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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

McHUGH , Mr Peter James, Private capacity

[12:18]

CHAIR: Welcome. Would you like to add anything about yourself or the capacity in which you are appearing here today.

Mr McHugh: I have been in the industry for 44 years, as a service industry to the cattle producers in North Queensland and Far North Australia. I have been involved with the New Directions Beef Forum, which was held in Rockhampton, in August 2010. I am also a member of the Concerned Cattle Producers group. Also, I have been a member of the Australian Beef Association since they started.

CHAIR: Your submission has been received as submission No. 73. Do you want to make any amendments or additions to your submission?

Mr McHugh: I have one submission I would like to add. It is a graph of the red meat industry structure from 1998 to 2011. That has been provided to me and, they tell me, to senators. That was put together by Mr Athol Economou. He is a well-known trade journalist and also a beef producer, in Victoria.

CHAIR: Would you like to make a brief opening statement before we go to questions?

Mr McHugh: I would like to advise the committee on producers and about the meat industry structure. We have heard from other submitters today about the disproportionate representation at board level. We are looking at a graph that is very similar to a dog's breakfast. It is very hard to understand how any industry can run with such a complicated group of boards. Unfortunately, I believe the cattle producers have been left behind. I would suggest that their peak councils, being the Cattle Council and the state farm organisations, have been socially engineered to see they are where they are now, which is in financial difficulty—to be able to compete against the processing side of the industry.

My submission is 14,000 kilobytes, which is something quite extensive. There are five attachments. I was wondering if we could work from one attachment to the next.

CHAIR: Bear in mind that we will want to go to questions. We are scheduled to finish at 12:30 but we are not going to cut you off, so we will go into the lunch break. But I will instil some discipline and try to catch up on some time somewhere. So go for it, but bear in mind that we do want to ask questions.

Mr McHugh: We have heard a lot from other submitters, and you are all over it, going by your questions and answers today. I am pleased to see that. Senator Sterle, you asked how this came about—how did we allow this to happen? I believe it has been socially engineered over a period of time. But what have we seen change? In 2007 we saw a major change in the ownership to an overseas company of a major processing industry in Australia, that being JBS. Along with the help of a half-owned overseas company, Cargill, I believe we have seen nothing but predatory and cartel actions from these processors, who control a large percentage of the kill in Australia.

I have done some research on this. Attachment 1 to my submission is to do with the live export closure and the alliance that was set up 18 months before the closure. This was driven by JBS and Teys, along with three other processing companies, in conjunction with the AMIU and the World Society for Protection of Animals. It started with JBS Swift, in Townsville, employing their whole staff, in January 2010, and sacking 60 per cent of their staff, being 270 members, in early February, and blaming that on the live export industry and seasonal conditions. That started the alliance work. From there they went down the track of major rallies in Sydney, with Lord Mayor Clover Moore, with a revised report by three processing groups, being JBS, Teys and Nippon Meat.

In my report I give you the dates and the areas of how this happened. You have to be aware that this report is fairly factual, because there was a meatworkers' magazine article, dated I think March or April 2010, that spelt out this alliance and their sole purpose of closing down the live export industry. I have provided two graphs in here today that will show you the correlation in the cattle price relationship between the USA and Australia on the Australian trade steer and the USA feeder steers. From 1998 to 2011, at the start of the ABC report, we followed them on this grid, on the pricing grid. In 2011 the American market went ballistic, went sky high, over the Australian market because of the live export closure. It stagnated due to what I believe was processor interference in another competitor, being the live export industry.

What came out of that is the price variation between the American cattle industry and the Australian cattle industry. Over 200,000 to 270,000 head of cattle were thrown into disarray and had to be slaughtered in Australia, which gave these major processing organisations complete control of being able to manipulate and price gouge the system. It is all there in writing. That is my first attachment. I do not know if there are any questions from the senators on that attachment.

CHAIR: I would like to just make one observation, Mr McHugh. I have been on the public record many, many times, as my colleagues can testify, defending the live export trade. I do not like the live export trade. I would much rather see a prosperous boxed meat market coming out of Australia with Australians employed. I would not find it strange—I am sure my colleagues will pounce on me if they think I said something wrong—that the meatworkers union would want to campaign to stop the live export. I understand the damage that was done to communities and producers. I have never, ever, ever in my time as a senator condoned the closing down of the live export in the way it was done. We will all just get that very clear. I would not be very surprised if the union said, 'We want to keep Australian jobs—

Mr McHugh : Chairman, I agree with you, but at the same time the AMIEU never protected the 260 staff that got sacked in Townsville at that time.

CHAIR: I will not get into an argument with you, Mr McHugh, because I am not even aware of it—

Mr McHugh : I am not arguing; I am just suggesting. Today I think you will find probably 30 per cent of the staff in the meatworks are 457 visa holders.

CHAIR: I have no doubt—I cannot contest that, but I have no doubt there is significant—

Senator BULLOCK: It was an unhappy time, and perhaps we can put it behind us.

Mr McHugh : Extremely unhappy times. We are seeing some unprecedented prices in Australia today that should have happened in 2011. There have probably been four years of hundreds of millions of dollars ripped out of the Australian producers' pocket, and to me that is called theft. They are my thoughts.

CHAIR: You did not get a resounding boo, so I think you are on the money.

Mr McHugh : I am very fortunate in a way that I do not sell or buy cattle, because the industry has been put through a lot of heartache in previous years, and then we have nature not helping at all. My attachment 2, which is my content 3, is on the price grid and kill sheet, which I believe is just a basic major discount mechanism. I think we have seen all of that discounting happen.

CHAIR: I think we are aware of it.

Mr McHugh : I have a client's kill sheet here, which is a JBS Dinmore sheet, which is the price grid that you discussed, and I agree with you, Senators, that it is a very, very hard to understand. I am a producer of cattle supplementary feed, so I manufacture product. I have got one production line. It might be able to go to bulk bags or into smaller bags. If you go and look at this grid with the dentures, fat, weight and everything else that goes with it, we would have to have about four different production lines if these products were going into different box consignments. I can assure you that is not happening, if you go and ask some of the meatworkers or all of the meatworkers.

I am giving you an example of cattle that were sold on a grid on 4 February 2015. It was a cow grid we worked on. My client had less than 12 head of cattle to sell, so it was a lot easier to be looking at this than when someone is selling 100 to 1,000 head; you can see the associated problem much easier. If you have a look, there is a 180-plus grid for cow meat at $4.10. The next price down, the 160-plus grid, was $2.35. Now, do your sums. Senator Williams talked about the different sizes in carcasses and that there should be some discounting on how long they take to kill—mind you, I think it would be faster to kill smaller animals than it would be to kill larger animals—but that $4.10 down to $2.35 is a huge variation.

CHAIR: Yes.

Mr McHugh : As I said, this is 12 carcasses or 24 sides if it was 12. I am trying to protect the guy that has given me this information.

CHAIR: Sure.

Mr McHugh : So out of this we have five sides. You have got to ask the question: why do we weigh in sides and not carcasses? To me it is just another ability to discount. One carcass was under on the right side to the left side but he was only 1.5 kilograms under the 180-plus grid, so he was discounted down to $2.35. I will shorten this up: it was five sides; there were 11 kilograms, total, under 180 kg. That is about 2.2 kilograms average per side, so those five sides were discounted down to $2.35 and that is $772.64 that that person lost.

Senator WILLIAMS: That is $772 across the five sides?

Mr McHugh : Across the five sides, yes. So one side: $154, $150, $154, $155 and $153 they lost—because of that average of two kilograms. The side that actually went 90 kilograms got a five-cent premium at $4.15 and he made up an extra $162 gain. If you extrapolate that across the cattle kill in Australia there is major gouging happening—also, when is the last time you walked into a butcher's shop and were able to order a kilo of cow meat? So what is the difference? Why should there not be a variation in price when it hits the butcher shops? There is not. It turns into a rump or a rib fillet or whatever.

Senator BULLOCK: The idea that half a cow can attract the premium and the other half of a cow can attract a heavy discount is ridiculous.

Mr McHugh : That is attachment 2. Any questions?

CHAIR: No, keep rolling; let's roll through so we can get to the questions, because we are—

Mr McHugh : Attachment 3, which was because I asked for some privacy—content 5 is attachment 3, and that is Senator Bullock's baby. He is discussing by-product. In that, I have provided a huge amount of information, which actually comes out every month in an MLA co-product report. So Senator Bullock has got it. I cannot understand how a product that has become hugely valuable over a short period of time, maybe, or a long period of time, was once upon a time put down a chute into meat meal or blood-and-bone meal or blood. Today, every article on that beast is sellable, and they are making huge profits. I will give you an example: gall bladder stones—and wouldn't it be good if you could actually start harvesting them or processing them better. There was a meat worker who was charged with theft. He stole 400 grams of gall bladder stones worth $4,500 from a meat works this year, I think, or last year. When I read the full report, it put gall bladder stones at $30,000 a kilo. And we are getting nothing. The grazier does not get anything, and I suggest that is why the trim has a 10 per cent variation between America and Australia.

Senator WILLIAMS: What do they use the gall bladder stones for?

Mr McHugh : Herbal medicine in China. I have been around for 44 years and I have heard for years—and you have heard it today—that the offal and hide and hooves and everything does pay for the processor kill.

Senator O'SULLIVAN: Do you know what they get for dried bulls' pizzles?

Mr McHugh : Well—

Senator O'SULLIVAN: $50 a kilogram.

Mr McHugh : Well, there you go.

Senator O'SULLIVAN: As a pet treat.

Senator WILLIAMS: As a pet treat!

Mr McHugh : I do believe that, if we can help the industry tidy up, that is something that should be looked at. Attachment 5 is actually—

CHAIR: Mr McHugh, where would you go to clear that up? Where would the industry go, apart from saying, 'Gees, we're getting absolutely screwed. You mob are making a heck of a lot of money out of our beasts. We own the bloody thing until it's technically killed, and yet you don't even want to talk to us'?

Mr McHugh : The Senate just had a wonderful Senate inquiry into the MLA levies and came up with the seven major recommendations that were going to help exactly what this inquiry is about. It was going to help the producer industry get stronger and get more representation. Unfortunately, that is not how our agriculture minister saw it, and I hate to think how he is being advised. But that is what is needed. The producer organisations need strength. They need finance. They need the ability to be able to fight.

CHAIR: All roads lead back to Rome—not Roma!

Mr McHugh : I honestly believe that, through the fact that that levy inquiry was introduced, we are seeing a much more attentive board at MLA. We are seeing a much better CEO, and they are actually cleaning up their own act. They are also questioning the extended role of the processors' hold over them with voting. Somewhere along the line the processors have their own group, Australian Meat Processing Corporation, and that is their group. MLA is the red meat producer group, controlled by processors, and it cannot work.

CHAIR: Just very quickly, a lot of people would not see the countless hours in Senate estimates when this committee and Senator Heffernan—and, God bless him, he is not here today but we always feel the bugger; he is not far away—continually got into MLA about their lack of transparency and their lack of accountability. They got dragged kicking and screaming to improving themselves. Good luck to the mob that are there now! The previous ones should be taken out the back and flogged. Keep going, but we do want to ask you questions.

Mr McHugh : You have heard about AUS-MEAT, and that is one of the reasons I actually went and found this. It is a joint venture company 50 per cent owned by the processors and 50 per cent owned by MLA, and I would suggest that what happened with control of MLA over past decades and their people that ran it and led it and the board is absolutely disgraceful.

CHAIR: I am going to jump in because I am very keen. As you said, AUS-MEAT is 50 per cent owned by the producers and 50 per cent by—

Mr McHugh : MLA, yes, it is a joint venture company.

CHAIR: To the best of your knowledge, is the funding exactly the same?

Mr McHugh : Seriously, there has to be better people than me in the audience.

CHAIR: That is fine if you do not know. I just want to flag this with you, because I want to get your thoughts on this. We are really on the same wavelength here. Let me put this to you about the red meat MOU or your AUS-MEAT Australian Meat Industry Language and Standards Committee. Just for everyone in the room, we heard earlier that there are 10 members on that committee. We were told that AMIC has four, CCA has one, the Sheepmeat Council has one, ALFA has one, Australian Supermarkets Institute has one, Australian Pork has one and the PMIC—help me out, colleagues, is that the prime investment ministerial council? I do not know who that would be—

Senator CANAVAN: Perhaps someone there is more learned—

CHAIR: Okay. They have one. So out of the 10 I can only identify one from the Cattle Council, one from Sheepmeat and one from Australian Pork that would be from the producers' side, and yet there are 10 and so that leaves seven. Do you wish to comment on that while we are going along, and how we are going to fix this?

Mr McHugh : Just quickly—and you referred to it before: you have the inmates running the asylum. It cannot work; it is nearly impossible for it to work.

They have to sit down with an opposition—and let's face facts: processors, up to a point, are an opposition to a producer. That is a fact of life. We have to work together, and it has to be fair work. If it is not fair it is going to fall apart, which is what we have seen. It is very unfair to the people who have most of them. We hear how much processors have put into the Australian processing industry and it is really very limited compared with how much money is tied up in the producer industry. It is very unfair on who gets what in the share of the dollar.

It needs to change. We know it needs to change—

CHAIR: While we are on that, I am going to offer my colleagues the opportunity to ask a few questions. We have run out of time, but we are not cutting you off.

Senator CANAVAN: Mr McHugh, from your submission: I was not quite sure if it were you saying in an email that you had been to Biloela and saw how much fat trim was coming off—

Mr McHugh : Sorry?

Senator CANAVAN: Sorry, I will speak up. In your submission, you report that somebody had been to the Biloela abattoir and seen how much fat trim was coming off the beef. I was not sure if it were you or someone else; I think the names were redacted.

Mr McHugh : Yes. That was a butcher-producer. That would be worth looking at. He knows the game on both sides.

Senator CANAVAN: Well, in terms of Senator O'Sullivan's questioning earlier if you would like to provide us with that name separately from this process that might be useful.

Mr McHugh : Yes.

Senator CANAVAN: However, I want to get your opinion on some of the solutions that have been flagged this morning about how we deal with this issue. Do you think that cameras should be installed? More independent auditors? What is the best approach?

Mr McHugh : You cannot have processor-graders. My staff work for me. They do not work for my clients, even though I tell them that the clients are the ones who actually pay the cheque. If they are sitting on their butts, not working, and I walk in they jump up and pretend that they are working.

CHAIR: I used to have—

Mr McHugh : I actually had one client there years ago—the staff were sitting down and one guy jumped up at smoko time and asked, 'What would you like, mate?' He said, 'You won't keep a job long here, mate, if you get up and start being active.' So, we have to get rid of processor-graders. There is just no other way we can do it.

CHAIR: They are all independent, aren't they?

Mr McHugh : No, not Independent graders. Also you cannot have AUS-MEAT supposedly doing the audit. They ring up and say, 'We're coming tomorrow,' and everything is neat and tidy. How does someone train a grader to work on fat debt, denture and D-butt shapes—everything that goes with that—and be exactly the same as all the other processing plants throughout Australia? Even if it is Dinmore and JBS Townsville, you will find that a lot of this came from Swiss American. There was a gentleman who ran the place—and I can give you his name. He actually brought in these C-butts and D-butts and everything as a price mechanism and the actual manager in Townsville would not take it on. He would not accept pricing the animals based on butt shape. He held out on this gentleman and was doing it overall. What he had on him I do not know, but he held out for many years.

Senator CANAVAN: I noticed that in your submission, and I should disclose, I suppose, that I used to work for a beef company and they did not use C-butts or D-butts as grading tool. Could you explain: what is it? I cannot quite understand. What do they do? What is a C-butt and what is a D-butt?

Mr McHugh : It is the shape of the butt. I eat meat; I do not grow it or sell it and I have not had much to do with the actual—I am virtually a researcher that has researched this and got information from my clients over 44 years.

Senator CANAVAN: Is there a rationale for it being linked to a better eating quality or a better—

Mr McHugh : I do not know if you realise that in the Brisbane Ekka—last year I think it was—there was a champion pen of cattle that JBS turned around and D-butted; they discounted those cattle on D-butt shape. They won at the Ekka show. So who is right and who is wrong? You can rest assured this goes back many, many years ago, and it was a challenge about D-butt and C-butt shape.

CHAIR: Let us come back to this, Mr McHugh, because we are running out of time, but I would like you to continue if there is anything that you—you have opened up a serious debate; we could sit here for hours, so if you can just get through—

Mr McHugh : Attachment 5 is correspondence on irregular D-butt discounting. A very good friend of mine who is on the Concerned Cattle Producers group has stuck his head right out of the trenches and he has provided me correspondence that shows where he got discounted up to $12,000-odd dealing with JBS Dinmore based on D-butt.

CHAIR: Discounted $12 000—was it over the course of a year?

Mr McHugh : I will give you an example. There are a few letters here, and you guys have it all. What he is saying is that he sold to three processing plants, and the only plant that discounted on D-butt was JBS Dinmore. With the other plants, it was the same cattle grown at roughly the same time on the same property, and he was only discounted by JBS Dinmore.

CHAIR: So could I assume, as someone who is not in the cattle industry, that if they got away with doing it to that one person they would be doing it to everyone who supplies them.

Mr McHugh : As I said, you extrapolate that out of the Australian cattle killed, and you go and get someone that is putting a thousand head of cattle. One of my clients thought he had it booked in Townsville there last year and they said, 'No, we cannot kill here; you have to take it to Dinmore.' And on that freight it cost him an extra $100,000.

CHAIR: In transport—

Mr McHugh : In freight—very good for JBS, because they just put it in a box and sent it overseas.

Senator BULLOCK: So the answer there is uniform independent grading? Is that the answer to the problem?

Mr McHugh : It has to be, and there has to be a sheriff running around as quickly as possible, because this goes on and on. It is all there; you have it all. The above case sold a lot of cattle and it happened twice. He wrote letters to them and he brought up the Ekka competition, and they still D-butted him a second time around.

CHAIR: With my colleagues on the committee, I think we should invite AUS-MEAT to come and front us too, with your agreement there, because we might want to start digging down about how much money actually goes into AUS-MEAT from the industry. If someone else out there knows that, you can let us know. Sorry, Mr McHugh. Anything else?

Mr McHugh : No, that is mine there. You have heard from Josie and Blair Angus, and I can assure you: if you want to get your head a bit more around it, which you guys are already doing, have a very good read of that submission. It is excellent. If you said to me today—you have given everyone else the opportunity—'Which way can we go here?' we have seen the results from a wonderful Senate inquiry into the levies and the recommendations buried, and this is what our concern is again. I do believe we will see some activity because of these Senate inquiries with our organisations—possibly a better working relationship. I dare say that, if you could at the end of this recommend a rural commission into the theft of meat and the stealing of hundreds of millions of dollars a year since the live export closure, we might see some people pull their heads in.

CHAIR: My preference is that this committee continue its hard diligent work, getting out into the communities and listening. I just hope and pray that the minister will actually pick up and maybe impose upon the department and others some of our fine recommendations, if I do not mind saying so myself. On that, Mr McHugh, can I thank you very much. We will now take a break .

Mr McHugh : Thank you, Senator.

CHAIR: Thank you.

Proceedings suspended from 12:50 to 13:30