Work together to iron out cattle price volatility, processor boss urges

The price paid by processors, lot feeders and producers (restockers) has followed this cycle under the weight of supply.

Processors can empathise with the impact current market conditions are having on producer bottom lines as they themselves have just emerged from an equally challenging period.

A key reason why we did not see processors close on mass over the last couple of years was their ability to prepare for such inevitable challenging conditions and a belief that eventually livestock prices will cool.

A string of stellar back-to-back seasons in key cattle, sheep and goat producing regions tightened supply and boosted restocker demand, as herds and flocks rebuilt, over the last few years. While consumer demand was strong, it was not sufficient to warrant a near-doubling in price of some livestock indicators between 2020 and 2022.

A dryer outlook, restockers exiting the market and elevated livestock turnoff explains the current downturn in the market - as it has before and will undoubtably do again.

However, compounding the current downward farm-gate price pressure are labour-induced bottlenecks at the point of processing and inflated input costs eating into margins along the supply chain.

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While Australia has the plant capacity to slaughter much larger weekly kills than we've seen recently, a lack of labour has inhibited processors' ability to add shifts to accommodate the rapid expansion of livestock hitting the market.

AMIC's own internal research indicates the industry is facing 10-25 per cent reduced capacity depending on region and site.

Anecdotal evidence shines light on the vast amounts of overtime some members are paying (one paying up to $250,000 per week) to bridge worker gaps.

The lifespan of such measures is limited due to the pressures on employer cashflow and employee wellbeing.

Staff shortages on production floors also mean that each carcase cannot be fully utilised, leaving untapped value on the table - value that is unable to underpin processor margins and, in turn, flow back to producers.

While industry is working on long-term solutions to build up the capability of the domestic workforce, skilled and unskilled visa workers are desperately needed to act as the pressure valve.

Impending changes to the Temporary Skilled Migration Income Threshold from 1 July will make accessing the Meat Industry Labour Agreement, a key pathway for overseas meat workers, less attractive.

The post-farm gate supply chain acts as a price 'shock absorber' between the producer and consumer.

Just as retail prices were slow to reflect the near doubling of some livestock categories, they are slow to mirror the current downturn. This muted price transfer avoids burdening the consumer with the market volatility seen week-to-week in Australia's saleyards.

The post-farm gate 'shock absorber' has been tightened by inflated costs, from labour to energy and finance to insurance, leaving less fat to smooth out the bumps in the road.

After the animal, the largest variable cost to processing livestock in Australia is labour. Not only are workers scarce, they will undoubtedly become more expensive as the 5.75pc minimum wage increase ripples through labour markets.

Inflated processor operating costs have the potential to eat into the demand created over the last couple of decades and the value available to flow back to producers.

While processor profitability has turned around after a very challenging couple of years, this is not evidence of profiteering. We are simply seeing markets at work and the challenges created by bottlenecks and inflated costs. Denying processors the ability to return a profit simply means there is less margin for processors to survive the next cycle (and ultimately less capacity and competition) and less investment to modernise establishments to keep Australian red meat competitive on the global market.

As often happens when we enter this stage in cycle, some commentators blame the market correction on the processing sector, when really it is simply supply and demand at work.

The voices that fail to speak up, however, are the boosters who promised that this cycle was different, and peak prices could be sustained in defiance of market forces.

Regardless, industry must move beyond simply eyeing each other's slice of the pie and avoid the temptation to request government intervention. Yes, there is a role for government in this conversation, but that is ensuring people, product and capital can be allocated freely based on market signals.

And it is the former of these - people - where government action is critical to ensure supply chains can function.

Processors and producers must continue to work together and take a whole of supply chain view to manage supply and market volatility. Industry cannot afford to fall into the trap of fighting over the pie as there are critical issues that need to be addressed as a whole supply chain, such as demonstrating our sustainability and animal welfare credentials, and improving market access and demand for our product.