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

WARRINER, Mr David, Private capacity


Evidence was taken via teleconference—

CHAIR: We have dropped behind time. Mr Warriner, thank you for very much for your patience.

Mr Warriner : No worries. It was interesting listening to all of that.

CHAIR: You are no stranger to this committee, so you know how it all works. Is there anything you would like to add about the capacity in which you appear today?

Mr Warriner : I am an independent consultant based in the Northern Territory.

CHAIR: I now invite you to make a brief opening statement before we move to questions.

Mr Warriner : My opening statement would be that I did not get a chance to prepare an opening statement, but I have been listening to the conversation for the last 15 minutes and it is not a new conversation at all. It is a very old conversation; it has been going on for an enormous amount of time. I think that, given that we are seeing some pretty good livestock prices now, we should not relax the agenda of this committee and what we are doing today in terms of trying to sort the industry out. We certainly need better prices than this in order to address our productivity issues inside the farm gate. As to the processing sector, we need to be very considerate of their terms of trade as well. They obviously have had some pretty good times in the last two or three years, but, having a little bit of experience in the processing sector, I know that they can actually have some pretty bad times in other periods. I think we need to take this issue forward as an industry. We need to participate and get all the bullshit out of the road and take it forward.

CHAIR: Thank you, Mr Warriner.

Senator WILLIAMS: This has been an ongoing process—trying to deliver more profit to the farm gate. Do you see now that the processors are simply too few in number and have too much power, as far as the whole control of the processing and exporting of our beef goes?

Mr Warriner : Potentially, they do. I think that they have ended up where they are for reasons that were not intended. I think that the processing sector is consolidated to where it is because they have had to remain globally competitive and they have focused on being efficient and cost-effective rather than being productive and trying to achieve things with better results in the marketplace. What you are asking is correct, yes.

Senator WILLIAMS: In this committee we look for solutions. We have heard of many problems in the industry. One problem I see is that we have had a huge kill over the last 18 months, especially due to the dry weather out in west Queensland and west New South Wales. Prices are up now, thank goodness. I pity those poor people who have to restock after it rains—and it will rain one day out there. It is going to be hugely expensive for them. To build more abattoirs and put more competition into the processing industry—I live at Inverell and I have seen abattoirs battle for many years and really struggle. You cannot afford to have them shut the doors for three months; they would go broke. Is it the case that, if we look to build more abattoirs, they may see a situation where they may be spending months a year with their doors closed if the numbers drop off?

Mr Warriner : I think that in the near term—in the next two or three years—if it does rain you are going to see the female kill reduced very dramatically, and there will be abattoirs dropping shifts and days anyway, even with what we have got. Taking a bigger picture view than the short term, I think that, if we are going to see the industry flourish and become globally competitive and sustainable, we really need to create more competition and the environment in which if somebody wants to build an abattoir they can obtain enough information and know that the environment they are building that abattoir in is globally competitive.

Senator WILLIAMS: One of our witnesses, Mr McCamley, was saying earlier that they should be inland—that it was much easier to freight boxed beef than freighting the cattle live.

Mr Warriner : I totally agree with him.

Senator WILLIAMS: We are lucky to have a few abattoirs inland—Scone and Inverell come to my mind first up. Unfortunately in Queensland it looks like most of those abattoirs are over on the coast.

Mr Warriner : That has been the trend over the last 30 years. They have headed to the south-east coast or the southern coast. Up in the North here we probably had 15 or 20 abattoirs 30 years ago and they have all gone—except the new one being built now. Unfortunately it will take a long time until that process gets to being in a sustainable position.

Senator WILLIAMS: Here is the problem: for every one abattoir we say is being built, we could name 15 that have closed in the last 30 years.

Mr Warriner : You are dead right—more.

Senator WILLIAMS: In a nutshell, what can we do as regulators to improve this industry? Give us three or four of your key points—what you see we can do to increase the farm gate price to the beef producers in Australia.

Mr Warriner : There are a few things. There is price transparency at the abattoir gate or somewhere at some point. Producers need to know where the opportunities lie. They might not take them; they might take them and fail. But, at the least, we need to know in a very clear and accurate form what a carcass cut-out looks like. We need to know that across, say, the cow and the steer. For the cow, particularly, there would be a grass-fed ox and a 100-day grain, and maybe the 300- and 400-day stuff—but probably more the first three that I just outlined. Call that transparency. I think we really need to address the costs to run these abattoirs in terms of energy and labour. They are certainly not globally competitive. It is a statement that everyone knows: if you are not globally competitive in this environment today you will end up like the car industry and you will cease to exist. We need to make some fundamental changes to the industry at that point; however, we need to avoid the situation where there is a lot of money in the industry but for whatever reasons the farm gate misses out. We have to remember that the producers in this country have billions and billions of dollars tied up in land and assets and they need a return on that. We have a whole north Australia agenda rolling out at the moment trying to attract foreign investment. I would have spoken to 50 Chinese companies in the last 12 months. We have a big problem with regulation—how we handle land tenure, how we handle foreign investment and all of this sort of thing. We have to get those things competitive on a global basis.

Senator WILLIAMS: I thought we were pretty liberal when it comes to handling foreign investment, compared to many other countries.

Mr Warriner : I think you have to look at foreign investment in a couple of ways. In North Australia we would never have got to where we are without it. The argument in the south is very pertinent, and we have to have some balance in that, but up here in the north without foreign investment we would not even be where we are today.

Senator WILLIAMS: I am a big supporter of foreign investment when you invest and you grow jobs, you grow business, you grow exports, you grow GDP and you grow tax take to Canberra. I am not a big fan of when foreigners come in to simply buy up our established industries and land that is at peak production. That is why I distinguish between investment and takeover. However, let's hope there is good investment, and I would certainly welcome foreigners coming here and building abattoirs. You would be the same?

Mr Warriner : Yes, exactly. Absolutely.

CHAIR: I know that through our previous inquiries—there have been that bloody many over the years; they all morph into one—it was highlighted that you could build all the abattoirs you would like to build in the west, in the Top End, being the Pilbara and the Kimberley. As you and everyone else here would be well aware, our nearest one is in Harvey, which is about 120 kilometres south of Perth. The problem facing that concept in the Top End is the live export trade. On the Hansard record I asked a major grower in the Kimberley if they would support a local abattoir even if the price for live export were better, and of course they said no and that they would chase the dollar, which is understandable. Is that also the case here in Queensland?

Mr Warriner : I can only talk from the Northern Territory perspective.

CHAIR: The Northern Territory—yes, please.

Mr Warriner : We chase the dollar. There is no doubt about that. You cannot compromise your business because you are supporting an attempt by someone to go into the processing sector. Everybody chases the dollar and your shareholders expect you to do that. The underlying question is: why can't the processing sector compete with live export? And how do we make it do that? The AACo are having a good go, and congratulations to them. They obviously believe they can do that. It would be great if they can and we see another two or three of them pop up.

CHAIR: I am on the side of the producer. Dollars are very thin, so I agree you have to chase every dollar. One of the seven recommendations from the grass-fed levy report to government suggested that we have a look at the Packers and Stockyards Act in the US. Of course, it was not picked up, but I believe that you are part of a transparency project into the meat industry. Is that correct?

Mr Warriner : I am a subcontractor to the guy who won the bid to do this project—yes. I understand it a bit. Going back to the US legislation, that act, what we are finding through our research into it is that there is a huge domestic market in the US where they consume something like 70 or 80 per cent of their products domestically, whereas here we export 70 per cent of our products. So it is a little bit more complicated to roll something like that out here, I believe, and it will cost a hell of a lot more because of our 25 million cattle versus their 200 million cattle. The efficiency on a per-head basis would be quite different.

CHAIR: So at this stage you can see it is not a viable option?

Mr Warriner : I am not going to say one way or another at the moment because I am involved in the process. Milestone 6 of this project is putting a cost-benefit on some different options, and mandatory price reporting, as is happening in the US, is one of those options that we will look at.

CHAIR: All right. I will not push you any further on that because I understand you have a fair way to go.

Senator O'SULLIVAN: Would you accept that over the last 25 years, on a very average arrangement, the price per kilo for livestock has remained reasonably constant?

Mr Warriner : Yes.

Senator O'SULLIVAN: Would you then accept that, at the retail end and the export end, the price per kilo has gone up by hundreds and hundreds of per cent?

Mr Warriner : I accept the concept that you are saying, yes—that the livestock price has not changed comparatively to the retail price. Absolutely.

Senator O'SULLIVAN: So the retail price for red meat has increased dramatically over that time, but the price for livestock per kilo has not changed?

Mr Warriner : That is right, yes.

Senator O'SULLIVAN: When we see great fluctuations in the price for livestock—and that is in periods of stress where we are seeing heifers and steers sold for 60c, 70c, 80c, 90c—have you seen evidence of that price adjustment making its way through to the retail sector?

Mr Warriner : Not at all.

Senator O'SULLIVAN: Following questions of some of the previous witnesses, if I had a Teys grid in front of me and I walked into Coles or Woolies and wanted to buy something off the Teys grid, I cannot do that, can I?

Mr Warriner : No.

Senator O'SULLIVAN: I can get a rump, or I can buy a rump, or I can buy the same rump.

Mr Warriner : Yes. You can go and buy a cube roll in a bag—

Senator O'SULLIVAN: Yet it is unlikely that all of those rumps have fallen into the one column on the Teys grid. Some of them could have come from the extreme left-hand side or to the extreme right-hand side of the grid?

Mr Warriner : Highly likely, yes.

Senator O'SULLIVAN: Do you know why it is I have to pay the same price no matter what is happening in the marketplace?

Mr Warriner : I guess you have got competition in different markets. You have got a livestock market and you have got a wholesale beef market and you have got a retail beef market and, by the time you go through those three markets, you end up with a completely different set of circumstances. I totally understand what you are saying but, therein, you have got competition and, whether it is good or bad—I am not saying it is good competition; I am saying it is bloody terrible competition—

Senator O'SULLIVAN: My point is that, if I had to choose to be a producer or a retailer, I am going to go retailer every day, am I not?

Mr Warriner : Probably.

Senator O'SULLIVAN: I have got more stability. If I use the historical data, I can predict pretty well what my meat product on the shelf is going to yield me over the next year; whereas, for a producer, it would be like witchcraft—whether they are going to get 50c or they are going to get $2.50 a kilo.

Mr Warriner : At the moment that would be correct. Ten years ago a lot of the butchers were shutting down because they could not compete. So I suppose it does change.

Senator O'SULLIVAN: When we look at what features impact on the processing sector, who sit in the middle—that is not ignoring that sometimes the processor is also the retailer, wholesaler or exporter; just let them sit in the middle for the moment—it then follows that all bad impacts have to go downwards. They are not shared upwards in the supply chain; they are all downwards.

Mr Warriner : Yes.

Senator O'SULLIVAN: If the processing sector has labour practices or labour issues that they cannot control, then they absorb that by passing that cost challenge on to the producer, correct?

Mr Warriner : Partly correct. In the future, when the drought breaks, they will have to pay for their livestock what they have to pay. If they suddenly start losing $200 a head each day, they have to lose the money. The problem is that the livestock licence is, in my opinion, more determined by seasons than it is by processor demand. What we have just seen is a hideous drought. We have seen the processors make a lot of money. If that drought was not there, their margins would have been considerably smaller.

Senator O'SULLIVAN: I do not necessarily agree with you, but we are not here to debate that. I think the suspension of the live cattle job had much more to do with the pricing in the domestic market the last couple of years than perhaps the drought—or at least equal partners. But that brings me to a point. It would seem to me that producers have feast or famine, and if I accept the comment you made earlier—which I do not necessarily accept—the processors have feast or famine.

Mr Warriner : You do not accept that?

Senator O'SULLIVAN: No—I accept that sometimes they are not doing as well as they used to, but I am not sure that it is famine for them.

Mr Warriner : We have seen 30 of them shut in the north.

Senator O'SULLIVAN: I accept that. I am talking about the ones which exist today. I am talking about the consolidation and I am talking about the practices involved with the survivors, not the ones who have shut. I accept that that has occurred. I just want to follow on from a question Senator Williams asked you. What can we do to take the volatility out of this marketplace? If you accept the same price for 25 years, then prima facie that is market failure at the point of the trade. That is the only point we can measure because that is the only point where transparency exists.

Mr Warriner : Yes, that is right.

Senator O'SULLIVAN: Two seconds after the trade, whether it is on the grid or in the sale yard, we have no idea what happens with that beef—where it goes and who gets what for whom.

Mr Warriner : The 25-year livestock price was probably good until about 18 months ago. We have seen pretty good lifts—or even less than that, probably. Anyway, that aside, you asked the question of what we can do—

Senator O'SULLIVAN: That is also on the back of so many producers suffering the worst that we have seen in the 25 years.

Mr Warriner : Yes.

Senator O'SULLIVAN: I think there is sufficient in this market chain for everyone to always get a fair and reasonable shake on what it is they do and what part they play. Our challenge is going to be to create an environment where that is possible. My message is, and I would like you to comment on it: be careful asking for government to intervene and regulate to make that happen, because you might get what you wish, and government are not the most efficient people to help a market regulate itself.

Mr Warriner : No. The comment I will make—and I have made it publicly before—is that the producers have a business model that is based on productivity and cost and a general slow inventory turn of 25 or 30 per cent. We are asset-rich and cash-poor in our business. Processing is a different thing, but beef exporting and live exporting are margin businesses. What I have witnessed is that it does not matter what the price of the livestock is, providing you can go through your process and sell the product at a margin. The lower the price is the better because your global opportunity grows. What my argument has been for quite a while is that the money we spend in marketing needs to be done in markets that can actually afford to get us a farm gate price of $4.50 or something like that. How do we do that? We have to design that system ourselves and we have to do it with the beef and cattle exporters, because at the end of the day we should not be spending one cent marketing our product in a market that cannot afford to pay a farm gate price of $4.50, plus the processing costs, plus these guys' small margins—which they should take, considering they only own the product for probably up to 50 days at a time. That is my opinion on what should be done.

Senator O'SULLIVAN: Finally, would you agree that, if we did not have the volumes in the live export trade at the moment, our cattle industry would be buggered?

Mr Warriner : Absolutely. You may as well take JBS out of the equation and ask the same question. It is 1.2 million head of cattle a year. It is as big as the major processors, so, yes, absolutely.

Senator O'SULLIVAN: Thank you, Chair.

CHAIR: Thank you, Senator. As there are no further questions, thank you, Mr Warriner.