Australian Pigmeat Industry, Report No
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Australian Productivity Pigmeat Commission Industry Inquiry Report No. 35, 18 March 2005 © Commonwealth of Australia 2005 ISSN 1447-1329 ISBN 1 74037 171 2 This work is subject to copyright. Apart from any use as permitted under the Copyright Act 1968, the work may be reproduced in whole or in part for study or training purposes, subject to the inclusion of an acknowledgment of the source. Reproduction for commercial use or sale requires prior written permission from the Attorney-General’s Department. Requests and inquiries concerning reproduction and rights should be addressed to the Commonwealth Copyright Administration, Attorney-General’s Department, Robert Garran Offices, National Circuit, Canberra ACT 2600. This publication is available in hard copy or PDF format from the Productivity Commission website at www.pc.gov.au. If you require part or all of this publication in a different format, please contact Media and Publications (see below). Publications inquiries: Media and Publications Productivity Commission Locked Bag 2 Collins Street East Melbourne VIC 8003 Tel: (03) 9653 2244 Fax: (03) 9653 2303 Email: [email protected] General inquiries: Tel: (03) 9653 2100 or (02) 6240 3200 An appropriate citation for this paper is: Productivity Commission 2005, Australian Pigmeat Industry, Report no. 35, Melbourne. The Productivity Commission The Productivity Commission, an independent agency, is the Australian Government’s principal review and advisory body on microeconomic policy and regulation. It conducts public inquiries and research into a broad range of economic and social issues affecting the welfare of Australians. The Commission’s independence is underpinned by an Act of Parliament. Its processes and outputs are open to public scrutiny and are driven by concern for the wellbeing of the community as a whole. Information on the Productivity Commission, its publications and its current work program can be found on the World Wide Web at www.pc.gov.au or by contacting Media and Publications on (03) 9653 2244. Melbourne Office Level 28, 35 Collins Street Melbourne VIC 3000 Locked Bag 2 Collins Street East Melbourne VIC 8003 Telephone 03 9653 2100 Facsimile 03 9653 2199 Canberra Office Telephone 02 6240 3200 18 March 2005 www.pc.gov.au The Honourable Peter Costello MP Treasurer Parliament House CANBERRA ACT 2600 Dear Treasurer In accordance with Section 11 of the Productivity Commission Act 1998, I have pleasure in submitting to you the Commission’s final report into the Australian Pigmeat Industry. Yours sincerely Dr Neil Byron Presiding Commissioner Terms of reference I, Peter Costello, under Parts 2 and 3 of the Productivity Commission Act 1998, hereby refer for inquiry and report the competitive situation and outlook for the Australian pigmeat industry, including both production and processing. 1. In undertaking the inquiry, the Commission is to take into account: • the structure and regional distribution of the industry; • key factors influencing the profitability of the industry, and the extent to which these factors are short or long term influences; • trends and factors influencing demand and supply, including imports and exports; • the competitiveness of the industry, including competitiveness relative to international competitors, and efforts taken by the domestic industry to enhance competitiveness; and • the impact and effectiveness of existing and recent government and industry programs. 2. I further specify that: • the Commission report on whether the circumstances are such that government and/or industry measures (including regional measures) are necessary to enhance the competitiveness of the industry; and • if so, what measures would be necessary and appropriate. 3. The Commission is to report within 5 months (or earlier) of receipt of this reference and is to hold hearings for the purposes of the inquiry. 4. The Government will consider the Commission’s recommendations and the Government’s response will be announced following consideration of the Commission’s report. PETER COSTELLO [Received 31 August 2004] IV TERMS OF REFERENCE Contents Terms of reference IV Abbreviations and explanations XI Key points XIV Overview XV Findings XXXIV 1 Introduction 1 1.1 Background to this inquiry 1 1.2 Conduct of the inquiry 2 1.3 Report structure 3 2 Australian markets for pigs and pigmeat 5 2.1 Pig and pigmeat products 5 2.2 Production of pigmeat 5 2.3 Consumption of pigmeat 17 2.4 Pig and pigmeat prices 19 2.5 Exports and imports 24 2.6 Profitability 32 3 Framework for assessing industry competitiveness 37 3.1 The competitiveness of businesses and industries 37 3.2 Sources of competitive advantage 38 3.3 Potential indicators of competitiveness 42 4 External factors affecting competitiveness 47 4.1 Delivered cost of imported pigmeat 47 4.2 Feed costs 52 4.3 Government assistance 54 CONTENTS V 5 Internal factors affecting competitiveness 69 5.1 Production technology 69 5.2 Inputs 74 5.3 Risk management 80 6 Government and industry programs in Australia 83 6.1 Framework for establishing the role of government 84 6.2 Government programs to improve competitiveness and economic efficiency in the pigmeat industry 90 6.3 Government programs to facilitate adjustment to economic change in the pigmeat industry 101 6.4 Industry programs 112 7 Potential impediments to improving performance and competitiveness 117 7.1 Imports and overseas assistance 117 7.2 Market access in export markets 119 7.3 Grain prices and availability 123 7.4 Access to genetic material 134 7.5 Labour costs and availability 136 7.6 Labelling laws 137 7.7 Pig size and pigmeat payment systems 140 7.8 Risk management in output and input prices 143 7.9 Access to capital 147 7.10 Animal welfare regulations 148 7.11 Other potential impediments 149 7.12 Conclusion 151 8 Measures to improve industry competitiveness 153 8.1 Industry and business measures to improve competitiveness 153 8.2 Government measures to improve competitiveness 156 8.3 Conclusion 178 9 Outlook for competitiveness 181 VI CONTENTS A Conduct of the inquiry 187 B Supplementary information on Australian markets for pigs and pigmeat 191 B.1 Pigmeat supply chain 191 B.2 Pig and pigmeat prices 196 B.3 Exports and imports 197 B.4 Imported and domestic pigmeat used in secondary processing 200 C Supplementary information on world markets 205 C.1 World pigmeat production, consumption and trade 205 C.2 Country profiles 207 D Correspondence 213 E Producer support estimates 235 E.1 Components of producer support estimates 235 F Summary program information for Australia 239 F.1 Australian Pork Limited programs 240 F.2 Cooperative Research Centre for an Internationally Competitive Pork Industry 242 F.3 Pork Industry Restructure Strategy programs 243 F.4 Export Market Development Grants 247 F.5 Tax provisions 248 F.6 Agriculture — Advancing Australia programs 252 F.7 Exceptional Circumstances drought assistance 256 Attachment I: Programs assisting pigmeat producers in Canada, the European Union and the United States 257 I.1 Executive summary 260 I.2 International production 260 I.3 United States 263 I.4 Canada 266 I.5 European Union 268 I.6 Research, inspection, education and extension services 269 I.7 Outlook 270 I.8 Summary of specific programs 271 References 305 CONTENTS VII BOXES 2.1 Meat consumption and prices 18 2.2 World pig prices 22 2.3 Quarantine measures in Australia 27 2.4 Danish export prices for pigmeat 29 2.5 International trade data 30 3.1 Air freight cost advantages to Asian markets 40 3.2 Costs of production 43 3.3 Understanding pigmeat imports 45 4.1 International grain prices 53 4.2 Fundamentals of foreign industry assistance 55 4.3 The Canadian Agricultural Income Stabilisation program 58 4.4 The competitive structure of the Danish market for pigmeat 66 5.1 Risk and risk aversion 81 6.1 Estimated benefits of quality assurance and product development projects to boost exports to the Singapore market 93 8.1 Structural adjustment in the pigmeat industry 170 C.1 The Danish pigmeat industry 210 FIGURES 2.1 Pig product supply chain 7 2.2 Pig producers and pigmeat production 9 2.3 Distribution of pig producers and breeding sows, by herd size 10 2.4 Number of pigs, by statistical local area 11 2.5 Pig farm employment, by statistical local area 12 2.6 Pig production and the environment 13 2.7 Location of 20 largest pig abattoirs 15 2.8 Turnover and employment in bacon, ham and smallgoods manufacturing 16 2.9 Annual per person consumption of main meats sold in Australia 18 2.10 Australian retail meat prices 19 2.11 Pig contract and saleyard prices 20 2.12 Seasonal baconer contract prices 21 2.13 Retail prices of pork legs, loin chops and bacon 24 2.14 Pigmeat exports from Australia 25 VIII CONTENTS 2.15 Pigmeat imports to Australia 28 2.16 Monthly average export prices for Danish frozen boneless pigmeat 30 2.17 Australian imports of pigmeat from Canada and Denmark 31 2.18 Sales revenue, costs and income of pig producers 33 2.19 Pig-to-feed price ratio 35 4.1 Canadian and Danish pig prices 48 4.2 Value of Australian pigmeat trade (nominal) and exchange rates 50 4.3 Volume of Canadian legs imports to Australia and exchange rates 51 4.4 Volume of total Canadian pigmeat imports to Australia and exchange rates 51 4.5 Volume of Danish middles imports to Australia and exchange rates 52 4.6 Australian grain prices 53 4.7 EU farm gate prices for pigmeat, selected countries 61 4.8 US and Danish cereal prices 64 5.1 Cumulative distribution of pig producer size, Australia and Denmark 72 5.2 Input cost shares in