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Weekly Tictac 13/4/2018

Price Effecting Beef Consumption

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 ??????


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