Introduction and background
On 18 March 2015, the following matters were referred to the Senate
Rural and Regional Affairs and Transport References Committee for inquiry and
report by 12 August 2015:
The effect of market consolidation
on the red meat processing sector, and in undertaking the inquiry, the
potential for misuse of market power through buyer collusion and the resultant
impact on producer returns;
impact of the red-meat processor consolidation on market competition, creation
of regional monopolies and returns to farm gate;
existing selling structures and processes at saleyards, particularly pre- and
post-sale weighing, as well as direct sales and online auctions, and whether
they remain relevant;
- the regulatory
environment covering livestock, livestock agents, buyers and meat processors;
On 14 May 2015, the Senate granted the committee an extension of time to
report. The committee was required to report by 17 March 2016. On 22 February
2016, the Senate granted the committee a further extension of time for
reporting to 5 May 2016.
The committee agreed to table this interim report and seek a further
extension on 3 May, owing to the likelihood of an imminent double dissolution
of the Parliament, and the need to get some of its findings on the record while
also advocating for an opportunity to resume its examination of further
significant issues in the new Parliament. It is important to reiterate that the
committee has more to say on a number of important matters, and intends to do
so as soon as possible. These matters include:
Agents' conduct and collusion;
Variations in grid inspections;
Standardisation of saleyard design and selling practices;
Reverse consolidation markets;
Agents' owning saleyards in which they operate;
The adequacy of the Australian Competition and Consumer
Commission's (ACCC's) powers to protect witnesses;
Processor consolidation, including the loss of competition and creeping
The late setting of prices for cattle booked for sale;
The ACCC market study; and
The lack of a complaints mechanism for 'over the hook' grading.
The interim nature of this report's findings is reflected in the
recommendations. It is the committee's intention to supplement this report's
recommendations in light of further examination of the matters listed above,
and in particular the findings of the ACCC's market study.
Conduct of the inquiry
The inquiry was advertised in The Australian and on the committee's
webpage. The committee also wrote to government departments, organisations and
individuals to invite submissions. Details of the inquiry and associated
documents are available on the committee's webpage.
The committee received 98 public submissions and 22 confidential
submissions. The public submissions are listed at Appendix 1 and are published
on the committee's webpage.
The committee acknowledges the organisations and individuals that made
contributions to the inquiry through submissions and appearances at the
Context of the inquiry
On 17 February 2015, newspapers reported that nine processors had 'boycotted'
the Northern Victoria Livestock Exchange's first prime sale at the Barnawartha
saleyards. According to the reports, the processors wanted the cattle weighed
after they were sold, rather than before sale, which had been standard practice
The 'boycott' was blamed for a 30 cents per kilogram price plunge on that day.
Reports suggested that buyers later dropped their boycott when the
saleyard operators agreed to weigh cattle after they were sold, instead of
In response to the alleged boycott, the Victorian Farmers Federation and
the NSW Farmers' Association called for the ACCC to investigate.
On 2 March 2015, approximately 250 Barnawartha sellers met to raise concerns
about the actions of the processors. The farmers called for a Senate inquiry
into consolidation in the red meat processing sector and called for the ACCC to
investigate the meat processors.
The Barnawartha matter followed a decision by the ACCC two weeks earlier
to allow further concentration in the red meat processing sector; with the
acquisition of Australian Consolidated Food Investments Pty Ltd (Primo) by JBS
USA Holdings Inc (JBS).
These events, which triggered the Senate inquiry, raised both the
spectre of collusion by buyers at saleyards and questions regarding competition
in the face of growing consolidation in the market more broadly. These two
themes, as indicative of underpinning inequalities in the red meat industry and
a lack of transparency in relation to pricing, were central to the evidence
gathered during the committee's inquiry.
Australian livestock and red meat industry
Australia is the world's seventh largest beef producer and the third
largest exporter behind the United States (US) and Brazil.
According to the Department of Agriculture (the department) more Australian
farms are engaged in running beef cattle than are involved in other forms of
agricultural activity, with around 55 per cent of all Australian farms carrying
In total, Australia has 25.7 million head of cattle managed by around 71
300 beef cattle producers.
An estimated 76 per cent of marketed cattle in Australia in 2013 were grass-fed
cattle with the remainder grain-fed.
As of 2011–12, the Australian Bureau of Statistics (ABS) revealed that
38 752 beef cattle farming businesses, plus beef cattle feedlots;
11 994 sheep farming businesses;
11 552 grain-sheep or grain-beef cattle farming businesses; and
6 526 sheep-beef cattle farming businesses.
In terms of the processing sector, there are more than 150 processing
facilities in Australia which kill and process a range of species including
cattle, sheep, goats, pigs and game.
According to the Australian Meat Processor Corporation (AMPC), its 105 members operate
135 meat processing facilities which account for more than 97 per cent of
Australia's meat processing capacity.
In terms of the Australian economy, livestock production and red meat
processing are significant contributors:
In 2013–14, the farm level gross value of red meat livestock
production (beef cattle, sheep, lambs and goats) was $11.4 billion, 49 per cent
of the gross value of all livestock production and 22 per cent of all farm
production in Australia (ABARES 2015). The red meat processing industry is
highly export focused, with 70 per cent of beef, and 69 per cent of lamb and
mutton produced in Australia in 2013–14 being exported (by volume). Over the
same period, beef, lamb, mutton and goat meat exports together were valued at
$8.7 billion (ABARES 2015).
In 2014, more than 8.9 million cattle together with over 29.3 million
sheep and lambs were slaughtered at one of the 77 processing establishments
registered to export.
According to evidence provide to the committee, in 2013, Australian meat
processing comprised the following:
65.7 per cent – beef and veal;
23.4 per cent – lamb and mutton;
7.9 per cent – pig meat; and
2.9 per cent – goat and other animal meat.
Red meat processing sector
In terms of processors, the top five cattle processors account for 57
per cent of throughput across processing facilities. The top five sheep and
lamb processors accounted for 52 per cent of throughput in 2014, based on the
number of sheep and lambs slaughtered. In addition, National Livestock
Identification System (NLIS) data, (which include facilities that process for
domestic and/or for export markets) revealed that the top five processing
plants in Australia accounted for up to 30 per cent of cattle sent to abattoirs
between 2008 and 2012, while the top 50 plants accounted for more than 90 per
cent of such movements.
Due to consolidation within the industry, the market has contracted
significantly in recent years. In 2011, the top five processors accounted for
over 50 per cent of the market, with the four largest processors either owned
or in joint ventures with multi-national companies.
Australian Meat Industry Council (AMIC) suggested that the four largest
processing companies account for up to 55 per cent of livestock throughput.
In contrast, evidence suggested that in 1988, the four largest processors
controlled 24 per cent of the market.
However, following its acquisition of Primo in February 2015, JBS is believed
to have lifted its market share to at least 28 per cent. At the same time,
evidence suggested that Cargill-Teys has a 21 per cent share and Nippon Meat
enjoys a 6 per cent share.
Some submitters made the point that consolidation in the beef industry
had resulted in an industry now effectively controlled by five corporations
including Woolworths, Coles, JBS Australia, Teys/Cargill and Nippon Australia.
The domination of JBS and Teys/Cargill in the processing and domestic
wholesaling sector was also raised as a concern by producers as well as their
ability to enjoy a profit due to reduced competition.
Table 1 further demonstrates the extent of this issue. The major
corporations – JBS Australia, Teys/Cargill and Nippon Australia – own multiple
abattoirs and feedlots around the country. The numbers of facilities owned by
the corporations demonstrate their share in the market. This enables them to
set industry practices by enforcing specific policies across the plants. It
also provides them with power when negotiating sales with producers.
Table 1: Ownership of abattoirs in
Number of abattoirs
Number of feedlots
The concentration of market power varies between different regions.
Depending on where a producer is situated, and the number of regional
processing plants, the extent of market share in an area can vary greatly. Mr
David Farley argued that the red meat processing sector was best described as
an oligopoly nationally, duopoly regionally and in certain areas, a monopoly.
For producers in areas with a small number of processors, there is limited
choice as to where they can send their cattle for processing and who buys them.
One of the primary characteristics of the cattle industry is that cattle
production is highly diverse and fragmented, comprising thousands of family
farms across the country. In direct contrast, the red meat processing sector is
highly consolidated and corporatised.
In addition, processors have increasingly focused on vertical
integration. The Australian Lot Feeders' Association informed the committee
that processors now own 22 per cent of the overall feedlot industry capacity.
The argument was put, therefore, that competition is highly asymmetrical in
favour of the large processing and retail corporations.
Competitors for livestock in Australia include meat processors, live
exporters, livestock producers (re-stockers, feed-lotters and backgrounders),
brand owners and livestock agents and supermarkets.
There are approximately 400 accredited feedlots in Australia which are located
within close proximity to cattle, grain, water and beef processing facilities.
Most of these feedlots are located in Queensland, followed by NSW, WA, Victoria
and then South Australia.
According to evidence, consolidation has occurred vertically through the
chain. The percentage of beef exports by non-packer exporters has declined
significantly while the domestic wholesale business has seen both horizontal and
vertical integration, and the retail sector has consolidated toward the major
The dominance of the supermarkets, the demise of butchers who used to
provide more competition in the saleyards, and the consolidation in the
domestic processing sector (coupled with consolidation of international beef
processors) has led to a 'reduction in competition for stock' which has
The live export market
Processors purchase for the domestic and export market. The export
market accounts for 67 per cent of Australian beef production and consists of
over 150 Australian beef exporters, 'all with their own brands and competing
against each other as well as other international suppliers according to MLA'.
According to Fletcher International Exports Pty Ltd, competition is
strong in the lamb and sheep meat sector with up to eight meat export companies
competing for livestock in most regional markets on any given day.
The Gulf Cattleman's Association made the point that live export
provides the only independent market competition for grazing enterprises in
north and north-west Queensland.
Wholesaling and retailing
In terms of the domestic market, the two major supermarkets, Coles and
Woolworths dominate the retail trade in Australia. They manage their own supply
chains from forward contracted farm gate supply to retail shelf via contracted
They have vertically integrated supply and service agreements throughout the
supply chain with farmers, feedlots and processors.
The ACCC estimated that in 2005–06, Woolworths and Coles bought 6.4 per
cent and 5.6 per cent respectively of total beef production and 13.2 per cent
and 11.5 per cent respectively of lamb production. Together, Woolworths
and Coles purchased 12 per cent of total beef production and 24.7 per cent of
total lamb production.
Beef is also sold through butchers, other supermarkets, grocery stores
and wholesalers as well as restaurants and cafes.
A number of submitters made the point that the dominance of the two
supermarkets in the rural sector generally, and the beef industry more
specifically, has been 'ruthless' with producers 'cut to the bone'.
The views of Merebene Pastoral Co. Pty. Ltd were typical in this regard:
Coles and Woolworths (etc) have been untouchable and
unrestrainable for too many years and the rural community needs to see the
Government repair some of the inequities and imbalances in relation to
production cost versus retail profit before we lose more farms and farmers.
Impact of processor consolidation on producers
The Shire of Campaspe noted in its submission that the industry had been
adversely impacted by:
decreased competition due to less processors, resulting in higher
risk of collusion and misuse of market power;
potential of misidentifying or distorting the value of a product
during various stages of the supply chain;
less industry accountability for consumers; and
resulting changes in consumer behaviour and confidence in the
Travel burden and associated costs
Producers raised concerns about the practical difficulties, and the
costs associated with transporting stock to processing locations and sales. For
livestock producers in Western Australia, the Northern Territory and Far North
Queensland, long distance travel of their stock for slaughter is a central
component of their farming operations.
As a consequence of processor consolidation, producers have to transport their
cattle increasingly long distances. These distances continue to grow as plants
are decommissioned and the industry is rationalised.
In most cases, beef producers pay the freight costs for 'direct to
works' consignments. Mr Rob Atkinson summarised the impact:
Freight costs have a major effect on profitability, and long
distance transport has an effect on beef quality, animal welfare, carcass
shrink and eligibility for some premium markets. This has all come at a cost to
Producers argued that the lack of competition in remote or heavily
dominated regions has negatively affected producers, leaving them with limited
options in relation to how they sell and process their animals. Older
processors and retailers are closed or have merged into a larger corporation, and
many regions are now serviced by large-scale processing plants owned by the
major processing companies. Submitters suggested that methods of sale and
processing by these plants have had a negative impact on their income and their
stock. This is particularly prevalent in regional areas where the market is
significantly more contracted than in densely populated areas.
Mr Rob Atkinson provided an example of the impact consolidation of the
market or 'regional monopolies' is having – specifically to JBS in Townsville.
Mr Atkinson indicated that:
Every year, since Teys closed their plant in Innisfail
(2006), the queue for booking a kill date in Townsville has been ridiculously
long. Right now, that plant is booked out for 4 months. This has been the case
for the last 3 years. It is part of the reason many producers have been unable
to destock as quickly as they would like during this drought.
Most northern producers wait for months for a kill date, but
they only know the grid price days before the point of sale. If we don't like
the price, we lose the booking. If you don't like it, too bad. The joys of
being a price taker.
Notwithstanding this evidence, other submitters made the point that
single plant processors such as Bindaree at Inverell and the Northern
Co-operative at Casino face an uncertain future with the resultant effect
explained by Mr John Carpenter:
Every time a processor or retailer is amalgamated, it knocks
out yet another bidder from the market for cattle. For cattle producers this
process is lethal.
Limitations on where to sell
Markets with limited competition restrict producers' choices in how they
sell their livestock. Submissions to the committee highlighted that this
problem was a significant issue for producers.
As Mr Julian Carroll noted, while it would appear that there are a healthy
number of processors nationwide:
...the geographical distribution of the processors mean that in
reality, many beef producers have only one option before the cost of freight
makes it uneconomical to look further afield.
The Gulf Cattleman's Association suggested that the northern beef cattle
market lacked fair competition, fair practice and transparency. It further
argued that the consolidation of large processing facilities, reduction in
service kill facilities (butchers), monopolisation of markets and changed
market practices did not provide for a fair trade environment.
Some submitters suggested that where bigger processors were vertically integrated
with feedlot business, they are able to regulate supply and therefore price.
The Gulf Cattleman's Association described the consequences for
enterprises in north west Queensland as follows:
The overall result is that as of the beginning of 2015 that the
only processing facility in north Queensland available for the majority of the
grass-fed herd is in Townsville or a further 7–800km to Rockhampton. Brazilian
processing giant JBS and the joint venture between US agri-giant Cargill &
Teys have control of 49% of the market and practically 100% of the processing
control of the large commercial herds of north Queensland.
However, some submissions argued that there were still multiple avenues
for producers wanting to sell their stock. According to Mayor Pisasale from the
City of Ipswich, as there are at least 40 'well-resourced' buyers on the east
coast, producers and suppliers still have an opportunity to continue with
traditional sales methods and compete for livestock.
Processing, however, remains challenging for producers with limited abilities
to move their stock elsewhere.
Supply chain and price
The supply of red meat to consumers involves a long and complex supply
chain. In its 2007 report on the relationship between livestock and retail
prices, the ACCC noted that, in light of this reality, it should not be assumed
that there will 'necessarily be a direct and immediate relationship between the
price of the raw product (livestock) and the final good (packaged meat)'.
The point was made that price discovery is becoming increasingly more
difficult, while producers enjoy only marginal increases in terms of farm gate
prices despite an increase in input costs by over 48 per cent since 1997–1998.
Evidence to the committee highlighted this factor with some submitters
arguing that there needed to be some relativity between production and retail
prices; today beef is about $2.40 per kilogram (lwt) and consumers are paying $20 plus for a similar amount.
For producers, the real rate of return has steadily declined over the past 30
while the price of beef has risen, particularly over the last few years, from
$10 a kilogram to $16 a kilogram.
Further the point was made that Australian beef producers receive only 26.5 to
32.8 per cent on average retail price of beef. In comparison, US cattle
producers receive 48.9 to 55 per cent of the retail price.
The Managing Director of Meat and Livestock Australia (MLA), Mr Richard
Norton made it very clear how complex price discovery had become:
...industry's associations with price transparency are complex.
They not only involve horizontal line of sight, knowledge of the actual prices
at which cattle are being transacted, but also vertical lines of sight – beef
prices, margins at each stage along the value chain and confidence in payment
systems. These suggest that potentially a range of solutions are needed to
address the issue rather than relying on a single solution.
One of the issues raised in relation to red meat processing in
Australia, which is central to the inquiry, is that retail prices have risen while
livestock prices have not.
Yet the red meat supply chain is said to be one of supply and demand, further
influenced by seasonal conditions and the dollar. According to AMIC, the main
factors influencing livestock prices include the effects of drought, domestic
market shifts, overseas meat demand, and exchange rate fluctuations. In
relation to the latter, AMIC suggested that with up to 70 per cent of red meat
exported, a stronger Australian dollar makes its exports more expensive
overseas and reduces the quality of Australian meat demanded and purchased by
It argued that:
The two overarching and major price drivers are (i) domestic
and overseas consumer demand shifts in response to meat price itself and
competitor supply and (ii) seasonal impacts on need to sell livestock and the
quality of livestock sold.
While a number of submitters argued the point that there is a
correlation between global price, domestic slaughter levels and domestic
pricing, a number of producers challenged this argument. Mr Blair and Josie
Angus suggested that:
Cattle slaughter rates have shown consistent steady increase,
global prices have accelerated and cattle prices have not followed. The only
consistent...is the widening gap between cattle prices and beef prices or
increasing processor margin.
The rapid price increases seen in 2015 have occurred without
a significant lessening of cattle slaughter or a significant change in
slaughter capacity and in fact against a background of a reduction in global
These views were also echoed in other submissions to the inquiry.
Committee's previous seven recommendations
On 9 September 2014, this committee tabled its inquiry report into Industry
Structures and systems governing levies on grass-fed cattle. The committee
produced seven recommendations directed at providing for greater producer
representation, transparency and accountability within the grass-fed cattle
Many submitters to the current inquiry voiced their support for the
implementation of all seven of the committee's 2014 recommendations.
It was suggested that implementation of the recommendations would provide
greater producer representation as well as address the 'unchecked power the
processing sector has amassed'.
Structure of the report
Chapter 2 of this report considers selling practices at saleyards. It
considers the events at Barnawartha and focuses on the potential for misuse of
market power through buyer collusion and concerted practices.
Chapter 3 considers the saleyards as a selling system including pre- and
post‑weighing at saleyards. It also examines the evidence in relation saleyards
and price discovery.
Chapter 4 focuses on other selling structures including 'over the hook',
direct sales and online sales.
Chapter 5 considers the regulatory environment and the grading system.
In the final chapter, the committee outlines its view and
recommendations which aim to create a fair market with focus on concerted
practices, commission buyers, price transparency, accountability and saleyard
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