News

AFI: Grab for compulsory funds won’t help grassfed industry

Mick Keogh, Australian Farm Institute, March 10, 2015

Opinion

The Opinion Piece by Joanne Rea, of the Australian Meat Producers Group (Beef Central, 9/3/2015) is a useful addition to the current industry discussion about the future of industry structures in the beef cattle industry, because it highlights quite a few issues that require a some clarification.

Firstly, as has become very evident in the Minister’s response to the proposal put forward by a number of beef industry groups, the issue has implications well beyond the beef industry. The future of rural levy-funded industry bodies (not just those in the beef industry) is now the subject of a further Senate inquiry, and the findings of that process will obviously inform the Minister’s future decisions about the structure of all rural research and development corporations, not just MLA.

Secondly, as Joanne pointed out in her Opinion Piece, “There are more strings to the profitability bow than just increased productivity, and like it or not many of them are political”. This is absolutely correct, and is a critical point that requires further discussion.

Profitability (whether it be in the beef industry or any other industry) is a business outcome that depends on three things, and while professional economists might debate the detail, it essentially boils down to the following equation;

Profitability = productivity potential X management skill X operating environment.

The role of a body like MLA is to focus on the productivity potential, by researching new technologies and production systems that can result in an increase in beef output per unit of input. Obviously MLA can also have some role in enhancing the management skill of beef producers through extension and communication, but its main focus (especially in relation to R&D levies which are matched by government funding) is on improving the productivity potential of Australian beef farmers.

The second part of the profitability equation is very much up to individual beef producers, and their skill in understanding the available productivity opportunities and successfully applying them to their businesses.

The third part of the profitability equation (the operating environment) involves a range of different factors outside the farm gate including seasonal conditions, market demand and supply, exchange rates and policy settings both in Australia and internationally. Some of the market-related factors can be influenced by MLA marketing activities, and of course seasonal conditions are ‘in the lap of the gods’, but the balance of the operating environment for beef producing businesses depends on policy settings here and overseas, and is largely determined by politics.

Many of the issues that are listed in Joanne’s opinion piece as factors contributing to the challenges faced by some beef producers (processor and supermarket concentration, ageing farm population, ACCC competition policy, live exports policy) are policy issues on which the beef industry needs to first find common agreement, and to then successfully lobby the government and the wider community to convince them that policy change is needed.

These are agri-political issues that are the responsibility of representative bodies, such as Cattle Council, the Australian Beef Association and the Australian Meat Producers Group. The failure of the industry to convince governments to implement policies more favourable to the beef industry is a failure of these representative bodies, rather than a failure of the industry R&D and marketing body.

In fact, rural industry R&D corporations such as MLA are expressly forbidden from spending levy funds on agri-political activities as a consequence of their statutory funding agreements, whereby the Australian Government agrees to match industry R&D funding on a dollar for dollar basis. And it is instructive to note that even in the one case where industry representative responsibilities and R&D and marketing activities are combined in a single organisation (Australian Pork Limited), Clause 7.5 of that bodies statutory funding agreement states “The Company must not use the funds for agri-political activity”.

Australian governments of all persuasions have been quite adamant that they are opposed to arrangements whereby organisations (be they unions, industry organisations or political organisations) are able to use compulsory levies or membership arrangements to engage in political activities, and most farmers in Australia have also expressed strong opposition to compulsory unionism and compulsory industry arrangements, beyond the current R&D and marketing levies.

The problem with the current proposals concerning a new industry body to effectively replace both the representative industry organisations (such as Cattle Council and the ABA and AMPG) and the MLA is that they all rely on compulsory industry funding of one sort or another, (irrespective of whether it is levy funds or and industry reserves) and propose an organisation that will have an agri-political role as well as a role overseeing industry research, development and marketing activities.

The real challenge for the beef industry is to develop a strong and united national industry representative organisation that can attract voluntary membership by delivering real benefits to its members, and that has the unity and credibility to influence governments and bodies like the MLA to ensure that both the productivity possibilities and the industry operating environment create the best opportunity for profitable beef businesses to thrive.

Taking shortcuts and making a grab for compulsory industry funding to be used for agri-political purposes will not achieve this outcome, and even if governments agree to such an arrangement it will only deliver a monolithic and unresponsive industry structure that beef producers will soon be campaigning to get rid of.

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Comments

  1. Norman Hunt, March 12, 2015

    Mick Keogh’s article contains a number of misconstrued and factually incorrect arguments which may confuse readers about the efforts to reform the grassfed cattle industry.

    Australian Pork Ltd, a levy funded representative body, despite the comments in the article, is not prevented from fulfilling its functions by not being able to engage in “agri-political activity”. The Statutory Funding Agreement for APL defines “agri-political activity” under Clause 5.3 of the SFA as “…any activity intended by the Company to exert political influence on Government to advantage one political party over another…’. The restrictions on agri-political activity clearly prevent the organisation from supporting, explicitly or implicitly, a particular political candidate or political party. However, it does not prevent the APL from carrying out their function as an industry representative body in lobbying on policy matters in support of their industry and members.

    At the present time, it is only the Cattle Council which receives compulsory levy funding and interest from industry reserve funds and not the other organisations referred to; the ABA is self-funded and the AMPG is a separate think-tank of prominent industry figures. The 2014 Newgate Review, commissioned by the NFF, advocates the streamlining and strengthening of farmer advocacy across Australia through a unified model. It specifically refers to the fact that the inherent difficulties in achieving this should not act as a deterrent.

    The 2014 Australian Farm Institute Report on Opportunities to Improve the Effectiveness of Australian Farmers’ Advocacy Groups, drafted under Mick Keogh’s stewardship, states, “A group with a business model based largely on providing advocacy services and which relies on voluntary membership contributions is not sustainable over the longer term, especially in the deregulated political environments such as is the case in Australia”.

    Mick Keogh and I are in furious agreement, and as the AFI Report points out, that the American Farm Bureau is an example of a very successful agricultural advocacy group. The American Farm Bureau boasts a membership of approximately 6 million, despite the fact that there are only approximately 2 million farmers in the US. The Organisation is one which is largely based in voluntary farmer membership and levies, however, the AFI Report specifically qualifies this success by reference to the fact that the organisation “generates a significant proportion of its total revenue from insurance services linked to Farm Bureau membership and has a broad array of commercial commercial benefits that are available to individuals who become members. The Report states “A conclusion is that to maintain legitimacy and a sustainable business model, agricultural advocacy groups need to deliver a range of services and benefits that are exclusive to members, which can generate revenue, and which can act as an attractant to encourage membership.”

    The movement toward reforming the grass-fed cattle industry has been advocating for change for a long time, seeking to implement changes recommended by an extensive Senate Inquiry into the matter can hardly be considered as taking shortcuts and making a grab for funding, but rather would seem to be a responsible step forward toward the reform long-sought by Producers, and recommended by the Senate Inquiry, the Australian Farm Institute and the Newgate Review of the Future of the Australian Farm Sector Representation.

  2. Peter McHugh, March 11, 2015

    In reply to David & Phillip concerns am in agreement on your points but the truth is the grass feed Cattle Families are being ripped of by the processors , there are huge profits being controlled by our largest overseas owned processor JBS along with Teys and others . These people were responsible and part of an “unlikely Alliance ” with JBS using their Towns ville works in 2010 to start the action that closed down the Live Export Industry 18 months latter in 2011 . This will be made clearer with the class action into the live export law suit against the Australian Government & the success with a Senate inquiry into processor control of the industry . Treasurer Joe Hockey might reconsider his decision into the Primo sale to JBS as this will cost him his job I believe .

  3. Philip Downie, March 11, 2015

    David could not agree more I don’t get this productivity drive that does not equate to profitability. seasonal conditions (without getting people excited) is in our lap to a large extent and we are doing nothing (Govt). Given these forecast conditions we will be running less animals/ area than before yet at these prices that is disaster. If we get a reasonable return we can run less for more the issue starts outside the farm gate it would seem from a money point of view it is just open. We need people to think outside the square to open it further the current systems/structures are not working for the supplier. Given the two articles written by Mick I doubt AFI has any answers at all. Firstly I would look at carcase language and whether it actually means anything or is it a tool to be used by the processor, what is the difference between a C & D butt at the end of the day it is something like $80 to the farmer what is it to the processor when it is broken down? Personally I would like to know the fat depth of my cattle when they go to the market but too small to have the equipment can this be fixed somehow? Commission buyers I have long had issues with this reducing competition. Obviously processor takeovers is a major one and pressure needs to come to the Govt and their instruments to have a far better understanding of agriculture and how it works otherwise they get bulldozed by slick corporations.

  4. David Hill, March 10, 2015

    Why is that every time farm gate profitability is addressed, there is the following notion that increased productivity is the answer, I would agree that production efficiency is a way to possibly address farm gate downturns, but surely a country such as ours which has a high cost supply chain should be looking at opportunities to expand on the quality potential of our product as a way to improve the profitability outcomes for our industry. I would suggest that producers who are once again facing the present prospect of waiting up to 8 weeks to supply into an increasingly over supplied processing sector may be more receptive to the idea of quality outcomes than the notion that we should produce more( which also brings with it the potential downward pressure on prices) , we are constantly being told that we have to address sustainability, surely a production sector such as ours, which is faced with the ‘in the lap of the gods’ seasonal conditions, should consider a research focus on ways to increase the dollar return on each unit of input, rather than beef output.

  5. Peter McHugh, March 10, 2015

    AFI reliance on MLA true or false
    I thought it was prudent to see what Mick Keogh and The Australian Farmers Institute stood for and what their gripe was with the Grass Feed Cattle Families involvement in their own revised organization .
    The AFI was established in 2003 to conduct research into public policy issues, impacting on the Australian Agricultural sector, and to promote solutions that maximize the profitability and sustainability of the sector.
    Well guess what Mr Keogh, in 12 year you have not been successful for the Grass Feed Cattle Industry!
    Your organization states it is the first stand alone institute of this type, but again, this is not correct, as MLA is a Platinum Sponsor of AFI plus, they provide you with major research work, (not that there is any thing wrong in this) but success has not been your strong point for the Cattle Families of Australia .
    Your put down on our various groups trying to bring the Grass Feed Cattle Industry into the 21st Century is also an attack on the Australian Senators who have found the 16 year old system is broke and have 7 recommendations for change.
    I feel you need to explain your concerns, (if any) in future changes within MLA that will effect your organization being financial and/or Research control.
    In the meantime, I feel we now leave it up to Minister Joyce & the Senators involved.

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