The challenges both US packers and Aussie abattoirs face: AMPC conference

Meat industry consultants with decades of US experience say it is proving far harder to incentivise people to come back to work in a meat plant post the pandemic than was ever anticipated.

Wages have gone up as much as 40 per cent to no avail.

Packers are finding themselves in a never-before-experienced situation where, despite ample access to raw ingredients and the assets to produce beef, they can not operate anywhere near 100 per cent due to an inability to source labour.

US profitability and costing expert Matthew Smith, 3C Software, and chief product officer with meat supply chain business Lumachain Dr Dave McKenna spoke at a key red meat industry conference in Melbourne last week.

They headed up a session on the role of costing in maximising carcase value at the event, organised by the Australian Meat Processor Corporation.

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Mr Smith has a client list including the likes of Tyson, Inghams, Coca Cola and Kellogg's, while Dr McKenna spent many years as a senior food scientist with both Tyson and Cargill.

Labour shortages was the number one micro challenge in US plants at the moment, they said.

"I don't know any processor, across all the species, not in need of labour," Mr Smith told the conference.

"Plants are not running at 100pc just because of that. And this is foreign to us. Labour was the commodity that we assumed would always be there."

Dr McKenna said the 30 to 40pc increase in wages for meat workers since the pandemic had not made a lot of difference.

"During the pandemic, the government assistance meant employees didn't want to come to work if they didn't need to pay a cheque," he said.

"We recognised if we could put compensation in place to make it more worthwhile than the government subsidy we might get more to come in.

"But labour has proven very complex and I don't know that we totally understand everything going on in this space yet."

Dr McKenna said clearly there was a general malaise at working in a meat plant and that was proving far tougher to overcome now.

"Let's face it - it's hard work, it's not glamorous and if you can go work in McDonald's for US $18 an hour, then for some that's a trade-off they'll make, rather than going to a meat plant for $25/hr," he said.

The labour challenge extended far beyond the per-hour worker too, he said.

"We're also seeing a big pretty gap in the management and leadership areas in plants," Dr McKenna said.

"A lot of leadership people in these plants have been around for decades and they are getting ready to retire but there has been a gap in developing talent over the years so others are in a position to take over."

Mr Smith said there had been complete 'night-and-day' career changes during the pandemic in the States and those people were just not coming back to their original work.

While labour shortages were top of the list, there were numerous challenges and related pressures faced by beef processors in both the US and Australia, the speakers said.

On the macro level, product competition, increased regulations and residual pandemic effects were key ones.

"We continue to see more and more non-meat protein alternatives being developed," Mr Smith said.

"While in the grand scheme of things, it is still a very small percentage of consumption, combined with other challenges it is eroding demand for our product."

On the regulation front, he made mention of a case currently before the US Supreme Court, where the state of California is attempting to pass laws imposing regulations on processors who operate in other states but ship meat in.

Californian pork consumption accounts for 13pc of the country's total consumption yet zero pork is produced in the state.

"This idea of reaching into other states to impose restrictions has huge ramifications for our industry," Mr Smith said.

"Industry estimates are an additional US$350 to $500m in cost would be added if these new regulations go ahead."

Dr McKenna said the two other big issues brewing in the US processing business were around water usage and food safety.

"We've had drought for several years now and who has rights to water is becoming a bigger and bigger issue," he said.

"And there are significant regulatory hurdles coming down the pike in terms of food safety, particularly around salmonella. Right now, it's focussed on poultry but it will continue to migrate to beef and lamb."

Inside plants themselves, sourcing ancillary services and goods was proving a big challenge.

"Indirect support maintenance skills in extreme shortage - welders, for example, are six weeks out at least," Mr Smith said.

"These challenges all have one thing in common - they squeeze profit margins, whether it be decreased revenue coming back in or increased costs.

"So the mindset of just producing and hoping it finds a market has to change.

"We need to really know what our costs are and where the margin leakage is so we can control it."

Costing was the primary blood flow in any business and meat processors, both in the US and and in Australia, were paying far more attention to it than had been the case in the past, he said.