News

Grassfed restructure: Where is it at? Where to from here?

James Nason, 30/07/2015

IT IS almost four years since the Cattle Council of Australia formally embarked on a restructure process at its annual general meeting in Longreach in 2011.

What has changed since then?

Visibly, not a significant amount.

The same structures remain in place, albeit with some distinct changes.

southern grassfed beefThe Cattle Council of Australia – in response to criticism it cannot technically claim to speak for the approximately 80 percent of Australian cattle producers who choose not to pay membership fees to their relevant State Farm Organisation – introduced a new direct membership channel early last year.

For an annual fee of $100, any producer can now become a direct member of the Cattle Council. That gives them the right to participate in industry policy development, to stand for one of the two directly-elected board positions now available for northern and southern Australia and to vote on who should fill those positions.

Meat & Livestock Australia, following criticism that its approaches to spending grassfed levy funds were not transparent and fully controlled by, or adequately accountable to, grassfed levy payers, initiated its own restructure mid-way through the Senate inquiry into grassfed industry structures and levies last year.

That has resulted in a 10pc reduction in MLA staff, and a new approach to consulting with growers on how grassfed levies are invested in R&D projects. MLA says the new structure ensures growers will be at the centre of all future R&D investment decisions.

We also saw a Senate Inquiry conducted into grassfed levies last year, initiated by Agriculture Minister Barnaby Joyce, which resulted in seven recommendations.

Chief among these was a recommendation for major surgery to existing red meat industry structures by establishing a new grassfed producer owned and elected body through legislation and redirecting grassfed levy funds from MLA to the new organisation.

In the wake of those findings – now three years into the restructure process – Mr Joyce met with grassfed producer representatives and other red meat stakeholders in Brisbane in December last year to attempt to thrash out a possible agreement on an acceptable way forward.

The agreed outcome was that the grassfed producer groups would go away and return in February with a new model for national grassfed producer representation that they could all agree upon, while the minister and his staff would explore whether the new body could receive statutory levy funding – either through taking over control of all grassfed levy revenue as recommended by the Senate, or by receiving some direct levy revenue to help fund its operations.

In a rare and perhaps unprecedented display of unity among grassfed producer groups, a new restructure model was presented to the Minister in February.

The model involved replacing the Cattle Council of Australia with a fully directly elected board of grassfed levy payers, representing 15 cattle producing regions across Australia.

It would effectively ensure that every grassfed levy payer in Australia has the right – should they choose to exercise it or not – to vote to elect their grassfed industry representatives, stand for election themselves and to contribute to policy development.

By giving all grassfed levy payers a vote and a say, the new body would then be able to legitimately claim to speak for all grassfed levy payers, giving it far more clout than existing representative bodies can claim.

The new body would not stifle diversity of opinion but should encourage it. Producer sub-groups would still have the opportunity to use their own networks and resources to attempt to have their own representatives elected to the board and to stand on the merit of their arguments.

Key unresolved issue is funding

Giving every levy payer a vote and a say costs money. The question of how to fund this new structure remains the key sticking point.

Without a resolution soon, this problem threatens to unravel the slow but hard-earned progress that has been achieved towards introducing a new unified structure that gives all levy payers representation.

The unity restructure model presented in February was wedded to the idea that the new group would be primarily funded through the statutory grassfed levy.

This would be either through getting full control of the levy as per the Senate inquiry’s recommendation, or by receiving a redirected portion of the levy. Proponents had hoped to receive about 7pc of annual grassfed levy revenue or around $4 million per year to fund the new organisation.

Grassfed producers want full control of levy

The simple argument from those in favour is that grassfed producers should have full control of the grassfed levies they pay.

They point out that meat processors have their own body (AMPC) to control the slaughter levies they pay, and live exporters have their own body (Livecorp) to control the live export levies they pay. Why shouldn’t grassfed levy payers have their own body to control grassfed levies as well?

There has been a long held view in the grassfed industry that MLA’s structure allows other sectors which contribute less levy revenue to MLA to have an unduly large influence over how grassfed levies are spent.

With the feeling they lack full control over their levy funds, and lack a strong national voice, the view is that grassfed producers have ‘taxation without representation’, or, ‘pay without a say’ is another commonly used line.

In their bid for access to statutory levy funding, they also point to some precedents to support their case.

Australian Pork Limited, for example, is a single producer-owned company which represents pork producers, but also receives statutory pig slaughter levies. A Statutory Funding Agreement (SFA) signed by the Howard Government in 2000 allows APL to use levy funding for purposes such as marketing, R&D, strategic policy development and other activities “to enhance the viability of producers”. The SFA defines clear roles and responsibilities for the APL board in relation to how it spends levy money.

Further to this, all red meat peak industry councils receive funding each year via disbursements from the $40m Red Meat Industry Fund, which was created with left over producer and processor levy money when the industry was restructured in 1998. If peak industry councils can receive levy funding through that levy source, they ask, how is receiving direct levy funding any different?

‘Legally, morally and ethically wrong’

On the other side of the debate, opponents insist that it is legally, morally and ethically wrong for money raised through statutory levies to be given to a peak industry council or representative group.

They describe it as a form of compulsory unionism, and maintain that if a representative group is doing its job and delivering effective benefits to its members, it will have no trouble convincing producers to pay the membership fees required to fund it.

Opponents maintain that the grassfed sector does have adequate control over grassfed levy funds through the Memorandum of Understanding (MOU) that defines MLA’s responsibilities to each peak industry council. They argue that the onus is on Cattle Council to more effectively scrutinise MLA’s grassfed levy expenditure and to provide direction on how levy investments can be improved, if required.

Some suggest that if grassfed producers believe they should get representation for the money they already pay in levies, then the grassfed industry should vote to reduce the size of its statutory $5 levy and redirect a portion of that money towards funding the new grassfed representative body – but as an industry-managed levy with an ‘opt-out’ clause, to avoid the restrictions that go with using legislated levy funding.

Opponents also see taking levy funds as the “easy option”, arguing that a council with guaranteed levy funding has less incentive to work hard for its members than a council that must continue to demonstrate results for members to keep membership funding flowing.

Are representative and levy roles being confused?

Australian Farm Institute executive director Mick Keogh believes the debate has lost its way with the focus on whether a peak industry council should receive statutory levy funds, arguing this badly confuses what should be seen as two separate and distinct roles.

He has argued that Research and Development Corporations (RDCs) such as MLA should manage and disseminate levy funds with a view to driving the greatest productivity improvements for levy payers. A peak industry council representing voluntary membership-paying producers should oversee the RDC’s activities and ensure the most appropriate performance measures are in place to deliver the best results for levy payers. This is how the existing structure works.

Where we are now – Minister rules against levy funding

This brings us to where we landed on July 15 when Agriculture Minister Barnaby Joyce announced the Federal Government’s formal response to the Senate inquiry recommendations handed down last September.

The Minister rejected the Senate’s main recommendation that a new grassfed Research and Development body be established and that it receive full control of the grassfed levy from MLA.

Mr Joyce has taken the view that pulling grassfed levy funding out of MLA would unnecessarily destabilise the organisation to the detriment of the other red meat sectors that also rely upon it (ie grainfed beef, sheepmeat, goat meat and joint programs with processors and live exporters). He maintains that grassfed producers can get adequate control of their levies through strengthening the Memorandum of Understanding between MLA and the grassfed peak council.

He also makes the point that the Government regards statutory levy funding as a tax and therefore Government money, and giving that funding to a peak industry council would weaken its ability to speak without fear or favour or independently of the Government.

The Minister has also given the clear indication that he doesn’t believe there is a high chance that various Government departments, the Liberal Party and several non-Government senators will support the concept of redirecting a portion of the statutory levy to the new grassfed producer representative organisation either.

The Minister says that if Cattle Council conducts a vote of all levy payers, and a significant majority support the idea of redirecting part of their levy to the new grassfed representative organisation, he would “assist where possible” to achieve that outcome.

But he also leaves little doubt that he believes any form of statutory levy funding would compromise the ability of a peak industry council to speak independently of Government.

Ball back in industry’s court

MLA AGM Sydney 2014 crowdThat effectively puts the ball back in the industry’s court.

Does Cattle Council now push ahead with a vote to ask if grassfed levy payers support giving legislated levy funding to the new organisation, a process that may take months and cost hundreds of thousands of dollars, when there appears to be little to no Government support for the proposal anyway?

Or does it call time on the levy funding push and focus instead on exploring and developing alternative methods of funding – knowing that in six months time it will be that much further down the track towards creating genuine funding alternatives?

Another pressing issue surrounds how long the existing peak industry council, Cattle Council, can remain financially viable in its current form.

The council’s reserves stood at over $500,000 about four years ago but have been all but exhausted through the long-running industry consultation and restructure process since that time.

It still receives disbursements from the RMAC fund, membership payments from State Farm Organisations (SFOs) and direct membership fees from about 300 direct members.

It may not be on the brink of insolvency as some claim, but its current funding base means the council currently only operates in the barest of forms.

How to meet the cost of transitioning from the current Cattle Council structure and funding base to the new directly elected body, which would no longer receive SFO membership fees, is an immediate unresolved challenge facing the industry.

Gaining more direct members is one place to start, but the council is a long, long way from having the number required to give it the resourcing it needs.

Only 300 have paid the $100 annual membership fee so far, about 39,700 short of the number the council would need to self-generate the $4 million in annual income it had hoped to receive by being given 7pc of the $5/head transaction levy.

The “free-rider” effect is an obvious problem for any peak industry council and certainly for Cattle Council in convincing all producers to pay membership fees. When a peak industry council negotiates benefits for producers, those benefits are enjoyed by all producers, regardless of whether they are paying members or not. Think for example of the work Cattle Council did to develop grassfed MSA. Any producer who can meet grassfed MSA specifications can access the premiums available from that work, regardless of whether they pay membership fees to their SFO or Cattle Council. Negotiated benefits cannot be quarantined just to members, meaning there is less imperative for producers to pay a membership fee.

Industry lobbying work is also often conducted behind the scenes and is not visible to producers, adding to the lack of incentive to pay for representation.

These challenges exist but they also do not diminish the fact that a peak industry council has to perform effectively and regularly to inspire members to join.

Redirected commercialisation revenue?

The Minister’s office also sees potential for the new grassfed group to be funded in future by redirecting revenue that currently flows to MLA from projects, products, services and intellectual property (IP) developed using grassfed levies.

However, there are some hurdles currently standing in the way of this happening.

As a not-for-profit company, MLA in its current form cannot pay dividends. Also, it says the small amount of royalties that it receives from programs funded by levies are put back into the continuation of programs.

While there is some revenue from other services or products, a new or separate structure would need to be put in place for any transfer to occur.

The majority of MLA programs are not designed to generate royalties or profits but rather to encourage adoption of improved practices and innovation on-farm or throughout the red meat industry.

MLA’s existing Statutory Funding Agreement (SFA) with the Government states that it “shall not spend (levy funds) on making payments to Industry Representative Bodies”, except for very limited and specific purposes such as when an industry representative group carries out paid consultation work on behalf of MLA.

Its constitution also prohibits “income and property of the company [from being] paid or transferred directly or indirectly by way of dividend, bonus or otherwise by way of profit to the members of the company”.

Another question grassfed producer representatives have asked is why it would be deemed okay by Government for a peak industry council to receive money from revenue raised from levy-funded projects and IP, but not from direct levy funding itself.

Time running out

Almost four years on, the grassfed restructure saga appears a long way from a definitive result, and the industry’s peak industry council remains very much in limbo.

Left unresolved, the risk is that the unified restructure proposal developed in February will be inevitably abandoned and the baby will be thrown out with the bathwater.

It seems unlikely the status quo can carry on indefinitely.

If no funding solution is found, CCA, with its financial reserves now exhausted, is in danger of drifting into financial unviability.

What would happen then? One possibility is that it would be folded into the National Farmers Federation’s own restructure process, as a cattle arm of the national peak body, and grassfed producers would no longer have an autonomous grassfed cattle body to represent their collective interests.

Or the Federal Government may simply remove Cattle Council from legislation as the prescribed peak industry council, and replace it with a structure it believes will be better (similar to what happened when then primary industries minister John Anderson decided upon the industry’s new structure when the red meat industry could not reach consensus back in the mid-to-late 1990s).

In the short term Cattle Council faces a choice of whether to push ahead with plans to get access to the legislated levy in the face of obvious resistance to that outcome from Government, or to start seriously focusing on finding other funding solutions.

One option that may now be pursued will be to ask levy payers to vote on whether they support the concept of paying an industry managed levy, as opposed to statutory levy managed by Government, to help fund the new directly elected grassfed body, with an opt-out clause included for those who choose not to pay.

The one thing most people seem to agree upon in the industry is that the unified representative model agreed to in February was a significant achievement and a strong step in the right direction for the industry.

Whether producers get to see it in action will ultimately come down to how willing they are to pay for it in one form or another.

 

Tomorrow: is it time for the red meat industry to revisit the Memorandum of Understanding?

 

 

 

 

 

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Comments

  1. Philip Downie, 05/08/2015

    This may be a comment from ignorance. As I read it CCA is supposed to be the peak body for grassfed but it would seem they have failed to be identified as such. I never get anything from them, that I have noticed anyway, I do get stuff from MLA. Now I see MLA is interacting with producers on R&D? I am mystified, seems to me the tail MLA, other meat levy bodies, are wagging the dog ie CCA. MLA is , as I understand, a service provider, thus their info involvement with grassfed should be through CCA. CCA should be looking at what is spent by MLA and communicating with growers on what is spent, what they want done etc. I really have to wonder what CCA does and why it isn’t doing this in a visible way. They will never get members if this is the way it goes, they need to get pro active and get some toughness in these discussions with MLA. Maybe I have this all wrong but that is how I see it at the moment, otherwise enlighten me.

  2. Sandy Maconochie, 30/07/2015

    A very well written article. The best journalists present their work with balance and without bias, exactly what this is.

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