THE concept of mandatory reporting by beef processors, of not only their costs of procuring cattle but the price at which they have sold products, is emerging as a key issue in inquiries and market studies looking into competition in the industry.
Self-described ‘think tank’, The Australian Meat Producers Group (AMPG) has mounted a comprehensive argument for a mandatory price reporting (MPR) system as a means of addressing what it sees as unequal bargaining power between producers and the increasingly concentrated retail and processing sectors.
In its submission to the federal government’s Inquiry on the Regulation of Australian Agriculture, AMPG recommends a scheme similar to the regime in the United States, and also proposed by the European Commission for both beef cattle and other agricultural industries.
It says Australian cattle producers are dealing with a ‘double-whammy’ cumulative effect flowing from high concentration of the beef processing sector and the very high concentration of the retail industry.
The submission, prepared by Hunt Partners Lawyers, also recognises the ‘undue burden flowing from government influenced costs and charges’ that disadvantage Australian beef processors on the global market.
Hunt Partners Lawyers principal Norman Hunt said the issue was that the Eastern Young Cattle Indicator (the benchmark for Australian cattle prices) painted an incomplete picture in that the majority of cattle slaughtered bypassed saleyards.
Indeed, the largest processors are buying over 80 per cent of their cattle through direct consignment from producers, the submission says.
Over the hooks indicators - weighted averages derived from grids supplied by around 70 per cent of the processing capacity on a weekly basis - also were inadequate given it was volunteered information and did not account for the normal business of buying consignments over several weeks, according to Mr Hunt.
“It is a widely-held view in the industry that the pool of indicators available to producers is not providing full and accurate market information,” he said.
Mr Hunt acknowledged it was rare that a businesses provide this kind of commercially-sensitive information.
However, he said the primary production food supply chain was different and that it was the European Commission’s conclusion this type of transparency and accessible market knowledge occur across the full food chain.
“The substance of what we are saying is that because of the inequality of bargaining power you need both price transparency and strong producer advocate groups to counteract that and provide an appropriate profit share along the supply chain to maximise productivity,” he said.
“If you don’t get that, it is to long-term detriment of all, including the consumer.
“What we are advocating is that we adopt best practice from overseas, where the same problem is being dealt with.”
AMPG member, Victorian commercial cattle producer Loretta Carroll, “Laurels” at Mudgegonga, said the vast majority of producers supported MPR.
Its benefits would extend beyond balancing the inequity in bargaining power to providing producer leverage with the banking sector and confidence and demand among consumers, she said.
How the US regime works
Once the packers inform the United States Department of Agriculture of the prices they pay livestock producers for cattle, hogs and lambs, as well as the prices they receive for wholesale meat cuts, the USDA publishes reports which highlight exactly where the money flowing through the industry’s supply chain is going.
AMPG’s submission addresses traditional arguments that the system would be difficult to implement in Australia due to the fact the US is domestic-focussed where Australia exports 70pc of its beef product.
“From a producer’s perspective, cattle prices paid by processors are cattle prices irrespective of whether the product from those cattle is sold onto the domestic or export market, and beef prices are beef prices irrespective of whether the processor sells the beef on the domestic market or the export market,” AMPG says.
It argues the effect of price transparency is demonstrated by the fact the US producer’s share of the retail dollar is much higher that the Australian producer’s share.
“Further, the fundamental issue here is one of free markets and the more transparent the market, the freer the market,” the submission says.
“If a producer knows that the average price received for cattle is $5.50 a kilogram carcase weight and a processor offers $4.50/kg cwt, then that producer is likely to go to the processor’s competitor to see what it will offer and the free market will take care of the market price.”
Unintended consequences
PROCESSORS say government-mandated price transparency could have significant adverse unintended consequences.
In a report commissioned by the Australian Meat Processor Corporation (AMPC), the argument was made that mandatory price reporting could lead to ‘race-to-the-bottom’ pricing, whereby customers use the indicated prices as a maximum they are prepared to pay.
That would ultimately mean less money available for the processor to pay for livestock, let alone invest in productive efficiency or capacity.
The report, prepared by economic consultants SG Heilbron, was commissioned to inform discussion surrounding the Australian Competition and Consumer Commission’s market study on the cattle and beef industry.
Price transparency does not offer a solution for unequal power relationships in the chain, the consultants say.
“In markets with many suppliers and customers, in which little is known about prices, greater transparency will lead to more transactions,” the report says.
“The distribution of effects between chain parties, however, cannot be known in advance.
“In concentrated markets, the result may be an excess of transparency: if prices are published which are too up-to-date and company-specific, actors will be able to start co-ordinating prices with each other.”
Numerous senior staff at processing plants in NSW and Queensland have also questioned whether a cost and benefit analysis of MPR would indicate its worth, given the substantial expense involved in actually collecting and processing this type of information, not just to their businesses but to taxpayers.