Article:

Feedlots, Innovation, and Research and Development

03 August 2022

Daniel Splatt, Director, R&D Tax Incentive and Grants |

The Food and Agriculture industry in Australia is set for an interesting next decade. On the one hand, the previous federal government set an ambitious goal of ensuring the industry meets $100 billion of gross value by 2030; simultaneously, the industry must meet the seemingly contrasting goal of significantly reducing greenhouse gas (GHG) emissions. Australia’s National Greenhouse Gas Inventory estimates that entric methane emissions from ruminants accounts for 66 per cent of Australia’s agricultural emissions pushing beef producers to experience significant change and innovation to meet the Australian red meat industry’s target of being carbon neutral by 2030.

Beef production generally involves pasture-based backgrounding, followed by feedlot or pasture finishing. In feedlot finishing, cattle are fed specially developed rations with grain, protein, and other ingredients for weight gain and fattening, in addition to roughage for rumen microbes.

Benefits associated with feedlots include their ability to fatten cattle in a short period of time, as well as their contribution to ‘drought proofing’, given the dependence of pasture on rainfall, and the ability of feedlots to remove cattle from pasture systems thereby allowing the reduction of stocking rates.

Issues facing cattle feedlots

In Australia's extremely variable rainfall means that the drought-proofing role of feedlots is particularly important. This, along with the contribution of feedlots to consistent production, means approximately half of all Australian cattle spend some time in feedlots.

However, there is no hiding from the issues that have historically plagued feedlots. These include nutritional issues associated with changing from grass to grain diets (e.g. acidosis, feedlot bloat), diseases linked to tighter confinement (e.g. bovine respiratory diseases), and other issues such as lameness, footrot, and parasitic diseases.

As part of the beef production supply chain, GHG emissions from feedlots are also an issue, particularly in relation to enteric methane, nitrous oxide from cattle waste management and emissions relating to transport and feed production.

In assessing these issues, Australian feedlots are often painted with the same brush as overseas feedlots, which use different feeds that contribute to the more common prevalence of issues such as acidosis, and typically have cattle on feed for more days due to different climates and practices.

Opportunities for cattle feedlots

Overcoming these issues presents a significant opportunity for feedlots. In particular, there are several feed additives that have shown great potential for methane reduction, including Bovaer and Asparagopsis. The latter is of particular interest given it is a native Australian and New Zealand seaweed, for which initial trials by CSIRO and Meat and Livestock Australia (MLA) showed a 98 per cent reduction in methane without adversely affecting eating quality, productivity, or carcase characteristics. In the last six months, grants have been awarded under the Methane Emissions Reduction in Livestock program, through which Asparagopsis will be trialled in various large-scale commercial feedlots under the guidance of scientists from the likes of CSIRO and Bovine Dynamics. Enhancing this benefit is the ability of seaweed to effectively capture carbon during its production. Such feed additives are intrinsically easier to administer via feedlots, meaning there is a great opportunity for feedlots to embrace such additives if commercial trials confirm promising initial results.

Similarly, though not as heart-warming, is the fact a reduced emitting life equates to lower emissions. Specifically, some high-profile results from research indicate cattle are finished quicker in feedlots than on pasture, thereby emitting fewer life-cycle methane emissions. However, further research is needed to fully explore this (for example, separating different grazing methods such as rotational grazing and set stocking). Similarly, there is a plethora of research that has demonstrated the benefits of using organic fertilisers such as manures when compared to synthetic fertilisers (e.g greater water holding capacity, porosity, bulk density, and promotion of microbial populations in soil). For farms that do not produce their own manure, feedlots play a key role in providing such organic inputs. Mort and Co has taken this a step further by developing a pelletised manure capable of providing the benefits of organic fertilisers, while integrating with existing fertiliser equipment to ensure ease of application.

Taken together with the widespread adoption of renewable energy in feedlots, there is certainly an opportunity for feedlots to take advantage of innovation and assist in meeting MLA’s aim of being carbon neutral by 2030.

Demonstrating emissions reduction credentials may be an important part of continued access to export markets. While excluded from current design of the EU Carbon Border Adjustment Mechanism, it is plausible to see international regulatory frameworks constrain the import of ‘unabated’ beef products in the future. The NZ Government is considering a proposal to ‘tax’ methane emissions from beef production, although it is not yet clear how this may apply to imported products. The imposition of any carbon price applied to beef products may be significant for demand elastic markets such as Indonesia’s live imports. And evolving consumer preferences for low emissions products may mean carbon neutrality is the ‘ticket to play’ to get products on supermarket shelves globally.

Incentives to support Research & Development

These issues and opportunities can lead to experimentation to develop new knowledge, such as determining the impact of new feed regimes or additives, technologies, genetics, or specific interventions and processes on aspects of performance such as feed conversion, health, and methane emissions.

Where the outcome of such activities is technically uncertain and requires a systematic process of experimentation to resolve, the Research & Development Tax Incentive (RDTI) is worth considering. This is the Federal Government’s flagship program for supporting industry research and development (R&D) activities in the country and is specifically intended to incentivise companies to undertake activities they may not otherwise undertake due to uncertain results. The benefit of accessing this program is determined by the company’s aggregate turnover (including the turnover of any connected/affiliated entities). Specifically, from 1 July 21:

  • Companies with an annual aggregated turnover of less than $20 million can receive a refundable R&D offset of 43.5 per cent for expenditure incurred on eligible R&D activities in Australia, with the incentive component being 18.5 per cent above the prevailing corporate tax rate of 25 per cent; or
  • Companies with an aggregated turnover of $20 million or more can receive a non-refundable R&D tax offset rate based upon the intensity of the entity’s R&D expenditure as a proportion of total expenditure for the year, specifically:
    • Where the company’s R&D intensity (calculated from R&D expenditure over total company expenditure) is up to 2 per cent, the tax offset will be equal to the company tax rate plus an 8.5 per cent premium.
    • For R&D expenditure above the 2 per cent R&D intensity, the offset will be the company tax rate plus 16.5 per cent.

Other important things to be aware of are that activity registrations must be made by an eligible entity (i.e a company and not a trust, individual or corporate limited partnership) with AusIndustry within ten months of the end of the relevant financial year. In addition, it is important to maintain contemporaneous documentation on both the R&D activities and the associated expenditure. However, the competitive benefits as well as the entitlement nature of the program, make it an attractive incentive to consider when attempting to solve the unique issues and opportunities facing feedlots in Australia.

There are also several other competitive programs that are worth considering when open, such as MLA Donor Company Funding and QRIDA’s Rural Agricultural Development Grants.

For more information on grants and incentives for R&D in the food and agriculture industry, contact your local adviser.