Processing

Govt regulatory burden crippling processing competitiveness

Beef Central, March 27, 2019

FEDERAL and state government regulatory costs are estimated to account for 54 percent of total Australian beef processor operating costs after livestock purchases are excluded, a report released today suggests.

Excessive red tape is saddling one of the nation’s few remaining manufacturing industries with the burden of being the highest-cost processing nation in the world for red meat, the Australian Meat Industry Council’s Cost to Operate Omnibus Report says.

The biggest concern highlighted in the report is the significant burden of government regulation costs on the international competitiveness of the Australian meat manufacturing industry, an industry that is being hard hit by many challenges due to severe drought conditions, unreasonable energy costs and lack of access to skilled labour due to an unfit visa policy and extreme amounts of government red tape.

As a result, the red meat manufacturing industry is asking for relief of $110 million in export certification charges, which is the largest component of regulation costs, so it can compete on more of a level footing with the US, Argentina, Brazil and New Zealand.

The Australian Meat Industry Council will formally present the report to key political parties from this week, as calls are made for urgently-needed bipartisan solutions to cut the cost burden of excessive red tape and energy costs.

According to the report, Australian meat producers have the highest operating costs in the world, making it increasingly difficult to maintain competitiveness on an international basis.

The red meat ‘farm-gate to plate’ supply chain is the largest rural and regional employer providing more than 150,000 full and part-time jobs, the report says.  It’s also the country’s largest agricultural exporter with more than 70pc of red meat and co-products produced sold overseas in 124 countries, and contributes more than $21 billion in value added to the economy.

Cost reduction

The Cost to Operate Report suggests that cost reduction is the only way the industry can compete with other global beef exporters including the US, Argentina, Brazil and New Zealand, which are working hard to increase access to Australia’s key overseas markets at a time when Australia’s product has been impacted by catastrophic droughts and floods.

The average cost per head, excluding livestock purchases, incurred in processing beef in Australia are 24 percent higher than those in in the US, 75pc more than Argentina and more than 100pc in Brazil, the report said.

Of these costs, it is estimated in Australia that 54pc are due to some form of government regulation. This is more than twice that of the US and Argentina and three times that of Brazil.

In addition, Australia’s regulated costs for beef and sheep are 46pc and 37pc higher respectively than those of its closest neighbour, New Zealand.

Energy costs add to burden

Australian processors also face unreasonably high energy costs and are paying 104pc more than North American processors for utilities, 53pc more than the Argentinians, 20pc more than New Zealanders and 0.3pc more than the Brazilians, the report found.

Furthermore, in Australia, labour-related costs comprise 58pc of total operating costs. This figure is considerably less than 50pc in the other countries examined in the report.

AMIC’s chief executive Patrick Hutchinson said Australian processors and the wider red meat supply chain were battling unsustainable cost pressures while continuing to remain competitive internationally – but according to the report, they’re fighting a losing battle, particularly as one of the biggest costs they face is as a result of excessive government red tape.

Exposure to inspection fees

Australia’s government-regulated inspection and certification costs are 3.4 times higher than those in the US and 4.5 times higher than Argentina. In Brazil these costs are fully-funded by the federal government and are not passed on to processors.

The Cost to Operate Report found that one of the key contributing expenses is offshore inspection fees, adding around $110 million in costs each year. These inspection fees are not exclusive to Australian businesses, but the difference is in government response in other countries. Both the US and Brazilian governments offer support to their processors, covering around 95pc of these fees, while Australian processors are currently fending for themselves.

“We are asking for relief in export certification charges, which is one of the largest cost contributors to why Australian red meat is becoming uncompetitive in the global market,” Mr Hutchinson said.

“Simply put, the red meat industry is dependent on global trade for its viability.  Streamlining the major federal and state regulatory and red-tape burden would be a good first step and will allow the industry to compete on a level footing with other red meat producing countries,” he said.

“As appreciation, particularly from Asia, increases for Australia’s high-quality premium meat and renowned ‘clean and green’ status, our industry is saddled with the considerable burden of being the highest-cost red meat processing nation in the world.”

“Cost reduction, as highlighted in the report, is our best course of action to increase our industry’s ability to not be priced out of the global market, remain viable and ensure sustainable prices for livestock for our Australian farmers,” he said. 

“With regard to excessive energy costs, the unfortunate policy paralysis is resulting in increased cost flows across the full supply chain as the industry is one of the biggest users of energy due to its refrigeration requirements, as an example. Energy costs are realised throughout the process of meat production,” Mr Hutchinson said.

“We all want farmers to thrive, but the reality is that a weakened supply chain that is hindered from competing globally will be the next and long-lasting crisis for farmers if urgent action isn’t taken.”

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Comments

  1. Bill Bode, March 30, 2019

    These costs were mostly covered by government before.and should be again. The tax money that the gov gets would be lost if the processes close ,So to protect them and to give producers a better bottom line ,it’s a no brainer government should once again step in and pay most of the inspectors fees

  2. Stan Allen, March 29, 2019

    In response to answering the question regarding”what are the operational design changes” the answer starts with having legislation for export and domestic certification amended to include a policy instrument to correct regulatory burden crippling competitiveness of Australian meat production.
    Commonwealth and State government intervention can make this happen in accordance with international and national competition principles and objectives.
    The next step is to analyze and address the key problems and to develop and implement suitable responses.The easy bit is now and how to approach the task of making the change and adopting the measurable solutions.

  3. M.C.Mirand, March 29, 2019

    It would be useful if AMIC could provide a summary itemisation of all the laws and regulations, be they federal,state or local that are contributing to processor costs and by how much. However I would not expect the incoming Labor government to do anything until plants start to close and union members are protesting in the streets against ‘greedy multinationals.’

  4. Paul Wright, March 28, 2019

    CPA fully supports AMIC in calling for Governments to provide immediate relief from government imposed charges which are one of the largest cost contributors to Australian red meat becoming uncompetitive in the global market.

    Rarely has such a comprehensive report been prepared by an RD&E entity clearly demonstrating how uncompetitive the industry is in the international markets in which it operates. The ground breaking Report demonstrates that government regulatory costs compromise the competitiveness of Australian meat in International Markets. According to the report these costs are estimated to account for 54 percent of total Australian beef processor operating costs after livestock purchases are excluded. This clearly stated detail is alarming. Action needs to be taken now to restore Australia’s competitive edge.

    CPA supports AMIC in recognising the need for a competitive cost structure in which the red meat industry can operate globally.

  5. Stan Allen, March 28, 2019

    There are ways to reduce compliance costs through operational design changes that replace unnecessary compliance burden while at the same time ensuring requirements for food safety are met.

    All well adapted meat processors already have the capability to achieve this aim through making better use of existing resources and the will to make the change happen without the need to reinvent the wheel.

    Thanks for your comment Stan. Several readers have already asked, through us, what are the ‘operational design changes’ that you refer to that you think would reduce compliance costs, and if it is so easy, why haven’t processors already adopted them? We’ll publish any response in this thread. Editor

  6. Grant Piper, March 27, 2019

    It is a public good that meat is inspected consistently and independently of processors. The $5/hd levy could be used to pay for independent Meat Inspectors and Graders, so that the Public, Export Customers and Producers know they are getting a fair deal. MLA would the nreally be providing a Service.

  7. Sandy Maconochie, March 27, 2019

    Be nice to see some supporting comments to this well reported issue from the splinter producer groups that want to chuck the baby out with the bath water. Focus your energy on this rather than wasteful reports from the likes of ACCC and Senate.

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