Australia’s Asian export destinations have performed well over the past 12 months and are looking good for the year ahead.
While an increase in Australian exports the year that slaughter numbers increase is not a surprise, it is the mix of export destinations that is an encouraging sign. When Australia has a dry spell and we see the proportion of females in the national slaughter numbers increase, this normally means we see an increase in production – and therefore exports – of lean trimmings. Australia’s traditional market for lean trimmings is the US. This was clearly the case in 2014 and 2015 when export volumes to the US jumped from 212,000 tonnes in 2013 to 396,000 and 414,000 tonnes respectively.
However, this year is different. While in 2014 and 2015, the US was experiencing a more limited domestic supply base than they are now and therefore their demand was higher, we still have a markedly different situation. This year to date (September) Australian slaughter is up 10 per cent and female slaughter up 22pc. At the same time, Australian beef exports to the US are down 1pc, but exports to China, South Korea and Japan are up 53pc, 16pc and 8pc. We have sent 84,000 tonnes swt more to these three markets than we did last year. The presumption is that more of the lean trimmings that would normally have been destined for the US market are finding an alternative home in Asian countries.
Encouragingly we are also seeing the prices in these Asian markets increase. Normally with a higher proportion of lean trimmings (lower value product) in the export mix, per unit export values decline. However, the average export price (in Australian dollars) per unit for Japan has increased 3pc, for South Korea it has increased 5pc and for China it has remained the same.
A slightly weaker Australian dollar is helping the price rise, but some positive underlying factors are supporting this increased demand from the Asian countries for beef in general. For we are not alone. The US has also seen an increase in beef export volumes to South Korea and Japan, up 37pc and 7pc respectively – or an additional 65,000t. The fact that we are seeing increased volumes of Australian exports at higher prices in light of these strong US volumes is credit to the quality and price of our product.
Japan and South Korea are established markets, but both are seeing increased beef consumption. Stronger economic growth and changing consumption patterns are supporting greater consumption. Japanese beef consumption for 2018 has averaged 2.1kg per person prorated to an annual basis compared to 1.2kg per person over the previous five years. On top of this, the free trade agreements with all three major Asian export markets are supporting further demand growth. As tariffs are gradually reduced, prices for the Australian product fall, making it more affordable and competitive. The next round of tariff reductions for all three countries takes place again early in the new year.
- Angus Gidley-Baird is a Rabobank senior analyst