Industry changes and support for reform
The red meat industry, and in particular the grass-fed cattle sector, has
undergone significant change since the original 1997–98 reforms upon which the
current levy systems and red meat industry structures are based. This chapter
considers whether the structures that underpin the grass-fed cattle levy, and
wider red meat industry, continue to serve the purpose for which they were originally
intended in light of these substantial changes.
Context of the inquiry
This inquiry was established in the context of continuing and
significant falls in real cattle prices and producer profitability. Evidence to
the committee highlighted the importance of the inquiry to the grass-fed cattle
sector, given the increasing challenges both the sector and wider red meat
industry are currently facing.
Many such challenges were not evident when the current levy structures
were put in place. These challenges include the appreciation of the Australian
dollar, consolidation of the agricultural industry (with increasing domestic
concentration of supermarket and processing power), declining farmer
populations and SFO memberships, increasing reliance on feed-lot production,
and the unsustainable fall in cattle prices and profitability resulting in increased
The industry is faced with these challenges while also operating in an
increasingly globally competitive environment which continues to experience
declining terms of trade. These challenges brought into sharp focus the
importance of effective grass-fed cattle industry organisational structures.
These structures should meet the collective needs of the sector in the current
economic environment, enable it to address the problem of farm gate return, and
capture opportunities in marketing and R&D.
Intent of the 1997–98 reforms
The 1997–98 industry structure arrangements were designed to provide
industry with greater responsibility to run its affairs and to move it towards
a less government regulated environment. The key elements of the reforms were
designed to enable collectively funded meat and livestock industry programs to
be delivered more effectively, and to facilitate a more internationally
competitive red meat industry in Australia.
The 1996 steering committee and task force, established to advise the
government on the 1997–98 reforms, found that market and industry circumstances
had changed since the establishment of the then Meat and Live-stock Industry
Act 1995 and that there was need for adjustment to deliver what industry
required for the future.
The task force recognised the growing sense of distance amongst
stakeholders who were disengaged. It emphasised that 'representation and
involved ownership is necessary to achieve the essential participation of the
industry itself'. It also suggested that significant savings could be achieved
by changing the current structures and levy-funded functions and making the
provision of services fully contestable and transparent to industry
stakeholders. To address this and other industry challenges, it made a series
of recommendations including the provision of separate sheep and beef levy
funded marketing and R&D corporations, which included both producers and
processors. It also recommended that the corporations adopt a two-register
voting and direct election system.
However, ultimately three corporations were established with the red
meat levy funded producer marketing and R&D corporation (MLA), a separate
processor corporation (AMPC) and live export corporation (LiveCorp). Under this
structure, MLA, AMPC and LiveCorp were incorporated as companies limited by
guarantee and linked under the current red meat industry structure along with
the various sector PICs, CCA, SCA, ALFA and AMIC under the MOU.
It was argued in evidence that when the task force recommendations
pertaining to accountability (including voting and board selection, as well as
the structural division between industry sectors) were not implemented, the
accountability and transparency aspirations underpinning the reforms were lost.
The task force noted how the red meat industry levy funded structures
had evolved over the decades and that each stage in the process had been
preceded by a review. Australian Meat Producers Group and Concerned Cattle
Producers (AMPG/CCP) emphasised the point that each review had been triggered
by changing market, industry and policy circumstances which tended to
demonstrate that non-profit statutory structures with multiple stakeholders do
not adapt on their own accord. The task force had noted that, by their nature,
each stage of reform tended to be reactive. In the absence of free market
operations, it recognised that the challenge was to develop the most flexible
and responsive levy based structure to meet industry and market circumstances.
During the second reading speech on the AMLI bill, then Minister for
Primary Industries and Energy, the Hon Mr John Anderson, made the point that
the arrangements under the legislation would increase efficiency and
competitiveness in structuring the industry to continue as a world leader. He
noted that the AMLI legislation was the final step towards empowering the
industry by providing it with a structure that offers ownership and management
of its own affairs.
While recognising that full consensus was not possible across an
industry as diverse as the red meat industry, Mr Anderson identified the issues
upon which there was broad agreement, namely:
need for a non-government, commercially based organisation;
necessity for industry to manage its own affairs;
a more hard-headed approach to how levy-payer moneys are spent;
separately accountable beef and sheep-meat marketing and
promotion divisions and separately accountable research and development
divisions within a commercially based organisation.
Mr Anderson also noted that the bill was designed to free the industry
from legislative constraints imposed upon statutory bodies and provide for a
new, privately owned structure that would allow industry to take steps towards:
enhancing industry's capacity to determine and address areas of
progressive implementation and facilitation of future industry
agreed structural and other reforms;
minimising government intervention while at the same time
ensuring continuing and appropriate representation, governance, accountability
and crises management arrangements; and
providing clear ownership by levy payers and non-statutory
contributors, and appropriate participation in decision making processes and
Furthermore, the Minister noted that the arrangements proposed in the
legislation would empower the industry peak councils to take a leadership role.
He highlighted that PICs carry responsibility for decisions on levels of levies
and non-statutory funding for the new service delivery company. He also argued
that to be able to effectively carry out the new responsibilities, PICs would
need to be 'adequately funded' so that they have access to the professional
Many submitters to the inquiry expressed the view that the current
structures and systems – including MLA and industry bodies – were due for
review and reform in order to effectively provide the collectively commercial
outcomes required by the red meat industry in the current decade.
Changes effecting the industry since the 1997–98 reforms
It is fifteen years since the current red meat industry structures and
systems were put in place. Since that time, the environment in which the
industry – and in particular the grass-fed cattle sector – operates has changed
enormously. This is a consequence of several factors, including vertical
integration, market share and extended feed-lotting.
Economic uncertainty associated with the global financial
crisis, rising competition from other protein sources and from overseas beef
exporters, along with environmental and animal welfare challenges have
collectively placed intense pressure on industry organisations, levy payers and
value chain firms to adapt.
Increased challenges faced by the industry include the declining number
of farmers (a fall of 11 per cent from 176,700 in 2006 to 157,000 in 2011) and an
even faster decline in SFO membership.
RMAC noted that the dramatic physical, social, economic and environmental
changes that had taken place since 1997–98 amounted to significant
transformation to the sectors that the structures were designed to serve. In
the context of these changes and challenges, RMAC observed that:
It would be very rare that any representative (or even
corporate) structure that was designed nearly 20 years ago could – in the
absence of some level of reform – continue to serve its customers with optimal
The structures and systems pertaining to other rural industries such as
pork, wool, grain, dairy and horticulture were reformed from the late 1990s in
response to the changing economic and market environment.
However, no such reform has taken place in the red meat industry.
Concentration and consolidation
In a five year period between 1987 and 1992, the percentage of beef sold
on the domestic market through supermarkets rose from 20 per cent to 35 per
Today, the four supermarket chains, Woolworths, Coles, IGA and ALDI, along with
other minor supermarkets, control up to 78.6 per cent of Australia's domestic
Noting that cattle producers are price takers rather than price setters,
the point was made that the beef industry is massively concentrated, with these
few corporations setting the terms and conditions for the domestic market.
Under these circumstances, the options for selling into the retail sector have
contracted markedly while the power of the supermarkets has consolidated the
retail channels for red meat sales.
It was noted that retailers can be 'relied upon to resist anything that would
lead to higher cattle prices, their main input cost'.
The trend towards greater concentration in the retail sector is mirrored
in the processing sector. The future of single plant processors such as Primo
at Scone and the Northern Co-operative at Casino remain uncertain, with the
real prospect of a future form of amalgamation.
In 1998, there were 215 meat processing facilities (abattoirs) around the
country whereas now there are no more than 157.
The 157 meat processing facilities represent more than 97 per cent of
Australia's red meat processing capacity.
The five largest processors now account for some 54 per cent of the national
sheep and cattle killed compared to 28 per cent of the national cattle killed in
The top 25 processors contribute 80 per cent of the processor levy and of them,
the top five would contribute up to 60 per cent.
It should be noted, moreover, that up to 80 per cent of the beef product that
the AMPC membership process is grass-fed.
Australian Beef Association (ABA) explained that the industry is
characterised by 200,000 producers, 23 million consumers, two retailers with 50
per cent control of the domestic market and five processors (at least three of
which are foreign owned) controlling over 50 per cent of the processing.
Bindaree Beef Australia added that 60 per cent of the export market is
controlled by the world's three largest meat companies, namely JBS,
Teys/Cargill and Nippon.
Mr J.B. Carpenter noted the consequences of this trend:
Every time a processor or retailer is amalgamated, it knocks
out yet another bidder from the market for cattle.
The end result is that there is inadequate competition in the
Diversity of cattle sector
In contrast to the beef (or processor) sector, the cattle (producer)
sector is highly fragmented, comprising thousands of cattle producer families
geographically dispersed across the country. MLA noted that a major contributor
to the prevalence of market failure in the sector was the scale of cattle
enterprises. CCA highlighted the diversity of product coming out of the farm
gate including local trade, the grass-fed cattle market and burger (patties)
animal market. This makes the challenge of establishing a unified approach at
the farm gate, to put pressure on the supply chain, extremely difficult.
The current industry dynamics, and in particular the concentration of
ownership and consolidation within the industry (which has concentrated buying
power in the sale yards and resulted in a lack of competition) were not
characteristic of the industry when MLA was first established.
In contrast to industries such as manufacturing or mining, where large
scale enterprises are of adequate size to realise benefits from investment in
brand marketing and other innovations, the cattle industry has a structure
dominated by small and medium enterprises, particularly in southern Australia.
MLA noted that the enterprise scale presented various challenges for R&D including
investment scale, free-rider, information failure and risk aversion issues.
Free-riding is recognised as a form of market failure because it enables those
who do not contribute to raising revenue for the benefit of the industry to
enjoy the contribution of those who do.
The diversity of scale within the cattle production sector brought to
light the importance of collective cattle transaction levy investments which
provide for long-term strategic industry planning to give Australian beef the
competitive advantage it needs in global markets.
Return at the farm gate and the
costs of production
Evidence provided to the committee from producers across the country indicated
that, in addition to the margin of return at the farm gate remaining stagnant
over time, the percentage of return to the producer in the value chain has
remained relatively low. According to recent research conducted by Bush
AgriBusiness Pty Ltd, Queensland cattle prices have declined by 40 per cent in
real terms since 2001.
The recent Northern beef report found that the majority of northern beef
producers are 'not generating sufficient profits to fund current and future
liabilities'. The report noted that the situation over the last three years was
on average similar to the performance over the previous 12 years.
A substantial number of cattle producers emphasised the point that the
price that they receive for their cattle, in light of the costs of production,
have placed the cattle industry in crisis.
According to ABA, while cattle prices have declined by 30 per cent over the
past decade, producer costs have risen by at least 30 per cent. Producers now
receive about 30 per cent of the consumer dollar spent on beef (compared to 50
per cent for US farmers and 40 per cent for New Zealand farmers).
Put another way, for every $10 spent by a consumer in Australia, the producer
gets back $3, while in the US, the producer receives $5.
According to Keough Cattle Company, grass-fed cattle prices have
declined every year by approximately 40 per cent from 1998 to January 2014.
Mrs Lasca Greenhill argued that MLA has spent $1.6 million in levies on
initiatives like advertising campaigns, which have benefited the supermarkets
and multinationals, while domestic beef consumption continues to fall, and
cattle prices are the same as 30 years ago.
Mrs Greenhill's observations, and the views of Keough Cattle Company, captured
the sentiment of many producers who gave evidence to the inquiry.
Mr Joe Moore observed that producers were getting $1 per kilogram in
1978 and that while cattle numbers have remained steady since then (at around
28 million), cattle was sold all over Queensland in 2013 at well under $1 per
Producer Mr David Gregory made the point that across major international
beef producing nations, Australian beef producers receive among the lowest farm
gate prices for their product. He argued that Australian farm gate prices are
similar to some South American beef producing nations which generally have a
lower quality product.
Estimates suggest that the cattle producers' share of the average retail
price for beef in Australia is approximately 26.5 per cent.
By way of comparison, cattle producers' share of the average retail price in
the US was 49.4 per cent over 2010–12.
ABA held that the low return to the producer suggests that every dollar spent
on the cattle transaction levy is delivering less than a third its value to the
It was highlighted in evidence that in Australia, competition is disproportionately
in favour of the beef sector rather than cattle sector.
The point was made that once a beast is sold by a primary producer, its
purchase price rises dramatically. Producer Mrs Dale Knuth explained:
We breed, feed and keep healthy these cattle from anywhere
from two to four years before they are marketed and within a short space of
time their purchase price goes from approximately $1.60/80 (if you strike a
good sale) to the very high amount we see on the meat in the retailers displays
The majority of grass-fed cattle producers who provided evidence to the
inquiry emphasised the difficult financial situation that they currently face.
Mr Peter and Ms Catherine White posed the question of how it was possible to
stay viable in the industry when running costs have doubled in the last ten
years while cattle prices have halved.
Mr Rob Atkinson noted that while farm-gate returns in Australia have been poor
over the past decade, they have been woeful for the last two years despite the
fact that the world beef price has been very strong and most recently, at
Ms Jacqueline Curley noted that 2013 racked up both the highest meat export
figures and some of the lowest producer returns.
Domestic consumption of beef
According to the Keough Cattle Company, beef consumption has declined by
1.4 per cent annually for the past 13 years.
At 41.3 kg per person in 1997, domestic consumption of beef on a per capita
basis fell to 32.8 kg per person in 2012–13.
It was argued that the investment of $210 million in Meat Standards
Australia (MSA) has not halted the decline in domestic consumption.
Producers asked where this money was going, and why they were not seeing improvements
in farm-gate prices as a flow on effect of MLA's marketing and R&D
CCA argued that the decline in domestic consumption in Australia was a
trend consistent with the rest of the developing world.
One of the reasons for this trend is that the Australian domestic market
encompasses an ageing population and people who have migrated from countries
with low red meat consumption rates. For these reasons, CCA argued that the
growth and opportunity to increase the value of the Australian beef industry is
in the international market.
MLA confirmed that domestic beef consumption amounted to 32.5 kg per
person in 2012–13.
However, it argued that the total value of the domestic market – which remains
the largest single global market for Australian beef – has been relatively
stable in recent years, with approximately $6.6 billion in annual retail sales.
MLA's domestic marketing initiatives are aimed at maintaining strong
consumer perceptions and preference for beef and to promote the nutritional
value of beef. Most of the MLA marketing spend in the domestic market is
focused on generic advertising.
During 2012–13, MLA invested $10.2 million in beef domestic marketing,
including $9.2 million in producer levy funds and $1 million in processor
MLA noted that the domestic market had been sluggish for the past five
years commencing with the tightening of household spending in 2007 resulting
from rises in other household costs and the impact on consumer confidence of
the global financial crisis from the second half of 2008. According to MLA's 2012–13
annual report, the volume of beef consumed domestically had increased to
743,750 tonnes (cents per kilogram carcase weight or cwt) from 705,630 tonnes
cwt in 2011–12 and 742,230 tonnes cwt in 2010–11.
Evidence to the committee in relation to MLA domestic marketing
highlighted the disparate views of MLA compared to those of producers. The fundamental
challenge for producers is that of increasing returns at the farm gate. The
view of many producers who gave evidence to the committee was that the focus of
levy investment had shifted away from achieving this outcome and the
profitability of levy payers more generally.
These matters are considered in the next chapter of this report.
Export sale of beef and opening and
MLA noted that while domestic consumers still make up Australia's single
largest market, more than two-thirds of all beef production is exported to
approximately 100 countries. However, maintaining international competitiveness
is a critical challenge.
MLA argued that despite a high Australian dollar and global economic challenges
in major developed economies, international demand for Australian beef has
grown significantly in recent years, with total beef export values of $5.1
billion in 2012–13.
Over the past ten years, Australia's beef exports have grown from 840,000
tonnes to 1.1 million tonnes.
MLA also explained that Australia is a relatively high cost beef
producer. Input costs (including labour) as well as off-farm costs in
processing and transport remain significantly higher than those of other
exporting nations including Brazil, the United States (US) and India.
Mr Geoff Pearson, Meat Council Representative, Western Australian Farmers
Federation (WAFF) detailed the slaughtering and processing costs per animal in
Indonesia, America, Brazil and Australia:
The cost...in Indonesia for a kill and bone is $5 to $8. The cost
of production in Australia for a process and bone is around $180. In America it
would be more like about $80. In Brazil it would be more like about $40 to $50.
MLA explained that sustaining growth in sales in overseas markets
requires differentiating Australian beef amongst consumers and retailers as a
high quality, safe and delicious product and, just as importantly, maintaining
trade access to Australia's main overseas customers.
WAFF's Mr Pearson explained that as the WA market was heavily domestically
driven, overseas markets were fundamental to sustainability in WA and would
provide producers with choices beyond the two multinationals.
The question that arose in this context is the extent to which the
expansion of markets will actually provide a greater return for the producer at
the farm gate. Mr Stephen Kelly, Chairman of AMPC, argued that market access
was one of the most critical aspects of generating returns back to the producer
sector. He stated that the more markets 'we can sell into, the greater the
chance we can extract the best return'.
However, many producers disagreed. Mr Sergio Beani noted that 2013 was a
record year for beef exports from Australia. He argued that new markets in
China and Russia, along with the free trade agreements with Korea, will
increase the profits of processors and exporters. However, there is currently
no mechanism to ensure that any further expansion (and therefore profits) will
be passed on to the producer.
Concerns with the current structure and levy system
The significant structural changes that have occurred in the industry
since the 1997–98 reforms brought into question the effectiveness of the
current levy system in meeting the collective needs of the cattle industry. It
was noted in evidence that the lack of competition brought about by the
concentration and consolidation of industry sectors were not issues of concern
when the levy system and respective structures came into effect, but that this
had changed over time.
Vertical integration is one such significant change which the current
system does not take account of. The concentration of retailers and processors
is contrasted by the diverse and disparate nature of the producer sector which
is charactered by declining numbers and disproportionately low returns at the
Many producers made the point that they were led to believe that by
paying the CTL they could reasonably expect some return on their investment in
the future. Yet, as detailed in this chapter, since the compulsory levy was
increased to $5 per head, farm gate prices have remained stagnant or have dropped.
Mr Rod Dunbar argued that low cattle prices are the result, not of
market failure, but rather system failure. He argued that the regulation and
control regime (which is enforced by a system dominated by the processor
sector) is destroying the grass-fed cattle industry.
Noting that processors contribute six per cent of MLA's revenue, together with
50 percent of the processor industry levy, ABA argued that under the current
structure, processors and retailers benefit the most from MLA marketing and research
but don't contribute to MLA's upkeep.
The committee received considerable evidence about the low return to
cattle producers, the need to achieve a fairer return in the value chain and
the extent to which movements in farm-gate prices are set by supply and demand
in competitive markets. Underlying these concerns rests the issue of whether
the levy systems and industry structures in place, have actually caused the
distortion in relation to the return to producers, or have reinforced it.
Pastoralists and Graziers Association of Western Australia (PGA)
explained that while there is a diversity of views regarding the CTL, the root
cause of the dissonance is the ongoing reduction in industry profitability. Indeed,
some submitters argued that the measure of whether MLA research and marketing
had yielded commercial benefit to cattle producers was whether domestic
consumption had increased along with returns at the farm gate.
PGA confirmed that input costs have gradually risen over the last 30 years,
leading to an erosion of profit margins for those who do not adopt new
technology and adapt to changing market conditions. It argued that given such
circumstances, there is little wonder that some producers are seeking to
further reduce input costs by reviewing beef levies.
MLA raised the point that the additional $1.50 levy for marketing
introduced in 2009, resulted in an increase in cattle prices by 1.8 per cent.
However, a number of submitters argued that since 1998, producers have provided
more than $1 billion to MLA in levy revenue, while returns to producers
continue to decline. Yet, MLA emphasised that it has no control over farm-gate
prices. While MLA's marketing and R&D programs are 'designed to deliver
strong returns back to the farm gate', MLA Chair, Dr Michele Allan explained
Through our R&D we can affect the cost on farm, the
productivity of animals and the pastures. What we cannot control is the kill
numbers...last year was the biggest kill of beef cattle in this country since
1975. If all those animals are lined up at the processor door, the processor
can call the price. That is supply and demand.
The disparate views put to the committee were representative of the
growing division between MLA as service provider and producers brought about by
a lack of producer engagement in relation to marketing as well as more
generally in relation to levy investment decisions. A 2010 review of MLA
recommended that it consider revising its approach to planning domestic
marketing activities. Suggestions included longer term marketing plans for each
species, an examination of how stakeholders are involved in the planning
process and opportunities to streamline annual planning activities.
Evidence to the committee also highlighted the inflexibility of the CTL which
stands at a set rate of $5 regardless of the sale price of a beast. For
example, it was pointed out that the $5 levy amounted to 25 per cent of what
some producers have received for their cattle.
A number of submitters argued that they could see no visible return for the
levy cost to grass-fed cattle producers and voiced frustration that during
periods of difficulty (such as drought when cattle is transacted at below
production costs), it still attracts the $5 CTL.
As an alternative, some submitters argued that the levy rate should be a
percentage of the value of the beast at the point of sale with a minimum price
set for each beast.
A rate of 0.05 per cent of the gross price – which would be $5 for every $1000
– was suggested as one such option.
Victorian Farmers Federation (VFF) argued that an investigation should be
considered into a more dynamic fee structure which could be based on a
percentage of the animal value, similar to the current sheep and lamb levy
MLA noted that the drought that affected most cattle production areas
had forced many producers to sell in an overstocked marketplace, which had
resulted in the highest turnoff of cattle since 1998. MLA stated that, for
these reasons, the current conditions are difficult for producers. However, the
fundamentals of the industry were strong.
It emphasised that prices are determined by the relative forces of supply and
Yet, it also acknowledged that the producer's share of the retail dollar – of
25 to 30 per cent – was low, and considerably less than in the US.
The changing industry dynamics detailed in this chapter have placed
pressures on its institutional arrangements and the structures upon which the
levy system is based. Such changes have brought to the fore questions regarding
the imposition, objective and use of the CTL and the efficacy of the
organisations and bodies responsible to invest levy funds on behalf of
producers and represent their collective needs both now and into the future. The
extent to which decision-making processes within MLA and its voting structure
have resulted in levy payers becoming disconnected from levy investment
decisions is the subject of the following chapter.
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