Processing

Red meat processing inquiry will target supply chain transparency: O’Sullivan

Barry O'Sullivan, Nationals Senator for Queensland, March 31, 2015

OPINION

Senator Barry O'Sullivan pictured recently during a visit to Goodwood Station near Boulia in western Queensland.

Senator Barry O’Sullivan pictured recently during a visit to Goodwood Station near Boulia in western Queensland.

There’s a dusty book with a lot of dog-eared pages that sits on my office shelf.

It was written about two decades ago by a Harvard Business School Professor named Michael Porter.

It is called “The Competitive Advantage of Nations.”

There are a few theories inside its pages that are past their used by date and a number of examples that are a bit outdated now, but the core concepts within the book are still very, very relevant.

The book argues that governments already understand that in order to maintain the living standards of their people, they must be able to assist the business community to compete in an increasingly tough world marketplace.

It says governments understand they need to look for ways that major industry sectors can better target higher value international markets.

But to achieve this, the book argues, trustworthiness is an absolute necessity across the business supply chain.

And as the word itself implies, an exchange partner is trustworthy when it is worthy of the trust of others.

A fortnight ago, myself, alongside Senators Williams, Canavan and Mackenzie sponsored the establishment of a Senate Inquiry into the red meat processing industry.

While many of us believe this review is long overdue, it was announced in-part because, as the most recent example at the Barnawartha saleyards demonstrated, the trust between processors and producers is seemingly in dire straits.

When widespread mistrust reigns across a $12 billion industry, where more than 60 per cent of that product is exported, government has a responsibility to review the disputes to ensure the long term viability of the sector.

There is little doubt our beef sector is currently facing a tougher marketplace with overseas competitors challenging Australia’s export markets by offering an ever improving product, and alternative suppliers of protein, such as chicken and pork, increasing their grip of market share domestically.

International economic drivers of farm gate profitability, such as world prices, subsidisation and protectionism, are outside Australia’s control.

But as one of the world’s largest exporters of beef, Australia must never shy away from making home grown, strategic improvements to its competitiveness.

We must work to change the perception that our product is competing in a commodity marketplace, because when viewed as a commodity, the prospective customer will almost always choose based on price.

Simply put, by creating value and using it as a selling point, we are able to change the perception of our commodity.

Whether through better genetics, improved pastures or new technologies, Australia’s beef producers have a range of ever increasing options at their disposal that provide opportunities to evolve our beef industry from a mere commodity to a premium product.

Even though the traditional comparative export advantage of Australia’s red meat producers has been in producing lower-priced manufacturing beef, there should be potential for the red meat industry to increase profits by striving to increase the amounts of higher-value product we export, in addition to sales into the existing, mainstream markets.

One of the most obvious steps to increase higher value trade in the future is by improving the strategic alliances between producer and processor.

But we can only achieve this if there is trust along the supply chain.

That is why it is among the most fundamental ambitions of this Senate Inquiry.

As the terms of reference reflect, a giant spotlight is about to be shined on supply chain transparency.

In order to measure supply chain performance and to identify areas for potential improvements in the beef industry there is a need for transparency.

It is important because it enables producers to understand why their product has received a specific grading and a specific price.

It enables producers to be able to adjust their operation, if needed, to improve the quality of their final product.

When producers can better meet processor requirements, it enables processors to better market its premium product to the marketplace.

When producers and meatworks are able to jointly supply a consistent, high quality product to the marketplace, especially overseas markets, it increases the likelihood of providing better returns for all segments of the supply chain.

The increased attention being given to agriculture in the Canberra hallways as the sector reaffirms its place as a major driver of exports is reflected in the sheer volume of reviews underway.

Consider the near ‘perfect storm’ of reviews in which our red meat industry is currently engaged:

  • Federal Government white papers into agriculture and Northern Australia;
  • AusMeat Beef language review;
  • Cattle Council & MLA’s independent analysis of the United States Packers and Stockyards Act;
  • An industry-led redesign of the grass-fed levies structure.

We can now add the Senate inquiry into the processing sector.

I share the same worldview as my colleague Barnaby Joyce that achieving a better return at the farm gate must be the bedrock of all agricultural public policy.

The family farm is the best business model for our rural communities and we must do our utmost to defend it.

There is an argument that producers have few productivity gains left to make on farm and so there is a need to look at how risk and reward is distributed across the chain.

Shining a spotlight on the supply chain will allow us to better understand how the money is apportioned, and whether it is fair and reasonable.

When producer margins are increasingly under threat it is important significant attention is given to the industry structures underpinning the sector to determine where there is room for improvement.

I expect the producers and processors alike to play their role in this inquiry with a genuine focus on making our sector stronger.

Because our beef sector will only improve its international competitive advantage through fierce debate about its practices, standards and general direction.

HAVE YOUR SAY

Your email address will not be published. Required fields are marked *

Your comment will not appear until it has been moderated.
Contributions that contravene our Comments Policy will not be published.

Comments

  1. Loretta Carroll, March 31, 2015

    The red meat industry is crying out for substantial change in order to achieve a fairer return for farmers – A transparent market reporting system would be a good start – The Eastern Young Cattle Indicator (EYCI) is the general benchmark of cattle prices in Australia, the indicator is a seven-day rolling average produced by MLA’s National Livestock Reporting Service (NLRS). The data is gathered from sale-yards across NSW, QLD and VIC (the EYCI includes vealer and yearling heifers and steers, grade score C2 or C3, 200kg + and is expressed in cents per kilogram carcase (dressed) weight. The results include cattle purchased for slaughter, restocking or lot feeding. The fundamental problem with using the EYCI as a general benchmark is that only approximately 30% of processed beef are sold through the sale yards which means we have a huge gap (roughly 70% of beef processed across Australia) with the price not being reported. Thus leaving a huge question mark over the accuracy of the EYCI. Processors are buying their best cattle ‘over the hooks’ and using sale yards to top-up their kill. Many of them, however use the EYCI to set their price. In the USA processors are required to report on the sale price they pay for cattle and price they receive and JBS and Teys/Cargil are of course complying with those requirements. Australia needs to improve its reporting systems.

  2. Philip Downie, March 31, 2015

    Where the money is apportioned and is it fair and reasonable. Well if it isn’t what can you do about it? No point having an enquiry to tell us what we already know but have no ability to alter the outcome! Risk reward. I would suggest farmers have the higheszt risk and the lowest reward that would seem pretty obvious again what can you do about it in the senate, I will be very interested as you are dealing with companies private and public and have little ability to make them do anything they don’t want to. The issue you could have used, ACCC, didn’t work and that is a major problem area competition (needing more, getting less). As I have written the ACCC has no idea about Ag and so their decisions are made on the basis of the briefs put in front of them, so the slickest wins and guess who can manage that?

Get Beef Central's news headlines emailed to you -
FREE!