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Domestic retail beef value holds firm, but volume sinks in latest ABS results – what’s MLA doing about it?

Jon Condon, 13/09/2016

THE combination of high cattle prices and drastically short supply is again being reflected in domestic consumption patterns for beef.

Meat & Livestock Australia will later today release its Beef Industry Fast Facts for 2016, containing key statistics on the industry.

meat-retailThe document includes latest domestic consumption figures compiled by ABS, which suggest that beef consumption has gone from 28.3kg per person in 2014-15 to 25.4kg last financial year – a decline of almost 3kg in 12 months.

But significantly, the value of domestic beef consumption remained stable at $7.8 billion – more or less unchanged on the previous year – which shows a willingness by consumers to continue to purchase beef in the face of the dramatic rise in price.

Despite the downwards trend in volume, Australia remains the sixth largest beef consumer in the world, according to Food & Agriculture Organisation data.

The results show that despite the prices being paid for Australian beef having been at record levels, consumers are still making beef an essential part of their diet, MLA suggests.

“Consumers consistently rate price as the most important factor when buying beef. Clearly, the rising price of beef has presented a challenge to the household budget,” MLA managing director Richard Norton told Beef Central.

“Recent per capita consumption results show that while consumers might be buying less beef right now, they are prepared to pay more to keep it on their dinner plates,” he said.

Australia was not alone in the trend towards declining volume, he said. Given the relative cost of other popular proteins, similar trends were being seen in beef consumption in other western countries.

“Outside the three South American countries – Brazil, Argentina and Uruguay – Australians still eat nearly as much beef as US citizens, on a per capita basis. But throw in Australia’s considerably lamb consumption, and we are the third-highest consumers worldwide of red meat, on a per capita basis,” he said.

Mr Norton said MLA had a clear strategy to address the decline in volume, with its domestic marketing program driven by sophisticated consumer research and data that identifies key trends and demographics, including purchase drivers, such as nutrition, and barriers to purchase.

“The reason consumers actively seek beef out is because of its consistently high quality and because it is the best natural source of the essential nutrients protein, iron, and zinc,” he said.

While opponents to the Meat Standards Australia system might use the recent decline in domestic volume as evidence in some way that MSA lacked consistency, Mr Norton pointed to Millard Browne research data in 2015 which showed beef in fact rated above lamb chicken and pork for consistency of eating quality.

Richard Norton Apr 16

Richard Norton

“We submitted to the domestic task force last year that domestic beef consumption was going to be under enormous pressure in 2016, because of the cattle price rises that have occurred,” he said.

“We knew that consumption could substantially decline due to price pressure. But through a lot more consumer sensory testing work, we now know what the triggers are to build consumption, in areas other than price, where we can have an impact,” he said.

“For example there has actually been an increase in the domestic consumption of rumps in the past 12 months, perhaps as a default out of more expensive steak cuts. But it means consumers want to know how to use a rump better, to deliver a satisfactory eating outcome every time.”

Mr Norton said while they had risen significantly, retail beef prices in Australia, compared with the rest of the world, were still relatively inexpensive.

“But the challenge for any marketing organisation in a climate of high price is to keep selling the benefits of nutrition and the higher protein ‘hit’ that consumers get from red meat,” he said.

“It’s about focusing on those intrinsic qualities to motivate consumers to continue to buy beef, in a market climate of higher prices.”

Targeting young adult males

MLA was now spending more of its marketing budget on consumer insights, as opposed to straight marketing of products, Mr Norton said. Some of this work had identified an issue with young adult males, who had been traditionally strong beef consumers.

“Because of some of the information they are now being fed, some of these young men are not evolving into the typical male consumer, who has grown up with a constant stream of beef on the table. They are not eating as much beef as previous generations, so they are now a real target for our marketing work.”

The recent Trinity Project (click here to view earlier social media item) was clearly targeted at the young Australian male demographic. To date, that program had attracted 400,000 shares on social media.

“We know there was some criticism from stakeholders of the Trinity Project concept – but it was not aimed at beef’s traditional ‘loyalists’,” Mr Norton said. “It was targeted specifically at young men, encouraging them to follow the dietary guidelines by including red meat regularly in a balanced diet.”

Asked whether MLA was now content simply to stem current volume losses for beef in the domestic market, Mr Norton said the objective was in fact to re-gain lost ground – not simply to ‘stop the bleeding.’

“I think we have the ability now, through measures like direct marketing campaigns to specific customer segments like the Trinity Project aimed at young males, to claw back some lost ground,” he said.

“There’s no doubt at the moment that the decline in volume is price-driven, and we will have the ability to win back some of that ground, restoring lost volume.”

“There’s been three big factors that have also been in play – the massive rise in price, the World Health Organisation’s earlier negative report to beef, and the focus on live export. As much as we’d like to say that live export does not impact domestic beef consumption, it does.”

“We must understand that our consumer base is very much aware of animal welfare and related issues. It is top of mind in perceptions among some consumers in what they eat,” he said.

Looking ahead

Looking ahead, MLA said the global economic environment would continue to change, and global economic growth was actually forecast to slow over the next 12 months.

“Low global grain prices mean we’re also likely to see cattle kept on feed for longer, producing more kilograms per animal.  What happens globally will always have an impact on our industry and the domestic market,” it said.

“MLA will continue to demonstrate Australian beef’s quality and nutritional credentials through our consumer marketing to ensure we deliver the best possible returns to levy paying producers and the wider red meat industry.”

Click here to view a copy of MLA’s Fast Facts for 2016

 

Editor’s note: Given the volume of comment traffic received from readers since this item was first posted (see below), we approached MLA’s Richard Norton for a response to some of the points raised. Here’s what he said:

Healthy debate around the state of our industry and its future is important, and so is the need for that debate to be fully informed.

In regard to the queries of Meat Standards Australia, it’s important to first acknowledge that MSA is a voluntary eating quality program that underpins beef quality.  It is not a brand.  The outcomes of MSA have always been, and remain, MSA three, four and five star. The choice of which beef to retail and how it is retailed is up to individual beef brand owners.  It is not for MLA to tell retailers how to market beef, but MLA has made the star rating logos available to retailers and encourages retailers to use the logos.  Through MSA, MLA is always working with the supply chain to keep improving quality – including growing the volume of four and five star rated product which currently makes up approximately 23% and 3% respectively from MSA graded production.  MLA provides regular industry briefings on the MSA program and its application, including at a series of ‘Future of Eating Quality’ forums held in every state over March and April this year which also included the inaugural ‘Excellence in Eating Quality’ producer awards.

Contrary to Mr Byard’s assertion, consumers are not saying Australian beef is inconsistent and it is a folly  to be running our product down.  Early this year, MLA took the time to explain the MSA system to Mr Byard at a meeting in Launceston.  For what it’s worth, in a subsequent blind taste test of a range of samples – which included a sample selected by Mr Byard – the eating quality of the MSA graded product exceeded his own expectations, proving that the system works.

In a more rigorous consumer survey of 1,000 respondents by market research agency Millward Brown this year, beef was rated highest for consistent quality of all the meat proteins.  The fact that the value of domestic consumption has been maintained despite the drop in domestic consumption in the last year is further testament.  I ask Mr Byard to stop making negative comments about the quality of Australian beef, when the consumer data indicates beef is actually rated above the other proteins for consistency.

Further evidence still is that despite being a voluntary industry system, MSA adoption has experienced considerable growth over the last five years.  Producer registrations in the MSA program increased 8 percent year on year in 2015/16 to over 45,000. Over 3.1 million cattle were MSA graded which represented 38% of the national adult cattle slaughter (up from 35% in 2014/15).  All major retailers have adopted MSA to underpin their beef purchasing and their own retail brands.  In 2015, MSA delivered an additional $185 million in farm gate revenue thanks to the price premiums paid for MSA accredited and compliant cattle, which for young MSA cattle averaged $0.24/kg above non-MSA young cattle. From 2010 to 2015, investment into eating quality returned industry a net return of $12.50 for every dollar invested as determined through the recent independent impact assessment of MLA.

As MLA, Beef Central and other correspondents have noted, price and supply remain the primary drivers of consumption patterns.  However, beef’s consistent quality is also a purchase driver, as is beef’s superior nutritional benefits.  We have also seen demographic change in Australia, with more people from diverse backgrounds who are not traditionally consumers of beef and who tend to seek a wider variety of proteins. 

As I noted in my interview with Beef Central, the challenge for any marketing organisation in a climate of higher prices is to motivate consumers to continue to buy beef.  Given that we know nutrition and quality are significant factors, MLA is using sophisticated research and data in our domestic marketing to target these areas and the demographics that have concerns.

This new approach is generating encouraging signs, with the results of “You’re better on Beef” campaign to date a perfect example.  This campaign, which was launched just 18 months ago, aims to drive home beef’s key nutrition credentials by demonstrating to women that you’re quite literally better on beef.  Post-campaign survey results from the first 12 months have shown an increase in claimed per week consumption of beef amongst the target audience (mums) to 1.75 serves, up 0.2.  54 percent of the target audience said they were ‘more likely to eat beef’ versus the benchmark of 42 percent and mothers limiting red meat consumption due to health concerns had been reduced by 20 per cent to only 23 per cent.

Rather than leave industry completely exposed to the vagaries of global supply and demand which we cannot control, MLA’s marketing programs will continue to encourage consumers to actively seek beef out because of its consistently high quality and because it is the best natural source of the essential nutrients protein, iron, and zinc.

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Comments

  1. John Gunthorpe, 17/09/2016

    Totally agree with you John and of course this was the intent when MSA was developed. If you shop beef in a USA supermarket you can choose between prime, choice and select and their pricing reflects the quality.

    They have government inspectors examining all sides of beef and roll them with a USDA ink brand indicating the grading achieved by that carcass. The decision is based on many parameters bloom, meat colour and fat colour being some. Bloom is the degree of internal fat in the eye muscle. Graders allow you to pass the carcass back through the chiller if you are dissatisfied with the grading indicated. Often the bloom will improve given more time in the chiller.

    The MSA hybrid being argued by Richard Norton and MLA marketing people was invented to get the supermarkets into the system so the volume would increase and recover the substantial investment in the system at that time. It also entrenched the benefits of MSA for processors who build their brands around the MSA grading.

    As Elders’ found when they offered Woolworths a premium range with the Tender Valley brand in the late 1980s substitution of lower quality product to increase financial return leads to brand destruction. Woolworths meat department managers did this to Tender Valley to meet their then KPIs. When conditions are tough for the processors as they are currently they will repeat this tactic to improve margins.

    Richard points out MSA is voluntary. Why? If it was mandatory and 5 star, 4 star and 3 star were displayed on retail product consumers would be confident of the eating quality of the product they are purchasing. Is this not what they deserve? No substitution and the MSA system would reward the processors and cattle producers for producing the product wanted by the consumer.

    Integrity and trust would be needed in grading the carcass. It is technically strong and we have the people in our industry to meet this procedure. We have laws to prevent product being described incorrectly at retail. There would be improved transparency between butchers and supermarkets and competition would increase. As many butchers are finding added value to product would differentiate their offering.

    John, you did extraordinary beef marketing in offshore and local markets in past decades and your support is greatly appreciated. Unfortunately times change and the power in selling beef in Australia today is in the hands of the Coles, Woolworths and Aldi. They account for 60 to 70% of sales. MLA are forced to meet their demands and so we have the MSA hybrid and not the system that would reward all members of the beef supply chain consistently. MLA do not have the ability to do otherwise.

    Tender Valley has all the support of the then AMLC and Dick Austin and Peter Frawley backed the programme. But at that time Cattle Council of Australia worked co-operatively with AMLC. We had many challenges such a minimum residue levels and the USA trying to muddy our reputation in North Asia.

    MLA and CCA were severely damaged by the Senate inquiry into grass-fed cattle levies. The government’s response was poor and we are still no closer to the solution proposed in the list of recommendations produced by the committee. RMAC were to be unwound but they seem to be going from strength to strength.

    I do not expect MLA to support the changes needed to realise the potential available from MSA.

  2. John Cooper, 16/09/2016

    Thank you John for your most relevant comments and answers to some questions. One point is most relevant and that is the idea to reintroduce star grading in the MSA program. Despite all the accolades for MSA it would be very much improved if the system gave consumers a clearer choice of quality with a star or number grading system. Despite the major supermarkets backing MSA there is still a lot of product that should not be on their shelves under the MSA grade giving customers in many occasions a poor eating experience.

    John Cooper

  3. Douglas James, 16/09/2016

    Hold on, David Byard. To describe “the quality of meat we expect Australian consumers to eat as an absolute disgrace,” is a gross distortion of the facts. There was more than 3.2 million head graded MSA across Australia last year. MSA principles are now applied universally by Coles and Woolworths, and those two alone account for 60-70pc of all domestic retail sales. I see virtually no evidence of the old ‘bulk’ butchers in the metropolitan market anymore, peddling cheap, low quality beef. The MSA program has been a magnificent success in ironing out any kinks in inconsistency in domestic beef.
    And weren’t you, personally, involved in a blind taste test in Tasmania that completely discounted your theories described in your comment about consistency?

  4. Campbell King, 14/09/2016

    Ill write that question agains again as it was poorly worded.

    I assume that the local price for beef in Australia (which is very high atm) is in part driven by the export demand and export prices other countries pay for our beef. In these markets I assume we compete with the USA and these prices are well above the USA domestic market. Is this correct? So therefore there would be a huge driving force for the USA to export much more beef at the high export prices and try to avoid selling into their own domestic market? So for the USA guys to do this they will need time to get their export volumes established. but eventually they will outgun us price wise and Australia will lose market share in the export markets whilst ever the US domestic market is suppressed thus increasing USA flow into exports? Does this sound correct?

  5. Campbell King, 14/09/2016

    Cheers John. That helps a lot. Although I am struggling to see why if we compete with the USA in the main export markets, then I assume Australia and the USA would be selling at similar prices in these export markets. So does this mean the USA are getting a huge premium on the export market compared to their own domestic markets in the USA?

  6. John Gunthorpe, 13/09/2016

    Thanks for your questions Campbell. Australia exports in excess of 65% of our production. Trade in beef is divided into two regions – foot and mouth disease (FMD) endemic and FMD free. Australia is FMD free and we trade with all countries as FMD free countries can send beef to endemic countries but not the other way.

    More recently our exports of beef grew to 74% in 2014. They are expected to reduce as we rebuild our herd following goo seasonal conditions. High cattle prices are forcing some to send their females to market rather than increase their breeding herd so this will slow down the rebuild but it will happen.

    So to answer your first question domestic consumption is about 30 to 35%.

    Our major markets are the USA where we compete directly with their cull cows and bulls from both their dairy and beef herds (31% of our exports), North Asia where our major competitor is the USA (35%), China (10%) and EU (5%). South American producers have been restricted from trading into USA because they are FMD endemic. However this is changing and they have now secured limited tonnage quota into the USA.

    Australia is export dependent for most product and wherever we trade we compete with the USA. Their ability to supply depends on their domestic market which is by far the largest market they supply. The USA herd is 3 to 4 times our size so we are price takers and the USA price makers. It is rare for the USA market to be other than the world market. there are times when events will cause the price to be more attractive in other markets such as Eastern Europe a few years back. However this will be product dependent. USA influence our price through competition in the overseas markets we supply and in their own market. In some such as Japan they are preferred and enjoy a price premium when competing with like product.

    Hope this helps.

  7. David Byard, 13/09/2016

    I was fascinated to read Beef Central where beef consumption in Australia had gone down by nearly 3 kg for the financial year. Since MSA and MLA were launched we have seen consumption of beef per person go from 40 kg down to 25.4 a complete disaster, imagine if we lost the Korean market what sort of spin will MLA put on this.
    MLA listening to producers at Casino beef week, May, 2016, MLA CEO was quoted as saying in the face of record beef prices we have seen beef hold its own in the market slightly increasing its market share against other proteins (I asked at the time where the figures came from) needless to say the response from the MLA was not positive. Later on in Tasmania the MLA had a headline stating that it had stopped the decline in beef consumption all this in 2016. Despite all the spin the quality of meat we expect Australian consumers to eat is an absolute disgrace despite all the sales talk about MSA and how good it is.
    On numerous occasions I have challenged the MLA to do mystery shopping for MSA meat and then have a taste test by panels of consumers. Why not?? Surely the time has come we should be looking at non-productive costs which are all sheeted back to the producer. The simple fact is we meed more productivity and less spin. If you have high beef prices at retail and have inconsistent product is a recipe for disaster..

  8. Campbell King, 13/09/2016

    heres a newcomers question. What percentage of good quality eating beef produced in Australia is consumed in Australia? Also, how does the USA beef price trend influence our local beef price? If the USA domestic market falls below the world beef market do they then enter the global market with exports thus infecting supply into our export markets and bringing down prices? Or does the USA market influence our local price via some other mechanism?

  9. John Gunthorpe, 13/09/2016

    Richard Norton is correct that consumers do want to experience eating quality in their beef portions. They need to know that meat is a key source of iron in our diet. However, the eating experience would be dramatically improved if the star rating was returned MSA grading. Consumers would then differentiate eating experience within MSA grading such that they could purchase portions to meet their anticipated use of the beef. Pricing could be varied so higher rating beef would enjoy improved process and lesser rated product within MSA would be a lesser cost to consumers.

    Of course the better interpretation of this year’s reduction in volume and stable dollars, is that consumers are only prepared to spend a certain proportion of their weekly budget on meat and if the prices increase then the volume decreases. Consumption will increase when prices fall and that may not be far off.

    The USA domestic market determines the world price of beef. After a battering from the effects of drought when beef production fell from 11,667,000 tonnes in 2013 to 10,749,000 tonnes in 2015 (7.9%), per capita consumption reduced from 25.5kgs to 24.4kgs (4.3%). However this year there has been a recovery and production in the USA increased 5.3% to 11,323,000 tonnes. Consumption increased 2.6% to 25.1kgs. This compares to our 25.4kgs.

    With the drought, there was an orderly closure of processing capacity by the larger processors in the USA. There is a reluctance to reopen these abattoirs as conditions improve and more cattle reach the market. The conclusion of this strategy is excess supply of fed cattle and so prices for fed steers and heifers are well down in the USA currently. USDA report choice steers sold for $AUD4.77 per kg in the second quarter 2015 compared to $AUD3.75 per kg in the same quarter 2016, or a reduction of 21.4%. Processors are the same the world over – they will take the opportunity to recoup their losses as production increases.

    US domestic retail beef prices increased from $AUD14.51 per kg in 2013 to $AUD17.75 per kg in 2015 (22.3%) and have reduced in 2016 to $AUD17.08 per kg (3.8%). US processors are well ahead of where they were 12 months ago.

    USDA forecast beef production to be back to 2013 levels by second quarter next year. If this happens closed plants will be opened and processors will be back up to full production. Retail prices paid in the US domestic market will fall and this will flow through to Australian cattle prices and retail domestic beef prices.

    We can then expect our consumption of beef to increase as prices fall and per capita will return to 28.3kgs or better. No doubt MLA will then claim their marketing campaigns worked and they have restored beef to its rightful position in our weekly shop. Remember they are spending our levy moneys on this advertising and market research.

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