Department of Economic Development, Jobs, Transport and Resources

July 2016

Economic value of Victoria's chicken meat industry

Final Report

Department of Economic Development, Jobs, Transport and Resources

Page 1

This report has been prepared by:

RMCG

135 Mollison Street, BENDIGO VIC 3550

PO Box 2410, BENDIGO DC VIC 3554

P: (03) 5441 4821

ABN: 35 154 629 943

Offices in Bendigo, Melbourne, Torquay, Warragul and Penguin (Tasmania)

Project Contact

Will Henderson

M: 0420 588 940

Document review and authorisation

Job Number: 69-D-05

Doc. Version / Final/Draft / Date / Author / Reviewed by / Quality check / Release approved by / Issued to
1.0 / Draft / 22 March 2016 / S. Fargher
W. Henderson / J. Morison
C. Thompson / P. Mawson / C. Thompson / K. Noonan
2.0 / Final / 09 June 2016 / S. Fargher
W. Henderson / J. Morison / W. Henderson / W. Henderson / K. Noonan
2.1 / Final / 20 June 2016 / W. Henderson / NA / NA / W. Henderson / K.Noonan
2.2 / Final / 26 July / W. Henderson
J. Morison / NA / NA / W. Henderson / K. Noonan

RMCG Bendigo:RMCG Client Files:WILL - 69:A - K:69-D-05 DEDJTR - Economic value of Victoria's chicken meat industry:REPORT:FINAL REPORT:Economic value of the chicken meat industry_FINAL_26 July 2016.docx

Economic value of Victoria's chicken meat industry

Final Report

Contents

Abbreviations

Executive summary

1Introduction

1.1This project

1.2Scope

1.3This report

2The chicken meat industry in Victoria

2.1Global and national context

2.2Victoria

3Method

3.1Overview of the method

3.2Data collection

3.2.1Primary production

3.2.2Processing

3.3Economic modelling

3.4Overview of economic concepts

3.4.1Economic activity

3.4.2Indicators of Economic activity

3.4.3Categories of economic activity in the chicken meat supply chain

3.5Assumptions

3.5.1Geography

3.5.2Expenditure

3.5.3Regional production

4Regional economic impact

4.1Gross regional product

4.2Employment

5Victorian economic impact

5.1Primary production sector

5.2Processing sector

5.3Chicken meat industry as a whole

Appendix 1: Producer’s survey

Appendix 2: Processor’s survey

Economic value of Victoria's chicken meat industry

Final Report

Abbreviations

ABARESAustralian Bureau of Agricultural and Resource Economics and Sciences

ABSAustralian Bureau of Statistics

DEDJTRVictorian Department of Economic Development, Jobs, Transport and Resources

DEPIFormer Victorian Department of Environment and Primary Industries (now DEDJTR)

FTEFull-time equivalent

GRPGross regional product

GSPGross state product

I-OInput-output

RISERegional Industry Structure and Employment

SA2Statistical Area 2

SA4Statistical Area 4

VCMCVictorian Chicken Meat Council

Executive summary

Introduction

The Department of Economic Development, Jobs, Transport and Resources (DEDJTR) engaged RMCG and EconSearch to estimate the economic value of the chicken meat industry in Victoria.Analysing the industry and its linkages across an economy can assist policy makers to understand the economic significance to Victoria and regions and assist with decisions that influence the productivity and profitability of the industry.

The chicken meat industry in Victoria

The Victorian chicken meat industry is clustered around three locations: Geelong, Bendigo, and the Mornington Peninsula. There are three main business forms in the sector:

1.A small number of very large producers who are vertically integrated from production, to processing and wholesale. There are four large processors in Victoria: Baiada Poultry, Ingham Enterprises, Turi Foods, and Hazeldene’s.

3.A value adding sector that purchases dressed birds for further processing – boning and other value adding activities.

Method

The estimates of regional economic impact presented in this report are based on a combination of data collection and economic modelling:

Data collection. We surveyed chicken meat farmers and processors to understand at a detailed level the expenditure and production patterns in the industry. This was scaled up to industry level with secondary data from the Australian Bureau of Statistics.
Economic modelling. EconSearch’s input-output model, RISE (Regional Industry Structure and Employment), was used to convert expenditure estimates into estimates of economic impact.

Economic activity in this report is described by the following indicators:

Gross regional product (GRP): is a measure of the contribution of an activity to the regional economy. The direct GRP of an industry is measured as value of gross output (business revenue) less the cost of goods and services (including imports) used in producing the output.

Gross state product (GSP):is the same concept as GRP, however, it is applied to the state economy (Victoria).

FTE: is an indicator of employment and measures a worker's involvement in a project or industry activity. An FTEof 1.0 means that the person is equivalent to a full-time worker (40 hours per week), while an FTEof 0.5 signals that the worker is only half-time, i.e. 20 hours per week.

Regional economic impact of the chicken meat industry

In 2014/15, the total contribution to GRP was $297 million in the Mornington Peninsula, $246 million in Geelong, and $176 million in Bendigo. The total employment contributionwas 2,641FTEjobs in the Mornington Peninsula, 2,079FTEjobs in Geelong and 1,692FTEjobs in Bendigo.

Table 01: Regional economic impact of the chicken meat industry

Measure / Bendigo / Geelong / Mornington Peninsula
GRP, total ($m) / 176 / 246 / 297
Share of region (%) / 1.4 / 1.2 / 1.0
Employment, total (fte) / 1,692 / 2,079 / 2,641
Share of region (%) / 1.8 / 1.4 / 1.2

Comparisons are made withfourother agricultural industries and their associated processing sectors:grains, pigs, grape and wine production, and dairy, as well as the tourism industry.

Table 02: Total economic contributions for selected industries in regional Victoria

Chicken meat a,b / Grainsa,b / Porka,b / Winea,b / Dairya,b / Tourism b
GRP ($m)
Bendigo / 176 / 630 / 80 / 80 / 830 / 410
Geelong / 246 / 180 / 30 / 50 / 90 / 670
Mornington Peninsula / 297 / 70 / 30 / 70 / 370 / 530
Employment (fte)
Bendigo / 1,692 / 4,100 / 600 / 1,200 / 6,700 / 3,200
Geelong / 2,079 / 1,300 / 200 / 400 / 800 / 5,000
Mornington Peninsula / 2,641 / 500 / 200 / 800 / 3,800 / 4,300

aFor each agricultural industry the estimates include both farming and processing activity in the region.

bFor both GRP and employment the estimates represent the sum of direct industry effects and the effects created in flow-on industries.

Victoria-wide economic impact of the chicken meat industry

Primary production

In 2014/15, the primaryproduction sector was responsible for the direct employment of an estimated 1,202FTEjobs, with flow-on activities creating further employment of around 912 FTEjobs in Victoria.This created a total employment contribution of 2,114FTEjobs.A contribution to GSP of $211 million was generated in Victoria in 2014/15 by the primaryproduction sector;$86 million by the primaryproduction sector directly, and $126 million generated in other sectors in the Victorian economy.

Processing

In 2014/15, the processing sector was responsible for the direct employment of an estimated 3,615FTEjobs, with flow-on activities creating further employment of around 2,999 FTEjobs in Victoria (Table 5.2). This created an additional6,613FTEjobs.

A contribution to GSP of $724 million was generated in Victoria in 2014/15 by the processing sector, $338 million by the processing sector directly and $386 million generated in other sectors in the Victorian economy.

Total industry

The chicken meat industry as a whole represents the combination of the economic impact of the primary production sector and the processing sector. In 2014/15, the Victorian chicken meat industry was responsible for the direct employment of an estimated 4,817FTEjobs, with flow-on activities creating further employment of an estimated 3,910 FTEjobs. This resulted in a total employment contribution of 8,727FTEjobs by the chicken meat industry in Victoria.

The total chicken meat industry-related GSP in Victoria was an estimated $935 million: $423 million generated by the chicken meat industry directly and $512 million generated in other sectors of the Victorian economy.

Table 03: Victoria-wide economic impact of the chicken meat industry

GSP ($m) / Employment (FTE)
Direct impact
Primary production / 86 / 1,202
Processing / 338 / 3,615
Total direct / 423 / 4,817
Flow on impact / 512 / 3,910
Total impact / 935 / 8,727
Share of state (%) / 0.27 / 0.36

1Introduction

The Victorian chicken meat industry generates employment and economic output in regional and rural communities across the state. This includes the direct activity generated through the production of chickens on-farm, the downstream processing of chickens, and the flow-on activity the chicken meat industry createsin sectors such as transport, retail/wholesale trade, and health and agricultural services.

1.1This project

The Department of Economic Development, Jobs, Transport and Resources (DEDJTR) engaged RMCG and EconSearch to estimate the economic value of the chicken meat industry at both the regional and state levels. This assessment considers the direct and flow-on economic contribution the industry makes to gross regional and state product and employment.

In 2015, the Victorian Chicken Meat Council (VCMC) released a strategy for the industry for the next 10 years. This strategy sets out VCMC’s view of potential growth for the chicken meat industry in Victoria, identifies a range of barriers to future development, and makes a number of recommendations for industry action.

There is a lack of information regarding the economic impact of the industry. In a recent Victorian Civil and Administrative Appeals Tribunal (VCAT) decision, VCAT noted that there was no independent economic or social assessment to quantify or verify the number of direct and indirect jobs and increased spending as claimed in the planning application.

Analysing the industry and its linkages across an economy can assist policy makers understand the economic significance to Victoria and regions within Victoria. In particular, it can assist with policy decisions that may impact the productivity of the industry and provide policy makers with an appreciation of the further impacts within the economy through disruptions to flow-on activity.

The purpose of this study is to provide an updated statement of the economic contribution of the chicken meat industry for each core chicken meat region in Victoria, and for Victoria as a whole. This will provide the Victorian chicken meat industry with greater certainty of the importance of the industry to regional economic activity and employment, as well as providing information that can be used to inform policy and decision-making relating to the chicken meat industry.

1.2Scope

The scope of the project is as follows:

The production of chicken meat. The project excludes the production of eggs for retail sale, and other poultry meats such as turkey and duck meat.
Breeding and hatching activitiesundertaken by the major processors are included. The importation of genetic stock is not included. This is a relatively minor activity in employment terms and is carried out interstate.
Primary production that is undertaken on broiler farms.
Primary processing. The project includes processing for retail consumption undertaken by the major processors, for instance the impact includes Ingham’s further processing plant in Melbourne, but excludes retail sales of chicken meat products.
Further processing. Processors who value-add to existing processed chickens are also included. This includes firms that buy whole processed birds and produce portions or crumbed products for retail. This part of the industry is made up of smaller firms with mostly less than 100 employees.
Flow-on impacts for Victoria only will be included; flow-on impacts for other states and jurisdictions were not estimated.
Retail and distribution are not included.

1.3This report

The remainder of this report is structured as follows:

Section 2: The chicken meat industry in Victoriaprovides an overview of the industry in Victoria.

Section 3: Method provides a guide to the method and the key concepts involved in this economic study, including economic activity, key indicators and categories of economic activity in the chicken meat industry supply chain. This section also provides an introduction to economic impact modelling in addition to the data and assumptions applied for this study.

Section4: Regional economic impact describesthe economic impact in terms of employment and contribution to GRP for each core chicken meat industry region in Victoria.

Section 5: Victorian economic impactdescribesthe economic impact in terms of employment and contribution to GRP for Victoriaas a whole.

2The chicken meat industry in Victoria

2.1Global and national context

The consumption of chicken meat in Australia has risen rapidly and is now by far the most consumed meat per person, with an annual consumption of 40kg per person.

Figure 21: Meat consumption in Australia[27]

The quantity of chicken meat consumed per person in Australia is only surpassed by US and Israel.

Figure 22: Meat consumption per person by country[28]

2.2Victoria

The Victorian chicken meat industry largely supplies the Victorian domestic market. The quantity of interstate and international trade is small, but growing, with Victorian being a net importer. Victoria produces around 21% (240,000 tonnes) of Australia’s chicken meat, down from a peak of 30% in 2003.

Figure 23: Chicken meat production by state[29]

The Victorian chicken meat industry is clustered around three locations: Geelong, Bendigo and the Mornington Peninsula. There are three main business forms in the sector:

1.A small number of very large producers who are vertically integrated from primary production, to processing and wholesale. There are four large processors in Victoria,Baiada Poultry, Ingham Enterprises, Turi Foods, Hazeldene’s, which collectively operate six processing facilities in Geelong, Bendigo, Mornington Peninsula and Melbourne. Processing plants employ large amounts of labour and thus are located near population centres.

2.A large number of small contract growers, who own and operate the majority of the meat chicken growing farms. They grow out the chickens for the major processing companies. The processing companies provide day-old-birds, feed and support services to the growers.The farms are independently owned, with the exception of some of Hazeldene’s farms, which are owned by the processor. There are around 200contract growers across Victoria. Contract growers are generally located within 100km of the processing plant[30].

In 2014/15 there were approximately 225 chicken meat farms in Victoria. With overall production of 131 million chickens, this means that average production per farm is 580,000 chickens per year. However, the average farm size is growing, with a typical new farm being considerably larger than the current average. A new farm typically has eight sheds holding approximately 40,000 chickens/each[31], and can therefore produce 1,700,000 chickens per year over 5-6 batches.

3.There are smaller processors that purchase undressed chickens from larger processors’ growers. There are also a number of small companies that purchase dressed birds for further processing – boning and other value adding activities.

The chicken meat supply chain includes the pre-production of inputs such as feed, on-farm production (breeding farms, hatcheries and broiler farms), and chicken meat processing and distribution.

The chicken meat supply chain is highly vertically integrated. Processors are fully or partially involved in all stages of production from feed mills, breeding farms, hatcheriesand grow-out farms,through to the processing. The broiler farm work is contracted out to farmers (although Hazeldenes also own and operate farms). Generally speaking, processors supply feed and advice to growers to ensure the chickens are raised to the standard they require.

The chicken meat industry value chain and ownership is shown below in Table 21.

Table 21: Chicken meat supply chain and ownership

Activity / Function / Ownership
Feed mills / Produce animal feed / Small number of specialist feed mills/processors
Breeder farms / Produce fertile eggs for growing on / Aviagen/consortium of processing companies
Hatcheries / Incubate fertile eggs until they hatch / Four large processors
Broiler farms / Grow day old chicks to maturity / Large number of small-medium enterprises. Growers are contracted by the four large processors. Some growing farms are also fully owned by processors.
Processing plants / Slaughter birds and prepare meat products for sale / Processors (large and small)
Further processing plants / Purchase dressed birds from the processors and value-add / Large number of small and medium companies. Some involvement by large processors

The location of Victorian processors and their grow-out farms is shown in Victorian supply chain is shown in Figure 24.

Figure 24: Location of chicken meat farms and processing plants in Victoria

The number of farms and processing plants for each location is shown in Table 22.

Table 22: Location of primary production and processing[32]

Activity / Broiler farms[33] / Processing plants
Geelongregion / 81 / 1
Bendigo region / 54 / 1
Mornington Peninsula region / 90 / 1
Melbourne region / 0 / 3

3Method

3.1Overview of the method

The estimates of regional economic impact presented in this report are based on a combination of data collection and economic modelling:

Data collection. We surveyed chicken meat farmers and processors to understand at a detailed level the expenditure and production patterns in the industry. This was scaled up to industry level with secondary data from the Australian Bureau of Statistics.
Economic modelling. EconSearch’s input-output model, RISE (Regional Industry Structure and Employment), was used to convert expenditure estimates into estimates of economic impact.

Further detail on the method is provided below.

3.2Data collection

3.2.1Primary production

Data on primary production were collected through the Australian Bureau of Statistics(ABS) and interviews.

ABS data included information on the overall scale of production for each region. Two main data items were used:

Gross value of production
Number of birds on hand at 30 June

Nine chicken meat farmers, who were broadly representative of the range of farmers in terms of size and location, were surveyed. The survey was used to gather more detailed information about primary production that is not already publicly available: