Contestability, flexibility and transparency
This chapter considers contestability and efficacy within the red meat
industry levy system, flexibility in relation to cattle transaction levy
allocations as well as transparency in pricing and trade practices.
MLA Donor Company
An MLA wholly-owned subsidiary, the MLA Donor Company Limited (MDC)
facilitates private investments in R&D innovations across the red meat
From 1998, the processing sector and live exporters funded their own
marketing and R&D through a voluntary contribution, which was directed to
MLA as the industry marketing and R&D body. Under the AMLI Act, these two
sectoral bodies, along with the MDC, were recognised as 'approved donor bodies'
for the purposes of attracting matching Commonwealth funding for R&D. The
explanatory memorandum to the legislation noted that declaration of the MDC as
an approved donor (from 1 July 1998) would allow it to act as a 'conduit for
independent funding of approved industry research and development activities
eligible for R&D matching of expenditure'.
The department explained that:
Section 61 of the Australian Meat and Livestock Industry
Act 1997 (the Act) enables the minister to declare donor bodies. Section 66
(1)(b) enables approved donors to have their R&D contributions to MLA
matched by the government. Approved donors are the Australian Meat Processor
Corporation (AMPC) and LiveCorp, who both receive statutory R&D levies, and
the Meat and Livestock Australia (MLA) Donor Company which receives voluntary
contributions. The total R&D matchable expenditure by MLA, through its
direct R&D levy receipts and contributions through the three donor
companies, is subject to the 0.5 percent gross value of production cap.
In 2007, an amendment to the AMLI Act gave effect to the
processing sector's request to introduce statutory levies on the slaughter of
cattle, sheep and goats. As part of legislative changes, levy funds were
directed to AMPC as the processors' service body.
However, the amendment did not affect the existing arrangements for
Commonwealth matching funding, as processing sector R&D funds were still
directed to MLA as the industry research body.
Similarly, in 2004, LiveCorp became a declared marketing and R&D body
for the livestock export industry with compulsory levy funds on livestock
exports directed to LiveCorp. As with the processing sector, matching
Commonwealth funding was provided only where levy funds were directed by
LiveCorp to MLA for R&D purposes. The status of MDC as an approved donor
remained unchanged and it continued to receive funds from private investors for
R&D. Therefore, MLA remained the only industry body eligible to receive
dollar for dollar matching Commonwealth funds for research from industry levies
and funds received from the three declared approved donors.
The fact that the legislative landscape has not kept up with industry
changes provided scope for private companies to double their R&D return
through MDC. AMPC Plant Initiator Projects (PIP) guidelines explain how
companies can achieve this:
AMPC PIP—you can access your funds with AMPC up to 50% of the
total project cost and you fund the rest of the project cost.
MLA PIP—you can access your AMPC funds and then apply through the
MLA Donor Company, which can match your funds dollar for dollar. This means
that you may only pay as little as 25% of the total cost of your research.
In June 2011, newspapers reported that JBS-Swift Australia Chief
Executive, Mr Iain Mars, disclosed that the company had received $2.4 million
in funding, primarily for R&D. Mr Mars, an MLA director from 2009 to 2012, explained
that JBS-Swift contributed $844,000 over the same period, primarily through MDC.
In its 2011–12 annual report, MLA noted that since 1999, MDC had
approved more than 514 contracts worth $205.7 million. During 2011–12, MDC
attracted a total investment of $17.4 million in private and public funds in
red meat industry R&D.
In 2010 alone, MLA (through MDC) received $11 million in donations.
Between June 2008 and December 2009, MLA reported that 30 per cent of its
R&D projects were MDC projects.
At the time, it was noted that four of the country's largest meat processors
including JBS Australia, Nippon, Rockdale and Teys were awarded almost
one-third of AMPC's entire budget for R&D from 2003 to 2008 under its PIP
scheme. The $10 million spent by AMPC on the grants made up 25 per cent of
total expenditure, while MLA contributed a further 50 per cent, but did not
make its expenditure public, citing commercial-in-confidence rules. The
recipient of each grant paid the remaining 25 per cent.
In an answer to a question on notice during the 2010–11 Senate supplementary
estimates round, MLA noted that no producer levies are invested in MDC
contracts. It clarified that while work on contracts is confidential during the
application phase, all approved MDC contracts must have an identified industry
dissemination, adoption and commercialisation pathway.
However, as the operations of MDC are integrated in MLA, both MDC and MLA
report together in a single MLA annual report. Without a separate MDC annual
report, establishing the funding and spending flows in relation to, and between,
MLA and MDC is made extremely difficult.
Efficacy of donor companies
In a submission to the PC review of RDCs in June 2010, AMPC argued that
its status as a designated donor company should be maintained. It argued that
its status provided an avenue for 'optimum utilisation of Commonwealth R&D
investment and for leveraging additional voluntary contributions made by
However, the 2011 PC report identified a problem with the operation of donor
companies. The PC raised specific concerns in relation to matching government
payments for research funded by voluntary contributions from individual
entities. It argued that government contributions may be inappropriately used
to subsidise entity-specific research. For these reasons, the PC recommended
that contributions made to RDCs through donor company arrangements, by an
individual private entity, should not be eligible for any matching government
Furthermore, the PC recommended that matching government contributions should
be precluded from projects that are subject to commercial-in-confidence
provisions which prevent disclosure of research output for any longer than
necessary to apply for agreed intellectual property protection.
The PC also highlighted that the absence of robust data on funding and spending
flows within the overall R&D framework made it difficult to establish
exactly how much money was being spent on rural R&D, with whom it was being
spent, and which parties were ultimately providing the funding. The report
noted the particular challenge of unravelling the 'money-go-round' which
results from the heavy emphasis on leveraging and collaborative research
Similar concerns were raised regarding funding and spending flows in
relation to MDC. Efforts by the committee to establish details about MDC
revealed a convoluted web of funding, relationships and vested interests. The
fact that producers and their representatives had limited knowledge of how MDC operated,
including its funding arrangements, clearly illustrated the current level of
transparency and openness in relation to the company, and its relatively protected
status within the red meat industry structure.
Allocation of the cattle transaction levy components
The proportional distribution of the $5 CTL across marketing (73 per
cent), R&D (18 per cent), NRS's food safety activities (6 per cent) and
AHA's animal health programs (3 per cent) was not raised as a particular problem
in evidence to the committee. In fact many witnesses expressed satisfaction
with the distribution.
However, concerns were raised regarding the inflexibility of the system to
provide for reallocation of the levy components. At present, any change to the
amount of each levy stream such as AHA or MLA marketing, requires the Minister
to change the Primary Industries (Customs) Charges Regulations 2000.
ARCBA explained that since the 1997–98 reforms, the allocation to animal
health has remained at 42 cents of which the:
NRS component has increased from 12 cents to 29 cents;
Cattle Disease Contingency Fund (CDCF) component declined from 17
cents in 2002 to 7 cents in 2005–06 and has been zero from 1 January 2007; and
AHA component has remained constant at 13 cents.
CDCF was established in February 2002 by CCA, ALFA and AHA to support
animal health related activities of benefit to the cattle industry in
Australia. The CDCF Fund was established to fund emergency responses in the
event of major disease (endemic or exotic) incidents and pro-active
In October 2006, the Parliament Secretary to the Minister for
Agriculture, Fisheries and Forestry agreed in principle to a request from ALFA
and CCA that the CDCF cap be increased from $15 million to $20 million. This
increase coincided with the transfer of residual funds from the former National
Cattle Disease Eradication Account to CDCF. While the Parliamentary Secretary
also agreed to a measure of flexibility, the increase was not to exceed the cap
by more than 10 per cent. The balance of funds held by CDCF has to be
maintained at all times within this cap.
However, concerns were raised during the inquiry that the reserves held
by the CDCF were rapidly declining below the required $20 million (plus or
minus 10 per cent) because the number of programs it supports exceeds the
ARCBA noted that the NRS is consuming the bulk of the 23 cents (while running
annual deficits) and the CDCF has fallen below the government-directed minimum
of $18 million while the AHA is using up all of its reserves. A situation it
described as a 'crisis'.
A number of submitters, including CCA, ALFA and AHA, suggested that
there should be greater flexibility in relation to the levy allocations to
address these challenges. AHA noted that:
We believe that enabling such flexibility in the application
of levies would be valued by all our industry Members, as well as our
government Members. This approach provides the necessary agility to redirect
and thereby enhance investments to meet the changing landscape of animal health
and biosecurity management and the dynamic nature of livestock production.
The department acknowledged that the legislation pertaining to levy allocation
Recognising that it should be easier to adjust the allocation of the $5 levy,
as opposed to adjusting of the total quantum of the levy, CCA argued that the
industry should have the flexibility to adjust the allocations. It noted that
there was some urgency for greater flexibility as AHA's levy funds will be
exhausted by the end of 2015. CCA argued that this will leave the Bovine
Johne’s disease program, national arbovirus monitoring program and other
programs without funding.
Moreover, under the current arrangements, the consultation process to
adjust the allocations is both costly and lengthy, requiring an investment of up
to two years and more than $350,000.
CCA explained that having the capacity to adjust levy rates using an
appropriate, but less onerous, process would allow the industry to be
responsive to its changing needs.
ALFA, ARCBA and AHA also supported greater flexibility to provide for
easier adjustment of the grass- and grain-fed levy allocation between AHA, NRS
and MLA. They argued that such flexibility would better reflect the dynamic
nature of livestock production by enabling the reprioritisation of the funds in
response to the needs of industry.
However, there were varying views as to how the allocation division
should be decided. ARCBA advocated that CCA should have the ability to change
the allocation as priorities change. However, it qualified its support for CCA
management of the allocations, noting that if CCA were to be a beneficiary of a
portion of the levy, it would have a serious conflict of interest in handling
the process of levy component reallocation.
ABA and Mr John Andison raised concerns that CCA should not determine
the levy allocations, as it is not representative of the grass-fed cattle levy
paying producers of Australia.
ABA held the view that the inability of the sector to manage the levy
allocations was symptomatic of a system whereby the levies paid by the
grass-fed cattle sector are not actually controlled or managed by the sector.
It advocated for wider structural reform to empower the sector to do so.
Transparency in pricing and trade practices
Considerable evidence to the committee highlighted producers' concerns
that they receive a disproportionately small margin of the end retail dollar
for a beast. The inquiry brought to the fore the lack of information that
producers have regarding profits and margins along the beef supply chain. Low
producer returns, coupled with a concentration of retail and processor control,
have encouraged debate on whether greater transparency in cattle pricing and
processor profit margins is now required.
The point was made to the committee that when a product is sold by a
producer, the producer sector does not know what the product's price will be
when it is purchased by a retailer or overseas market.
Mrs Bloomfield also noted that market reporting was a major issue. She
explained that when live export markets are quoted, they are based on 10 per
cent Landmark animal sales, rather than an average based on what all exporters
are receiving. She made the point that as more producers are selling directly
to processors (rather than selling cattle through sale yards) processors don't
necessarily report, making it extremely difficult for producers to compare grid
Ms Joanne Rea, Chair of Property Rights Australia argued that in a
price-taking market, the need for easily accessible market information was
She suggested that the Australian market seems to have an extremely free market
position which restructuring could not fix as:
This free market dry idea leads to price manipulation, fire
sales of assets and no-one seems to want to legislate to stop it. If you want
another dry position, all cattle processors have to do to make themselves
viable is to screw the prices down. They have no incentive to become more
efficient. All the efficiencies have been made at the producer end and the
processors have no incentive at all to become more efficient in any other
areas, because their biggest cost is the cost of stock and they can easily
The committee was informed by AMPC that there is no official data on the
margins or differences between what a primary producer receives for the sale of
a beast to a processor, compared to sales at the processing and retail stages. AMPC
Chairman, Mr Stephen Kelly noted that it was difficult to establish selling
prices because processors are both export and domestic oriented.
The development of a transparent pricing and trade practices system was
raised as one possible method to counter industry trends towards concentration
and consolidation of the retail and processing sectors.
Legislation akin to the US Packers and Stockyards Act 1921 and Livestock
Mandatory Price Reporting Act 1999 was highlighted as one such way forward.
According to the United States Government, the purpose of the Packers
and Stockyard Act is to 'assure fair competition and fair trade practices, to
safeguard farmers and ranchers...to protect consumers...and to protect members of
the livestock, meat and poultry industries from unfair, deceptive, unjustly
discriminatory and monopolistic practices'.
Likewise, the Unites States' Livestock Mandatory Price Reporting Act
establishes a program of information regarding the marketing of cattle and
other livestock products that:
information that can be readily understood by producers, packers, and other
market participants, including information with respect to the pricing,
contracting for purchase, and supply and demand conditions for livestock,
livestock production, and livestock products;
the price and supply reporting services of the Department of Agriculture; and
competition in the marketplace for livestock and livestock products.
Ms Rea recommended the introduction of legislation along the lines of
the US framework. She noted that the US legislation was designed to provide for
transparency of information, thereby stopping price manipulation and ensuring
that producers are paid fairly and on time.
United Stockowners Australia also recommended the introduction of strong
'anti-trust' laws akin to the Packers and Stockyard Act. It argued that such
legislation was necessary to protect grass-fed cattle producers from cattle
market manipulation and distortion which had contributed to extremely low
prices for cattle.
Mr John Carter argued that under the Packers and Stockyards Act, every
sale made in the US by a producer to a processor must be disclosed to the
Department of Agriculture, so there is complete transparency. Mr Carter further
noted that the act also provides that the producer is paid on the day of sale,
in contrast to practices in Australia. He argued that the introduction of
equivalent legislation in Australia would make a substantial difference to
producers because it would provide transparency to the cattle market and
thereby 'immediately highlight where the money is going'.
Mr McKay explained that while a mandatory pricing system introduced in
Australia would not guarantee a better price for producers, it would bring needed
transparency to the system.
Mr Rob Moore drafted a primary production pricing bill based on the US
legislation. Mr Moore's bill seeks to increase farm-gate prices through the
establishment of a transparent and improved competitive tension for livestock.
During a recent Senate Estimates hearing, Dr Peter Barnard, MLA's
General Manager, Trade and Economic Services, informed the Legislation
Committee of the benefits and costs associated with transparent price reporting:
The benefits are regular and transparent price reporting.
Certainly, in the United States, processors have to report on a daily basis – or
sometimes more often than a daily basis – prices both for livestock and for
beef. So it adds to the market's knowledge on price discovery. On the other
side of the ledger, of course, it adds to red tape. It adds to costs. I think
the price reporting mechanisms in the United States run into the tens of
millions of dollars. MLA currently seeks information on prices on a voluntary
basis. So we do report livestock prices. We do report meat prices. But we ring
up processors and ask them to voluntarily supply that information. We do that
for about $2 million a year – a fraction of the cost of the US mandatory price
reporting and other price reporting activities. I think it is a matter of
weighing up that increased transparency against the additional costs and the
additional red tape involved.
Considerable evidence to the committee highlighted the lack of
transparency in relation to cattle pricing and the need for a level market
playing field. In light of factors including the diversity of product coming
out of the farm gate, increasing focus on export markets, consolidation of the
processing sector and the extent to which there is genuine competition at
stockyards, there is little scope for producers to establish a clear line of
sight along the supply chain. For a producer, the beef pricing system is
The view was put to the committee that same day payment to producers and
a legislative mechanism to require disclosure of the farm-to-wholesale as well
as wholesale-to-retail prices, could only bolster competitiveness in the
livestock market. Supporters of price transparency argued that a system which
establishes the true price of the cattle market by requiring transparency in
market reporting, underpinned by the prospect of investigation into
anti-competitive behaviour, has the potential to shift cattle producers from
their current position as price-takers.
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