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Mick Keogh explains ACCC beef and cattle market study findings

Beef Central, 09/03/2017

More of the thinking behind the 15 recommendations released by the ACCC to improve competitiveness and transparency in Australia’s cattle markets was explained by Agricultural Commissioner Mick Keogh at yesterday’s ABARES conference in Canberra.

Mr Keogh said that in general, his team found that Australia’s beef and cattle market operates well.

However, he said, a range of concerns became evident throughout the course of the study.

Problems identified by the ACCC:

Lack of transparency in pricing:

“While the market reporting system for saleyards is comprehensive and timely, Over The Hooks (OTH) and paddock sales prices not reported in an adequate manner,” he said.

“OTH price reports are essentially indicative quotes provided by processors that are aggregated by state on a weekly basis, and are not actual prices paid.

“In the case of paddock sales and virtually all sales in the live export market, there is almost no market reporting all.

“The lack of transparency in these markets is a significant weakness from a competitive perspective.

“In many instances there are just two or three buyers operating in a region, yet upwards of 90oc of cattle sold for slaughter are sold OTH and almost all live export cattle are sold via paddock sale.”

Pricing complexity:

“The prices that processors offer cattle producers are made available in the form of pricing grids which identify a matrix of prices that vary by weight and a range of other characteristics.

“These are often quite complex and difficult to translate into prices for livestock.

“The complexity of pricing grids raises two issues relevant to competition:

“The first is the extent to which cattle producers can access these and use them to make meaningful comparisons between prices on offer from different processors.

“And the second is the ability of cattle producers to reconcile the prices they received with the prices offered on the grids.

“Even the operators of large scale beef enterprises commented to us on the challenges created by complex price grids and feedback sheets and this has the potential to lessen competition in these markets.”

Conflicts of interest in grading and pricing:

“Carcase grading for the purpose of determining prices for OTH sales is determined by processor employees who have an inherent conflict of interest.

“We note that the system currently has comprehensive oversight by AUS-MEAT, although cattle producers do not understand the system well and many lack confidence in the objectivity and fairness of the grading system.”

Lack of a formal dispute resolution process:

“In situations where disputes arise about OTH sales or other selling methods including online sales, the ACCC found that while there are some companies that have dispute resolution in place, many do not and none involved independent arbitration processes.

“This has the potential to create situations where anti-competitive behaviour can occur and lead to perceptions of an unfair market.”

Conflict of interest for livestock agents:

“In some instances we found that livestock agents acted for both seller and buyer of cattle simultaneously.

“In such a situation agent is inherently conflicted, especially if either, or both, byer or seller are unaware of the situation.

“This situation has potential to result in anti-competitive behaviour and undermine sellers’ confidence in the market.”

Conflicts of interest for commission buyers:

“Despite reassurances for commission buyers that they do not purchase for overlapping orders in saleyards, analysis of a small sample of transaction at a major saleyard showed that this in fact may be quite common

“While commission buyers enable greater efficiency in cattle procurement, especially at smaller saleyards, these practices have potential to reduce competition to the disadvantage of producers.”

Anti-competitive behaviour in saleyards:

“Throughout the course of the market study the ACCC was informed of instances of alleged anti-competitive behaviour and the ACCC is currently considering a number of these as part of the investigative process.”

Mr Keogh said the issues and practices identified by the study have the potential to reduce competition and require attention.

Failure to adequately tackle instances of anti-competitive behaviour would place the reputation of the entire industry at risk as the Australian banking sector was currently discovering, he said.

The ACCC’s recommended solutions:

Mr Keogh provided an overview of the ACCC’s reasoning in releasing 15 recommendations which it believes will help to address the problems identified above.

These include:

Pricing grids being made publicly available:

“Some processors are currently making their pricing grids available and easy to access, others require you to contact a buyer or go through an agent.

“We reached a conclusion that all processors and other major purchases of prime cattle should make their price grids available in a timely manner, so they are easy to access for producers.

“This will certainly increase producers’ ability to access and compare prices, will increase price discovery and the ability of producers to negotiate and make informed and timely decisions about who to sell their cattle to.”

Pricing grids should be more simple and easy to interpret:

“Certainly this was a common issue raised by a lot of people, that the complexity of pricing grids created uncertainty about what the actual return from stock might be, and that it was very difficult to interpret whether the price received coincided with what the grid provided.

“We believe these improvements will improve transparency and the ability of producers to negotiate and make informed choices about who to sell their cattle to.”

Improvements to market reporting:

“In particular the review recommended that the reporting of cattle prices across sales channels on the same basis should occur so indicative prices for each channel are easily comparable.

“So what we mean by that is, at the present time, the reporting classes for example for auction sales and OTH sales are different, so you can’t necessarily report like-for-like in different sale channels.

“We believe that should be addressed.

“And there is also the opportunity to improve reporting through the supply chain including at wholesale, retail, and export level.

“MLA’s ability to improve market reporting will depend on the quality of information provided to it by other industry participants, such as live exporters, processors and retailers.

“The ACCC welcomes progress made on some of these measures as recommended in its interim report including improvements made by MLA in its market reports and prices section of its website.

“We still believe more improvement needed in relation to paddock sales, OTH sales and sales into live export market.”

Why mandatory price reporting was not recommended:

“We did not go down the track of mandatory price reporting as is the case in the US for a number of reasons.

“The principal one is that market reports in the US refer to a much narrower range of stock than would be the case in Australia.

“Essentially their market reporting refers to full weight stock being sold out of feedlots for slaughter, whereas the Australian market is obviously a lot more complex and that raises questions about the costs and benefits associated with mandatory reporting.”

Objective Carcase Measurement should be prioritised:

“The introduction of Objective Carcase Measurement (OCM) technology should be prioritised by the industry and adopted by all processors in a consistent manner as soon as possible.

“OCM technology will increase accuracy and transparency of value assessments and appropriate auditing and verification systems will be needed to support the technology.

“The ACCC notes the moves made by MLA to introduce OCM throughout the industry as recommended in our report.”

Measurement data produced OCM technology should be able to shared for the benefit of industry:

“The data produced from of objective carcase grading will be of wider benefit if aggregated and shared.

“For example producers will be able to measure their own performance against the rest of the industry and make production adjustments necessary to achieve higher cattle grades and prices.

“They would also be able to obtain comparable carcase performance data even for stock sold to different processors.”

Uniform dispute resolution system:

“The Red Meat Advisory Council should develop a uniform and independent complaints and dispute resolution process.

“An independent system in addition to processors’ own systems would provide and additional and independent dispute resolution option for the industry.

“The independent system should apply to all purchases and sellers of cattle

“Including for OTH and electronic cattle sales.

“RMAC, AUS-MEAT and buyers should provide information about how parties can use this independent process as part of their information to industry.”

Carcase grading audits:

“The review team spent a lot of time going into detail about AUS-MEAT audit systems and how they operate.

“This included spending quite a bit of time in a processing works with AUS-MEAT auditors.

“The conclusion reached what that the audit system is pretty robust when it comes to assessing the skill of the carcase assessor.

“What it doesn’t necessarily do is provide a complete picture of the performance of that assessors in a commercial environment.

“The recommendation is that increased communication and education about the process by Ausmeat auditors and the processors is needed.

“We still see room for increasing number of random AUS-MEAT audits of the grading system and standard trim, and we think publication of audit results with relation to grading and standard trim would also benefit the industry

“We made a number of recommendations about carcase feedback and simplification of that.”

Mandatory buyers register in saleyards:

“We recognise the importance of commission buyers to the operation of saleyards but also recognise the potential for anti-competitive outcomes arising from their activities.

“The recommendation we came up with is for a mandatory buyers register that should be available prior to commencement of all physical livestock auctions.

“A buyers register will increase transparency in saleyards and reduce the risk if conflict of interest .

“The buyers register should include details of commission buyers and livestock agents intending to bid at the sale and the principals that those buyers will be acting for.

“We recommend the agency organisations take steps to implement that.

More detailed reporting of saleyard purchases:

“Saleyard commission buyers, auctioneers and agents should provide MLA with information that enables regular standardised market reports for each reported saleyard which includes information about the identify of buyers and the proportion of stock purchased by each buyer.

“This will increase transparency at the saleyards and reduce the likelihood of conflicts of interest occurring

“It would also allow principals and producers to make informed decisions about commission buyers or saleyards they use for cattle transactions”.

Legislation should be introduced requiring standardised national licensing of livestock agents, professional buyers and livestock auctioneers:

“This has been attempted by the industry and credit to the agents in relation, to this, they have certainly sought some standardised national accreditation for participants in the industry

“We believe if the recommendation was adopted it will raise the level of levels of competition compliance and general professionalism in the industry.

The Red Meat Advisory Council should have primary responsibility for overseeing implementation and monitoring compliance with the recommendations:

“Our concern in handing down this report is that, whilst we can make recommendations, the ACCC isn’t really in a position to implement those recommendations

“We recommend RMAC should report progress annually to State and Territory ministers .

“We feel this will ensure the recommendations are progressed given divergent industry interests.”

 

 

 

 

 

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