapback" tariff on imported pork that went into effect on August 1,
2003. A surge in Japanese imports caused the snapback to be triggered,
which pushed the Japanese import tariff on pork up from 546.53 yen to
681.08 yen per kilogram. The higher pork tariffs will run through the
end of March 2004. This is the third year in a row that the Japanese
"snapback" tariff on pork has been invoked.

**Imports:** Australia's pork imports have also grown significantly in
recent years. Pork imports in 2001/2002 are estimated at about A\$210
million. Given Australia's stringent quarantine regime, Canada, Denmark
and New Zealand are the only countries permitted to ship uncanned,
uncooked pork into the country. Canada supplies about 60 percent of pork
imports by volume, Denmark supplies about 35 percent, and the remainder
is supplied by New Zealand or canned product.

Under Australia's current quarantine policy, uncanned and uncooked pork
meat can only be imported from Canada, Denmark and the South Island of
New Zealand. Pork from Canada and Denmark must be imported deboned and
the pork must be cooked on arrival in Australia. In addition, pork can
be cooked in Canada prior to export, whereas pork from Denmark must be
cooked upon arrival in Australia. Canned pork that has undergone heat
treatment may also be imported from any country.

Pork imports from the United States in 2004 are forecast at 10,000 MT.
This figure assumes the final import risk analysis for imported pork
will be approved by the early part of 2004 and that the level of access
granted will be roughly comparable to that of Canada and Denmark.

**TABLE 6: Australia's Pork Trade, Fiscal Years,(July-June) 1998/99 -
2002/03**

**(volume in TMT, value in million A\$)**

+-------------+----------+----------+----------+----------+----------+
| COUNTRY     | 1998/99  | 1999/00  | 2000/01  | 2001/02  | 2002/03f |
+-------------+----------+----------+----------+----------+----------+
| ###         |          |          |          |          |          |
| ### Exports |          |          |          |          |          |
+-------------+----------+----------+----------+----------+----------+
| Volume      | 16       | 39       | 44       | 59       | 57       |
+-------------+----------+----------+----------+----------+----------+
| Value       | 71       | 159      | 186      | 265      | 246      |
+-------------+----------+----------+----------+----------+----------+
| ###         |          |          |          |          |          |
| ### Imports |          |          |          |          |          |
+-------------+----------+----------+----------+----------+----------+
| Volume      | 39       | 58       | 28       | 44       | 47       |
+-------------+----------+----------+----------+----------+----------+
| Value       | NA       | NA       | NA       | NA       | NA       |
+-------------+----------+----------+----------+----------+----------+

Volume is in shipped weight. NA means not available.

Source: ABS, ABARE.

### Policy

**Draft Quarantine Changes for Pork Imports:** In August 2003, Australia
released new proposed quarantine requirements for the importation of
pork, which could provide access to Australia for certain pork products
from the United States. Final changes to the quarantine requirements are
pending a formal comment period; Biosecurity Australia will accept
comments through October 13, 2003, with a Final IRA Report taking into
account comments and any new information received. The Final Import Risk
Analysis (IRA) Report will be open to appeal for a period of 30 days
after release. (See GAIN Report #AS3025 entitled Draft Quarantine
Changes for Pork Imports for further information regarding the Draft
IRA.)

Proposed quarantine conditions outlined in the IRA would likely permit
access into the Australian market for certain U.S. pork products. Canada
and Denmark already have access to the Australian market for cooked
pork, and together have captured a significant portion of the domestic
pork market.

Gaining access to the Australian market for pork has been a major
objective for the U.S. government and the U.S. pork industry. USDA's
Animal Plant Health Inspection Service and the U.S. pork industry are
currently studying the Draft IRA to ascertain potential issues and
market access that would be afforded to U.S. pork and pork products.

In March 2003, the European Union announced it had requested Australia
to enter into WTO formal consultations on its quarantine system for
imports of agricultural products. In this action, the EU specifically
noted delays in outstanding requests for access to the Australian market
for fresh pork. (See GAIN Report #AS3011 entitled The EU Challenges
Australia's Quarantine System for further information on the EU action.)
The EU has now formally requested that a WTO panel be formed to rule on
their complaint.

### Marketing

**Australian Pork Limited and the Levy:** Australian Pork Limited (APL)
is the producer-owned not-for-profit provider to the pork industry. APL
has a contract with the Federal Government to allow it to receive and
administer marketing and research levies collected by the Commonwealth,
along with Commonwealth-provided dollar-for-dollar matching funds for
certain research and development activities. APL is directly accountable
to its levy paying members for the programs it delivers and the money it
spends.

Australian pork producers contribute about A\$8.5 million for pork
promotion and research through a national Pig Slaughter Levy of A\$1.65
per pig. The levy is payable on slaughter of pigs for sale for human
consumption and is payable by the producer. The producer is defined as
the owner of the pig at the time of slaughter. The levy commenced in
1971.

**Proposed Pork Import Levy:** The Australian Government has proposed
that importers of processed pork products contribute to a voluntary
promotional levy to raise as much as an additional A\$1 million for
marketing of pork on the domestic market. Industry sources indicate that
the Minister of Agriculture wrote to all pork importers to determine
whether they would be willing to pay a levy similar to that paid by
Australian producers and, if not, for proposals for an alternative
approach. It is unclear whether importers would also be offered
representation on the board of APL. Further details of this proposal are
unavailable.

## Recent Post Reports on Livestock and Livestock-Related Issues

AS3025, Draft Quarantine Changes for Pork Imports, 08/15/03

AS3011, The EU Challenges Australia's Quarantine System, 04/28/03

AS3004, Livestock and Products Semi-Annual Report, 02/10/03

AS2033, New Export Scheme for Beef to the U.S. Announced, 10/22/02

These reports are available at the FAS homepage, which is located at
[www.fas.usda.gov](http://www.fas.usda.gov/)

# APPENDIX 1

## PS& D Tables

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