As attention focuses on the pros and cons of introducing US-style mandatory price reporting legislation in Australia’s beef cattle industry, questions around what true price transparency is, and how it would work in practice, continue to court debate.
At the same time, the grassfed cattle industry is actively working to develop an Australian beef yield indicator/wholesale carcase ‘cut-out’ to provide more transparency and price information back to producers (more on this below)
Price transparency: domestic versus export
Genuine price transparency in Australia’s beef cattle industry would require accurate knowledge of prices paid at each point of the value chain, from the price paid for cattle to the price paid for each individual cut of beef at domestic retail or export customer level, and the prices paid at each point in between.
Achieving this appears to pose different challenges depending on if cattle are destined for the domestic market or one of the many export markets to which Australia sells.
In Australia’s domestic market, the major supermarket retailers do not currently supply Meat & Livestock Australia with individual SKU (stock-keeping unit) price data for each specific cut.
However, MLA does have access to similar data via ACNeilsen Australia’s Homescan panels. This service provides retail price data on individual products, including individual meat cuts, drawn from the scanned weekly grocery shops of about 10,000 consumers around Australia.
Accessing this information currently costs the industry about $200,000 a year, and is used by MLA for consumer insights to develop marketing campaigns.
Retail accounts for 70pc of Australia’s domestic beef market, with 30pc to hotels and fast food.
The big two supermarkets Coles and Woolworths combined have 70pc of Australia’s supermarket share, which translates to about 50pc of Australia’s total domestic market.
If the ACCC or another Government body was to require that all supermarkets pass their retail price data back to MLA for transparency purposes, it would be powerful information for industry.
“Such information would provide price transparency but it would also help MLA develop insights into consumer trends to help develop retail innovation into future consumer demands, keeping red meat at the forefront of consumers,” MLA managing director Richard Norton said.
Then Australia’s beef cattle industry could claim to have full price transparency in its domestic market, which accounts for about 30pc of its total beef production.
But, in the absence of legislation forcing that disclosure, the best information it currently has available is Homescan data and the current modeling used by MLA.
By comparison, in the United States’ domestic market, legislation requires the mandatory reporting of cattle and beef prices.
US packers must inform the USDA of the price they pay for cattle as well as the price they receive for wholesale meat cuts, information which is then published by the USDA to show current margins through the supply chain.
The US industry is different to Australia’s in that it is dominated by its domestic market and also dominated by feedlot finishing systems. 80-85pc of US production involves the sale of fed cattle from feedlots to processors at a contract price for the US domestic market, which allows for a relatively seamless process of price disclosure.
The same mandatory requirement is not applied to reporting individual cuts of beef sold into the export market. However US processors do report export volumes and prices.
Where all roads in the US lead to a feedlot, in Australia, there are many different roads to an end-market destination, both domestically and for export.
In contrast to the US, more than 70 percent of Australia’s beef production sells offshore, heading into more than 100 different markets. Various carcases with offal can go any number of different ways, explaining why some carry three or more halal blessings.
True price transparency for beef selling into the export market would require accurate information on the price of the cattle going into the processing facility, and the sell price for every piece of that animal to each market it goes to.
The differences between the US and Australian industries adds to the complexity of achieving genuine price transparency in Australia’s export beef market in particular.
Advocates of a US-style mandatory price reporting system in Australia say better price information is needed to provide a truly competitive market and to ameliorate what they see as unequal bargaining power between producers on one hand and an increasingly concentrated retail industry and processing industry on the other (as explained by the Australian Meat Producers Group in its case to a Productivity Commission inquiry last September).
Farm gate percentage of retail price reports
Back on the domestic market, while MLA is not able to access retail price data by specific cut, it has used ABARES retail data and the EYCI to provide an indication of farm gate price as a percentage of retail prices for the past 20 years.
As an ISO accredited system, all data used by MLA market reporting must have a reference point. It says that at best the indicator is a guide, but it shows that farm gate returns over the past 10 years have averaged between 30pc and 35pc of retail price (ranging from a low of 28pc in 2013 to a high of 52pc in 2016).
Producers want to see this average lifted, and the strategy of their peak body, the Cattle Council of Australia, is to accelerate the adoption of objective carcase measurement and value-based marketing (where producers are rewarded with higher prices for producing cattle that better meet market specifications, in the process driving an industry-wide improvement in the production of quality beef for consumers).
MLA also recently outlined a plan for the industry to borrow $150 million to fast-track the installation of DEXA (Dual Energy X-Ray Absorptiometry) objective carcase measurement technology in all AUS-MEAT registered slaughter facilities in Australia. MLA says the ambitious move, which industry groups are currently considering, would pave the way for scientific measurement of saleable meat yield, future value-based marketing and industry-wide productivity gains through processing automation, genetic improvement and data-based on-farm decision making. Longer term it would also reduce the industry’s annual multi-million cost of grading.
Australian Beef Yield Indicator being explored
As part of the broader push to deliver more transparency and feedback to producers, late last year Cattle Council of Australia asked Meat & Livestock Australia to start working on the development of an Australian beef yield predictor/indicator.
Beef Central’s understanding is that the indicator would give producers more accurate information about how their cattle are priced at a wholesale level ie prior to domestic retail or being exported.
The feedback, in the form a wholesale carcase ‘cut out’, would then help producers to make decisions from feeding to genetics to produce cattle that better meet market specifications, and in turn increase their returns.
However, for the indicator to work, it would require many processors to provide more information than they do now, either voluntarily or through Government intervening to make the information mandatory.
(It is important to note here that one of Australia’s largest processors, Teys, has been signaling its intention for a long time now to move to value based marketing.
This would ultimately require producers to be provided information on the yield of cuts and pricing by cut. It is a bold move for a processor, and one that aims to build the trust between producer and processor. The question will be: Will other processors will adopt the same strategy?)
An unintended consequence of the transparency debate?
For the time being however there are signs that the recent push for more information in the beef cattle market may have had an opposite effect in at least one short-term way.
Some processors who have previously contributed price information to MLA for its over the hooks reports have reportedly stopped doing so, citing fears that providing such information could now be interpreted by the ACCC as an attempt at setting the market. Beef Central has also been informed by some processors that they are no longer comfortable providing forward-looking market information to rural media, citing the same reason.
It reflects the level of uncertainty and conjecture currently pervading the industry as it awaits the outcome of a long-running senate inquiry and ACCC investigation process.
The next key development which may help to shed further light on the future of mandatory price reporting in Australia will be the ACCC’s final report and recommendations from its cattle and beef market study, due soon.