research / Research reports


August 25 2016

The cattle and beef trade exemplifies Australia’s agricultural integration into Asia, especially with respect to China. Beef exports to China increased 13-fold between 2011-12 and 2013-14 to become Australia’s fourth largest export market, with projections that the trade could be worth a cumulative total of A$100 billion between 2014 and 2030. Additional stimulus was generated by the signing of the China-Australia Free Trade Agreement (ChAFTA) and a live cattle export protocol, with projections that it could lead to exports of one million head per year. The excitement in industry, government and the media was palpable and contagious.

The spike in activity and interest was driven by a coincidence of shortterm drivers that have now levelled off, along with trade flows. In Australia, a drought-induced spike in slaughter numbers have been replaced by a trough in slaughter numbers as producers restock following improved rainfall. In China, the general slowdown in the economy and government limits on banqueting has limited growth in both beef consumption and prices. At the same time, Australia’s dominance in the formal beef trade is being challenged by new entrants, especially Brazil.

The beef trade will fall back on a set of more fundamental, longterm drivers – which look strong under a ‘normal’ economic growth scenario in China. On the supply-side, Chinese cattle producers – who produce three times more beef than Australia – can be expected to continue to exit the industry to take up more lucrative opportunities in the economy, thus limiting domestic supply and capacity utilisation in China. On the demand-side, Chinese diets could be expected to diversify, though incrementally and not following Western consumption patterns.

Aware of the underlying supply-demand forces – and concerned about price inflation and the supply of staple foods for ethnic minorities – China has taken steps to liberalise and formalise cattle and beef trade policy. This is reflected especially in disease agreements, but also in tariff and quota regimes, including ChAFTA. However, even at peak trade flows, Australia only supplies about three percent of China’s beef, which barely registers as a contributor to China’s price and food security concerns. As a result, the liberalisation of cattle and beef trading polices has been extended to a wide range of large and small beef producing countries that can be expected to erode Australia’s market share into the future. 

However, Australia retains some important policy-driven competitive advantages in China. Long-term biosecurity and animal health programs in Australia, the live cattle export protocol and ChAFTA place Australia in pole position in the formal market. Australia has also proven adept in managing trade challenges when they arise including plant accreditation, the suspension of the chilled and fresh beef trade and procedures on hormone growth promotants (HGPs). This reflects well on the competence of Australian agencies and the bilateral relationship.

This relationship will have to be maintained and strengthened as other challenges and opportunities arise. Opportunities for largescale exports of live cattle, especially slaughter cattle, could bring the trade more in line with comparative advantage of lower cost pasture in Australia and labour in China. Chinese investment in the Australian beef industry – from farms to abattoirs and into China – will deepen linkages and trade. These trade and investment links will need to be managed and communicated well, including publicly within Australia. At the same time, understanding the dynamics, nuances and the heterogeneous nature of the Chinese cattle and beef industry will be critical if the Australian industry is to make the most of the opportunities. 

Authors: Colin Brown, Associate Professor in agricultural and resource economics, School of Agriculture and Food Sciences, The University of Queensland; Brooke Edwards, analyst, Sugar Research Australia; John Longworth, Emeritus Professor, School of Agriculture and Food Sciences, The University of Queensland; Scott Waldron, Senior Research Fellow, School of Agriculture and Food Sciences, The University of Queensland. 

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