A Quebec consumer protection group in Canada announced recently they intend to launch a class action lawsuit against four major beef packers operating in Canada and the United States - JBS, Tyson, National Beef and Cargill, alleging a beef price conspiracy.
This week in the US, the House Agriculture Committee will hear from the four chief executive officers of the same companies over concerns about pricing practices in the US and whether industry consolidation and anti-competitive behaviour is playing a role in inflating beef prices for consumers and preventing beef producers from receiving a fair price.
This debate is underpinned by the consolidation of beef processing capacity in these four hands, estimated at close to 80 per cent in the US.
What scares producers is whether the potential market power that consolidation delivers is being used in any anti-competitive manner.
Like the Quebec lawsuit, clear evidence to support the claim is not immediately evident but the recent combination of rising beef prices in the US and supply chain disruptions has drawn increasing regulatory scrutiny in the US.
ALSO SEE:
While the level of beef processing concentration in Australia has never been as high as in the US, (the top five represented about 57pc of capacity in 2014 according to the Department of Agriculture) the continual drive to remove cost and increase efficiency in meat processing through economies of scale and rationalsation has always brought with it a lack of trust in large processors - an issue that has been around in Australia for almost 100 years.
That lack of trust in the past often led to demands for more competition in the processing sector and the need for additional facilities but that has always led to greater amounts of unused capacity at various times in the supply/demand cycle and therefore increased cost and reduced efficiency.
The move in NSW in the 1960s to decentalise meat processing with local council works appearing in many country towns across the state gave short-term comfort to producers that competition was alive and well. All of them eventually failed by the 1980s when reduced livestock supply led to negative margins forcing massive rationalisation.
In fact close to 90 meat processing plants across Australia closed their doors in the two decades after 1980 as a result.
Getting that balance right between processing capacity and livestock supply has always been a challenge.
At times of short supply, it is often the marginal player that ends up being bought out or closing their doors.
The formation of Australia Meat Holdings in 1986 was a courageous experiment at the time in plant ratonalisation, economies of scale and cost stripping by running fewer plants but at capacity throughput. It changed the face of red meat processing in Australia forever and remains today as part of the JBS company.
At a meeting with members of the Senate Rural and Regional Affairs and Transport References Committee in Canberra back in 2016 during an inquiry on this very issue they advised their feedback reflected a lack of trust between the "smaller end" of the producer group and processors but for the larger producers better connected to processors and their marketing objectives, they seemed to have few, if any, problems.
Back in the US, the Tyson Foods president and CEO Donnie King in comments prepared in advance for this week's US House Committee meetings, stated: "Tyson does not set the prices for either the cattle we buy or the beef our customers purchase. These prices are set by straightforward market forces, namely available supply and demand - policy makers and government understand that the cause of the current inflationary environment is a combination of constrained supply, high consumer demand and continued unforeseen disruptions to global supply chains.".
He said ongoing labour shortages as a result of the pandemic had curbed the company's ability to process meat even as consumer demand increased, resulting in a simultaneous over supply of cattle and low beef product supplies in the marketplace.
The circumstances have been further complicated by ongoing geopolitical events which have caused increases in prices for just about everything from feed to transport costs. Consolidation of the beef processing sector in the US, he said, had remained virtually unchanged for over 30 years.
High prices were nothing to do with industry consolidation.
While the US and Australian industry structures are quite different, some of the arguments in this case have relevance in an Australian setting so the outcomes of this week's appearances before the US House Agriculture Committee will be interesting.
To bolster competition and combat the consolidation in the US meat processing sector, the Biden Administration has pledged to invest US$1 billion to expand independent meat processing capacity in the US with the USDA providing grants of up to $375 million along with working with other independents in areas of technical assistance and research and development in creating new and expanding capacity. USDA meat inspection is free in the US unlike in Australia where it is cost-recovered from processors.
US processors only have to pay overtime but the Biden Adminstration is now offering $100 million in reduced overtime inspection costs to help small and medium sized plants to keep up with demand. That would cause a few issues here.
If there is any message for the Australian meat industry out of the current hearings in the US, it is that labour shortages in US abattoirs especially around the pandemic, at a time in the cattle cycle of herd liquidation, has meant that while US abattoirs have had the capacity to process livestock being marketed, they have not had the labour to take advantage of it.
That has meant surplus livestock backing up in the system, pressuring livestock prices at the same time as demand was increasing at retail for a supply-constrained product.
We don't have the same supply pressure at present in Australia but there are over 5000 positions at any time at Australian abattoirs that are unfilled. Labour shortages will only become more constraining to production as livestock supply increases.
This is a fundamental issue in the Australian context that will impact the whole red meat supply chain if not resolved.
Market parameters
The world's largest container port Shanghai has remained open during the current COVID lockdowns in China but faces massive manpower and transportation challenges. A lot of cargo is being diverted to other ports helping to spread the chaos with the breakdown in supply chain logistics further impacting container availability globally.
Closer to home an additional public holiday has seen national cattle slaughter fall to 74,665 head in week 17 with the average for the year so far at around just 82,000 head, well below the 120,000 plus a week throughput of two years ago. The lower slaughter levels were reflected in beef exports for April falling to 61,107 tonnes, the lowest April figure for over a decade with all destinations affected in some way.
A stronger US dollar has certainly improved Australian dollar returns with the indicator USDA price of 90CL imported frozen into the US at 304 US cents/pound ex-dock and trending down.
For all the big news in beef, sign up below to receive our Red Meat newsletter.