A NEW economic desktop update has found that cost-to-operate for a typical Australian beef processing facility has risen 25 percent over the past eight years, with an average Australian beast now costing around $450 to kill, bone and pack.

That per-animal cost has risen by $90 from around $360/head in the industry’s original, more comprehensive cost-to-operate report published in 2016, exposing Australia’s chronic lack of competitiveness in this area.

There was a small difference noted in cost to operate on grainfed cattle ($478/head) than grassfed ($371) in the 2024 economic analysis completed recently by the Australian Meat Processor Corporation.

The latest analysis was based on an ‘average’ of a wide range of processing activity from hot-boning at one end to much more sophisticated chilled boning at the other where processors do a ‘lot more with the carcase.’

The 2024 update report stressed that costs will vary for individual processors depending on facilities, processes, location and availability of resources. A hot boning plant, for example, will have lower cost to operate than a chilled boning plant producing high quality beef.

This trend was confirmed by two large multi-site beef processors, who both told Beef Central that their own processing costs this year (representing both grain and grassfed) are closer to $500 a head than $450.

The highest cost increases noted in the latest report occurred in areas like energy (electricity and gas) and fuel, waste disposal and transport.

Labour cost rises were somewhat less impactful, however Australian labour costs remain higher than international competitors (see details below).

The report found that:

• Utilities like electricity has risen 30.2pc in the past eight years; other fuel prices have risen 28.2pc; water and sewerage are up 9.8pc; and waste disposal is up 28pc.
• Processing wages and salaries, and workers compensation have risen 22.6pc since the original report, while retirement benefits had risen 38.4pc
• Other costs, including certification/audit costs* have risen 24.2pc; packaging is up 21.1pc; and transport of finished goods is up 27.4pc. Other items like repairs and maintenance and consumerables have risen 27.8pc.

* Since 2020-21, Commonwealth fees and charges for export regulatory services have increased at a rate of 3-4pc/year under cost recovery arrangements.

Using grassfed processing as an example, total labour cost, measured on a per head basis, has risen from $180 to $223 over eight years, while utilities costs (energy for cold storage, heating, lighting and machinery) plus water, sewerage and waste disposal are up from $20 to almost $26 a head.

Minimum wages

This year’s report pointed out that that Australian minimum wages remain higher than all our meat exporting competitors, based on an OECD comparison of minimum hourly wages in real terms (2022 US dollars, Purchasing Price Parity). In 2022, the minimum wage in Australia was 3.2pc higher than New Zealand, 46.7pc higher than the United States and 82pc higher than Brazil (data not available for Argentina). Since 2017 the US minimum wage has declined in real terms, widening the gap between Australian and US labour costs.

The report authors stressed that the 2024 report is a preliminary update of the original, more comprehensive 2016 cost to operate report, and more detailed updates may be produced in the future, including updated comparisons with international competitors.

For comparative purposes, the 2024 analysis applied the same base assumptions on average carcase weight and daily throughput as the original report.

Comparisons with major beef export competitors

Unlike the original 2016 report, the 2024 update focussed only on Australian processing changes, and did not seek to analyse changes in processing costs in competing beef exporting countries like the US and Brazil.

The original Heilbron report from 2016 exposed a dramatic difference between cost-to-operate competitiveness in the Australian beef processing industry compared with other parts of the world. It found Australian processing ($360/head at the time), was dramatically more expensive than the US, when measured in A$ equivalent terms ($290), Brazil ($172, less than half of Australia’s cost) and Argentina ($206).

The original 2016 report found that average costs per head (excluding livestock purchase) incurred in Australian beef processing were 24pc higher than those in the US, more than twice the costs seen in Brazil and 75pc higher than those in Argentina. Specifically, Australian processing costs back in 2016 were:

• 1.32 times that in the US, based on grainfed cattle (A$93.35 a head in dollar terms)*
• 1.73 times the cost of that in Brazil for grassfed cattle (A$125.42 in a dollar terms)*, and
• 1.45 times that in Argentina for grassfed cattle) (A$91.74 in dollar terms)*

Of the costs incurred in Australian processing, the original report estimated that more than 54pc were due to some form of government regulation, significantly higher than any of the three comparison countries.

Australia’s regulatory cost burden in 2016 was estimated to be 2.75 times that of Brazil, 2.4 times that of the United States and 1.89 times more Argentina.

 

Click here to view Beef Central’s summary of the original 2016 Heilbron report.

 

* A transposition error occurred in the numbers identified with an asterisk above, when this article was first published. The numeral 1 and the decimal point disappeared in the comparisons. The article has now been corrected, and the correct numbers repeated below – Editor     

• • 1.32 times that in the US, based on grainfed cattle (A$93.35 a head in dollar terms)*
  • 1.73 times the cost of that in Brazil for grassfed cattle (A$125.42 in a dollar terms)*, and
  • 1.45 times that in Argentina for grassfed cattle) (A$91.74 in dollar terms)*