Production

Lower cattle prices reflect lack of progress toward supply chain cooperation: CPA

James Nason, March 22, 2019

The Cattle Producers Australia group says that despite a number of senate inquiries and an ACCC cattle and beef market study recommending whole of supply chain cooperation, particularly between producers and processors, the return to low cattle prices shows no progress has been made towards that goal.

However, Cattle Council of Australia and Australian Meat Industry Council have rejected the claims, pointing out that price fluctuations are supply driven and that there are many and increasing examples of producers and processors working together in dedicated branded supply chains to flatten out price peaks and troughs.

Taroom cattle producer and veterinarian Dr Paul Wright, the inaugural chair of CPA, issued a media statement this week saying the return to low cattle prices now being experienced further demonstrated the need for “robust and accountable cattle producer representation” at the national level.

He said cattle producers are now receiving the lowest prices since 2015, despite Australia shipping high export tonnages of beef at high export prices.

“Reports of near record monthly export tonnage, along with buoyant export beef prices, combined with high domestic wholesale and retail price levels which are threatening to dampen domestic consumer demand, is not compatible with the low prices, hovering around 2015 levels, that cattle producers are receiving for their stock,” he said.

“This is evidence as to how far we have come, which is basically nowhere. We have not progressed whole of supply chain cooperation.”

In the CPA statement Dr Wright said the group rejected comments from the Australian Meat Industry Council that producers and processors were now working together and were more cohesive than ever.

“With record retail beef price heights to $19.51 per kg according to MLA, indicates the market place seems to only respond to livestock supply issues rather than product demand and producers are questioning why the benchmark Eastern Young Cattle Indicator (EYCI) this week slid to 385.25 cents?

“Leaving producers receiving a meagre 26 pc share of the retail price, MLA reported a 10 year average of 32pc back in 2015 and according to USDA reports America is receiving 46.7 pc.”

Effective producer representation was needed to deliver genuine transparency in pricing along the supply chain.

He said he ACCC Cattle and Beef Market study highlighted the lack of transparency, stating that 90 percent of slaughter cattle in Australia were sold direct.

Dr Wright acknowledged some meat processors had begun to publish their price grids in response to Senate Inquiry into the Effect of Market Consolidation and the ACCC Cattle and Beef Market study. However he said this was not enough, with those processors still using their own language and descriptors and variation discount rules which made it “virtually impossible for the average cattle producer to compare prices being offered for their cattle”.

“Price transparency is fundamental to the efficiency of a free market economy and lack of transparency results in lower prices for the price taker and higher profits for the price giver,” he said.

“If processors are buying 90pc of their product direct over the hooks, they will not be competing in the public selling centres where the EYCI is set, yet processors often use the EYCI to benchmark their grid pricing.

“This brings us back to the core problem of representation, price transparency and the other reform recommendations from past senate inquiries and the ACCC study that have not been dealt with and hearing from our younger cattle producing members who have raised these specific issues with me and have little faith in existing industry structures ability to manage them.”

Price movements dictated by supply: Cattle Council

Cattle Council of Australia responded to Dr Wright’s claims by pointing out that price fluctuations are supply driven.

“It is wrong to suggest that a lower indicator price is anything more than a reflection on a supply chain which is trying to absorb a significant turn-off of cattle due to ongoing drought. It isn’t long ago that we were seeing record cattle prices which were, in large part, caused by a shortage of supply after a drought,” CCA said in a statement to Beef Central.

 “Blaming processors for market prices is short-sighted.

“Our supply chains are integrated in a way that helps avoid the massive boom-bust price cycles of the past.

“The way processors, lot feeders, backgrounders and live exporters are still providing producers selling options and competition for drought affected cattle is testament to how far we’ve come.

 “As the peak national voice for beef producers, Cattle Council knows we have a responsibility to work with processors to develop our markets, uphold the integrity and reputation of Australian beef and strengthen the resilience of the businesses and families who produce it.”

AMIC: No correlation between cattle prices and supply chain cohesiveness

AMIC CEO Patrick Hutchinson said it was difficult to make a correlation between cattle prices and supply chain cohesiveness.

Patrick Hutchinson

“We certainly don’t believe there is a correlation between what is viewed as industry cohesiveness and pricing of livestock.

“If we looked at 2016, we saw the EYCI at a record 725c/kg with a median price of about 640c/kg.

“In 2017 the median was about 613c/kg and in 2018 the median was about 520c/kg.”

In the past week the EYCI had risen again by almost 50c/kg due to rainfall, a 10-15pc cost increase in seven days.

At the time processors were paying record prices they were also enduring massive hikes in electricity and gas prices, a period that saw a number of processing plants close down.

What was more important he said was for the industry, government and community to recognise the total value chain of the red meat industry, and understanding where costs were causing were reducing the competitiveness of the entire sector.

Australian processors and meat retailers faced the highest costs of any country in the world by a long way, he said.

Energy was a key example. He said AMIC explained to the Federal Energy Minister earlier this week that Australian processors and almost 2000 independent red meat retailers were the largest per square metre energy users and payers in the country.

“What we should as an industry be looking at is where are our major cost points are and what causes the peaks and troughs and how do we work harder at flattening out those things.”

That included greater Federal Government action to address rising energy costs, or State Governments freezing payroll tax to provide some margins and room to breathe.

He said it was important for the Government to look at how it could help farmers by helping the entire supply chain.

“That is the number one key element because, essentially, if our processors can start to flatten out those price indexes, farmers win.”

He said there were already many examples of processors and producers working together in dedicated branded red meat supply chain partnerships.

“If we have processors and producers and others within supply chains operating that way now, why can’t we have a similar process of thinking and appreciation at the industry level?

“I believe we do and I believe we are getting there more and more.”

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  1. John Gunthorpe, April 2, 2019

    As we said Paul, it is complicated. Just so we understand, the 7 directors can only come from the 15 elected Policy Advisory Councillors. As there are substantially more votes in Register B the “most popular Policy Advisory Councillor” will come from Register B. Therefore Register B will account for 4 of the 7 directors and always have the deciding vote on a board resolution. In Register B you propose an extra vote is earned for every $1000 on levies paid. MLA records show AACo paid just short of $700,000 in levies in 2007 and so would earn 700 votes in Register B. JBS, Teys, Greenhams, Nolans, ACC, Midfield, NH Foods and other large processors would dominate the voting in Register B. Is it possible your system of voting is designed to allow the processors to control the board resolutions of CPA?
    Now we understand the voting for the 15 Policy Advisory Councillors is from Register A and so it will be one producer one vote. However, the election of the directors with Register B does introduce a level of complication capable of manipulation.
    There is also the complication of asking an Elected Director to take off his director’s hat when meeting with the Advisory Council. It places the 7 directors in an invidious situation when a dispute arises between the board and the Policy Advisory Council – and be sure this would happen with your constitution.
    We propose the election of 7 directors without the complication of the Policy Advisory Council. It should be one producer one vote so the larger producers will have the same direct influence on the board structure as the smaller producer. There should be regular regional meetings for producers to express their views. Management should be tasked with the organisation of the meetings and should pass up policy proposals from the meetings to the board. Communication is critical up and down the organisation membership. We need a strong board and a strong Chair to advocate on behalf of the members. This is why we reject the CPA constitution for the future industry peak council.
    Australian Cattle Industry Council

  2. Paul Wright, March 30, 2019

    CPA commends Mr. Gunthorpe’s support for improved price transparency in the beef supply chain.

    Unfortunately however, Mr. Gunthorpe’s other comments pertaining to the CPA constitution are completely inaccurate and to set the record straight CPA advises that:-
    1. The CPA constitution which is based on the agreements reached in 2015 between all the grass fed cattle representative groups including CCA has been posted on the CPA website at all times since July last year and Beef Central readers are invited to read the CPA constitution themselves by googling http://www.cattleproducers.com.au
    2. The CPA constitution provides for an Interim Board to be appointed by the majority vote of the Founding Members of CPA prior to the election of the first Policy Advisory Council.
    3. The Founding Members of CPA are all members of the CPA Implementation Committee who were eligible to be members of CPA when the current CPA constitution was adopted.
    4. Membership of CPA is free.
    5. The current members of the CPA Interim Board are myself, Mr. Ernie Camp and Ms. Loretta Carroll. Mr Norman Hunt is not a director of CPA but he is the current CPA Company Secretary.
    6. The Policy Advisory Council, when formed, will comprise 15 representatives elected by CPA members on a one member one vote basis from 15 Regional Electorates across Australia.
    7. Following its election the CPA 15 member Policy Advisory Council will form an Initial Board that will replace the Interim Board and within twelve months 7 of the 15 Policy Advisory Councillors will be elected through a two register voting structure to form the Board of CPA.
    8. The two register voting structure for the election of CPA Board directors comprises of a one vote per member Register A and a Register B where voting entitlement is governed by the amount of grass-fed cattle transaction levies paid by the member in the previous financial year.
    9. The 7 elected directors on the CPA board will include the most popular Policy Advisory Councillor in both Register A and Register B and 3 Directors who receive the most preference votes in Register A and 3 Directors who receive the most votes in Register B.
    10. The 7 elected CPA directors have the power to appoint 2 additional special qualification CPA directors.
    11. The CPA constitution provides for total annual remuneration not exceeding $750,000 for the 9 potential CPA Directors and the 8 Policy Advisory Councillors not elected to the CPA Board can be paid an amount not less than half but not exceeding the aggregate amount being paid for all Directors.
    12. CPA membership application is a simple process requiring the minimum amount of information necessary to identify the applicant and establish that the applicant is a Grass-Fed Cattle Producer with a verifiable link to a Property Identification Code and who has paid grass-fed cattle transaction levies in the previous financial year.

    It follows that Mr Gunthorpe’s claim that- Norman Hunt, Paul Wright and Loretta Carroll are the only directors of CPA and that no other director can be appointed to the Board of CPA without their agreement. – is completely without foundation. The majority of the CPA Founding Members can appoint any CPA Founding Member to the CPA Interim Board at any time and the CPA Interim Board will cease to exist when the first Policy Advisory Council is elected.

  3. John Gunthorpe, March 29, 2019

    My apologies I see the constitution is now back up on the CPA website and can be read at -https://cattleproducers.files.wordpress.com/2018/12/cpa-constitution-20181212.pdf
    Australian Cattle Industry Council

  4. John Gunthorpe, March 29, 2019

    We need to read the constitution of CPA to understand the truth about the controls they are intending for their new organisation. Yes it is more democratic than CCA but so is the election of Putin. Norman Hunt, Paul Wright and Loretta Carroll are the only directors of CPA and no other director can be appointed without their agreement. To be a member the amount of detail required by CPA would cause a producer to toss the form in the bin. We believe if you pay a grass-fed cattle levy then you are a member. All levy payers must have the right to vote and to stand for election as a director without providing the name of your first calf. There was a copy of the constitution on their website but it seems to have been taken down. We have a copy and are happy to share it with you if you contact us – [email protected]. The election of directors and policy advisory council members is complicated. Apparently they are proposing 15 people are elected as policy advisory council members from 15 regions across Australia. Then they hold a second election by members to elect 7 of the 15 policy advisory council members as directors of CPA. Directors have the powers to run the company. They are to be paid with an upper limit of $750,000 a year in total for the 7 directors. The other 8 policy advisory council members are to receive half the amount paid to directors.
    Regarding price transparency, we fully support the need for national reporting of livestock sale prices by type and class consistent with the system applying in the USA. This must be mandatory for all selling centres and timely so we can understand price movements.
    Australian Cattle Industry Council

  5. Loretta Carroll, March 25, 2019

    In response to John Gunthorpe’s misplaced comments regarding CPA, of those committee members who were on the IC at the time the CCA resigned, only one member left as he did not agree with the proposed CPA structure that had been agreed on by the CCA and other members of the IC. Two others joined the IC after the CCA’s resignation and subsequently left as their views were not compatible with the original structure agreed to with the CCA . Since then the IC has welcomed new members to create a solid group committed to working toward the reform desperately needed in the beef industry.

    In regard to Mr Gunthorpe’s claim that CPA’s proposed structure is not democratic, if allowing all grass-fed cattle transaction levy payers to have equal opportunity to stand for election in their region and giving them the right to vote for board members isn’t democratic, then what is? Certainly a lot more democratic than that the current convoluted SFO based CCA structure with the majority of board members appointed by the SFO’s and a minority elected by a few direct CCA Members.

    I note that neither John Gunthorpe, AMIC and CCA’s unnamed representative do not address the issue of price transparency which is what Dr Paul Wright’s comments in the Beef Central article above was all about.

  6. Brad Bellinger, March 24, 2019

    Cattle Council says “our supply chains are integrated that helps ovoid the massive boom and bust price cycles of the past”.The EYCI has moved from 720 to 375 in 3 years that is a boom and bust.
    There is no boom and bust in the Cattle Council income however it has moved from $800 000 to over $2 000 000 over the same time period.
    Cattle Council exist only because they are protected by the National Party as they continue to undermine cattle producers.

  7. John Gunthorpe, March 23, 2019

    AMIC and CCA are right. There is a push especially in Queensland and New South Wales to turn off stock due to seasonal conditions. Yes processors do take advantage of desperate vendors of cattle to reduce prices. This is unfortunately the price mechanism at work. This week we saw steers see further falls and heifers bounce back. With the expectation of rain events, producers are in the market for heifers to rebuild their breeding stock. Feedlots are full probably with some expensive fed cattle. Grain was being imported to the eastern states from WA to supplementary feed stock. These conditions will change and livestock prices will head north again as processors seek stock to fill their chains when slaughter cattle are in short supply. This will continue for a few years and send some processors to the wall or at least cause some of the bigger operators to shut sheds. It has ever been so.
    By the way, regarding your explanation of who CPA are, many of the Implementation Committee members independent of CCA have now left CPA concerned about the direction the 3 directors of CPA are going. CPA has not attracted members even being free to join, and their proposed structure is over complicated and not democratic.
    Australian Cattle Industry Council

  8. Paul Wright, March 23, 2019

    Cattle Producers Australia (CPA) support for effective “whole of supply chain” representation of the Australian beef industry is well documented. (Refer to the CPA submission to the MoU Review on its website at cattleproducers.com.au).

    CPA unequivocally supports AMIC representative Mr Pat Hutchinson in his assertions that “Australian processors and meat retailers faced the highest costs of any country in the world.” And that “we should as an industry be looking at where our major cost points are and what causes the peaks and troughs and how we work harder at flattening out those things.”

    These accurate observations by Mr Hutchinson were clearly pointed out in the Hielbron reports as a threat to the competitiveness and ultimately the profitability of every sector of Australia’s beef supply chain. If the beef industry is to remain competitive on the International stage these costs must be contained and indeed reduced. As Mr Hutchinson also points out, governments, both state and federal, have important roles to play in the national interest of preserving the competitiveness of Australia’s red meat industry.

    While current seasonal conditions are undoubtedly contributing to the number of cattle currently presenting in the market place, this does not reasonably account for the dismal level to which cattle values have fallen while both product demand and product price are simultaneously buoyant. Clearly the reason for the difficulty in quantifying the contributing factors to this calamitous situation for cattle producers is the lack of market transparency identified so precisely by the ACCC report and resultant recommendations. The predicament in which cattle producers currently find themselves is in no small way contributable to the dismissive response by RMAC and CCA to the ACCC recommendations. Aggravating this insult to cattle producer profitability is the fact that the Australian industry competitors/customers in both the USA and EU have price transparency requirements enshrined in legislation while Australian producers do not.

    Whatever commendable, incremental progress that may have been made over recent years in beef industry “whole of supply chain” representation is effectively scuttled by industry resistance to market place transparency reforms as recommended by the ACCC. What is short-sighted is continued resistance to these reforms – yet again underlining the need for a truly representative Peak Industry Council for grass-fed cattle transaction levy payers.
    CPA recognises the need for effective whole of supply chain representation for the beef industry as it does for the fundamental requirement for truly representative cattle producer participation in these structures and systems.

  9. David Byard, March 22, 2019

    Lack of progress towards supply chain cooperation, CCA say it is wrong to suggest that lower price indicator is a reflection of supply chain during drought, they go on to say the supply chain is integrated in a way which helps avoid market boom and bust cycles of the past, could it be possible that what we are experiencing now is the boom and bust cycle that we have seen in the past and I for one believe we are in for a big price hike when the shortage of cattle comes in the near future boom bust??in 2007 a request was made by the Minister the day for the ACCC to do a report on who got what share of the retail dollar, Coles quoted as saying the producer got 54% of the retail price the processor got 13% and 30% went in costs leaving them with a 3% margin. Surely the time has come when price transparency becomes more than a pipe dream, and the CCA should realise that price transparency is a necessity, the simple fact is US producers get more for their cattle and their consumers pay less for their beef. You guessed it the US has the stockyard Packers .

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