Recently I was quite fascinated when I received documentation from the ACCC.
I am quite thrilled that the ACCC has launched a study into the cattle and beef industry. To me what I can gather this promises to be a really full on study and could turn up some rather interesting facts and figures, which would be a complete contrast to the desktop study that was done in 2007 by the ACCC..
Examination of prices paid to farmers and the price paid by consumers. To me this examination was a complete disgrace.
Red meat processing and retailing in Australia
The report went on to say there are considerable amounts of processing and transport to transform the live animal into saleable meat. They then go on to talk about the long and complex supply chain.
Woolworths described meat supply chain as follows:
Purchase live animal, finish to specifications then transport to the processing works. Woolworths very rarely if ever buy live animals. The producer is expected to finish to Woolworths specifications, usually using grain, and transport to the processing works. Then and only then they are paid when the animals carcass passes over the scales and that animal meets Woolworth specification. Up to this point the producer/fattener bares all the cost including transport to abattoir and any losses from under specification carcasses.
They then go on to talk about transport to the processing plant for preparation in the case ready meat. Then they go on to talk about in-store butchering preparation. The fact is if the meat is delivered in case ready meat there is no need for in-store butchering.
Cole’s for their part reveal the price it pays the whole cow typically accounts for 54% of the end retail price. Processing activities and the cost of killing, boning, packaging and chilling accounts for 13% of the retail price. Slicing, packaging, labour, shrinkage, promotion, advertising and store costs account for about 30% of the retail price.
Both Coles and Woolworths submitted that the long-term supply arrangements involved setting prices based on cost of production, and this included the cost of grain. Increasing grain cost which doubled throughout the course of 2006 added to supermarkets costs.
Michael Luscombe, CEO of Woolworths, made media representation that the gains from lower livestock prices were outweighed by high grain costs. Could it have been possible that it didn’t cost Woolworth any more to purchase their cattle as contract feeders were told that the cattle entering their feedlots were so much cheaper more than compensated for the price of grain going up? Could it be possible that Woolworth actually gained because they didn’t have to pay for the grain? To my way of thinking Woolworths would have had very good gains, as they did not have to pay for grain or compensate producers.
The ACCC conclusion was also fascinating.
“Because the price of livestock is a relative small proportion of the total cost of the final product a large percentage decrease in the price livestock sector we saw in 2006 results in much smaller decrease in retail meat prices.”
“Example: If saleyards costs represent 20% of the retail prices and saleyards prices fall by 10% retail prices would be expected to fall by about 2% if the prices of other imports remained the same.”
In recent months of 2015/16 we have seen a surge in cattle prices but also these increases have been passed on to consumers. Remember Coles is saying the cattle costs are 54% of the retail dollar.
In 2007 no mention was made of box meat purchases which were very cheap due to the cheap livestock prices. The fact is that the major supermarkets talk about the quality of cattle they buy over the hooks, however no mention was made of a large percentage of their beef is bought from processors.
More recently we have seen the processors and other industry players being questioned about collusion in saleyards. The processors were quick to deny they had ever seen collusion in years of working in saleyards. To me this shows just how out of touch with reality these people really were. Processors also said they had never banned any producer from dealing with them because of a disagreement.
A lot of these facts will be dealt with in the coming weeks by the ABA submission to the ACCC and will just show how ridiculous some of his claims have been.