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DOCUMENT CONTROL

Job Name: Kempsey Regional Saleyards Business Development Plan

Owner: Kempsey Shire Council

Manager: Gayleen Burley

Email: gayleen.burley@kemsey.nsw.gov.au

Telephone: 02 6566 3200

Version Date Reviewed Approved Draft 1 8 September, 2020

mailto:gayleen.burley@kemsey.nsw.gov.au

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TABLE OF CONTENTS DOCUMENT CONTROL .............................................................................................................................. 2

TABLE OF CONTENTS ............................................................................................................................... 3

EXECUTIVE SUMMARY.............................................................................................................................. 5

OVERVIEW .................................................................................................................................................. 5

CONTEXT OF KEMPSEY REGIONAL SALEYARDS WITHIN THE BEEF INDUSTRY............................... 5

CRITICAL SUCCESS FACTORS................................................................................................................. 6

TIMING AND IMPLEMENTATION ............................................................................................................... 7

CURRENT STATUS & FUTURE STRATEGY ............................................................................................. 7

STAKEHOLDER ENGAGEMENT ................................................................................................................ 9

ECONOMIC CONTRIBUTION ..................................................................................................................... 9

SALEYARD POTENTIAL IMPROVEMENTS ............................................................................................. 10

OPERATING MODEL ALTERNATIVES (LEASE OR LICENCE) ............................................................... 10

FINANCIAL FORECASTS .......................................................................................................................... 11

1. BUSINESS OVERVIEW ............................................................................................................... 13

1.1 BUSINESS DESCRIPTION & BACKGROUND ............................................................................ 13

1.2 YARD STRUCTURE & RELATED INFRASTRUCURE ................................................................ 14

1.3 SALEYARDS CONTEXT IN BEEF PRODUCTION SUPPLY & VALUE CHAIN ........................... 16

1.4 IMPORTANCE OF SALEYARDS TO THE COMMUNITY ............................................................ 17

1.5 CURRENT OPERATING MODEL ................................................................................................ 18

1.6 KEY CONSIDERATIONS FOR FUTURE OPERATION & DEVELOPMENT ................................ 18

2. SALEYARDS KEY STAKEHOLDER PERSPECTIVES ............................................................... 19

2.1 COUNCIL & MANAGEMENT ........................................................................................................ 19

2.2 AGENTS ....................................................................................................................................... 19

2.3 VENDORS .................................................................................................................................... 20

2.4 BUYERS ....................................................................................................................................... 20

2.5 TRANSPORTERS ........................................................................................................................ 21

2.6 OTHER INDUSTRY RELATED BODIES ...................................................................................... 21

2.7 OTHER RELATED BUSINESSES ................................................................................................ 22

2.8 GENERAL COMMUNITY.............................................................................................................. 23

3. INDUSTRY DRIVERS, OUTLOOK & TRENDS ........................................................................... 24

3.1 OVERALL INDUSTRY OUTLOOK ............................................................................................... 24

3.2 NATIONAL HERD & THE DROUGHT .......................................................................................... 25

3.3 CHINA & COVID-19 ...................................................................................................................... 28

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3.4 PRICES ........................................................................................................................................ 29

3.5 BEEF CATTLE SELLING TRENDS .............................................................................................. 31

4. KEMPSEY SALEYARDS CATCHMENT & FIT FOR PURPOSE ................................................. 35

4.1 REGIONAL CATCHMENT & SALEYARD DISTRIBUTION .......................................................... 35

4.2 KRS - FIT FOR PURPOSE & CAPACITY CONSIDERATIONS ................................................... 40

5. MARKETING & SALES DEVELOPMENT PLAN ......................................................................... 42

5.1 ATTRACTING MORE BUYERS AND SELLERS & AMENITY OF THE YARDS .......................... 42

5.2 DEVELOPING MACLEAY VALLEY BEEF (BRAND, GENETICS, HUSBANDRY, PROCESSING & SELLING) ..................................................................................................................................... 42

5.3 RING VERSUS PEN AND PADDOCK SELLING. ........................................................................ 43

5.4 MULTI-AGENT USE OF THE YARDS .......................................................................................... 44

5.5 TRANSPORTER CONSOLIDATIONS & USE OF THE YARDS ON NON-SALE DAYS .............. 44

5.6 ANCILLARY SALES OPTIONS .................................................................................................... 45

5.7 ADVERTISING ............................................................................................................................. 45

5.8 COMMUNITY ENGAGEMENT, SPECIAL EVENTS & TOURIST MARKETING ........................... 47

5.9 FEES & CHARGES ...................................................................................................................... 47

6. OPERATIONS DEVELOPMENT PLAN ....................................................................................... 48

6.1 PHASE 1: SHORT TERM OPERATIONAL IMPROVEMENT RECOMMENDATIONS ................. 48

6.2 PHASE 2: MEDIUM TERM OPERATIONAL IMPROVEMENT RECOMMENDATIONS ............... 58

6.3 PHASE 3: LONGER TERM (FEASABILITY DRIVEN) OPERATIONAL IMPROVEMENT RECOMMENDATIONS................................................................................................................. 67

7. KRS FUTURE OPERATING MODELS, ENTITIES & TAG .......................................................... 70

8. STRUCTURE OF THE YARDS, LEGISLATIVE COMPLIANCE, ANIMAL WELFARE & RISKS 72

8.1 WORKPLACE HEALTH & SAFTY, SITE SECURITY & PUBLIC LIABILITY ................................ 72

8.2 STRUCTURE OF THE YARDS, QUALITY ASSURANCE AND ANIMAL WELFARE ................... 73

8.3 CATTLE LOADING & UNLOADING FROM TRUCKS & CHAIN OF RESPONSIBILITY .............. 76

8.4 ENVIRONMENTAL PROTECTION & CONSIDERATIONS .......................................................... 79

8.5 BIO-SECURITY & NATIONAL LIVESTOCK IDENTIFICATION SYSTEM .................................... 79

9. FINANCIAL PLANNING ............................................................................................................... 82

9.1 OVERVIEW .................................................................................................................................. 82

9.2 POTENTIAL FINANCIAL SCENARIOS & KEY DRIVERS ............................................................ 83

9.4 CAPITAL INVESTMENT (WITH AND WITHOUT GRANT FUNDING) ......................................... 86

10. RISK ANALYSIS & CONTINGENCY PLANNING ....................................................................... 89

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EXECUTIVE SUMMARY OVERVIEW Kempsey Regional Saleyards (KRS) have been managed by Kempsey Shire Council (KSC) at the current location on Saleyards Road, West Kempsey since 1969. KRS provide a service to the beef cattle farmers of the Macleay Valley to enable them to sell livestock and/or restock their herds. KRS is also a publicly available refuge for stock in times of flood and bushfire – but is not classified as part of the Local Land Services travelling stock network of properties. Through the development and adoption of this Business Plan, KSC have a roadmap by which the services of KRS may be made available to Macleay Valley farmers for the long term in a financially independent and sustainable fashion. This means that not only should KRS be cost neutral to the General Fund (including funding its own depreciation), but ideally needs to be able to fund its own contribution towards capital investments (with potential financial assistance from external funding sources). In addition to financial independence and sustainability, KSC seek an operating model that mitigates Council exposure to operational risks, while ensuring KRS operates in accordance with legislative and environmental requirements and animal welfare standards. KRS provide a ballpark $8m annual contribution to the regional economy (AEC Estimates from 2016) and provide highly valued social amenity to the farmers and cattle industry workers of the Macleay Valley. This Business Plan is written based on KSC continuing to own and operate KRS and provides context throughout, should KSC determine leasing of KRS as the preferred management model. In September 2020, KSC will conduct an open market expression of interest (EOI) for the lease of KRS, and subject to response to that EOI, KSC is expected to finalise the operating model for KRS. KSC management will then implement the Business Plan (or the Lessee will do so at their discretion) and actively investigate relevant grant funding that may assist in any major future capital works at KRS. CONTEXT OF KEMPSEY REGIONAL SALEYARDS WITHIN THE BEEF INDUSTRY With a national herd of around 25m head and with 60% of annual production being exported, Australia is a small player, accounting for 2% of the estimated 1.25B global herd. KRS, with average annual throughput of 33,000 head (excluding the drought induced upswing to 43,000 head in 2019/20), is subject to a myriad of trading influences within what is a complex global supply and value chain between combinations of farmers, intermediaries, processors, exporters, customers, and consumers. Like many of the other approximately 96 remaining saleyards operating in Australia, KRS has struggled in recent years to maintain throughput levels and be financially viable, especially as the proportion of the national herd channelled through saleyards has decreased, with more cattle being sold direct from larger farmers to intermediaries and processors. KRS has fared better than many other saleyards, and this is a credit to all stakeholders and

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testament to the potential longer-term viability of KRS. This performance is predominantly a likely function of three key factors:

• The structure and resilience of the cattle farmers in the Macleay Valley; • The marketing, sales expertise, and commitment of the selling agents; and • The quality and capacity of KRS infrastructure provided by KSC in comparison with other

Mid North Coast NSW saleyards. The combination of major macroeconomic factors like demand from China, or the strength of the Australian currency, have significant influence on the long-term viability of KRS as well as profound local influences such as the recent drought, bushfires, floods and pandemic (COVID-19). This Business Plan recognises the value of KRS continuing as one of the leading saleyards on the Mid North Coast NSW within the changing nature of the national cattle industry, as well as global economic influences. This Business Plan proposes a capital investment strategy to assist KRS to achieve financial self-sustainability. CRITICAL SUCCESS FACTORS Success for KRS means:

• Whole of government/industry approach (ie Council, state and federal governments and regulatory bodies like MLA) continuing to provide the framework and support for the growth of quality cattle in the Macleay Valley region;

• Ensuring KRS remains attractive and affordable for vendors, agents and buyers; and • The facility becomes financially self-sufficient.

At the same time, stakeholder processes and procedures, together with the built environment, needs to ensure operational safety, biosecurity and animal welfare standards are maintained, regardless of whichever operating model KSC adopts. In summary, the drivers of change to achieve this outcome are as follows: -

• Recognising the inherent strength and fit-for-purpose/scale of many aspects of the current KRS and ensuring that capital improvements demonstrate a direct return on investment;

• Correctly attributing management responsibilities and associated costs for all aspects of operation of KRS and a common understanding and agreement of same between the stakeholders. This will ensure legislative compliance and management of risks in areas such as, but not limited to biosecurity and environmental considerations, responsibility for animal welfare, and transportation (ie Chain of Responsibility) and Workplace Health and Safety;

• Bringing KRS up to a maintainable operating standard through the refurbishment of any heavily worn componentry and/or modifying or replacing structural elements of KRS;

• Ensure KRS maintenance and cleaning procedures are reviewed and brought into line with best practice in terms of efficacy and cost. This will involve some capital expenditure options and biosecurity planning;

• Providing the framework to enable the potential for multi-agent sale days, depending on the operating model;

• Reviewing the cost and function of software used at KRS, together with the future demands of the facility (on-line auction interface, and multi-agent sales, NVD/NLIS management and speed of lot throughput) and adopting the software best suited to future demand (e.g. Archer or Livestock Exchange for saleyard transaction management and

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Aleis for NLIS related RFID scanning); and • Adjustment of financial mechanisms (whether that’s KSC Fees and Charges or a Lease

Payment) that ensures a user-pays approach, and the commercial benefits accrued from the operation of KRS are shared in a way that recognises KSC equity in provision of the facility as a service to local farmers and industry.

TIMING AND IMPLEMENTATION While this Business Plan provides a roadmap for a successful reset of KRS to enable the facility to become financially self-sufficient, the actual implementation of a final plan will not occur until after Council have called for Expressions of Interest (EOI) in Leasing KRS, and then determining whether the facility is best operated by Council (even if Council elects to manage the facility via the appointment of an independent sub-contractor) or by a suitably competent Lessee. It is expected that this EOI campaign and the decision on the operating model will be determined by Council in the first half of FY20-21, and that implementation of the new model and related drivers of change would take a further 3-6 months to be completed – regardless of whether the future management of KRS is undertaken by Council directly or by a Lessee. Naturally, if a Lessee is appointed to operate KRS, then the Lessee would be expected to form their own business plan for KRS which may or may not incorporate the strategies and actions detailed in this document. KRS is an important asset that provides commercial and social amenity for the farmers of predominately Mid North Coast NSW. It is the intention of the delivery and implementation of this Business Plan that every effort is made by KSC to ensure the commercial sustainability of KRS for the benefit of all stakeholders and the community. CURRENT STATUS & FUTURE STRATEGY While the Saleyards are well regarded in a broad context, and aside from the drought induced uplift in 2019/20, the sale throughput in recent years has been steady, there is a risk of future throughput declines as more farmers sell their cattle direct to each other or to processors, or online and less through saleyards generally. The 2019-20 financial year has seen a multitude of impacts on sale volumes and prices at Kempsey whilst farmers and processors have struggled with the drought. The drought resulted in significantly higher sales volumes and low prices with farmers destocking in the period through June to December 2019. The NSW bushfires caused even more destocking to the point where the regional herd was likely to be depleted of potential breeding cattle. Meat and Livestock Australia expects the drought to have depleted the National Herd to 24.7m head, its lowest level in 20 years.

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Figure 1: Australian Cattle Herd Size Actuals & Forecast 2000-2022. Source MLA and ABS.

In February 2020, the Kempsey Shire received consistent strong rains, to the point of minor flooding of the Macleay River. This caused some destocking by farmers in flood prone country and strong desire by inland farmers to begin restocking. This has led to a consistent upswing in prices, which in turn has caused some long term cattle farmers to sell a large portion of their stock to take advantage of the highest prices in around five (5) years. The combination of all these factors has seen the annual throughput of KRS for 2019-20 to be close to 43,000 head of cattle – the highest throughput in the last twenty years. While this is a strong result for the saleyards, it has been a very tough year for farmers. It should be expected that in the coming FY20-21 the throughput of KRS may decline significantly to more like 30,000 head, or even lower, as farmers restock after the drought and in some cases rebuild their herds entirely. To retain its position as a leading regional saleyard KRS needs to continue to provide a competitive facility to enable local vendors and buyers to buy and sell cattle. Continuing to invest in technology and facilities to make for efficient and high quality transactions, with positive animal welfare management, will ensure cattle buyers and sellers utilise the KRS and are less likely to transact directly, online, or via neighbouring yards within the region, which would result in a loss of market share for KRS. Operational development recommendations have been separated into three tranches of investment, including near term (next twelve months or less), medium term and longer term recommendations to ensure the Saleyards is operated responsibly and safely in accordance with government regulations, community expectations and industry standards. In June 2020 KSC allocated $105,600 of funding from the NSW Government Drought Communities Program to short term capital improvements to KRS. It is envisaged the further adoption of this plan, including the efficiency improvements, will ensure KRS remains well positioned to retain its status as one of the leading cattle selling facilities on the Mid North Coast NSW.

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STAKEHOLDER ENGAGEMENT KRS is a significant asset, that is highly valued by users and stakeholders. In March 2019 KSC undertook a strategic review of the saleyards including a workshop attended by more than 50 stakeholders comprising Agents, Processors, Buyers and Vendors, Transporters, Industry Groups Representatives together with Council Management and Councillors. This workshop fleshed out priorities and ideas for improving the yards and gave preliminary consideration of strategic options for the yards. In addition, in June 2019 Council completed a survey and public forums related to KRS management options. Council also engaged the community through the ‘Your Say Macleay’ website. Over 900 letters of support and a very engaged gallery at the public forum strongly supported the Council retaining ownership of KRS and improving the yards. If KSC elect to continue to operate KRS, it is recommended that a KRS Technical Advisory Group (TAG) be formed. While not being delegated authority under s355 of the Local Government Act 1993, the TAG would meet quarterly and comprise experienced industry stakeholders and provide valuable advice to the Commercial Business unit of KSC to ensure best practice in further development of the operations of KRS. Significant saleyard reports compiled for KSC, and considered in the preparation of this plan include, but are not limited to the following: -

Table 1: Historical Kempsey Regional Saleyards Reports Referenced in the preparation of this Business Plan.

Document Name Date Author/Consultant KRS Strategic Options Paper June 2019 KSC staff Business Plan for KRS March 2017 (updated

version from 2014) GHD

KRS Financial Plan March 2016 GHD Business Plan for KRS May 2014 GHD KRS Market Analysis & Financial Modelling

2013 GHD

KRS Infrastructure Review and Feasibility Study

2006 Huefner & Associates

ECONOMIC CONTRIBUTION The 2017 Business Plan prepared by GHD indicated that KRS could directly generate over $2m in economic activity for the Kempsey Region, and each year employs between 15-20 people. As the table below indicates the further indirect effect economically means KRS could contribute up to $8m in economic output for the Kempsey region. Any enhancement in sales volumes or values resulting from the implementation of this Business Plan will only serve to increase the contribution of the saleyards to the local economy.

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Table 2: Economic Benefits of KRS to the Kempsey Region. Source: AEC Estimates Dec 2016.

The focus for KRS moving forward is to ensure this broader economic benefit is funded by the users of the saleyards, and not subsidised by KSC General Revenue. SALEYARD POTENTIAL IMPROVEMENTS Consistent with Strategic timeframes, investments into the Saleyards have been separated into three tranches of investment, as further detailed in Section 6.

Table 3: Summary of Proposed Staged Capital Investments to KRS to fund Operational

Development. Stage of Works Estimated Cost of

Works Example of Improvements

Phase 1: Short-Term Operational Improvement Recommendations

$111,052 (of which the bulk will be funded by $105,600 from DCP Grant)

Cattle Crush; Feeding Improvements & Pen Alignments; Holding Paddock Improvements; Shade and Rubber Mats to Select Areas.

Phase 2: Medium-Term Operational Improvement Recommendations

$250,000 Cleaning Related (Bobcat and Water Recycling); Agents Office; Efficiency Improvements; Kiosk Area Refurbishment.

Phase 3: Longer-Term (Feasibility or Legislation Driven) Recommendations

~$1,000,000 + Roofing and Soft Floors; New Amenities; Truck & Visitor Parking.

OPERATING MODEL ALTERNATIVES (LEASE OR LICENCE) KSC intend to conduct an open market expression of interest (EOI) for suitably competent operators to lease KRS, so as Council may consider three potential management solutions for the Saleyards with their potential advantages and disadvantages as outlined in the table below.

Impact Summary Direct Effect

Industrial Effect

Consumption Effect

Total Effect

Type 1 Multiplier

Type 2 Multiplier

Output ($M) $2.50 $0.85 $0.76 $4.10 1.339 1.641

Employment (Jobs) 17.2 7.2 7.6 32 1.417 1.861

Wages and Salaries ($M) $1.86 $0.48 $0.43 $2.3 1.26 1.489

Value-added ($M) $1.26 $0.37 $0.43 $2.07 1.297 1.64

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Table 4: KRS Operating Model Advantages and Disadvantages

Ultimately each option has its merits, and until Council determine the extent and level of interest from potential Lessees it’s not possible to foresee or recommend to Council which of the options to pursue. Once this decision has been made by Council, this plan for the business development of the saleyards can be further modified or developed in accordance with the management option chosen by Council. FINANCIAL FORECASTS FY2019-20 has seen a very significant drought related uplift in cattle sale numbers and therefore both revenue and costs for KRS have increased accordingly. The net effect is a forecast operating loss of around $50,000 (including depreciation). As part of developing this Business Plan KSC has interrogated KRS operating cost drivers and investigated options to better manage them. The basis of the plan to ensure financial self-sufficiency is to ensure the continued market attractiveness of KRS to buyers and sellers without over-capitalising. This strategy assumes a balance between implementing a moderate increase in user fees, concurrently with delivering ongoing operating cost reductions and efficiency improvements. To achieve financial self-sufficiency it is recommended that the vendors yard dues and Agents’ per

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head selling fees for the Saleyards are increased by 11% effective 1 November 2020 (from $7.65 to $8.50/head) to fund ongoing maintenance while ensuring smooth day to day operations of the saleyards. This change would bring KRS yard dues in line with other ‘like’ saleyards with similar infrastructure and services in the region and improve the likelihood of KRS being self-sufficient financially despite forecasted lower throughput numbers and lower costs. A lower throughput of 26,000 head, as per 2011, compared to the 43,000 head this year, makes for a ballpark $150,000 reduction in revenue. The 2020-21 financial year is likely to see substantially reduced numbers of cattle through the yards due to current year herd depletion and restocking (maybe to around 2011 levels), before the longer-term trend volumes around 30,000 to 35,000 head of cattle per annum return. It is also possible that any change to the operating model itself employed at KRS may negatively impact the short-term sales volumes, depending upon what Council decides. If Council decide to continue to operate the yards, Council management and staff will focus on the yards breaking even (excluding depreciation) over the next two years and stabilising the operations at that level. That goal is achievable, but probably only with the additional Phase 2 capital investment to help reduce cleaning costs. KRS will never be a ‘set-and-forget’ type operation but instead require constant and attentive management to deliver Councils desired goals of delivering a highly regarded and positive service to stakeholders, an efficient and safe environment, with positive animal welfare provisions and financial self-sustainability. Some of the proposed medium-term cost reductions and efficiency improvements (such as cleaning options) require further validation and testing prior to implementation to confirm the magnitude of economic benefit. If Council continue to operate the yards, these endeavours will be further informed by proposed implementation of the KRS Technical Advisory Group (TAG). Should KSC decide to lease the saleyards it is likely there will be a period of adjustment for all stakeholders, and KSC will focus on meeting its requirements of the lease and supporting local farmers where possible, but otherwise leaving the day to day operations and financial performance of KRS to the Lessee and Agents. Council would continue to work with the Lessee to pursue grant funding opportunities as they may arise and relating to the Phase 3 Feasibility Driven Improvement Recommendations. It is important to recognise that any grants requiring dollar-for-dollar matching will be considered in accordance with KSC overall financial position and priorities at the time.

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1. BUSINESS OVERVIEW

1.1 BUSINESS DESCRIPTION & BACKGROUND Kempsey Regional Saleyards is the sixteenth largest of the forty-one livestock saleyards in New South Wales (NSW) and averages around 30,000 head of cattle sold per annum, equating to livestock sales in excess of $30 million per annum. KRS have been located at their current site on Saleyards Road to the north of the Kempsey town since 1969.

Figure 2: KRS circa 1969. Source: KSC Archives.

KRS is a Council asset with a book value of around $1.4m and is considered important to the farmers and beef processors of the Macleay Valley, enabling easy sale and purchase of cattle with regular sales taking place on a fortnightly basis or more often. Located close to the main town and just off the Pacific Highway makes it an attractive venue for aggregators or transporters to also manage cattle on behalf of customers. Further, KRS can be an important stock refuge in times of flood or bushfire (but is not dedicated as such). The main precinct is built on Lot 1 DP530690, while the adjacent Lot 3 DP623073 is used for wastewater treatment and holding paddocks, as per the aerial photo below.

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Figure 3: Kempsey Regional Saleyards Existing Site Layout & Facilities

Major upgrades of the facility have taken place over the past fifteen years, especially with the replacement of wooden pens and dirt floors with steel pens and concrete or gravel floors. In addition, the site has a roof covering the main weighing and selling ring and a basic kiosk and amenities.

1.2 YARD STRUCTURE & RELATED INFRASTRUCURE KRS operate on a ring selling model whereby cattle are weighed and moved by lot into a selling ring, with buyers bidding in real time for the cattle in the ring until the auctioneer calls the lot sold and introduces the next into the ring. Many saleyards have now moved to pen selling, whereby the buyers and auctioneer move from pen to pen. Pen selling can be quicker and potentially less stress on the cattle than ring selling. While Kempsey could consider moving to pen selling (and on occasion select lots are sold by the pen before auction), the increased costs to make the elevated walkways and ensure public safety would not be justified. Further the advantage of ring selling is that the cattle can be split from a pen into discreet lots (of maybe only a couple of head) and the buyer is then more certain of exactly which cows they are bidding for, and they know the weight (except store sales, where auction is per head without weighing). KRS is essentially made up of:

• A Northern Section for inbound stock that largely comprises entry ramps, a cattle crush and concrete floors with steel pens.

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Figure 4: Northern End of KRS Looking Toward Grandstand

• The Central Section that is roofed where cattle are weighed, scanned, and sold in the ring to buyers in the grandstand; and

Figure 5: KRS Selling Ring Viewed from Grandstand

• The Southern Section where cattle are moved post sale and before collection, with this section being largely gravel floors and a mix of steel and wooden pens adjoining cattle loading ramps.

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Figure 6: Cattle at KRS (Wooden Rail Yards Northern End).

1.3 SALEYARDS CONTEXT IN BEEF PRODUCTION SUPPLY & VALUE CHAIN

The saleyards are an integrated part of the broader global Beef Supply chain. Figure 7 graphically shows the context, key metrics (based on 2018) and integration between saleyards and the other key elements of the supply chain.

Figure 7: Australian Beef Supply + Value Chain 2019. Source: www.sustainableaustralianbeef.com.au.

This schematic highlights the significance of saleyards as an interface from one farm to another, or via a transporter, from a farmer to a feedlot or processor, or indeed to another saleyard. The size of the Australian national herd has averaged around 27m head (although post the drought

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is forecast to be 24.7m head) and the combination of all Australian saleyard throughput is 4.5m head annually, or around 16% of the herd. Clearly the ‘competitors’ to saleyards within the domestic supply chain are farmers dealing directly with each other (‘paddock sales’ with or without an agent) or with processors (taking a spot in an abattoir production ‘grid’), or with feedlots. In addition, sales are increasingly being conducted online (be that with the physical stock at a saleyard or still in a paddock). Whilst KRS is a safe, easy, high amenity (for animals and people) and efficient means of buying and selling cattle, the volume of 30,000 to 40,000 head sold through KRS each year is very small in the global context. Yet it is these global aspects of the supply chain (largely outside the influence of the shire or the state) that often determine the price realisation at KRS which ultimately can determine the attractiveness of the yards to farmers and to the profitability of their livestock businesses generally.

1.4 IMPORTANCE OF SALEYARDS TO THE COMMUNITY KRS are a highly regarded facility used by the farmers of the Macleay Valley and Mid North Coast of NSW. Farmers gather at the yards to buy and sell stock but also to share ideas and to socialise generally. KRS plays an important part in the social fabric of the farming community and particularly in the positive mental health of farmers. In addition, the yards provide an economic stimulus to the local economy through direct employment of stock agents and staff and through the purchasing of other goods and services by visiting buyers and sellers.

$4.1m OUTPUT FOR LOCAL BUSINESSES.

32 FTE JOBS (FULL TIME EQUIVALENT) including $2.3m in salaries

More broadly however, a 2008 Micromex Research survey of 300 shire residents selected at random, revealed that the saleyards was the least important, in relative terms, compared to other more essential services provided by Council such as roads, water and sewerage. Therein maybe lies a challenge for Council and stakeholders in KRS, to engender more involvement and interest from the broader community as neighbouring saleyards at Macksville and Nabiac have done with the creation of other activities in and around the Saturday Store sales that appeal to a broader segment of the population. e.g. including a show cattle event at the end of the sale, or a BBQ/spit roast lunch.

Figure 8: Economic Contribution of KRS to Broader Community. Source: AEC 2016.

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1.5 CURRENT OPERATING MODEL The asset that is KRS is currently owned, developed and maintained by KSC and is used under an exclusive licence agreement by Kempsey Stock and Land (KSL) to sell cattle, for which KSL pay the Council an annual fee. On and off over the past few years other agents including Ray White Rural have operated at KRS, with varying degrees of success. It has been suggested that buyers are reluctant to visit the yards for multiple days in the one fortnight and that for multiple agents to successfully operate they would need to do so on the same day as the prime agent. The current stock agent conducts in the order of 35 sales a year and the throughput on any given sale can vary from as low as two or three hundred head to just over two thousand head. While Council staff maintain the facility in terms of ensuring the operation of equipment and gates, and cleaning and maintaining all yards and water troughs, all other aspects of operations pre, during and post sales are the responsibility of the licensed agent.

1.6 KEY CONSIDERATIONS FOR FUTURE OPERATION & DEVELOPMENT

The four most important considerations for future operation and development of KRS are listed below and these guide the development of this Business Plan:

• Ensuring the safety of the facility for workers and visitors, • Improving the welfare of the cattle whilst in the yards and ensuring biosecurity, • Enabling the yards to be financially self-sustaining by increasing revenues and

decreasing costs of operation, • Creating compelling marketing and operating conditions that ensure the attractiveness

of KRS to agents, as well as buyers and sellers of cattle on the Mid North Coast NSW.

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2. SALEYARDS KEY STAKEHOLDER PERSPECTIVES There are many KRS stakeholders and it would be fair to say that any future development of the yards will endeavour to strike a balance between the sometimes-competing priorities of the key stakeholders. This Busines Plan seeks to achieve this balance.

2.1 COUNCIL & MANAGEMENT Council acknowledges the importance of the ongoing operation of the saleyards, and the significance of the saleyards to the Macleay Valley farming community as well as other stakeholders. At the September 2019 Council meeting, Council determined not to sell KRS, or to build a new facility, but retain the existing asset and either lease it or continue to operate it. As a Commercial Business of Council, KRS should be self-funding and wherever possible not be subsidised by General Fund (ie funded by general rating revenue). Council’s Commercial Business staff manage the development and maintenance of the yards within the operating budget approved by Council, and actively seek grant funding where possible and where it fits with Council’s capacity and priorities to match any grant funding contributions. The management of sale day operations at KRS is left exclusively to the licenced agents. Council staff prepare the facility in advance of the stock for a sale arriving, but otherwise only get involved if there is an issue with the infrastructure or if requested by the agent. Irrespective of the decision Council makes in relation to the operating model for the yards, the Commercial Business team will seek to ensure the facility is well managed and highly regarded by all stakeholders, with clear responsibilities between the stakeholders defined to ensure an efficient and safe operation. Even if Council elects to lease KRS, it will be a condition of the lease that the facility be made available as a public stock refuge for use by farmers of the Macleay Valley during a declared section 44 emergency.

2.2 AGENTS In 2020/21 KRS operates with one licenced agent being KSL. KSL have operated out of KRS since 1989 and have developed a trusted reputation as hard working and reliable agents, who deliver a positive sale experience for all participants. KSL train their staff and contractors in animal husbandry and workplace safety and provide KSC access to audit their sales operations twice annually and provide sales throughput information after each sale. There is mutual reliance between the licenced agents and KSC to continue to ensure the success of KRS. KSC provide the facility and licenced agents market and conduct the sales. Cleaning and feeding of stock, and who is responsible for it, and the cost of it, is perhaps the biggest area for improved cooperation between the parties should Council elect to continue operating KRS.

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Other saleyards on the Mid North Coast NSW typically have more than one agent operating from their saleyards and have at least some multi-agent sales, and indeed even have agent co-operatives. Whether having additional agents makes for improved outcomes for other stakeholders is debatable, with mixed results experienced by neighbouring saleyards in the Mid North Coast region.

2.3 VENDORS Anecdotal evidence from licenced agents at KRS suggests the vast majority of vendors of cattle at KRS are smaller farmers with total herds of less than 50 cows. In any one year the typical quantity of cattle sold by a single vendor is around 10 head, and even that may be over the course of two or three separate sales at KRS. This is a key part of why KRS is important to local farmers, because without the quantum of stock associated of a more significant farm (or unless selling an entire herd in a single transaction), a large number of Macleay Valley farmers are not able to deal direct with processors or feedlots or even transporters. Vendors seek a smooth stress-free sale of their cattle which means making transport and receipt at the yards easy and requires the conscientious service of the agents operating out of the yards. In addition, vendors desire a strong return for the cattle they do sell, with the return being a function of the sale price they achieve, less any selling and transport costs plus whatever their pre-sale input costs have been. The reality is that the selling price achieved in the auction is generally far more significant to the overall outcome for the vendor than the sales agents commission (at typically around 4% of the sale price), or the magnitude of the saleyard yard dues (currently $7.65/head), or even the transport costs (that could range from $15/head for within an hour of the yards, up to $40/head to ship a cow to a major livestock sales centre such as Tamworth or Casino).

2.4 BUYERS To achieve optimal interest in the sale yards, the vendors need to prepare quality cattle for sale, the Agent needs to ensure effective marketing of the stock available, and there needs to be competition between enthusiastic buyers of cattle on the day of sale. Buyers, and competition between, them is every bit as important to the success of the sale as the quality of the cattle themselves. Kempsey has a select number of key cattle buyers who regularly attend sales and effectively drive the demand at KRS. They may be individual traders, or they may represent a processor or stock agent from outside the Macleay Valley. In addition to these professional cattle buyers there are farmers who may be seeking to restock their herds or be looking to sell one type of animal such as grown steers and restock with weaners. From a buyers perspective having a significant quantity of quality cattle at the sale is an imperative, as many travel a significant distance to the sale, so the trip needs to be worthwhile. KRS lacks some of the more modern comforts that may exist at other saleyards such as offices, air-conditioned canteens and modern amenities. While these improvements would

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probably be welcomed by buyers, the absence of them at Kempsey is unlikely to deter them from attending a sale so long as the cattle quality and quantity is delivered. In fact, buyers are probably more concerned about the care of the stock than any amenity for themselves. Having cattle that have been handled well within the yards without bruising or slipping and that are free of sore feet because they do not stay on hard ground for long, and have ready access to water, shade and food if required, are all important to buyers. Many of the animal welfare initiatives included in the operations section of this plan are not only positive for the cattle but will be appealing to the buyers of those cattle and in turn increase buyer enthusiasm for attending KRS.

2.5 TRANSPORTERS Kempsey is conveniently located close to the Pacific Highway and this certainly adds to its appeal from a transporter’s perspective, making for easy access. With multiple loading gates for different sized vehicles and for delivery and collection, and an effective truck wash, KRS is adequately fitted for the receipt and collection of stock. Improvements to the parking area and road surfaces at the loading gates (all currently gravel and dirt) would be welcome improvements from transporters as would be improved amenities and the addition of shower facilities. Council is working to determine interest from transporters in formalising use of KRS for consolidation of loads of stock from multiple vendors prior to trucking to a processor for example, or indeed for transit stock seeking to use KRS as a rest location (especially with what will be improved easy access to holding paddocks).

2.6 OTHER INDUSTRY RELATED BODIES Many other industry related bodies exist to assist the Saleyards of Australia to conduct efficient and safe operations and to support farmers and other industry stakeholders. The North Coast region of Local Land Services (LLS) is the third most biodiverse region in Australia. The LLS office in Kempsey is a key support to the farmers of the Macleay Valley and work cooperatively with other stakeholders of KRS in areas such as animal health and welfare, chain of responsibility, weed, pasture and feral animal management.

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Figure 9: LLS NSW North Coast Functions & Services. Source: LLS.

Meat and Livestock Australia (MLA) provide research and reports and advice to all stakeholders within the beef industry. A spin off from MLA (known as Integrity Systems) manages the National Livestock Identification System (NLIS) and all cattle that pass through KRS need to have NLIS identification and a National Animal Health Declaration. Various other entities work together with other stakeholders to support the continued development of the beef industry of which KRS is a part. The challenges faced by saleyards in dealing with COVID-19 were aided by the cooperation between some of these entities: -

• Australian Livestock Markets Association (ALMA), • Australian Livestock Saleyards Association, • Australian Saleyard Managers Association, • Australian Livestock & Property Agents Association (ALPA), • National Saleyards Quality Assurance Program. • RSPCA

2.7 OTHER RELATED BUSINESSES

There are many other businesses which relate to KRS and are also involved in the livestock industry within the Macleay Valley and surrounds. There is a degree of interdependence between KRS and these businesses. Processors such as Eversons Foods owned by Kempsey local Stafford Everson has operated since 1988, and Wingham Industries near Taree, which is owned by the Japanese Nipponham Group, both regularly source cattle from KRS, especially when their direct supply is insufficient to meet demand and also at times when opportunities exist to acquire quality cattle at reduced prices.

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Kempsey based rural supplies stores including Dee Amber and Norco both rely on local farmers for their continued operation, as do key machinery suppliers and fencing and hay bailing contractors. These suppliers and KRS are key components of the local beef supply chain supporting the beef industry in the Macleay Valley. The kiosk at KRS is currently leased to a local third party on a low-return commercial basis. Currently, and especially during the period where attendance at sales was restricted due to COVID-19, the number of attendees using the kiosk was limited.

2.8 GENERAL COMMUNITY While KRS sits on the outskirts of the main Kempsey township, there has been new dwellings built within one kilometre of the yards, together with adjoining farming properties, and it will be important for KRS to continue to manage noise, traffic, waste water and odour to mitigate and manage impacts to the immediate neighbours from KRS operations.

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3. INDUSTRY DRIVERS, OUTLOOK & TRENDS This section considers the key economic trends and drivers impacting on the beef cattle industry, the saleyards sector and the implications for KRS.

3.1 OVERALL INDUSTRY OUTLOOK The beef cattle sector is the single largest contributor to the annual value of Australian agricultural production. Overall, the market outlook for the Australian beef cattle industry is positive however it is subject to several significant domestic and international uncertainties including rainfall levels, pest and disease outbreaks, and future trade relations. The industry is highly sensitive to international market factors, with around 71% of beef and veal produced for the export market. Irrespective of the destination (i.e. export or domestic consumption) market prices, even locally at KRS, are impacted by global market factors. A summary of the key drivers influencing the outlook for the beef cattle industry is provided in the table below:-

Table 5: Beef Industry Drivers & Outlook. Source: AEC 2019.

Industry Drivers Outlook Global Factors

Global Meat Consumption Strong due to emerging market population and income growth.

Global Meat Production While production is currently increasing in major production areas, particularly US and Brazil, the longer-term outlook remains constrained due to reduction in agricultural land and climate variability.

Trade Relations

Subject to ongoing negotiations and commitment to freeing trade. Deteriorating trade relations between the US and China may impact the future growth of US beef exports, with flow on implications for Australian export demand.

Pests/Diseases

Uncertain as industry is subject to international standards and regulations. Australia’s Foot and Mouth Disease (FMD) free status is a significant trade advantage vs FMD endemic producers such as Brazil, Argentina and India (carabeef).

Australian Dollar Softening due to Australia’s comparably low interest rates and global uncertainty regarding US and Chinese trade relations. National Factors

Input Prices (Fuel, energy, feedstock) Subject to significant uncertainty, with volatility in fuel and electricity prices.

Labour Costs Relatively stable wage growth nationally over recent years with a slight increase in late 2018. Major challenges now with COVID-19. Pest/Diseases Uncertain subject to local/Australian standards and regulations.

Local/ Regional Factors Rainfall/Growing

Conditions Uncertain with increasing risk of variability, regional producers currently facing drought and flood conditions.

Pest/Diseases Uncertain subject to local/Australian standards and regulations, with any national disease outbreak likely to impact the market for local production. Overall Market Outlook Strong subject to key production and market uncertainties.

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3.2 NATIONAL HERD & THE DROUGHT The MLA 2020 Industry Predictions are highlighted in Figure 10 below:

Figure 10: Australian Beef Herd Key Projections 2020. Source: MLA.

The Australian beef cattle herd, estimated at just under 25 million head at June 2020, is largely concentrated in the eastern states, as shown in the figures below. Over recent years the national herd has declined by more than 10%, due largely to prolonged periods of significant drought and, to a lesser extent, flooding events.

Figure 11: National Herd Volume 2000-2022. Source: MLA.

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Figure 12: State Distribution of National Herd 2019. Source: MLA.

The rich coastal soils and higher rainfall (compared to the western regions) of the east coast of Australia make it an important growing region for the beef industry in Australia. The single biggest cattle growing region in the country is the Fitzroy Basin in south east Queensland with over three million head.

Figure 13: Australian Rainfall Analysis FY2020. Source: BOM.

The North Coast of NSW enjoys similar rich soils and consistent relatively high annual rainfall as

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depicted in the chart above but is much more diverse in its agriculture and more densely populated. The region represents only 1.4% of the national herd.

Figure 14: Rainfall Analysis NSW LLS Regions FYTD FEB 2020. Source: LLS.

Whilst winter rainfall has been significantly less in recent years (in comparison to historical levels) along the east coast of Australia, the coast has still received more consistent rainfall than the inland regions and as a consequence cattle farming in the region has held up longer during the drought. Whilst farms only an hour west of Kempsey were paddocks of dirt, the coastal plains still had grass sufficient to graze cattle, albeit at lower stocking density than during times of regular weather patterns. The graphic below shows the drought rating by LLS region within NSW for the year ending February 2020. While some areas on the North Coast around Coffs Harbour and Grafton are not considered to be suffering drought, much of the Kempsey Shire was considered to be in drought or weakening drought conditions. Rainfall in the Kempsey Shire during February has at least for now eased water restrictions and enabled coastal farms to consider restocking.

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Figure 15: NSW LLS Regions Drought Recovery 12 Months to FEB 2020. Source: LLS.

Rainfall during June 2020 was below average for most of Australia, although large areas of the east and north had close to average rainfall. Nationally, June 2020 was the third driest on record for the country as a whole, behind only June 2017 and June 1940. It was also Australia’s third-warmest June on record for mean maximum temperature. Whether the long-term drought of recent years is anywhere near being over remains to be seen. Maybe it will be for some regions, but many areas to the west and north of Australia are still very much in drought. Without consistent rain across the country the herd size will likely decline further, and the North Coast NSW will continue to remain an important cattle breeding region, particularly during periods where the national herd is rebuilding.

3.3 CHINA & COVID-19 China is Australia’s second largest export market for beef, but also the most unpredictable. In 2019 the impact of African Swine Fever created a significant pork protein deficiency in the country and substantially drove up demand and prices for Australian beef as depicted in Table 6. With 22% of Australian beef exports going to China, and together with Japan & USA, these three countries account for just under 70% of all beef exports.

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Table 6: Australian Beef Export Volumes by Country & Format 12 Months Ending Oct 2019. Source: MLA.

The impact of the Coronavirus to trade both internationally and to the food service market internationally and domestically is hard to quantify, partly because of the unpredictable nature of the virus and the wildly differing outcomes between countries and even states here in Australia at containing its spread in advance of any vaccine being broadly available. In the short term KRS has held up well in terms of throughput despite the changed operating arrangements required to mitigate potential risks of the spread of COVID-19, which is a result of stringent hygiene and social distancing being implemented and enforced at KRS. However, the vast negative economic impact of COVID-19 to countries and communities around the world could be very pronounced. The longer the virus persists and outbreaks such as the current one in Victoria or the seeming unchecked escalation of cases in parts of the USA, the higher the chance of negative longer term impacts of COVID-19 on demand for Australian beef. In relative terms beef is a very expensive protein (in Australia and internationally) compared to other key options such as chicken, pork or canned fish. Similarly, the current political and trade tensions between China and many other western countries, and especially the USA and Australia, could also have significant impacts (both positively and negatively depending on what eventuates) on future demand and prices for Australian beef.

3.4 PRICES

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Beef cattle prices have been volatile over recent years with a downward trend experienced between 2016 to 2018 following a period of record high prices. Currently, cattle prices across almost all categories are displaying similar trends to pre-2016 years and as per the example depicted in Figure 16 (Tamworth and Casino prices for Cows up to 400kg). Prices declined toward the end of 2019 as the drought caused substantial destocking throughout the region including the Macleay Valley and then after the very heavy rains in February 2020 prices climbed steeply as farmers from the west of the state looked to restock.

Figure 16: Comparison of Selling Prices @ Casino and Tamworth Saleyards for Cows 0-400kg Sept 17-July 2020. Source: MLA.

Saleyards play an important role in price transparency in the value of Australian cattle at any point in time, even if an increasing share of cattle is sold via non-saleyard channels where the price in many cases is either less transparent or even confidential. Whether a farmer will achieve a higher price and better return through selling via a saleyard than direct to a processor, feedlot or restocker is something that constantly changes with time, depending on environmental and market factors. Certainly for farmers with smaller herds (

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While prices across saleyards in different regions can vary depending on the market factors and specific quality of cattle and buyers at any one sale, generally the sale prices track fairly consistently, as evidenced by the similarity in prices depicted above for Casino and Tamworth. With the costs of transport increasing from around $15/head for local trucking within the Macleay Valley, to between $30-$40/head to transfer stock from the Macleay to Gladstone or Tamworth there is strong financial incentive for vendors of small quantities of stock to sell locally. Key cattle buyers/traders though can be central to price realisation through the stock they come to buy and the stock they shift from one yard to another to sell. These key traders of cattle are central to aiding price realisation and consistency between KRS and other larger yards in NSW. Without the involvement of these buyers and traders, KRS may suffer reduced prices relative to other yards where there may be more competition, higher prices and better returns for vendors. The software currently utilised at KRS provides Council with limited tracking of sale price information. Should Council choose to continue to operate the saleyards then an upgrade of software is recommended to provide Council with:

• full visibility of transaction information, • be linked via API to sites such as the MLA or Auctions Plus, and • automatically load sales information for the yards to Agent and KSC websites. (Refer to

Operational Improvements section for more information).

After the high volatility and some stellar prices achieved at KRS, and at other yards, over the past five months, there has started to be slight price pull back. Licenced agents at KRS suggest this may be attributable to re-stockers, who were driving the price escalation, beginning to question the likely returns achievable in the near term after buying cattle at such high prices – especially if the drought were to continue, or if the negative worldwide economic impact of COVID-19 were to dampen global demand and therefore prices. How the prices fare over the balance of 2020 will be a function of many factors making it difficult to forecast a trajectory with any confidence. It is likely that they will remain volatile but at a higher level than the average of the last two years, predominantly driven by restocking.

3.5 BEEF CATTLE SELLING TRENDS The quantity of the National Herd that is sold through saleyards has been in decline over the last ten years, as a result of many of the factors listed in the table below. Despite this broad trend many larger sale yards have seen their volumes remain somewhat stable as smaller saleyards have typically closed or been reduced to event sales only and their volume moved to larger saleyards. In the year to June 2019, a total of 4.6m head or about 18% of the national herd were sold through 97 saleyards reporting to the MLA.

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Table 7: Beef Industry Trends, Factors & Implications. Source: Gunnedah Saleyards Masterplan 2019.

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Trend Description Implications

Policy Factors

Animal Welfare Currently provided as guidelines and not currently enforceable but are facing increased consumer and industry demands to be legislated.

Pen sizes/ capacity, flow logic, designs to minimise risk to livestock and people.

Environmental Increase in environmental legislation and enforcement activity.

Appropriate storm and wastewater management systems and processes in part through roofing and truck wash design.

Chain of Responsibility

Heavy Vehicle National Law (HVNL) changed to ensure all parties have a duty to ensure the safety of transport activities.

Safety management systems and controls required to be in place, affecting business practices, training procedures and review processes.

Environmental & Industry Structural Factors

Climatic Variation Variations in rainfall conditions affecting saleyard throughput.

Capacity to deal with large volumes of livestock due to de-stocking.

Technological Change

State of the art facilities to reduce stock processing times, minimise animal stress and improve buyer observation.

Roofing, soft floors and modernised drafting, weighing and transport facilities.

Economies of Scale

There are many instances of selling centres expanding and effectively overtaking smaller yards and operating as a regional selling centre.

Enhanced markets, stronger throughout, efficient, more responsive prices and greater market strength.

Smaller yards need to develop niche service, grow or risk obsolescence.

Logistics Costs Improvements in road infrastructure, vehicle technology and meat science which allows travel distance to be increased without impacts on livestock.

Increased competition between saleyards that are a significant distance apart and the emergence of regional selling centres.

Selling Methods

Over-the-Hooks (Direct) Selling

Graziers selling directly to processors from the paddock.

Have always taken place but increasing due to improved pricing. Market share is modest however compared to mainstream auctioning methods.

Abattoirs Have a broad regional area to purchase prime cattle and are susceptible to mergers/ acquisitions which could weaken competition.

Having saleyard facilities of a high quality and reputation attracting higher prices.

Online Selling Sites such as www.auctionsplus.com.au allow graziers to trade without the use of saleyards.

Auctions Plus now has an established market share and may present a competitive challenge in the future.

Conduct in Cattle Markets

The Australian Competition and Consumer Commission (ACCC) reported that saleyards have a susceptibility to anti-competitive conduct and a high risk of conflicts of interests for agents.

Weak saleyard competition will have a broad impact on the industry making them less competitive against alternative selling methods.

http://www.auctionsplus.com.au/

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In NSW alone however, of the estimated 4m head in the state, 1.6m were transacted through forty-one saleyards (average 39,000 head – with Kempsey volume being consistent with that average size), representing 40% of the herd.

Table 8: State Saleyard Throughput Volumes FY2019. Source: MLA.

In the North Coast region the herd size in June 2019 is estimated to be 360,573 head or around 1.4% of the national herd and 9% of the state herd, as per the regional map below.

Figure 17: National Herd Volumes within LLS Regions of NSW 2019. Source: MLA & LLS.

The combined volume of the key saleyards in the North Coast region in the year to June 2019 totalled around 216,000 head representing about 60% of the volume of the herd in the region. This highlights the significance of the saleyards of the North Coast within the supply chain. Smaller farms and smaller quantities per sale make for increased propensity for cattle to sell through the saleyards and this stark difference (60% of the North Coast herd through saleyards versus 18% of the National herd through saleyards) may be related to the higher proportion of young cattle sold from the coastal areas to the larger grow out regions of the west and north, and/or the high proportion of saleyard based transactions that may take place between farmers in the region.

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4. KEMPSEY SALEYARDS CATCHMENT & FIT FOR PURPOSE

4.1 REGIONAL CATCHMENT & SALEYARD DISTRIBUTION

The North Coast region has Casino (or Northern Rivers Livestock Exchange) as the main saleyard (100,000 head) followed by Grafton and Kempsey as the ‘second tier’ saleyards in the coastal region (each with typically 30,000 head). Supply and demand throughout the region also involves the movement of stock between the much larger inland yards of Tamworth and Gunnedah, especially during periods of restocking like we are seeing at present. The current stock agent at KRS estimates that up to 70% of all stock sold at Kempsey moves either west or north to farmers, feedlots, and other yards. In effect there is a circuit of saleyards in the mid-north coast NSW region, as depicted in Fig 18, with circles depicting relative throughputs of saleyards in the region around Kempsey. The larger inland yards of Inverell (IRLX), Tamworth (TRLX) and Singleton (HRLX) have all been substantially upgraded in recent years through a combination of government grant money and private investment from Palisade Investments. Key risks identified by Palisade include ‘slower than forecast ramp up in throughput’ and ‘operating costs higher than forecast’ (source:https://palisadepartners.com.au/assets/regional-livestock-exchanges/). Certainly, the MLA data for yard throughputs indicate that the very substantial investments in Tamworth and Singleton have had a finite impact on throughput. Having new and improved saleyard facilities probably has minor impact on the herd size in the region, so any improved throughput really needs to come via share gains either from other selling channels or other saleyards. This does not appear to have occurred for the RLX group. At the same time other Council yards such as Gunnedah, Scone and Casino have all recently, or are in the process of, investing many millions of dollars in their yards to ensure their amenity, animal welfare and service is substantially improved even if not directly comparable with the likes of Tamworth. The smaller neighbouring yards to KRS include Macksville, Wauchope, Taree and Nabiac. These yards operate at a lower throughput level to Kempsey, but when combined are still significant. It is possible that if Wauchope, Taree and Nabiac do not see any new investment of significance, over time most of their throughput may transition to KRS and/or Gloucester or move to alternate sales channels. It is also reasonable to assume that for some farmers, the loss of a decent local saleyard where stock can be bought and sold at fair prices, may be sufficient reason to discontinue in the beef industry.

https://palisadepartners.com.au/assets/regional-livestock-exchanges/

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Figure 18: Map of Saleyards of North East NSW Depicting Volumes and Drive Times. Source: Google Maps & MLA 2019 Saleyard Volumes.

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Macksville Saleyards, operates from the local Showgrounds under the banner of the Nambucca River District Agricultural Society Ltd and while supported by Nambucca Council, is operated predominantly by Local agent GJ Kennedy & Co. The Macksville yard size (soft floors) has recently been expanded by a third to enable increased throughput of up to 1,000 head per sale. If KSC were to cease investing in KRS, or increase yard dues too sharply, it would be likely that increasing numbers of Macleay Valley farmers may begin to sell through Macksville. The table below shows the most recent year on year cattle throughput performance for the saleyards of NSW, showing KRS sitting midfield.

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Table 9: NSW Saleyard Cattle Volumes FY2017-2019. Source: MLA.

The trend in sales throughput within the neighbouring yards to KRS in the past 15 years shows overall volume of cattle sold has almost halved from 200,000 head in 2005-06 to about 120,000 head in 2018-19. While the drought will have caused a significant uplift in throughput of all yards in 2019-20, this is an aberration, as the overall picture is saleyards accounting for a lower share of beef sales over time. The recent increase in use of online selling mechanisms, especially by Auctions Plus and StockLive is likely to see this trend in total throughput continue especially if/as more vendors

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and buyers alike become comfortable with online selling of cattle. KRS has largely maintained its share of sales at around one third, and would appear to have been the main beneficiary of the decline in sales at Taree.

Figure 19: Saleyards of Mid North Coast NSW (ex-Casino) - Total Cattle Throughput and Saleyard

Market Share FY2005-19. Source: MLA.

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4.2 KRS - FIT FOR PURPOSE & CAPACITY CONSIDERATIONS While KRS has largely maintained its share of sales at around one third of throughput of cattle within the saleyards of the mid north coast (excluding Casino), the long term trend is for throughput at around 35,000 head per annum.

Figure 20: KRS Annual Cattle Throughput FY1998-2020. Source: MLA & KSC.

Even if KRS was upgraded to the quality of Tamworth (TRLX), albeit at a smaller scale, it is unlikely that such a multi-million dollar investment would deliver any more than a modest increase to throughput from say average of 35,000 increasing to 40,000 head per annum on average. Based on the current ring selling approach, and with an exclusive agent selling on a given 12-hour day, the maximum capacity of KRS is around 2,200 head. Improvements to the transition of stock from scales to ring as outlined in the Operations Improvements section, would improve the capacity to perhaps 2,500 head/day. As the calendar below indicates, there are at least ten Thursdays a year when there are no sales currently scheduled. Conducting sales on every Thursday of the year at KRS would theoretically enable a potential 25-30% improvement in throughput with no further investment. Of course, many environmental and market factors play into demand for any particular sale, so the calendar ends up being flexible to accommodate such changes.

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Figure 21: KRS Sales Calendar for 2020 by Agent (KSL).

KRS in its current form represents a substantial Council asset provided to the farmers of the Macleay Valley and Mid North Coast NSW on very modest commercial terms. It is recommended that Council continue to ensure the facility operates to an affordable and acceptable standard and capacity to ensure its ongoing value to stakeholders whilst working to deliver financial self-sustainability.

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5. MARKETING & SALES DEVELOPMENT PLAN Some of the proposed marketing and sales initiatives outlined in the following section may require upfront investment of funds to initiate them and that would also place a short term drain on KRS finances, unless external funding could be procured, or a levy applied, or some other funding arrangement is made with stakeholders.

5.1 ATTRACTING MORE BUYERS AND SELLERS & AMENITY OF THE YARDS

As highlighted in the section on Stakeholder Perspectives, there are many smaller initiatives and actions that combined make KRS a compelling proposition for buyers and sellers alike. Ensuring the efficiency and professionalism of the operations of the yard is key to stakeholder satisfaction and covers the overall experience from the provision, yarding, selling and collection of cattle and the amenity of the yard itself. The approach taken in this plan is to improve those elements of the overall experience for buyers and sellers and their cattle which deliver the greatest improvements in amenity or satisfaction for the lowest investment whilst keeping yard dues at an affordable level.

5.2 DEVELOPING MACLEAY VALLEY BEEF (BRAND, GENETICS, HUSBANDRY, PROCESSING & SELLING)

Council is already investing in positive initiatives such as Resilience Training for Farmers, and the Macleay Valley Foodbowl program, and there is the potential to take this endeavour to a whole new level, if key stakeholders could be brought together in a united way.

Figure 22: Macleay Valley Food Bowl & Farmer Resilience Program. Source: KSC.

If Macleay Valley Beef (working title only) became a brand that was supported by farmers and processors in the region, it could drive (both in reality, and in perceptual terms in the eyes of buyers and purchasers) improvements to the quality of cattle in the Macleay Valley. It could also over time improve the prices and returns achieved by farmers and processors of Macleay Valley cattle. KRS could be rebranded and play a leading role and be a focal communications and

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operational hub for the endeavour bringing together the local experts from all sectors. Not only could branding materials and a marketing program be developed, but breeding programs and artificial insemination programs (e.g. Te Mania Angus) could be completed with breeding stock being bought to KRS for insemination, drenching and monitoring, and be funded on a user pays basis. This may especially appeal to smaller scale farmers who could not take this approach without being part of a coordinated endeavour. Council could help facilitate communication between local farmers and the MLA and LLS to help ensure farmers are supported and benefit from the latest advice in animal husbandry and pasture development practices to improve presentation of stock, or particular types of stock (vealers, prime steers, heifers ready for insemination etc) specifically targeting particular buyers or processors at certain times of the year. Local processors endeavour to promote branded processed beef but probably would need substantial buy in from Macleay Valley farmers to warrant their involvement in such a program, and to ensure the tangible quality of the beef was consistent with any brand proposition.

Figure 23: Various Meat Brands of NSW

There are a multitude of brands that have enjoyed success with this region-specific produce approach.

5.3 RING VERSUS PEN AND PADDOCK SELLING. Ring selling works at KRS mainly because the lot size is typically only 2 or 3 head, so splitting the pens into the individual lots enables buyers to bid just on the particular animals they are interested in rather than less homogenous groups of cattle as may be the case if selling from the paddock or pen. Agents at KRS do a finite amount of pen selling, where the potential buyer walks to the pen to view and offer a price on the stock, rather than wait for the stock to come to the ring and be auctioned. KRS laneways do not provide a user friendly or safe way of conducting pen selling. The only time it really occurs at present is if just one or two potential buyers are escorted by an agent to a particular pen, with that pen usually containing only one or two lots of a significant number of cattle (e.g. a pen with ten weaners in it, all of similar age and sex from the same vendor). Paddock selling is most often conducted by an Agent or potential buyer visiting a vendor’s

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farm and making an offer for the cattle directly. The advent of online selling (not auctions) via listing photos and descriptions of stock in paddocks is gaining traction as a low stress way for the cattle and also the buyers and sellers to trade. It may not be possible for KRS to stave off a drift to paddock selling by farmers, especially those with larger herds, but it may be that by adjusting KRS service offering from a traditional sale through the ring that KRS can still offer services for which vendors will pay and buyers will find appealing:-

• By splitting the current Holding Paddocks into smaller paddocks and providing the proposed cattle crossing over Saleyards Road, vendors could bring their stock to market for sale, whilst avoiding the stress to the cattle of being held in the yards.

• Buyers would then enjoy the convenience of Agents readily escorting multiple buyers through the holding paddocks of KRS to view the stock for sale. Animals could be fed hay for extended periods in those paddocks without in any way affecting the quality of the cattle.

• Vendors or buyers could utilise the crush or scales as/if required for an additional fee, or otherwise just load the cattle out of the yards to an awaiting vehicle. Perhaps these additional services might only be available/accessible on select times/days per week. These types of arrangements exist at larger yards like Roma.

5.4 MULTI-AGENT USE OF THE YARDS

Whether the typical Thursday Market Day and Saturday Store Sales at KRS continue to operate under an exclusive agent licence agreement is a key element to any future operating model. Some vendors would prefer to be able to have some choice in the Agent they use to sell their cattle at Kempsey. From the perspective of KSC or indeed a potential Lessee, it is a major unknown as to whether the conduct of multi-agent sales days would result in a net improvement in the financial position of KRS. Certainly, the conduct of a multi-agent sale would add more complexity and cost if Council remains the operator of the yards. Experience at other saleyards including Gloucester and Grafton which both operate multi-agent sales is that the introduction of multi-agent selling has not added substantially to overall volumes of cattle throughput in the medium to long term. Recent past experience in 2019 by Ray White Rural indicates that if more than one agent is to successfully operate out of KRS, then at least the Thursday sale (or even one Thursday a month) would need to be run as a multi-agent sale. If Council continues to operate the yards, then it is suggested a trial of a monthly multi-agent sale may be worthwhile, to determine whether such a change is positive for most stakeholders. This is of course also subject to the final negotiation of any Agent agreements, including any premium licence fee payable by exclusivity being afforded to a single agent (as is currently the case).

5.5 TRANSPORTER CONSOLIDATIONS & USE OF THE YARDS ON NON-SALE DAYS

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There is currently no firm data on the extent to which KRS is used as a consolidation point by farmers and buyers. It would seem to be an opportunity though to determine the extent of this demand and seek to charge users for their use of the facility. A buyer of cattle at Kempsey (on Thursday) may, for example seek to leave that cattle in KRS prior to a truck collecting them the following Monday morning, before that same truck progresses north to Grafton to collect cattle the same buyer may purchase from their regular Monday sale. At present neither KSC nor the Agent charges for this extra length of stay in the yards, despite the extra cleaning burden (especially if the cattle staying over is fed hay within the yards) it creates. Saleyards such as Casino levy fee of $3-$5/head at select times during the week for non-sale related weighing, yarding, scanning, consolidating and related uses of the yards.

5.6 ANCILLARY SALES OPTIONS It has been suggested that another option for potentially increasing KRS revenue is having exhibition or show days coinciding with a major sale day. While this may be too resource intensive, KSC could potentially generate income through selling display space on the grassed area opposite the saleyards. Whether this would be appealing to vendors and buyers and whether businesses would see merit in paying to attend would need further investigation. A number of saleyards including Grafton and Bega have arrangements with a contractor who not only manages the manure from the yards, but as part of the contract is also able to use that manure as fertiliser. If the current concerns around the potential spread of tropical soda apple seed could be managed this would be an excellent option for KRS, but at present Council is conducting trials on the holding paddocks at the KRS to determine TSA regrowth potential post manure and seed application before making any further decisions about the possibility of using the manure offsite. Given the initial promising results in grass growth with no TSA from distributing the manure from KRS waste treatment facility to the Holding Paddock, it is expected there could be reasonable demand for this manure if it could be sold or taken away to specific farm sites (that KSC could track for TSA) at no cost to KSC. Even if this did not increase sales, it certainly would have the potential to reduce costs.

5.7 ADVERTISING Currently there is a multitude of structural signage around the selling area of KRS, with much of it having been there for years, and much without ongoing payment for advertising. In the past year total advertising revenue has been only $2,500. Council could consider a sign panel that could be more readily updated than the very large metal signs in the roof of the selling area which are expensive and difficult to install and maintain.

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Guest Services Worldwide (GSW) P/L have offered KSC the opportunity to have ‘Saleyard TV’ installed at the KSC. This would be a digital screen that would be provided by GSW and display advertising (for which advertisers would pay GSW). There is no financial gain for KRS from GSW, but it would provide the ability to have KRS information messages displayed digitally at the premises.

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5.8 COMMUNITY ENGAGEMENT, SPECIAL EVENTS & TOURIST MARKETING

Whilst the option of organising special events (such as cattle shows , Big Beef BBQ Saturday Sales, or even school excursions), may serve to increase patronage and community engagement with KRS, it is unlikely that these types of endeavours are going to provide any short term return on investment given the resources required to operate such events.

5.9 FEES & CHARGES Revising KRS fees and charges for all the various usages of the yards is considered necessary however any increases in fees and charges need to ensure that they are market competitive or vendors may seek to sell cattle via alternate channels or saleyards. It is important for KSC to contextualise the communication of any increases in yard dues with the alternate saleyard benchmarking, but perhaps even more importantly by reminding vendors of the magnitude of the cash involved with the yard fees compared to the total return from selling an animal. If the yard dues are $8/head or as high as $12/head, then this potential $4/head variance between one yard and another is not so significant compared to the potential variability in the sell price for the animal which could easily vary between $300 or perhaps $350 as a result of strong competition on a good yarding. It is recommended that yard dues are increased to be consistent with Grafton and Casino, at closer to $10/head between the vendor fee and the sales agent variable fee. In future years, KSC should continue to increase fees in accordance with the market.

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6. OPERATIONS DEVELOPMENT PLAN The infrastructure requirements to support the operational development of the Saleyards have been prepared to include three key phases of development:

6.1 PHASE 1: SHORT TERM OPERATIONAL IMPROVEMENT RECOMMENDATIONS

These are near term (next twelve months or less) recommendations to ensure the Saleyards is operated responsibly and safely in accordance with government regulations and community expectations and industry standards, and remains well positioned to retain its status as one of the premier cattle selling facilities on the Mid North Coast NSW. The key initiatives and priorities for development in the short-term focus on workplace safety, animal welfare and improvements to cattle feeding regimes without negatively impacting operational efficiency associated with yard cleaning as outlined in the table below, and as marked in the precincts on the site plan photo. The first eight of the ten short term initiatives are proposed to be financed through the allocation of a $105,600 grant from the Drought Communities Programme.

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Cattle Crush (Priority 1) Almost every cow that enters the saleyards moves through the crush so as its age and health can be inspected and recorded in advance of being sold. The existing cattle crush is around fifteen years old and has been repaired many times, most recently in February 2020. The cattle crush is considered to be at the end of its useful life and is due for replacement. The existing crush is now heavy for users to operate because of the repairs, which typically involved welding more sections onto parts of the jaws of the crush that were cracked. The clutch of the jaws, which should hold the jaws closed once the cow’s head is secured, has begun to fail intermittently which creates a significant safety risk if a cow or bull suddenly breaks out of the head restraint of the crush.

Item

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ulat

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Tota

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Wor

kpla

ce

Heal

th &

Saf

ety

Anim

al W

elfa

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Ope

ratin

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Savi

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r Ef

ficie

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#

Impr

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gent

Sa

tisfa

ctio

n

1 BArrowquip Q-Catch Mark 2 Dual Extreme Cattle Crush Extreme 10,860$ 10,860$

2 BReinstate Gravel to Camel Yards so As Water Drains & Install Drain to Low Point & Further Divide Yards with Panels

14,000$ 24,860$

3 CRealign Access Ways/Gates between Pens to enable Feeding in Pens South of Camel Yards

4,500$ 29,360$

4 B/CPatons Catch All Feed Trough for Hay (6 Required @ $3876 Each) 23,256$ 52,616$

5 CCut Panels between pens on Southern side of yards and replace with swing gates to enable ease of cleaning.

6,000$ 58,616$

6 E

Transition from Holding Paddock to Yards Including Formalising Road Crossing (gates/warning signs/lights and pedestrian crossings).

15,000$ 73,616$

7 ASurefoot Rubber Mat to Drafting Area, Scales and Race to Ring (excludes install labour cost of Council staff).

16,236$ 89,852$

8 B/CShade to Selected Yards (for Cows with Calfs as minimum) as well as planting shade trees where possible.

15,748$ 105,600$

9 F/GHolding Paddock Internal Fencing (to create four smaller paddocks and complete laneway between all paddocks)

4,200$ 109,800$

10 J

Holding Paddock Perimeter Fencing (reinstatement of fence as required - Council 50% share, assumes adjoining owners contribute balance)

5,000$ 114,800$

Phase 1: Short-Term Operational Improvement Recommendations - $105,600

Kempsey Regional Saleyards Business Plan August 2020 Infrastructure Upgrade & Prioritisation

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Plan Descrip