Study finds no economic justification for increased regulation of processors

Beef Central, 22/08/2016

AN independent economic study commissioned by the Australian Meat Processor Corporation has found no economic justification for a tightening of competition regulation in the Australian beef processing sector.

The research was conducted by economic and policy consultants SG Heilbron as part of the Australian Competition and Consumer Commission’s market study into the cattle and beef industry.

processing-1The report’s author, Dr Selwyn Heilbron, suggested that competition concerns by some livestock producers and organisations incorrectly linked levels of concentration in the industry with abnormally high margins. He said however, these concerns did not reflect the reality of how processors operate and compete.

The study found that the livestock production sector involves many beef producers of different size, capacity and profitability. But differences in producer profitability reflected the costs rather than prices received for cattle.

It said that processors were all price takers on the sell side, in a highly competitive international market. It was the international market that drove the prices that processors could afford to pay for cattle, since exports accounted for around three quarters of output.

“Concentration in a market does not equate to anti-competitive conduct,” Dr Heilbron said.

“Moreover, beef processing in Australia is far less concentrated than in the United States, our major competitor,” he said.

“The dynamics of the Australian cattle industry and its supply chain are driven by supply and demand. There is significant competition for livestock from processors/buyers and there is no evidence of market power on the buy side.”

Where competition in the industry concerned was strong, there was no justification for using competition policy to hinder economic forces and limit the potential gains in efficiency and competitiveness of the industry as a whole, Dr Heilbron said.

Policy consequences

The $18 billion beef processing industry is Australia’s largest food product manufacturing industry and plays a vital role in the national and regional economy, generating approximately 105,000 jobs and $6.7 billion in household income, the report said.

Dr Heilbron said it was important to highlight the socio-economic impact and significance of the beef processing industry to Australia.

“The unintended consequences of policies applied to one part of the industry will flow on to others. In particular, the economic fate of processors is intimately tied to that of livestock producers, and vice versa.”

“Policy aimed at advancing the development of the industry should focus on minimising uneconomic regulatory cost imposts that adversely affect investment and competitiveness. More broadly, policy should focus on addressing the underlying cost efficiency challenges faced by small producers in agriculture,” Dr Heilbron said.

Peter Noble, chairman of the Australian Meat Processing Corporation, which commissioned the research, said he supported a competition policy that accounted for market unpredictability and the cost pressures on each supply chain participant.

“Industry concerns have recently focused on the level of competition in the system which is missing the point,” he said.

“Meat processors cannot control the price at which they can purchase livestock, and their costs are well above their international competitors. To remain profitable they need to innovate and develop an operating model that delivers economies of scale,” Mr Noble said.

“Meat processing is risky and profitability across the supply chain is highly variable. Processors have been leading the way with innovation in order to counter economic pressures and enhance processing technologies while at the same time driving increased demand for high quality Australian beef internationally,” he said.

Dr Heilbron is a senior business economist and corporate consultant with special expertise in Australian and international agribusiness, food and beverages industries. He has particular experience in the red meat industry, having undertaken numerous economic and policy-oriented research projects over the past 25 years.


  • The full study can be accessed here.
  • Tomorrow: Selwyn Heilbron discusses the outcomes from his report in greater detail.



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  1. Max Dench, 23/08/2016

    You’re not serious Ben Thorne. If prices were higher during drought, producers would be able to afford to feed stock rather than have to sell everything and then when the drought brakes, the prices wouldn’t have to go so high and thereby everyone would survive better, producer and processor alike. But that would be just too simple though now wouldn’t it Ben.

  2. Ben Thorne, 23/08/2016

    You’re not serious, Phillip Downie? Higher prices would have stopped the liquidation of cattle last year? Once there’s no feed, there’s no feed, regardless of what they are worth.
    Given the severity of cattle turnoff and oversupply over the past two years, it’s a MIRACLE that cattle prices did not descend a whole lot further than they did. Just go back and have a look at records during earlier drought events, where prices were decimated. We were, in fact, incredibly lucky that the 2014-15 drought coincided with record high international demand, which sheltered producers from the worst of the over-supply issue. Gross oversupply of slaughter cattle due to drought, leading to lower cattle prices, does not equate to processor manipulation of the market.

  3. Philip Downie, 23/08/2016

    If the processors had the good sense to see what was happening they would have paid more during the drought to prevent herd implosion and limit the problem they have now. Short term greed wins all the time. There is no trickle down effect from the market to the producer the middle men have the valve securely shut and producer funds should not be supporting processor investment. As for price changes, a couple years ago there could be a 10% price drop in days, does not happen anywhere else, not only is it a major effect on profitability it is a major effect on producer confidence (they are being taken for mugs). Processors want increased farmer productivity so they can depress prices and some of our farm leaders go along with this joke. ACCC Has no scrutiny over this industry they thought 500 Kms meant the limit for competition.

  4. Shane Irwin, 23/08/2016

    Just another cubicle dweller who no,s nothing about the industry,

  5. Loretta Carroll, 23/08/2016

    Interesting times! Dr Heilbron claims prices for livestock are not the main driver of profitability and refers to reports from Meat & Livestock Australia, “…research concludes that it is the high cost of production that is the main cause of low profits for the majority of northern beef producers. Similar results regarding the drivers of profitability in relation to the Southern beef industry, where it was found that “Price received varies in only a minor way thus it is not a key driver of any difference in profit””. If prices for cattle have failed to keep up with the cost of production could it suggest potentially collusion has been a long-term issue? Could it be possible that by not having mandatory price reporting or appropriate competition law like an ‘effects test’ and ‘concerted practices’ (similar to what England, America and Europe have in place to protect farmers and small business) be the primary cause of the historical flat-line in cattle prices over the past 20 years?

  6. Peter Vincent, 22/08/2016

    About as valid as a fox commissioning a study by an independent analyst as to whether foxes posed a threat to chickens.

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