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Australia’s Cattle Industry Crisis

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Australia’s Cattle Industry Crisis

It is interesting to read Norman Hunts take on Australia’s current cattle industry crisis in his 16 May 2013 Huntblog Newsletter.  The whole document is far too long for our weekly piece so with Norman’s permission I have tried to summarise the main points.

Background

Norman is an experienced lawyer involved in beef industry politics, with strong family connections to rural Australia. Norman was a key player in establishing the current Australian Meat Processing Corporation structure balancing the interests of the smaller and larger processors

The Nature of the Crisis

 It is common ground that the Australian beef industry is in crisis with cattle producers burdened with unsustainable levels of debt and falling property values receiving record, or near record, low prices in real terms for the cattle with many facing sale of the assets.

Historical Context of the Crisis

Many including Norman  have  compared the current price with 1974 cattle prices, but unlike 1974 there is plenty of  US beef quota available to Australian exporters at the moment.  And China (which was not in the market in 1974) is now buying significant quantities of Australian beef despite our high dollar.

So unlike  1974 more beef  could  be exported today if it could be processed, but in 2013 (unlike 1974) there is no capacity to slaughter and process the beef in Australia  and our   beef   abattoir industry is now dominated by three large conglomerates and Australia’s retail market is dominated by the supermarket duopoly.

In 1974 in the absence of viable export markets   with most production being dumped onto the domestic market the price of beef crashed and domestic consumption soared to 70 kg per person.

Conversely in 2013 beef prices remain relatively high with  the  price of beef on the retail shelves essentially unaltered and MLA forecasts that domestic consumption will for little over 31 kg person.

Causes of the Problem

Norman suggests that many have formed the view that the Australian cattle industry has become structurally unsustainable and uncompetitive as a consequence of   convergence of a number of overlapping organisational and government policy factors in a relatively small economy with an increasing number of non-competitive organisations and market structures.

 Some of the converging factors   that Norman nominates include:  

  1. The uncompetitive burden of government influenced costs and charges on Australian producers.
  2. Export tariff barriers that are higher than barriers imposed upon our overseas competitors.
  3. Sharply lower farm subsidies paid to Australian farmers than their US, Brazilian and EU counterparts.
  4. The high cost of Australian meat processing  which on a $ per beast slaughtered basis  is twice the cost of US and Brazilian processors
  5. Australian cattle producers receiving  little more than half the retail dollar  that  their American counterparts   receive  ,
  6. The  uncompetitive high value of the Australian $ and interest rates ,
  7. The ongoing effects of the 2011 Indonesian  Live cattle export ban
  8. Dysfunctional industry organisational and cash strapped farming organisations which are structurally disconnected and unresponsive to the grassroots and do not provide a seamless interaction between policy setting and policy delivery needed in the 21st century.
  9. Factors which have all been compounded by the devastating drought currently gripping much of Australia’s cattle country.

 

Consequences

The Huntblog Newsletter states that the disadvantage flowing to Australian cattle producers in comparison to their overseas counterparts from this perfect storm convergence of overlapping factors can be measured in billions of dollars or in hundreds of dollars per head of each beast slaughtered in Australia and attaches detailed facts and figures to support this contention.

Solutions

Some of the answers or possible long term solutions that Norman identifies are.

A change of government policy to bring Australia’s government charges in line with our overseas competitors. a requirement for the RBA to give more weight to  our terms of trade when setting monetary policy , a strengthening of ACCC competition policy, the establishment of an Australian Development Bank to provide long term “patient finance” to allow Australian Industry to take advantage of  “Asian Century”  opportunities , and a review of the transaction levy  coupled with an overarching independent review of all red meat industry structures including the cost benefit currently being received by producers for their R /D and marketing levies and the effectiveness of the current cattle industry representative voice with government.

This is only a taste of what Norman’s Huntblog has to say and I would recommend anybody to read the full newsletter at Huntblog.com.au   it is truly a fascinating piece of work.

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