JBS shuts King Island plant in southern rationalisation move

Jon Condon, 10/09/2012

Original article revised 11.30am, Tuesday, Sept 11


JBS Australia will rationalise its southern beef operations following the closure of its King Island meat processing facility located in Bass Strait, off the Tasmanian Coast.

The decision, announced yesterday, is based on the continued losses incurred by the King Island operations, a company statement said.

The plant is currently in a seasonal closure, which was due to finish on September 17.

In the overall context of JBS Australia’s processing operations, the loss of a 150 head-per-day kill at King Island is insignificant, but the closure serves as a stark reminder of the mounting challenge faced by Australian processors in high cost of production, and government regulatory and tax burdens compared to other international competitors like the US and Brazil.

JBS Australia chief executive officer, Andre Nogueira, said the King Island business had not been profitable since it was acquired. JBS had committed capital and resources to make the business long-term profitable, but unfortunately had been unsuccessful, he said.

As part of that process, the Tasmanian Government in 2010 provided a $12 million loan to JBS for a major upgrade of the abattoir, which has since been repaid in full, including interest.

Given its remote location in the middle of Bass Strait, the King Island plant is a high-cost operation in terms of utilities and domestic and export freight costs. In the area of freight, JBS claims it is more expensive to relocate and transport chilled containers to and from the Island to the Port of Melbourne, than it is to send the same container from Australia to many -export markets.

Other factors which have contributed to the closure include the high cost to operate in terms of utilities, and variability in livestock supply and ‘leakage of numbers’ of cattle from King Island during the year either to Tasmania or the mainland.

The fact that a company backed by the resources and expertise of JBS, and receiving access to a government loan could not make the plant function profitably says a lot about the additional cost-to-operate pressures in a low-throughput, remote location like King Island.  

“We have made every effort, along with the support of the Tasmanian Government, to try and make this business viable,” Mr Nogueira said. “We acknowledge that this decision will have an effect on the local community and our workforce, and will be actively working with government and the union to support and assist affected workers in transitioning, based on their skills, to available vacancies at other JBS facilities,” he said.

JBS acknowledged the strong support it has received from a large number of the King Island producers and its excellent relationship with the King Island Producer Group.

Yesterday’s company statement said JBS’s ongoing commitment was to continue to be a major buyer of cattle on King Island and to maintain the integrity of the King Island Beef brand.

Processing for JBS’s King Island brand – regarded as one of the best known beef brands in the country – will now take place at the company’s Longford multi-species beef/sheep plant on mainland Tasmania.

Asked whether the King Island closure now guaranteed the survival of JBS’s Longford and Devonport plants, the company said it continued to deal with cost to operate issues, and was working with state and federal governments in this area.

From a production platform viewpoint, the Longford facility offered, based on seasonal conditions, beef and lamb opportunities, as well as the opportunity to promote the strong Tasmanian and King Island identities in both species.   

“The meat processing business operates under small margins. Current market conditions have been and continue to be challenging. We will continue to operate our meat processing facility in Devonport and look at opportunities to expand our Longford beef and lamb operations,” Mr Nogueira said.

“We believe today’s decision is prudent and in the best long term interest of our Tasmanian operations.”

JBS Australia director and manager for corporate and regulatory affairs, John Berry said the Tasmanian Government had been fully supportive of JBS and its plans for growing the King Island and Tasmanian beef and lamb brands that it owned.

“We have been encouraged by their approach to industry development and their response to our issues," Mr Berry said.

"Importantly, we will be actively working with the Tasmanian and Federal Governments to improve the competitiveness of our business around utilities costs and trade-waste infrastructure and the Commonwealth to support export freight from Tasmania under the Tasmanian Freight Equalisation Scheme.”

“Tasmania has a great clean and green natural environment for producing high quality beef and lamb. However, the cost of moving containers to and from Tasmania to the mainland is often more expensive than from Australia to the export market. This is a major cost disadvantage for Tasmanian beef and lamb."

In a letter to stakeholders, Mr Berry said the decision to close the plant was not about walking away from King Island producers.

"JBS will continue to be a major buyer of cattle on King Island. We will continue to deliver integrity in the premium King Island Beef brand and further grow the brand in domestic and international markets,” he said.

He said JBS Chief Operating Officer Southern, Sam McConnell had a clear strategy in place to continue to grow the King Island brand, and would be working with the King Island Producer Group in coming weeks to build on that relationship.

A great deal of work had already been undertaken around the marketing plan for the King Island Beef brand.

“Since arriving back in Australia for the US earlier this year, Mr McConnell has with his team actively engaged with the King Island producer group members around ideas to expand opportunities for the premium brand. Although JBS is the owner of the King Island Beef brand, growing the brand requires the commitment from both the livestock producers and the JBS sale team to execute the plan,” he said.

Beef Central will seek a follow-up comment on progress in that area with Sam McConnell in coming weeks.     

Tasmania's acting Premier, Bryan Green, said he was deeply disappointed by the decision of JBS to close its King Island abattoir.

“The Government has done everything possible to help keep the operation going and the closure is undoubtedly a blow to the community,” Mr Green said.

“Our immediate focus now is on the individuals and families who will be affected. The Government has stood by King Islanders as we tried to keep the abattoir open and we will be there for them now."

Mr Green said senior officers from the Department of Economic Development went to the island yesterday to talk to the local community and the council.

“We will be assessing the impact of the closure on King Island’s economy, ways to support affected employees and farmers and look at any avenues to provide new employment opportunities," he said.


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