ONCE upon a time the beef industry was a community of rugged individualists who co-operated with each other, sometimes grudgingly. Those times are a-changing, and fast.
Formal alliances between producers, processors and retailers are increasingly going to be the preferred way of doing business. The saleyard environment, which has been mightily attractive to processors during the past few years of torrential cattle turnoff, has an unpredictability that becomes a lot less appealing when turnoff is low.
Abattoirs, and the complex logistics needed to get meat across an ocean onto a consumer’s plate before its use-by date, are most profitably run at a constant speed. Beef is their fuel, and with constraints on the supply of this fuel likely, alliances that guarantee beef/fuel supplies are going to become more common.
It’s not just producer-processor alliances that become important in times of low supply-high demand. Profit lies in being able to manage every point in the supply chain for optimum return.
That’s especially true of branded product. Not every beef company has AACo’s ability to build the specifications of a piece of meat starting with its genetics. No doubt most would like to. The next-best thing is to have a pool of cattle of known quality contracted to your supply chain.
The shunting of beef industry wagons around these matters in recent weeks has been deafening.
Bindaree’s purchase of Myola feedlot, its merger with Sanger and earlier, the Bindaree-Sanger deal to sell “retail ready” beef into China have changed the nature of that company.
A fortnight ago, Bindaree was just a hardy private processor, one of the few independent survivors of meat processing’s rationalisation. Now it’s a beef supply chain that is contracting northern NSW cattle producers to background for it.
The joint venture between Acton Land and Cattle Company and Australian Country Choice aligns another couple of former independents into a 1+1=3 arrangement.
Providing beef to spec to a feedlot, processor or brand has long been more reliably rewarding than punting on the saleyard environment of the day. It’s likely that will become even more so, as those who need cattle for their beef businesses start to lock in production.
Saleyards will continue to play an important and necessary role, but it will be interesting to see what sort of price gap grows between cattle contracted to spec, and cattle sold through the yards.
If supplies are tight, and the China live export market fires up and starts to take cattle in six-figure numbers - or even seven-figure numbers - the price of guaranteed supply might become very high indeed.
It will be equally interesting to see whether processors, in return for tightly-specced cattle, release their bloody-minded grip on data and start to give allied producers the sort of feedback they need to improve carcase performance.
The beef industry is never going to look like the pork or poultry sectors, but it seems inevitable that over coming years it will adopt some of the supply chain efficiencies that make those proteins so competitive.
There is a danger - so far off that it’s not visible to the naked eye - that a cattle industry based on supply contracts will one day, when there is greater equilibrium between supply and demand, become vulnerable to being screwed by those contracts.
But that possibility is a long way off. For the next few years, barring accidents, cattle producers should be in the happy position of being able to form alliances on terms they are comfortable with, not out of dire necessity.