AMPC Heilbron report makes for riveting reading.
The processing sector in Australia is burdened with extremely high costs in comparison to other countries like the US, Brazil and New Zealand. The report claims the “Department of Agriculture (AQIS) charges exceed $80 -$85 million a year”. Plus another $35 – $40 million for in-house inspection. These imposts need to be re-examined and reduced to reflect a more competitive approach. Who could disagree that the beef industry is burdened with high costs placed upon the producer?
One of the most interesting things to me is that AMPC is funded by a statutory levy. Yet producers are told by the Government that they cannot use funds collected under the statutory levy for advocacy purposes. Isn’t this report advocacy?
“Competition in the Australian beef industry has been subject to a high level of scrutiny by government in recent years.” Yet how long ago was there a bipartisan Senate inquiry into the industry where seven key recommendations for change were made but we see now that still nothing has happened.
“Some livestock producers and organisations make a link between levels of concentration in the industry and abnormally high margins.”
The report also claims: “beef processing in Australia entails considerable risk and that concentration in the market does not equate with anti-competitive conduct.” The less competition for stock makes for cheaper stock.
It is rubbish to suggest that “the difference in producer profitability reflects the cost of production rather than the prices received for their cattle”. The cost of production for raising cattle varies from enterprise to enterprise. However in years like 2013 and 2014 I suspect that even those in the top 25 percent were selling cattle for less than it cost to raise those animals.
High processing costs in Australia: The AMPC report states that “the standard carcass differs”. In the US kidneys, channel fat and skirts are left on the carcass prior to scales so this is not a matter of comparing apples with apples!??
The Cattle Council are quoted saying “…producers had noticed in the past four to five years a decline in dressing percentages. But there were distinct reasons – most plants were now Halal accredited, which created the need for more trim.”
In comparison the US have independent graders employed by the US government providing a fairer system. The other problem in Australia is that processors employ their own graders and it should be remembered that that person is judge, jury and executioner and their word is final. Another noted difference is the US dressing percentage is up to 64% whilst in Australia is only about 52%.
The simple fact is any trim remains the property of the processor and the more a processor trims prior to scales the more gets for nothing and the less they pay for the carcass.
Take a 600kg live animal dressing at 62% equals 372kgs. The same beast in Australia dressing at 52% would come in at 312kg. A difference of 60kg at $6/kg is a staggering $360 + value of any trim. To me this is a huge difference. To compare kill charges with the us is RIDICULOUS!
In the US producers get a share of the value of the by-products. However, the AMPC report suggests that “in Australia the by-products are built into the price”. Well isn’t it time we had some data to prove this? Mandatory price reporting would be a good start toward solving the guessing game and providing evidence of costs along the processing chain.
“The ACCC has undertaken an examination of prices paid to the farmer, the livestock and the prices paid by consumers for red meat, this was conducted in 2007.”
This report was an absolute disgrace; Cole’s claimed that the producer received 54% of the retail price of beef. At that the time the figure was more like 28%. Later on the parliamentary enquiry into the groceries, which included meat, Cole’s again, told this enquiry that producers were getting between half and two thirds of the retail dollar.
“Cessation of operation of meat processing facilities at the local level would have significant impacts on local economies which in turn would be expected to generate significant negative social consequences.” To me this is very true but without producers there is no industry and if producers can’t get a fair deal, then the whole chain is doomed.
“Most importantly, the research concludes that the high cost of production is the main cause of low profits for the majority of producers.”
The report also claims “the processor discovers what profit has been made well after an animal has been processed and sold and well after the producer has been paid.” Although there is a level of risk, processors normally have contracts in place before they purchase stock.
The producer has no such luxury! He joins is cows and then lives on hope that in 2-3yrs he will get a return with no control over weather, market fluctuations, disease, etc.
The AMPC is totally against Mandatory Price Reporting. Why? Make your own judgement.
“The price received by processors is affected by the distance cattle travel because of the associated transport costs.” Producers pay transport! It is not a cost to processors.
Until we can get genuine price transparency and funded advocacy for producers we will always be at the bottom of the barrel.