Last week I spent a day with a group of Western Australian producers and industry representatives who were visiting some feedlots in Indonesia. Inevitably the subject got around to recent predictions that feeder cattle prices could reach $4 per kg once Australia experiences widespread drought-breaking rains.
One of the lines of discussion was that if the price of live cattle did in fact reach this level then surely many consumers would either be unable to afford to buy beef or even if they could afford it, they would eat significantly less because it was so expensive. From my perspective this is a perfectly logical response by the market and simply represents a realignment of the price of beef as a reflection of the irresistible forces of the laws of supply and demand.
There are a range of food items that are well and truly in the luxury category such as champagne, caviar and lobster. Most people love to consume these products but, because of their scarcity and their very high price, their consumption is usually restricted to special occasions and celebrations. I believe that beef is slowly moving away from its position as a relatively low priced, commonly available food commodity, towards this “champagne” grouping of scarce, luxurious and expensive food items.
I am old enough to remember the late 1950’s and 60’s when the special Sunday dinner in Australia was roast chicken. This was a special treat because mass production of broilers was not yet common and chicken was a relatively expensive food item. I also clearly remember going to the butcher shop on Saturday mornings with my Mum where she would pick up a fine piece of steak for my Dad who played football for the local team. This steak was a special gift from the butcher who was a supporter and sponsor of the local team and wanted Dad, one of the best players in the district, to have maximum energy and stamina for the afternoon’s match. Chicken and beef were once very special rewards, not just a normal, every-day part of the diet that they are today.
After the end of World War 2, the world cattle herd grew and grew as farming around the world was developing as the world’s economies recovered from the devastation of war. Technologies like water drilling, nutritional advances, genetic improvements and vaccines assisted the expansion of the beef cattle herds in Australia and around the world. The global economy grew creating new markets for the full range of food products and increased production followed. Europe, which had experienced some of the worst of the food shortages both during and after the war, developed the Common Agricultural Policy where farmers were subsidized to grow all manner of food products to ensure that Europe would never again experience severe food shortages that were still very fresh in their memories. The result was the production of “mountains” of beef and butter and “lakes” of milk and wine. The world simply got better at producing food faster than the global population expanded to eat it.
For beef producers in Australia this meant that when 70% of their product had to be sold into the international export market, which was already well supplied with beef, prices were weak and constantly declining. Weak prices for beef around the world and a shrinking area of available grasslands gradually led to a slowing of production and eventually a relatively stable international cattle herd. But the world economy and its consumption of just about everything continued to grow.
It’s not clear exactly when it happened, but my guess is that around the years 2005 – 2007, the rising world demand for beef finally caught up with the a stagnant world production. The result was that in most countries around the world, beef prices began to steadily rise. Australia has not yet enjoyed this general trend because such a large proportion of the national production is exported onto the global market and we have been turning off very large volumes over the last few years because of the drought. When the drought breaks, Australia will finally join the rest of the world with a consistently rising price of beef, as the net world supply will never again catch up with net world demand.
It is my firm belief that the ultimate expression of the laws of supply and demand will be that Aussie beef, the best in the world, will once again slowly move towards a position where it will join the same food category as champagne and caviar to become a very special treat for all the worlds consumers including Australians. I am not suggesting that this will be an overnight phenomenon as it will probably take some years to evolve, so make the most of today’s low prices and get stuck into magnificent Aussie beef while it’s still ridiculously cheap.
4 thoughts on “Champagne, Caviar and Glorious Aussie Beef.”
Hi Ross, I enjoyed your comments.We (www.mecardo.com.au) have also been looking at the outlook for beef, and began a discussion last week. We noted that the surge in re-stocker demand is yet to come; it’s fat stock that are leading the charge in Australia. I would be interested in your comments on our views, you can visit our discussion at http://www.linkedin.com/grp/post/6966654-6004755842199465985
Congratulations on the SEA Beef Report, I don’t think there is any comparable information about.
Ross, as always a very well written piece. I wonder if one day you can break down the processing costs and issues across boxed beef and live cattle here in Indonesia. Cattle are much more expensive than Australia but meat is still relatively cheap. Is it just a cheaper processing cost, or what other issues, such as cold storage and offal consumption play a part? Cheers Mick Sheehy
Ross I appreciate your genuine unbiased posts and articles. Your global context is refreshing. Please let me make one comment though regarding a sentence in the last paragraph of this post where you say,
‘Australia has not yet enjoyed this general trend because such a large proportion of the national production is exported onto the global market and we have been turning off very large volumes over the last few years because of the drought.’
It’s actually only Australian producers who have been missing out on the high global cattle prices. Paradoxically Australian processors and non packer exporters have been having the time of their lives by buying the cheapest cattle in the world then selling the beef and co-products (the bits they get for free) into the highest priced beef market in history!
Keep up the good work. Cheers. Ian Mc