The Australian Meat Industry Council of Australia (AMIC) is set to formally present the red meat industry’s Cost to Operate Report to key political parties from this week, as calls are made for urgently-needed bipartisan solutions to cut the cost burden of excessive red tape and energy costs. According to the report, Australian meat producers have the highest operating costs in the world, making it impossible to be continually competitive on an international basis.
Importantly, the Report has had a significant galvanising effect across the red meat industry supply chain, with processors, wholesalers, smallgoods manufacturers, and independent butchers coming together to determine a range of strategies that aim to ensure they do not suffer the same fate as most of Australia’s other major manufacturing industries.
The red meat ‘farm-gate to plate’ supply chain is the largest rural and regional employer providing more than 150,000 full- and part-time jobs. It’s also the country’s largest agricultural exporter with more than 70 per cent of red meat and co-products produced sold overseas in 124 countries, and contributes more than $21 billion in value added to the economy.
The Cost to Operate Report shows that cost reduction is the only way the industry can compete with the main competing global red-meat-producing markets, including the USA, Argentina, Brazil and New Zealand, which are working hard to increase access to Australia’s key overseas markets at a time when Australia’s product has been impacted by catastrophic droughts and floods.
The average cost per head, excluding livestock purchases, incurred in processing beef in Australia are 24 per cent higher than in the USA, 50 per cent higher than Brazil and 75% than Argentina. Of these costs, it is estimated in Australia that 54 per cent are due to some form of government regulation. This is more than twice that of the USA and Argentina and more than three times that of Brazil. In addition, Australia’s regulated costs for beef and sheep are 46% and 37% higher respectively than those of its closest neighbour, New Zealand.
Australian processors also face unreasonably high energy costs and are paying 104 per cent more than North American processors for utilities, 53 per cent more than the Argentinians, 20 per cent more than New Zealanders and 0.3 per cent more than the Brazilians.
Furthermore, in Australia, labour-related costs comprise over 58 per cent of total operating costs. This figure is considerably less than 50 per cent in the other countries examined in the Report.
Patrick Hutchinson, AMIC’s CEO, said, “Australian processors, and the wider red meat supply chain, are battling unsustainable cost pressures while continuing to remain competitive internationally but, according to the report, they’re fighting a losing battle, particularly as one of the biggest costs they face is as a result of excessive government red tape.”
Australia’s government-regulated inspection and certification costs are 3.4 times higher than the USA and 4.5 times higher than Argentina. In Brazil these costs are fully-funded by the federal government and are not passed on to processors.
The Cost to Operate Report found that one of the key contributing expenses is offshore inspections fees, adding around $110 million in costs each year. These inspection fees are not exclusive to Australian businesses, the difference is in government response in other countries. Both the US and Brazilian governments offer support to their processors, covering around 95 per cent of these fees, while Australian processors are currently fending for themselves.
“We are asking for relief in export certification charges, which is one of the largest cost contributors to why Australian red meat is becoming uncompetitive in the global market,” explained Hutchinson.
“Simply put, the red meat industry is dependent on global trade for its viability. Streamlining the major federal and state regulatory and red-tape burden would be a good first step and will allow the industry to compete on a level footing with other red meat producing countries,” he said.
“As appreciation, particularly from Asia, increases for Australia’s high-quality premium meat and renowned ‘clean and green’ status, our industry is saddled with the considerable burden of being the highest-cost red meat processing nation in the world. Cost reduction, as highlighted in the CTO Report, is our best course of action to increase our industry’s ability to not be priced out of the global market, remain viable and ensure sustainable prices for livestock for our Australian farmers.
“With regard to excessive energy costs, the unfortunate policy paralysis is resulting in increased cost flows across the full supply chain as the industry is one of the biggest users of energy due to its refrigeration requirements, as an example. Energy costs are realised throughout the process of meat production.
“We all want farmers to thrive, but the reality is that a weakened supply chain that is hindered from competing globally will be the next and long-lasting crisis for farmers if urgent action isn’t taken,” said Hutchinson.