Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697636548061.pdf (Australia)
Submission to the Senate Inquiry into the effect of market consolidation on the red meat processing sector.

Blair and Josie Angus of Angus Pastoral Co own and operate a vertically integrated beef business, breeding, back-grounding, feed-lotting over 35 000 head in Central & Northern Qld.

Signature Beef, the company’s beef wholesaling and export division, has been in operation since 1999.
The company has built a large, loyal clientele of retailers, restaurants and importers throughout 30 countries worldwide.

Signature Beef operates through a service works, processing company bred cattle, as well as cattle from other producers and additionally has a boxed beef trading division.

There was little doubt that prices seen for cattle at farm gate in 2013, 2014 were at record lows and did great damage to the financial sustainability of many cattle producers.
Australia exports the majority of beef produced and Australia’s record low cattle prices occurred against a backdrop of low global supply, high global demand and record global prices.

Supply and Demand JBS and Teys/Cargill, in their responses to this inquiry, have both vigorously stated that supply and demand are the sole variables responsible for cattle price movements.
Whilst Teys/Cargill, in their submission, quoted that processors export approximately 65% of production (by value), the percentage exported by our 1 .

Therefore the global demand and three largest processors exceeds 80% supply situation should provide the largest determinant of price for our major processors.

In 2014 global demand for beef, expressed by global pricing, was at and an all time high.
The global beef herd was down 10% on its peak in 1989 global demand has grown substantially over that period.

“The world is short on beef,” Marfrig Global Foods SA Chief Executive Officer Sergio Rial said in an interview last week.

While global beef output has risen 1.9 percent since 2010, export demand rose 25 percent, the USDA said last week.

China and Hong Kong accounted for 75 percent of import demand growth.

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In 2014 Australia had market access to China that neither Brazil nor the USA had, placing us in pole position to take advantage of the huge growth in demand.

The graph below shows no correlation between, global price, domestic slaughter levels or domestic pricing.

Cattle slaughter rates have shown consistent steady increase, global prices have accelerated and cattle prices have not followed.
The Effect of market consolidation on the red meat processing sectorSubmission 80 only consistent in the graph is the widening gap between cattle prices and beef prices or increasing processor margin.

The rapid price increases seen in 2015 have occurred without a significant lessening of cattle slaughter or a significant change in slaughter capacity and in fact against a background of a reduction in global beef prices.
This illustrates that global beef demand and domestic cattle supply have no correlation to price offered.

Capacity Capacity was utilised as a price manipulation method in 2014.

Historically a producer would ring a processor to make a booking for cattle to be killed.

The producer would be offered a grid and a date for the booking.

In 2014, kill slots had to be booked well in advance (out to over 6 weeks) and no pricing was available at the time of booking.
This practise, in effect, removed a substantial amount of competition from the over-the-hooks market, producers were unable to compare pricing at booking, if a producer did not like the price offered when it was finally disclosed at a date close to the slaughter date, the only remaining option was to make another future dated kill slot booking with no price offering once again.

Capacity of Australian meat processing is not fixed.
Essentially capacity can be doubled or halved with little capital cost by the addition or removal of a shift.

Even in a tight supply situation, processors are able to utilise capacity as a price manipulation tool.

This has clearly been illustrated in the USA this year where combined with record captive supply, processors have reduced kill shifts to force down the price.
Consolidation Considerable consolidation has occurred in the beef processing sector at all levels, farmgate, processing, wholesale / export and retail.

There appears to be no available published data on current processing capability or share by processor.

Effect of market consolidation on the red meat processing sectorSubmission 80 The last top 25 meat processors published in 2007 illustrates some of the consolidation.

JBS who were positioned at number 1 have since purchased: #4.
Tasman Group #10 Rockdale #21 Primo Note on the 2007 register this would have positioned JBS with 24.58% kill share without any increase in capacity of their plants a number considerably higher than that stated in their submission to this inquiry.

Teys Bros who were positioned at number 2 have completed a JV with number 5 and purchased number 17.

T&R Pastoral who were number 6 have purchased number 12.
Consolidation has not only occurred on a horizontal level there has been significant consolidation vertically through the chain.

The percentage of beef exported by Non-packer exporters has significantly declined, the domestic wholesale business has seen both horizontal and vertical integration and retail has also consolidated toward the major supermarkets.

Also importantly there is a growing trend towards processors ownership of cattle on feed and even back to backgrounding.
It is our belief that this trend will continue to accelerate, the USA is now reporting close to 70% of fed cattle at slaughter being captive supply.

Access Access to processing, particularly in North Queensland does create a much lesser competitive environment than that of southern Australia.

As the below maps illustrates processing has consolidated to metropolitan regions close to port.
Effect of market consolidation on the red meat processing sectorSubmission 80 This has significantly increased the freight burden worn by producers.

Processors have been supported by governments in this consolidation, for example the Qld Govt offered $20 million in 1998 to assist with restructuring the Qld processing industry.
As part of the cessation of operation of government owned facilities there was an assurance made that service kills would need to be provided by private The Queensland Government recognizes that it is essential to the future of the meat enterprise and agreements were reached to facilitate that.
and livestock industries in this State to ensure the ongoing provision of a service Effect of market consolidation on the red meat processing sectorSubmission 80 kill or contract slaughtering capacity within the meat processing industry.

4 We have to travel our cattle over 1250km to access service process at Casino in NSW.

Premise of Consolidation The important premise made in support of consolidation is the gain in efficiency and the lowering of supply chain cost.
It is our belief that this outcome has not been achieved.

On a recent study tour through five processing plants in the USA we found that size actually diminishes labour efficiency.

A classic example was 2.

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A small on-farm plant with a very high level of product integrity producing both meat and bio-medical by-products.

The plant employed 10 people and processed 20 head of cattle in a 5 hour period all by hand.
JBS Greeley, processing 6000 head per day at a chain speed of 390 bodies per hour (9.2 seconds / beast).

This plant works 2 x 8 hour shifts, with a workforce of 3000 people.

Product integrity was poor with a high use of lactic acid baths to counter e-coli.
To do a simple comparison of the two plants – Small = 1 man, 2 beasts, 5 hours Large = 1 man, 2 beasts, 16 hours Chain speeds have been the key performance measure, to make the chain go faster, the chain is often lengthened, adding capital cost to the plant and more men are placed along the chain.

Where one man may have made a single cut with a slow moving chain, it make take 5 men to make the same cut on a fast moving chain.
Whilst labour costs are not prohibitive to do this in the USA, the model does not work in Australia.

Our major processors process an average of 1.5 beasts per man per day, a level that is unsustainable.

Butchers, 60 years ago, breaking down by hand had a higher level of productivity.

The level of innovation delivered has not been high.

In the US plants, technology has been added, only to be removed again because of its inability to cope with high chain speed.
We agree wholeheartedly with the Department of Science and Industry submission to this inquiry that innovation will come from small plant development.

Solution Increased competition and improved access will increase farm gate return.

There is a large degree of uncertainty in the accreditation process for new plant development.

The capital costs have become insurmountable.


Recent feasibility Effect of market consolidation on the red meat processing sectorSubmission 80 studies are showing the capital cost of building a greenfield plant as being in excess of $80 million dollars.

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The Government must increase the level of certainty regarding the export accreditation of new plants to encourage investment Regulation must be fit for purpose and as simple as possible.
New regulation should be developed for on-farm processing plants.

Recognition of the community benefit of a. b. c. Relaxed environment regulation with regard to effluent treatment.

On farm nutrient is simply recycling, remaining onsite and being recycled into the pasture that was its origin rather than becoming a community cost in sewage.

Reduced road impact through processing live animals on farm, on farm processing has the potential to reduce the number of trucks on the roads by over half.
Many of the existing big plants are built in urban areas with high land cost and high community environmental impact 4.

Regulatory costs including (AEMIS, inspection and auditing costs) should not be higher in regional areas or proportionately higher for smaller operators.

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An additional EU grader from Ausmeat, required to access the EU market has travel and time charged from Brisbane, making a proposal for a small plant processing EU cattle daily unfeasible.
An example of this strategy has been the brewing industry.

A proliferation of micro-breweries has increased demand and revenue for beer.

It is widely recognised that Australia is a high cost manufacturing environment and that to succeed in the Asian century we need to be Asia’s gourmet deli rather than Asia’s food bowl.

Regulatory settings must allow the proliferation of boutique, differentiated manufacturers with high levels of product integrity.
Regulataions that provide barriers to entry for new plants should be modern, market driven and flexible whilst maintaining Australia’s high levels of food safety and integrity.

The Regulatory Environment and Ausmeat The other key to ensuring fair competition with OTH sales is an overhaul of Ausmeat.

Currently the board and oversight committee (Australian Meat Industry Language and Standards Committee) are heavily weighted towards processor input.
The Standards committee has 12 seats only 1 of whom is a beef producer representative.
Chair – Ausmeat CEO Ausmeat AMIC – 4 ALFA – 1 (Currently an employee of Teys/Cargill) CCA – 1 Supermarkets -1 Pork – 1 Sheep -1 Effect of market consolidation on the red meat processing sectorSubmission 80 PIMC – 1 The ownership of Ausmeat by processors has also created market access issues (eg EU not recognising Ausmeat graders as independent) It is vital that we move back to having some independent oversight in plants • • • • Independent oversight will assist in meeting market requirements of government oversight Independent oversight is required to facilitate fair trading conditions.
It is too late to bring in an ausmeat auditor if there is a dispute.

In reintroducing independent grading overseers we must be careful not to re-instate the bad old days of increased cost and loss of productivity that traditionally came with external personnel.

Modern methods of inspection such as video surveillance and scanning technology for nodes etc could be introduced to reduce inspection cost at the same time as delivering higher levels of integrity and performance.
If a small plant in a regional area had the option of taking up video surveillance / live portal for some records for a portion of auditing and inspection it could provide a huge cost saving.

Auditors, vets, potentially even from overseas could log on to see the performance of the plant in real time rather than relying on an audit where everything is staged.
On any representative committees the processor members are well funded and the three major processors are able to provide highly paid executive members who sit on multiple industry committees.

Generally they are highly effective lobbyists, cattle producers, on the other hand do not have the resources, members are often farmers who volunteer their time to be representatives.

The lobbying strength of the major processors is evident even in the submissions put to this inquiry.
JBS have obviously lobbied several local councils to provide submissions that are little else than testimonials to JBS.

The industry has recently commissioned a review of the beef language, however the current committee (with its sole cattle producer representative) will be presiding over the outcome.
Recommendation: • • • • Development of a new and comprehensive code of practise for OTH trading with particular focus on methods of dispute resolution Ensure that producer representation in Ausmeat is at least equal to that of the post farm gate representation.

A committee should sit as a species specific.

A pork producer should not have to have the knowledge to vote on a beef issue and vica versa.
Implement virtual live access for producers to real time carcass grading Implement video surveillance from point of delivery to point of price application to ensure contestability and adherence to the code of practise.

Allow flexibility and modernisation of cutting lines and descriptions.
Ausmeat should exist to ensure that beef language is true and backed by an auditable standard rather than existing to restrict the use of innovation and delivering Effect of market consolidation on the red meat processing sectorSubmission 80 • customers what they want.
impede trade between a supplier and a customer where: The language should be sufficiently flexible to not • • There is adequate physiological description to clearly identify the relevant muscles, cutting lines, points of specification and inclusions or exclusions There is written agreement of the description There is not intent to mislead consumers.
Standard Carcase Trim W Hall Integrated Marketing Systems : “Aus-meat has adopted a standard carcass definition for beef that removes much of the unwanted material (of insignificant commercial value) prior to weighing, on the assumption that competition between abattoirs ensures producers will be paid equitably” 8 It is our belief that the current standard carcass trim far exceeds the intent of the original definition.

Our grain fed steers currently average less than 52% dressed yield.
The dressing percentage of our cattle has declined significantly over time.

It is our belief that the changes made to the definition in 2010 with respect to the flanks and hygiene trim have been detrimental to producers.

The MLA Co- Product compendium and the CSIRO Meat Research Report 2/92 “By product yields from sheep and cattle” W.F.

Spooncer both showed standard carcass trim accounting for approx.. 4.6% of the live animal with a resulting carcass yield of 58%.
7 predominantly • • • • Trimming of the carcass in conjunction with fat penalties is “double dipping”.

Currently the topside and brisket are able to be trimmed down “insignificant commercial value” to 10mm.

Body fat is now selling for $2/kg into China, hardly a product of given that last year cow grids were $2.70/kg for the entire carcase.

At the same time the plant is able to discount for excessive fat and then trim it off before the scales.
There are significant processor influence on the level of hygiene trimming required: Faster chain speeds result in increased paunch contamination, Halal slaughter, increased concerns for E-Coli from markets and hide puller damage all have a considerable effect on trimming levels.

These are all the result of processor inputs.

Chain speed, slaughter method, level of staff skill and training can add value to the carcase or reduce cost, however they are unable to be mitigated by the producer.
Simply trimming at producer expense does not encourage improved slaughtering practices or maximisation of carcase value.

Competition and independent oversight has been reduced Our producer colleagues in the USA are receiving payment on an additional 10% yield from the same animal being processed by the same two companies (JBS & Cargill).

The difference in standard carcase yield between Australia and the US.
Effect of market consolidation on the red meat processing sectorSubmission 80 Recommendation : That carcass weight be established based upon a USDA standard.

Transparency Our industry is less transparent than that of our overseas competitors.

The current inquiry into transparency commissioned by Cattle Council will find it hard to reach a conclusion.
Australia cannot implement a pricing indicator, like the stockyard and packers act of the USA because we do not have a uniform description of our product, like prime or choice against which to base a comparison.

Whilst Australia relies on dentition as a primary product descriptor for the majority of product produced we are unable to compare pricing of similar products.

We feel at a minimum a companies of the size of JBS and Cargill should be reporting Australia specific financial results in this country.
• • • • Reporting of Australia specific results should be mandatory for all multi- national companies operating in processing in Australia.

These results should include gross revenue and kg’s produced A reporting of numbers of cattle on feed by processors to monitor the captive supply of cattle processed.

This initiative has the potential to increase revenue for the Australian government in taxation revenue and gross domestic product by discouraging price transfer.
Market Access A profitable industry requires profitable and competitive processors.

Regulatory settings must provide for the most competitive processing sector that we can.

It has been universally recognised that technical barriers to trade are increasing and have a large effect on profitability, productivity and market access.

We feel Australia requires a simplified market access regime instead of the many varied and consistently changing market access protocols that exporters are required to negotiate.
Australia has developed the highest food safety standards and levels of regulation however we have been unable to negotiate improved outcomes for market access from this basis.

The EU and China both require in country plant inspections demonstrating little trust in our systems.

Recommendation: • • Australia develop or update an “Australian gold standard export” protocol that delivers on requirements of our major trading partners without the need for consistently changing packing, labelling etc.
Product will then easily be able to redirect between markets.

Development of an electronic export label that is able to be read in multiple countries.

A QR Code or Bar Code or other electronically decoded symbol that gives the language for the country where it is read or other specific requirements for example expiry date.

Effect of market consolidation on the red meat processing sectorSubmission 80 • • 1.

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DOA to become the sole HALAL certifying body Ensuring that we utilise the most preferred nation clause in FTA’s with respect to technical barriers to trade.

Like many other WTO Agreements, the TBT Agreement includes the GATT's Most Favoured Nation (MFN) and national treatment obligations.
Article 2.1 of the Agreement states that “in respect of their technical regulations, products imported from the territory of any Member be accorded treatment no less favourable than that accorded to like products of national origin and to like products 9 originating in any other country”.

In the USA there appears to be little evidence of internal labeling of export product.
Internal labeling is very costly, particularly to small operators as product that does not neatly fit into a container has to be reworked for another country.
Top 25 Red meat processors 2007 www.mla.com.au/files/b885ee9b- dbf9.../2007-Top-25-Processors.pdf Beef Prices surge as global demand grows http://www.agweb.com/article/beef-prices-surge-as-global-demand- grows-blmg/ World Cattle Inventory http://beef2live.com/story-world-cattle- inventory-1960-2014-130-111523 1996 Qld Govt Hansard closure of Queensland Abattoir Corporation http://www.parliament.qld.gov.au/documents/hansard/1996/961114ha .pdf www.centralhighlands.qld.gov.au/meat-processing-plant-feasibility- study Reform of the Australian Beef Cattle Market http://www.meatupdate.csiro.au/data/Meat_88_07.pdf Standard Carcase Trim https://www.ausmeat.com.au/Advices/advice0510.pdf Development of Ausmeat http://www.meatupdate.csiro.au/data/Meat_88_02.pdf https://www.wto.org/english/tratop_e/tbt_e/tbt_info_e.htm Effect of market consolidation on the red meat processing sectorSubmission 80