Markets

Will carbon tax impact on cattle prices?

Jon Condon, 25/06/2012

 

Will the Federal Government’s new carbon tax be reflected in lower livestock prices, as red meat processors attempt to pass-on their additional cost burden to the production sector?

The subject is coming into focus as the carbon abatement tax draws closer to implementation from next Sunday, July 1.

Larger tax-exposed processors over the past 12 months have estimated the cost per beast slaughtered from the tax at $6-$8 a head, depending on class of cattle being processed.

However one tax-exposed processor said it was unlikely his company would be able to adjust downwards his company’s rates for slaughter stock, to offset the tax burden.

“It’s important to remember that the larger processors will still being competing in the marketplace for the same cattle, but they will not be bearing the direct carbon tax,” he said.

“Some are liable for it and some aren’t, so larger processors exposed to the tax are still going to have to compete with smaller ones for stock. At the end of the day the market is bigger than just the larger processors facing the carbon tax, and livestock prices aren’t likely to adjust. Processors will have to find other ways to absorb the additional tax cost, on top of three very difficult years in terms of processing profitability,” he said.

For all processors, large and small, there will also be very significant indirect costs through higher energy charges, meaning processors generally are likely to factor this into offer prices over the next 12 months.

Cattle Council of Australia president Andrew Ogilvie this morning said CCA had attempted to quantify the impact on livestock prices from the activation of the carbon tax on processors from July 1.

“But it’s proved impossible to nail down, and we feel we can’t even make an educated guess at this stage,” he said.

“Larger processors directly subject to the tax will definitely have to bear more costs as a result, and may try to pass that back to livestock suppliers. But having said that, they still have to compete in the livestock marketplace with smaller processors not subject to the tax.”

“Processor margins are known to be tight already, but the efficiencies they can extract from their own business may determine how much the tax is going to cost them, and how much they seek to pass on down the chain,” Mr Ogilvie said.

 “But it’s reasonable to assume that processors will attempt to recover some of those increased costs, and it will be hard to do that through higher meat prices in customer countries, when they are competing with other exporters in North and South America.”

“It’s going to be a wait-and-see as to how it all plays out,” Mr Ogilvie said.

      

 

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