News

Beef supply chain price transparency project making progress

James Nason, 29/05/2015

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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:

Recommendation 1

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.

 

Recommendation 2

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.

 

Recommendation 3

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.

 

Recommendation 4

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.

 

Recommendation 5

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.

 

Recommendation 6

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.

 

Recommendation 7

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.

 

 

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Comments

  1. Jacqueline Curley, 30/06/2015

    Beef producers need Barnaby Joyce to act and introduce the 7 recommendations from the grass fed senate inquiry ASAP. An absolute must for the survival of current and future beef producers in Australia is complete transparency of pricing in the market place. America has this and their producers are receiving competitive prices while Australian producers have often been receiving less than the cost of production for over a decade. The PPS bill put forward by Rob Moore would be a good place to start. This is an Australian version of the Packers and Stockyards Act in the USA.
    There needs to be a full audit of the cattle transaction levy system and full transparency where these levies have been spent and will be spent in the future.
    Producers pay the levies so therefore a producer owned body should be directing where these levies are spent.
    Honest Processor Competition must be achieved in the purchase of Australian beef livestock for a healthy producer industry which can be self serving and efficient.

  2. David Byard, 05/06/2015

    I have watched with much interest the assessment of the Senate committee into the red meat industry. The Minister requested an independent Senate to make recommendations on the problems facing the red meat structure. The findings from this committee were quite damning and they gave seven recommendations. These recommendations have not been to the liking of groups that have so much the say and so little of the paying. What we see now may be a smokescreen for promises (the question I would ask) why now, could the Senate have rattled the tree. Could it be possible that everybody is in fact trying to smooth over the obvious cracks in this present system. Surely the time has come that the Minister adopt all seven recommendations and ignore vested interests who have so much to lose.

  3. Cottam -Maureen, 03/06/2015

    As a beef producer I to demand price transparency in the Australian Beef Supply Chain.
    Our global competitors such as the powerful American beef industry’s producers are protected by their Packers and Stockyards Act.
    Introducing such legislation would go a long way in providing the Australian beef producer with a level playing field on which to compete on the global stage.

  4. Peter McHugh, 03/06/2015

    I can only hope for the grass fed cattle industry that along with the price transparency project progress that the minister and advisers will see the absolute need to implement the seven recommendations for wholesale change and some better control on the grass fed levy money.
    It goes without saying this new enthusiasm by CCA & MLA is great for the industry now but I feel this came about only when the last 15 years of mismanagement was exposed through the senate inquiry. In some cases, in my opinion there was an abuse of power when it came to financial grants and our leaders turning a blind eye to the fact that the processors had total control of the cattle industry. This will be evident at the next senate inquiry, the “Effect of market consolidation on the red meat processing sector” – in other words abuse of power by the processors.
    The lobbying being carried out by those outside of the grass fed cattle industry who have had the use of the grass fed levy money to date could see the seven needed recommendations watered down.
    The Genie is now well and truly out of the bottle and will be made even more evident once these two senate inquiries are completed, exposing the pattern of abuse of management over the last 15 years. This is now in the hands of government – that the grass fed cattle industry is relying on

  5. Max Oppy, 02/06/2015

    A truly representative producer-owned body which would be responsible for receiving and dispersing all of the cattle R&D and marketing levies we pay makes complete sense. It’s only fair that we should be able to influence the levy rates and how our levies are spent, especially since the Australian wool and pork levy payers have this right.

  6. Norman Hunt, 01/06/2015

    To his great credit, Agriculture Minister Barnaby Joyce realised that there were structural problems with the current grass fed cattle industry structures and systems and asked the Senate Committee to conduct an inquiry into them.

    The Senate Committee received over 400 Submissions from all grass fed industry organisations and hundreds of large and small producers, and held exhaustive hearings all across Australia. The Committee handed down an exhaustive report detailing the basis of their seven considered reform Recommendations.

    Grass fed producers should now give Barnaby all the support that they can to enable him to implement these Seven Recommendations in full.

    It is essential that the new levy funded grass fed cattle corporation, with a board directly elected by levy payers, receives all of the cattle transaction levies so that cattle producers can control and direct the expenditure of the levy monies.

    The Commonwealth MOU with the red meat industry would be amended to ensure that the new grass fed levy funded cattle corporation provides adequate interim and ongoing funding to ensure that the MLA can retain all key staff and complete all current essential projects.

    Proposals by some that the new grass fed levy funded cattle corporation based upon the Cattle Council’s functions under the current red meat industry organisational structure miss the point. The Senate Committee Report made it clear that the new cattle producer-owned corporation needs to be empowered to take on far more embracing initiatives to deal with the increased concentration of supermarket and abattoir power that has occurred over the last 15 years.

  7. Phil seymour, 30/05/2015

    A good start. Legislation a must.

  8. Loretta Carroll, 30/05/2015

    At long last there is an opportunity to embrace innovative change in our industry with regard to price transparency and grass-fed producer representation. Of course the industry should have transparency along the whole beef and sheep supply chain as it accepts there are many gaps in market data and reporting systems. So of course it should have a mandatory price reporting systems and standard yield or ‘cut-out’ killing practices. America has all this and has been doing it for years and they receive a minimum of 50% of the retail value for beef compared to Australia’s average 30%.

    Of course the Seven Recommendations that came out of the Senate Inquiry for the Industry Structures and Systems governing levies on grass-fed cattle should be implemented in full. The report is a great read and identifies the many obstacles and barriers that have been disruptive to our industry, see link: http://www.aph.gov.au/Parliamentary Business/Committees/Senate/Rural and Regional Affairs and Transport/Beef levies/Report
    The Senators have called for the establishment of a producer-owned body that would have the authority to receive and disperse the research and development and marketing component of the transaction levies, which would identify and unify all grass-fed producers. Interestingly Roger Fletcher, Australia’s most prominent sheep meat processor and exporter has highlighted in his submission to the current Red Meat Senate Inquiry into the Effect of market consolidation in the red meat processing sector that “There remains too many factions with competing interests in this area all collecting statutory levies. This results in a lack of direction, reluctance to change, slow movement and inefficiency. It creates mistrust and politics between factions.” He goes on to say “The processing and farming industry has rationalized yet industry bodies refuse to change…” and he also provides a view that “we can be much more efficient and gain better outcomes by sheep, lamb and wool working on R & D, marketing and access separately to beef in a smaller unified and focused body. This would leave beef to work as one.”

    Our Farmers and industry representatives have the best opportunity they have had for a long time to address the systemic structural problems and we should embrace change and the possibilities these seven recommendations can create. We should also understand that much work, research and consultation was undertaken to generate these outcomes and I’m confident these recommendations can create value for all our interdependent stakeholders.

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