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Rural and Regional Affairs and Transport References Committee
17/11/2015
Effect of market consolidation on the red-meat-marketing sector

EDWARDS, Mr Garry John, Managing Director, Regional Infrastructure Pty Limited

[10:50]

ACTING CHAIR: I welcome Mr Edwards, who is representing the North Victoria Livestock Exchange. We have started a little bit late. Subject to the forbearance of the recording, we may run a little bit over into morning tea. We do not have a submission from you, so would you like to make a brief opening statement?

Mr Edwards : Yes I would. I appear before you today representing Regional Infrastructure Proprietary Limited, or RIPL, as it is otherwise known. RIPL is a private company that is a manager and operator of a range of livestock marketing facilities throughout Australia, including the NVLX facility in Wodonga, Victoria. These facilities transact somewhere in the vicinity of 780,000 cattle per year and 2.35 million sheep and lambs annually. The facilities operate from Victoria to Queensland and operate under a range of sale formats, including both pre-sale and posts-sale weighing, as well as non-curfewed sales. At all times RIPL seeks to provide livestock marketing facilities that create a market environment that facilitates and maximises competition between buyers.

RIPL notes that the quantum of buyers physically attending both prime or fat sales has decreased over the past 10 to 15 years, while store and restock sales continue to have a large quantity of physical buyers in attendance. It should be noted that larger regional facilities tend to have greater buyer attendance due to the increased number of livestock they have on sale, rather than some of the smaller traditional facilities. The decline in attendance at sales where meat processors are traditionally represented is due to a number of factors, including a reduction of meat processing companies and meat processing facilities. But, more notably, it is as a result of more commissioned buyers-that is, individuals representing multiple companies rather than an individual company buyer basis.

RIPL is of the opinion that there remains strong competition across all market categories; however we do accept the premise that greater controls on the number of companies a commissioned buyer can represent should be given due consideration. It should be noted that nothing within the Australian livestock industry is as transparent as the live option system as a true indicator of market price, as multiple option markets operate simultaneously around the country on a daily basis. The recent achievement of record prices in many facilities is a testament to that fact.

Whilst buyers may attempt to influence their purchase price to ensure their ongoing competitiveness and profitability, the greatest influence on price remains supply against strong domestic and export demand. Unfortunately, the very basis of Australia's free market means that there are no controls on supply, creating an environment where prices will move up and down in response to the available supply production in a given market category at any one time. RIPL’s overarching opinion, though, is that there remains strong competition within the current buyer fraternity attending large regional livestock selling facilities. However, it is our belief that further consolidation should be carefully monitored.

That is my submission to this inquiry and I look forward to answering your questions.

ACTING CHAIR: Thank you. I am now aware of the dangers of going first, Senator McKenzie, so I am going to go to Senator Williams.

Senator WILLIAMS: Thank you. I am concerned about commissioned buyers as well. If you go to a sheep sale you may have two buyers but they might be buying for five companies each. Isn't that a case where you are actually reducing the number of bidders at the sale?

Mr Edwards : It is obviously the case of reducing the number of physical bidders, that is correct.

Senator WILLIAMS: Which would have the effect of reducing competition. Instead of having five bidding on a pen of lambs, you might only have two. Wouldn't that lead to lower prices, in your opinion?

Mr Edwards : That is a difficult and quite subjective thing to answer. The challenge really relates to whether the commissioned buyers themselves represent, within their buying contracts, a multitude of market categories or whether they represent market categories of the same description. If they are representing multiple market categories, you still in fact have quite active competition. The only issue arises when you have a small number of commissioned buyers where one particular buyer represents the same market contract for multiple companies.

Senator WILLIAMS: What would happen if you only had one commissioned buyer representing six or eight companies? That would be a real problem, wouldn't it?

Mr Edwards : I would suggest that they probably wouldn't run the sale.

Senator WILLIAMS: Exactly. What is the solution? We can't legislate to say, 'You are a commissioned buyer. You are not allowed to represent more than two companies when you go to an auction sale.' That would be ludicrous. If there is a problem here, what is the solution, Mr Edwards?

Mr Edwards : I am unsure of the precise solution. I know that there is obviously a problem out there and it certainly is a very real problem in the eyes of many of our vendors. Looking at a buyer gallery, particularly at the prime or fat sales where we may still be servicing 80-odd different buying contracts but only have 12 to 20 people standing in front of us, it is a difficult challenge. It is a challenge that has arisen, I guess, through efficiencies and people physically not being able to wear the transport costs of getting there. It is certainly something that as a business we are seeking to address as much as we can by providing alternative means for buyers participating in the physical options to actually increase the physical number of companies that may be able to represent themselves. Notwithstanding that the commissioned buyers represent a number of small meat processors or other direct buying contracts, they are very important to have their because of the efficiency of having one person. So it is a difficult situation to have one single answer for.

Senator WILLIAMS: You run the yards at Barnawartha?

Mr Edwards : That is correct.

Senator WILLIAMS: When you sell livestock, sheep and cattle, you just charge a per head fee yard duty. Is that how you make your money?

Mr Edwards : There are fees that are charged to agents and fees that are charged to vendors. The vendor fees are linked to, yes, a per head basis, but there is a linkage around the price of the animal. It is a fixed price that changes with the price of the animal. The reason for that is that, generally speaking, the larger, higher value animals take up more space in a facility than smaller, lower value animals. So it is a way of, if you like, amortising and trying to make the fees and charges more equitable.

Senator WILLIAMS: So there is a bigger charge for a bull compared to a small steer or wean or whatever?

Mr Edwards : That is correct.

ACTING CHAIR: Senator Williams, your colleague has approached me with a special pleading this morning to rush through a small number of questions. Will you allow her to do that?

Senator McKENZIE: Sorry, I have another commitment and then you can have it back.

Senator WILLIAMS: Go.

Senator McKENZIE: Thanks, mate. I apologise if you have already answered Senator Williams. On notice, could you provide the committee with a timeline of what occurred—and which resulted in the setting up of this inquiry—with the boycott of the processors at the Barnawartha saleyards? Including in that timeline, I would like phone calls, e-mails and written communication from said processors who did not show up on the day preceding that date. Mr Edwards, I am assuming that North Victoria Livestock Exchange did receive communication from the processors prior to the day. Is that right?

Mr Edwards : Yes, we received formal notice from one company some months out, which was Teys. There was some verbal communication in the few days leading up to the sale.

Senator McKENZIE: With Teys or with others?

Mr Edwards : With others.

Senator McKENZIE: How many others?

Mr Edwards : I will get you the exact information and provide it to you. To deal with this issue directly, the issue was at that particular site and that particular sale, that the facility that was closing down had operated for some 30 years under a pre-weigh methodology.

Senator WILLIAMS: You’ve done pre-weigh for 30 years?

Mr Edwards : That is correct. The only change of process that was implemented from the existing site to the new site was the confirmation of a definitive curfew. The reason for that was to ensure that there was greater consistency in the yields, whether it was done under a pre-weigh or a post-weigh environment. Because there is substantial data available in the public domain around how animals lose weight from the time of being taken off feed. They lose that quite consistently over the first 12 hours. There was very little difference from our perspective between—

Senator WILLIAMS: So you set a curfew for the pre-weigh?

Senator McKENZIE: That was the only change in operating practices from the old facility to the new one?

Mr Edwards : The only change, to clarify some previous comments, was the enforcement of a definitive arrival curfew between the old and the new.

Senator McKENZIE: Right. Thank you. So that was the only change?

Mr Edwards : On that basis, and given that that had been communicated to the saleyards advisory committee that included a buyer representative—

Senator McKENZIE: Which buyer?

Mr Edwards : I believe it is Mr Paul Quinn.

Senator McKENZIE: Representing which group?

Mr Edwards : He represents a range of companies.

Senator McKENZIE: A range of companies?

Mr Edwards : He is a commissioned buyer.

Senator McKENZIE: He is a commissioned buyer. Thank you.

Mr Edwards : The process and that whole discussion or communication was done through the sale yard advisory committee process and then subsequently through the agents directly with the buyers. As a consequence of that there was little to no direct communication with ourselves as operators, apart from the letter received from Teys, which was very clear in regards to their stated position. Given that the change was minimal—in fact it was only confirming matters relating to the vendors—it was not expected nor was it communicated that there would be so many buyers not in attendance on that particular day.

Senator McKENZIE: So you as an operator were surprised when the day came and no one rocked up.

Mr Edwards : I was definitely surprised at the quantity that were not participating in that market on that day, given that they had participated in the previous week. I was unaware by the time the day arrived, but it was too late to affect change, that there could have been three or four additional people not in attendance for a range of reasons. I was also aware that one facility had a breakdown and they would not be participating within the broader market nor were they participating generally in the markets that week. But it was, unfortunately, too late to switch the mode of operation, if you like, given that vendors had consigned stock to that particular sale on the basis that they were going to be sold pre-weigh. It was clearly our intention, and it was what was communicated through the various advisory committee formats, that we were going to transition to the new site with as minimal change as possible and look to consider transitioning to a post-weigh process within 3 to 6 months thereafter.

Senator McKENZIE: Was the advisory group aware of that goal to transition to post-sale weighing within 3 to 6 months?

Mr Edwards : Obviously those in attendance. The challenge for the advisory process, and certainly the process in the context of relying on an individual representing a group, is that it is difficult to ensure that that message is adequately communicated to everyone. As a consequence of this, from a company perspective, we have changed the way in which we communicate to both vendors and buyers. There is far less reliance on third-parties or individual representation. As I said, most of this communication with the buyers would traditionally happen via the agents. We chose to change that to ensure that nobody could be in a position of being confused as to what is going on. But now those communications and notices are issued directly to our database.

Senator McKENZIE: You operate facilities across the country that are both pre-sale and post-sale auctions, if you like. Are you aware of an evidence base one way or the other about what is the best outcome for producers and also if there is one method or other which provides the best outcome for animal welfare?

Mr Edwards : We certainly do operate facilities from Victoria through the Queensland, and we operate them under different means of operation. The greatest difference in our data that we have had independently verified shows the significant difference to both producer returns and to animal welfare outcomes is not driven as to whether it is pre-weigh or post-weigh. It is driven by the facility that they are in-that is, whether it is a soft floor or a concrete floor, the availability of water, the type of water that it is and how the stock are handled throughout that process. We have done internal testing and data verification that shows that the difference between pre-weigh and post-weigh, providing there is a definitive curfew in the pre-weigh, can be as little as half a per cent. In many instances it does not exceed one per cent, given the nature of how livestock lose weight.

There is a substantial difference. Understanding that, from a meat processors perspective, if you do not know the actual time the curfew commenced, you are unsure as to whether you are dealing with a six hour or a 12 hour curfew. Obviously post-weigh deals with that in the sense that, because it is getting the minimum 12 hours, you are going to get the bulk of the weight loss anyway. The substantive difference then relates to whether the animals are relaxed and whether they are consuming water. If they are doing that, which they do under the undercover soft floor facilities—and that is the biggest difference between the old facilities and the new ones—then there is a substantial reduction in overall weight loss. In many cases, that reduction more than pays for what the yard fees are for using the facility.

Senator McKENZIE: Is that evidence well understood within the producer community?

Mr Edwards : No, it is not.

Senator McKENZIE: Whose responsibility is it to communicate that?

Mr Edwards : Most of the data that relates to this was compiled by the various departments of primary industries some years ago. To that end, in the past 18 months as a company we have commissioned our own data and we will be making a public report available. As I noted, we are making more direct communication with the vendor's in trying to get more evidence out there as to what is actually occurring. The physical weight loss as to pre-weigh at the old Wodonga site versus post-weigh at the new one is very minimal.

Senator McKENZIE: Could you give us an indication of the dollar value loss by producers that day?

Mr Edwards : I would find it difficult to give you an accurate figure-

Senator McKENZIE: But you pre-weighed everybody.

Mr Edwards : We could calculate it out with some subjective assessments, but and they would be very subjective assessments—

Senator McKENZIE: But if you have the weight of the cattle that were penned that day, and you would have a very good understanding of the freight task and cost, for the committee could you on notice go home, do some sums and let us know what the dollar value loss for producers en masse was throughout north-east Victoria and south-eastern New South Wales as a result of that event? As a result of the buyers boycott, did you offer to refund penning costs or assist producers with the failure of the sale that day?

Mr Edwards : There were some livestock market categories and, in answer to your previous question, there were some categories that did not change at all in price. There were some categories where the agents selling them did not believe that there was the adequate competition that they expected and they withdrew them from sale. We did not charge fees to anyone that did that.

Senator McKENZIE: But they still would have been charged transport costs, I imagine.

Mr Edwards : Yes, they would have been charged transport costs. We subsidised a substantial amount of the cost for people who chose to leave them at the facility for the following sale.

Senator McKENZIE: Of the feed to house them there and the staff, I guess.

Mr Edwards : Internally, we wore that cost.

Senator McKENZIE: Thank you.

ACTING CHAIR: You have now posed two questions on notice. You may not have heard earlier in the day that we set 1 December as the response date for questions on notice. Senator McKenzie, you are going to wrap up shortly, I am sure.

Senator McKENZIE: I am. In terms of the auction process, can a producer place a reserve price on a pen of cattle?

Mr Edwards : That is their entitlement; that is correct.

Senator McKENZIE: The rest of my questions can go on notice. In terms of how the facility is operating now, have you had any feedback from local producers post boycott?

Mr Edwards : There is regular feedback from the producers on a range of matters.

Senator McKENZIE: That is good to hear.

Mr Edwards : The issue is that the market and buyers have adjusted to buying post-weigh. We now have prices that are comparable with any other facility out there. I guess the greatest challenge and the hardest thing in quantifying all of this stuff is comparing prices of physical markets and different categories, given the nature of the livestock and the market movements at any given point as to where it’s at. But given the record prices achieved at a range of facilities throughout the country over the past couple of weeks, I am sure people are very happy.

Senator McKENZIE: Everyone is happy. Briefly, your comments on the commissioned buyers and the transparency of the pricing at the moment.

ACTING CHAIR: I think we will take that one on notice. Senator Williams.

Senator WILLIAMS: I have little to add except to ask if everything is going smoothly now. They are accustomed to post-weighing after 30 years of pre-sale weighing, is that correct?

Mr Edwards : That is correct.

Senator WILLIAMS: What time is your sale carried out during the day? When do you start selling cattle?

Mr Edwards : Eight o'clock in the morning.

Senator WILLIAMS: When is the curfew?

Mr Edwards : It is 9:30 pm the previous night.

Senator WILLIAMS: And it is all working well?

Mr Edwards : It is now.

Senator WILLIAMS: That is about it from me, thanks.

ACTING CHAIR: Senator Williams, you should be commended for your brevity. I am going to continue in that vein by not asking you any questions but merely thanking you, Mr Edwards, for coming along. We will now adjourned for 10 minutes so that the secretary can have a cigarette. We will be back at 11.20 am.

Proceedings suspended from 11:10 to 11:20