Bush Matters Op-Ed – “Shining a light on beef prices”

5 September 2014

The United States’ Packers and Stockyards Act 1921 is a piece of legislation that Australian agriculture is increasingly looking toward as a template to bring much needed price transparency to our national commodity supply chain.

There are some peak industry bodies that have commenced studies into how it could apply to Australia and it has become increasingly mentioned within the corridors of power.

The Act is broadly intended to regulate parts of the supply chain in order to protect the interests of producers and consumers by prohibiting monopolistic or predatory practices through regulation that recognises the unique marketing and distribution practices of livestock production.

It sets out rules that aims to ensure producers are paid promptly based on accurate animal weights and prevents businesses from colluding to manipulate prices or to apportion territory to force sellers to accept lower prices.

Under the act, processors are also compelled to maintain written records to provide justification for differential pricing offered to livestock producers.

Whilst there is work still underway to translate the ideas of this American legislation to the unique needs of Australian beef, we should all be encouraged that a meaningful discussion has commenced about supply chain accountability, openness and transparency.

It’s hard to overstate the urgency of introducing price transparency to the Australian beef industry, given the clear and undeniable concentration of ownership across our supply chain.

As has been reported by some media outlets, my tour of Western Queensland last month served to reaffirm my conviction that debt and profitability are two halves of the same whole, combining to create probably the greatest challenge confronting rural industry.

From the border to the Gulf of Queensland, producers were unbearably frustrated about the fact that they are earning the same level of income per kilogram for their livestock as they were receiving 20 years ago.

These enterprises are reporting, in many cases, zero return on investment and those that are operating effectively are doing so only on about three or four per cent return on investment.

The drought has certainly exacerbated these problems. In the last 24 months, some producers have sold their entire livestock for up to one quarter of the prices per kilogram that they would have received 20 years ago.

Yet it would be difficult for the major supermarkets to argue these pricing issues are also reflected in the retail price.

No other sector would or should put up with such a flat lined earning capacity. And the looming horizon for the cattle market only warns of further pain coming.

Many of the property owners I spoke to during my tour have completely sold their breeding stock, and they are in no financial position to restock their properties – even with a return of fortune with the weather or a restructure of their debt with government support.

Many have sold breeding livestock, including replacement heifers, for as low as 30c or 35c a kilogram, yielding prices that for many barely covered their freight and certainly showed no return on their investment.

We all know that when there is a break in the seasons and surface waters are replenished and the need for investment in fodder and support feed is mitigated, thousands upon thousands of producers will return to the market and will be competing for replacement stock and so, if they are in a position to purchase that stock, they will be buying them at a price 600 or 700 per cent more expensive than they originally sold their breeding stock for.

While there is no doubt there will always be ebbs and flows within the market, which will quite often be challenged and influenced by seasonal conditions and associated supply and demand, it cannot be argued that there is a free and transparent market for cattle already in place in this country that enables businesses to rebuild in a fair and reasonable way.

Introducing and enforcing price transparency will be an essential element to rebuilding the sector following this current drought.

There is perhaps no greater tool that we can arm our agriculture sector with than knowledge and information. This breeds confidence and allows businesses to be more resilient to confront any tough cycles.

We need to open the doors and a shine a light on the financial realities of our beef production cycle. Introducing transparency is essential to this.

It is no longer possible for us to overlook this issue. Our beef producers cannot sustain another decade of unviability.