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.