THE weekend metropolitan press was thick with articles about the apparent lack of a level playing field in Australian red meat processing, brought on by unintended consequences in the Federal Government’s COVID Jobkeeper program.
An item in The Australian on Saturday suggested that JBS Australia could close three of its Queensland meat plants indefinitely because of cattle market distortion caused by the JobKeeper scheme.
Because of its annual turnover above $1 billion, JBS Australia has been unable to access JobKeeper, requiring it to lose 50pc of its income to be eligible. Meanwhile smaller processing business operators with turnover below $1 billion, need only to lose 30pc of their turnover to qualify for JobKeeper support.
JBS’s competitors that are eligible because of their smaller size or the fact they use a third-party labour hire workforce are “suddenly free of labour overheads, enabling them to out-bid JBS on already record-high cattle prices,” the report said.
“We’re on a very uneven playing field, and the distortion is so immense that we have no chance of competing,” JBS northern chief operating officer Anthony Pratt told The Australian.
JBS’s Dinmore facility is in the middle of a two-week closure due to the livestock supply and pricing environment. It was due to re-open on September 7, but told The Australian that it was uncertain how long the plant will stay closed. The Dinmore facility – the largest meat processing plant in the southern hemisphere – pays $131 million in salaries in a typical year to 1760 full-time workers.
Beef Central first stated writing about possible distortions in livestock market competition caused by COVID JobKeeper support in this article published back in July.
That article made the point that about 70pc of the cost to process Australian cattle (livestock purchase price excluded) was made up of labour costs.
“When we are going out to try to buy cattle and our competitor has 70pc of their cost to operate subsidised by the Federal Government, through COVID JobKeeper, they have an awful lot more money in their pocket to bid for the available cattle than we do,” Mr Pratt said.
JBS asked Treasurer Josh Frydenberg for an exemption to create a more even playing field for cattle, but on Wednesday last week the request was denied.
“We said to Treasury: somehow, someway, these people will be going on the Treasurer’s payroll – be it through JobKeeper or JobSeeker. He can choose which,” Mr Pratt said.
Some stakeholders have pointed out that this year’s dramatic decline in slaughter activity, brought on by two years of herd decline after continental-scale drought, has coincidentally set some processors up perfectly to qualify for JobKeeper financial support – even if beef trade has also declined as a direct result of COVID.
In the case of JBS Dinmore, revenue has fallen 40pc during the coronavirus pandemic, while nationally, JBS’s revenues have been down about 25pc, year-on-year. How much of that is COVID-related, versus underlying livestock-supply-related, is the point.
So which processors are currently benefiting from COVID Jobkeeper wages support, and which are not?
Beef Central can confirm that the three largest beef processors in Australia receive no support, whatsoever – either directly, or indirectly via labour hire companies.
- JBS, the nation’s largest processor with five beef processing sites at Dinmore, Beef City, Rockhampton and Townsville in Queensland, plus Primo near Scone (NSW), Brooklyn (currently closed, near Melbourne), and Longford (TAS) receives no JobKeeper support
- Teys Australia has told Beef Central it receives no JobKeeper support, either directly or indirectly via labour hire companies it uses, at any of its sites at Beenleigh, Lakes Creek or Biloela in Queensland; Wagga (NSW); or Naracoorte (SA).
- Similarly, NH Foods says it is not operating under COVID JobKeeper support at any of its three processing sites – Borthwicks Mackay, Oakey Beef Exports in southern Queensland, or Wingham beef Exports in NSW.
- Among other large multi-site red meat processors, Beef Central was unable to get a comment from Thomas Foods International over its COVID JobKeeper status by the time this item was published. It will be added later, should we hear back. A recent article suggested TFI’s annual turnover was around $2 billion, suggesting it would have to show a revenue decline of at least 50pc to qualify. The loss of the company’s large Murray Bridge plant in SA to fire in January last year might have pushed TFI below the $1b threshold, one contact speculated.
Despite this, a large number of single-site processors, especially in regions like Victoria, have already publicly flagged their adoption of COVID Jobkeeper programs. Some of these sites have the capacity to process up to 1400 head per day.
Other individuals, however, like Nolan Meats at Gympie (QLD) have told Beef Central that they have definitely not sought JobKeeper support.
But the accumulated impact of those numerous smaller companies that are operating under JobKeeper support appears to be impacting competition for the meagre flow of slaughter cattle currently available.
JobKeeper Phase Two
A trusted processing industry source told Beef Central this morning that the dynamics might change again in the next phase of Federal Government COVID financial support, due to start from October 1.
The second phase of JobKeeper will require more specific evidence of business impact, in order to qualify for JobKeeper 2. The year-on-year reduction in revenue of 30pc must be proved from 1 October, rather than simply forecast.
The contact suggested that despite the big declines seen in processing activity since March, this would be likely to be impossible to achieve for the larger processing companies, where evidence of 50pc decline in revenue would be required.
“But it might open up the possibility that some smaller processors might schedule (or have already had) closures from July to the end of September – not only because cattle numbers are so tight, but because for JobKeeper reasons it might help their relative turnover comparisons between this year and last year, when slaughter activity was still very high,” he said.
“The three big meat processors – JBS, Teys and NH Foods – would appear to believe that either all processors should benefit from JobKeeper, or take it away altogether to avoid distortions in the market.”