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Rural and Regional Affairs and Transport References Committee
04/08/2015
Effect of market consolidation on the red-meat-marketing sector

KENNEDY, Mr Peter Robert, Member, Gulf Cattleman's Association

[09:25]

CHAIR: Welcome. Is there anything you would like to add about the capacity in which you appear today?

Mr Kennedy : Yes. I am a grazier from the gulf area. I run a small family operation in the lower part of the gulf; it is mainly a breeding operation, but we are obviously impacted on through live export and the meatworks, so our submission covers those, and I would just like to talk on a few points that are pertinent to us for that area.

CHAIR: Before you do, I must play by the rules and go through this. The committee has received your submission, submission No. 41. Did you want to make some alterations or additions to that?

Mr Kennedy : I have no alterations to make, Chair.

CHAIR: Now I am going to offer you the opportunity to make a brief opening statement before we go to questions.

Mr Kennedy : The Gulf Cattleman's Association and what we represent probably covers mainly the live export issues. The breeder operations are probably the vast majority of our cattle operations. The live export debacle has had a massive impact across the north and still has to this day. The belief of the Gulf Cattleman's Association is that the collusion that occurred between the meatworks, processors and the markets at that stage to disrupt and to help in the destruction of that trade was very pertinent to us.

CHAIR: You would suggest that the Red Meat Advisory Council was giving advice to the minister that was contrary to that of you guys on the land, would you?

Mr Kennedy : I believe so.

CHAIR: Hansard cannot pick up winking, but that is what I am doing!

Mr Kennedy : Yes, I do believe so. One of the major issues for us in the north—just going back to the processors—is the dressed weight for our cows that come out of that country. We struggle to produce a fat cow anywhere from 170 to 210 or 220 kilograms dressed weight, and, if you look on any of the kill sheets that you have—though I do not believe there was one in our submission—once you go under 200 kilograms they can drop down, in some cases, depending on when you get your kill sheets, to 40c, and there is no distinction between a fat cow and a poor cow. A 180 kilogram cow in that country would be regarded as a poor cow, whereas in our country it is not. There is nothing wrong with the meat; the fat cover is good. It is just that they are working basically on a weight, saying, 'At 180 kilograms or 170 kilograms you are going to get 40c.'

Senator O'SULLIVAN: That is dressed weight?

Mr Kennedy : That is dressed weight, which has a massive impact on our ability to sell our cows or sell our cattle into that processing sector. On top of that, when they split the carcass in half, if you are right on the edge of that 170 to 180 to 200 kilograms, depending on where their grid is falling, and one-half drops out by one kilogram, it can be 40c and the other one $2.40. It is as massive as that. And it is just the way they cut it.

Senator O'SULLIVAN: Is there a yield differential between cattle processed from the north and cattle processed where they are in better shape?

Mr Kennedy : I do not understand that there is a difference in the yield in the meat. You have a smaller framed animal, but I think the yield is still the same; you are still yielding, no matter what size the animal is. I think it is more based on the fact that a fat animal in this country is dressing probably 240 kilograms to 260 kilograms. When you come down to 200 kilograms to 180 kilograms dressed weight, then they are a poor animal, down in your better country. In some cases you are flat out paying the freight on some of the animals coming out of the North. The way the carcass is split, because we are right down at the bottom end of that scale, you can drop out of it and hardly pay the freight to take them down there.

It has been common knowledge for as long as I can remember that 500 kilogram live weight cows go down the Japan ox shoot. So that meat is treated the same as your Jap ox, yet there is anything up to 20c a kilogram difference in your price—it is cheaper for a cow, obviously. That equates to, over six decks, around $9,000 that you lose on cows being sold as compared to bullocks. Yet when I go to the butcher shops, to supermarkets, wherever, there certainly does not to seem to be a distinction there. I believe that is used against us as a means of reducing the price. The grids that we receive—Rob covered that. It is three to four months out when we receive a grid. By the time you get there and you are given a price a week before, you do not have a choice. There is no choice to go anywhere else, there is no choice to rebook. You are already struggling to fit those cattle. You are out of your window of the season. They really do have massive control over where you go and how you kill.

Senator WILLIAMS: Same problem in the sugar industry.

Senator O'SULLIVAN: Correct.

Mr Kennedy : Basically a lot of the grid—fat depths, all of that—is that complex today that it is really used as a means of deducting the price. Whether it was originally set up as a means to describe a piece of meat, it has become that complicated today, it is more as a means of deducting the price we receive.

Senator BULLOCK: We can explore these issues.

CHAIR: We can. We are getting very clearly the problems but we are very keen to hear solutions that you see. I follow on from Senator Bullock in asking Mr Atkinson earlier: in terms of measuring the fat, that is as obvious as the noses on our faces. We are very keen if you want to tell us how you fix it. There is no problem there, how your members will see this inquiry progressing.

Mr Kennedy : For one, our members believe that as far as there being a classification for cows in that 170 kilogram to 200 kilogram dressed weight, that it is still a fat beast. They have to be recognised as that. If they are poor, that is fine, they fall out of that grid but there is no distinction. That is certainly one issue for us.

Senator CANAVAN: In terms of us designing a solution, presumably you are not saying that any standard-setting body would set a price, that there would still be a price set by negotiation or through the sale process. So how do we fix that issue? What you seem to be saying is that the meat from the North at these sizes is no less quality than the meat from the southern markets. Why then is this something which afflicts just the northern market and not the southern market? What is the problem in the North that creates this situation?

Mr Kennedy : Lighter-framed and smaller-framed animals—

Senator CANAVAN: I do not mean the physical characteristics because you are saying that it is still worth money for the processors after its been processed. So what is the market difference? What is the difference in the economic market that makes the northern situation harder for you to get a proper rate of return relative to the southern markets?

Mr Kennedy : Sorry, I do not quite follow you.

Senator CANAVAN: Is there a competition issue? I will have one more try to explain: if there is this discount, which is a premium to the processors, why wouldn't someone come in and set up another abattoir somewhere I suppose and pay you more. What is stopping that from happening?

Mr Kennedy : I believe the cost of doing business in the North is prohibitive. That is the biggest issue facing the setting up of any processing plants. Robbie and any of those fellows would certainly find that in their pursuit of people to set up meatworks and stuff the regulations and the bureaucracy that exist behind that is very, very hard. I suppose, for me, looking at it to get a return for those lighter animals there is no need for meatworks to go and build up there that do not have to. We are silly enough to send them all the way down to wherever if they are at the moment. There is no real pressure.

Senator WILLIAMS: Mr Kennedy, being a devil's advocate again, if I own an abattoir and I am putting a thousand head through a day and it is costing me so much in labour and in electricity et cetera to dress that thousand head, surely when it comes to dressing the lighter-bodied beast the cost is more expensive per kilo than dressing a 300 kilo beast. The bone is still knocking out the top side and around and so on and they are breaking it up as it goes through. Wouldn't it cost me more to run an abattoir where 180 kilo ones are coming through—the lighter ones—because they still employ the same labour, the same electricity and have the same chain. Would it be an extra cost to the abattoir to actually break down and process the lighter beast?

Mr Warren : I guess you could look at it that way but as anybody who has killed a beast knows—as you have—if you cut up an animal that weights 400 kilos and handle that and the time it has taken to do that compared to cutting up one that weighs—

Senator O'SULLIVAN: He is talking about the amortisation of the yield. So when you finish one beast you have 300 kilos to sell into a market and when you finish the other you have 350 kilos to sell into a market. It is that additional 50 kilos that brings a reward for the process. I am not supporting processes, but I am just getting to the heart of the senator's question. You can amortise the benefit you have from the additional sale of 50 kilos from the same meatworks for the same cost for the same overheads et cetera.

Mr Kennedy : I guess what I am looking at is that their through put would be quicker or their through put would be more with the lighter animals.

Senator O'SULLIVAN: You are suggesting that if I have a fat beast versus a more store-type cow from northern Australia, that when I am boned out—

Mr Kennedy : Hang on. Can we go back? I am not talking about a store animal, I am talking about a fat cow—

Senator O'SULLIVAN: No, but let's say—

Senator WILLIAMS: Both fat—one smaller fat.

Senator O'SULLIVAN: a lighter, smaller-framed fat cow, a fat cow with a heavier frame—let's just go there. Senator William's questions are very significant to go to the heart of this. Are you telling me that when I bone out and I just have bulk raw red meat from the two frames,—and I am not talking about a yield gut out, hide off, head off; I am talking now about a red meat yield when you have finished the job and you have boned it out—are you suggesting that the yield to beast is exactly the same? It would seem to me that if I have a fatter beast with more meat on the frame—and I know there is a differential in the frames where one is a bit lighter than the other one—that I am going to get more red meat boned out off the bigger, fatter cow than I am going to get off the smaller-framed fat cow?

Mr Kennedy : Yield is yield. Yield is meat to bone.

Senator O'SULLIVAN: Yes.

Mr Kennedy : So, at the end of the day, okay there is a difference in the total amount of weight—

Senator O'SULLIVAN: Well, there are two yields: the first yield is gut out hide off, so your first yield is on the hook versus the live weight of the beast; and then there is the second yield which is bone-out red meat.

Mr Kennedy : Meat to bone.

Senator O'SULLIVAN: Meat to bone. Are you saying that the lighter-framed cow and the heavier-framed cow are exactly the same?

Mr Kennedy : Your yield is the same. Your weight difference obviously changes. If you have a 400 kg animal and the yield is 56 per cent or whatever, it is the same, but the smaller animal is still going to yield you the same, red meat to bone.

Senator O'SULLIVAN: That is not the burden of my question. My question is—

Senator WILLIAMS: The cost for the processors to carry out the duty.

Senator O'SULLIVAN: Yes, that is at the heart of it.

Senator WILLIAMS: Let's look at it this way.

Senator CANAVAN: Could I jump in quickly, if I can help? I do not think you are arguing, Mr Kennedy, that there should not be a discount for lighter frames. On all of these grids, as you drop 20 kilos, you are going down around 5c a kilo. What you are saying is that, when you go from 200-odd kilograms—on the grid I am looking at—to a 220-kilo beast, dressed to 180 to 200, suddenly you drop 15c a kilo, not 5c. There clearly is an average cost impact on processors from having a lighter frame, because there is a fixed cost in breaking that body down in the boning room.

Mr Kennedy : I am not questioning that at all.

Senator CANAVAN: You are saying that, if they get to those lower weights, there is a bigger discount.

Senator WILLIAMS: Hold everything. That was the heart of my question. I am not here to bat for the processors. The heart of my question was: if a chain comes through of 1,000 animals at 400-kilo live weight and then you have 1,000 coming through the next day at 300-kilo live weight, surely it is going to cost the abattoir more when it gets down to the red-meat, bone-out kilo cost. Would you agree with that?

Mr Kennedy : Yes. I am not suggesting—

Senator WILLIAMS: That is the point I am making and that is why I am suggesting that perhaps that is one of the reasons why they discount you with the lighter frame, even though they are in the same store category for three or four—

Mr Kennedy : I am not talking about coming back to the lighter weights. Once you get down to around 170 kilos or 180 kilos, the drop-off is massive—like 40c.

Senator WILLIAMS: That is my question: why? Is it because they have a cut-off point at the abattoirs, where their cost of breakdown to the boneless red meat is more per kilo because of the smaller framed—

Senator BULLOCK: The discount is too deep.

Mr Kennedy : The discount is too deep.

Senator WILLIAMS: I am with you.

Mr Kennedy : Why should you come back to where you barely pay the freight? You cannot tell me that they do not earn more for the hide and offal.

Senator WILLIAMS: How much is the discount for the lighter frames from your cattle?

Mr Kennedy : It can vary. If you drop out, you are flat out paying the freight of $50 and $60.

Senator WILLIAMS: If they were offering $4.50 a kilo, dress weight, for heavy bodied beef and for your lighter bodied—even though they earn the same score; they are rounder but they have a smaller frame—how much are they offering you? How much are you getting discounted because of the lighter beef when you break that 170-kilo dress weight?

Mr Kennedy : It is $3.20 or $2.80.

Senator WILLIAMS: So you are going from what down to what?

Mr Kennedy : It can drop $1.50.

Senator WILLIAMS: Crikey.

Senator CANAVAN: I would like to move on from that, because I do think we get that, Mr Kennedy. I want to go to your submission, in terms of solutions. You have identified that you think the ACCC should take more action and be more involved. I would like to see if we can drill down a bit to the specific things you think the ACCC, in an investigated sense, can do to get to the bottom of this. Should they be going to the saleyards? Should they be going to the meatworks? What can they do to gather the evidence required to expose the issues you are talking about?

Mr Kennedy : As you can see in most of the submissions, most people are very reluctant to name names and show—

Senator CANAVAN: I am not asking you to do that either. What activities should they do?

Mr Kennedy : I believe they should be investigating all of the saleyards, how the processors deal with those saleyards, the way that they operate in them and the way that their price is offered. Seven days out after waiting for two months or three months to get a price—

Senator O'SULLIVAN: Are you suggesting that some witnesses would be more cooperative with the ACCC than they might be in front of this inquiry?

Mr Kennedy : They would probably be far more comfortable if certain identities and whatever were protected.

Senator CANAVAN: The ACCC also have information-gathering powers, which potentially would allow them to not even have to involve the individual producers. They could directly go to the processors and ask for the information. But they do need to have, first, some suspicion of wrongdoing and, second, some idea about what they are looking for. How can they establish that? What are the pertinent questions that the ACCC needs to ask processors about? Is it about the grid? Is it about when they offer prices to producers?

Mr Kennedy : All of those: the grid, the way the grid is used, the way the pricing system is used. The offal and the hide—that is basically theft. For years, it has been taken. I can remember years ago that that paid for meatworks' killing costs. I certainly think that would be a lot more today. We did some baiting the other day and bought lambs' hearts for bait and they were $2.20 a kilo. No sheep producer got paid for that lamb's heart.

Senator CANAVAN: You also identified the need for a code to be established. Can you put some specifics around that? Would it be your view that a code would, say, cover everything, apart from price, that is on this sheet I have in front of me—and I know you cannot see that; it was usefully provided by the previous witness. It is a Teys grid. Would it cover all of these issues—dentition, fat depth, meat colour and all of those types of things? Should they be prescribed in a code or should some of those things be left open for negotiation?

Mr Kennedy : How are we using dentition? Again, it is a price deduction for us. The code should cover all of that. I think it needs to be simplified and there needs to be some structure in there—

Senator CANAVAN: Under such a code, how would you envisage disputes being handled? Presumably in the development of these types of technical and very detailed deductions, there is scope for reasonable people to disagree. How would we ensure that any disputes between processors and producers be resolved under a code?

Mr Kennedy : You are probably good at working that out; I am probably good at chasing cows around. I really do not know. I cannot say how a code should work, but there needs to be some sort of system in place so that if there is a dispute, it is transparent, that people can see a process to resolve those issues. At the moment, there is not.

Senator O'SULLIVAN: Do you believe that this committee will get to the heart of these issues without being able to talk to witnesses who can direct evidence of potential collusion—agents and perhaps buyers and whistleblowers? Is it possible for us to arrive down an evidentiary path to the problems within the industry without affording them an opportunity to give evidence in camera?

Mr Kennedy : No.

Senator O'SULLIVAN: Thank you. I now turn to the Teys grid arrangements. If I lined up 100 ordinary Australians and I give them a plate from each of these lines—in terms of two tooth, four tooth, cow, bullock, old bullock, young bullock and so on—and if that meat was presented texture- and quality-wise okay, cooked properly and fit for purpose, do you think they would be able to tell the difference?

Mr Kennedy : No.

Senator O'SULLIVAN: Do you think they would get it and say, 'That was bad, that was indifferent'?

Mr Kennedy : No.

Senator O'SULLIVAN: From an industry point of view, does it follow that the bigger the scale the more components of the grid are designed for processors to discount the product that you have sold them?

Mr Kennedy : Absolutely.

Senator O'SULLIVAN: So if I went into a restaurant and bought a piece of beef, would anybody in that restaurant, including the chef or the person responsible for buying it, have any real knowledge of this?

Mr Kennedy : No.

Senator O'SULLIVAN: None whatsoever.

Senator WILLIAMS: You mention section 46 of the Competition Act in your submission—is that correct?

Mr Kennedy : Yes.

Senator WILLIAMS: I suggest you have a look at the front page of today's Financial Review. With live exports, are HGPs a problem with a lot of our markets? Are Indonesia happy with HGPs?

Mr Kennedy : To be honest, I am not sure on where they stand on that.

Senator WILLIAMS: That is fine. I live at Inverell and we have Bindaree Beef there, saleyards et cetera. The cattle are post-weighed—after sale. There was a dispute at Wodonga six months ago where the buyers went on strike because the cattle were being pre-weighed. What is the solution for this committee to recommend? Do you pre-weigh them all? Do you have a cut-off time for when they have to be in the yards—a curfew? Do you pre-weigh the cattle or post-weigh them? Why is there this blue over pre- or post-weighed? Obviously, they are lighter when they are post-weighed, but you could allow for that if you had a pre-weighed auction sale. You could allow for them to hollow out a bit more in comparison to post-weighed, if you understand what I am saying. What is the answer to that problem?

Mr Kennedy : Again, I have to say it is not an issue that I know a lot about, but I would suggest that the solution is that cattle arriving at a saleyard be given so many hours on water and whatever and then are weighed. Then, the next day, the buyers buy them on that weight rather than—

Senator WILLIAMS: You run on dressed weight consignment cattle, right?

Mr Kennedy : Mostly—or live exporters, basically.

Senator WILLIAMS: I will talk to more people on this issue in the south, when we get to Albury, because that is a hot issue for them.

Senator CANAVAN: What is the situation with live cattle and live exports? How do your cattle get assessed? Obviously they cannot be assessed in this way. Do they use dentition for pricing?

Mr Kennedy : No. Basically, the age number on them is one of the ones that is used.

Senator CANAVAN: From the NIS information?

Mr Kennedy : No, just the brand.

Senator CANAVAN: Is the butt shape a factor?

Mr Kennedy : No. You will get buyers come and reject some of them and, quite frankly, I often wonder what—

Senator CANAVAN: Are the Indonesians just not as discerning in their tastes as Australian consumers!

Mr Kennedy : For us, it is a far simpler marketing arrangement. They just arrive and they are satisfied as long as there are no dog bites. For some reason, they want full-length tails, ears and everything. For some reason, they are more their criteria.

Senator O'SULLIVAN: But, in fairness, in their market where they value-add it, most of that beef is going into hotpot and other preparations rather than prime cut.

Mr Kennedy : It is not cut up into prime cuts; it is more cut into—

Senator O'SULLIVAN: It is cut into cuts that you will not recognise when you go to the wet markets in the Philippines.

Mr Kennedy : That is right, absolutely.

Senator BULLOCK: My most recent embrace of new technologies was when I moved from a dip pen to a biro.

CHAIR: And he is not joking!

Senator BULLOCK: In your submission, you talk about online sales tools and the benefits they could bring to producers and the role for further training in that regard. Would you expand on that a bit.

Mr Kennedy : Our biggest issue is freight. As far as saleyards are concerned, we have a lot of issues where cattle might travel 400 kilometres to a saleyard, be sold there and then travel 200 kilometres back the same way they came because someone buys them in a similar area. I think there is certainly a lot more that can be done to utilise electronic marketing and stuff for on-property selling. Now, as technology is getting better with video and much better images, hopefully we can go down that path a bit further. People like to visually see things, and I think that has probably been an issue in the past. Description is description, but to actually see something is, I think, the key to it. We would like to see more of that technology advanced to where a lot more of those sales happen on-farm.

Senator BULLOCK: Do you think there is an issue with take-up amongst people out in the bush?

Mr Kennedy : There is, because that technology is not there. When you have a mobile phone that does not work at your place and your download speed is such that you turn it on and go away and have two cups of coffee and two emails come in, it is very hard to go and market something or look at something in real-time.

CHAIR: Just in wrapping up, you do not have to be Einstein to work out that the industry is certainly struggling for a number of reasons, but has it always been this system with the processors? Has it been the drought that has highlighted it? The returns to the farm gates are obviously very poor, so why now? Why are we now having a real good look at what goes on in the processing plants?

Mr Kennedy : It has always been there. If you go back 40 or 50 years, I can remember when buyers used to come out and buy the cattle on places, and they always worked on yields of 50 per cent, and cows were about 46 or something, I think. All of a sudden, when they started doing the dressed weights, everyone realised how much they were getting ripped off. I just think it is timing. I think it has gone on for too long and it is probably being abused more today than it ever has been, the more those grids are used to deduct the price. It is getting tougher and tougher to survive. With the lower return that has been coming back to the producer, they can no longer survive. I just hope that something can come out of it and some good can come out of the path we are heading down.

CHAIR: I can leave you with this, Mr Kennedy: it will not be because of the lack of commitment from this committee. We will certainly do our best. We will consult. We have a few more hearings down south—bearing in mind that, if something needs to be looked at in another part of the country, we will. We have a set date for reporting, but I think the cattle growers know that we are deadset dinkum about this. But I will leave you on this. Thank you very much for coming. Following on from Senator O'Sullivan's statement/request, we need to hear from the growers; we really do. If you had one message to send to Canberra, what would it be? This is your big chance.

Mr Kennedy : Just make sure that we come out of this with a result. I just hope that it does not end up collecting dust somewhere.

CHAIR: So do we. Thank you, Mr Kennedy.

Proceedings suspended from 09:57 to 10:18