Supply chokeholds 'strangle' producers

17 Mar, 2015 01:00 AM
I’m for foreign ownership, but foreign ownership in this case denies the sovereignty of our product

BEFORE cattle producer and butcher Sam Burton Taylor can get his beef into a box for shipment to China, his cattle have to travel more than 1000 kilometres to an abattoir.

The Northern Co-operative Meat Company works at Casino, in northern NSW, where Boorowa-based Mr Burton Taylor directs his stock, isn’t the nearest abattoir by a long shot, but it’s the nearest that has an export licence not locked into the service of its foreign owner.

Therein lies one of the problems that has ground down beef production to an “impoverished industry”, said Sam’s father, Nick Burton Taylor.

The other side of the squeeze on producers is the supermarket duopoly, which now buys 60-65 per cent of the beef directed to the domestic market.

Between the duopoly’s hold on the domestic market, and foreign ownership’s hold on the export market, Mr Burton Taylor senior sees a wall of concentrated market power sitting between beef producers and the prices and price signals they should be receiving.

Pressure at a crescendo

Mr Burton Taylor is a former chairman of AACo, has been a director of GrainCorp, CSR and Sydney Airports Corporation, and owns extensive pastoral holdings in NSW and Queensland. He was given an Order of Australia for services to business through the accountancy profession and to the rural community.

The Australian Competition and Consumer Commission's (ACCC) recent decision to allow JBS to buy Primo’s Hunter Valley operation has ramped up pressure on competition policy in Australia “to a crescendo”, Mr Burton Taylor said.

The Australian beef processing sector is now effectively owned by its major export market, the United States, in the form of Teys and Cargills; and by its major competitor in beef export markets, Brazil, in the form of JBS.

“There’s a natural conflict there, and there are good examples of how that conflict has not served the Australian beef industry well, particularly during the live export ban,” he said.

“It’s an industry being strangled. Its marginal product goes to export, and its marginal product has been hijacked - I know that’s an emotional term - by exporters.

“I’m for foreign ownership, but foreign ownership in this case denies the sovereignty of our product internationally.

“The solution isn’t restricting foreign ownership. It’s about the ability to access international markets in ways that provide a mechanism for international beef prices being priced into the Australian system.”

As producers try to innovate out of the cost-price squeeze by developing brands, other conflicts have appeared.

“There is minuscule opportunity for an independent operator to gain processing space to export Tier 1 to China and the full range of Asian destinations,” Mr Burton Taylor said.

A narrow definition of the market

When Sam Burton Taylor launched his business selling beef direct to China, he couldn’t find slaughter access for independent operators any closer than Casino, a 10-12 hour drive by truck.

“It gives you some sense of the blockage that’s happening,” Mr Burton Taylor said.

“The determination by the ACCC that there was no competitive disadvantage arising from the JBS takeover of Primo - that must be a very narrow definition of the market.

“It may be true of the domestic market, but for the export market it adds another black box, like Teys and Cargills, which does not allow access to independent export operators.”

In “the old days”, Mr Burton Taylor said, industry fixed such problems with regulation by putting in a marketing board and giving it compulsory rights of acquisition.

“Those days, thank god, are now gone. But we’ve got to go back as an industry to empower the group of people who want to export directly.”

Mr Burton Taylor thinks there is opportunity for producers and investors to collaborate on new, highly efficient service works built on the co-operative model used at Casino.

The efficiencies coming onstream in abattoir technology mean that a small southern works might be constructed for half the price of AACo’s $93 million operation near Darwin, Mr Burton Taylor muses. There are extensive tax advantages in the co-operative business structure, and a potential pool of investment money available from China.

“I see a number of Chinese investors. They come down and want to buy land. I say, look, you will ingratiate yourself with Australian investors if you come down and say ‘I want to buy land and an abattoir’.

“That’s where it’s needed. We don’t really need the investment in land, although it’s fine, it keeps things moving. But we really need access to China, and Asian ports.”

The whole dynamic of the beef industry needs to be recalibrated, in Mr Burton Taylor’s view.

Processor “gouging” over the past two years of drought-induced turnoff was one side of the coin, “but what happens now? We, the production sector, turn around with supply and beat them, the processing sector, around the head”.

“It’s got to be the most short-sighted industry known to man. Everyone else has worked out their supply lines: we have this archaic adversarial structure.”

Date: Newest first | Oldest first


John Carpenter
17/03/2015 4:11:31 AM

The problem we suffer from is cash flow constipation.There is a river of money flowing in from beef sales but it is getting stuck at the processor,supermarket level.Cattle producers can not get a premium for quality or yield.We need a single national beef grading system operated by an independent umpire.All beef sold at retail except mince should be graded by law.Cattle prices are totally unacceptable.The time has come for the LNP government to let producers have a democratic vote on whether they want to pay the CTL.The next step is to repeal the hated AMLI Act.
17/03/2015 5:45:19 AM

It's all well and good saying "cattle prices are totally unacceptable" however the reality of the world is that the value adders (processors, manufacturer ... ) are the ones who set prices and the "producer", whether they be a miner or farmer, accept prices. The big difference is many farmers feel they should keep any profit they make in great years, and be supported by tax payers in poor years. To quote another farmer "there is nothing exceptional about a drought in most places where people claim exceptional circumstance assistance".
Murph the Surf
17/03/2015 6:21:43 AM

The system is not adversarial for the companies with vertical integration. This is the paradox - their success allows them to restrict the access of others trying to build the same or a similar model. Good luck with the China dream as their opaque company structures and the need for regulatory body co-operation ( usually a %) effect the same result!
17/03/2015 6:23:24 AM

We need to stop relying on other people and other countries to hold our hand - why not start a professionally run producer owned company to build a meatworks? Deal direct with farmers, no agents and work in the export space. This really isn't too difficult, it just requires some clear vision and a well executed plan. The world is only growing with its food requirements and Australia is busy waiting for someone to hold its hand to make it work.....its about time we started making things happen ourselves
17/03/2015 6:52:10 AM

But Freshy...that means that farmers would all have to agree on something!!!....did I just see a pig fly by ??
17/03/2015 7:23:58 AM

Here we go again. It would help if Barnaby Joyce would just adopt all Seven Senate recommendations from the excellent Senate Inquiry into cattle transaction levies. What is the matter with our agriculture minister; I'm yet to be convinced he even cares about the grass roots farmer!!
King Billy
17/03/2015 9:47:48 AM

There is a cycle to plant ownership in Australia. Once Vesteys and Borthwicks (UK Companies) dominated, then Swift USA came in through Beef City. This gave rise for independent plants to be built as is happening now. So sit back and watch the changes as they occur.
17/03/2015 12:49:05 PM

This article highlights again how the ACCC must be asleep at the wheel to not see that vertical integration of a large company across several clearly identifiable market areas (e.g.: production, process, retail/export ) can only result in excessive market power and lead to supply/demand control. There must be more degrees of freedom for a market (i.e. cattle market ) to set a competitive strike price based on commodity demand ( i.e. beef on the hoof and not the service provision of processing cattle to meat product ). There is no way to manage producer risk with uncontrolled market variance.
Rob Moore
17/03/2015 12:51:06 PM

This article is long overdue and I agree 100% with Sam's analysis. There is only two venues where one can custom kill and export from in the top half of Oz that I know of. Casino is no1 and a small works north of Brisbane. I had a JV export plan hinging on Casino coop as well. The ceo of Northern Rivers coop would have the most market intelligence of anyone in Australia. He has all our dreams and ambitions pitched to him before we can even seek a partner in China or anywhere for that matter. The big 6 super meat co's tolerate this BUT make no mistake - they will rub out anyone who gets too sucessful.
No competition
17/03/2015 1:15:59 PM

We have the AACo just open an abattoir, the USA, Brazil, Japan, Chinese and some Australian folk owning abattoirs, the supermarkets buying meat as well. Dammit it's not enough I want a Co-op run by farmers for farmers because buyers/customers are ripping me orf. Forget history the old Co- ops and council run works that went broke were just misunderstood and under funded by taxpayers. Please legislate to give me customers I like and will take care of me. I want to have access to markets direct and a nice abattoir but I don't want the responsibility of managing one. Royal commish?
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