Consolidation missing

The Senate committee report on the Effect of Market Consolidation on the Red Meat Processing Sector fails to address market consolidation.

I HAVE looked for it but can’t find it.

That is the part in the Senate Rural and Regional Affairs and Transport References Committee report on the Effect of Market Consolidation on the Red Meat Processing Sector that actually deals with the impact of red-meat processor consolidation on market competition, one of the key terms of reference.

The final report made seven recommendations but not a word about market consolidation.

Odd because one of the main concerns that led to this senate inquiry and the Cattle and Beef Market Study conducted by the Australian Competition and Consumer Commission (ACCC) was JBS Australia’s acquisition of Primo Foods which began in November 2014 and concluded in February 2015.

The dates are relevant because it was March 18, 2015 when this and other matters were referred to the committee.

Concerns about consolidation in the processing sector were not lost on ACCC as this was identified at the front of the their final report along with concerns about anti-competitive behaviour at saleyards, misuse of buyer power and an unfair distribution of profits in the supply chain.

In a separate detailed review, ACCC concluded that the JBS/Primo transaction was unlikely to substantially lessen competition. They discussed this in their market-study report but also noted there were circumstances where further consolidation in the processing sector through mergers or acquisitions or other conduct could substantially lessen competition.

They also specifically mentioned vertical integration with the example of processors being active in feedlot operations as an example of where such a processor would be less active in markets for the acquisition of prime cattle.

ACCC devoted an entire chapter of its study to the issue of consolidation and its relationship to competition and while a lot of that content was really about ACCC developing and documenting its understanding of the Australian industry, it nevertheless provided guidance on subject matter that warranted further investigation.

The senate committee plumped up its report by selectively referencing large parts of the ACCC market study but apart from brief passing reference to the fact that ACCC had said something about consolidation and competition, the senators essentially ignored the topic.

What message therefore does this convey to those whose concerns for the future of their industry were such as to cause them to put pen to paper and write formal submissions?

Not unreasonably they want some indication that both government and opposition are across the vital issues and capable of taking the country in the right direction. Such is the purpose after all of the cross-factional parliamentary committee system.

It would be comforting therefore to know what the senate committee thought about a question such as would it ever again be possible for an AMH style consortium to come together to reduce processing capacity?

Another confidence builder would be some insight from the committee as to what might be able to be done to ease the pressures that are building and will ultimately lead to further consolidation such as power, red tape, labour and government cost imposts?

The report was silent on such matters but presumably all will be well if only we could work out if it is better to weigh the cattle at Barnawartha saleyards before or after they are sold.

Such was the number one recommendation from the senate report.

Chapter 2.6 of the report states, “As a means of restoring confidence to southern producers, consideration should be given to undertaking contemporary scientific research into pre- and post-sale weighing.

Contemporary is an interesting choice of word as it suggests to the uninformed reader that this is an area where new and enlightening discoveries are likely to be made.

Rather, I suspect that if some new work is carried out all that will be discovered is the good research that was done 40 years ago and all but forgotten since.

The unit of measurement that was central to slaughter cattle trade then and remains so to this day is HSCW (hot standard carcase weight).

The relationship between HSCW and the live animal is called dressing percentage (DP).

What was known then is that DP varied enormously due to a wide range of factors.

Breed, age, weight, fatness, muscling, hours off feed, type of feed and hydration status all played a part.

Because of this wide variation in factors affecting DP, what was evident in the move to live-weight trading of slaughter cattle was the difficulty this created for pricing efficiency.

Put simply, the cattle which would ultimately deliver high DPs could not be accurately identified in saleyards and rewarded accordingly. Bullocks for example might commonly exhibit a variation of 10pc from low 50s to low 60s.

Queensland Department of Primary Industries researcher Dr Jennifer Wythes (not Wise as referenced in the senate report) worked on this problem.

She concluded that the most effective way to minimise overpayment of low dressing and underpayment of high dressing cattle was to standardise those control factors which most affected the extremities of DP variation. A minimum curfew of 12 hours on water before weighing was the result.

This became normal practice through post-sale weighing in Queensland.

Not so at Wodonga where pre-sale weighing with a three-hour curfew was practised.

Residual strong feelings by some over the loss of this practice are evident in the submissions made to the committee.

‘Contemporary’ research, however, is not going to change the established science in this area nor the rights of buyers to attend (or not attend) sales of their choosing.

In the final analysis it is probably store cattle sellers and buyers who have most reason to feel aggrieved if their favourite sale is structured to suit a minority of fat cattle in the regular offering.

Maybe it is time to revisit whether it was such a good idea in the first place to sell fat cattle on a liveweight basis?

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