IN the third quarter last year, the spectre of a return to El Nino drought conditions hung ominously over the livestock sector and producers responded by reducing cattle numbers.
Saleyard prices fell dramatically but the price of meat in supermarkets and butcher shops remained stubbornly high.
With cost-of-living at or near top of the list of voter concerns, the Albanese government responded in December by announcing a Senate Select Committee on Supermarket Prices be established to inquire into and report on the price setting practices and market power of major supermarkets.
In last week's sittings, Greens Senator and committee chair, Nick McKim, really got into the spirit of things with a blistering attack on outgoing Woolworths CEO Brad Banducci for not being able to answer his question about Woolworths profitability.
Senator McKim specifically asked for details of Woolworths ROE (return on equity), but Mr Banducci tried to explain that ROI (return on investment) was the better measure to focus on.
Senator McKim, however, was having none of it.
"I'm not interested in your spin or bullshit," he said, warning that by not answering the question, Mr Banducci risked being found in contempt of the Senate which could result in a penalty of up to six months' imprisonment.
But Mr Banducci had a valid point to make about the suitability of profitability metrics when making comparisons across different classes of business.
Senator McKim was keen to compare supermarkets to the banking sector in terms of ROE.
He made the point that Australian banks are the most profitable in the world but typically with a ROE far below that of Woolworths.
A quick look-up revealed CBA's highest ROE in the past 13 years was 18.4 per cent.
Senator McKim claimed Woolworths' ROE was 26pc, which, he maintained, proved the grocery giant was "making off with massive profits at the expense of farmers, at the expense of your workers, and at the expense of Australian shoppers who you are price gouging".
But the big difference between banks and a big grocery retailer is that banks are required by regulators to hold elevated amounts of capital.
Coles CEO Leah Weckert later explained to Senator McKim in her testimony that because banks had to hold such equity, their ROE is always going to be lower (than supermarkets).
That now seems to be a rather inconvenient impediment to Senator McKim's simplistic logic that anything higher than bank ROE is automatic proof that supermarkets are robbing their farmer suppliers and price gouging their customers.
There is also another piece of information regarding Woolworths' meat division that sits at odds with the notion of massive profits and price gouging.
In a television interview with the ABC's Laura Tingle earlier this year, Mr Banducci claimed that red meat is one of Woolworths' lowest margin businesses.
The task for the Senate committee therefore should be to test that assertion.
What the committee might find is that while the business model that Woolworths has adopted for its beef operations may have certain advantages for the company, it may not necessarily deliver the best margins.
Woolworths does not buy from saleyards but rather maintains contractual control over its grain- and grass-fed cattle supply, which Mr Banducci said gives their suppliers certainty of price.
Their current model for processing those cattle dates to about 10 years ago when it was decided to move to centralised packing.
Rather than slice and display-pack at the store, Woolworths adopted the Hilton Foods model from the UK.
Hilton provides a highly mechanised solution to further processing, packaging and distribution in shelf-ready format.
But while the Hilton part of the operation is undoubtedly efficient, there is a level of processing that must occur before product reaches the Hilton facility.
An industry participant with direct knowledge of this type of arrangement said this required the service kill provider to bone the carcases and prepare cuts to specification ready for the automated slicing and packaging at Hilton.
Previously at locations such as Ipswich abattoir, Woolworths would perform its own boning and packing for distribution to stores as well as manufacturing sausages from trim.
Logically there was opportunity for margin to be generated by controlling those functions, but that control and opportunity for margin is lost to the abattoir operator and Hilton under the centralised packing model.
As well the move meant a change from cheap styrene trays overwrapped with cling-film to more expensive vacuum and modified atmosphere packaging, but, on the upside, there is improved shelf life and minimisation of spoilage as an offset.
With the complexity and dynamics of dealing with contracted suppliers, service kill and boning operators, and a highly mechanised centralised packing and distribution provider, it may well be that red meat is, as Mr Banducci said, a low margin business for Woolworths.
Rather than focusing on simple metrics to support assumption of guilt, it is open to the committee to understand the nature of the supermarket business and either validate or reject claims of massive profits and price gouging.
But as we saw with the Senate Rural and Regional Affairs Committee inquiry that followed the cattle price downturn in 2014, these committees are more about politics and prejudicial views than substance.
It may therefore be expecting too much of this current committee to get down into the nuts and bolts given that their final report is due on May 7.
That may instead fall to ACCC, which has been tasked to conduct a one-year investigation into supermarket pricing and competition.
Its interim report to government is due late this year and the final report in early 2025.
Grids ease
GRID rates came off last week bringing YP ox in southern Queensland to 520-525 and heavy cow to 450c/kg.
The latest rain has had less effect on supply than previous falls with works generally well covered for the weeks ahead.
In the US, fresh domestic lean grinding beef posted its first decline in price since December 2023.
While reported at little more than US1c/lb down, it impacted imported lean and extra lean prices by as much as US 3c/lb FOB.
These committees are more about politics and prejudicial views than substance.