Why do retail meat prices soar above farm gate returns?

James Nason, 22/11/2011

Peter TrefortWhen prime cuts of beef or lamb sell for more than $30-$40 per kilogram at retail, but the producer receives $3-$5/kg at the farm gate, how is the discrepancy justified?

It is a question often asked by producers, and one that was raised again at last Thursday’s Meat and Livestock Australia annual general meeting in Longreach.

The task of explaining the perceived imbalance fell on the shoulders of MLA board member Peter Trefort, a livestock producer and sheepmeat processor from WA.

At short-notice Mr Trefort presented the meeting with a cut-sheet from a 25kg lamb, which highlighted the step-by-step processes that influence the price of red meat between the farm-gate and the retail shelf.

While his example focused on lamb, the same principles apply to beef.

Mr Trefort stressed that the aim of the exercise was not to protect supermarkets or butchers, but to provide livestock producers with a picture of what happens to the product as it progresses through the value-chain.

His example began with a 25kg lamb, for which a producer received $5/kg, or $125 in total.

The biggest cost of all was processing, which Mr Trefort said was inordinately high in Australia.

Where the cost per unit of labour in a competing beef-producing country like Brazil was about $700 per month, in Australia the cost of the lowest paid abattoir worker was about $700 per week.

Processing costs typically added $30-$35 per head to the cost of each lamb. Those prices were also on the rise due to the recent hike in AQIS charges.

The lamb then went onto a supermarket or butcher shop, where the mark-up was usually between 30-35pc.

That took the total cost of the lamb at this point to $204.

“Now, when you get to the supermarket, and they cut that meat up like you saw out there today, of the 25kg lamb that we started with, which you were paid for, by the time it leaves the abattoirs we’ve already lost 4pc.

“Because when we do weight and grade we haven’t had the time for that lamb to be in a chiller, and it’s still got water on it, most times about a kilo of water, which you’ve been paid $5 for.”

The meat progresses into a chiller where its temperature must be brought to below 7 degrees Celcius for transportation, a process that results in another 1pc loss through shrinkage.

The 25kg lamb is then cut up and trimmed to remove fat to satisfy consumer demands, which results in 17kg of saleable product.

Of that 17kg of saleable product, 12.4kg  – or half the original 25kg lamb – can be sold as prime cuts. The balance is necks, flaps, breasts and trim which sell at much lower retail prices.

A further loss is incurred through waste of unsold product, which typically ranges between 5-7pc depending on store.

“So you have got to realise, and I am not defending them, the pressure that they are under as well from their competitors is enormous.

“You’ve got Coles and IGA trying to beat them (Woolworths) down, and you’ve got the other butchers as well.

“We have a lot of issues, and I can assure you, there is no one getting rich, out of what we do.”

“There is a big discrepancy between the $5 a kilo we get and the actual 12kg of saleable meat that they actually have to sell to get their return.”


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