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Producers lack fair bargaining power, lawyer tells ACCC beef market study

James Nason, 30/05/2016

The bargaining power of cattle producers is significantly below the standards considered fair and reasonable in a normal commercial relationship, regional lawyer and cattle producer Dan Creevey believes.

151027 Dan Creevey

Dan Creevey

Mr Creevey is the founding partner of Creevey Russell, a regional law firm with offices in Toowoomba, Brisbane and Roma. He has also owned cattle properties throughout a 40 year involvement with the beef industry.

In a submission to the Australian Competition Consumer Commission’s Cattle and Beef Market Study, Mr Creevey draws attention to the erosion of profitability in the cattle production sector over the past 15 years, and warns of industry-wide consequences if this trend continues.

“If producers continue to receive prices for beef that are below the cost of production, it is only a matter of time until it is no longer economical for them to continue,” he states. “Without beef producers, the red meat industry in Australia will collapse.”

Mr Creevey says producers do not have fair and reasonable bargaining power.

This is demonstrated, he says, in several ways:

  • Australian producers receive no remuneration from by-products, worth about $250 per carcase, as opposed to producers in United States.
  • Cattle sold are effectively re-priced by the purchaser of those cattle (the processor) via a process that lacks any reasonable standard of transparency via a grading system that allows the processor almost complete control over the degree to which a carcass is essentially stripped of weight and graded.
  • There is no negotiation between processor and producer in respect of the amount of weight removed from a carcase.
  • Processors are significantly economically incentivised to limit the post-dressing weight for which producers are paid.
  • Contract terms are ‘woefully inadequate and unclear’: “Producers can only determine the price achieved for a carcase once title has passed and determinations as to price (including cut and grading) are made by the person who liable to make the very payment it depends upon.”
  • The grid pricing system is far too rigid and leaves the grading process open to miss-use and manipulation.

“This lack of transparency and conflict of interest is not seen in any other industry that we are aware of,” Mr Creevey said.

“This position ultimately leads to a significant imbalance of bargaining power, the producer in reality with almost no bargaining power, especially given the practices are universal among processors.”

Mr Creevey believes the grid pricing system should be made more equitable through the implementation of a sliding percentage scale and the removal of the ‘cliff fall’ pricing structure presently used, where a relatively small variation in weight can lead to significant differences in price.

“This current ‘cliff fall’ structure, combined with the issues highlighted above regarding cut and the economic incentivisation for by-product use, leads to a significant mismatch in bargaining power and show potential for misuse and manipulation to the processors’ benefit.”

“Additionally we would propose that independent graders be employed to conduct all grading.”

Mr Creevey believes MLA should be restructured to ensure it is controlled only by cattle producers, and proposes that graders be regulated by MLA and paid for by levies and contributions presently collected by MLA.

The ACCC is conducting a series of regional forums around Australia as part of its cattle and beef market study.

The purpose of the forums is to allow ACCC to hear directly from farmers and other people in the cattle and beef industry about competition and fair trading issues that concern them.

Any interested parties are welcome to attend the forums.

The dates, locations and venues for each forum are as follows:

  • Tuesday 7 June 2016, 1pm-3.30pm, Wodonga Football & Sports Club, Vermont Street, Wodonga, VIC
  • Friday 10 June 2016, 9.30am-12pm, City Golf Club, 254 South Street, Toowoomba, QLD
  • Monday 20 June 2016, 11.30am-2pm, Mt Gambier RSL, 16 Sturt Street, Mount Gambier, SA
  • Friday 24 June 2016, 12pm-2.30pm, Sporties Dubbo Bowling Club, 101-103 Erskine Street, Dubbo, NSW
  • Friday 1 July 2016, 9.30am-12pm, Bunbury Trotting Club, Donaldson Park, Milligan Street, Bunbury, WA

You can register to attend at this link, or by contacting the ACCC at this address marketstudy@accc.gov.au.

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Comments

  1. Dan Creevey, 01/06/2016

    Tony,

    Thank you for your comments.
    I am serious in suggesting that the producer is being “ripped off” through the present grid system.
    Have a look at below accounts after boning out at 53% yield all before grading and assessment discount. Have also included by-product figures?
    Brisbane Cow Grid February 2015: 180kg – $4.10kg, 160kg – $2.35kg, 140 kg – $0.30kg, 120kg – $0.20kg, 110kg – $0.10kg.
    Grid prices and grazier gross value by-product (low) value deducted
    160kg $2.35: 179kg carcass = $420.65, boned out 95kg = $4.43kg – $200 reduces bone out value to plus $2.32kg.

    140kg $0.30: 159kg carcass = $47.70, boned out 84kg = $0.57 – $100 reduces bone out value to minus $0.62.

    120kg $0.20: 139kg carcass = $27.80, boned out 74kg = $0.38 – $50 reduces bone out value to minus $0.30.

    Table:
    1. Total saleable meat 253kg mince retail price $8kg = $2024, cattle producer $496.15 = $1.96kg minus by-product value $1.40kg = $354.20 plus.

    2. Top grid: Total meat 95kg mince retail price $8kg = $760, cattle producer $420.65 = $4.42kg minus by-product value $2.32kg = $220.40 plus.

    3. Bottom two grids: Total meat 158kg mince retail price $8kg = $1264, cattle producer $75.50 = $0.48 minus by-product value ($0.46kg) = ($72.67) minus.

    The need for transparency in pricing is unassailable.

  2. Dick Morgan, 31/05/2016

    Mr Greevey seems to be saying that producers are being denied a fair and true price for their livestock.

    When a livestock buyer bids for an animal he does so on the basis of his accumulated knowledge of the estimated yield of saleable products related to current prices. All the byproducts – hide, bone, blood, fat, inedibles etc are factored unto the price .

    What I think is of more importance is the difference between the retail prices of the various cuts displayed in the supermarket and the price paid for the animal either live-weight or carcass weight. This is the area that needs more study and analysis.

    By the time the animal is sent to the abattoir, slaughtered, dressed and fabricated into primals a lot of labor costs, oncosts and other expenses have occurred.

    Whenever we go to the supermarket we all see the price differences between the choice cuts and the cheaper cuts. The question is are the profits along the supply chain reasonable having regard to the risks involved or is the livestock producer being cheated?.

  3. Tony Statham, 31/05/2016

    Producers being robbed by not being paid for offals? You’re not serious, Dan, are you? If there was a separate offal apportionment in cattle prices, we’d be receiving a lot less for the rest of the carcase. Offal value is clearly factored into the price that ALL processors are prepared to offer for slaughter stock, in a competitive market. To suggest that offals represent some secret ‘pot of gold’ to processors is just ludicrous. With respect to your comment regards no recognition for the ‘amount of weight removed from the carcase,’ payment on yield is an incredibly complex process. Short of slowing down the chain to a painful level to weigh each individual primal, there’s no way to achieve it in current processing systems on an individual animal basis. People have tried it (i.e. Grantham) and the costs have been horrific. Sure, there may be some cattle currently yielding higher than the benchmark set by each processor. But the meat science bell curve shows that equally, there is just as many that yield less than the benchmark. Are you suggesting that they get paid less than the grid price? Perhaps some of the new meat science technology in carcase assessment will help in this yield assessment space. At least one large multi-site processor is hopeful, and has indicated a willingness to move to VBM, if the science and technology justifies it.

  4. Bill Loughnan, 30/05/2016

    Dan, you are right to a point. There are plenty of producers out there though making good money.
    Irrespective of what industry/profession you are in, you need to adapt. If you continue to operate the same way as your father/grandfather while costs continue to escalate then expect to struggle.

    I’ve written before on collaborative farming. I’m convinced it’s the way of the future for family farms. (Editor’s note – Bill’s earlier Beef Central article can be read here)

    One example to counter the power imbalance of the processors is the formation of seller co-operatives. While they have yet to gain wide popularity here, I understand in the USA, co-operatives control up to 500,000 head. Just think of the bargaining powers those numbers would demand.

  5. Dawid Van Der Walt, 30/05/2016

    A solution is for producers to have more choice in buyers. Another is to own more of the upstream supply chain and brand.
    Producers can also collaborate between themselves and with investors that can provide capital and market access.

  6. Rodger Savory, 30/05/2016

    Absolutely correct Mr. Creevey. I would add that stolen cattle never have brands checked prior or post slaughter to compare against NLIS tags by independent brand inspectors (police). Post is to look on the inside of a hide if there is a blotched brand. There is also no difference paid based of grass finished, grain or dairy. Finally when you have record prices paid in America and lowest prices paid here for cull cows seems like farmers are just being wholesale robbed. Finally until we have a National Agricultural Policy none of this can be dealt with in isolation. No National Ag Policy, No Future.

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