IN this podcast published on the Burgernomics platform, economist and host Ross McDowell is joined by RaboBank’s Angus Gidley-Baird. The pair seek to demystify the discrepancy between falling farmgate beef prices and the relatively untouched retail prices.
They explore the question: Who’s making the margin? which is clearly annoying some beef producers at present.
Ross’s weekly podcast called “Burgernomics” aims to de-mystify issues surrounding economics. To avoid any confusion caused by its name, the Burgernomics podcast platform is not specifically focussed on the red meat industry.
Here’s Ross’s explanation about the name:
“The podcast is called Burgernomics because irrespective of the topic – electric vehicles, housing, interest rates – the experts I interview (including the RBA) at the end of the podcast take the Burgernomics Test: they have to apply our podcast conversation to the effects on a hamburger.
This ensures listeners with zero economic knowledge can relate to the ‘knock on effects’ to an everyday item…the hamburger.”
- To listen to Ross’s podcast, click here
A nice podcast thank you Ross and Angus! I acknowledge there are complexities in the beef supply chain and I support the observation that independent butcher shops are now undercutting the red and the green supermarkets. The differences on key items is now quite significant in places so the independents are offering hard pressed consumers with an opportunity to trim their budget, yet have a good eating experience. Competition between the green and the red supermarket oligopoly is not intense and in the many price surveys I have undertaken between them in both metropolitan and country areas, between 7 and 9 of the 17 key items surveyed were identically priced on the same days, not similarly priced, identically priced. The average price of a basket of beef items differed by 1-2% between them whereas the Blue supermarket was cheaper by some 20%. Alan Fels was quoted in one of my previous articles Opinion: Producers lose share of the beef retail dollar spend – Beef Central . When commenting on the PWC consulting issue and the competition in that sector stated, “They have a similar culture which means they don’t really compete, the four look alike and their competition is quite marginal*” (*Professor Alan Fels interview, ABC radio, 17/7/2023 5;06pm). The same could be said of the supermarket space which is dominated by 2 players (the podcast I believe said that between them they accounted for some 80% of the market).
The podcasts’ comments about high current supply being the main cause of current low prices are undoubtedly true, however the situation is exacerbated by the supermarkets choking off consumer demand by maintaining high retail prices. They could be heroes and drastically cut prices to clear the back log, contribute to the fight against inflation, help struggling consumers and generate some consumer loyalty. That is not their way however. You only have to take a look at long term share prices of Woolworths and Coles as retailers vs the long term share price of suppliers such as AACo and Inghams to see where the market power is. Share price however is probably not the best indicator, a better one would be the long term shareholder return which includes share price changes and dividends and you will see Coles averaged 12.% per year, Woolworths 8% whilst both AACo and Inghams showed under 5% per annum return.
US beef and cattle prices are currently the highest on record and with there being such a large arbitrage between US and Australian prices, one could expect that the US industry will increase their sourcing of Australian product as will those countries in which US and Australian beef go head to head such as Japan. This will of course take time so in the medium term I think the podcast is correct in suggesting a rocky road ahead for beef producers.