NORTHERN TERRITORY CATTLEMEN’S ASSOCIATION ANNUAL

CONFERENCE

CROWNE PLAZA HOTEL, ALICE SPRINGS

FRIDAY 8 APRIL, 2005

2.15PM

Thank you for the opportunity to speak to you here in the heart of Australia.

I am always pleased to address those involved in agriculture because the agriculture

sector – including the cattle industry, being one of Australia’s

great export industries – is so important to our nation’s economic growth

and prosperity.

Agriculture added around $25billion to our economy during the last financial

year (2003-04) and represented 18percent of Australia’s total exports

in 2003-04. And the Northern Territory’s cattle producers contributed

a significant amount of this total.

As Federal Treasurer, I recognise that what you do is a tough business and

you do it often under tough circumstances. I want to assure you that we recognise

your importance to our national economy.

I’ll come back to the importance of cattle to our economic strength,

but first, I thought I’d give you a snapshot of the country’s economic

strength – focusing specifically on exports – which will help provide

you with an outlook on the future.

Economic Achievements

This Government has worked hard to strengthen Australia’s economy. The

unemployment rate is at a 28-year low. Inflation is moderate and interest rates

remain low. And household wealth has grown to record levels. Here in

the Northern Territory, the average unemployment rate over the last financial

year was 5.3per cent, lower than the national average unemployment rate of

5.8 per cent.

Australia’s economic achievements are significant in their own right,

but are even more remarkable when considered against the challenges that we

have faced along the way. These challenges included: the Asian Economic and

Financial Crisis; the recession in the United States; the unprecedented terrorist

attacks leading to the subsequent War on Terror; the SARS epidemic; the worst

drought in 100 years; and now record high oil prices and a strong exchange rate.

Our relative success in dealing with these shocks has seen the Australian economy

outperform the rest of the developed world, propelling us up international league

tables to positions that we have not occupied for several decades.

Export Performance

That’s not to say that these challenges have not had an impact on the

Australian economy – because they have. The domestic and international

shocks that we have experienced over recent years have been a significant dampening

influence on Australia’s export performance.

The US recession and consequent global downturn affected markets for our exports;

SARS interrupted the services market for Australian tourism. And of course,

the worst drought in 100 years choked off the supply of rural exports.

Over the last 4 years, exports have grown by around 0.5 per cent per annum,

compared to 6.4 per cent annual growth over the preceding 4 years. I believe

that there is reason to expect exports to grow strongly over the next 3 or 4

years, external conditions permitting, if we attend to some important investments

in this country.

With the emergence of China as an enormous source of international demand,

growth in iron ore export volumes over the last two years has been 29.7 per

cent and 58.3 per cent over the last 5 years. Growth in coal export volumes

over the last two years has been 11.6 per cent and over the last 5 years – 34.4

per cent. Prices have risen massively for these goods – in some cases

doubling – but Australian producers have not been able to take the full advantage

that we may have hoped.

Those of you who follow political debate know that I have been speaking about

this for some time, focusing on the infrastructure bottlenecks that have been

allowed to develop in some of our coal ports on the east coast. This has hampered

Australia’s exports of some resources, especially coal exports out of

Dalrymple Bay. While exports of these goods have increased, they have not grown

by anywhere near as much as they could have if the loading capacity of those

ports had been increased in time to take advantage of the massive demand and

exceptional prices now available.

Let me turn now to the question of mineral fuels.

It is not widely known that Australia’s exports of mineral fuels and

metals have fallen over recent years at the same time that prices for many of

these goods have increased. In the case of mineral fuels, this has been caused

by a decrease in crude oil exports, which has more than offset strong growth

in LNG.

Looking specifically at mineral fuels, you’ll all be acutely aware that

world oil prices are currently at record highs, increasing by a third (around

33 per cent) in Australian dollar terms over the last 4 years – leading

to higher domestic fuel prices and rising transportation costs. Over the same

period, Australia’s production of crude oil has fallen by more than half

(around 56 per cent).

This is not an infrastructure problem. Australia’s oil production chain

is largely vertically integrated – the same companies that pump crude oil in

Australia typically control each link of the transport chain involved in delivering

crude oil from the fields to domestic and world markets. Therefore, as the price

of crude oil has increased, the oil companies have had a strong incentive to

increase the capacity of these transport systems to ensure that bottlenecks

do not emerge.

The Liquefied Natural Gas (LNG) industry is similarly structured. The $2.5billion

North West shelf 4^th train project included the installation of gas

trunkline over a distance of 135 km from the existing production platforms to

the onshore processing plant. In addition, the LNG ship, the Northwest Swan,

with a capacity of 135,000cubic metres, has been constructed to deliver sales

to export markets.

The reason why Australia’s crude oil exports have fallen over recent

years – while world demand and prices have increased to record levels and LNG

exports are booming – is that some of our oil fields are approaching the end

of their productive lives. For instance, current production from the Bonaparte

field (off WA) is only a quarter of its production in mid 2002. That is, oil

and condensate production has fallen from a peak of around 130,000 barrels per

day to around 30,000 barrels per day. And the production from the Gippsland

field (Bass Strait) has fallen by almost a half over the same period of time,

that is, from around 150,000 barrels per day to around 80,000 barrels per day.

Total production in all Australian oil fields has fallen from around 650,000

barrels per day to less than 430,000 barrels per day over the same period.

Australia’s decline in oil exports is a consequence of declining reserves

in existing fields. We would benefit from the discovery of, and production from

new fields.

For instance, the already completed 1^st stage of the Bayu-Undan

project is ramping up production, the Exeter/Mutineer

oil field, due to come on line early this year, and further out, the Enfield

oil project, due in late 2006 are expected to produce around 200,000 barrels

of oil and condensate per day combined, but this is still less than the fall

in production from existing fields over the past 2 years.

These increases will underpin both a decrease in Australia’s reliance

on imported oil and a pick-up in Australia’s crude oil exports over the

coming years.

Export Outlook

With aggregate export growth subdued over recent years, Australia’s economic

growth has been driven by domestic demand, leading to strong import growth and

a rising trade imbalance. However, more recent export data is promising.

On Tuesday, the Australian Bureau of Statistics released international trade

data for the month of February, showing that export values have increased in

each of the last 3months, to be $669 million (or 5.1 per cent) higher than

in November. At the same time, easing domestic demand has seen the growth in

import values slow, causing the monthly trade deficit to fall by 14 per cent

(or $369 million) since November.

While I hesitate to draw too many conclusions from 3 months of data, these

latest developments are positive and welcome, suggesting a pick-up in exports

that we have been looking for.

Prospects for NT cattle exports

I am optimistic about Australia’s export outlook, including exports of

rural goods.

As we all know, rural production and rural exports are hostage to weather and

market conditions, with the last few years particularly difficult for the farm

sector.

However, farm incomes and exports recovered to pre-drought levels in 2003-04,

reflecting the large winter grain crop. They have come off somewhat recently,

as weather conditions have been less favourable. But with a brighter outlook

for weather conditions going forward, production and exports are forecast to

increase.

Looking specifically at cattle, the Australian Bureau of Agricultural and Resource

Economics expects Australian cattle exports to remain strong in 2004-05 and

2005-06.

Given the importance of the Northern Territory’s cattle exports, this

will produce significant profit to Northern Territory producers. This in turn

will profit other industries in the Northern Territory, particularly transport

and meat processing.

That is not to say that the way forward is easy. Agricultural production is

always subject to the vagaries of the weather. And looking at the conditions

around Alice Springs today it is clear that NT cattle producers are facing very

dry conditions.

The exchange rate also remains high, exerting a downward influence on cattle

saleyard prices. The Aussie dollar has appreciated by over 20 per cent over

the last 3 years in trade weighted terms, to be around 10 per cent above the

post-float average. While it’s fruitless to speculate about the future

path of market driven exchange rates, it is clear that continued strength in

the dollar would create challenges for the Australian cattle industry.

Furthermore, there are the challenges of operating in a competitive international

market. And your market is set to become even more competitive over the coming

years with the return of US and Canadian beef into the Japanese market and low-cost

South American beef production expected to grow strongly over the medium-term.

But overall, I’m optimistic about the prospects for your industry, underpinned

by Australia’s well deserved reputation for producing the world’s

best beef.

Securing access to global markets and assisting our export industries

Preferential Trade Agreements

The Government is seeking to assist industry to boost exports through by pursuing

the benefits of more open global markets at every level – through multilateral,

regional and bilateral trade negotiations.

The multilateral system has played a key role in the post-war period in rationalising

border protection and reducing tariffs.

Getting multilateral agreement on further trade and investment liberalisation

has become increasingly difficult. The emergence of regionalism as a potent

political force has pushed many countries into seeking bilateral and regional

preferential trade and economic agreements.

Where the Australian Government believes that faster progress in trade and

investment liberalisation may be achieved in a bilateral context or among small

regional groupings, we have been prepared to explore the potential for beneficial

benefits for Australia.

Let me briefly outline what we have done and are doing.

We have completed free trade agreements with the United States, Thailand, and

Singapore.

Beef is Australia’s number one export to the United States and the FTA

consolidates the position of Australian producers in our largest market.

Under the agreement with the United States, we have negotiated a phased elimination

of tariffs and a 70,000 tonne increase in our export quota. The quota will grow

to 448,214 tonnes over 18 years, representing around $245 million additional

value in the final year.

Thailand immediately reduced the tariff on beef to 40 per cent, down from 51percent,

and for beef offal to 30percent, down from 33percent. It will phase these

rates to zero by 2020.

And the agreement with Singapore demonstrates how these agreements can help

to reduce some of the technical and administrative barriers to trade. Annexes

to this agreement allow for streamlined compliance and inspection arrangements

for approved products.

And looking forward, we are engaged in bilateral negotiation with the United

Arab Emirates.

We are also currently exploring regional agreements with our neighbours within

the ASEAN regional trading bloc, including New Zealand.

And we are scoping the possibility of further arrangements with China, Malaysia

and Japan.

As has been this Government’s practice, we will continue to consult with

business and the community to ensure that our trade policy objectives reflect

the views and ambitions of the Australian people.

Assistance to exporters

The value of total exports from the Northern Territory in the 12 months to

December 2004 was $2billion. In value terms, NT’s merchandise goods exports

grew by 10percent through the year to the December quarter 2004.

The Government has taken significant steps to help Australian exporters access

global markets through the $630 million Export Market Development Grants Scheme

and the establishment of eight new trade and industry export hubs, including

a new hub in Darwin.

The Government announced in its election commitment Supporting Australia’s

Exporters that it would establish 30 export facilitators to help create

export opportunities for Australian businesses into the United States market.

Three of the export facilitators will be dedicated to working specifically

on agricultural export opportunities.

Investing in infrastructure

Transport infrastructure

Australia’s agricultural sector relies on an expansive transport and

communications infrastructure to connect with domestic and international market

places. The Australian Government has made significant contributions on this

front.

The Australian Government has announced a major plan to significantly increase

road and rail infrastructure through its $12.5 billion national land transport

plan – AusLink.

This significant investment will position Australia to cope with an expected

doubling of the land freight transport task over the next 20 years.

Under AusLink, the Australian Government will invest a total of $92 million

in Northern Territory land transport networks over the next five years to improve

freight efficiency and trade growth, including:

• $48 million for the Adelaide to Darwin corridor;
• $22 million for the Darwin to Perth corridor; and
• $23 million on network widening, bridge upgrading and maintenance.

Added to this investment, the Australian Government will continue its commitment

to increased road funding in the Northern Territory through its Roads to

Recovery programme by providing an additional $25.2 million and a further

$2.8 million for the Black Spot programme to improve unsafe roads across

the Territory

In addition, we will invest $126 million in improvements to the Brisbane to

Darwin corridor over the next five years.

The Australian Government’s priority is to improve road access to Darwin’s

port to maximise the benefits of current and future development of the port.

To date, the Australian Governmenthas contributed $178.9 million to the Alice

Springs to Darwin railway which carried nearly 600,000 tonnes of domestic freight

in its first year of operation.

The Government is also investing to ensure that rural Australia is connected

to both the domestic and global economies.

Reforms to the fuel excise system

Last year the Government announced a major programme of reform to modernise

the fuel excise system.

The new arrangements will greatly extend excise relief for businesses while

reducing compliance costs.

They will create a fairer, more certain and more comprehensive system for offsetting

fuel excise — the ‘fuel-credits’ system.

When these reforms are fully implemented, all business use of all fuels in

all off-road activities, and all private use of all fuels for power generation

and heating, will be either exempt from excise or eligible for full excise relief

through fuel credits.

Businesses involved in primary production will benefit by the extension of

eligibility for a fuel credit to all off-road agricultural and associated activities

and also benefit from the extension of the scheme to all fuels, including petrol.

This means, for example, that farmers will receive a credit for off-road business

use of petrol in their utility vehicles and 4-wheel motorcycles.

Eliminating the exclusions and complexities of the current schemes’ eligibility

criteria will also benefit primary producers.

For example, the off-road transport of livestock to an abattoir, saleyard or

holding pen will in future be eligible for a credit. Currently, only transport

of livestock for agistment is eligible.

Conclusion

Australia’s sustained strong economic performance has delivered significant

benefits across the country. But we need to be vigilant to ensure our continued

competitiveness in the global economy.

The improvement in our country’s competitiveness and productivity needs

to be driven by a strong agenda of reform, particularly, focussing on labour

market reform, liberalisation of trade and improved use of our infrastructure

assets.

The Australian Government has made significant advances in securing access

to global markets and assisting our exporters to reap the rewards and while

it has been slower than expected, our exports are now responding to an upsurge

in global demand.

We are making significant investments in our road and rail networks and ensuring

increased flexibility and participation in our workforce.

The Australian Government is implementing long-term strategies that will support

the anticipated growth in our domestic economy and our export industries.

Thank you.