Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697636896417.pdf (Australia)
Effect of market consolidation on the red meat processing sector Submission by the Carroll Family, beef producers in Mudgegonga, North East Victoria.
30 June 2015 About Us Julian Carroll: Author of this submission, 4th Generation on the family farm, President of Mudgegonga Landcare Group John Carroll: 3rd Generation farmer, Former Shire President of Myrtleford Shire Council Julie Carroll: Former Mayor of Alpine Shire Enterprise: Self Replacing Angus herd ­ 350 breeders 510 ha (owned and leased) Primary market ­ EU feeder steers Secondary market ­ MSA grass­fed surplus females Angus Stud ­ Black Star Angus ­ 50 breeders Location: Mudgegonga is 50km south of Wodonga near the town of Myrtleford Effect of market consolidation on the red meat processing sectorSubmission 48 Contents Introduction Key Concerns Impact of the red­meat processor consolidation Geographical Monopolies Selling structures and processes at saleyards Saleyards setting the pricing benchmark Misuse of market power through buyer collusion Post­weighing at yards More about Post­weighing Cost of pre­weighing to the processor The costs of post­weighing to the industry Less information at the sale Adverse effect on animal welfare and meat quality An alternative to post­weighing Summary Appendix 1: Medium Cow Indicator compared to the 90CL Export Indicator 1 Effect of market consolidation on the red meat processing sectorSubmission 48 Introduction Our family is concerned about the diminishing returns producers have endured in recent times from the beef processing sector.
We acknowledge that the free market is driven by the forces of supply and demand and that in recent years the widespread drought in northern Australia has produced an oversupply of cattle to the market.

We also recognise that processors’ first priority is to maximise profits.

However, this oversupply occurred during a period of seemingly limitless demand and unprecedented high prices in the export market.
If the free market was working effectively, the strong demand for Australian beef should have compensated the widespread sell off of northern cattle.

A lack of competition in the marketplace has been exacerbated by the behaviour of the processors, commission buyers and saleyard operators.

When the market does not work freely, it is the responsibility of the government to regulate it.

It appears that the oversupply of cattle is finally waning and prices are improving.
While they are at nominal all time highs, they are still lower than 1980 prices in real terms.

We can only hope that the supply pressure forces change in the industry by requiring truer competitive behaviour amongst the buyers of our cattle.

However, the processing companies have demonstrated that they are not good corporate citizens and we can assume they will fall back into their anti­competitive behaviour when the supply and demand pendulum swings back in their favour.
1 Last week, on the invitation of our local Member of Parliament Cathy McGowan, myself and two neighbouring farmers visited Canberra to meet with with Senators the Hon Bill Heffernan, Glenn Sterle, Members of Parliament John Cobb, Joel Fitzgibbon (Shadow Minister for Agriculture), and Andrew Henderson (advisor to Minister for Agriculture, Barnaby Joyce).

Everyone we met with understood and seemed to share our concerns about the red meat processing sector.
However we were disappointed to learn that the seven recommendations from the senate inquiry into levies on grass­fed cattle meaningful producer representation is partly responsible for the unchecked power the processing sector has amassed.

are unlikely to be implemented in their entirety.


We feel the void in ​ Industry structures and systems governing ​ We urge the the Senators involved in this enquiry to look for opportunities to make positive recommendations for our industry and to hold the government of the day accountable for implementing change.
1 Meat and Livestock Australia, March 2015, The history of Australian cattle prices since 1970 2 Effect of market consolidation on the red meat processing sectorSubmission 48 Key Concerns While not the only problems in our industry, our enterprise is most impacted by the following concerns.
Impact of the red-meat processor consolidation Geographical Monopolies At first glance there appears to be a healthy number of processors nation wide, the geographical distribution of the processors means that in reality, many beef producers have only one option before the cost of freight makes it uneconomical to look further afield.

Cow Example: For us to send cows to Melbourne rather than Wodonga adds $24/head in transport costs or 4 cents/kg (liveweight).
Steer Example: Our best market for steers is to an EU accredited feedlot.

We have two buyers operating in this market: JBS at Yanco (251kms) and Rangers Valley at Glen Innes (1100kms).

That equates to minimum difference in transport cost of 13 cents/kg (liveweight) between the two buyers, not to mention extra weight loss associated with the greater transport distance, not to mention welfare concerns.
Note that those calculations are based on a full B­Double truck at $5/km which represents maximum possible efficiency.

Smaller producers selling smaller numbers of cattle would pay much more.

Transport costs for northern producers evaluating much greater distances between processors would see a far greater impact.

We rarely see much more than 5 cents/kg (lwt) variation in price between processors as their prices are generally well aligned.
Selling structures and processes at saleyards Saleyards setting the pricing benchmark Only 30% of cattle traded in Australia are sold at a saleyard while 70% go direct for an undisclosed price.

It is problematic that our market reports and pricing benchmark indicators such as the Eastern Young Cattle Indicator (EYCI) are based on the smaller and cheaper sample of the market as these are our only reference point for prices.
We hope that the current Meat and Livestock Australia (MLA) research into greater transparency in reporting is eventually released and reporting systems with greater coverage are implemented.

3 Effect of market consolidation on the red meat processing sectorSubmission 48 Misuse of market power through buyer collusion It is at the saleyards that we see the worst from the processing sector.
We have seen commission buyers dominating sales at Northern Victorian Livestock Exchange (NVLX) for years and apparently it happens at many other selling centres.

While the commission buyers are certainly not subtle about working alongside each other, sadly, we do not think the ACCC will find enough hard evidence to prosecute them for collusion.

That does not mean we should allow it to continue.
Examples we have heard about include: ● A single buyer operating on behalf of 10 processors ● A commission buyer telling a restocker he could buy cattle cheaper through him ● Trying to distract a restocker in the midst of bidding on cattle ● Boycotting a single agent that complains about their behaviour and then resuming bidding when the next agent starts ● Spending most of the week together, in the lanes, in the cafeteria, and car pooling Post-weighing at yards The processors, accustomed to getting their own way, have been changing the practice at saleyards across the country, one at a time, to post­weighing.
Geoff Teys issued the ultimatum to the new owners of NVLX: “Our company told them a year or more ago, when they were just starting to build the yards, that we would not buy at the sale, under a pre­weigh system.” 2 The market could probably have coped with one company acting in isolation.

However, when many other processors joined the boycott, we saw a 20­30 cent drop and many pens not sold.

This bullying behaviour was the final straw for most beef producers and the catalyst for this senate enquiry.
Post­weighing is a very crude and unnecessary solution to the processors’ concerns about variability in dressing percentages.

This submission explores this topic further in the following pages.

2 http://www.beefcentral.com/markets/processors­shun­new­wodonga­yards­over­pre­weigh­policy/ 4 Effect of market consolidation on the red meat processing sectorSubmission 48 More about Post-weighing The processors complain about the variable dressing percentage that occurs with pre­weighing.
Dressing percentage describes the difference between the carcass weight and the liveweight.

Cost of pre-weighing to the processor To put it into perspective, the following example demonstrates the cost of this variability to the processor.

A processor pays $1,000 for a pre­weighed 500kg cow.

The following table uses the range in dressing percentages claimed by the processors and compares the midpoint to a moderated low of 52% and a high of 55%.
Low dressing 52% Average dressing 53.5% High dressing 55% Carcass weight 260 kg $/kg carcass weight $3.85 267.5 kg $3.74 275 kg $3.64 Effect on processor Dearer by $0.11c/kg (cwt) $27.60 head The amount he is happy to pay.
Cheaper by $0.10 c/kg (cwt) $28.50 head Figure 1: Effect of Pre­weighing for the processor From this example, it is evident that some of the time the processor will pay 10 cents/kg (cwt) more than he is happy to pay, but some of the time he is getting the carcass for 10 cents/kg (cwt) cheaper than he is happy to pay.

Post­weighing, on the other hand moves that cost on to producers.
This is in an environment where producers are getting paid prices that in real terms are lower than those received in 1980 ­ even with the higher prices of June 2015.

Meanwhile processors are enjoying record margins.

3 The costs of post-weighing to the industry Less information at the sale In the information age it is counter­intuitive to reduce the amount of data available to the market.
Worse than that, it gives the professional buyers an unfair advantage over restockers as they can draw on their experience and better live animal assessment skills to acquire the cattle they want without weights published.

3 See Appendix 1: Medium Cow Indicator compared to 90CL Export Indicator 5 Effect of market consolidation on the red meat processing sectorSubmission 48 It makes it very hard to buy cattle for a tight weight specification when the buyer does not know what they weigh.
It also makes it hard for a seller to ‘no sale’ a result when they don’t actually know how much they will be paid.

Pre­sale weighing is fairer for all parties.

Adverse effect on animal welfare and meat quality Post­weighing lengthens the time cattle are in the stressful saleyard environment.

Producers work hard to produce the best animals they can.
Those of us who produce Meat Standards Australia (MSA) graded cattle are taught: “The long period of care in producing an animal with high eating quality potential is most at risk in the two weeks pre­slaughter and first few hours post slaughter’(MSA03).” 4 An alternative to post-weighing Pen cards have always been available at pre­sale weight auctions to inform the buyer where the cattle came from and what time they were weighed.
This information is enough for a professional buyer to assess what the dressing percentage is likely to be.

This variance in dressing percentage is known and described in the following table produced by the NSW Department of Primary Industries.

5 Time off feed & water Percentage liveweight loss Increased dressing percentage 1 hour 2 hours 4 hours 12 hours 16 hours 1.5% 2.5% 4% 7% 8% 0.75% 1.25% 2% 3.5% 4+% 4 http://www.mla.com.au/files/27eb0a96­d56b­4954­ab0a­a20a007202ce/MSA_TT_BeefInfoKit_Jul13_LR.
pdf 5 http://www.dpi.nsw.gov.au/__data/assets/pdf_file/0006/103992/dressing­percentages­for­cattle.pdf ​ 6 Effect of market consolidation on the red meat processing sectorSubmission 48 It is worth noting that the above table refers to time off feed and water.

This actually starts when the cattle are mustered on the farm.
Pen cards could be improved further by stating (in hours) the difference in the time the cattle were loaded onto the truck and when they were weighed.The time the cattle are loaded is available from the National Vendor Declaration (NVD) which is a legal document.

This information would give an accurate and succinct reference for the buyers to consider when deciding how much they will bid.

Summary When the market does not work freely, it is the responsibility of the government to regulate it.
We appreciate that reducing ‘red tape’ is seen as helpful for business productivity.

However our industry is well accustomed to regulation and is able to successfully navigate it at most points throughout the supply chain.

The procedures at livestock saleyards is one particular aspect that is largely unregulated.
We urge the Senators to consider regulatory measures to: ● Put an end to commission buying ● Establish a national protocol based on pre­weighing and NVD trucking times We also ask that the Senators hold the government accountable for implement change based on the committees recommendations for both this inquiry and the previous inquiry into Industry structures and systems governing levies on grass­fed cattle.
We ask the committee to pressure the MLA to release their findings on systems to improve transparency in market reporting and to pressure the government into implementing the necessary change to deliver mandatory price reporting for direct consignments.

We thank you for taking the time to read our submission.
7 Effect of market consolidation on the red meat processing sectorSubmission 48 Appendix 1: Medium Cow Indicator compared to the 90CL Export Indicator Like the EYCI, the medium cow indicator is a weighted average, calculated daily as a 7 day moving average price, from all National Livestock Reporting Service (NLRS) reported saleyards in NSW, Victoria, SA and Queensland.

It tells us what the average cow price (cents/kg cwt) is at any given time.
The 90CL export indicator tells what price processors are getting for Australian manufacturing beef ­ typically made out of cows.

90% Chemical Lean (90CL) export prices to the US (based on US imported 90CL indicators converted from US¢/lb CIF to A¢/kg FAS using the weekly average exchange rate and freight costs).

6 Comparing the two indicators gives us a picture of what margin processors are making on a very basic, low value­add, product.
For the period from 1998 to 2011, the medium cow indicator averaged 70¢/kg cwt below indicative 90CL prices – coming as close as 5¢ behind during November 2004, and spreading to as much as 127¢ behind in August 2002.

From this we can infer that processors are making a sustainable profit at a margin of 70¢/kg cwt.
Here’s what that margin looks like as an annual average since 2009: 2009: 70 cents 2010: 81 cents 2011: 86 cents 2012: 128 cents 2013: 161 cents 2014: 279 cents Meanwhile the price producers are getting (Medium Cow Price) has flatlined.

In the 2nd half of 2014, the margin was actually greater than the price of the cow.

Data provided by MLA.


6 http://www.mla.com.au/Prices­and­markets/Market­news/Plenty­of­upside­potential­for­cows 8 Effect of market consolidation on the red meat processing sectorSubmission 48