ABATTOIR shift cuts to date may just be the tip of the iceberg with independent economic examination pointing to complete plant closures and some labour-intensive operations moving offshore.
An investigation into the beef processing sector by consultants SG Heilbron argues inflexible labour systems and a high regulatory burden in Australia are adding to the strain faced by processors dealing with the current low supply of cattle and high prices.
The in-depth look at the sector was commissioned by the Australian Meat Processing Corporation in a bid to provide informed, evidence-based discussion to the Australian Competition and Consumer Commission’s current beef and cattle market study.
Processor profit margin analysis in the report showed the spread between beef export values and cattle indicator prices, adjusted for inflation, had fallen from a peak of 350 cents per kilogram to around 100c, which was well below the trend for the past 15 years.
Processors are losing significant amounts of money every time they purchase an animal for slaughter.
Whatever the short-term imperatives to maintain throughput, processors could not remain in business indefinitely losing money, the report said.
“A continuation of current conditions will see the less cost-efficient processors go out of business,” it said.
“Even more cost-efficient processors will consider taking labour intensive processing operations offshore.”
While it would be ‘hazardous’ to put figures on the extent to which those two trends would occur, report author Dr Selwyn Heilbron said the facts were there had been a substantial reversal of the positive price gap which emerged for a brief period during the drought.
“Should that continue, it is clear capacity will come under severe pressure,” he said.
“It will depend on individual processors but there is going to be a worse scenario.
“We have not seen the full implications of the cost price squeeze now being applied to beef processors.
“It should give cause for reflection on the part of competition and other policy makers.
“After all, this industry is a substantial one which generates large numbers of jobs, a lot of them located in regional areas where there are not significant alternative employment opportunities.
“At the same time, this is an industry with potential strong growth potential if given the right environment.”
Eastern Seaboard beef processors said a complete shutdown decision would not be taken lightly, given the enormous costs of having expensive equipment lay idle and the fact specialised labour could be lost permanently.
“Even though we are losing money on each beast we have to maintain our customers, our workforce and our farmer supply base,” general manager of Oakey Beef Exports in Southern Queensland Pat Gleeson said.
“We are here for the long term so we have to ride this out.”
Mr Gleeson felt the quality control and shelf life benefits of processing in Australia, which he described as ‘second to none’, would have a lot of sway in any decisions to process offshore.
While capacity at Oakey was back 25 per cent, he said shift juggling had meant no one has been put off.
“You can’t just picked these skill sets up off street - it is paramount to our business to maintain those people.”
The report noted the prohibitive costs of shutting down completely and that it would likely be a last resort.