The Proposal10 November 2016

Expected improvements to grading accuracy based on objective Lean Meat Yield (LMY) measures

$150m industry investment

Standardised feedback of LMY measures to producers

Producers to have ‘uncontested claims’ to technology data

The data generated will support industry level R&D and marketing

Industry-wide accelerated roll out

Based on voluntary adoption by individual processors

EY’s involvement

EY has approached The Review in a consultative, collaborative and transparent manner; to understand the viewpoints from the full range of industry stakeholder groups, a number of producers and processors, and experts and others. This involved:

Approach

to The

Review

23 February 2017

Understanding

OCM, OM and

DEXA technology

Peak industry councils

Research and Development Corporations

Producers and

processors

Other interested

parties

70+ documents

received and analysed

2 Issues Papers

Academic and independent

experts

Providers of OCM

technology

Independent Reviewof the proposed installation of DEXA in

AUS-MEAT registered processing

facilities

Australian Red Meat and

Livestock Industry Highlights

Objective Carcase Measurements (OCM)

OCM technology measures carcase traits, while objective measures (OM), includes various measurements across the whole of value chain

DEXA technology

Relevance and proposed benefits to the industry

Applications of DEXA

$7bn direct contribution to the Australian GDP

3rd

largest global exporter of beef (75% of producers export)

200,000Australians employed

1st

Australia’s largest food manufacturer

Significance

Challenges and Opportunities

Opportunities for further export growth

Increased competition from alternative protein sources and lower cost producers

High operating costs

Global demand for high quality and safe red meat products

MLA announced an initiative to install OCM (DEXA) x-ray technology into up to

90 AUS-MEAT registered processing facilities (The Proposal)

AMPC and AMIC commissioned EY to conduct an independent review into the feasibility of The Proposal across key aspects including

implementation

governancestrategic

commercialtechnical

operational

financial

Increase transparency and provides objective information on lean meat, bone and fat composition

Opportunity to improve accuracy of carcase feedback to producers

Pilots and proof of concepts are in progress for beef

Sharing the data provided by DEXA along the value chain to complement other industry systems, could potentially enable all sectors to make more informed business decisions based on evidenced backed data

Grading Data feedback

Processing efficiencies and

automation

In summary

Key

observations

• General acceptance that the adoption of OCM will, over time, enable

greater trust in commercial relationships and contribute to an uplift

in productivity across the value chain

• Differing views and priorities when it comes to what objective

measures would be of most benefit

• Lean Meat Yield is but one input into the overall valuation of

a carcase

• Cooperation and cultural change is a critical component of growth

and success for the broader industry

• There are multiple technologies potentially applicable for OCM,

DEXA is potentially one of the most suitable

• Questions as to whether other approaches can also increase trust in

grading and commercial relationships

Total costs of DEXA implementation and operations remain unknown:

• Including those which relate to the total cost of ownership, program

governance and decommissioning costs at the end of the DEXA

lifecycle

• Questions whether funding of capital equipment for processors

should be undertaken by Research and Development Corporations

• Potential benefits of the collection and use of data derived from OCM

technology appear to be significant and valuable

• The Proposal envisions that processors will operate and maintain the

DEXA unit while the ownership is retained by MLA: requires careful

consideration by processors

• A DEXA grading system for measurement of LMY in beef is in early

trialling in a commercial setting

• Key risk to processing operations if DEXA is the single point of failure

• Significant level of structured oversight and governance required to

support collective negotiation of terms including: IP, data ownership

and use

Strategic

Technical

Financial

Commercial

Operational

Governance

Implementation

• There are issues around vendor selection and provider support

• Level of IT infrastructure support to manage, encrypt, transmit and

analyse the data requires further consideration

Transforming the industry

Enable the shift of industry planning to a shared purpose of international competitiveness and sustainability supported by RDCs

AMPC and MLA to collaborate to ensure necessary alignment

Existing OCM R&D and trials should be completed and future implementation roadmap updated

Better understanding of the long term possibilities and consequences of objective data and automation for the industry

Industry to ensure consumer of its products is at the centre of all it does

A possible way forward

With the necessary alignment, collaboration and governance, where do we think the industry could be in the next 3 years?

3years

Clear prioritisation of which objective measures are required across the value chain to drive strategic change

Impacts of OM and OCM to all industry stakeholders (producers and processors) are identified and defined

Strategic alignment

All necessary pilots and trials are complete and chosen solution(s) is technically viable

Technical considerations

Total costs of ownership have been identified, defined and substantiated for differing processor business models

Due-diligence of the proposed financing model is complete

Financial due-diligence

All benefits been adequately substantiated and the intended recipients over the solution’s life time are known

The potential risks, and returns over time are acceptable by participating industry stakeholders

Commercially viable

All necessary pilots and trials are complete and OCM technologiesare ready for wide scale deployment aligned to the required processor business models

Operational readiness

An effective governance structure with representation of all required stakeholders is in place

Governance established

The agreements around IP, data ownership, data transfer protocols, and data use are agreed and enforced

OCM technologies are supported by the necessary IT infrastructure and provider support for full scale use

Implementation defined

Alternate OCM technology solutions are explored, assessed and prioritised

EY | Assurance | Tax | Transactions | Advisory

About EY

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organisation, please visit ey.com.

© 2017 Ernst & Young, Australia.All Rights Reserved.

ED 8/06/2017

In line with EY’s commitment to minimise its impact on the environment, this document has been printed on paper with a high recycled content.

This communication provides general information which is current at the time of production. The information contained in this communication does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Ernst & Young disclaims all responsibility and liability (including, without limitation, for any direct or indirect or consequential costs, loss or damage or loss of profits) arising from anything done or omitted to be done by any party in reliance, whether wholly or partially, on any of the information. Any party that relies on the information does so at its own risk. Liability limited by a scheme approved under Professional Standards Legislation.

ey.com