Bush matters Op-Ed – “Beef inquiry needs facts, not rumours”

7 August 2015

The Australian beef industry was born, unofficially at least, when two bulls and four cows escaped their convict herder within a few days of settlement and ran wild into the never-ending bushlands surrounding the fledging colony.

Attempts by some entrepreneurial convicts and free settlers to capture the cattle were mostly unsuccessful and it is believed these cattle roamed relatively freely over the next few years, gradually growing into a herd of more than 100.

When the increasingly troublesome herd became worth less than the hassle it was causing the colony, Governor Bligh in 1807 ordered the 19 herd bulls to be shot and salted for consumption.

It’s quite remarkable to consider our ever-growing and world renowned beef industry came from such ragged origins, where farm level gross value of red meat livestock production now contributes more than $11 billion and post farm gate red meat sector contributes a further $16 billion.

In many ways, some parts of the contemporary regulatory environment that our beef supply chain wades through has the wild and woolly look of the wayward bulls that Governor Bligh ordered to be shot and salted.

And while there might be some who would argue the Federal Government should take a similar heavy-handed approach when dissecting the competition laws and regulations that shape the Australian beef supply chain, I believe a measured and responsible investigation into the issues concerning producers and processors can deliver long term advantages to both parties.

It was in this spirit that the first public hearing for the senate inquiry into the effect of market consolidation on the red meat processing sector was held in Roma this week.

While more than 10,000 head were consigned at the store sale less than a kilometre away, senators gathered to speak with a list of witnesses that consisted almost entirely of graziers.

It’s no secret that producers have long argued they face a serious lack of competition from buyers, caused both by consolidation in the processing industry and the increasing market power of the supermarket duopoly.

The speed of consolidation in the processing sector has rung alarm bells among some producers, with one example being Brazil’s JBS growing into the most dominant processor in the Australian livestock market in less than a decade.

The $1.45 billion conditional approval, by my government, for JBS to takeover Primo Smallgoods sparked further public backlash which partially contributed to the decision to undertake this inquiry.

Similarly, while Teys has a long history in Australia, the 2011 joint venture with agribusiness giant Cargill has facilitated exponential growth for the company.

We have seen the decline in meatworks across the nation in recent decades, which can be attributed to industry rationalisation – driven by over-capacity, inefficiency, tight supply, labour shortages and export competition.

Other facilities perished simply due to market influences at the time or as a result of the owners failing to invest in processing innovation and technology.

Many of these plants were small, regionally-focussed and would have struggled to stay profitable in a modern marketplace.

Nevertheless, this provided the opportunity for large multinationals to enter the market and quickly take a dominant position by constructing larger, more efficient plants that could support economies of scale.

But, just as we repeatedly ask ourselves when considering our supermarket duopoly, how big is too big? And what is the impact on the other supply chain stakeholders?

Even in their absence, the presence of the processors was still felt at the inquiry hearing on Tuesday.

Many of the producer-witnesses said there were others who could make a valuable contribution to this inquiry, but they were concerned about future retribution from the processors to speak out.

No adverse inference should be drawn about the larger because the evidence is yet to be tested.

However, the very fact this has been articulated speaks volumes about the levels of mistrust between producers and processors in some parts of the market.

This is a great problem for this inquiry as it moves forward and there are already machinations behind the scenes to look at ways to overcome it.

When we next hold a hearing, it will be in Canberra at the end of this month. The major processors are expected to appear before the committee and their responses to the committee are likely to be highly anticipated.

Without pre-empting the exact nature of their answers, we do know that the processing sector have long argued it struggles to operate under the weight of high volumes but low profit margins.

These companies provide similar answers whether buying cattle or negotiating an enterprise agreement with the union.

It must also be noted that there are serious questions over why it seems the value of offal and co-products are not currently worked into the price of the beast, particularly given these items have risen in worth in recent years and this additional payment has become standard practice in other beef-producing nations.

When we hear anecdotal evidence that bulls’ pizzles are retailing for up to $90 per kilogram as pet treats and cattle gallstones, which are used in Eastern medicine, could be worth up to $30,000 a kilogram, there is a very real need to investigate how the profits from these co-products can be better filtered through the rest of the supply chain.

The processors believe there is a free market in the red meat sector. They claim the spread of national, large, mid-size and smaller processors across the eastern seaboard as well as the ability to move cattle across jurisdictions is clear evidence that no processing company can hold monopolistic power.

This inquiry is complicated because it deals with the thousands of saleyard and over the hook transactions that take place in every corner of Australia every day.

It is also complicated because the levels of mistrust between processors and producers have reached such heights that rumour and misinformation can distract the real issues at the heart of this inquiry.

Rumours can have a way of slipping under our mental defences before we think to question them.

It is important we catch these rumours and kill them quickly if this inquiry is to have an opportunity to benefit our livestock industry.

One thing I know for sure is that all stakeholders want a mutually-beneficial outcome that pushes our burgeoning and iconic industry forward.

That’s why facts and figures should be our focus so we can build a solid foundation that ensures there is transparency, accountability and profitability across all links of the beef supply chain.