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.
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