The Meat and Livestock Industry in Australia

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The Meat and Livestock industry in Australia accounts for a 45% of the gross value of Australian agricultural output (AFI, 2015), with the cattle and sheep industry alone, contributing $16.95 billion into the nation’s economy each year (MLA, 2016). The human population is expected to grow 15% by 2050, causing the global demand for meat to rise by approximately 73%. This will require an additional 160 million tonnes of meat to be produced each year, demanding an increase in livestock production (Heffernan, 2017). The average Australian cow, which is the most popular form of livestock, releases approximately 500 litres of methane per day (Chase, 2011), and requires over 15,000 litres of water to process them into one kilogram of beef (Heffernan, 2017). As methane is a greenhouse gas, when it is released into the air, it absorbs the suns heat which warms the atmosphere and in turn, further contributes to the growing problem of global warming (EDF, 2016). The Meat and Livestock Australia (MLA) have recognized this and are aiming to create a more sustainable industry by taking a proactive approach to reducing their sectors carbon emissions. The following economic analysis of the issue has been framed around a Conversation article which emphasizes the negative effects of livestock on our atmosphere (Herrero, 2016).  

The meat and livestock industry accounts for approximately 10.2% of total emissions in Australia (DOA, 2013). A breakdown of Australia’s agricultural emissions can be seen in Figure 1 below, indicating that approximately 66% of Australia’s agricultural greenhouse gas emissions came directly from livestock industries. On the global scale, livestock production makes up approximately 18% of emissions as depicted in Figure 2 below (Henry, 2009).

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Figure 1 - Australia's Agricultural GHG Emissions (DAF, 2018)

As seen in the data above, livestock production is one of the biggest contributors to Greenhouse Gas emissions both domestically and globally, which further emphasizes the detrimental effect that the current livestock industry is having on the environment.

As stated previously, livestock production is causing severely negative externalities on the environment in the form of greenhouse gases which are contributing to the detrimental warming of the atmosphere. Globally, the livestock sector is highly responsive to changes in demand and has seen historical rises in the production of livestock products as a result of the growing global population (Thornton, 2010). To fulfil this continually increasing demand, sellers are producing more cattle which has led to a severe ‘manmade overproduction’ of cattle globally. This overproduction leads to an unnecessary emission of greenhouse gases and further contributes to the overall negative effect that livestock production is having on the planet. These excessive negative externalities are subsequently influencing the market to shift from a perfectly efficient economic equilibrium, as seen in figure 3, to an inefficient equilibrium, as displayed in figure 4. The Marginal Private Cost (MPC) curve represents the supply provided of firms who can produce and sell a good at a lower price because they have externalised some of the costs. In the case of cattle production, society will operate at E1, where Q1 goods are produced and are consumed at price P1, however, although consumers may feel that they are benefitting from the lower price of the good, society is actually undergoing indirect costs that are much greater than the social benefit of the good in the form of environmental externalities. When a market is undergoing negative externalities, the most efficient strategy would be to operate at E2, which is the true social optimum, where Q2 goods are produced and are consumed at the higher price P2 (Wallis, 2016). These negative externalities are creating a deadweight loss in the market which can be seen by the grey triangle in figure 4. This further highlights the inefficiency of the cattle market caused by the negative externalities of livestock production.