Meat & Livestock Australia managing director Richard Norton shared information with stakeholders attending yesterday’s Sydney annual general meeting about a new research project aiming to identify and segment profit margin along the red meat value chain.
Responding to a question from Glen Innes, NSW beef producer Daniel McAlary, he said Cattle Council had earlier requested that MLA carry out a ‘transparency’ project across the entire beef value chain. MLA was now close to finalising, with industry participants, a selection committee to appoint consultants for the project.
Mr Norton said the project had been initiated well in advance of the Senate inquiry hearings, which sought answers to such questions about margin share among sectors, and suggested scrutiny of the US Packers and Stockyards Act to see if it had potential application in Australia.
“Some milestones that we want to see from consultants are still to be sorted out, but hopefully the project will start very soon,” he said.
“It will be focussed on understanding where the margin sits throughout the whole beef value chain.”
While he conceded that that margin share could vary widely from year to year, industry had “asked MLA to do it, to create measures of where the value sits.”
“It’s about what you do with that information that’s important,” he said.
“Do you – as has been proposed to me by some industry players – take the information back to the government and ask that the Australian processing sector, the retail sector (or whoever, depending on who controls the largest margin share at the time) be broken up?”
“What do you do with the information? If the retail sector appears to be making too much profitability, do you go to the ACCC and ask for it to be broken up?”
“The key point is that the balance between the sectors will inevitably change, as the ebbs and flows of supply and demand shift, year by year.”
Mr Norton agreed that that suggested that the assessment might need to be done reasonably frequently, if it was to be of any use at all.
“It might get down to at least a monthly indicator or where the value sits in the supply chain,” he said.
“But it’s a huge project, particularly given that 70 percent of our product is exported. At some stage, the way the assessment is executed and how the information is gathered will have to be fully-disclosed. There would be gaps, because it’s hard to anticipate that we would every have the retail or food service margins for that majority of our product that ends up in export markets.”
“But even if it’s just a domestic indicator, where the process is simpler, there would still be issues. If it rains in the next three months, a figure posted today becomes irrelevant very quickly. Then the margin value is likely to swing heavy to the farmgate.”
At recent regional MLA roadshow forums across Queensland, Mr Norton has been suggesting figures around 25-35pc of entire margin share at retail level, the processor was probably making 50 percent currently, and the farmgate – depending on location in Australia, anywhere from 0 to 30pc.
He conceded that certain sectors might be difficult to gauge, with different levels of efficiency and margin profitability from company to company in the processing sector, for example.
“I suspect that there will be parts of the value chain that can be independently verified, and others where assumptions will have to be made,” he said.
“The trouble with the US mandatory system is that even their own levy payers think it is inaccurate, and criticise its flaws. But whatever is available to us to try to formulate an assessment, we’ll try our damnedest to achieve it, because that’s what industry wants.”
“This exercise around transparency will, I suspect, at least deliver some indices that will give industry some indication about where value is sitting. Then the supply chain partners can have a more informed discussion.”
Currently, industry uses crude benchmarks like producer co-op owned Northern Cooperative Meat Co’s surprising $26 million pre-tax profit (view last week’s Beef Central article here) as indicators of processor profitability.
Mr Norton said the transparency project would be executed by a commercial organisation with ‘very strong ties’ to the cattle industry. He chose not to disclose its name at this stage, until agreement is reached and terms of reference decided.
The project sits beside MLA’s existing ‘producer’s share of retail dollar’ project, which now generates a quarterly indicator of the beef production sector’s share of retail price. See Beef Central’s recent report on the first quarterly share assessment here.
An ovine version of the retail share assessment will be added, driven by stakeholder request.
“I indicated that we wanted to make the ‘percentage of retail share’ assessment as accurate as possible, but in the effort to ‘get it out there’, we’ve gone with the best data available, and will certainly try to improve that as time goes on,” Mr Norton said.
The ABA has already calculated a figure using a verifiable procedure which can be repeated by anyone with the interest to do so. MLA has no interest in doing so.
Mr John Carter and the ABA forecast ages ago that Australia was being groomed as a cheap supplier of manufacturing beef. They have been shown to be correct. They also forecast the USA would re-enter Japan and Korean markets without an NLIS system – and they have (and don’t forget that our leaders during the Howard years helped them!). Several times over the years the ABA tried to work within the system and propose change via the MLA AGM and constitution. Each time they were stymied using any means possible. Becaus of their actions, the MLA and supporters have no credibility left with the majority of beef cattle producers, I suspect. Now they are playing delaying tactics with begrudging minor change hoping the political wind will change direction and they will be able to salvage something. Standard tactical maneuvring, not genuine in intent, and very transparent.
Consultants, huge project, done frequently. Data out of date by the time it is printed due to a multitude of factors. May lead to break up of processors or retailers to improve competition. In your dreams.