Processing sector crisis: shutdowns highlight need for urgent reform

Processing sector crisis: shutdowns highlight need for urgent reform


Commercial
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“Axis of issues” continues to impact profitability and growth.

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Australian Meat Industry Council chief executive officer Patrick Hutchinson says the red meat processing sector is facing an “axis of issues” that continues to impact profitability and growth.

Australian Meat Industry Council chief executive officer Patrick Hutchinson says the red meat processing sector is facing an “axis of issues” that continues to impact profitability and growth.

RED meat processors battling arguably the harshest terms of trade in the sector’s history say the latest - and largest - plant closure brings to a boiling point the urgency for serious regulatory reform.

Churchill Abattoir at Ipswich in Southern Queensland, which has provided a service kill to Woolworths and typically processes 600 cattle daily, will shut up shop at the end of the month, putting around 500 workers out of a job.

That makes at least six processing plant closures across the nation this year, as the extreme shortage of livestock has sent prices skyward.

Those hefty cattle prices - 25 per cent above the five-year average consistently -  have collided with an increasingly competitive export environment, the recent upward movement of the dollar and spiralling energy costs.

All that has exacerbated the “burdensome and duplicative” government red tape the sector has been fighting to see action on for some time and ongoing market access issues.

The Australian Meat Industry Council (AMIC) has labelled the situation an “axis of issues” that continues to impact profitability and growth.

While the processing capacity losses still aren’t as large as what occurred in the 1970s and early 1980s, what makes the shutdowns harsher is the fact these are businesses that had come through a rationalisation and had exhausted efficiencies, industry observers say.

The plants closing down now are not predominantly co-operatives or government-owned facilities.

AMIC chief executive officer Patrick Hutchinson said it was now time governments of all levels, and all of industry, recognised clearly the impact that record input costs, regulatory burden and encumbered market access was having on the industry.

“Plant closures have a big effect up and down the supply chain,” he said.

“Four of AMIC’s retailer members are now on the run looking for a supplier.

“But it goes even further, it’s not just about the livestock supply chain. This is a big rural and regional Australia issue, with 35,000 full time employees in this industry and another 100,000 through multiplier effects.”

Processors in Queensland, NSW and Victoria all told Fairfax Media this week they expected more scaling back at plants and complete shutdowns were still to come.

Terry Nolan, from Queensland family-owned vertically integrated beef operation Nolan Meats, said his view was “we still have at least 12 months of this pain to run.”

“We have such a depleted herd and rebuilding depends on climatic conditions which are not looking so good,” he said.

“Most plants are on reduced kills and many are now only operating two to three days a week.

“At our facility, we have dropped in excess of 20 days this year, which is very hard on fixed overheads and the staff.

“In reality we would have liked to do only two days a week but that does not allow for maintaining kill staff and customer base.”

Mr Nolan said he had never seen it so hard to place beef in his 38 years in the industry.

“The wonderful thing about beef is it is a status protein but that doesn’t mean the consumer won’t give it a holiday when it’s too expensive,” he said.

Cost of compliance was hitting the sector very hard, he said.

“That’s where the big cost in duplicity is,” Mr Nolan said.

“The actual registration fee pales into insignificance when you look at the cost of quality assurance staff and internal and external auditing,” he said.

“The cost of just one audit for our plant last year was $26,000.”

Mr Hutchinson said increases in the cost of doing business through unharmonised regulations between state and federal governments, as well as potentially introducing new regulations, continued to plague the industry.

“Talk of introduction of further red tape within industry, rather than its reduction, further hurts confidence,” he said.

“The recent senate inquiry into rationalisation in the red meat processing industry has shown the potential to impose further regulations onto an already heavily regulated industry that is completely out of step with government rhetoric on business support in Australia.”

Industry representative for Midfield Meat Group at Warrnambool, Victoria, Noel Kelson said there was no doubt the industry was facing unprecedented challenges and the pain was being felt nationally.

“Our hope as an industry is that the modern phenomena of once it closes, its gone for good, doesn’t eventuate here,” he said.

China suspension

AN UNCERTAIN export trading environment, including technical market access difficulties, is adding additional hurdles to the viability and profitability of beef processing operations.

AMIC’s Patrick Hutchinson said the temporary Chinese import clearance suspensions applied to six Australian meat processing establishments in late July 2017 was costing more than  a million dollars a day in combined revenue.

“This has significant flow-on effects to the livestock supply chain, including stock purchasing decisions, establishment operations and number of processing shifts,” he said.

“It impacts the lives of everyday Australians in regional centres.”

Shutting up shop

  • February: Manildra Meat Company closes the Cootamundra abattoir, which processed 4200 sheep daily and 200 cattle a week, with 220 employees.
  • March: Shark Lake Food Group in Western Australia closes, with more than 100 employees.
  • March: McGillivray Abattoir in Gunbower, Victoria, closes. It was linked to six local butcher shops and had around 10 employees.
  • April: JBS announces its Cobram plant in Victoria, 3200 sheep a day, will remain closed until at least October, affecting 241 employees. Likewise, parts of its Longford plant in Tasmania, which saw the loss of 300 workers, will remain closed pending another decision next month.
  • September:  Churchill Abattoir in Ipswich, Queensland, will close, affecting 500 workers. It processes 600 cattle a day.
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