Download PDF

House: House of Representatives

Portfolio: Primary Industries and Energy

Purpose

To allow the Australian Meat and Live-stock Corporation (AMLC) to establish a system of quotas in respect of the export of meat and livestock where the quotas are necessary to protect the industry. The quotas may be distributed free, by tender, private sale or auction.

Background

The AMLC is a statutory authority established to promote and co-ordinate the operations of the Australian meat and live-stock industry. The AMLC's current powers include to restrict the quantity of meat and live-stock exported from Australia; to prohibit the export of meat and live-stock to particular countries; and to administer meat quotas to a particular country where restrictions are, or in the opinion of the AMLC will be, imposed by either that country or Australia. The AMLC consists of 11 members, including the Chairperson, Managing Director, Government representative and eight other members with relevant qualifications and experience. The AMLC is funded entirely by industry levies. The AMLC operates through a formal planning process based on an annual operating plan and a five year plan. The AMLC consults with the industry on its policies and programs through a committee system and through meetings with industry associations. The AMLC is accountable to the industry through an industry annual general meeting.

In 1986-87, the value of Australian meat and live-stock exports totalled $2.267 billion. The value of exports rose in 1987-88 by $260 million to total $2.527 billion. The value of exports fell by $282 million in 1988-89 to total $2.245 billion 1. Statistics relating to the outlook for Australian meat and live-stock exports are contained in Table 1 below.

Table 1: Outlook for Australian Meat and Live-stock Exports 2

1989-90 Preliminary Estimates of Value of Australian Exports 1990-91 Forecast Estimates of Value of Australian Exports Beef and veal $2.372 billion $2.330 billion Mutton $204 million $252 million Lamb $105 million $114 million Live sheep $95 million $60 million Pig meat $29 million $32 million Poultry meat $2 million $2 million Canned meat $22 million $25 million Total $2.829 billion $2.815 billion

As a member of the `Cairns Group' of nations in GATT talks on international trade, Australia has constantly expressed a preference for a freer world trade environment, particularly in relation to agriculture. In the latter area, Australia's export markets are particularly effected by the European Common Agricultural Policy and the U.S. Export Enhancement Program. These policies provide subsidies to agricultural producers in the countries involved and allow them to offer export prices that are competitive with, or lower than, Australia's largely unsubsidised prices. Increases in European and/or U.S. subsidies could have a significant effect on the prices received for Australian exports and if the increase in subsidy is sufficient, remove Australia as a competitor. This potential effect may be seen as a factor in Australia's `freer trade' stance, and the existence of interference in a `free market' is often used by those opposed to the Cairns Groups views.

Market interference can take many forms, including qualitative and quantitative restrictions and subsidies. While the former category is usually seen in relation to imports, through such measures as tariffs, they can also apply to exports. If a producer can have a significant effect on an international market, the effect of an export quota will be restrict supply and, given a constant demand, increase prices. Whether Australia can have a significant effect on the international meat and live-stock markets is open to great doubt, but the imposition of export quotas while arguing against other forms of market interference may reduce the power of Australia's arguments for freer trade.

Australia's live sheep trade with the Middle East has recently been the subject of considerable media attention. The Middle East region is Australia's largest and most valuable market for live sheep. In 1989-90, the Middle East region purchased 4.4 million live sheep, this was 2.7 million less than for 1988-89 and was due to the disruption of trade with Saudi Arabia 3. Despite this difficulty, Saudi Arabia remained one of Australia's largest live sheep markets taking 1.25 million head (note:this represents a drop of 60% on a total of 3.1 million head exported in 1988-89) 4. In 1989-90, Kuwait became Australia's largest market for live sheep, taking 1.37 million head 5.

Since July 1989, exports of live sheep to the Middle East, and particularly Saudi Arabia, have been disrupted. In July/August of 1989 several shipments of Australian live sheep were rejected by Saudi Arabia on grounds that the animals were diseased. On 22 August 1989, the AMLC announced the resumption of exports to Saudi Arabia under new guidelines/conditions with one of the main conditions being that the bulk of exports be less than three years old. In mid-January 1990, a trial shipment under the new guidelines was successfully completed, and by the end of March 1990, over half a million head under three years old had been shipped to Saudi Arabia. However, in April 1990, there was a further disruption to shipments following Saudi Arabia's rejection of shipments on grounds that the animals were diseased. After a break in shipments of several months, Saudi Arabia accepted a shipment in early September 1990. In November 1990, Saudi Arabia rejected another shipment of live sheep on grounds that the sheep were diseased.

This most recent rejection of a shipment of Australian live sheep involved a shipment of 85 000 sheep. In The Land of 29 November 1990, it is reported that negotiations had taken place with Saudi authorities following rejection of the shipment, but that negotiators had failed to convince the Saudi authorities to accept the sheep. In the same article, the AMLC Middle East livestock manager is reported as saying that the decision to reject the sheep was a disappointment and that it created uncertainty at a time when the industry believed the higher health and sheep quality standards established had overcome Saudi concerns.

In the Financial Review of 29 November 1990, the AMLC chairperson is reported as saying at the AMLC'S annual general meeting, that the rejection of the shipment raised real doubts as to whether Australia ever would be able to satisfy Saudi Arabia's requirements and `...In the face of the tremendous difficulties created by the Saudi rejections, it would be an easy option to walk away from the Saudi trade...'. In addition, the AMLC is reported as saying that if it is decided to persist in the live sheep trade with Saudi Arabia, the industry needed to recognise that the nature of exports to Saudi Arabia was now totally different from 18 months ago and that the industry could no longer look upon it as a bulk trade in old sheep.

In The Australian of 28 November 1990, the annual meeting of the Sheepmeat Council of Australia is reported as accepting the amendments proposed by this Bill. However, the Council is also reported as having criticised the AMLC for not earlier informing producers of the introduction of the Bill. In the same article, the chairman of the AMLC is reported as saying that it had become obvious that some supply restriction through a quota mechanism was required to solve marketing problems between exporters, who now had only one trip a month to Saudi Arabia to be shared among them.

Main Provisions

`Class' is defined in clause 3 to include quality, standard or grade.

`Goods' are defined in clause 3 to be meat or live-stock.

The objects of the Bill are contained in clause 4 and include to allow the AMLC to establish quotas to protect the orderly export of goods where: restrictions are imposed, or in the opinion of the AMLC will be imposed, by a specified country or Australia; or the AMLC considers it in the best interests of the industry.

Clause 5 provides that the AMLC may, by notice in writing to export licence holders, limit the total amount of goods, or goods of a class, that may be exported to a specified county. A licensee who receives a notice, is not to export goods, or goods of a class specified in the notice, to the country referred to in the notice, except in accordance with a quota held by the licensee.

Clause 6 provides that where a limit on exports has been, or is to be imposed, the AMLC may grant: a single quota allowing the holder to make all exports; or two or more quotas allowing each holder to make a specified amount of the exports. The AMLC may grant a quota by auction, tender, private sale, or allocation free of charge. A quota will have effect for the period, not exceeding two years, specified in the quota document. A quota will be subject to any conditions specified in the quota document.

Clause 7 provides that the AMLC is not obliged to sell or allocate a quota of a particular amount, kind, or to a particular person if it is satisfied it is not in the best interests of the industry.

Remarks

Notes on the disruption of the live sheep trade with Saudi Arabia and the effect of Iraq's annexation of Kuwait 6.

Until just recently, there was widespread belief in Australia that the claims by Saudi Arabian officials were rather dubious and not the real reason for the rejections. In addition to the reported unwillingness of the Saudi animal health authorities to allow for independent confirmation of their claims, this view was supported by the fact that many of the sheep rejected by Saudi Arabia were accepted by other Middle East countries. Further, given that the most of the exporters to Saudi Arabia are, in effect, also the importers at that end of the operation, and would have experienced financial losses from the disruption to the trade, it seemed a little difficult to understand how these companies could have so significantly mis-read the market's requirements.

The most recent rejection of a load of live sheep on health grounds seems to have brought a new element to the scene. With the presence of the disease confirmed by the on-board veterinarian, and hence not disputed by Australia, the previous rejections might now be viewed with less suspicion. Given the costs that could be associated with implementing additional measures to ensure the acceptability of future cargoes, exporters are assessing the viability of maintaining the trade.

Prior to August last year, the live sheep market was often viewed primarily as an outlet for older sheep. If the trade continues, then enforcement of the age limitation on sheep destined for Saudi Arabia has the potential to significantly cause a change in the age structure of the national flock. The significant reduction in the number of sheep required for export is likely to be a disincentive to keeping sheep on-farm for as long as was the case previously.

In addition, at three years of age, sheep have far more value for wool than when they are older. Consequently, the difficulties experienced earlier this year by exporters seeking to source supplies for Saudi Arabia may become a regular occurrence unless they are prepared to pay a more competitive price.

Developments in the Gulf will add to the impact of the disruptions to trade with Saudi Arabia. In accordance with United Nations sanctions, exports to Kuwait have ceased following its invasion by Iraq. During the 1980s Kuwait was the second most important market taking about 1.6 million sheep annually in recent years. The AMLC had initially forecast exports to Kuwait of 1.4 million in 1990 but sales are now only expected to total 0.8 million and fall to 0.4 million next year. Exports of live sheep to all destinations in 1990 are now forecast at 4 million increasing to 4.25 million in 1991.

References

1. Australian Bureau of Agricultural and Resource Economics, Agriculture and Resources Quarterly, Volume 2, No. 3, September 1990, p. 370.

2. Ibid.

3. Australian Meat and Live-stock Corporation, Annual Report July 1989-June 1990, p. 26.

4. Ibid.

5. Ibid.

6. Prepared by P. Hicks, Parliamentary Research Service, December 1990.

Bills Digest Service 4 December 1990

Parliamentary Research Service

For further information, if required, contact the Economics and Commerce Group on 06 2772460.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Commonwealth of Australia 1990

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1990.