Since February 2022, Australian cattle indicator prices have been in a downward trend with the fall accelerating over recent months and livestock prices now almost half what they were in February 2022.
Despite this, beef retail prices have been stubbornly resistant to decreases.
Whilst Meat & Livestock Australia collects data on livestock prices and reports them in the form of indices on a regular basis, nobody seems to collect, hold and interpret beef retail prices to provide transparency at that end of the supply chain.
The result is that purchasers have perfect information on costs of livestock, whereas the sellers (producers) have no information on what consumers are paying and what should be a fair price for their livestock.
In 2013, the Australian Beef Association and University of Tasmania cut out a typical beef carcass into retail cuts in order to provide some transparency to retail margins on beef and where the share of the retail $ ended up.
The model developed established the yield of common retail items from a carcass so that a total return for a carcass cut up to standard retail items could be calculated based on collecting and entering retail prices.
At that time, retail beef prices were collected from a number of the major supermarkets over a three-month period and entered into the model.
The producer’s share of the retail dollar at that time was around 40 percent with the balance being shared between the processors and retailers.
At the time, the MLA was quoted as saying they had a similar model that showed similar results.
Things have changed since 2013 in a number of ways as follows:
1. There are less in-store butcheries with the majority of retail items now being prepared in central facilities and shipped into stores shelf ready. This has a number of consequences which in the main, reduce the cost to the retailer. Skilled butchers are no longer required in each store, all that is needed is relatively unskilled shelf stackers. Wastage is reduced as it is easier to control and shelf life before product deteriorates beyond saleability is extended reducing discounting to clear. Dedicated cleaning teams are no longer required in store and the need to dispose of waste items such as fat, bone and packaging is now the responsibility of the retail ready processor and there is the option to use multiple use plastic cartons instead of single use cardboard for shipping retail ready packs, further reducing in store waste and again costs. The space previously dedicated to in store preparation can now be utilized for retail purpose and the previously necessary preparation equipment is no longer needed (band saws, stainless steel cutting benches, mincers, knives, steels, weigh scales and all manner of other equipment, even sausages were made in store years ago). Having centralized preparation of retail ready packs allows retail chains to tailor product mix according to each stores customer base further reducing wastage and cost.
2. The range and style of product has changed with significantly more value adding (for instance butt cuts are less often sold as steak and more often sold as stir fry strips or sizzle/minute steak and high-grade mince). Portion or pack size has been reduced and there is much more modified atmosphere and vacuum packed product displayed where in the past, overwrapped polystyrene trays was the main form of product on offer. There was a period when both retail ready prepared and in store prepared product shared the offer and some of the largest stores had an up market in store butcher, however these seem to have been phased out meaning the offer in many urban stores is exclusively retail ready product prepared outside and brought in to be stacked on the shelf already labelled and priced for sale. In an attempt to rekindle the interest in transparency at the retail end, we resurrected the old ABA/UT model putting current prices in to see if things had changed much. Perhaps the most surprising thing in looking at current retail offers in the two major supermarkets is that of the 17 major beef items reviewed, the price of eight of them was identical. The prices per kg were not close but were IDENTICAL. This would of course be coincidental wouldn’t it! Other prices were similar. The end result was that with the two majors (lets call them red and green) the producer’s share of the retail dollar has fallen to 36 percent. Of further interest was that on a basket of beef items, average beef price was $24.34 for the red national chain, $24.42 for the green national chain and for the third national retailer (blue) was sitting 20% lower at $19.46 per kg.
My conclusion is that retailers have substantially increased their margins on beef at the expense of the producer as retail prices have been stubbornly resistant to declines that should accompany falling livestock prices.
At the same time these retailers have reduced their cost base in terms of both fixed costs and variable costs by shifting costs back down the supply chain and eliminating the need for in store skilled butchers, floor space and equipment.
Whilst we have seen fruit and vegetable prices fall to pre covid levels, red meat prices have been stubbornly resistant.
There is no transparency in pricing beyond the farm gate on red meat and development of indexes for transparency was a recommendation of past enquiries. This is a tool sorely needed by the industry as the concentration within retail more than limits competition.
On a good note, I yesterday picked up some eye fillet at $29.99 per kg, almost half what the reds and the greens were asking at an independent in Bondi Junction. Not the sort of place I would expect to find a bargain!
Andrew Dunlop has spent 40 years in the meat and livestock industries including two tours of duty to Japan totaling 15 years. As well as Batchelors and a Masters Degrees in Animal Sciences (University of Sydney), he was awarded a post graduate fellowship with the Science and Technology Agency of Japan where he spent 2 years with Japan’s National Meat Research Institute in Shimane Prefecture, the home of Wagyu Meat Science and of Wagyu breeding. He held senior positions with meat exporters out of Australia, Meat Business Managers positions with national retailers and with a Japanese meat importer in Japan. Now semi retired, he continues to own and run a beef cattle operation on the Monaro in southern NSW. Mr Dunlop has contributed this article in his personal capacity as a cattle producer from southern NSW. The views and opinions expressed in this article are those of the author and do not necessarily reflect the views or positions of any entities they represent.
Congratulations Andrew on your interview today on ABC Country Hour 13/3/2024. very informative re Company GM’s bonus, middle man’s profits, shrinking of producers margins and examples of Mining Company blowing up sacred sites, Airlines selling non existent seats, banks charging the dead fees, and consulting firm misusing information. You probably have but reckon you should send a copy to every politician in Australia
Well done
Is transparency etc. really required? Does the public really have a right to know the margins made by a secondary industry? Surely not. Imagine asking producers to tell the world what their margins are per animal turned off? It would never happen.
The costs of abattoir labour – upset since COVID and hamstrung by visa conditions (Australians seem allergic to the work) – and the ever-increasing regulatory burdens are high. Those costs aren’t borne by anyone other than those who buy the goods. The prices and margins will rise until consumers decide to spend their money elsewhere – probably on something decidedly more plain and uninteresting than red meat.
Meanwhile producers squeeze more “productivity” out of their land with carbon trading, value-add with shams like organic certification, demand more for themselves at anybody else’s cost, and claim they’re getting done over by being willing and voluntary sellers in an open market? Pull the other one.
I believe in indices and in thorough reporting, but while we exist in the ridiculous Australian primary industry framework where the attitude of “farmers need services/ information/ input/ infrastructure but I’m not going to give you my data to help inform the decision-making, you just have to believe me” we’ll never get anywhere other than a slanging match.
If you want something, you often have to give something in return. Data for data maybe?
Yes I believe transparency is required. It took a Royal Commission to make the Banks behave where the level of concentration is less than in retail. If it is not measured and benchmarked, we just don’t know!
Does anybody really believe the major retailers are showing leadership and corporate social responsibility in fighting inflation?
ABS has a series of beef and lamb consumer prices due out towards the end of the month. It will be interesting to see what the quarterly and monthly data shows when released.
Thankyou, your comments are spot on and well overdue. I believe the componet of our inflation is from profiteering by the major supermarket giants.
Frankly we need a resuffle.
The US regulated Walmart to 15% of market share, hence competion, lets follow their leed. Thankyou for your insight, keep it coming. Regards Charles snr.
Does anybody believe the major retail chains are showing leadership and social responsibility in an environment where inflation is the devil and families are struggling to put food on the table?
In my opinion the retailers are not “price gouging”.
Their prices are a consequence of free market capitalism that we are generally in favour of.
If their prices are so high that people stop buying their product the price will come back.
Until then they are just maximising their margin, which every successful business I know of does.
The sudden (but not unexpected) price drop for cattle is no fault of the butcher shops.
Mark, the concentration in retail has only increased in recent years. Everybody complains about the concentration in the banking sector where there are 4 majors and a number of minors. The retail sector has 2 majors plus a secondary and a few smaller operators. The retailers have the power in the market place and I am not sure that this level of concentration is conducive to true competition and “free market capitalism” as you put it.
Good article thanks Andrew. However, it is difficult to understand what is happening in the domestic retail supply of beef. According to Simon Quilty who is reported in Beef Central, since Christmas grass-fed beef cuts have reduced 35% and grainfed by 45%. I am not sure how recent David Byard’s analysis was applied but the trend to increased margins for supermarkets in the split of the available domestic beef dollar is probably correct.
Of course, our domestic market is impacted by the prices paid for beef in the USA. In the past 60 days cattle prices there have dropped 40%. These figures can be trusted because there is a compulsory reporting system to the USDA for all products in the beef supply chain from feed supplements to retail sales. While the US processors will try to hold on to as much of this margin as possible, it will lead to reduced pricing for prime, choice, select and no-roll cuts at retail from its historical highs as they move into their summer.
So, with international prices coming off, amd local competition from the red, green and blue, there is a likelihood of lower pricing in domestic supermarkets supported by processors pushing input prices down to match supply if the El Nino impacts cattle turnoff this year as predicted.
Still many balls in the air and in the end producers will wear the cost.
John, when you say beef cuts, is that wholesale cuts as in primals or retail cuts? I didn’t see his article.
Yes John, you are probably correct, and in the end “the producers will wear the cost”. We do need transparency at the retail end, something which was recommended by a number of enquiries over recent years.
We need to have a gate price on all beef as a benchmark before they leave the paddock for sale. New Zealand has this. We should not be selling a cow and calf as one unit they should be sold as 2 units, at present just by selling through the sale yards we loose 10percent of the property through agents commission and yard and handling fees and transaction fees. This does not include freight so to sell a beast you loose from 15 to 20 percent of the net. Why should commission attract GST?
Sound Comments from Andrew, can he apply the same Principals when Cattle Prices were at their highest & Retail were struggling
Thanks for your comments and I guess this supports that we need transparency at that end of the supply chain to make educated assessments of what is really happening.
Well thought through and convincing article.
If you want an eye opening experience visit Cabramatta and have a look at the meat prices in the retail butchers there.
I can’t believe how much meat they sell. Quite often on a Saturday morning the shop we visit will have 8 large pig carcasses on the rail. Their price are around half that of red and green. I was a cattle producer and it always amazed me about retail prices. A steer sent to the abattoirs, then a butcher for process and packing would cost around $5.50 per kilo bagged and tagged including sausages. You couldn’t buy sausages for that price. Never could work out how it cost 3 times that for beef in a supermarket.
Glad I am retired.
There certainly has been a very slow reduction in retail prices of beef in comparison to live cattle prices.
My question is where was the producer concern when processors were losing 500 to 1000 per hd on grainf fed beef for the majority of 2023 with extremely high contracted forward prices still being slaughtered in June 2023.
There seems to be little to no concern when processors are losing. When simple supply and demand causes prices for live cattle to come down and in recent times come down very quickly the producer somehow thinks there needs to be an equal reduction on meat prices.
I can remember very clearly buying 300kg weaners for $2200. Not one producer had concern for what this extremely high live cattle meant for feedlots and processors.
“NEVER” happened in my life time, never got that for an animal twice the weight. Received $1.52 live for 10 month old Hereford heifer several months ago, that agent has been dumped his exuse was he forgot what I wanted for them 🤬
If you didn’t sell any animals for 2000 in Australia in the last 3 years you obviously didn’t sell any. The EYCI would prove that. Not to mention you stated you have never sold an animal twice that weight for 2000.
I have been cattle buying for 15 years and for you to say you have never sold an animal for 2000 seems extremely out of touch.
Ahh yes, but the retailer NEVER loses! Ask any other supplier to the large retail chains. The key point of the article is that transparency is required in that sector of the supply chain but despite a number of recommendations from inquiries dating back years, there is nothing to shed light on this important area.
Great article Andrew Dunlop.
Of course beef consumers and beef producers are getting screwed!
The price gouging is obvious.
Our industry is, as it has historically been, unorganised to ever get a fair share of the retail dollar.
While beef producers enjoyed a very bountiful period from 2000-2002, the ledgers are now squaring up!
Seriously interesting read. Something that i and more the industry has felt for a long time but never had the skills or insight to explain. Wouldnt it be painful for them to have the beef industry discover their actual margins. I wonder where mla will place their loyalty. Everyone puts there hands out when they think ag is rolling in millions Because its easy. But know one has a solution to maintain a sustainable price when things turn sour. I think industry price discovery can only be positive and fair.
Cheers Matthew Della Gola