Cost creep to push beef processing offshore

Cost creep to push beef processing offshore

Beef Cattle

Major economic analysis shows Australia's processing costs per head more than twice Brazil's.


JUST how serious a risk Australia’s beef processing now faces of being forced offshore has been spelled out in a major report into the sector’s costs to operate.

The processing cost per head of beef in Australia is more than twice that of Brazil, 75 per cent higher than in Argentina and 24pc higher than in the United States.

These are three of Australia’s key competitors in export markets.

In Australian dollar terms, that’s an additional $125 on Brazil, $93 on the US and $91 on Argentina.

Colloquially tagged Cost to Operate Report, the comprehensive analysis released today was commissioned by the processing sector’s research and development organisation the Australian Meat Processor Corporation and compiled by leading economist Selwyn Heilbron.

Exorbitant energy prices, extremely high regulatory burden and labour are the big culprits of the cost creep that has rendered Australian beef processing uncompetitive.

The analysis found that 54pc of Australian red meat processing industry input costs, excluding livestock purchases, are impacted by some form of government regulation.

Australia’s regulatory cost burden is estimated to be 2.75 times that of Brazil’s, 2.4 times more than in the US and 1.89 times more than in Argentina.

AMPC chief executive officer Peter Rizzo said the numbers clearly showed that without significant changes to industry costs, especially those subject to regulatory influence by the government, the competitiveness of the Australian red meat processing industry, and the jobs it created and the communities it supported, were at risk of disappearing overseas.

Imagine a world where we import beef processed from Australian-bred animals back from Indonesia, he said.

What that looks like for both the Australian cattle producer, and the beef consumer, is frightening.

Quarter cut beef being processed and value-added overseas was probably the most imminent threat, Mr Rizzo said.

However, while the report indeed alluded to outcomes that were ‘scary and grim’, Mr Rizzo said “it doesn’t mean we are not creative enough to come up with solutions.”

AMPC chief executive officer Peter Rizzo.

AMPC chief executive officer Peter Rizzo.

The report highlighted many areas where quick action could bring the sector into greater alignment with competitors, he said.

One was the government reconsidering its policy of full cost recovery for post mortem inspections.

The report says in Brazil, the US and Argentina, the post mortem inspection charges are considered part of the public good for health and export income purposes and are therefore paid by the respective governments.

In contrast, Australian abattoirs fork out $110 million a year.

The processing sector would also be looking for government support to help keep abattoir doors open when livestock supply shrinks even more as the herd is rebuilt post-drought.

Mr Rizzo said it takes at least 18 months for a plant to re-establish after being forced to lay off workers when margins run in the negative for extended periods.

Red meat processing creates nearly 130,000 jobs, mostly in regional and rural Australia, and pumps more than $21 billion in value-add to the economy, including more than $8b in household income, the report found.

It is the backbone of country towns like Queensland’s Rockhampton and NSW’s Wagga Wagga and as such post-drought assistance is as warranted as that during the drought, Mr Rizzo argued.

Export dependent

More than 80pc of Australia’s red meat and co-products are exported to more than 124 countries.

“Export processors are dependent on the global marketplace for the viability of their industry, however they have a limited ability to affect the market price received for their products due to the intense pricing competition from our largest competitors,” the report said.

“Cost competitiveness on a comparative basis is therefore critical to the Australian industry for it to maintain its market presence share and ultimately, is the key for meat processors to remain profitable.”

EXTRA READING: Processors brace for restocking pain.

Mr Rizzo said the report demonstrated Australia’s high energy costs, high regulatory burden and high cost of labour inputs, as aggregated, far exceeded our biggest competitors.

“We are not talking small percentages either, but rather aggregates of close to $100 to $200 a head,” he said.

The report suggests government regulation and export certification are major contributors to the cost disparity.

The analysis found around 54 per cent of Australian red meat processing industry input costs, excluding livestock purchases, were impacted by some form of government regulation.

This is significantly higher than in the study’s comparative countries where the closest related country is the USA with 33pc influence.

Australian export inspection and certification costs are 4.9 times higher than the US, 3.2 times higher than Argentina and 14 times higher than Brazil.

“We’ve almost accepted blindly our cost structure is more expensive than overseas and as such, no one was looking into the why,” he said.

With such comprehensive analysis, the processing sector’s advocacy organisation, the Australian Meat Industry Council could now take the reins to lobby for renewed government, and industry, focus on easing the cost creep, Mr Rizzo said.

“We’re all in the same boat. One end of it can’t be leaking if we want to stay afloat,” he said.

The story Cost creep to push beef processing offshore first appeared on Farm Online.


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