https://mailchi.mp/4b459cc1f6bf/weekly-tictacs-could-a-usda-style-system-benefit-aussie-producers?e=36c41ccd45

Managing director for Meat and Livestock Australia, Richard Norton questioned processors motives in the withdrawal of $1 million worth of funding from domestic marketing, for 2018-2019.   In Mr Norton’s words, “the processors don’t believe it is a priority.”

MLA say, it is too critical an issue to slip through the cracks and in consultation with Cattle Council, MLA will pick up the funding deficit for the next 12 months. 

Mr Norton goes on to say, ” the domestic market is under enormous pressure, because of farm gate prices.”

To me, this means more than ever, the need to promote the benefits of red meat in our domestic market, which remains our largest market, by value.

MLA says, “the beef market share of all meat protein sales has remained at 36%, and the processing sector’s withdrawal is going to hit the small independent retail butchers around Australia”.

Back in 1998, when MLA came into being; the domestic market consumed 40 kg of beef now we are looking at a fraction over 24 kg of beef.   While we consumed 110 kilograms of meat in 1998 we are still consuming roughly about the same; however, chicken consumption has gone through the roof and pork has also overtaken beef.  I am a little bit confused as to how then, beef retains 36% of protein sales.

In 2013-14 producers received record lows for their cattle, and yet we saw no discounting in the price of retail beef.  2016 saw record high prices paid and we had supermarkets saying they would absorb some of the extra costs.  2018 and once again,  we see prices are starting to come back dramatically.

Australian Beef Association drew up a spreadsheet to give an idea of the value of a carcass at the retail level.  ACCC commented that the only thing wrong was,  we didn’t add supermarket costs. However, I would ask ACCC,  if they knew what the costs of production were,  with continued increases every year.

In 2000 MLAs,  Meat Standards Australias business plan suggested that MSA would stop the alarming slide in beef consumption.  Now in 2018 and $300 million later,  the slide continues, and we still keep bumbling along with the same marketing and continued excuses as to why we should spend more and more on marketing when clearly,  it is not working.

In the past four years, MLA has added 30 to 40% of the value of beef sales, and we are asking consumers to pay more for a product.    As the prices have come off the boil for producers, retailers have kept the value of retail beef sales up, which of course means more profit for them.  However, with “price” being the defining factor, consumers will buy less beef, down goes consumption!

One processor remarked, “despite the large size of MLAs budget for domestic marketing,  in recent years red meat consumption continued to fall and had yet to bottom out.

Processors continue to question the value of MLAs marketing and the cost of their international offices. They are not the only ones.

To me everybody has missed the point, processors and others in the supply chain can withdraw, or are not obliged to pay anything towards marketing, and under the present structure, producers are expected to do the paying and do little of the saying.

To my way of thinking the person that sells iron ore would not be expected to fund the marketing of steel, or have I got it wrong?

I read with interest where the minister of Agriculture, Minister David Littleproud and Teys Australia, the second largest meat processor and exporter in Australia, launched the first commercial prototype of the Dual–energy X-ray Absorptiometry (DEXA) machine into its Rockhampton plant, with initial trials to begin next month. 

David Littleproud describing the machine as, ” the world’s best and we should be proud of the fact that Australian innovation created this, and this will take the industry to a new age”.

Interestingly, it had been previously stated, Dexa had been working in beef plants around the country for some time.

The first producers or processors heard of Dexa was November 2016, when Richard Norton announced, MLA was going to set up Dexa machines across the country at a cost of $150 million and this would be financed by either government or otherwise,  With  the Minister of the day giving his principle support.

It was stated back then, that Dexa was ready for commercialisation and would give all plants a unified grading system, all achievable by 2017.

At the time, ABA suggested that one machine be installed in one plant and after extensive trials were completed, then and only then, would we see the rollout continued. 

In February 2017, meat processors came out strongly against a rollout, until the benefits to the industry were clear.

May 2017 saw processors and producers stating, ” they wanted more information and more trials before adoption”. 

In January 2018, Teys announced they would be conducting trials on Dexa along with other technology. 

My information suggests, at a forum in Rockhampton, that one leading processor was very sceptical of DEXA and very open and frank about his opinions.

To date, the whole Dexa story is a lesson in poor corporate governance. 

What I have read and what others in the industry tell me, German technology, E+V video imaging machine, may be much cheaper, easier to install, taking up less space and can be purchased online.  Initial reports suggest, E+V could be more efficient than Dexa.     One advantage of E+V technology is, once the carcass is measured, this data can be download direct to producer’s phones through an app. 

To my way of thinking, everybody involved, including Meat and Livestock Australia, Cattle Council Australia and the Ministers office, have a responsibility to levy paying producers and taxpayers, to explore every avenue and get it right this time.  

 The ACCC has just come out saying, “the cattle and beef industry has not acted on most recommendations made by the ACCC, back in 2017”.

Surprise, surprise in 2014, an Independent Senate came out with seven recommendations stating, “the industry needed transparency”, as there was none at that time. Another recommendation made, was to disband the Red Meat Advisory Council (RMAC) along with the MLA donor company.  

Over the years we have seen numerous enquiries, however, nearly all recommendations have been shelved.  I have no doubt in my mind why this was the case, or why recommendations weren’t acted upon.

In this latest report, ACCC has expressed concern about the lack of support and the degree of resistance against the recommendations, from many national bodies that represent producer’s interests.

 Recommendations made previously, by the Senate were, “the government should provide support for financial assistance and official recognition of Cattle Australia, to replace CCA.  It was noted that the CCA had withdrawn from the implementation committee.

It was interesting to note, that the implementation committee was successful in getting $500,000 towards a new Cattle Corporation.  CCA representatives voted against applying for it. This new body would have seen producers elected from each region, throughout Australia.  A one vote, one enterprise voting system.  Democracy at its best.  However, as stated previously, this would not suit a lot of people.

It now appears, that the government in its wisdom, is going to give CCA a proportion, if not all the $500,000 originally promised to the implementation committee.

It seems the Minister and the government seem to think this is an industry matter, to be sorted out by the industry.   Surely the recent banking inquiry has shown, were there is smoke there is fire and the Government and Minister have a responsibility.   To simply ignore and bury one’s head in the sand, will come straight back to bite.

In the last Tic-tac, I wrote on the decline of Australia’s meat consumption, it was fascinating to receive your feedback.

Everyone that commented, seemed to be of the same opinion and cited “price”, as the biggest impact on declining meat consumption, who could disagree?  

Example of Excerpts:

” There seems no real answer to this problem unless we can determine exactly where the profits are made. The “extras”- hide, tallow, offal, pharmaceuticals etc- possibly hold some answers.”

 ” But the challenge is to supply beef to the consumer efficiently.    We aren’t doing that, and the day will come where the price signal to me, is that breeding cattle isn’t worth doing, and I’ll stop”

“MLA have an expensive structure here and overseas, marketing our red meat and they are failing.”

 To me, nobody has been able to achieve a handle on who is making big profits within the beef industry, from the gate to the plate.

In 2007, Peter McGauran, Minister of Agriculture requested ACCC do a study on who receives what share of the retail dollar, at that time producers were getting very poor prices and yet retail prices for beef were at record highs.

The ACCC’s report in my opinion, was just a disgrace.   Coles told the ACCC that the producer received 54% of the retail price, processors got 13% and 30% disappeared in costs, leaving a margin of 3%.  Complaints to the hierarchy of the ACCC, fell on deaf ears.

Around 2012, the Australian Beef Association (ABA) was so concerned that they made a spreadsheet calculator which works out, who gets what share of the retail dollar on a 200 kg carcass beef.  Remembering that, supermarkets buy large amounts of primals, e.g. fillets, porterhouse and rump.

The most recent ACCC report mentions the ABA calculator spreadsheet, however they expressed concern that, we did not include supermarket costs.  The costs associated with in supermarkets, was never the intention of the spreadsheet calculator. 

 Perhaps Meat and Livestock Australia (MLA), Cattle Council of Australia (CCA) and others, may be up to doing a study on the dynamics of the supply chain, resulting in a clear indication as to who gets what share. This would satisfy many producer queries.

Looking back, in 2013/14 the drought forced producers to flood the markets, resulting in the price of cattle coming down to disastrous levels.  however, the prices at supermarkets and retail outlets, hardly moved.   This was in complete contrast to the mid-1970s where we saw record low prices for cattle, and at that time, price of beef and retail dropped dramatically and saw Australians eating more than 70 kg of beef per person.

Could it be possible that the dominance of large supermarkets, ensures this will simply never happen again, as low prices for cattle simply means record prices for retailers?

Today, we see wholesale prices of “top grade” porterhouse, being brought in 20 kg cartons, at a cost of around $13 a kilogram, bearing in mind that supermarkets would most probably buy a container of 22t.   At a guess, I would imagine that most processors would sharpen their pencils when people start to talk of container loads.

If a supermarket paid $13 a kilogram for porterhouse and sold it for $34 a kilogram, there’s a margin of $21 a kilogram, subtract the costs to make it retail ready, say at a rough uneducated guess of $5 a kilogram, this would leave $16 a kilogram, not a bad margin, certainly not 3%.

Recently, Woolworths came out to say, “beef prices will stay on a high”.  Pat McEntee goes on to say, “if Woollies had   passed on all the costs they incur from the record cattle prices, we would see retail prices much higher”. 

Apparently, Woolworth’s plan is to absorb cost increases in cattle prices. It is interesting to note that in May last year Woolworths was paying $6.60 for carcass beef and April of this year, they are paying about $5.60.  Yes, I’m sure they’re absorbing the cost.

What would be very interesting to know if the prices of cattle drop, which is quite possible, will Woolworth pass the savings on, to inform of reduced meat prices.

So, the question remains, why are we allowing 90 odd million dollars to be spent on marketing, when no amount of promotion will improve the level of beef consumed, by the average person,  when price is the issue ??????

It appears this announcement is thick with spin and very lacking in detail,$150 million is a lot of money in anybody’s terms, and for that reason alone, I feel it is very important that levy payers are fully informed about the whole concept especially as they going to fund this initiative.

Does MLA have a business plan that levy payers can see, I’m sure there will be a lot of producers out there who would like to read it.

So far there seems to be little information available just a lot of rhetoric. From public responses in the media and from some sectors the industry especially processors it appears there were limited discussion prior the announcement.

Steps have been put in place to assist in identifying a new approach on how the interests of levy payers in the grass fed sector could be represented more effectively in having more influence and control over how levies are spent. MLA it seems has obtained support for the project from cattle Council (CCA) without a broader discussion with the grass fed levy paying sector. It has been recognised by CCA and other groups that the current approach, re-consultation with MLA need to reviewed. The approach to date on this project would appear to validate the necessity for a different way grass fed levy payers have input into the expenditure by MLA  on their behalf.

Surely we need to get a definitive view from the processing sector before rushing out and announcing adoption of the technology, individual processors will be the ones who must decide if they going to participate in this initiative to be for it to be successful. This raises the question why levy payers should be funding this initiative without processor funding commitment.

There are many questions which need to be answered before the levy payers can provide feedback to MLA on their willingness to  fund  this project.

What audible results can be used to conclude this new technology will work and achieve the aim of more objective carcass measurements for payments by cattle by processors? From MLA’s announcement it seems that commercial trials have not been finished as yet. Surely there are milestones which need to be reached before making such decisions which underpins his recent MLA announcement. Report of the Minister has been consulted and has endorsed this initiative. How is it possible that these endorsements have been given to MLA and cattle Council prior to the results of such trials being assessed?.

Is the new technology being used for the purpose of other countries and is working effectively? What does this new technology deliver to the producer which is currently not available by other measures by processors. Will this information be available to all intrested parties.

What seems very clear is that the technology is there to measure the amount of meat that can be harvested from any given carcass, will it measure things like colour marbling? Can it assess meat quality grades? Saleable meat yield is a useful measure, however meat yield on a Wagyu might be worse than a British or euro breed but the yield of high-value cuts may be better for a Wagyu.

Clearly there are several value parameters which may not be covered by this technology. There is some indication that is expected that  new technology evolves then or marbling may be measurable using this technology. What is the urgency to implement a technology which is still evolving?.

Is it possible MLA through levy payers are going to pay the full cost of buying and installing these machines, is that is the case who will pay the maintenance and wages of the operators and maintenance people.

Would it be possible to get one machine up and running preferably in a large plant and ensure the whole thing actually is viable and then everybody can sit back and assess whether producers are indeed getting value for such large investment.

This is not the first time we have been down this path and it seems the last it was Via Scan which promised so much and ended up costing so much.

Simple fact is MLA directors and staff have enormous responsibility to producers and on the face of it they may not be as diligent as required.

What if processors decide they don’t want new machines on their plants can they be forced like producers to install? What if machine slows chains down? It may be this initiative has excellent credentials however the question remains why levy payers should be funding this initiative without processor funding commitment or commitment to install or fund.