Chapter 6.3
Problems facing the meat industry
6.70 Recent changes in people's eating habits aimed at reducing fat in
their diets have had an impact on the consumption of red meat in Australia.
Studies indicate that lamb, and to a lesser extent beef, are seen as being
non-essential to a healthy diet by many people. [68]
6.71 Although claiming that considerable achievements have been
recorded in value-adding in the meat industry, the Australian Meat and Livestock
Corporation in its submission listed a series of impediments to value-adding activities,
including:
- higher boning costs in Australia compared to overseas;
- high costs associated with satisfying export requirements;
- duplication of the inspection process for processed meats exported to
the European Community (EC);
- the use of hormonal growth promotants in the meat industry that
reduces the availability of product suitable for canning and exporting to the EC market;
- high tariffs on processed meats applied by importing countries; and
- increased competition from the United States, New Zealand and countries
of Latin America. [69]
6.72 In its evidence to the inquiry the AMLC stressed that higher costs
for processing meat in Australia compared with other countries was discouraging
food processors and smallgoods manufacturers exporting, as well as affecting
the overall competitiveness of the Australian meat industry to operate
in world markets. [70] These factors, coupled with tariffs, applied
overseas on the import of value-added meat products, such as meat patties,
has promoted the export of live animals, particularly cattle from Northern
Australia. [71]
6.73 The AMLC told the Committee that a 10 per cent tariff on meat
patties in the United States:
Is enough to kill any patty exports to the United States. We just do
not have the cost advantage to be able to compete with a patty manufacturer
in Texas, which is producing 24 hours a day with relatively cheap labour.
[72]
6.74 Specific sectors of the meat industry have experienced problems
in their attempts to add value to their production. These problems are examined below in
relation to the:
- beef industry;
- lamb industry;
- pork industry; and
- pet food industry.
Problems facing the beef industry
6.75 The Beef Improvement Association of Australia (BIA) stated in
its submission to the inquiry that:
The Australian beef industry has no common vision for the future. It
has no preferred vision. It has no goals. [73]
The Association went on to stress that it was impossible to formulate
strategies for the beef industry without goals. [74]
6.76 The Australian Meat and Livestock Corporation, in evidence to
the inquiry, vigorously denied these accusations by the BIA. Dr Bruce Standen of the
Corporation stated “I think we do have a very clear vision”. Dr Standen went on
to comment:
The Corporation, with industry, has identified a set of programs and
activities which we believe will facilitate the goal which is to enhance
the profitability of those industries. [75]
6.77 In his evidence to the inquiry the Executive Officer of BIA, Mr
Michael Stephens, noted that sectors in the beef industry see themselves
as being in competition with each other rather than acting in cooperation.
As a result of this lack of cooperation the industry cannot agree on how
to handle live cattle, transporters, agents, processors, wholesalers,
retailers and exporters. [76] The BIA
is acutely aware of the need for cooperation within the beef industry
if it is to progress. When asked during a public hearing by the Chairman
of the Committee “you are saying that the only way you can get value
adding is if everyone pulls together” Mr Stephens replied “Absolutely”.
[77]
6.78 Dr Standen of the AMLC confirmed that the meat industry is not totally
unified when he stated to the inquiry “it is a very complex industry
and I would not suggest for a moment that there is total cohesion and
unanimity by any means in a lot of directions.” [78]
6.79 In addition to a lack of cohesion in the industry an additional
impediment to value-adding in the beef industry has resulted from restrictions
overseas on the import of Australian beef. [79]
Conclusions
6.80 The Committee is of the view that there appears to be a lack of
unity of purpose and cooperation within the beef industry which has an impact on
value-adding in the industry and on the marketing of beef and beef products overseas. The
Committee encourages all sectors of the beef industry to improve their level of
communication and cooperation so as to increase the industry's value adding activities.
6.81 The Committee appreciates that the Australian beef industry
faces significant difficulties in increasing its share of existing overseas markets, as
well as difficulties in breaking into new markets. Some of these difficulties, such as
quotas or contrived health restrictions, are beyond the control of the Australian beef
industry. However, difficulties the industry makes for itself in dealing with overseas
markets, such as a lack of unity and cooperation in the industry, can be overcome with
some effort by all the parties concerned.
Problems facing the sheep meat industry
6.82 Between 1984 and 1993 Australian lamb exports nearly doubled. Due
to a reduced supply base and strong export demand there has been intense
competition for lamb pushing up prices and returns to growers. This situation
contributed to a decline in the domestic consumption of lamb. [80]
Consumption of lamb per person was forecast to decline from 11.6 kilograms
in 1994-95 to 9.7 kilograms in 1995-96. Domestic consumption of mutton
was forecast to fall significantly during 1995-96, down 42 per cent on
1994-95 levels to 3.3 kilograms per person a year. Australian lamb and
mutton exports were forecast to decline by 10 per cent and 20 per cent
respectively during 1995-96. The fall in domestic consumption is much
greater as a result of strong competition from other meats on the domestic
market. As a result exports were expected to account for 53 per cent of
total sheep meat production during 1995-96, compared with an annual average
of 46 per cent over the previous five years. [81]
6.83 In addition to the price sensitivity of Australian consumers
other factors have contributed to the decline in Australian's consumption of lamb. Delene
Evans of the Australian Meat and Livestock Corporation stated:
Fattiness, wastefulness (meat to bone ratio) and poor value for money
all add up to a consumer perception of lamb as old-fashioned and traditional,
out of step with contemporary food trends. [82]
6.84 Delene Evans argued that if lamb is to remain relevant to consumers,
particularly women, fat must be removed from the meat before sale. Ms
Evans was also of the view that for lamb to be marked successfully it
required its own distinctive and positive health claims to increase its
role and relevance in people's diets. [83]
6.85 In order to overcome some consumers' negative perceptions of lamb,
in March 1992 the Australian Meat and Livestock Corporation launched “Trim
Lamb”. [84] This move positioned
trimmed and boneless lamb as a premium meat that could be priced “accordingly,
allowing retail prices to rise and allowing higher prices and margins
to flow along the marketing chain.” [85]
It was intended that “Trim Lamb” would make lamb more competitive
with other meats, particularly chicken. [86] However, it was never intended that “Trim
Lamb” should be a replacement for traditional lamb.
6.86 Despite the appeal of “Trim Lamb” as a value-added
product there were difficulties associated with its production and marketing, including:
- a lack of understanding by retailers that “Trim Lamb” was
an addition to the range of lamb products not a replacement for traditional lamb;
- a lack of understanding of the concept of profitability from large
lamb carcasses and higher retail prices;
- the use of mutton in substitution for “Trim Lamb” turned
off consumers;
- inconsistent daily stocking by retailers; and
- the additional time taken to bone out a carcass. [87]
6.87 In an effort to counter the problems faced by the sheep meat
industry a Lamb Industry Strategic Plan has been developed by the industry. The aim of the
plan is to create an industry worth $2 billion by the year 2000. As of February 1996 the
industry was valued at $1.4 billion. According to John Kerin, Chairman of the AMLC:
The Plan is focused on improving both the product and its delivery
along the marketing chain, in particular reducing the fat and increasing
the carcass size in order to improve the product's appeal to consumers.
[88]
Problems facing the pork industry
6.88 In evidence to the inquiry the Australian Pork Corporation (APC)
admitted that Australia is not competitive with the Untied States or Canada
in respect to pork production but is competitive with Europe. [89]The
Corporation told the Committee that:
The general consensus based on the facts available to us is that the
costs and the way in which we produce the animals is world competitive.
But we then tend to lose out in the economies of scale. [90]
According to the Corporation one of the major problems facing the pork
industry in Australia is the shortage of pig specific abattoirs. There
are only eight pig specific abattoirs in Australia and only three of these
can export pork. [91]
Problems facing the pet food industry
6.89 The Pet Food Manufacturers Association of Australia
Incorporated (PFMAA) summarised the main problems facing Australia's pet food industry in
May 1994 as being:
- a plethora of government rules and regulations that had “no
commonality nationwide”;
- a sales tax of 21 per cent;
- fluctuating availability of key raw materials;
- a dog population that was stable and a declining cat population; and
- imported pet food that attracted foreign government subsidies such
as “meat roll” packs from New Zealand. [92]
6.90 It is regretted that the PFMAA declined to appear before the
Committee. The Committee would have welcomed the opportunity to discuss with the
Association, in more detail, the problems facing the pet food industry and suggestions to
overcome these difficulties.
Problems facing the rice industry
6.91 In evidence to the inquiry the Ricegrowers' Co-operative Limited
stressed that the lack of water was the major problem facing the rice
industry. The Committee was told that “there is no question that
in the direst continent water availability will ultimately be the limiting
factor - not land capital, ability or technology - in growing irrigated
crops.” [93]Mr Kennedy of RCL advised
the inquiry:
With rice being a high user of irrigation water, if we go ahead 20
to 50 years, that will very soon be the limiting factor. In the next
three or four years we will hit our limit and then production will start
to decline unless varieties change. [94]
Problems facing horticultural industries
6.92 Mr Brian Carroll, Chairman of the Australian Vegetable and
Potato Growers Federation, in a paper delivered at the Outlook 96 conference held in
Canberra in February 1996 argued that:
Declining returns to growers are inhibiting investment in new technologies
which would lead to improvements in quality and also preventing expansion
of farming operations which would potentially offer economies of scale
and an ability to offer long lines of consistently high quality produce
in the market place. [95]
6.93 According to the Horticultural Policy Council, Australia's
share in certain horticultural export markets has declined and competition in Australia
from cheaply priced imported horticultural products have placed pressure on some
Australian producers. The Committee understands that the imports of fresh and processed
vegetable products amounted to some $220 million in 1993-4 with fresh and processed fruit
imports totally $47 million for the same period. Mr Carroll submitted that in the vast
majority of cases Australian producers have the ability to replace these imports if they
can meet the market demands in relation to quality, quantity and price. Mr Carroll stated:
Whilst a lot of attention is paid to export development, far less has
been paid to strategic development import replacement opportunities.
If we can achieve even a 25 per cent reduction in total imports, this
would result in an improvement in an of at least $67 million in the
national balance of payments. [96]
6.94 A number of developments have occurred overseas that have affected
Australian producers. A strong export culture with strong marketing efforts
has developed among some of Australia's competitors. Large vertically
integrated, multinational food supply and retail companies have made heavy
investments in production, handling and distribution in third world countries.
There have been improvements in the standard of farm and business management,
standards of education, training and marketing in countries that are competing
with Australia for value-added food sales. [97]
6.95 The Horticultural Policy Council pointed out that a problem facing
horticultural producers and exporters is the potential for a world oversupply
of horticultural commodities, particularly from low cost developing countries.
The Council stressed that Australia's horticultural industries have to
be become more internationally competitive and more export oriented. The
Council stated “Australia has to be every bit as good as its major
competitors if it is to survive in the world horticultural trade in the
next century.” [98]
6.96 The need to become internationally competitive is strongly linked
to the concept of value-adding. The Queensland Fruit and Vegetable Growers
expressed the view that “value adding is a critical component in
the marketing mix for fruit and vegetable products.” [99]
6.97 It has been argued that horticultural industries in Australia have
developed behind protective barriers and within statutory marketing arrangements
that have placed growers “out of touch” with the realities of
the market place and acted as disincentives for new entrants and innovators.
[100] Horticultural production has
been primarily oriented to supplying the generally profitable Australian
domestic market. The view has been expressed that “until relatively
recently the industry has been in the unique position of having this market
almost entirely to itself largely protected from competition by the barriers
of distance and quarantine.” The result of this situation is that
the industry had not developed a strong export culture. [101]
6.98 In 1991 Mr Grant Latta, then head of Pacific Dunlop's food
division, claimed that only 20 per cent of Australian fruit and vegetable growers were
internationally competitive. Mr Chris Egan who was involved in a vegetable growing
consortium in Victoria named Vegco supported this view when he stated in April 1994 that:
Our growers are eight to ten years behind world-best practice. Some
consider themselves international competitive but the majority are way
behind. [102]
6.99 However, a report produced by a body titled the
“Horticultural Task Force” in February 1994 stated that the situation had now
changed as a result of supports for the industry having been removed, with the result
that:
Horticultural producers must now become internationally competitive
in order to survive. These changes should be seen as challengers to
the industry which will ultimately foster, more efficient, export-oriented
horticultural industries. [103]
Dried vine fruit (DVF) industry
6.100 The Australian Dried Fruits Board (ADFB) has always viewed the
quality of Australian DVF as being critical to its export endeavours.
In 1984 the Board introduced a quality logo that the industry adopted.
The logo is used on all packaging material and for promotional purposes.
[104]
6.101 All dried fruits produced in Australia are cleaned and packed in
Australia for the Australian and export markets. Approximately 27 per
cent of the retail packet tonnage sold in overseas countries is packed
in Australia. Fruit packed in Australia is sold either under overseas
private labels or under brand names that the Australian industry owns.
The Committee has been told that the cost of packeting fruit in Australia
is about $300 to $500 per tonne depending on the size of the packet and
the packaging material used. [105]
6.102 According to the Australian Dried Fruits Board it is difficult
to develop and expand packaging of DVF in Australia due to:
- the high cost of packing material;
- rigidity of labour;
- small tonnage packed; and
- a 10-15 per cent higher freight charge on packaged fruit due to the
smaller tonnage per container compared to bulk fruit. [106]
6.103 Overseas supermarket buyers want flexible supply arrangement providing
for a short delivery time. Overseas repackers can provide this service
where it is difficult to provide such a service from Australia. [107]
Mr Allan Knights, General Manager of the Australian Dried Fruits Board,
told the inquiry “it is impossible to operate that type of business
from Australia.” [108]
6.104 The packing of dried fruits in Australia is a capital intensive
operation. The countries Australia competes with are low-cost producers
who export a high percentage of their production. These countries include
Turkey, South Africa and Greece. Of concern to Australian producers is
the fact that Turkey, one of our major competitors, is improving the quality
of their dried fruits dramatically. [109] This country also has a major advantage
of being close to the European market.
6.105 Mr Knights told the inquiry that labour costs are higher in Australia
because of the number of workers that have to employed in Australian packaging
plants under agreements with unions. Packing plants in Germany are able
to function with fewer workers resulting in their overall operating costs
being lower than those in Australia. [110]
6.106 Mr Knights advised the Committee that freight costs in
Australia was a significant cost in the distribution of dried fruits throughout Australia
as well as shipping the product to ports for dispatch overseas. According to Mr Knights it
is cheaper, in relation to the distance involved, to ship dried fruits to overseas markets
than to points in Australia. Mr Knights stated:
The freight costs to Europe is very cheap. I think you can get as low
as $1 250 a container, which is nothing. It costs us about $500 to $600
to get it down from Mildura to Melbourne. [111]
6.107 Another factor having a detrimental effect on the ability of Australian
dried fruit producers to market their product overseas been the volatility
of the Australian dollar. The Committee was told that a deal in Germany
had fallen through for the purchase of Australian dried fruits because
the Australian dollar had increased in value by 4.5 per cent. [112]
6.108 The Australian Dried Fruits Board has a somewhat pessimistic
view of the future of value-adding in Australia. Mr Knights stated:
I think we have got limited opportunities for value adding. We have
got the packing operation. ... every producing country in the world
does it exactly the same as we do, but most of them probably at a lower
cost. [113]
6.109 Mr Knight suggested in his evidence that the future prospects
for the dried fruits industry may lie less in value-adding to the product through
packaging and more in exporting quality bulk fruit. Mr Knight stressed that:
The only way we will survive is to become efficient and to be able
to differentiate our product through quality from countries like Turkey,
and I think in that area it is going to be more in the type of fruit
we produce rather than the packing type value added area. [114]
Conclusions
6.110 As noted earlier in this chapter the Committee accepts that in some
circumstances it may be more profitable for Australian producers and processors
to export bulk produce rather than value-added items. It appears that
dried fruits is an excellent example of an industry where in some circumstances
it may be more profitable to export dried fruits in bulk, allowing packaging,
a form of value-adding, to take place overseas.
Footnotes
[68] Delene Evans, Trim Lamb-a Marketer's
Dilemma, Outlook 94, Vol 3. Agriculture: collection of papers delivered
at the Outlook 94 conference held in Canberra 1-3 February 1994, organised
by ABARE, p. 293.
[69] Evidence, AMLC, pp. 316. 328. for
information on beef production in the United States and the export of
US beef into the Pacific region see D. Bartlett and others, Outlook
for Beef and Sheep Meat, Outlook 96, Vol 2, Agriculture: collection
of papers delivered at the Outlook 96 Conference held in Canberra 6-8
February 1996, organised by ABARE, pp. 329-331.
[70] Evidence, AMLC, p. 327. For more
information on costs in Australia to process meatcompared with other countries
see Evidence, AMLC, pp. 329-331
[71] Evidence, AMLC, p. 327. the live
export of cattle had grown from 100 000 in 1990 to 300 000 in 1994
[72] Evidence, AMLC, pp. 334, 343
[73] Evidence, BIA, p. 92
[74] Evidence, BIA, p. 92
[75] Evidence, AMLC, p. 333.
[76] Evidence, BIA, p. 95
[77] Evidence, BIA, p. 99
[78] Evidence, AMLC, p. 333.
[79] Evidence, BIA, p. 94
[80] Delene Evans, Trim Lamb-a Marketer's
Dilemma, Outlook 94, Vol. 3, Agriculture: collection of papers delivered
at the Outlook 94 Conference held in Canberra 1-3 February 1994, organised
by ABARE, p. 287
[81] D. Bartlett and others, Outlook for
Beef and Sheep Meat, Outlook 96, Vol 2, Agriculture: collection of
papers delivered at the Outlook 96 Conference held in Canberra 6-8 February
1996, organised by ABARE, pp. 211-212.
[82] Delene Evans, Trim Lamb-a Marketer's
Dilemma, Outlook 94, Vol. 3, Agriculture: collection of papers delivered
at the Outlook 94 Conference held in Canberra 1-3 February 1994, organised
by ABARE, p. 288. For other negative views held concerning lamb by consumers
see ibid., p. 296.
[83] Delene Evans, Trim Lamb-a Marketer's
Dilemma, Outlook 94, Vol. 3, Agriculture: collection of papers delivered
at the Outlook 94 Conference held in Canberra 1-3 February 1994, organised
by ABARE, p. 294.
[84] Delene Evans, Trim Lamb-a Marketer's
Dilemma, Outlook 94, Vol. 3, Agriculture: collection of papers delivered
at the Outlook 94 Conference held in Canberra 1-3 February 1994, organised
by ABARE, p. 289.
[85] Delene Evans, Trim Lamb-a Marketer's
Dilemma, Outlook 94, Vol. 3, Agriculture: collection of papers delivered
at the Outlook 94 Conference held in Canberra 1-3 February 1994, organised
by ABARE, p. 288.
[86] Delene Evans, Trim Lamb-a Marketer's
Dilemma, Outlook 94, Vol. 3, Agriculture: collection of papers delivered
at the Outlook 94 Conference held in Canberra 1-3 February 1994, organised
by ABARE, p. 290.
[87] Delene Evans, Trim Lamb-a Marketer's
Dilemma, Outlook 94, Vol. 3, Agriculture: collection of papers delivered
at the Outlook 94 Conference held in Canberra 1-3 February 1994, organised
by ABARE, p. 291.
[88] John Kerin, The Australia Beef and
Sheep Meat Industries - Future Challengers, Outlook 96, Vol 2, Agriculture:
collection of papers delivered at the Outlook 96 Conference held in Canberra
6-8 February 1996, organised by ABARE, pp. 211-212.
[89] Evidence, APC, p. 426. For information
in the import of Canadian pork into Australia see Evidence, APC,
pp. 429-430.
[90] Evidence, APC, p. 426.
[91] Evidence, APC, p. 424.
[92] Submission, PFMAA, pp. 3-4.
[93] Evidence, Ricegrowers' Co-operative
LTD, p.970
[94] Evidence, Ricegrowers' Co-operative
LTD, p.971. For the discussion of irrigation in Australia in relation
to agricultural production see J Roberts and others, The Future for
Australian Agriculture: Important Issues to 2010, Outlook 96, Vol
2, Agriculture: collection of papers delivered at the Outlook 96 Conference
held in Canberra 6-8 February 1996, organised by ABARE, pp 63-64, 66-77.
for the discussion of major issues facing food grains industry, including
rice and wheat, see R. Rees and others, Outlook for Food Grains, Outlook
96, Vol 2, Agriculture: collection of papers delivered at the Outlook
96 Conference held in Canberra 6-8 February 1996, organised by ABARE,
pp. 293-295.
[95] Mr Brain Carroll, Emerging Horticultural
Exports, Outlook 96, Vol 2, Agriculture: collection of papers delivered
at the Outlook 96 Conference held in Canberra 6-8 February 1996, organised
by ABARE, p. 393.
[96] Mr Brain Carroll, Emerging Horticultural
Exports, Outlook 96, Vol 2, Agriculture: collection of papers delivered
at the Outlook 96 Conference held in Canberra 6-8 February 1996, organised
by ABARE, p. 393.
[97] John Pendrigh, Wider Horticultural
Policy Issues, Outlook 94, Vol. 3, Agriculture: collection of papers
delivered at the Outlook 94 Conference held in Canberra 1-3 February 1994,
organised by ABARE, p. 162.
[98] John Pendrigh, Wider Horticultural
Policy Issues, Outlook 94, Vol. 3, Agriculture: collection of papers
delivered at the Outlook 94 Conference held in Canberra 1-3 February 1994,
organised by ABARE, pp. 162-163.
[99] Submission, Queensland Fruit and
Vegetable Gowers, p. 2.
[100] Department of Primary Industries and
Energy, International Agribusiness Trends and Their Implications for
Australia, a discussion paper prepared for the Primary and Allied
industries Council, Canberra 1989, p. 48
[101] John Pendrigh, Wider Horticultural
Policy Issues, Outlook 94, Vol. 3, Agriculture: collection of papers
delivered at the Outlook 94 Conference held in Canberra 1-3 February 1994,
organised by ABARE, p. 156.
[102] Neil Shoebridge, Fresh Combination
to Save Food Plant, Business Review Weekly, April 25, 1994, p. 42
[103] Horticultural Task Force, Strategies
for Growth in Australian Horticulture, Canberra February 1994, p.
iii.
[104] Evidence, Australian Dried Fruits
Board, p. 223.
[105] Evidence, Australian Dried Fruits
Board, p. 222.
[106] Evidence, Australian Dried Fruits
Board, p. 222.
[107] Evidence, Australian Dried Fruits
Board, p. 222.
[108] Evidence, Australian Dried Fruits
Board, p. 234.
[109] Evidence, Australian Dried Fruits
Board, p. 225.
[110] Evidence, Australian Dried Fruits
Board, p. 229.
[111] Evidence, Australian Dried Fruits
Board, p. 234. Rural Industries Research and Development Organisation
told the Committee that some recent figures indicates "it costs less
to transport the same product from Rotterdam to Hong Kong than from Sydney
to Hong Kong." Evidence, RIRDC, p. 1005.
[112] Evidence, Australian Dried Fruits
Board, p. 237.
[113] Evidence, Australian Dried Fruits
Board, p. 233.
[114] Evidence, Australian Dried Fruits
Board, p. 240.