Australian beef. Financial performance of beef cattle producing farms, to Therese Thompson and Peter Martin. Research report 14.

Australian beef Financial performance of beef cattle producing farms, 2011 12 to 2013 14 Therese Thompson and Peter Martin Research by the Australian Bureau of Agricultural and Resource Economics and Sciences Research report 14.7 August 2014

Commonwealth of Australia 2014 Ownership of intellectual property rights Unless otherwise noted, copyright (and any other intellectual property rights, if any) in this publication is owned by the Commonwealth of Australia (referred to as the Commonwealth). Creative Commons licence All material in this publication is licensed under a Creative Commons Attribution 3.0 Australia Licence, save for content supplied by third parties, logos and the Commonwealth Coat of Arms. Creative Commons Attribution 3.0 Australia Licence is a standard form licence agreement that allows you to copy, distribute, transmit and adapt this publication provided you attribute the work. A summary of the licence terms is available from creativecommons.org/licenses/by/3.0/au/deed.en. The full licence terms are available from creativecommons.org/licenses/by/3.0/au/legalcode. Cataloguing data Thompson, T & Martin, P 2014, Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14, research report prepared for Meat & Livestock Australia, Canberra, August. CC BY 3.0. ISSN 1447 8358 ISBN 978-1-74323 196-8 project 43009 Internet Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14 is available at agriculture.gov.au/abares. Australian Bureau of Agricultural and Resource Economics and Sciences () Postal address GPO Box 1563 Canberra ACT 2601 Switchboard +61 2 6272 3933 Facsimile +61 2 6272 2001 Email info.abares@agriculture.gov.au Web agriculture.gov.au/abares Inquiries about the licence and any use of this document should be sent to copyright@agriculture.gov.au. The Australian Government acting through the Department of Agriculture, represented by the Australian Bureau of Agricultural and Resource Economics and Sciences, has exercised due care and skill in preparing and compiling the information and data in this publication. Notwithstanding, the Department of Agriculture,, its employees and advisers disclaim all liability, including for negligence and for any loss, damage, injury, expense or cost incurred by any person as a result of accessing, using or relying upon information or data in this publication to the maximum extent permitted by law. Acknowledgements relies on the voluntary cooperation of farmers participating in the annual Australian Agricultural and Grazing Industries Survey to provide data used in the preparation of this report. Without their help, the survey would not be possible. farm survey staff collected most of the information presented in this report through on-farm interviews with farmers. The authors also thank Emily Gray, writer of the productivity chapter, and Haydn Valle and Milly Lubulwa for their input and support during the project and in preparing this report.

Contents Summary vii 1 Introduction 1 2 Cattle production 7 Seasonal conditions in 2012 13 and 2013 14 7 Beef cattle turn-off 8 Slaughter and cattle numbers 9 Beef cattle selling methods 10 Grain finishing 11 3 Financial performance 13 Financial performance of northern Australian beef cattle producers 13 Financial performance of live cattle export region 22 Financial performance of southern Australian beef cattle producers 25 On-farm cash costs of beef cattle production 33 4 Farm investment 38 5 Farm debt 42 6 Productivity 49 Survey methods and definitions 52 Glossary 58 References 62 Further information on beef cattle producers 63 Tables Table 1 Distribution of broadacre beef cattle farms, by number of cattle, at 30 June 2 Table 2 Selected physical characteristics, beef cattle producing farms, by region 4 Table 3 Beef cattle herd group, by number of head 6 Table 4 Financial performance, beef cattle producing farms, northern Australia 15 Table 5 Financial performance, beef cattle producing farms, northern Australia, by herd size 18 Table 6 Financial performance, beef cattle producing farms, northern Australia, by zone 21 Table 7 Financial performance, beef cattle producing farms, northern live cattle export region 25 Table 8 Financial performance, beef cattle producing farms, southern Australia 26 iii

Table 9 Financial performance, beef cattle producing farms, southern Australia, by herd size 29 Table 10 Financial performance, beef cattle producing farms, southern Australia, by zone 31 Table 11 Cash costs of beef production, by region, 2012 13p 34 Table 12 Cash costs of beef production, by herd size, 2012 13p 35 Table 13 Distribution of northern beef cattle producing farms, by farm business debt and equity ratio, at 30 June 2013ap 45 Table 14 Distribution of southern beef cattle producing farms, by farm business debt and equity ratio, at 30 June 2013ap 46 Table 15 Average annual broadacre productivity growth by industry, 1977 78 to 2011 12 50 Table 16 Average annual beef total factor productivity growth, 1977 78 to 2011 12 50 Figures Figure 1 Beef cattle branding rate, 1994 95 to 2012 13p 5 Figure 2 Beef cattle turn-off rate, 1994 95 to 2013 14y 5 Figure 3 Beef cattle turn-off, Australia, 1994 95 to 2013 14f 8 Figure 4 Beef cattle stocking rates, 1994 95 to 2012 13p 9 Figure 5 Beef cattle numbers, slaughter numbers and saleyard prices, Australia, 1994 95 to 2013 14f 9 Figure 6 Method of selling beef cattle, southern Australia, 1994 95 to 2012 13p 10 Figure 7 Method of selling beef cattle, northern Australia, 1994 95 to 2012 13p 11 Figure 8 Farm receipts, northern beef cattle producing farms, 1994 95 to 2013 14y 13 Figure 9 Cash costs beef cattle producers, northern Australia, 1994 95 to 2013 14y 14 Figure 10 Composition of farm costs, beef cattle producing farms, 2010 11 to 2012 13 14 Figure 11 Financial performance, beef producing farms, northern Australia, 1994 95 to 2013 14y 16 Figure 12 Financial performance, beef producing farms, northern live cattle export region, 1994 95 to 2013 14y 24 Figure 13 Farm cash income, beef cattle producing farms, 1994 95 to 2013 14y 24 Figure 14 Farm cash receipts, southern beef cattle producing farms, 1994 95 to 2013 14y 27 iv

Figure 15 Composition of cash costs, beef cattle producers, southern Australia, 1994 95 to 2013 14y 27 Figure 16 Financial performance, beef producing farms, southern Australia, 1994 95 to 2013 14y 28 Figure 17 Farm cash income, beef producers, southern Australia, 1994 95 to 2013 14y 33 Figure 18 Unit cost of beef production (live weight basis), northern Australia, by herd size, 2012 13p 36 Figure 19 Unit cost of beef production (live weight basis), southern Australia, by herd size, 2012 13p 36 Figure 20 Proportion of beef producing farms acquiring land, Australia, 1994 95 to 2012 13p 38 Figure 21 Land prices, beef cattle producing farms, 1994 95 to 2012 13p 39 Figure 22 Net investment in vehicles, machinery and farm improvements, northern Australian beef producing farms, 1994 95 to 2012 13p 40 Figure 23 Net investment in vehicles, machinery and farm improvements, southern Australian beef producing farms, 1994 95 to 2012 13p 41 Figure 24 Composition of farm business debt, northern Australian beef producing farms, 1993 94 to 2012 13p 42 Figure 25 Composition of farm business debt, southern Australian beef producing farms, 1993 94 to 2012 13p 42 Figure 26 Proportion of beef cattle producing farms increasing farm business debt, 1994 95 to 2012 13p 43 Figure 27 Ratio of interest payments to total cash receipts, beef cattle producing farms, 1994 95 to 2013 14y 47 Figure 28 Debt servicing and borrowing capacity, northern Australian beef cattle producing farms, 1993 94 to 2013 14y 48 Figure 29 Debt servicing and borrowing capacity, southern Australian beef cattle producing farms, 1993 94 to 2013 14y 48 Figure 30 Beef industry total factor productivity growth, 1977 78 to 2011 12 51 Maps Map 1 Australian beef cattle industry 3 Map 2 Australian rainfall percentiles, 1 July 2012 to 30 June 2013 7 Map 3 Australian rainfall percentiles, 1 July 2013 to 30 June 2014 7 Map 4 Australian broadacre zones 20 Map 5 Northern Australian live cattle export region 22 Map 6 Proportion of total farm cash receipts from sale of beef cattle for live export 23 v

Map 7 Australian broadacre zones and regions 56 Map 8 Australian Dairy Industry Survey regions, New South Wales and Victoria 57 Boxes Box 1 Major financial performance indicators 13 Box 2 productivity estimates 49 vi

Summary Around 27 000 Australian broadacre farms each run more than 100 beef cattle. This report classifies these farms as beef cattle producing farms. Around two-thirds of these farms derive most of their farm receipts from sales of beef cattle. Around one-third are mixed enterprises, deriving a large proportion of their receipts from cropping, sheep, lambs and wool as well as from the sale of beef cattle. The average financial performance of Australian beef cattle producing farms is estimated to have declined in 2013 14. This is a result of lower beef cattle prices, as beef cattle turn-off increased in response to continued dry seasonal conditions and historically high beef cattle numbers in northern Australia. In addition, lower grain production in Queensland and northern New South Wales further reduced farm receipts in 2013 14 for mixed enterprise producers. In northern Australia, average farm cash income of beef cattle producing farms is estimated to have declined from an average of $86 600 a farm in 2012 13 to $49 000 a farm in 2013 14, around 48 per cent below the average for the 10 years ending 2012 13, in real terms. Increased beef cattle turn-off is estimated to have reduced beef cattle numbers and the value of cattle inventories. As a consequence, farm business profit is estimated to have declined sharply from an average of -$6100 a farm in 2012 13 to -$63 000 a farm in 2013 14. In southern Australia, average farm cash income of beef cattle producing farms is estimated to have increased from an average of $78 200 a farm in 2012 13 to $85 000 a farm in 2013 14, around 12 per cent above the average for the 10 years ending 2012 13. However, reduction in beef cattle numbers as turn-off increased lowered the value of cattle inventories and farm business profit. Farm business profit is estimated to have declined from an average of -$900 a farm in 2012 13 to -$9000 a farm in 2013 14. Around 17 700 beef cattle producing farms in Australia earn most of their total farm receipts from sales of beef cattle. Most of these producers, termed specialist beef cattle producers in this report, are in southern Australia. Farm cash income of specialist beef cattle producers in southern Australia is estimated to have increased from an average of $28 800 a farm in 2012 13 to $35 000 a farm in 2013 14 around 21 per cent below the average for the previous 10 years. Farm business debt decreased in 2012 13; however, a small increase in farm debt is expected in 2013 14. In northern Australia, increases in farm debt (from borrowing for farm investment over the past 15 years), accumulated business losses and declines in farm receipts in recent years have increased the proportion of farm receipts needed to meet interest payments. In 2013 14 the ratio of interest payments to farm receipts is estimated to have been 13 per cent in northern Australia. The ratio in southern Australia is estimated to have been much lower at around 6 per cent. In 2013 14 more than 90 per cent of Australian beef cattle producing farms had relatively high farm equity. At 30 June 2013 farm business equity ratios averaged 89 per cent in northern Australia and 91 per cent in southern Australia. However, lower farm cash income and reduced land values have resulted in increased financial pressure on many farm businesses, particularly those affected by drought in northern Australia and northern New South Wales. The proportion of beef cattle producing farms with relatively little capacity for further borrowing and high debt servicing commitments is expected to increase to around 12 per cent in 2013 14, a level last recorded in the late 1990s, when beef cattle prices were historically low. vii

1 Introduction Around 55 per cent of all Australian farms carry beef cattle (ABS 2014), making this the most common and most widely dispersed agricultural activity in Australia; beef cattle farms are an important part of rural communities and economies in almost all regions. In addition, farms running beef cattle manage more than 75 per cent of the total area of agricultural land in Australia. This report presents the detailed financial performance of beef cattle producing farms from 2011 12 to 2013 14 and discusses recent farm financial performance and productivity in a historical context. The report draws on data from the annual Australian Agricultural and Grazing Industries Survey (AAGIS) to provide an overview of production, financial performance and productivity growth of the Australian beef cattle industry. Meat & Livestock Australia funded the preparation of this report and contributed to funding of AAGIS. uses the latest data to produce estimates for this report, ensuring that estimates are revised as new information becomes available. The latest AAGIS data were collected between July and December 2013. Farm businesses with fewer than 100 head of beef cattle are excluded from the analysis in this report. Farm businesses with fewer than 100 head of cattle represent just 2 per cent of the national beef cattle herd and contribute around 3 per cent to the total value of beef cattle sales (Table 1). Specialist feedlots are mainly involved in feeding cattle in a confined area with feed mostly purchased from other producers. Unlike the farm businesses included in this report, specialist feedlots have minimal involvement in cattle grazing or cattle breeding. Farm businesses finishing more than 5000 cattle on grain for more than 70 days have been excluded from this report to remove specialist feedlots and ensure a consistent definition of beef producers over the period for which AAGIS data are available. Since 2006 specialised feedlots have been listed in a separate Australian and New Zealand Standard Industrial Classification (ANZSIC06) in Australian Bureau of Statistics collections; they are no longer included in the broadacre group of industries surveyed in AAGIS. 1

Table 1 Distribution of broadacre beef cattle farms, by number of cattle, at 30 June average between 2010 11 and 2012 13 Herd size Northern Australia Average number of farms (no.) Share of farms (%) Share of beef cattle (%) Share of value of cattle sales (%) <100 head 580 7 0 1 100 200 head 1 250 14 1 2 200 400 head 1 500 17 3 4 400 800 head 1 970 23 9 10 800 1 600 head 1 460 17 13 14 1 600 5 400 head 1 520 18 32 34 >5 400 head 350 4 41 35 Total 8 630 100 100 100 Southern Australia <100 head 5 810 25 4 6 100 200 head 5 800 24 11 11 200 400 head 6 680 28 24 22 400 800 head 3 650 15 26 25 800 1 600 head 1 320 6 17 16 1 600 5 400 head 410 2 13 12 >5 400 head 40 0 5 7 Total 23 710 100 100 100 Australia <100 head 6 390 20 2 3 100 200 head 7 050 22 5 6 200 400 head 8 180 25 11 13 400 800 head 5 620 17 15 17 800 1 600 head 2 780 9 15 15 1 600 5 400 head 1 930 6 25 23 >5 400 head 390 1 27 21 Total 32 340 100 100 100 Note: Excludes major feedlots. Northern and southern Australia This report presents the performance of beef cattle producing farms in northern Australia and southern Australia separately. Northern Australia is defined as northern Western Australia, the Northern Territory and Queensland. The remainder of Australia, including southern Western Australia, South Australia, New South Wales, Victoria and Tasmania, is defined as southern Australia (Map 1). In the three years ending 2012 13, northern Australia had more than 8600 beef cattle producing farms. Around 97 per cent of these farm businesses were in Queensland, 2 per cent in the Northern Territory and 1 per cent in Western Australia. Farm businesses with the greatest reliance on the sale of live export cattle are in the far northern and western extremes of northern Australia. 2

Map 1 Australian beef cattle industry Note: Regions based on aggregations of ABS statistical local areas. Northern Australia and southern Australia have marked differences in climate, pastures, industry infrastructure and proximity to markets. This has affected the development and nature of the beef industry and associated farm businesses in each region over the past 20 years. The beef cattle industry in Queensland focuses primarily on beef export markets, whereas farm businesses in the upper Northern Territory and northern Western Australia focus on the live cattle export trade. In contrast, production in the southern states is spread more evenly between the beef export market and the domestic beef market (Gleeson et al. 2012). Rainfall in northern Australia is dominated by monsoon systems that create a distinct wet season (usually September to March) and dry season (usually April to October). This limits the growing season for pastures and, unlike southern Australia, makes it difficult to finish cattle for markets in one production year. Rainfall is not uniform. The intensity of wet and dry seasons varies depending on latitude, topography and distance from the coast. More variable quantity and lower quality of pasture in most northern areas results in lower stocking rates and more extensive production systems than in southern Australia, on average (Table 2). Improved pastures in many southern beef cattle producing areas and the production of fodder crops allow for much higher stocking rates. Remote locations in the north make some management practices (such as short-term supplementary feeding to deal with poor seasonal conditions) less cost effective than in southern Australia. An important part of normal management practice and response to differing seasonal conditions across northern Australia is the transfer of beef cattle between the individual landholdings of large family-owned and corporate farm businesses. Transferring cattle between holdings in different regions often provides significant flexibility in managing variable seasonal and market conditions. Data tables in this report include transfers into and out of farm businesses. 3

Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 4 Table 2 Selected physical characteristics, beef cattle producing farms, by region average per farm Physical characteristics unit Northern Australia Southern Australia 2011 12 2012 13p 2013 14y 2011 12 2012 13p 2013 14y Area operated at 30 June ha 22 692 22 663 (11) 22 169 6 050 6 013 (11) 6 255 Beef cattle numbers at 30 June no. 1 596 1 478 (4) 1 436 424 404 (4) 410 Calves branded no. 471 426 (4) 423 173 159 (4) 170 Beef cattle purchases no. 65 53 (15) 46 39 26 (15) 27 Branding rate % 73 70 (2) na 89 89 (1) na Beef cattle sold no. 415 392 (5) 428 177 163 (4) 184 Within-year change in cattle numbers % 3 1 (83) 1 6 3 (29) 1 Area planted to crops ha 96 105 (11) 65 258 225 (13) 188 Sheep numbers at 30 June no. 294 229 (33) 225 1 300 1 155 (10) 1 195 Stocking rate hectares per large stock unit ha 13 14 (11) na 7 7 (12) na Cattle turn-on rate % 6 5 (13) 5 10 7 (15) 7 Cattle turn-off rate % 30 30 (4) 32 43 41 (3) 45 p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate.

1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p 2013 14y 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14 Figure 1 Beef cattle branding rate, 1994 95 to 2012 13p 100 80 Southern Australia Northern Australia 60 40 20 % p Preliminary estimate. Note: Branding rate is defined as the number of calves marked as a proportion of cows mated. Branding rates (calves branded as a percentage of cows mated) are typically lower and more variable in the north than in southern Australia, reflecting less favourable pasture conditions. According to AAGIS data, branding rates in northern Australia averaged 71 per cent for the 10 years ending 2012 13, compared with 86 per cent in southern Australia (Figure 1). Slower growth rates and lower branding percentages for cattle in northern Australia result in lower average turn-off rates. According to AAGIS data, turn-off rates (cattle sold or transferred off-farm as a percentage of the average herd size) averaged 32 per cent in northern Australia for the 10 years ending 2013 14, compared with 45 per cent in southern Australia (Figure 2). Figure 2 Beef cattle turn-off rate, 1994 95 to 2013 14y 60 50 40 Southern Australia Northern Australia 30 20 10 % p Preliminary estimate. y Provisional estimate. 5

To be economically viable northern properties tend to be much larger in terms of average herd size and the area of land operated than properties in the south. For example, in northern Australia 86 per cent of the beef cattle herd is on properties with more than 800 head of beef cattle, while in southern Australia only 35 per cent of the beef cattle herd is on properties with more than 800 head of beef cattle (Table 1). The main breeds of cattle in northern Australia are Bos indicus. Over recent decades, the proportion of Bos indicus in the region has increased as producers introduced and selected cattle better suited for beef production in tropical conditions. In southern Australia, British and European Bos taurus breeds, such as the Angus and Hereford, remain dominant. To provide an insight into the performance of the beef cattle industry, divides farm businesses with different scales of operation into four groups small, medium, large and very large based on the size of their beef cattle herd in each year the farm business was surveyed. Beef cattle producers operate significantly larger properties in northern Australia than their counterparts in southern Australia. For this reason, different sized groups have been used in these regions to enable meaningful analysis of financial performance by scale (Table 3). Table 3 Beef cattle herd group, by number of head Herd size Northern Australia Southern Australia Small 100 400 100 200 Medium 400 1 600 200 400 Large 1 600 5 400 400 800 Very large >5 400 >800 In this report farm businesses with more than 100 head of beef cattle are classified as specialist beef cattle producing farms if they earned, on average, more than 50 per cent of total farm receipts from the sale of beef cattle in the previous three years. Between 2010 11 and 2012 13 an average of 18 300 farms were classified as specialist beef cattle producers. Between 2010 11 and 2012 13, 86 per cent of beef cattle producing farms in northern Australia were classified as specialist beef cattle producers. In southern Australia, the number of specialist beef cattle producers and mixed enterprise producers is more even; between 2010 11 and 2012 13 around 60 per cent of beef cattle producing farms were classified as specialist producers. For this reason, some separate tabulation and analysis of financial performance is provided for specialist beef cattle producers in southern Australia. 6

2 Cattle production Seasonal conditions in 2012 13 and 2013 14 In 2012 13 below average rainfall through winter, spring and summer reduced pasture and crop growth in all states. In northern Australia, the wet season failed and by autumn dry conditions extended across most of the continental interior. Rainfall along coastal margins of New South Wales and Queensland was higher, providing adequate grazing conditions in these regions (Map 2). Map 2 Australian rainfall percentiles, 1 July 2012 to 30 June 2013 Note: Percentiles is a way of dividing sorted data (in this case rainfall data) into 100 equal parts. The 10th percentile represents the lowest 10 per cent of the data and the 90th percentile represents the top 10 per cent of the data. Source: Bureau of Meteorology In 2013 14 a continuation of dry seasonal conditions through summer led to below average seasonal conditions for most beef cattle producing farms. Drought conditions worsened in Queensland, northern New South Wales and northern pastoral South Australia (Map 3). In the second half of 2013 14, seasonal conditions improved slightly in the Northern Territory, northern Western Australia, Cape York, southern New South Wales, Victoria, Tasmania and South Australia. Map 3 Australian rainfall percentiles, 1 July 2013 to 30 June 2014 Note: Percentiles is a way of dividing sorted data (in this case rainfall data) into 100 equal parts. The 10th percentile represents the lowest 10 per cent of the data and the 90th percentile represents the top 10 per cent of the data. Source: Bureau of Meteorology 7

1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13 2013 14f Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14 Beef cattle turn-off Widespread, above average grazing conditions after 2010 11 resulted in an increase in saleyard prices of beef cattle. This was the result of strong restocker demand as available cattle were redistributed between farms and regions with abundant grazing. Turn-off of cattle for slaughter slowed sharply in 2010 11 as rebuilding of cattle herds commenced in southern Australia (Figure 2 and Figure 3) and branding rates rose (Figure 1). With the continuation of above average grazing conditions in 2011 12, transactions of cattle between farms slowed, calf brandings rose, turn-off rates declined further and cattle numbers on farms increased further. Figure 3 Beef cattle turn-off, Australia, 1994 95 to 2013 14f 12 10 8 6 4 2 m 45 40 35 30 25 20 15 10 5 % Live cattle exported Cattle and calves slaughtered Turn-off rate (right axis) f forecast. Source: Australian Bureau of Statistics According to AAGIS data, between 2009 10 and 2011 12 stocking rates on beef cattle producing farms in northern Australia were the highest in the 20 years to 2009 10 and were also relatively high in southern Australia (Figure 4). Turn-off of beef cattle increased significantly in 2012 13 (Figure 3), when failure of the northern wet season reduced pasture availability across a large area of northern Australia and particularly western Queensland. Saleyard throughput and cattle slaughter surged across the eastern states during the last quarter of 2012 13, leading to a fall in prices for slaughter age cattle. Adding further pressure on markets, relatively few producers were in a position to increase stocking, with widespread dry conditions resulting in lower demand from producers for younger cattle for restocking (Map 3). Continued dry seasonal conditions resulted in a further increase in beef cattle turn-off in 2013 14 (Figure 3). Saleyard prices for all classes of cattle continued to fall during 2013 14 and the weighted average saleyard prices for 2013 14 declined to the lowest recorded since 1997 98, and 16 per cent below the 10-year average to 2012 13, in real terms (Figure 5). Factors contributing to downward pressure on the average saleyard price include higher numbers of cattle being offered for sale, an increased share of (lower value) cows in total sales and poorer condition of animals offered for sale. As in the previous financial year, few producers in 2013 14 were in a position to restock, resulting in lower demand for younger store cattle. 8

1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13 2013 14f 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14 Figure 4 Beef cattle stocking rates, 1994 95 to 2012 13p 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 stock units/ha Southern Australia Northern Australia p Preliminary estimate. Figure 5 Beef cattle numbers, slaughter numbers and saleyard prices, Australia, 1994 95 to 2013 14f 30 25 20 15 10 5 m 450 400 350 300 250 200 150 100 50 2013 14 Ac/kg Beef cattle numbers Cattle and calves slaughtered Saleyard price (right axis) f forecast. Source: ; Australian Bureau of Statistics Slaughter and cattle numbers Australian cattle and calf slaughter is forecast to increase by 13 per cent in 2013 14, the highest since 1978 79 (Figure 5). This reflects a 21 per cent increase in female cattle slaughter, a 5 per cent increase in male cattle slaughter and an 11 per cent increase in calf slaughter. Dry seasonal conditions prompted destocking in eastern Australia, with the number of cattle slaughtered in 2013 14 as a proportion of average herd numbers forecast to be 37 per cent, the highest since 1998 99. 9

1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14 Similarly, the total number of cattle slaughtered or sold for live export in 2013 14 as a proportion of average herd numbers is forecast to be 42 per cent, the highest in more than two decades. The beef cattle herd is estimated to have fallen by 4 per cent in 2013 14 to 25.4 million head, reflecting increased cattle slaughter, increased live exports and lower calving. Since early 2013 poorer seasonal conditions in eastern Australia have resulted in many producers not having sufficient pasture to support large herds built up during previous years when seasonal conditions were more favourable. As a result, many older cattle have been sent to slaughter and fewer younger cattle have been purchased as replacements. Beef cattle selling methods Australian beef cattle producers sell cattle primarily through auction, in the paddock and over the hooks. AAGIS data indicate significant differences between the preferred method of sale for northern and southern Australian producers. In southern Australia, the auction system remained the main method of sale in 2012 13, representing 66 per cent of total beef cattle sales (Figure 6). Auction sales are most favoured by producers who have smaller herds and who sell in small lot sizes, particularly in southern Australia. These producers are generally located closer to settled areas so distances to saleyards and freight costs are relatively small. These areas also produce and trade a range of cattle types, including store, finished and stud, which can be sold at auction. Figure 6 Method of selling beef cattle, southern Australia, 1994 95 to 2012 13p 100% 80% 60% Other Over hooks Paddock Auction 40% 20% 0% p Preliminary estimate. Note: Live export cattle sales are mostly paddock sales over the scales. Because of changes in data collected, consistent results cannot be provided for 2002 03 to 2004 05. Producers with larger herd sizes are more likely to sell over the hooks or in the paddock because they can generate larger sale numbers. Direct methods of sale, such as over the hooks, can also reduce carcass damage and loss of meat quality caused by the additional handling involved in saleyard and auction sales. In northern Australia, in 2012 13 the proportion of cattle sold at auction increased to 41 per cent and the proportion sold over the hooks decreased to 31 per cent. The proportion 10

1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14 sold in the paddock decreased slightly to 27 per cent (Figure 7). In northern Australia, the proportion of cattle sold over the hooks has typically exceeded the proportion sold through auction over the long term. However, since 2010 11 the proportion of cattle sold at auction has exceeded the proportion sold over the hooks. This change has mainly resulted from an increase in the proportion of cattle turn-off sold at auction by farms in the Queensland wheat sheep zone (Map 4). Farms in the Queensland wheat sheep zone account for 40 per cent of total cattle turnoff in northern Australia. Increase in the share of auction sales is also likely to reflect a larger number of cattle sold to major feedlots for finishing since 2011 12. Figure 7 Method of selling beef cattle, northern Australia, 1994 95 to 2012 13p 100% 80% 60% Other Over hooks Paddock Auction 40% 20% 0% p Preliminary estimate. Note: Live export cattle sales are mostly paddock sales over the scales. Because of changes in data collected, consistent results cannot be provided for 2002 03 to 2004 05. Grain finishing In the three years to 2012 13, around 4 per cent of southern Australian and 3 per cent of northern Australian beef cattle producers used grain to finish beef cattle for sale. In both regions, grain-finishing farms, on average, operated a smaller area than non-grain finishing farms. Despite operating on a smaller area, grain-finishing farms sold significantly more cattle than non-grain finishing farms. AAGIS results indicate most beef cattle producers in northern Australia who used grain to finish cattle for sale were in south-eastern and central Queensland. In northern Australia, the proportion of beef cattle producers using grain to finish beef cattle decreased significantly from around 7 per cent in 2007 08 to just 2 per cent in 2011 12 but increased to 3 per cent in 2012 13. Several factors may have contributed to the decrease, including improved pasture availability and a reduction in turn-off rates between 2009 10 and 2011 12. Drier seasonal conditions in 2012 13, increased turn-off, lower saleyard prices and a higher proportion of younger store cattle available resulted in an increase in the proportion of farms grain finishing cattle. In addition, farms that did grain finish sold a higher proportion of grain-finished cattle than in previous years. In the north, the margin increased slightly between the average price received for cattle sold directly for slaughter by grain-finishing farms and non-grain finishing farms. In 2011 12 cattle 11

sold for slaughter by grain finishing farms received an average of around $91 a head more than cattle sold for slaughter by non-grain finishing farms. During 2012 13 grain finishing farms received $123 a head more for cattle sold for slaughter. Similarly, the proportion of farms using grain to finish beef cattle for sale in southern Australia fell from around 6 per cent in 2010 11 to 2 per cent in 2011 12 and increased slightly to 3 per cent in 2012 13. In contrast to northern Australia, the average proportion of cattle finished on grain decreased significantly in 2012 13. The margin between the average price received for cattle sold directly to slaughter by grain-finishing and non-grain finishing farms narrowed, from an average premium of around $236 a head for grain-finished farms in 2011 12 to $139 a head in 2012 13. In part, the narrowing of the price premium is likely to be because of a reduction in the average time that cattle were fed on grain. 12

1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p 2013 14y Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14 3 Financial performance Financial performance of northern Australian beef cattle producers Farm cash income In 2012 13 average farm cash receipts (Box 1) for northern Australian beef cattle producers declined by 10 per cent, mainly as a result of reduced receipts for cattle sold for slaughter and live export (Figure 8). The decline was the result of a 12 per cent reduction in average sale prices for beef cattle caused by an increased supply of cattle and the sale of lower value cattle. The reduction in farm receipts was partially offset by a reduction in the number of beef cattle purchased in 2012 13, resulting in a 29 per cent fall in expenditure on beef cattle purchases (Figure 9) and a 38 per cent reduction in the value of beef cattle transferred in. Despite this reduction and a 15 per cent reduction in interest payments as a result of lower interest rates, in 2012 13 average farm cash income of northern Australian beef cattle producing farms declined by 14 per cent to an average of $86 600 a farm (Table 4). Figure 8 Farm receipts, northern beef cattle producing farms, 1994 95 to 2013 14y 800 700 600 500 400 300 200 100 2013 14 $ 000 Other cash receipts Total crop receipts Sheep, lambs and wool sales Beef cattle sales for live export Beef cattle sales p Preliminary estimate. y Provisional estimate. Box 1 Major financial performance indicators Total cash receipts: total revenues received by the business during the financial year Total cash costs: payments made by the business for materials and services and for permanent and casual hired labour (excluding owner manager, partner and family labour) Farm cash income: total cash receipts total cash costs Farm business profit: farm cash income + change in trading stocks depreciation imputed labour costs Profit at full equity: return produced by all the resources used in the business farm business profit + rent + interest + finance lease payments depreciation on leased items Rate of return to total capital used: efficiency of businesses in generating returns from all resources used (profit at full equity/total opening capital) x 100 Rate of return to owners equity: efficiency of businesses in generating profit from capital invested by owners (farm business profit/farm business equity) x 100 13

1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p 2013 14y Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14 Figure 9 Cash costs beef cattle producers, northern Australia, 1994 95 to 2013 14y 800 700 600 500 400 300 200 100 2013 14 $ 000 Overhead costs Interest paid Variable costs Beef cattle purchases Total cash receipts p Preliminary estimate. y Provisional estimate. On average, beef cattle purchases are the largest cash cost of beef cattle producing farms. As a consequence of increases in farm debt over the decade to 2009 10, interest payments are now the second largest cash cost of beef cattle producing farms in northern and southern Australia (Figure 10). Average total cash costs decreased in 2011 12 and 2012 13 to resemble those recorded in the late 1990s, in real terms (Figure 9). Figure 10 Composition of farm costs, beef cattle producing farms, 2010 11 to 2012 13 average per farm Livestock purchases and transfers Interest paid Repairs and maintenance Freight, handling and marketing Fuel, oil and lubricants Wages for hired labour Fodder Contracts Administrative costs Rates Livestock materials and chemicals Crop and pasture chemicals Land rent Fertiliser Shearing and crutching Other services Other materials Other cash costs Value of owner manager and family labour cost Depreciation % 5 10 15 20 Northern Australia Southern Australia 14

In 2013 14 continued dry seasonal conditions in northern Australia led to a further increase in beef cattle turn-off. However, lower average sale prices for beef cattle are estimated to have more than offset the increase in turn-off, resulting in average beef cattle receipts declining by around 2 per cent for northern beef producing farms. Grain receipts for mixed enterprise farms in Queensland are also estimated to have decreased, leading to lower average farm cash receipts in 2013 14 (Table 4). Despite further reductions in expenditure on beef cattle, average farm cash costs increased mainly because of higher expenditure on fodder. The reduction in beef cattle receipts and increased expenditure are estimated to have resulted in average farm cash income of beef cattle producing farms in northern Australia declining further to average $49 000 a farm in 2013 14. This is around 48 per cent below the average for the previous 10 years, in real terms (Figure 11). Table 4 Financial performance, beef cattle producing farms, northern Australia average per farm Farm cash receipts unit 2011 12 2012 13p 2013 14y Beef cattle sales total $ 322 470 270 200 (5) 265 000 Beef cattle sales live export $ 17 450 11 100 (25) 10 000 Value of cattle transferred out $ 29 170 24 300 (14) 24 000 Sheep, lambs and wool sales $ 12 600 8 700 (31) 8 000 Total crop receipts $ 29 960 49 100 (16) 22 000 Total cash receipts $ 421 010 380 000 (5) 347 000 Farm cash costs Beef cattle purchases $ 46 160 32 700 (11) 25 000 Beef cattle transferred in $ 16 430 10 200 (23) 14 000 Wages for hired labour $ 18 530 16 300 (9) 15 000 Fodder $ 14 380 19 700 (9) 34 000 Fuel, oil and lubricants $ 22 660 22 600 (4) 24 000 Repairs and maintenance $ 32 800 31 700 (5) 31 000 Contracts $ 15 520 15 700 (8) 14 000 Freight, handling and marketing $ 24 360 25 400 (7) na Interest paid $ 46 400 39 300 (9) 39 000 Total cash costs $ 319 810 293 400 (5) 298 000 Farm capital and debt Total capital at 30 June $ 5 892 400 5 500 800 (3) na Farm business debt at 30 June $ 644 010 577 400 (9) 588 000 Equity ratio at 30 June % 88 89 (2) na Farm financial performance Farm cash income $ 101 200 86 600 (12) 49 000 Farm business profit $ 37 990 6 100 (150) 63 000 Profit at full equity $ 87 520 36 700 (26) 21 000 Rate of return Return on capital excluding capital appreciation % 1.5 0.7 (26) 0.5 Return on capital including capital appreciation % 0.5 2.0 (29) na p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. 15

1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p 2013 14y Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14 Farm business profit and rates of return Farm cash income is a measure of cash funds generated by the farm business for farm investment and consumption after paying all costs incurred in production, including interest payments but excluding capital payments and payments to family workers. It is a measure of short-term farm performance because it does not take into account depreciation or changes in farm inventories. A measure of longer term profitability is farm business profit, as it takes into account capital depreciation and changes in inventories of livestock, fodder, grain and wool. Reductions in herd sizes on many farms in northern Australia as a result of increased cattle turnoff will result in a reduction in the value of cattle inventories. As a consequence, farm business profit of beef cattle producing farms in northern Australia is estimated to have declined from an average of -$6100 a farm in 2012 13 to -$63 000 a farm in 2013 14 (Figure 11). Figure 11 Financial performance, beef producing farms, northern Australia, 1994 95 to 2013 14y 250 200 150 Farm cash income Farm business profit 100 50 2013 14 $ 000-50 - 100 p Preliminary estimate. y Provisional estimate. Profit at full equity, also referred to as earnings before interest and taxes (EBIT), adjusts farm business profit by adding back interest and leasing expenditure so that the performance of all farms can be compared regardless of the financing arrangements in place. For northern beef cattle producing farms, profit at full equity averaged $87 520 in 2011 12, declined to $36 700 in 2012 13 and is estimated to have declined further to -$21 000 in 2013 14. Rate of return on total capital used (profit at full equity expressed as a percentage of total capital) averaged 1.5 per cent in 2011 12, 0.7 per cent in 2012 13 and is estimated to have declined to -0.5 per cent in 2013 14. Reductions in land values resulted in small negative average rates of return on total capital used when capital appreciation is included in both 2011 12 and 2012 13. Financial performance by herd size Farm financial performance varies between producers with different herd sizes. Generally, farm cash incomes, farm business profits and rates of return are higher for producers with larger herd sizes (Table 5). In 2013 14 small herd size farms are estimated to have the lowest rate of return (excluding capital appreciation) at 5.0 per cent, medium herd size producers -1.0 per cent, large herd size producers 0.3 per cent, while very large herd size producers are estimated to have a rate of return of 3.1 per cent. 16

Very large herd size producers are estimated to have a rate of return on total capital of 3.1 per cent in 2013 14. Despite a small reduction in average profit at full equity for this group, this profit is still expected to be more than $500 000, remaining well above the average for other herd size groups. In 2013 14, rate of return increases for this group are a result of slightly lower profit being expressed as a percentage of a much lower total capital value for this group during 2012 13. This was the result of a reduction in land values in northern Australia and lower cattle inventory values. Reduced farm cash income and farm business profit are estimated for all herd size groups in 2013 14. Farm business profit is estimated to have declined as a result of lower values of cattle inventories on farms because of increased turn-off, slower growth in cattle numbers on some farms in northern Australia and reductions in cattle numbers on others. However, high average beef receipts are estimated for small and medium herd size producers because high turn-off more than offset low cattle prices. 17

18 Table 5 Financial performance, beef cattle producing farms, northern Australia, by herd size average per farm Farm cash receipts unit Small Medium 2011 12 2012 13p 2013 14y 2011 12 2012 13p 2013 14y Beef cattle sales total $ 66 630 52 200 (14) 55 000 212 220 169 100 (9) 187 000 Beef cattle sales live export $ 420 100 1 000 450 100 (55) 1 000 Value of cattle transferred out $ 0 0 0 2 900 0 300 Sheep, lambs and wool sales $ 10 830 9 300 (74) 10 000 15 470 9 100 (30) 8 000 Total crop receipts $ 17 870 53 400 (50) 6 000 21 540 39 200 (18) 31 000 Total cash receipts $ 103 840 126 200 (28) 81 000 282 320 246 400 (7) 254 000 Farm cash costs Beef cattle purchases $ 11 530 11 200 (30) 8 000 29 290 24 700 (19) 24 000 Beef cattle transferred in $ 0 0 0 710 1 000 (88) 2 000 Wages for hired labour $ 550 1 700 (71) 1 000 5 490 4 800 (27) 5 000 Interest paid $ 11 260 11 200 (30) 10 000 30 300 28 700 (14) 27 000 Total cash costs $ 86 760 104 300 (18) 91 000 203 330 197 000 (7) 225 000 Farm capital and debt Total capital at 30 June $ 2 100 630 2 013 800 (12) 1 776 000 4 584 900 4 205 100 (6) 4 144 000 Farm business debt at 30 June $ 144 860 171 500 (30) 162 000 399 560 417 300 (14) 406 000 Equity ratio at 30 June % 93 91 (2) na 91 90 (2) na Farm financial performance Farm cash income $ 17 080 21 800 (82) 10 000 78 990 49 400 (23) 29 000 Farm business profit $ 43 970 36 200 (45) 81 000 2 780 17 100 (58) 78 000 Profit at full equity $ 32 390 24 600 (73) 70 000 36 510 15 300 (59) 47 000 Rate of return Return on capital excluding capital appreciation % 2.0 1.0 (83) 5.0 0.8 0.4 (59) 1.0 Return on capital including capital appreciation % 2.0 2.0 (47) na 0.3 1.0 (55) na Other Off-farm income a $ 42 920 40 400 (26) na 32 760 32 800 (24) na continued...

19 Table 5 Financial performance, beef cattle producing farms, northern Australia, by herd size average per farm continued Farm cash receipts unit Large Very large 2011 12 2012 13p 2013 14y 2011 12 2012 13p 2013 14y Beef cattle sales total $ 623 350 544 600 (10) 506 000 2 322 660 1 959 700 (11) 1 750 000 Beef cattle sales live export $ 5 550 9 200 (47) 18 000 385 760 251 600 (27) 207 000 Value of cattle transferred out $ 8 120 5 800 (103) 8 000 634 920 630 700 (15) 647 000 Sheep, lambs and wool sales $ 12 510 4 900 (81) 6 000 17 300 (5) 12 000 Total crop receipts $ 70 500 58 900 (16) 24 000 41 310 85 400 (54) 33 000 Total cash receipts $ 758 410 656 900 (9) 588 000 3 076 230 2 767 300 (9) 2 524 000 Farm cash costs Beef cattle purchases $ 80 950 53 500 (28) 38 000 362 090 208 400 (21) 115 000 Beef cattle transferred in $ 6 360 500 (129) 600 359 000 261 900 (25) 367 000 Wages for hired labour $ 31 050 27 100 (20) 24 000 249 130 226 800 (13) 211 000 Interest paid $ 106 740 73 500 (15) 71 000 247 550 233 800 (16) 255 000 Total cash costs $ 567 810 478 900 (10) 465 000 2 414 650 2 140 700 (9) 2 124 000 Farm capital and debt Total capital at 30 June $ 10 514 440 10 056 400 (4) 9 948 000 31 592 290 27 664 800 (7) 26 210 000 Farm business debt at 30 June $ 1 453 860 1 023 700 (15) 1 058 000 5 442 960 5 397 600 (16) 5 298 000 Equity ratio at 30 June % 86 90 (2) na 79 76 (9) na Farm financial performance Farm cash income $ 190 600 178 000 (20) 123 000 661 580 626 600 (23) 401 000 Farm business profit $ 122 830 9 400 (371) 56 000 728 100 308 200 (36) 251 000 Profit at full equity $ 237 670 90 100 (39) 23 000 978 440 548 200 (19) 512 000 Rate of return Return on capital excluding capital appreciation % 2.3 0.9 (39) 0.3 3.0 1.9 (20) 3.1 Return on capital including capital appreciation % 1.1 1.0 (69) na 2.0 2.0 (58) na Other Off-farm income a $ 36 130 28 800 (27) na 30 900 21 800 (24) na a Average per responding farm. p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate.

Financial performance by zone Farm business income of beef cattle producers in each zone (Map 4) is strongly related to herd size. The northern pastoral zone, which has the largest average herd size, had the highest average farm business incomes in the three years ending 2013 14 (Table 6). This zone also recorded rates of return that were the same or above the average for northern Australia. Map 4 Australian broadacre zones Of the three zones in the northern region, the northern high rainfall zone had the lowest estimated average farm cash income for the three years ending 2013 14. Small herd size is the primary cause of low performance across a range of financial performance measures. In the three years ending 2013 14, the average herd size in this region was 710 head, the lowest of all zones in northern Australia. This is fairly typical of higher rainfall regions with a high proportion of smaller farm businesses. While the average financial performance of these businesses is low, most generate positive farm cash income because of the substantial input of unpaid family labour. Including the value of this unpaid labour in the calculation of farm business profit results in most farm businesses generating negative profits and returns to capital. Small herd size specialist beef producers typically rely on off-farm income to support the farm s operators. Reduced farm cash income and farm business profit are estimated for the northern pastoral and wheat sheep zones in 2013 14. Increased cattle turn-off was more than offset by a reduction in cattle prices received and cattle inventory values reduced. 20

21 Table 6 Financial performance, beef cattle producing farms, northern Australia, by zone average per farm Farm cash receipts unit Pastoral Wheat sheep High rainfall 2011 12 2012 13p 2013 14y 2011 12 2012 13p 2013 14y 2011 12 2012 13p 2013 14y Beef cattle sales total $ 525 930 543 300 (9) 449 000 298 700 227 200 (6) 229 000 178 660 117 200 (9) 170 000 Beef cattle sales live export $ 64 670 45 000 (25) 43 000 0 0 1 000 1 140 10 (131) 1 000 Value of cattle transferred out $ 98 640 98 500 (14) 95 000 5 610 0 0 2 190 0 0 Sheep, lambs and wool sales $ 38 840 25 400 (40) 25 000 5 340 5 400 (39) 4 000 60 100 (100) 100 Total crop receipts $ 430 3 100 (83) 1 000 59 990 96 700 (18) 42 000 12 810 19 900 (23) 11 000 Total cash receipts $ 710 970 722 100 (8) 623 000 390 050 354 900 (7) 298 000 211 890 148 900 (7) 196 000 Farm cash costs Beef cattle purchases $ 64 240 54 200 (19) 36 000 53 650 34 700 (16) 29 000 19 640 13 500 (23) 11 000 Total cash costs $ 555 470 547 800 (8) 554 000 294 730 266 100 (7) 260 000 149 720 133 300 (9) 148 000 Farm capital and debt Total capital at 30 June $ 8 486 850 8 222 200 (6) 7 793 000 5 400 240 5 284 900 (5) 5 155 000 4 329 180 3 685 800 (7) 3 703 000 Farm business debt at 30 June $ 1 042 180 943 800 (16) 981 000 643 020 555 200 (13) 533 000 316 930 338 300 (20) 366 000 Equity ratio at 30 June % 84 86 (4) na 88 90 (2) na 93 91 (3) na Farm financial performance Farm cash income $ 155 500 174 400 (17) 68 000 95 320 88 800 (18) 38 000 62 170 15 600 (45) 48 000 Farm business profit $ 157 470 9 500 (263) 80 000 9 880 13 900 (105) 68 000 26 220 30 700 (24) 43 000 Profit at full equity $ 227 050 57 300 (49) 14 000 63 650 56 700 (25) 29 000 270 6 600 (109) 16 000 Rate of return Return on capital excluding capital appreciation Return on capital including capital appreciation % 2.6 0.7 (48) 0.3 1.2 1.1 (25) 0.7 0.0 0.2 (113) 0.5 % 1.0 3 (31) na 0.4 0.4 (179) na 0.2 2.0 (36) na Return on owners equity % 3.0 0.2 (263) na 0.2 0.3 (104) na 0.7 0.9 (27) na p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate.

In contrast, farm cash income is estimated to have increased on northern high rainfall zone farms from a low of $15 600 in 2012 13 to $48 000 in 2013 14. While farms in the northern pastoral and wheat sheep zones were required to increase or maintain relatively high turn-off in 2012 13, producers in the northern high rainfall zone had milder seasonal conditions and were able to hold on to stock during this period. However, with the onset of drier seasonal conditions in 2013 14, farms in the high rainfall zone had larger increases in turn-off. Combined with the sale of heavier cattle, this resulted in a lesser decline in prices received for cattle compared with other zones. This is estimated to have resulted in increased beef cattle receipts and an increase in farm cash income. However, the decrease in inventories of cattle has resulted in projected farm business profit decreasing in 2013 14 (Table 6). Financial performance of live cattle export region Most of the cattle exported live from northern Australia over the past decade have been sourced from the northern live export region (Map 5). This region contains around 1250 farm businesses with greater than 100 head of beef cattle. AAGIS data indicate that around 110 of these businesses derived more than 50 per cent of their beef cattle receipts from live export sales in the three years ending 2012 13 (Table 7). Map 5 Northern Australian live cattle export region Note: Regions based on aggregations of Australian Bureau of Statistics statistical local areas. Generally, farm businesses with the greatest reliance on sales of live export cattle are located in the far northern and western parts of the northern live cattle export region. On average, many farm businesses in the upper west of the Northern Territory and in the Kimberley, Pilbara and Murchison Gascoyne regions of Western Australia derived more than 50 per cent of their total beef cattle receipts from sale of cattle for live export in the three years ending 2012 13 (Map 6). Businesses in the south of the northern live export region and in Queensland are generally far less reliant on live export sales. 22

Map 6 Proportion of total farm cash receipts from sale of beef cattle for live export average for three years ending 2012 13 Turn-off of cattle for live export declined between 2010 11 and 2012 13, with a reduction in both the number of farms selling cattle for live export and the average number of cattle sold for live export per farm. The effect on farm cash receipts of the reduction in turn-off for live export was partially offset by the sale of other cattle. Initially, the average price received for other cattle (cattle sold for slaughter in Australia) rose in 2011 12 as excellent seasonal conditions resulted in increased sale weights. Wet seasonal conditions in 2010 11 and 2011 12, abundant pasture and the slowdown in live cattle exports resulted in increased beef cattle numbers across northern Australia. The increase in cattle numbers halted abruptly in 2012 13 as failure of the northern wet season resulted in dry conditions, increased cattle turn-off and lower beef cattle prices. Average farm cash receipts per farm declined by 13 per cent between 2011 12 and 2012 13 as a result of lower average sale prices for cattle in 2012 13. Despite reductions in purchases of beef cattle and transfer of beef cattle to properties in the region by corporate and large family operators, average farm cash income declined from an average of $146 550 a farm in 2011 12 to $115 800 in 2012 13 (Table 7). In 2013 14 turn-off of cattle for live export is estimated to have increased, with both the number of farm businesses selling beef cattle for live export and the average number of cattle sold per farm for live export increasing. In addition, the rapid increase in numbers exported live in the second half of 2013 14 is estimated to have resulted in a significant number of cattle being sourced from outside the live export region. The increase in live cattle exports is not expected to result in an increase in average total cash receipts because continuing high beef cattle turn-off is estimated to result in lower overall average sale prices. In addition, average total cash costs are estimated to have increased as a result of higher expenditure on fodder (including supplements) during 2013 14 and increased transfer of beef cattle to properties in the region following improved seasonal conditions from March 2014. 23

1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p 2013 14y 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p 2013 14y Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14 Farm cash income is estimated to have averaged $22 000 a farm in 2013 14, well below the average of $158 000 for the 10 years ending 2012 13 (Table 7 and Figure 12). Farm business profit is also estimated to have decreased to a loss of $58 000 per farm in 2013 14, also well below the average for the past 10 years of $100 000 a farm. Figure 12 Financial performance, beef producing farms, northern live cattle export region, 1994 95 to 2013 14y 500 400 300 Farm cash income Farm business profit 200 100 2013 14 $ 000-100 p Preliminary estimate. y Provisional estimate. Farm businesses operating in the northern live cattle export region have an average herd size almost 3.8 times larger than the average herd size for the balance of northern Australia (remainder of the Northern Territory and Queensland) and around 9.7 times the average herd size in southern Australia. As a result, average farm cash income of the northern live cattle export region has historically been well above that for the balance of northern Australia and southern Australia (Figure 13). Figure 13 Farm cash income, beef cattle producing farms, 1994 95 to 2013 14y 450 400 350 300 250 200 150 100 50 2013 14 $ 000-50 southern Australia balance northern Australia northern live cattle export region p Preliminary estimate. y Provisional estimate. 24

Many of the largest large herd size farms in the northern live cattle export region are corporate entities. These farms dominate turn-off and performance estimates and typically have financial performance well above the average for other smaller herd size businesses in the region. Transfer of cattle between corporate group properties in the northern live export region and associated properties outside the region (in response to grazing conditions and marketing opportunities) contributes to the high variability in average farm cash incomes for this region. Despite this variability, average farm cash income and rates of return have been relatively high on average over time. Table 7 Financial performance, beef cattle producing farms, northern live cattle export region average per farm Farm cash receipts unit 2011 12 2012 13p 2013 14y Beef cattle sales total $ 587 170 503 400 (12) 435 000 Beef cattle sales live export $ 112 210 65 800 (29) 63 000 Value of cattle transferred out $ 154 400 132 200 (18) 143 000 Total cash receipts $ 799 090 697 400 (10) 632 000 Farm cash costs Beef cattle purchases $ 83 070 57 400 (20) 42 000 Beef cattle transferred in $ 76 750 60 500 (25) 80 000 Interest paid $ 72 140 63 600 (17) 62 000 Total cash costs $ 652 550 581 600 (9) 610 000 Farm capital and debt Total capital at 30 June $ 9 362 940 7 928 300 (7) na Farm business debt at 30 June $ 1 132 810 987 700 (18) 1 020 000 Equity ratio at 30 June % 83 82 (8) na Farm financial performance Farm cash income $ 146 550 115 800 (31) 22 000 Farm business profit $ 132 760 21 300 (128) 58 000 Profit at full equity $ 208 490 91 000 (33) 10 000 Rate of return Return on capital excluding capital appreciation % 2.2 1.1 (32) 0.2 Return on capital including capital appreciation % 2.0 2.0 (43) na p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Financial performance of southern Australian beef cattle producers Farm cash income In 2012 13 average farm cash receipts for southern Australian beef cattle producers declined by 19 per cent mainly because of reduced beef cattle prices and lower receipts for crops, sheep, lambs and wool (Figure 14). The reduction in farm receipts was partially offset by a reduction in average total cash costs, mostly as a result of reduced expenditure on interest payments and purchases of beef cattle (Figure 15). Average farm cash income of southern Australian beef cattle producing farms declined by 25 per cent to an average of $78 200 a farm in 2012 13 (Table 8). 25

26 Table 8 Financial performance, beef cattle producing farms, southern Australia average per farm Farm cash receipts unit All beef cattle producing farms Specialist beef cattle producers 2011 12 2012 13p 2013 14y 2011 12 2012 13p 2013 14y Beef cattle sales $ 148 530 118 500 (4) 126 000 174 610 129 700 (12) 136 000 Sheep, lambs and wool sales $ 100 870 70 100 (11) 75 000 21 110 9 500 (45) 12 000 Total crop receipts $ 122 970 113 700 (19) 115 000 6 150 6 700 (47) 9 000 Total cash receipts $ 405 920 329 700 (8) 344 000 216 540 155 400 (13) 166 000 Farm cash costs Beef cattle purchases $ 29 870 17 000 (13) 16 000 32 920 18 300 (18) 18 000 Wages for hired labour $ 14 470 11 700 (12) 13 000 8 130 5 400 (30) 7 000 Fodder $ 4 640 7 000 (9) 10 000 4 180 5 700 (21) 9 000 Fuel, oil and lubricants $ 21 700 19 100 (9) 21 000 9 980 8 200 (11) 9 000 Repairs and maintenance $ 28 590 24 800 (6) 26 000 14 700 12 900 (11) 14 000 Contracts $ 15 610 14 700 (15) 14 000 4 840 5 100 (22) 5 000 Freight, handling and marketing $ 21 200 18 000 (11) na 9 750 8 600 (19) na Interest paid $ 31 490 22 600 (12) 22 000 13 320 10 400 (42) 9 000 Total cash costs $ 301 710 251 500 (8) 259 000 157 950 126 700 (15) 131 000 Farm capital and debt Total capital at 30 June $ 4 439 690 3 829 800 (6) na 3 528 360 2 892 100 (7) na Farm business debt at 30 June $ 461 890 335 400 (12) 347 000 179 030 140 900 (32) 151 000 Equity ratio at 30 June % 89 91 (3) na 95 95 (2) na Farm financial performance Farm cash income $ 104 210 78 200 (14) 85 000 58 580 28 800 (26) 35 000 Farm business profit $ 35 020 900 (1134) 9 000 3 020 29 900 (24) 40 000 Profit at full equity $ 72 310 27 300 (42) 18 000 19 360 17 300 (39) 29 000 Rate of return Return on capital excluding capital appreciation % 1.6 0.7 (38) 0.6 0.6 0.6 (43) 1.0 Return on capital including capital appreciation % 1.8 0.7 (75) na 0.8 0.7 (73) na p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate.

1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p 2013 14y 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p 2013 14y Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14 Figure 14 Farm cash receipts, southern beef cattle producing farms, 1994 95 to 2013 14y 500 400 300 Other cash receipts Crop receipts 200 100 2013 14 $ 000 Sheep, lambs and wool sales Beef cattle sales p Preliminary estimate. y Provisional estimate. Figure 15 Composition of cash costs, beef cattle producers, southern Australia, 1994 95 to 2013 14y 600 500 400 300 200 100 2013 14 $ 000 Overhead costs Interest paid Variable costs Beef cattle purchases Total cash receipts p Preliminary estimate. y Provisional estimate. In 2013 14 continued dry seasonal conditions resulted in an increase in beef cattle turn-off and a reduction in beef cattle numbers in many regions in southern Australia. Despite lower average sale prices for beef cattle, the increase in turn-off is estimated to result in average beef cattle receipts increasing by around 6 per cent for southern beef producing farms. In addition, receipts from grain, sheep, lambs and wool are also estimated to have increased slightly, resulting in average total cash receipts increasing by 4 per cent (Table 8). Despite further reduced expenditure on purchases of beef cattle and a slight decrease in expenditure on interest payments, average farm cash costs are estimated to have increased slightly in 2013 14 as a result of small increases in most other major cash costs, including fodder. Average farm cash income of beef cattle producing farms in southern Australia is 27

1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p 2013 14y Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14 estimated to have increased slightly to average $85 000 a farm in 2013 14. This is around 13 per cent above the average for the previous 10 years, in real terms. However, farm cash incomes of many southern Australian beef cattle producing farms were low through most of the 2000s because of drought. Farm business profit and rates of return Decreases in cattle numbers during 2013 14 will result in a decrease in the average value of cattle inventories on beef cattle producing farms. As a consequence, farm business profit is estimated to have declined from an average of -$900 a farm in 2012 13 to -$9000 a farm in 2013 14 (Figure 16). This remains better than 2006 07 to 2009 10, when farm business profit of southern Australian beef cattle producers averaged -$39 400 a farm. For southern beef cattle producing farms, profit at full equity averaged $72 310 in 2011 12, declined to $27 000 in 2012 13 and is estimated to have declined further in 2013 14 to $18 000 a farm (Table 8). Figure 16 Financial performance, beef producing farms, southern Australia, 1994 95 to 2013 14y 150 100 50 Farm cash income Farm business profit 2013 14 $ 000-50 - 100-150 p Preliminary estimate. y Provisional estimate. Financial performance by herd size Farm financial performance for southern Australian beef cattle producing farms varies between different herd size groups. Generally, farm cash incomes and farm business profits and rates of return are higher for larger herd size producers (Table 9). Small herd size farms often rely on off-farm income to support the farm operators, particularly small specialist beef cattle producers. Receipts from the sale of beef cattle increased on all but very large herd size farms as increased turn-off more than offset the decrease in sale prices for beef cattle. Total cash costs increased for small and large herd size producers and remained relatively unchanged for medium herd size producers. Farm cash incomes decreased for large herd size groups in 2013 14, remained relatively unchanged for very large producers and increased for small and medium herd size procurers. In 2013 14 farm business profit is estimated to have decreased for all herd size groups, except small herd size producers, as cattle inventories on farms in southern Australia were reduced. 28

Australian beef: financial performance of beef cattle producing farms 2011 12 to 2013 14 29 Table 9 Financial performance, beef cattle producing farms, southern Australia, by herd size average per farm Farm cash receipts unit Small Medium 2011 12 2012 13p 2013 14y 2011 12 2012 13p 2013 14y Beef cattle sales $ 50 810 50 000 (10) 54 000 96 890 80 500 (5) 84 000 Sheep, lambs and wool sales $ 95 320 51 400 (25) 62 000 69 050 57 600 (22) 55 000 Total crop receipts $ 122 810 87 100 (38) 120 000 72 850 84 600 (15) 86 000 Total cash receipts $ 293 890 210 400 (20) 253 000 255 840 240 700 (7) 244 000 Farm cash costs Beef cattle purchases $ 10 960 7 800 (29) 7 000 19 490 11 100 (23) 9 000 Wages for hired labour $ 6 530 5 000 (44) 6 000 6 200 5 000 (24) 5 000 Interest paid $ 22 690 12 700 (30) 13 000 15 820 15 400 (22) 16 000 Total cash costs $ 219 440 164 200 (20) 184 000 190 470 179 900 (9) 178 000 Farm capital and debt Total capital at 30 June $ 3 367 020 2 608 500 (20) 2 697 000 3 323 030 3 015 400 (5) 2 909 000 Farm business debt at 30 June $ 329 810 181 700 (30) 195 000 236 630 237 800 (23) 259 000 Equity ratio at 30 June % 90 93 (3) na 93 92 (3) na Farm financial performance Farm cash income $ 74 450 46 200 (28) 69 000 65 380 60 800 (15) 66 000 Farm business profit $ 4 750 28 200 (40) 9 000 1 860 19 800 (50) 25 000 Profit at full equity $ 32 620 11 500 (133) 8 000 22 840 500 (1609) 5 000 Rate of return Return on capital excluding capital appreciation % 1.0 0.4 (137) 0.4 0.7 0.0 (1607) 0.2 Return on capital including capital appreciation % 1.2 0.0 (4151) na 0.7 0.3 (462) na Other Off-farm income a $ 47 090 59 100 (18) na 44 020 42 900 (13) na continued...

30 Table 9 Financial performance, beef cattle producing farms, southern Australia, by herd size average per farm continued Farm cash receipts unit Large Very large 2011 12 2012 13p 2013 14y 2011 12 2012 13p 2013 14y Beef cattle sales $ 184 120 154 900 (6) 179 000 592 900 471 900 (40) 462 000 Sheep, lambs and wool sales $ 105 640 79 800 (18) 87 000 227 000 176 700 (26) 183 000 Total crop receipts $ 152 640 108 000 (50) 69 000 243 890 360 200 (28) 319 000 Total cash receipts $ 499 050 368 500 (17) 364 000 1 136 920 1 103 000 (22) 1 067 000 Farm cash costs Beef cattle purchases $ 30 050 24 700 (21) 23 000 132 020 60 300 (193) 61 000 Wages for hired labour $ 16 370 12 400 (36) 13 000 67 810 66 100 (25) 74 000 Interest paid $ 48 450 26 600 (26) 23 000 82 140 83 800 (16) 77 000 Total cash costs $ 368 230 272 900 (19) 286 000 846 500 862 200 (24) 826 000 Farm capital and debt Total capital at 30 June $ 5 159 790 4 481 000 (9) 4 706 000 10 629 820 10 706 400 (8) 10 041 000 Farm business debt at 30 June $ 690 070 399 400 (26) 379 000 1 383 340 1 371 800 (17) 1 341 000 Equity ratio at 30 June % 87 91 (7) na 87 87 (6) na Farm financial performance Farm cash income $ 130 820 95 600 (20) 78 000 290 420 240 800 (19) 241 000 Farm business profit $ 44 050 15 800 (101) 31 000 240 560 150 400 (28) 112 000 Profit at full equity $ 98 790 48 000 (43) 200 331 890 249 800 (19) 201 000 Rate of return Return on capital excluding capital appreciation % 1.9 1.1 (37) 0.0 3.2 2.4 (16) 2.5 Return on capital including capital appreciation % 1.2 1.3 (37) na 4.4 1.8 (104) na Other Off-farm income a $ 35 750 54 800 (22) na 41 070 39 100 (17) na a Average per responding farm. p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate.

31 Table 10 Financial performance, beef cattle producing farms, southern Australia, by zone average per farm Farm cash receipts unit Pastoral Wheat sheep High rainfall 2011 12 2012 13p 2013 14y 2011 12 2012 13p 2013 14y 2011 12 2012 13p 2013 14y Beef cattle sales total $ 162 310 166 000 (15) 174 000 150 750 108 900 (8) 119 000 145 890 122 100 (5) 128 000 Sheep, lambs and wool sales $ 228 320 204 500 (19) 169 000 99 470 71 200 (17) 78 000 91 720 59 600 (16) 66 300 Total crop receipts $ 42 410 15 900 (72) 76 000 277 220 248 200 (15) 249 000 22 350 22 600 (121) 22 000 Total cash receipts $ 517 040 497 900 (18) 508 000 576 490 468 700 (9) 489 000 278 770 216 000 (16) 228 000 Farm cash costs Beef cattle purchases $ 27 570 8 500 (35) 7 000 42 790 17 400 (26) 19 000 21 080 17 300 (15) 14 000 Total cash costs $ 359 470 308 300 (17) 343 000 448 400 352 400 (10) 374 000 195 370 173 800 (13) 171 000 Farm capital and debt Total capital at 30 June $ 3 792 750 3 501 600 (8) 3 433 000 4 941 660 4 110 700 (10) 4 236 000 4 142 780 3 648 800 (9) 3 558 000 Farm business debt at 30 June $ 422 540 360 500 (35) 366 000 772 790 496 700 (16) 506 000 247 830 214 400 (22) 231 000 Equity ratio at 30 June % 88 88 (12) na 84 88 (2) na 94 94 (5) na Farm financial performance Farm cash income $ 157 570 189 600 (25) 166 000 128 090 116 400 (12) 116 000 83 400 42 300 (39) 57 000 Farm business profit $ 121 820 82 800 (69) 31 000 23 320 3 800 (340) 5 000 36 240 10 400 (148) 21 000 Profit at full equity $ 151 940 104 500 (55) 52 000 83 370 45 000 (33) 46 000 58 320 8 800 (192) 4 000 Rate of return Return on capital excluding capital appreciation Return on capital including capital appreciation % 4.1 3.0 (57) 2.3 1.7 1.1 (32) 1.3 1.4 0.2 (185) 0.1 % 4.3 2.4 (83) na 2.3 1.7 (39) na 1.2 0.3 (291) na p Preliminary estimate. y Provisional estimate. na not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate.

Financial performance by zone Similar to northern Australia, farm business profit of beef cattle producers in each zone of southern Australia (Map 4) is strongly related to herd size. The southern pastoral zone, which has the largest average herd size, had the highest average farm business profits in the three years ending 2013 14 and the highest rates of return (Table 10). Farm cash receipts are estimated to have increased for beef cattle producers in all southern zones in 2013 14 (Table 10). High beef cattle turn-off in all zones more than offset lower prices received for cattle, resulting in an estimated increase in farm cash receipts. Farms in the high rainfall zone are estimated to have a small decrease in farm cash costs. Despite a decrease in expenditure on interest payments and beef cattle purchases in all zones except for the pastoral zone, farm cash costs increased in the pastoral and wheat sheep zones as a result of higher expenditure on fodder, fuel and fertiliser. Farm cash income is estimated to have decreased for beef cattle producers in the pastoral zone because of higher costs, remained relatively unchanged in the wheat sheep zone and increased for farms in the high rainfall zone 2013 14 (Table 10). Farm business profits are estimated to have decreased for beef cattle producers in the pastoral and high rainfall zones but to have remained relatively unchanged in the wheat sheep zone. Financial performance of southern specialist beef cattle producers Around 60 per cent of beef cattle producing farms in southern Australia are classified as specialist producers, deriving more than 50 per cent of average farm cash receipts from the sale of beef cattle. Specialist beef cattle producing farms account for the majority of farms in the southern high rainfall zone. On average, specialist beef cattle producers in southern Australia derived 82 per cent of their average total cash receipts from the sale of beef cattle in the three years ending 2013 14 (Table 8). Over most of the past two decades, average farm cash income of specialist beef cattle producers in southern Australia has been substantially below the average for all beef cattle producing farms in southern Australia (Figure 17). In 2012 13 average farm cash receipts for specialist southern Australian beef cattle producers decreased. This was a result of reduced beef cattle receipts and lower receipts from sheep, lambs and wool. A reduction in average total cash costs, as a result of a decrease in the number of beef cattle purchased and lower interest payments, only partially offset the decrease in farm cash receipts. As a result, average farm cash income of specialist southern Australian beef cattle producing farms decreased to $28 800 a farm in 2012 13 (Table 8). In 2013 14 increased cattle turn-off is estimated to have more than offset lower average sale prices for beef cattle, resulting in average beef cattle receipts for southern specialist beef producing farms increasing by 5 per cent and average total cash receipts increasing by 7 per cent. Despite further small reductions in expenditure on the purchase of beef cattle and interest payments, total farm cash costs increased because of small increases in several other costs, including fodder. Higher farm cash receipts, as a result of increased cattle turn-off, are estimated to have more than offset the small increase in farm cash costs. This will result in average farm cash income for specialist beef cattle producing farms in southern Australia increasing slightly to average $35 000 a farm in 2013 14, around 20 per cent below the average for the previous 10 years, in real terms. 32

1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p 2013 14y Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14 Figure 17 Farm cash income, beef producers, southern Australia, 1994 95 to 2013 14y 120 100 80 60 Beef cattle producing farms Specialist beef cattle procuders 40 20 2013 14 $ 000 p Preliminary estimate. y Provisional estimate. Slowing in growth in cattle numbers will result in smaller values for the build-up in trading stocks on specialist beef cattle producing farms. As a consequence, farm business profit for the beef industry is estimated to have declined, from an average of -$29 900 a farm in 2012 13 to -$40 000 a farm in 2013 14, compared with the average of -$28 300 a farm for the previous 10 years, in real terms. On-farm cash costs of beef cattle production A supplementary questionnaire about the cash costs incurred in producing beef cattle in 2012 13 was included in annual Australian agricultural and grazing industries survey (AAGIS). This supplementary survey was commissioned by Meat & Livestock Australia (MLA) to improve its understanding of the costs faced by beef cattle producers. These data will also aid MLA to assess the risks and challenges facing producers. As part of the supplementary survey, farmers were asked to indicate the proportion of various cost items that could be attributed to aggregated beef production. Unit cash costs of production were estimated for each farm by dividing on-farm cash costs of beef cattle production by the live weight of cattle produced. In 2012 13 average unit cash costs of beef production (live weight basis) were similar in northern and southern Australia (Map 1 and Table 11). Northern Australia had a lower average unit cost of beef production, estimated to have been 69 cents a kilogram (excluding freight, marketing and family labour). In southern Australia the average unit cost of beef production is estimated to have been slightly higher at 75 cents a kilogram (excluding freight, marketing and family labour). In northern Australia, repairs and maintenance (20 per cent) and fodder (16 per cent) contributed the most to average costs of beef production in 2012 13. In southern Australia, repairs and maintenance was the largest component of beef cash costs of production (16 per cent), followed by fertiliser (11 per cent), with a lower proportion being spent on fodder, fuel, oil and grease, hired labour and contracts than in northern Australia. This analysis considers only the cash costs of production, in this case excluding freight, marketing and interest costs. Over the medium and longer term, beef producers need to meet 33

more than just the cash costs of beef production. They also need to cover the cost of replacing plant, machinery, vehicles and farm improvements that wear out over time; generate sufficient profit to provide an acceptable return on the owner s investment; and fund investment to maintain longer-term profitability and the protection of the farm s natural resources. Table 11 Cash costs of beef production, by region, 2012 13p average per farm Beef production unit Northern Australia Southern Australia Total farm cash receipts from beef cattle sold $ 233 000 (6) 113 700 (16) Total farm cash costs to beef production a $ 106 800 (7) 57 800 (5) Total beef cattle sold no. 330 (7) 157 (13) Farm cash costs b Repairs and maintenance c/kg 14 (7) 12 (22) Fodder c/kg 11 (10) 6 (24) Fuel, oil and grease c/kg 8 (7) 7 (17) Hired labour c/kg 6 (23) 6 (18) Fertiliser c/kg 0 (29) 8 (21) Livestock materials c/kg 4 (7) 5 (23) Contracts paid c/kg 5 (15) 3 (27) Crop and pasture chemicals c/kg 1 (20) 2 (17) Cash costs (excluding family labour) c/kg 69 (6) 75 (20) imputed cost of family labour c/kg 32 (7) 37 (22) Cash costs (including family labour) c/kg 101 (5) 111 (20) Cash receipts c/kg 150 (2) 147 (6) Net return excluding family labour c/kg 48 (11) 49 (21) including family labour c/kg 16 (37) 12 (148) a Excludes handling, marketing, interest paid and freight costs. b Cents per kilogram live weight. p Preliminary estimate. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Cost of production by herd size To explore the relationship between beef producers average unit cost of production and scale of beef production, farms were divided into herd size groups. Previous studies have identified a positive relationship between farm size and productivity growth (Nossal et al. 2008). These results broadly suggest that an inverse relationship exists between cost of production per kilogram (live weight basis) and herd size (Figure 18, Figure 19 and Table 12). In particular, farms with the smallest herd size had the highest average unit cost of production. The estimated slight increase in average unit cost of production for very large herd size farms compared with large herd size farms was based on a single year of data and therefore does not suggest diseconomies for very large farms. In northern Australia, large herd size farms had the lowest costs per kilogram, averaging 61 cents a kilogram in 2012 13 compared with 84 cents a kilogram for the small herd size group (Figure 18 and Table 12). Northern farms showed evidence of economies of scale, particularly in repairs and maintenance and fodder, especially moving from small to medium and large producers. Small northern producers also achieve much lower receipts per kilogram than medium, large or very large producers. 34

35 Table 12 Cash costs of beef production, by herd size, 2012 13p average per farm Beef production unit Northern Australia Southern Australia Total farm cash receipts from beef cattle sold Total farm cash costs to beef production a Small Medium Large Very large Small Medium Large Very large $ 53 300 (14) 165 700 (10) 516 800 (11) 1 442 800 (13) 47 500 (9) 83 100 (6) 150 100 (9) 442 300 (8) $ 33 100 (11) 82 800 (6) 210 500 (14) 642 500 (15) 30 700 (11) 46 400 (8) 65 300 (9) 206 100 (6) Total beef cattle sold no. 86 (14) 240 (9) 698 (13) 2 105 (14) 71 (9) 115 (6) 213 (8) 578 (10) Farm cash costs b Repairs and maintenance c/kg 18 (26) 16 (12) 14 (11) 11 (14) 17 (23) 14 (22) 10 (26) 10 (13) Fodder c/kg 14 (27) 14 (16) 9 (21) 9 (13) 9 (32) 7 (24) 5 (18) 5 (23) Fuel, oil and grease c/kg 10 (20) 9 (11) 8 (15) 9 (8) 12 (21) 9 (14) 5 (14) 6 (16) Hired labour c/kg 1 (114) 4 (33) 6 (43) 9 (22) 7 (33) 3 (28) 6 (26) 9 (15) Fertiliser c/kg 2 (40) 1 (40) 0 (202) 0 (46) 12 (27) 7 (17) 6 (23) 8 (15) Livestock materials c/kg 3 (26) 3 (14) 4 (14) 3 (13) 6 (17) 5 (18) 4 (14) 5 (15) Contracts paid c/kg 2 (61) 5 (21) 5 (27) 6 (18) 5 (46) 3 (34) 2 (22) 3 (27) Crop and pasture chemicals c/kg 1 (36) 1 (27) 0 (41) 1 (47) 2 (36) 2 (22) 1 (35) 2 (18) Cash costs (excluding family labour) imputed cost of family labour Cash costs (including family labour) c/kg 84 (17) 77 (7) 61 (12) 66 (10) 103 (15) 81 (10) 61 (11) 69 (11) c/kg 99 (20) 42 (11) 20 (15) 9 (16) 69 (14) 54 (11) 31 (9) 13 (13) c/kg 183 (17) 119 (7) 82 (11) 75 (9) 172 (14) 135 (10) 93 (8) 81 (11) Cash receipts c/kg 136 (7) 155 (5) 151 (4) 147 (3) 159 (8) 146 (7) 141 (7) 147 (5) Net return excluding family labour c/kg 25 (55) 46 (18) 59 (17) 34 (38) 29 (50) 44 (21) 54 (16) 57 (11) including family labour c/kg 74 (40) 4 (266) 39 (26) 25 (52) 40 (47) 11 (98) 23 (39) 44 (15) a Excludes handling, marketing, interest paid and freight costs. b Cents per kilogram live weight. p Preliminary estimate. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Herd size groups are defined in Table 3.

Figure 18 Unit cost of beef production (live weight basis), northern Australia, by herd size, 2012 13p average per farm 90 80 70 60 50 40 30 20 10 c/kg p Preliminary estimate. Note: Cash costs (excluding freight, marketing and family labour). In southern Australia, average costs per kilogram of live weight produced for small herd size farms were around 27 per cent higher than the medium herd size, at around 103 cents (Figure 19 and Table 12). The large herd size farms in the southern region have an average herd size of between 400 and 800 head of cattle and had the lowest estimated average costs of 61 cents a kilogram of live weight produced. Figure 19 Unit cost of beef production (live weight basis), southern Australia, by herd size, 2012 13p average per farm 120 100 Small Medium Large Very large 80 60 40 20 c/kg Small Medium Large Very large p Preliminary estimate. Note: Cash costs (excluding freight, marketing and family labour). 36

Almost all major cash costs on southern beef farms showed evidence of economies of scale, especially on repairs and maintenance, fodder, fuel, oil and grease, fertiliser and livestock materials. Unlike small northern farms, small southern farms achieved higher receipts per kilogram than larger farms. It is not surprising that the imputed cost of family labour is highest on small size farms. These family labour costs made up more than half the total cost per kilogram on small northern farms in 2012 13 and 40 per cent of total cash costs on small southern farms. 37

1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14 4 Farm investment Producers capacity to generate farm income is influenced by their past investments, in additional land to expand the scale of their farming activities and in new infrastructure, plant and machinery to boost productivity in the longer term. Over the past decade, beef cattle producers have undertaken considerable new investments in land, plant and machinery. The proportion of beef cattle producing farms acquiring land was high in northern and southern Australia between 1999 2000 and 2006 07 (Figure 20). The proportion dropped sharply in 2007 08 and has remained relatively low since, particularly in northern Australia. While still low relative to its peak, land acquisition has been on the rise since 2009 10, particularly in southern Australia. Figure 20 Proportion of beef producing farms acquiring land, Australia, 1994 95 to 2012 13p 12 10 8 Southern Australia Northern Australia 6 4 2 % p Preliminary estimate. Land values reported for beef cattle producing farms have declined since 2007 08, with land values reported in 2012 13 as much as 25 per cent below those reported in 2007 08 in some pastoral regions of northern Australia. Very large increases in reported land values occurred over the previous decade (Figure 21). Much smaller reductions in reported land values occurred in many regions in the high rainfall and wheat sheep zones. Average land prices for beef cattle producing farms increased sharply between 2001 02 and 2007 08, particularly compared with cash receipts generated per hectare, which increased only modestly over this period. The ratio of average land price per hectare to total cash receipts per hectare almost doubled from around 5:1 before 2001 02 to around 9:1 in 2009 10 on beef cattle producing farms. This ratio more than doubled across all agricultural zones. The ratio increased from 7:1 to 15:1 in the high rainfall zone and from 4:1 to 8:1 in the wheat sheep zone. The largest increase was reported in the pastoral zone of northern Australia, where the ratio increased from 4:1 to 10:1. 38

1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14 Figure 21 Land prices, beef cattle producing farms, 1994 95 to 2012 13p 900 800 700 600 500 400 300 300 250 200 150 100 50 Southern Australia Northern Australia (right axis) 2013 14 $/ha 200 2013 14 $/ha p Preliminary estimate. Only a relatively small proportion of beef cattle producing farms buy land in any one year, but most producers make some investment in plant, vehicles, machinery and/or infrastructure each year. Because of the much larger average value of land transactions, the value of land purchases dominates total investment. Net investment in plant, vehicles, machinery and farm infrastructure for beef cattle producing farms has been historically high since 2006 07 (Figure 22 and Figure 23). In 2008 09 and 2009 10 investment in plant, machinery and farm infrastructure (such as buildings, irrigation systems, water supply structures and fencing) was stimulated by the investment allowance offered to businesses as part of the Australian Government s Nation Building and Jobs Plan to support economic activity during the global financial crisis. Net investment is the difference between the total value of plant, vehicles, machinery and farm infrastructure purchased and the total value of those items sold or disposed of. In addition to acquiring new capital items and replacing old items, farmers invest in ongoing maintenance and repair of existing plant, vehicles, machinery and farm infrastructure. This expenditure is recorded in surveys as the cash cost of repairs and maintenance. A significant proportion of reported annual expenditure on repairs and maintenance is the capital cost of replacing and upgrading items of farm capital, such as fencing, stockyards and watering facilities. Annual expenditure on repairs and maintenance is strongly correlated with farm income. Expenditure on repairs and maintenance rises in years of high farm cash income and decreases in years of lower farm cash incomes. In northern Australia, fencing, stockyards and watering facilities account for a high proportion of total farm capital value. Expenditure on the repair and maintenance of this infrastructure, together with plant machinery and vehicle repairs, typically exceeds net capital additions (Figure 22). Since 2006 07 expenditure on repairs and maintenance and net capital additions in northern Australia has trended downward as total farm cash receipts have declined. 39

1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14 Figure 22 Net investment in vehicles, machinery and farm improvements, northern Australian beef producing farms, 1994 95 to 2012 13p 50 Computer, office, workshop and other equipment Livestock handling 40 30 20 Buildings, fences, yards and structures Grain storage Accommodation Irrigation equipment 10 2013 14 $ 000 Harvesting and handling Cultivation, sowing, fertiliser and spraying Tractors Vehicles Repairs and maintenance p Preliminary estimate. In the five years ending 2012 13, motor vehicles accounted for around 41 per cent of average total net capital additions for northern beef cattle producing farms. Tractors accounted for a further 29 per cent, but most expenditure was by mixed enterprise beef cattle producing farms. Investment in plant, vehicles, machinery and farm infrastructure by southern Australian beef cattle producing farms has also been strong since 2006 07 (Figure 23). In the five years ending 2012 13, motor vehicles accounted for 28 per cent of average total net capital additions of southern beef cattle producing farms. Reflecting the reliance of many southern beef cattle producers on crop production, tractors also accounted for 25 per cent of net capital additions, crop harvesting equipment accounted for a further 18 per cent and cultivation and planting equipment 12 per cent. Over the past 20 years, most of the increase in real expenditure on net capital additions and repairs and maintenance for both northern and southern beef cattle producing farms can be attributed to increases in the average scale of operations of farms and production of crops and increased intensification of beef cattle enterprises. 40

1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14 Figure 23 Net investment in vehicles, machinery and farm improvements, southern Australian beef producing farms, 1994 95 to 2012 13p 50 Computer, office, workshop and other equipment Livestock handling 40 30 20 Buildings, fences, yards and structures Grain storage Accommodation Irrigation equipment 10 2013 14 $ 000 Harvesting and handling Cultivation, sowing, fertiliser and spraying Tractors Vehicles Repairs and maintenance p Preliminary estimate. 41

1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14 5 Farm debt More than 95 per cent of beef cattle producing farms are family-owned and operated. For family farms, funding for farm expansion and improvement is limited to the funds available to the family, the profits the farm business can generate and the funds it can borrow. Debt is therefore an important source of funds for farm investment and ongoing working capital. Average debt per farm business almost doubled in real terms for beef cattle producing farms between 2000 01 and 2008 09, in northern Australia and southern Australia. In northern Australia average debt per farm business increased from $342 000 a farm in 2000 01 to $651 000 a farm in 2008 09 (Figure 24). Debt in southern Australia increased from an average of $202 000 a farm in 2000 01 to $481 000 a farm in 2008 09 (Figure 25). Figure 24 Composition of farm business debt, northern Australian beef producing farms, 1993 94 to 2012 13p 800 700 600 500 400 300 200 100 2013 14 $ 000 Other debt Buildings and structures Land development Machinery, plant and vehicles Reconstructed debt Land purchase Working capital p Preliminary estimate. Figure 25 Composition of farm business debt, southern Australian beef producing farms, 1993 94 to 2012 13p 600 500 400 300 200 100 2013 14 $ 000 Other debt Buildings and structures Land development Machinery, plant and vehicles Reconstructed debt Land purchase Working capital p Preliminary estimate. 42

1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14 Several factors contributed to the growth in debt over this period, including: lower interest rates large increases in land values raising borrowing capacity increases in farm size changes in commodities produced reduced farm cash incomes because of widespread and extended drought conditions. Throughout much of the 2000s, interest rates were historically low, reducing the cost of servicing debt and encouraging borrowing for farm investment. Interest rate subsidies provided to many farms as part of drought assistance programmes also supported borrowing. Structural adjustment resulted in beef cattle producers in the wheat sheep zone changing the mix of commodities produced. Farm size also increased in northern and southern Australia. The largest contribution to increases in farm debt in the past two decades has been borrowing to fund new investment, particularly purchase of land, machinery and vehicles, and to develop land and farm improvements. Debt to fund land purchase accounts for the largest share of debt on beef cattle producing farms, accounting for an estimated 54 per cent of average debt in northern Australia and 46 per cent of average debt in southern Australia in 2012 13. Growth in average debt per farm business has slowed for beef cattle producing farms in recent years because of a reduction in land values and more restricted access to credit from lending institutions. The proportion of farms increasing debt declined significantly in 2010 11 to be closer to the historical lows recorded in 2000 01 (Figure 26). According to AAGIS data, average farm debt for beef cattle producing farms has declined slightly since 2008 09 in both northern Australia and southern Australia (Figure 24 and Figure 25). However, the proportion of northern Australian farms borrowing additional funds in 2012 13 increased significantly as farm cash incomes declined (Figure 26). Figure 26 Proportion of beef cattle producing farms increasing farm business debt, 1994 95 to 2012 13p 50 40 30 Southern Australia Northern Australia 20 10 % p Preliminary estimate. 43

Increased size of farm enterprises also resulted in higher borrowing for ongoing working capital. Additionally, borrowing to meet working capital requirements increased for producers during the 2000s as drought depressed farm cash incomes in many regions. Working capital debt was second only to land purchase debt, accounting for 24 per cent of average farm debt in northern Australia in 2012 13 and 37 per cent of average debt in southern Australia. Distribution of farms by debt and equity The proportion of beef cattle producing farms with relatively high debt varies across regions and herd sizes (Table 13 and Table 14). Around 10 per cent of farms in southern Australia, 15 per cent of farms in northern Australia and 18 per cent of farms in the northern live cattle export region (Map 1 and Map 5) carried in excess of $1 million in debt at 30 June 2013. The higher proportion of such farms in northern Australia and the northern live cattle export region largely reflects the much higher proportion of large and very large herd size businesses in those regions (Table 1). In contrast, around 62 per cent of beef cattle producing farms in southern Australia and 53 per cent in northern Australia were recorded as having less than $100 000 in debt at 30 June 2013. A high proportion of these businesses are small and medium herd size farms, but more than 15 per cent of very large herd size businesses were also recorded as having less than $100 000 in debt at 30 June 2013. The general increase in land values to 2008 boosted the equity most farmers have in their businesses. For some farms, reductions in farm debt, increases in capital investment and increased livestock numbers have resulted in further improvement in farm equity. However, in several regions farm equity is estimated to have fallen significantly over the past three years as a consequence of reductions in reported land values and lower cattle inventory values. On average, farm business equity remains strong for most beef cattle producing farms. The average equity ratio for beef cattle producing farms at 30 June 2013 was estimated to be 89 per cent for northern Australian farms and 91 per cent for southern Australian farms. Nine per cent of beef cattle producing farms in northern Australia, 5 per cent in southern Australia and around 18 per cent in the northern live cattle export region were estimated to have equity ratios below 70 per cent in 2012 13. In contrast, 70 per cent of beef cattle producing farms in northern Australia and 76 per cent in southern Australia were estimated to have equity ratios exceeding 90 per cent at 30 June 2013. Equity ratios are typically lower for larger herd size farms because they are able to service larger debts. 44

45 Table 13 Distribution of northern beef cattle producing farms, by farm business debt and equity ratio, at 30 June 2013ap percentage of farms Farm business debt unit Herd size Northern Australian live Small Medium Large Very large cattle export region Northern Australia <$100 000 % 82 (7) 44 (16) 33 (24) 15 (39) 33 (27) 53 (8) $100 000 and <$250 000 % 6 (55) 14 (35) 13 (48) 1 (31) 19 (50) 11 (26) $250 000 and <$500 000 % 4 (48) 11 (35) 13 (34) 1 (30) 11 (52) 9 (23) $500 000 and <$1m % 4 (97) 21 (23) 10 (34) 0 19 (38) 13 (20) $1m and <$2m % 4 (80) 7 (37) 14 (28) 16 (45) 5 (51) 8 (23) $2m % 1 (26) 3 (45) 17 (23) 68 (14) 13 (26) 7 (15) Total % 100 100 100 100 100 100 Average farm debt at 30 June $ 171 000 (30) 417 000 (14) 1 024 000 (16) 5 398 000 (19) 988 000 (20) 577 000 (9) Farm business equity ratio b 90 per cent % 85 (7) 63 (10) 68 (6) 27 (33) 55 (17) 70 (5) 80 and <90 per cent % 7 (69) 20 (25) 15 (26) 22 (21) 24 (34) 15 (19) 70 and <80 per cent % 2 (78) 8 (41) 7 (38) 21 (43) 3 (55) 6 (28) 60 and <70 per cent % 5 (63) 7 (31) 6 (46) 12 (55) 11 (62) 6 (24) <60 per cent % 2 (46) 2 (69) 5 (45) 18 (25) 7 (38) 3 (28) Total % 100 100 100 100 100 100 Average farm business equity ratio at 30 June % 91 (2) 90 (1) 90 (2) 76 (3) 82 (3) 89 (1) Population of farms no. 2 644 3 864 1 613 310 1 246 8 431 a Excludes debt for large corporate farms. b Equity ratio defined as total owned capital at 30 June less debt as a percentage of total owned business capital p Preliminary estimate. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate.

46 Table 14 Distribution of southern beef cattle producing farms, by farm business debt and equity ratio, at 30 June 2013ap percentage of farms Farm business debt unit Herd size Southern Australia Small Medium Large Very Large <$100 000 % 73 (6) 68 (7) 44 (17) 31 (21) 62 (5) $100 000 and <$250 000 % 10 (32) 13 (33) 21 (32) 7 (55) 13 (18) $250 000 and <$500 000 % 7 (31) 9 (35) 14 (30) 8 (45) 9 (18) $500 000 and <$1m % 5 (50) 5 (37) 9 (35) 15 (31) 6 (21) $1m and <$2m % 4 (56) 3 (30) 9 (25) 20 (28) 6 (17) $2m % 1 (151) 2 (47) 4 (32) 20 (20) 4 (21) Total % 100 100 100 100 100 Average farm debt at 30 June $ 182 000 (31) 238 000 (24) 399 000 (26) 1 372 000 (16) 335 000 (12) Farm business equity ratio b 90 per cent % 80 (5) 82 (4) 68 (8) 57 (12) 76 (3) 80 and <90 per cent % 11 (24) 10 (30) 23 (23) 21 (24) 14 (13) 70 and <80 per cent % 5 (67) 5 (41) 3 (48) 9 (40) 5 (30) 60 and <70 per cent % 4 (50) 2 (71) 4 (33) 7 (64) 3 (27) <60 per cent % 1 (24) 1 (83) 2 (53) 6 (36) 2 (29) Total % 100 100 100 100 100 Average farm business equity ratio at 30 June % 93 (2) 92 (2) 91 (2) 87 (2) 91 (1) Population of farms no. 6 626 6 899 3 990 1 616 19 130 a Excludes debt for large corporate farms. b Equity ratio defined as total owned capital at 30 June less debt as a percentage of total owned business capital p Preliminary estimate. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate.

1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p 2013 14y Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14 Debt servicing The proportion of farm receipts needed to fund interest payments rose substantially in the decade ending 2009 10. This was because extended drought conditions led to large increases in farm debt and reduced farm receipts. Interest rate subsidies paid to farm businesses (as drought assistance) partially offset the increase in interest paid between 2001 02 and 2007 08. Lower interest rates in 2011 12 and 2012 13 resulted in a decline in farm receipts needed to fund interest payments. In southern Australia, in 2013 14 the ratio of interest payments to farm receipts is estimated to have reduced further, to around 6 per cent. This was a result of an increase in farm cash receipts and a decrease in interest payments (Figure 27). However, in the same period in northern Australia, the ratio increased to 13 per cent, mainly because of reduced cash receipts. The proportion of farm receipts needed to meet interest payments in 2013 14 was high compared with that recorded historically in northern Australia. Figure 27 Ratio of interest payments to total cash receipts, beef cattle producing farms, 1994 95 to 2013 14y 20 15 Southern Australia Northern Australia 10 5 % p Preliminary estimate. y Provisional estimate. Note: For farms with debt. In 2013 14 the proportion of beef cattle producing farms recording negative farm cash incomes, and therefore potentially needing to borrow additional working capital, is estimated to have increased by around 5 per cent in southern Australia to 31 per cent and remained relatively unchanged in northern Australia at 36 per cent. The capacity farm businesses have to undertake further borrowing depends on the equity or security farmers have in their businesses and the business s capacity to service increased debt from farm receipts. The proportion of beef cattle producing farm businesses in northern Australia with relatively low additional borrowing capacity (equity ratio of less than 70 per cent) and relatively high debt servicing commitments (interest-to-receipts ratios exceeding 15 per cent) has increased significantly since 2008 09 to an estimated 8 per cent in 2012 13, rising further to an estimated 12 per cent in 2013 14. The 2013 14 estimate is close to the high of 14 per cent recorded in 1996 97, when beef cattle prices were historically low (Figure 28). 47

1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 2011 12 2012 13p 2013 14y Australian beef: financial performance of beef cattle producing farms, 2011 12 to 2013 14 In the northern live cattle export region, the proportion of beef cattle producing farm businesses with relatively low additional borrowing capacity and relatively high debt servicing commitments increased to around 17 per cent in 2012 13 and is expected to have increased further to around 20 per cent in 2013 14. Figure 28 Debt servicing and borrowing capacity, northern Australian beef cattle producing farms, 1993 94 to 2013 14y p Preliminary estimate. y Provisional estimate. Note: For farms with debt. The proportion of beef cattle producing farm businesses in southern Australia with relatively low borrowing capacity and relatively high debt servicing commitments declined from 6 per cent in 2009 10 to around 3 per cent in 2012 13, but is expected to have increased to 4 per cent in 2013 14, which is around half of the historical highs recorded in the late 1990s (Figure 29). Figure 29 Debt servicing and borrowing capacity, southern Australian beef cattle producing farms, 1993 94 to 2013 14y 30 25 20 15 10 5 % of farm businesses Farms with greater than 15% interestto-receipt ratio Farms with less than 70% equity ratio Farms with both low equity and high interest-to-receipts ratio p Preliminary estimate. y Provisional estimate. Note: For farms with debt. 48

6 Productivity Total factor productivity (TFP) is the key indicator uses to measure productivity of the broadacre and dairy industries. TFP is defined as the ratio of total market outputs produced (such as crops, livestock and wool) to total market inputs used (land, labour, capital, materials and services). See Box 2 for an overview of productivity estimates and for Australian Bureau of Statistics definitions of the beef industry used in this section of the report. Compared with single input or partial factor productivity (PFP) measures (such as labour productivity or crop yield per hectare), TFP is a better indication of the overall productivity performance of agricultural industries. This is because PFP measures attribute the combined effects of changes in all aspects of farm production systems solely to one input. This may result in a misleading assessment of the drivers of productivity growth. Box 2 productivity estimates has published statistics and analysed the productivity of Australia s broadacre (non-irrigated cropping and grazing) and dairy industries since the early 1990s using data collected through its national farm survey programme. has applied a consistent methodology to the annual surveys of broadacre farms since 1977 78 and of dairy farms since 1978 79. estimates TFP as the ratio of a quantity index of total market outputs relative to a quantity index of market inputs. Multiple outputs and inputs are aggregated across farms to the industry level, using the Fisher index, and then TFP is calculated by taking a ratio of total outputs to total inputs. Annual TFP growth rates (percentage change over time) are estimated by fitting an exponential trend line (for details of TFP index methodology, see Zhao, Sheng & Gray 2012). The broadacre and dairy industries are defined by the Australian and New Zealand Standard Industrial Classification (ANZSIC) (ABS 2006): Crops industry (ANZSIC06 Class 0146 and 0149) farms engaged mainly in growing cereal grains, coarse grains, oilseeds, rice and/or pulses. Mixed crop livestock industry (ANZSIC06 Class 0145) farms engaged mainly in running sheep or beef cattle, or both, and growing cereal grains, coarse grains, oilseeds and/or pulses. Beef industry (ANZSIC06 Class 0142) farms engaged mainly in running beef cattle. Sheep industry (ANZSIC06 Class 0141) farms engaged mainly in running sheep. Sheep beef industry (ANZSIC06 Class 0144) farms engaged mainly in running both sheep and beef cattle. TFP estimates are not reported separately for these farms, although they are included within the aggregate broadacre estimates. Dairy industry (ANZSIC06 Class 0160) farms engaged mainly in farming dairy cattle. Together, the broadacre and dairy industries account for 68 per cent of commercial-scale Australian farm businesses and for an estimated 55 per cent of the total gross value of Australian agricultural production in the five years ending 2012 13. These farms are also responsible for managing more than 90 per cent of the total area of agricultural land in Australia and account for most of Australia s family-owned and operated farms ( 2013). In 2013 developed a growth-accounting based measure of Australian agricultural TFP. The all agriculture TFP index includes all agricultural industries, and uses growth accounting and national accounts data to estimate long-term total factor productivity of Australia s agriculture industry. Industries included in the all agriculture index are the cropping industries (grains, oilseeds, vegetables and melons, fruits and nuts, cotton, tobacco and other horticulture, and other crops), livestock industries (red meat, poultry, eggs, wool, milk and dairy products, and other livestock products) and other outputs. Beef industry productivity increased at an average annual rate of 0.8 per cent from 1977 78 to 2011 12, driving output growth of around 0.5 per cent a year on average. Over the same period, beef specialists reduced inputs by around 0.3 per cent a year on average (Table 15). Several factors contributed to higher productivity across the beef industry. In particular, improved pastures, herd genetics and disease management increased branding rates (calves marked as a percentage of cows mated) and reduced mortalities, thereby increasing productivity (ABARE 2006). 49

Table 15 Average annual broadacre productivity growth by industry, 1977 78 to 2011 12 Category Total factor productivity All broadacre (%) Cropping (%) Mixed crop-livestock (%) Beef (%) Sheep (%) Productivity 1.0 1.6 0.9 0.8 0.1 Outputs 0.0 2.6 0.8 0.5 2.6 Inputs 1.0 1.0 1.7 0.3 2.6 Partial factor productivity Land 1.0 1.4 0.4 0.9 0.2 Labour 2.2 3.3 2.0 1.3 0.8 Capital 1.6 2.8 2.0 0.4 1.3 Materials 1.8 1.5 1.6 1.8 2.0 Services 0.9 1.9 0.9 0.4 0.2 Input use Land 0.9 1.2 1.3 0.3 2.4 Labour 2.1 0.7 2.8 0.8 3.3 Capital 1.5 0.2 2.8 0.2 3.8 Materials 1.9 4.1 0.8 2.3 0.6 Services 0.9 0.8 1.7 0.2 2.7 Source: Beef industry productivity growth rates have varied by region, with long-run TFP growth in northern Australia (0.9 per cent a year) exceeding that in southern Australia (0.1 per cent a year) (Table 16 and Figure 30). In northern Australia, the brucellosis and tuberculosis eradication campaign (BTEC) in the 1980s and the expansion of the feedlot sector and live export trade with Indonesia in the 1990s have helped improve the productivity of beef specialists. In the 1980s BTEC coincided with negative productivity growth, as producers invested in on-farm infrastructure and improved stock handling facilities to properly test and monitor cattle. However, much of the strong productivity growth during the 1990s was a result of improved reproductive performance and reduced death rates that resulted from BTEC. In addition, expansion of the feedlot sector and live export trade with Indonesia led to a shift in herd structure, to a higher proportion of Bos indicus breeds and more breeder operations. This was aimed at increasing turn-off of smaller and younger cattle for the live export market (Gleeson et al. 2012). In the past decade, productivity of the northern beef industry has returned to near trend growth following droughts that affected the region for much of the early and mid 2000s. Table 16 Average annual beef total factor productivity growth, 1977 78 to 2011 12 Category unit Productivity growth Output growth Input growth All beef specialists % 0.8 0.5 0.3 Southern Australia % 0.1 0.7 0.5 Northern Australia % 0.9 0.5 0.5 50

Figure 30 Beef industry total factor productivity growth, 1977 78 to 2011 12 Note: Over shorter time periods, total factor productivity levels at the beginning and end of the period can have a significant effect on estimated growth rates. Source: Productivity growth in the southern beef industry was slower and more variable than in the northern industry (Table 16 and Figure 30). Although better pasture and herd management practices also improved productivity in the southern beef industry, the smaller scale of operations in many areas may have constrained productivity growth. From 1977 78 to 2011 12, industry output and input use were highly variable, largely because of climate factors. Southern beef producers tend to be smaller, more intensive operations that rely on improved pastures (reflected by higher average stocking rates), and are more diversified than northern producers (Nossal, Sheng & Zhao 2008). As a result, productivity growth in the southern region is more sensitive to drought conditions that increase use of purchased feed, adversely affect crop yields, and drive significant destocking and restocking activities that hamper output growth (Dahl, Leith & Grey 2013). 51

Survey methods and definitions has conducted surveys of selected Australian agricultural industries since the 1940s. These surveys provide a broad range of information on the economic performance of farm business units in the rural sector. This comprehensive dataset is used for research and analysis that forms the basis of many publications, briefing material and industry reports. The annual agricultural surveys are: Australian Agricultural and Grazing Industries Survey (AAGIS) Australian Dairy Industry Survey (ADIS). Definitions of industries Industry definitions are based on the 2006 Australian and New Zealand Standard Industrial Classification (ANZSIC06). This classification is in line with an international standard applied comprehensively across Australian industry, permitting comparisons between industries, both within Australia and internationally. Farms assigned to a particular ANZSIC have a high proportion of their total output characterised by that class. Further information on ANZSIC and on farming activities included in each of these industries is provided in Australian and New Zealand Standard Industrial Classification (ABS 2006). The five broadacre industries covered by AAGIS are: Wheat and other crops industry (ANZSIC06 Class 0146 and 0149) - farms engaged mainly in growing rice, other cereal grains, coarse grains, oilseeds and/or pulses Mixed livestock crops industry (ANZSIC06 Class 0145) - farms engaged mainly in running sheep and/or beef cattle and growing cereal grains, coarse grains, oilseeds and/or pulses Sheep industry (ANZSIC06 Class 0141) - farms engaged mainly in running sheep Beef industry (ANZSIC06 Class 0142) - farms engaged mainly in running beef cattle Sheep beef industry (ANZSIC06 Class 0144) - farms engaged mainly in running both sheep and beef cattle. ADIS covers farms that are engaged in dairying. Target populations AAGIS is designed from a population list drawn from the Australian Business Register (ABR) and maintained by the Australian Bureau of Statistics (ABS). The ABR comprises businesses registered with the Australian Taxation Office. The ABR-based population list provided to 52

consists of agricultural establishments with their corresponding geography code (currently Australian Statistical Geography Standard), ANZSIC, and a size of operation variable. The population list for ADIS is derived from farms that have paid levies based on their milk deliveries. This list is provided to by Dairy Australia and consists of dairy businesses with their corresponding region and total milk production. The design measure for ADIS is total milk production for each dairy business on the frame. surveys target farming establishments that make a significant contribution to the total value of agricultural output (commercial farms). Farms excluded from surveys will be the smallest units and in aggregate will contribute less than 2 per cent to the total value of agricultural production for the industries covered by the surveys. The size of operation variable used in survey designs is usually estimated value of agricultural operations (EVAO). However, in some surveys in recent years other measures of agricultural production have also been used. EVAO is a standardised dollar measure of the level of agricultural output. A definition of EVAO is given in Agricultural industries: financial statistics (ABS 2001). Since 2004 05 the survey has included establishments classified as having an EVAO of $40 000 or more. Between 1991 92 and 2003 04 the survey included establishments with an EVAO of $22 500 or more. Between 1987 88 and 1991 92 the survey included establishments with an EVAO of $20 000 or more. Before 1986 87 the survey included establishments with an EVAO of $10 000 or more. Survey design The target population is grouped into strata defined by region, ANZSIC and size of operation. The sample allocation is a compromise between allocating a higher proportion of the sample to strata with high variability in the size variable and an allocation proportional to the population of the stratum. A large proportion of sample farms is retained from the previous year s survey. The sample chosen each year maintains a high proportion of the sample between years to accurately measure change while meeting the requirement to introduce new sample farms. New farms are introduced to account for changes in the target population, as well as to reduce the burden on survey respondents. The sample size for AAGIS is usually around 1600 farms and for ADIS around 300. The main method of collecting data is face-to-face interviews with the owner manager of the farm business. Detailed physical and financial information is collected on the operations of the farm business during the preceding financial year. Respondents to AAGIS are also contacted by telephone in October each year to obtain estimates of projected production and expected receipts and costs for the current financial year. surveys also allow supplementary questionnaires to be attached to the main or to the telephone surveys. These additional questions help address specific industry issues such as grain cost of production, livestock management practices and adoption of new technologies on dairy farms. Sample weighting survey estimates are calculated by appropriately weighting the data collected from each sample farm and then using the weighted data to calculate population estimates. Sample weights are calculated so that population estimates from the sample for numbers of farms, areas of crops 53

and numbers of livestock correspond as closely as possible to the most recently available ABS estimates from its Agricultural Census and surveys. The weighting methodology for AAGIS uses a model-based approach, with a linear regression model linking the survey variables and the estimation benchmark variables. The details of this method are described in Bardsley and Chambers (1984). For AAGIS, the benchmark variables provided by the ABS include: total number of farms in scope area planted to wheat, rice, other cereals, grain legumes (pulses) and oilseeds closing numbers of beef and sheep. For ADIS, the benchmark variables provided by Dairy Australia are: total number of in-scope dairy farms total milk production. Generally, larger farms have smaller weights and smaller farms have larger weights. This reflects both the strategy of sampling a higher fraction of the large farms than smaller farms and the relatively lower numbers of large farms. Large farms have a wider range of variability of key characteristics and account for a much larger proportion of total output. Reliability of estimates The reliability of the estimates of population characteristics published by depends on the design of the sample and the accuracy of the measurement of characteristics for the individual sample farms. Preliminary estimates and projections Estimates for 2011 12 and all earlier years are final. All data from farmers, including accounting information, have been reconciled; final production and population information from the ABS has been included and no further change is expected in these estimates. The 2012 13 estimates are preliminary, based on full production and accounting information from farmers. However, editing and addition of sample farms may be undertaken and ABS production and population benchmarks may also change. The 2013 14 estimates are projections developed from the data collected through on-farm and telephone interviews from October to December, as well as from the preliminary estimates. Projection estimates include crop and livestock production, receipts and expenditure up to the date of interview together with expected production, and receipts and expenditure for the remainder of the projection year. Modifications are made to expected receipts and expenditure where significant production and price change has occurred post interview. Projection estimates are necessarily subject to greater uncertainty than preliminary and final estimates. Preliminary and projection estimates of farm financial performance are produced within a few weeks of the completion of survey collections. However, these may be updated several times at later dates. These subsequent versions will be more accurate, as they will be based on upgraded information and slightly more accurate input datasets. 54

Sampling errors Only a subset of farms out of the total number of farms in a particular industry is surveyed. The data collected from each sample farm are weighted to calculate population estimates. Estimates derived from these farms are likely to be different from those that would have been obtained if information had been collected from a census of all farms. Any such differences are called sampling errors. The size of the sampling error is influenced by the survey design and the estimation procedures, as well as the sample size and the variability of farms in the population. The larger the sample size, the lower the sampling error is likely to be. Hence, national estimates are likely to have lower sampling errors than industry and state estimates. To give a guide to the reliability of the survey estimates, standard errors are calculated for all estimates published by. These estimated errors are expressed as percentages of the survey estimates and termed relative standard errors. Calculating confidence intervals using relative standard errors Relative standard errors can be used to calculate confidence intervals that give an indication of how close the actual population value is likely to be to the survey estimate. To obtain the standard error, multiply the relative standard error by the survey estimate and divide by 100. For example, if average total cash receipts are estimated to be $100 000 with a relative standard error of 6 per cent, the standard error for this estimate is $6000. This is one standard error. Two standard errors equal $12 000. There is roughly a two-in-three chance that the census value (the value that would have been obtained if all farms in the target population had been surveyed) is within one standard error of the survey estimate. This range of one standard error is described as the 66 per cent confidence interval. In this example, there is an approximately two-in-three chance that the census value is between $94 000 and $106 000 ($100 000 plus or minus $6000). There is roughly a 19-in-20 chance that the census value is within two standard errors of the survey estimate (the 95 per cent confidence interval). In this example, there is an approximately 19-in-20 chance that the census value lies between $88 000 and $112 000 ($100 000 plus or minus $12 000). Comparing estimates When comparing estimates between two groups, it is important to recognise that the differences are also subject to sampling error. As a rule of thumb, a conservative estimate of the standard error of the difference can be constructed by adding the squares of the estimated standard errors of the component estimates and taking the square root of the result. For example, suppose the estimates of total cash receipts were $100 000 in the beef industry and $125 000 in the sheep industry a difference of $25 000 and the relative standard error is given as 6 per cent for each estimate. The standard error of the difference can be estimated as: A 95 per cent confidence interval for the difference is: $25 000 ± 1.96*$9605 = ($6174, $43 826) 55

Hence, if a large number (toward infinity) of different samples are taken, in approximately 95 per cent of them, the difference between these two estimates will lie between $6174 and $43 826. Also, since zero is not in this confidence interval, it is possible to say that the difference between the estimates is statistically significantly different from zero at the 95 per cent confidence level. Regions Broadacre and dairy statistics are also available by region (Map 7). These regions represent the finest level of geographical aggregation for which the survey is designed to produce reliable estimates. Map 7 Australian broadacre zones and regions Note: Each region is identified by a unique code of three digits. The first digit identifies the state or territory, the second digit identifies the zone and the third digit identifies the region. Source: For states other than New South Wales and Victoria, the Australian Dairy Industry Survey regions comprise the entire state (Map 8). 56

Map 8 Australian Dairy Industry Survey regions, New South Wales and Victoria Note: New South Wales and Victoria are divided into multiple regions. These regions are identified by a unique two-digit code. The first digit identifies the state and the second digit identifies the region within the state. Source: 57