This situation has been driven by a tightening of livestock supply combined with aggressive pursuit of retail market share by Woolworths.
It illustrates how the dynamics of the Australian market differ from New Zealand, although the structure is quite similar: retail butcheries competing with two major supermarket chains and a larger proportion of stock destined for export.
But the Australian domestic market represents more than 30% of total livestock production compared with only 10-15% in NZ where mid-winter is the only time of year when domestic production exerts greater influence.
Australian beef producers are receiving what appears to be an unsustainable price at the moment, measured at 69% of the retail price that compares with 56% in October 2015, 44% in 2014 and 36% in 2013.
This variation appears inexplicable at first sight and can only be explained by a combination of retail competition and shrinking livestock supply.
Cross-subsidisation by the supermarket chains is also a factor. This degree of volatility is far greater than is witnessed in NZ, which producers will either regard as a positive or a negative.
But it does suggest producers in this country actually receive more accurate market signals.
Added value from further processing is a relatively small factor in both countries.
A more significant feature in recent years, however, has been the growth in the bagged lamb trade with the Middle East, up from 900,000 low-fat cover lightweight lambs averaging 16kg in 2012 to 3.13 million this year.
When the large amount of grass growth this spring is taken into account, light-weight store lambs will be difficult to buy and these are currently selling at a minimum of A$100.
This price is expected to drop when numbers increase, but if this happens farmers may well decide to hold on to them and put weight on.
AgInfo has also provided some interesting information on the profitability of Australian red meat companies in 2014 that ranged from 6-9% net profit after tax (Npat).
Comparisons are odious of course, but the enormous gap can’t be explained solely by the respective market size or better sales prices.
In the same year, Alliance Group posted Npat of $6.2m on revenue of $1.46 billion or 0.4%, Silver Fern Farms a result of just above break even on sales of $2.3b, and Anzco a profit of $6m from revenue of $1.25b.
This performance by the three large meat companies that publish an annual result was a net profit of about a quarter of one per cent.
At the Australian rate of return for the same year, the cumulative profit should have ranged from $300-$450 million.
Comparisons are odious of course, but the enormous gap can’t be explained solely by the respective market size or better sales prices, especially when labour rates in Australia are apparently higher than in NZ.
Company debt levels, certainly in the case of Silver Fern Farms and to a lesser extent with Alliance and Anzco are undoubtedly a factor but further investigation of the variables will be revealing.
Meat Industry Excellence’s report, Pathways to Sustainability, may have contained more truth than the industry was willing to concede when it was published!
