The results of a Meat & Livestock Australia project examining the potential for greater price transparency in the Australian beef supply chain could be known by the end of July.
Cattle Council of Australia asked Meat & Livestock Australia to fund the project in August last year after the grassfed cattle Senate Inquiry highlighted widespread producer concerns about low farm gate prices versus high international red meat prices.
A month later one of seven recommendations handed down by the Senate Rural and Regional Affairs Committee following its grassfed industry inquiry (listed in full below this article) also called for the Department of Agriculture and industry to conduct an analysis of the benefits, costs and consequences of introducing legislation akin to the Packers and Stockyards Act 1921 and Livestock Mandatory Price Reporting Act 1999 in the United States.
The MLA project is specifically tasked with assessing whether there is a lack of price transparency in the Australian beef supply chain, and, is if so, to identify points in the supply chain where greater price transparency is needed to provide clear price signals to producers to inform their production and marketing decision making and improve farm gate returns.
MLA was also asked to conduct a cost-benefit analysis of introducing mandatory price reporting arrangements in Australia, similar to rules that apply in the United States beef industry. (The specific terms of reference for the project are published below this article).
11 different parties tendered for the project.
A panel made up of MLA, CCA and ABARES representatives and independent producers chose Sydney based agribusiness consultancy AGINFO Pty Ltd as the successful tenderer to conduct the research last November. The project team includes AGINFO’s Brian Todd, along with David Warriner, Winifred Perkins, Peter Maloney (Connecticut, USA) and Peter Weeks.
Asked at this week’s Senate Estimates hearings in Canberra about how the project was progressing, MLA managing director Richard Norton said the AGINFO consultants were now up to milestone number four of seven milestones.
“We should have a pretty clear picture about that report by the end of July,” he said.
Progress on levy payer identification and voting allocations
MLA also has direct involvement in another of the seven recommendations handed down by the Senate RRAT committee in September last year.
The second recommendation called for the establishment of a cost-effective, automated cattle transaction levy system; the accurate identification of levy payers against levies paid and the development of an automated system to provide for immediate settlement of levy fees paid and the allocation of voting entitlements.
Mr Norton said MLA has started a project which is looking at the best way of identifying levy payers and ensuring they receive accurate voting entitlements for the levies they have paid.
Voting entitlements are currently based on what amounts to little more than an honesty system. Levies are collected from each transaction by intermediaries such as stock agents and processors and paid to the Department of Agriculture’s levies collection unit in bulk. As a result there is no automated, official record of what each individual has paid in levies. Therefore producers wishing to exercise their right to vote at each MLA AGM must self-declare what they have paid in levies in the previous 12 months, and their voting entitlements are then allocated accordingly.
Mr Norton said there were a number of points where identification of levies paid by individual levy payers could occur.
“One of the clearest ways of doing it is that when the financial transaction happens we can investigate whether we can identify the entity paying the levy at that point in time.
“What industry decides to do with that is then up to industry—whether or not they want to then have surveys about the levy or voting on the levy or further engagement on the levy, et cetera.
“We have started that project and are investigating other models globally around how to identify the levy payer from the transaction.”
Mr Norton said MLA was also investigating better methods for collecting sale data which can deliver the second part of the recommendation which calls for accurate reconciliation of levies collected from each individual levy payer against the number of animals sold, and the immediate settlement of levies paid.
“A lot of the higher end of the industry is on large platforms like SAP and Oracle,” Mr Norton explained.
“So the high-level thinking is that reasonably easily, with the right software, we can start identifying by transaction the amount of livestock sold at that point of the financial transaction, and to identify the other parts of that recommendation.”
One of the challenges to introducing software based solution was that there was still a large number of small businesses in the industry such as feedlots and stock and station agents not operating with the latest technology.
“I believe that where this issue has been raised in the past we have moved on nearly eight or nine years, and we do have the opportunity to investigate how we can do that just in time (now),” he said.
Asked for a timeline on how long it will take to establish who all the levy payers are and how much they pay, Mr Norton said it was difficult to provide a time frame, but added that “it is a priority”.
“Once we establish the best way to collect it, which I am, at a high-level, thinking we have clearer direction around, it is then the design and implementation of the software.
“Anyone who has had any dealings with the design and implementation of software can understand that if I say 12 months, they always run a longer period of time.
“It is an absolute priority of MLA to make sure that these projects are funded, that peak industry councils are engaged in the process and are aware of what we are trying to achieve.
“So there are no real timelines on doing it except that it has to be done and done without any delay.”
Terms of Reference for the MLA price transparency project:
- Assess the transparency of prices in the beef supply chain and identify any gaps in market information requirements of grass fed cattle producers, using ABARES publications, MLA reports, services provided by private operators and customer research where required.
- Identify specific points in the supply chain where price transparency could be improved to the advantage of producers. In particular, the project will identify how improved price transparency might impact on farm gate returns.
- Outline options to address any price transparency issues identified. Consider price reporting and competition regulation arrangements as they apply in the United States as one option. Assess and advise on other possible mechanisms to improve price transparency, such as development of new marketing channels for producers, collection and reporting of new information and reporting of new analysis such as yield or ‘cutout’ value estimates. This should include before sales and post sales options.
- In consultation with the project management committee, identify preferred options to conduct a cost-benefit analysis focused on potential change in farm gate returns.
The seven recommendations of the Senate RRAT committee in September 2014 following its grassfed cattle inquiry:
The committee recommends that a producer-owned body be established by legislation. The body should have the authority to receive and disperse the research and development, as well as marketing component, of the cattle transaction levy funds. The producer-owned body should also be authorised to receive matching government research and development funds. Reforming the Cattle Council of Australia to achieve these outcomes should be examined as part of this process.
The committee recommends the establishment of a cost-effective, automated cattle transaction levy system. The system should identify levy payers against levies paid. The automated system should provide for more immediate settlement of levy fees paid and the allocation of voting entitlements. It should be subject to regular independent auditing and verification.
The committee recommends that the Primary Industries (Excise) Levies Act 1999 be amended to ensure that levies paid by processors are recognised as processor (or slaughter) levies and not as producer (or cattle transaction) levies.
The committee recommends that the Australian National Audit Office conduct an audit of the cattle transaction levy system, tracing the levy from inception and focusing on the revenue from, and expenditure of, the respective components of the levy.
The committee recommends that the Minister for Agriculture dissolve the Red Meat Advisory Council. The committee further recommends that the Minister for Agriculture establish a new system to manage and disperse earnings from the Red Meat Industry Reserve Fund, in consultation with the industry.
The committee recommends that the Minister for Agriculture revoke the status of the MLA Donor Company as an approved donor under the Australian Meat and Live-stock Industry Act 1997.
The committee recommends that the Department of Agriculture, in consultation with the cattle industry, conduct an analysis of the benefits, costs and consequences of introducing legislation akin to the Packers and Stockyards Act 1921 and Livestock Mandatory Price Reporting Act 1999.