Squeeze costs from our businesses: Beef processors

Regulatory burden is severely impeding the ability of Australian beef processors and exporters to remain globally competitive, a new independent study on the sector has identified.

The SG Heilbron investigation into the sector, commissioned by the Australian Meat Processing Corporation (AMPC), found along with exchange rate fluctuations and market access, regulatory costs were a key sell side risk for businesses.

The cost to red meat processors for export meat inspection and certification now exceeds $85 million a year, it found.

In addition, some inspection functions have been transferred slowly back to processor management and these cost processors another $35 to $40m a year to run.

“In an environment where buying, making and selling beef is complex and risky, where profitability is highly variable, and competition in selling internationally is heavily influenced by access to markets, uneconomic cost imposts undermine the competitiveness of the industry,” report author Dr Selwyn Heilbron said.

General manager of Oakey Beef Exports in Queensland Pat Gleeson said it costs $320 a head to process an animal in Australia, compared to $140 in the United States and $90 in Brazil.

“Payroll tax is a huge bill for us and our competitors do not have to contend with that.

“Yet we have to match them on the shelf.”

Chief executive officer of the Northern Co-operative Meat Company at Casino Simon Stahl said it was accepted in the processing industry that to have access to world markets there must be government involvement.

“Many of the countries we compete with subsidise that requirement,” he said.

Much of the regulatory burden surrounded auditing and inspection for export licences and there was ‘enormous overlap’ in that process, abattoir managers said.

Mr Stahl said the NCMC’s internal quality assurance team was now tied up with 80 to 90 days of auditing per year.

Both processor bosses said the SG Heilbron report’s finding that livestock prices were purely the result of supply and demand were on the mark.

“What is disappointing in our industry is that when one sector is doing it tough, there is a tendency to blame other parts of the supply chain,” Mr Stahl said.

The SG Heilbron report was commissioned to contribute evidence-based discussion to the current Australian Competition and Consumer cattle and beef market study.

AMPC chairman Peter Noble said his organisation supported a competition policy that accounted for the market unpredictability and the cost pressures on each supply chain participant.

“Industry concerns have recently focused on the level of competition in the system which is missing the point,” he said.

“Meat processors cannot control the price at which they can purchase livestock and their costs are well above their international competitors.

“To remain profitable they need to innovate and develop an operating model that delivers economies of scale.

“Meat processing is risky and profitability across the supply chain is highly variable.

“Processors have been leading the way with innovation in order to counter economic pressures and enhance processing technologies while at the same time driving increased demand for high quality Australian beef internationally.”

- Around 71,000 beef cattle producers in Australia. Around 55 per cent of all Australian farms carry beef cattle. These farms manage more than 75 per cent of the total agricultural land in Australia.

- Around 450 accredited beef cattle feedlots in Australia.

- Some large beef processors have some part of their slaughter sourced from their own feedlots to gain greater control over cattle supplies, product quality and cost pressures. However, vertically integrated supply accounts for a relatively minor proportion of their total cattle requirements.

-  124 meat processors members of AMPC operate 150 meat processing facilities, which process a range of species and account for more than 97 per cent of Australia’s red meat processing capacity.