Processing

Senate inquiry into processing hears producer concerns

James Nason, 05/08/2015
Senators and RRAT Senate Committee staff on the panel during yesterday's public hearing in Roma.

Senators and RRAT Senate Committee staff on the panel during yesterday’s public hearing in Roma.

Grassfed producers say greater producer representation on Aus-Meat, live streamed CCTV in abattoirs, more regional processing plants and a return to independent meat graders are key priorities to provide fairer farm-gate returns in future.

These were among key messages voiced by producers at the first public hearing of the Senate Rural and Regional Affairs and Transport Committee inquiry into market consolidation in the red meat processing sector, held at Roma in Southern Queensland yesterday.

The first of three public hearings saw northern producers and industry representatives give evidence yesterday.

The processing sector gets its turn to answer Senator questions in Canberra on August 27, followed by a hearing which is likely to comprise mainly southern producers in Albury on September 2.

Of some 90 submissions published from the inquiry so far, only around 30 appear to be from producers.

Despite being held in the heart of cattle country in western Queensland, yesterday’s hearing did not attract an audience of cattle producers beyond the 10 who were there to directly address the inquiry.

Whether this could be put down to a lack of interest, a lack of time or a fear by producers and agents of speaking out was a subject of early discussion.

Hughenden cattle producer and NorthBeef abattoir project chairman Rob Atkinson, giving evidence by phone, said just 33 submissions from some 80,000 cattle producers on a very important subject was “terrible”.

“Why do we have such a poor turnout?,” he asked. “I would believe that producers are frightened in many cases to put in submissions because of damage that could be done to them when they sell cattle next time.”

LNP Senator for Queensland Barry O’Sullivan has raised the question of whether an in-camera hearing should be held to protect the identity of witnesses to encourage more evidence to come forward, but it is not yet clear whether that will happen.

The proceedings heard many concerns from producers about the level of competition that exists in Australia’s red meat industry, and the level of influence processors have over the processes and industry standards that govern how final cattle values are determined.

Here is a run down of some of the issues raised throughout the day:

US-Aust comparison underlines market failure

Blair and Josie Angus who operate a vertically integrated cattle production and non-packer beef exporting business told the inquiry that there was a clear market failure in Australia’s beef industry.

In September last year, they said, the USDA boxed beef cut out showed a gross revenue line for a 600kg live animal in the ‘Select’ category (the lower of the three USDA beef categories of Prime, Choice and Select) of $3000.

The same processing companies operating in Australia with greater market access – they can export from Australia to China and the Middle East for example while US based processors cannot – were purchasing the same animal in here at the same time for $1000.

If the cost of processing production (in Australia) is $300, there is a $1700 margin per animal being lost. I believe the Government would step in if the fuel prices went to $5/litre today while oil prices stayed the same, I believe Government would step in an address the market failure.

Mr Angus said the situation reflected a failure on behalf of AUS-MEAT to provide a fair platform for over the hooks pricing.

More competition was needed, but the existing regulatory environment in Australia provided significant barriers to entry for new players.

“As non-packer exporters we provide an avenue for competition and our costs have risen over three times in the last 10 years, currently to a cost of production for us to get our live animal boxed to the port of Brisbane is $720 per head.”

Josie Angus told the inquiry that figure was based on cash and lost opportunity cost – it includes around $200 for the service fee of having each animal slaughtered, around $400 in estimated the value of hides and offals that are retained by the abattoir, and the balance in fat and bone which is also retained by the abattoir.

Whilst we retain ownership and are only paying for a service fee, we retain about 38pc of a live animal weight to do a job with.

Who should get the value for offal?

Several witnesses told the inquiry that the value of offal and co-products had increased considerably in recent years but producers in Australia did not receive that value in the price they were paid for their cattle, while their counterparts in the US were.

Senator Joe Bullock noted that meat processors who addressed Senate hearings into the Free Trade Agreement with China last week had expressed excitement at the opportunity the market presented for offal exports.

“You don’t get paid for the offals,” Senator Bullock said to producers at the inquiry. “How fair is that? How can it be justified not paying you for offal if the relative value of offal has gone up significantly in recent years?”

Standard Trim rules disadvantage Aus producers

Rob Atkinson said another disparity between producers in Australia and the US was the difference in standard carcase trim.

The standard trim in America and the standard trim in Australia is vastly different – we don’t get paid for offal but we also don’t get paid for any skirtings inside the carcase wall, and that is not the case in America.

In his submission CQ producer Ian McCamley said the heavier standard trim in Australia cost producers as much as $100 a head.

We have plenty of evidence of over trimming prior to scales of fats, what happens is, it is pretty easy to see on kill sheets when your rib fat measurement is higher than your P8 measurement, you know damn well it was likely there was a wiz knife whizzing around the P8, so you actually get hit twice then – you get hit for a fat penalty of having not enough fat, and you also lose on the weight on the carcase that is finally weighed to determine your price.

Producers said over-trimming was not only a cost to producers but also impacted on eating quality for the consumer, which in turn impacted negatively on the whole beef industry.

Other ways in which producers felt they were unfairly discounted included dentition, when this was not a reliable indicator of an animal’s eating quality, and butt shape, which is a subjective measurement not evidentially linked to true value of a carcase.

Aus-Meat seen to be dominated by processing sector

All of these concerns repeatedly came back to a common theme of producer evidence at yesterday’s inquiry: the view Aus-Meat is dominated by processor interests which effectively makes the processing sector “a law unto itself”.

Producers at the inquiry said changes had been made to introduce heavier standard trim which impacted on the returns producers received without any clear producer involvement in that decision.

Ian McCamley said Aus-Meat was set up 30 years ago “by producers to help producers” but had morphed into a body that was now dominated by processors and was “failing producers big time”.

The way Aus-Meat is at the moment, if a producer has trouble he gets on the phone and rings up Aus-Meat and by the time they turn up at the processing plant to investigate, the evidence would be long gone. They know that, so they say next time you are having problem they say ‘ring us and we will make an appointment with the processors and we will come along and watch the cattle go through’. Well of course you know that is going to be a pretty good day.

The inquiry was told that in the last major industry restructure in 1998 Aus-Meat became 50pc owned by MLA and 50pc owned by the processing industry through the Australian Meat Processing Corporation.

The 12 member standards committee that now oversees Aus-Meat has only one beef producer representative. Four are direct representatives of the processing sector.

Cattle Council board member David Hill said Aus-Meat today was more interested in overseeing trade descriptions and there was little evidence to suggest it looked after producer interests.

I have been told that Aus-Meat auditors have actually gone to the plants and have seen outside of standard trim practices going on and gone back to Aus-Meat and the hierarchy has done nothing about it. That is the critical problem. We’re (producers) are paying for it but they’re not looking after out interests.

Producers needed to be able to influence change on the language and standards committee, Mr Hill said.

We are lobbying now as part of the changes we require at Cattle Council to actually put some equivalency back into that committee, because we have got none at the moment.

Call for independent graders

In the early 2000s, the inquiry heard, independent graders were replaced by abattoir-employed graders overseen by Aus-Meat.

Producers expressed concern yesterday that graders are in effect beholden to their employer and therefore more likely to make decisions that favour the abattoir’s interest, while the body responsible for overseeing their work was also in effect dominated by processors.

Problems after delivery can affect producer returns

Ian McCamley said producers needed to have an effective ombudsmen overseeing their interests, because things could go wrong inside an abattoir from the time a producer delivered cattle to the time those cattle were graded and their final price was determined.

While producers had no control over what happened after their cattle were delivered, various factors could still impinge on the final grade and the final price they received. In some cases abattoirs could have cattle for up to four days before the final price was determined.

Senator Glen Sterle, a former furniture removalist, said it was hard to imagine what it would be like going to work, moving furniture all day long, then standing at the pay window at the end of the day and still not knowing what he had earned for that day’s work.

Solutions to ensuring producers receive a fair price?

In response to Senator questions about what could be done to ensure producers receive a fair price, several witnesses pointed to their desire to see US style mandatory-transparency legislation introduced in Australia (which MLA is currently investigating).

Others pointed to technological solutions.

Rob Atkinson hoped electronic scanning technology would soon be available to improve accuracy of carcase measurement. Under current methods producers could be discounted hundreds of dollars on carcases when potentially inaccurate manual measurements of fat depth were just 1mm in the wrong direction.

There has got to be another way to measure fat depth other than someone standing on a stool reaching up and measuring it with a short ruler. That is what happens and if he moves it a centimeter he will get a different reading. It is just not right.

CCTV now, and ultimately live scanning should be the goal

Ian McCamley said producers effectively still owned their animals inside abattoirs until they were finally graded to determine the price. He believes that producers should have access to real-time CCTV footage streaming online to be able to monitor if issues beyond delivery to an abattoir contribute to the final price they are paid.

We own that animal inside that plant behind those closed doors until it is finally graded to determine price. So what is wrong with us and Aus-Meat being able to watch what is happening? Aus-Meat can go online at any time and they can be monitoring what is happening without anyone knowing. Wouldn’t everyone behave then? I think they would.

Having the ability to review footage at a later point would also be important.

If I come home at the end of the day and I think what happened today, those cattle have got high PH, I will go straight and have a look at the vision after unloading, I will see how those cattle settle down in the yards, I will see how they were worked up, did they bring out a heap of jiggers or not? I don’t know, until I have got all of the evidence I can’t work out whether the problem happened at my end or at their end. I think CCTV is probably an interim measure, I know they probably wont like it but they will get used to it, they will realise it is a tool for them to run a better operation. They have already got cameras in there keeping an eye on things anyway, ultimately it is the technology that will get us there.

The ultimate would the ability to get to a point where technology enables an animal to be fully live scanned upon delivered at the scales, and the price determined immediately on the information provided by that scan about eating quality, weight and fat depth etc. That is where we need to end up, he said, but in the meantime CCTV vision and cameras mounted in trucks would be beneficial.

Cattle producers Josie and Blair Angus, David Hill and Ian McCamley address yesterday's inquiry at Roma.

Cattle producers Josie and Blair Angus, David Hill and Ian McCamley address yesterday’s inquiry at Roma.

Northern producers suffer from lack of competition

Hughenden cattle producer Rob Atkinson said the lack of northern abattoirs, long delays in being able to book cattle in for slaughter, and significant freight distances meant northern producers had little choice but to accept whatever price they were given when they accepted a booking.

If he (the producer) knocks back that booking, he has to rebook, that means he has got to hold his cattle longer until wherever he rebooked has a bit of space. You can’t get trucks at the drop of a hat. You have got to give trucking companies at least a week’s notice normally that you have to load. So there are a lot of complexities around not accepting a price. In the north bookings can be three-to-four months out, so I wait four months for my date to arrive, I get my price just prior to loading, and if I knock it back I have got to wait another four months. So you take the hit, you take the price, you have no other option.

Are more abattoirs closer to production the answer?

The Australian cattle industry had changed dramatically since existing abattoirs were originally established close to ports on the coast, Ian McCamley said.

Production had moved further inland, and it was now far cheaper and more efficient to transport beef in a truck in processed, boxed form than live. Being able to backload livestock transport was very difficult and hardly done.

We need to help processors get over the fixation that they must be located on the coast and move them into the production areas, and find ways to incentivise that and help them do that.

NT cattle industry consultant David Warriner agreed that it would be more efficient to have abattoirs based closer to production areas, but said legislators had to work to ensure abattoirs could operate in a globally competitive regulatory environment.

We need to address the costs to run these abattoirs in terms of energy and labour. They are certainly not globally competitive, If you are not globally competitive in this environment today you will end up like the car industry and you will cease to exist.

Producers had billions of dollars tied up in land and assets and they also needed to be able to generate a reasonable return on that investment if the industry was to have a sustainable future, he said.

The inquiry was also told that one of the difficulties in getting more competition in the processing industry were current barriers to entry for new operators.

Witnesses suggested that existing processors could effectively influence how easy it was for a competitor to enter the market by virtue of their influence over Aus-Meat, which must approve new plants, and the standards it sets.

Processing not a continuous pot of gold

Allied Beef managing director James Maclean, which owns and manages a supply chain involving some 80,000 cattle, said profits processors made in recent years were not typical of that industry.

The history of meat processing in Australia has shown to me the consolidation or the number of parties that have gone out of business because the commercial earnings are presumably not there.., the pot of gold in processing that has certainly been there in the last few years has actually not been there over a sustained period.

Relationship between producers and processors not broken

Mr Maclean said he did not believe the relationship between the processing sector and the production sector was broken. Working more closely together was the key for both sectors to maximise potential earnings in future.

I think the opportunity moving forward is that the consolidation has occurred in the processing sector and supply chains are going to mature and develop going forward. A lot of that will come in the form of producers becoming more relevant to their lot feeding or processing customers, and I think that is where the major change in the supply chain dynamic is likely to change moving forward.

Competition is adequate

Large-scale family lot feeder Jason Shearer Smith from the Burnett region of Southern Queensland told the inquiry that he believed there was adequate competition in his view.

We supply a range of abattoirs, and we know the differences between every single abattoir and we choose who we want to deal with. So part of the premise of coming here today was talking about the consolidation of the processing sector. From our perspective as predominantly a grainfed beef producer, do we believe we have enough of a mix of companies buying grainfed beef in Southern Queensland? Yes we do, and we choose who we actually deal with.

He said that in response to the consolidation that has occurred in the processing sector, advice to the production sector would be to consider ways to start consolidating as well, with options such as cooperatives or collective bargaining discussed.

 

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Comments

  1. Philip Downie, 06/08/2015

    Personally I think the relationship is broken, there is a lack of transparency from the processor and if you sell to the processor direct what are you to do when it is obvious there is an issue, take the carcases back, not likely. From experience I have had a buyer tell me 7 cattle were C butt and 3 D butt when the results came back it was the other way around with one of the D actually going C so either the buyer doesn’t know what he is doing or there is an issue with the grading. That was 15c/Kg penalty, on a 500 Kg animal, absolute rubbish and frankly I will sooner sell through the saleyards. Firstly I would suggest butt shape has little to do with anything, secondly assessment should be at arms length, I am sure they wouldn’t take my assessment (vested interest) so why should I take theirs? At least when I would make my assessment the animals would be alive and they have the option to say no thanks, not the case when their slip turns up. As we see now whilst prices have increased the A$ has decreased so processor margins have not changed all that much. Personally I don’t see this as an industry at all just a number of profit centres and everyone out for themselves. Soon there will be complaints of not enough cattle.

  2. David Hill, 06/08/2015

    No one is claiming that processing is a continuous pot of gold…. What we need in the value chain going forward, is too extract maximum value, to a certain degree the big players set the price point for our export product, cost plus the desired margin is easier to maintain on a large scale. As prices reseed and the dollar drops it is often possible for those in the trading rooms to sell product cheaper and maintain their margin, this is hardly the way to maintain a supply chain that is looking to extract maximum value, for those that don’t agree, there was clear evidence that at times during 2014 that Australian product was selling at a value less than comparative competitor country product. Given that it is well understood that we are a high cost of production country, it is hard to understand why this would occur. As to the statement that the producer processor relationship is not broken, if it is not broken in a lot of cases, it is certainly on the rocks.

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