Issues in the Evaluation of the Proposed Carcass Classification Schemes

Occasional Paper No. 45

1 1 Bureau of Agricultural Economics, Canberra

[ll:)B) BUREAU OF AGRICULTURAL ECONOMICS, CANBERRA

Issues in the Evaluation of the Proposed Carcass Classification Schemes

Occasional Paper No. 45

AUSTRALIAN GOVERNMENT PUBLISHING SERVICE CANBERRA 1978

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FOREWORD

The technical development of beef , sheep and p ig carcass c l a s s i f i ca t ion schemes has reached the s tage where t h e schemes a re current ly being tes ted under commercial conditions.

This Occasional Paper ou t l ines t h e major i s sues i n t he evaluation of t he carcass c l a s s i f i c a t i o n schemes. The purpose is t o f a c i l i t a t e t he work on the technical development and evaluation of t h e carcass c l a s s i f i ca t ion schemes which i s cur ren t ly being undertaken by a number of S t a t e and Federal bodies. The paper r e l a t e s t h e technical development of carcass c l a s s i f i c a t i o n t o t h e economic evaluation. This w i l l allow the d e t a i l of t he c l a s s i f i c a t i o n schemes t o be resolved during the commercial t r i a l s i n a manner t h a t w i l l help ensure t h a t t h e po ten t ia l benef i t s of carcass c l a s s i f i c a t i o n a re f u l l y r ea l i s ed .

This paper was prepared by M.C. Todd and M.D. Cowell of t he Bureau's . Livestock Marketing Analysis Section.

GEOFF MILLER Director

Bureau of Agricultural Economics Canberra, A.C.T.

February 1978

(!J 1

CONTENTS

Foreword

Introduction

Summary

Technical Developments

Par t I: METHODOLOGY

Part 11: COSTS

Producer Level

Wholesale Level

Abattoirs

Wholesale/Retail Levels

Governmental Level

Part 111: BENEFITS

Implications f o r Wider Market Reform

Standardised P r i ce Reporting

Futures Markets

In s t i t u t i ona l Arrangements

Producer Level

Wholesale Level

Abattoirs

Exporters

Processors

Other Wholesale Ac t iv i t i e s

Retai l Level

Par t IV : NET BENEFITS: SECTORAL INCIDENCE

Page

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1

1

3

Page

Attachment I : THE CARCASS CLASSIFICATION SCHEMES

Section 1: Beef

Sheep/Lamb

Pigs

Section 2 : Carcass S t a t i s t i c s

Attachment 11: LIVESTOCK MARKETING CHANNEL ANALYSIS : BEEF CATTLE

Marketing Channels i n Perspective

Physical Product Flow

Pr ice Formation and Accuracy

Operational Efficiency

Information Flows

Finance and Risk

Summary and Implications

Proposed Research i n t o Livestock Marketing Methods

Introduction

Considerable work has been undertaken s ince 1972 i n the development of the instruments t o measure carcasses and f u r t h e r work is now required t o f i n a l i s e t h e processes involved i n recording t h e information and presenting it i n a su i t ab l e form t o l ivestock producers and the meat trade. In p a r a l l e l with t h i s technical development t he Australian Meat and Livestock Corporation (AMLC) has undertaken t h e commercial t r i a l l i n g of s p e c i f i c c l a s s i f i c a t i o n schemes f o r beef , sheep and pig carcasses.

Although the commercial t r i a l l i n g i s behind schedule, due p a r t l y t o delays caused by problems encountered i n procurement of equipment, a number of technical aspects need t o be thoroughly invest igated i f carcass c l a s s i f i c a t i o n is t o become a t rade language. Along with t he resolut ion of the technical aspects of carcass c l a s s i f i c a t i o n i s t h e need t o evaluate the costs and benef i ts i n t h e l i g h t of the commercial t r i a l l i n g of spec i f i c schemes current ly being undertaken by the AMLC. The economic evaluation of these commercial t r i a l s has been an area f o r preliminary research by the BAE. However, t h e technical development of t he carcass c l a s s i f i c a t i o n t r i a l s has not progressed f a r enough t o enable t h e BAE t o undertake a thorough economic evaluation of the commercial t r i a l s current ly under way.

Against t he background of a review of developments i n carcass c l a s s i f i ca t ion i n Austral ia , t h e aim of t h i s paper is t o iden t i fy t h e major issues i n the evaluation of the proposed carcass c l a s s i f i ca t ion schemes. The paper i s designed t o a s s i s t the co-ordinated approach t o research t h a t has been adopted a t both Federal and S t a t e leve ls of Government. In addit ion, the paper could provide valuable information on the overa l l timing and the phasing of plans f o r t h e establishment of na t iona l carcass c l a s s i f i c a t i o n schemes. I t could a l s o serve a s a bas i c reference f o r those advising Governments on t h e economic aspects of t h e carcass c l a s s i f i ca t ion t r i a l s cur ren t ly being introduced i n a number of S ta tes .

Summary

The technical issues r a i s ed i n t he f i r s t sec t ion of t he paper not only provide a benchmark f o r assessing the performance of t h e proposed carcass c l a s s i f i ca t ion schemes during t h e a b a t t o i r t r i a l s but w i l l a l s o influence t h e r ea l i s a t i on of many of the benef i t s of carcass c l a s s i f i ca t ion . An obvious technical object ive w i l l be t he need t o demonstrate t he accuracy and r e l i a b i l i t y of t he equipment and processes used i n t he measurement, recording and transmission of t h e c l a s s i f i c a t i o n information.

Equally important w i l l be t h e necess i ty t o provide t h e information i n a form t h a t can be r ead i ly u t i l i s e d by both producers and the meat t rade. The form i n which information i s provided i s important because it w i l l influence t h e acceptance of carcass c l a s s i f i c a t i o n as a trade language; t he g rea t e r t he degree of acceptance by producers and t h e meat t r ade t h e grea te r t he l ikel ihood of t h e r e a l i s a t i o n of benef i t s outl ined i n t he paper.

The paper suggests t h a t t he l ivestock pr ice report ing scheme current ly being t r i a l l e d i n New South Wales and Victor ia would be a s t a r t i n g po in t f o r the design of t h e scheme. Although t h i s scheme does no t contain a shape var iab le , the paper notes t h a t such a var iable should be included only i f supported by t h e t r i a l s . Past research has not supported the inclusion of t h i s var iable and its exclusion would simplify the scheme and reduce the cap i t a l and operating cos t s .

Pa r t I of t he paper considers t h e methodology t o b e adopted f o r the ana lys i s . With respect t o t he examination of beef carcass c l a s s i f i c a t i o n foreshadowed i n t h e paper, a case study approach based on the a b a t t o i r s i n t he AMLC t r i a l s i s being employed. The approach suggested w i l l enable an estimation of benef i t s and costs on a p e r u n i t bas i s (kg carcass weight). Although the paper ou t l i nes t h e elements t o be taken i n t o account i n a benef i t -cost ana lys i s no estimates a r e provided a t t h i s s tage because the t r i a l s a r e not yet f u l l y operational. Following the t r i a l s t h e analysis is, however, still l i ke ly t o f a l l shor t o f a f u l l quan t i t a t i ve benef i t -cos t evaluation u n t i l such time a s more s t a t i s t i c a l information is avai lable on t h e s t ruc tu re and functioning of Australian l ivestock and meat marketing systems.

Par t s I1 and I11 of t h e paper o u t l i n e t he po ten t i a l cos t s and benef i t s of carcass c l a s s i f i c a t i o n on a s e c t o r by sec to r bas i s . Previous estimates of cos t s and benef i t s and the f u r t h e r research required a r e a l s o de ta i led .

The cos t s of t h e carcass c l a s s i f i c a t i o n schemes w i l l i n t h e f i r s t ins tance f a l l predominantly a t t he a b a t t o i r l eve l . I f , however, t h e costs of carcass c l a s s i f i ca t ion exceed the bene f i t s a t t h e a b a t t o i r l eve l then t h e incidence of t he increased cos t s could be ind i r ec t ly f e l t by producers and t h e meat t r a d e i n general, as a r e s u l t of increased a b a t t o i r charges.

Po ten t ia l benef i t s e x i s t a t a l l l e v e l s of t h e marketing chain between t h e producer and the consumer. A t t h e producer leve l , t h e feedback of information should enable t h e producer t o improve t h e information base on which farm management decis ions a r e made. Adjustments t o feeding pa t te rns , breeding, on-farm handling, and t ransport off farm of l ivestock can be expected t o r e s u l t i n carcass improvement i n those cases where producers a r e ab le t o ad jus t t h e i r resource inputs i n l i g h t o f t h e new information. In associat ion with carcass c l a s s i f i ca t ion , information on d isease and bruis ing control could a l so be provided although addi t iona l costs a r e involved i n t h e recording and transmission of t h i s information.

The l i ke ly expansion of d i r e c t s e l l i n g a s a r e s u l t o f t h e introduct ion of object ive measurement i s bel ieved t o be of considerable importance a s t h i s could lead t o subs t an t i a l bene f i t s f o r t h e producer. Attachment I1 of t h i s paper examines t he implications of carcass c l a s s i f i c a t i o n on d i f f e r en t marketing channels and l ivestock s e l l i n g methods. Further research t o determine both t h e influence of a l t e r n a t i v e s e l l i n g methods on t h e level and v a r i a b i l i t y o f re turns t o producers f o r beef c a t t l e and the f ac to r s influencing producer choice of s e l l i n g method is a l s o ou t l ined . This research should provide a sound bas i s f o r t h e fu ture development, evaluation and review o f l ivestock s e l l i n g methods.

Benefits could a l so b e r ea l i s ed a t t h e wholesale level f r o m both s t r u c t u r a l and operational changes as a r e s u l t o f c l a s s i f i ca t ion and s i g h t

unseen t rading. A t t he a b a t t o i r l eve l it w i l l need t o be determined during the t r i a l s whether there a r e cos t savings a s a r e s u l t of t he subst i tut ion of carcass c l a s s i f i c a t i o n f o r ex is t ing grading processes. Cost savings could a l so r e s u l t from improved carcass handling procedures and the automation of data recording and accounting procedures. Po ten t ia l cost savings may be r ea l i s ed with respect t o procurement, s e l l i n g , processing and handling a c t i v i t i e s , not only a t t he wholesale leve l but a lso a t t he r e t a i l level .

Sight unseen t rading w i l l have an impact on t h e locat ional re la t ionship between t h e a b a t t o i r and r e t a i l e r as t h e constra int f o r aba t to i r s servicing the domestic market t o be located conveniently f o r t h e physical inspection by carcass buyers would be removed. A r a t i ona l i s a t ion of the ex i s t i ng re la t ionsh ip could lead t o t h e r e a l i s a t i o n of fu r the r benef i ts a t t he wholesale and r e t a i l levels .

I t i s considered tha t t h e wider market reforms t h a t may flow over the longer term from the introduct ion of a carcass c l a s s i f i c a t i o n scheme a re l i ke ly t o be of more s ignif icance than t h e d i r e c t benef i t s . Carcass c l a s s i f i ca t ion and standardised p r i ce report ing could lead t o a ra t iona l i sa t ion of l ivestock marketing channels, t he improved operation of the futures markets, innovations i n t ransporta t ion and handling and f a c i l i t a t e i n s t i t u t i o n a l arrangements such as a s t a b i l i s a t i o n scheme. I t should be noted, however, t h a t i n s t i t u t i o n a l arrangements such as s t ab i l i s a t i on need not necessar i ly be based on carcass c l a s s i f i ca t ion .

Par t I V of t he paper s e t s t h e framework f o r t he examination of the l i ke ly incidence of the n e t bene f i t s o r cos t s both within and between sectors . To i l l u s t r a t e t h a t carcass c l a s s i f i c a t i o n i s a des i rab le innovation, i t is obviously not enough t o demonstrate t h a t t he aggregate benefits exceed t h e aggregate costs . The dis ' tr ibutional e f f ec t s , both between and within sec tors a l so have t o be examined.

Technical Developments

The AMLC(1) has the r e spons ib i l i t y t o repor t t o t he Commonwealth Minister f o r Primary Industry on t h e qua l i t y , standards and grading of any par t icu la r c l a s s o r kind of meat o r l ivestock r o be exported from Australia.

A committee of inves t iga t ion comprising Australian Meat Board (M) and industry representat ives was formed i n 1971 by t h e AMB t o determine the need f o r a grading and/or c l a s s i f i c a t i o n scheme f o r beef . (2) The committee decided t h a t a c l a s s i f i c a t i o n system based on t h e object ive measurement of t he Charles fac tors (3) (age, sex, carcass weight and fatness) would meet industry needs and a de t a i l ed technical evaluation

(1) ~ u s t m ~ i a n Meat and Livestock Act 1977.

(2) For information on t h e progress of carcass c l a s s i f i c a t i o n s e e L . E . Brownlie, 'Progress i n t he Development of a P rac t i ca l Beef Carcase Class i f ica t ion ' , Wool Technology and Sheep Breeding, September 1975, p. 21 and L.E . Brownlie, 'C lass i f ica t ion as an Aid t o Marketing1, Meat Industry Bulletin, March 1977, p . 24.

(3) D.D. Charles, 'Submission t o t h e Austral ian Meat Board Committee on Beef Grading/Classificationt , AMB Statement, 861/71.

should commence. The recommendation was accepted by the Board i n ear ly 1972 and work commenced on t h e experimental development of an object ive beef carcass c l a s s i f i c a t i o n system i n t h a t year.

In l a t e 1972 a s imi l a r proposal f o r a c l a s s i f i c a t i o n system f o r sheep meats was put up t o the Australian Meat Board. However, t h e need t o resolve some of t he complex technical issues associated with beef carcass c l a s s i f i c a t i o n delayed the examination of a sheep/lamb carcass c l a s s i f i c a t i o n system u n t i l 1975.

Pig carcass c l a s s i f i c a t i o n i s not sub jec t t o t h e same technical problems a s beef carcass c l a s s i f i c a t i o n , ob jec t ive measurement being an accepted p rac t i ce i n ce r t a in s ec to r s of t he p i g industry.(4) Research i n t o an object ive p ig carcass c l a s s i f i c a t i o n system i s present ly being conducted under the auspices o f the Pig Industry Research Committee and S t a t e Departments responsible f o r agr icul ture . (S)

The development of a beef carcass c l a s s i f i c a t i o n scheme has centred on t h e technica l development and evaluation of su i t ab l e instruments and techniques t o be adopted i n a b a t t o i r s . The object ive c l a s s i f i c a t i o n scheme se lec ted by the AMLC cons is t s of t h e Charles f ac to r s supplemented by an addi t ional f ac to r , t h e re la t ionsh ip of carcass weight t o length (shape). (6)

Although t h e development of t he weight:length re la t ionsh ip is s t i l l a t the experimental s tage , i t i s envisaged t h a t t h e technical development w i l l be f i n a l i s e d during t h e commercial t r i a l s .

In July-August 1976 t h e Australian Agricul tural Council endorsed a Commonwealth-State program of commercial t r i a l s of a proposed carcass c l a s s i f i c a t i o n scheme t o t e s t i t s f e a s i b i l i t y , with t h e view t o i t s subsequent general appl icat ion throughout Aus t ra l ia . Subsequently, t h e Commonwealth and S t a t e Governments, along with t h e Australian Meat Research and the Pig Industry Research Committees have s e t as ide a t o t a l of $400 000 f o r t he purchase and i n s t a l l a t i o n of prototype equipment t o conduct t r i a l s i n nine aba t to i r s i n t he s i x S t a t e s . The t r i a l s , which a r e being organised by t h e AMLC i n conjunction with Commonwealth and S ta t e Departments, s t a r t e d on an experimental bas i s a t Wodonga and Aberdeen i n February 19 77. Commercial t r i a l s t e s t i n g four d i f f e r e n t computer equipment systems commenced i n a number of a b a t t o i r s during t h e second ha l f of 1977 and it i s envisaged t h a t equipment w i l l be i n s t a l l e d i n t h e remaining t r i a l a b a t t o i r s i n t he f i r s t h a l f o f 1978 (see Table No. 1 ) . The Board envisaged t h a t an operat ional per iod o f a t l e a s t s i x months i s needed a t each works t o t e s t out t he operat ional fea tures of t he schemes. (7)

(4) B . R . Wilson, 'The Proposed National P ig Carcase Measurement and Information Service , Proceedings of the Carcase CZassification Symposim, Austral ian Meat Board, Adelaide, May 1976.

(5) Austral ian Agricul tural Council, Resolution, No. 98/2.

(6) C .R . Luckock, 'The Development of an Objective Beef Carcase C la s s i f i ca t ion Scheme f o r Aus t ra l ia ' , Proceedings of the Carcase Classification Symposim, Australian Meat Board, Adelaide, May 1976.

(7) See Attachment I , Section 1, f o r f u r t h e r information on the operat ional fea tures of t he schemes.

Table No. 1

PROPOSED ABATTOIRS

Abattoir S t a t e Species Equipment

M.P.A.B.

Casino

Robbs J e t t y

Samcor

Gilbertsons

Borthwicks

Riverstone

Killafaddy

Qld N .S . W .

W.A.

S.A.

Vic.

Vic.

N.S.W.

Tas .

Beef/Small Stock

Beef/Sheep and Lambs

Beef/Sheep and Lambs/Pigs

Pigs

Beef/Sheep and Lambs

Sheep

Beef

Sigma Data

Sigma Data

Sample Electronics

I BM

S t r e e t e r Amet

S t r e e t e r Amet

Sample Electronics

Hewlett Packard

Source: Australian Meat and Livestock Corporation.

Further Technical Aspects of Commercial T r i a l s

The commercial t r i a l l i n g of t he carcass c l a s s i f i c a t i o n schemes w i l l provide an opportunity t o test and f i n a l i s e a nwnber of t echnica l -and administrative aspects o f t he schemes which w i l l have important implications f o r t he economic evaluat ion of carcass c l a s s i f i c a t i o n .

Technical considerations which need t o be taken i n t o account include the following:

. The evaluation of t h e operat ional aspects (e.g. technical r e l i a b i l i t y ) of measuring t h e individual carcass cha rac t e r i s t i c s .

. The evaluation of t h e t echn ica l eff ic iency of t h e four d i f f e r e n t computer based systems associated with t h e recording and transmission of the carcass c l a s s i f i c a t i o n information.

. The f i n a l i s a t i o n of t he procedures associated with recording and coding t h e measurements and disseminating t h e information t o producers and the meat t rade .

The extension of t h e p o t e n t i a l i t i e s o f t h e carcass c l a s s i f i ca t ion schemes f o r those involved i n t h e producer, wholesale and r e t a i l s ec to r s of t h e t r ade .

. The provision of carcass c l a s s i f i c a t i o n information t o users i n a form tha t w i l l allow t h e benef i t s of t h e scheme t o be rea l i sed .

. The determination of t he adminis t ra t ive and o ther organisat ional changes t h a t may need t o accompany a decision t o introduce t h e carcass c l a s s i f i ca t ion schemes. (8)

The technica l development and evaluation of t h e carcass c l a s s i f i c a t i o n schemes r e s t s primarily with t h e AMLC. However, S t a t e Departments of Agriculture, CSIRO and p r iva t e firms have provided inputs i n t o the technical development of the schemes and a re expected t o be c losely involved i n t he commercial t r i a l s .

Further work i s required t o develop the carcass c l a s s i f i c a t i o n equipment t o a commercial standard. In p a r t i c u l a r , t h e exact form of equipment required f o r t h e f a t thickness and shape measures w i l l need t o be f i na l i s ed . The accuracy and r e l i a b i l i t y of t h e equipment involved with t he measurement of t he weight, f a t (9 ) and shape c r i t e r i a i s cen t r a l t o t h e evaluat ion of carcass c l a s s i f i ca t ion . Unless t h e meat t rade and producers have t h e assurance of the regular a v a i l a b i l i t y of accurate measurements the f u t u r e of t he carcass c l a s s i f i ca t ion schemes must remain i n doubt. The development and t e s t i n g of t h e equipment wider commercial conditions is thus an e s s e n t i a l s tep . I t can be expected t h a t t h e outcome of t he economic evaluat ion w i l l be governed by t h e degree t o which t h e technical object ives a r e met during the commercial t r i a l s .

The p rec i se nature of t he recording process on t h e s laughter chain, a t t h e a b a t t o i r accounts o f f i c e and a t o f f i ce s of t he AMLC w i l l need t o be resolved during the commercial t r i a l s . The Australian Meat Board purchased four d i f f e r en t computer based systems f o r t e s t i n g during the commercial t r i a l s and a technical as well a s economic evaluation w i l l be required t o determine t h e s u i t a b i l i t y of these systems f o r t h e Austral ian c l a s s i f i c a t i o n schemes. The technica l r e l i a b i l i t y of t h e equipment under commercial conditions w i l l determine t h e leve l of spare back-up equipment required as well a s inf luencing maintenance costs . The compatability of t he equipment a t t h e various points i n t h e marketing chain w i l l determine t h e cost and speed of d i s t r i b u t i n g information t o t h e various users .

A c r i t i c a l area i n t h e technica l development of t h e carcass c l a s s i f i c a t i o n scheme i s the s t ruc tu re of t h e scheme i t s e l f . Classes w i l l need t o be s e t f o r the carcass c r i t e r i a . A s t h e number of c lasses increases so t h e d e t a i l of the information provided increases and t h e scheme consequently becomes more complex t o those using it, and adminis t ra t ion costs increase. The number of c lasses chosen(l0) w i l l therefore be a t r ade -o f f between the amount o f t he information provided and communicative a b i l i t y .

An extension program w i l l be required during the commercial a b a t t o i r trials t o pub l i c i s e t h e c l a s s i f i c a t i o n schemes t o producers and

(8) Austral ian Agricul tural Council. Press Release, PI 77/132, 2 August 1977.

(9) For t h e methodology f o r t e s t i ng t h e accuracy of f a t thickness measurement, see D . J . Dennes, S.A. Parsons and D . J . Campbell, &uarterZy Review of Agriculturai! Econmics, Vol . XXVIII, No. 1, January 1975, pp. 25-37.

(10) See Attachment I , Section 2 f o r information on t h e d i s t r ibu t iona l c h a r a c t e r i s t i c s of t h e carcass c r i t e r i a .

t he meat t rade and allow t h e schemes t o be improved i n t he l i g h t of operational experience. (11) Modification may be required t o ce r t a in o f t he carcass c r i t e r i a ; f o r example, t he AMB has included carcass shape a s one of t he carcass c l a s s i f i ca t ion c r i t e r i a . The necess i ty f o r t he inclusion of t h i s var iab le has not been supported by p a s t research(l2) and, if not supported by the t r i a l s , the exclusion of t h i s c r i t e r i a would simplify t h e scheme and reduce t h e cap i t a l and operating cos t s .

P a r t I

METHODOLOGY

A major i s sue i n t h e ana lys i s of t h e costs and benef i t s of carcass c l a s s i f i ca t ion is the methodology t o be adopted f o r t he ana lys i s . Although a number of s tud ies have concluded t h a t t h e advantages of grading o r c l a s s i f i c a t i o n systems outweigh t h e disadvantages(l3), t h e approach t o the analysis of the costs and benef i t s of t h e carcass c l a s s i f i c a t i o n schemes has t o date been of a pragmatic nature . yilst t h e cos t s of t he schemes are f a i r l y read i ly i d e n t i f i e d , t h e major d i f f i c u l t y l i e s i n quantifying t h e benef i t s . Previous research (14) (15) has concentrated on measuring the more tangible bene f i t s such a s t h e cos t savings a r i s i n g with improvements i n operational e f f ic iency a t t h e wholesale and r e t a i l l eve l s . Estimates of d i r e c t benef i t s have then been compared with t h e d i r e c t costs of carcass c l a s s i f i ca t ion t o give some ind ica t ion of t h e n e t bene f i t s . Probably of more s ignif icance, however, than t h e d i r e c t benef i t s flowing from the introduct ion of a carcass c l a s s i f i c a t i o n scheme a re t h e wider marketing reforms which may a r i s e . (16) Evidence from o the r indus t r ies ( l7) i l l u s t r a t e s t h a t t he benef i ts a r i s i n g from wider market reforms may well be of more s ignif icance i n t h e long run than t h e d i r ec t bene f i t s . A s such reform may involve gradual change with t h e development of new marketing methods, t he evaluation of benef i t s w i l l be r e s t r i c t e d by t h e a b i l i t y t o pred ic t and es t imate fu ture i nd i r ec t bene f i t s .

(11) Australian Agricultural Council Resolution No. 98/2, August 1976.

(12) BAE, 'Developments i n Beef Carcass Class i f ica t ion ' , Beef Research Report No. 19, Canberra, 1976, p. 17.

(13) See L.E. Cozens, Enquiry in to the Economics of Marketing of Livestock and Meat. i n Victoria, Melbourne, 19 73.

(14) See BAE, 'Developments i n Beef Carcass Class i f ica t ion ' . op. c i t . , p. 44-45.

(15) G.R. Gr i f f i t h , 'The Benefits of a National Pig Carcase Measurement and Information Service ' , Proceedings o f Carcase CZassification Symposizq, Adelaide, May 1976, pp. 1-10.

(16) For elaboration s e e A . P . Biggs, 'Beef Carcass Class i f ica t ion : Current Research and Implications f o r Marketing', @arterZy Review of AgricuZturaZ Econwnics, Vol. XXVIII, No. 2, April 1975, pp. 75-78.

(17) T . J . Tier , 'Cost Savings i n Marketing and Objective Measurement', Paper presented a t t he Objective Measurement Symposium - Melbourne, Austral ia , 1974.

Gri f f i th (18) noted t h a t no precedents had been s e t f o r t h e economic evaluat ion of the b e n e f i t s associated with meat grading o r c l a s s i f i c a t i o n schemes. Further, he noted t h a t economic s tud ies of o the r r e l a t e d areas such as ag r i cu l tu ra l research were of an ex post nature and concluded tha t , because an ex ante study was required f o r estimating t h e benef i t s of a na t iona l p ig carcass measurement and information serv ice , 'pragmatic methods of estimation' would have t o be r e l i e d upon.(19)

The appl icat ion of benef i t -cos t analysis needs t o be considered. Although benef i t -cos t analysis may normally be thought of i n t h e context of p ro jec t s such as i r r i g a t i o n schemes, a i r p o r t s and motorways, refinements i n recent years enable such ana lys i s t o be applied t o pro jec t s such as carcass c l a s s i f i ca t ion .

The appl icat ion of a benef i t -cos t evaluat ion t o t he proposed p i g carcass c l a s s i f i c a t i o n scheme i s aided by t h e f a c t t h a t t h e object ive measurement of carcass cha rac t e r i s t i c s has been a fea ture of t h e industry, p a r t i c u l a r l y t h e processing s e c t o r f o r some time. A s a r e s u l t , p ig carcass c l a s s i f i c a t i o n a t t a ined ea r ly acceptance once i t w a s made ava i lab le i n t h e U.K. (20)

With respect t o t h e proposed beef and sheep carcass c l a s s i f i c a t i o n schemes t h e lack of knowledge o f t h e market s t r u c t u r e and conduct of t he wholesale and r e t a i l l eve ls of t h e meat t rade m i l i t a t e s against t he adoption of a shor t term az. ante benefi t -cost analysis a s i t influences t h e aggregation and d i s t r i b u t i o n of t h e cost savings t h a t w i l l flow from innovations such as s i g h t unseen t rad ing and improved carcass handling. This does not of course r u l e out t h e use of a benef i t -cos t ana lys i s a t a l a t e r da te when f u r t h e r economic study has thrown addi t iona l l i g h t on t h e market s t ruc tu re and conduct o f t h e industry and t h e l i ke ly changes t o operat ional and pr ic ing e f f ic iency t h a t w i l l a r i s e with t h e introduct ion of carcass c l a s s i f i c a t i o n .

The examination of cos t s and bene f i t s of carcass c l a s s i f i c a t i o n foreshadowed i n t h i s paper i s based on a case study approach with t h e i d e n t i f i c a t i o n of both t h e tangible and int jmgible costs and bene f i t s on a s ec to r by s e c t o r basis . The approach suggested i s t o es t imate benef i t s and cos t s on a per u n i t ba s i s (kg). A s well an attempt, again pragmatic, i n nature w i l l be made t o aggregate n e t bene f i t s i n terms of present values. These aggregations a r e , however, l i ke ly t o f a l l shor t of a f u l l

(18) See G.R. G r i f f i t h , 'The Benefits of a National Pig Carcase Measurement and Information Service ' , op. c i t . , p . 5.

(19) G.M. Scobie, 'Who Benefits from Agricul tural Research', Review of Marketing and AgricuZturaZ Econmics, Vol. 4 4 , No. 4. December 1976. Scobie h igh l igh ts t h e p i t f a l l s of p a r t i a l analysis i n predict ing t h e d i s t r i b u t i o n of soc ia l b e n e f i t s between producers and consumers which a r i s e from technical change. Three d i f f e r e n t formulae, when applied i n t he context of an hypothetical research pro jec t , were shown t o produce varying responses t o two simple (yes/no) questions: ' W i l l consumers gain more than producers?' and ' W i l l producers' benef i t s be pos i t i ve? '

(20) G . Harrington, 'C lass i f ica t ion Developments i n Br i ta in and Europe', Proceedings of an MLC Conference, strat ford-Upon-Avon, pp. 25- 36.

benefi t -cost evaluation i n t h e sho r t term f o r t h e beef and sheep carcass c l a s s i f i ca t ion schemes f o r the reasons previously de ta i led .

This approach w i l l allow d i f f e r e n t research pro jec t s such a s t h e analysis of costs and benef i t s at t h e a b a t t o i r l eve l and the assessment of the impact of carcass c l a s s i f i ca t ion on wider market reform i n l ivestock marketing channels t o be more read i ly placed i n t o perspective. Similar ly , a broad industry approach i s necessary because t h i s allows t h e research being undertaken a t both the Federal and S ta t e levels t o be combined t o simplify fu tu re decisions on the implementation of carcass c l a s s i f i c a t i o n .

The approach t o the evaluation of t he carcass c l a s s i f i c a t i o n schemes is covered i n t he paper under t h ree p a r t s .

The f i r s t o f these examines t h e costs t h a t a r e l i ke ly t o a r i s e with , t h e introduction of t he carcass c l a s s i f i c a t i o n schemes. The poten t ia l cost areas a r e defined by sec to r , previous t e n t a t i v e es t imates of these costs are then summarised, and f i n a l l y t h e fu r the r research t o be carr ied out both during t h e commercial t r i a l period and i n t h e longer term on the assessment of costs , i s de ta i led . The analysis of t h e benef i t s o f carcass c l a s s i f i ca t ion i n t he next p a r t follows a s imi la r format. A f i n a l p a r t s e t s t h e framework f o r t h e evaluation of t h e incidence of t h e n e t benef i t s on a sector by sec to r bas i s .

P a r t I 1

COSTS

The introduction of t he carcass c l a s s i f i ca t ion schemes w i l l inevi tably lead t o cos t increases i n a number of areas of marketing ac t iv i ty . , Costs w i l l be incurred pa r t i cu l a r ly at aba t to i r s with t h e measurement and recording of t h e carcass c r i t e r i a .

In t h e ear ly s tages of t he scheme, costs w i l l b e incurred through t h e promotion and extension of t h e schemes and i n t r a i n i n g personnel t o develop t h e new s k i l l s required.

Costs could a l s o be incurred i n ensuring t h a t adequate market reporting accompanies t he introduct ion of carcass c l a s s i f i ca t ion ; however, the evaluation envisaged would no t cover t he estimation of these.

There is l i ke ly t o be a n a t u r a l res i s tance t o t he introduct ion of a marketing reform such as carcass c l a s s i f i ca t ion as ce r t a in s k i l l s become redundant whi ls t t h e demand f o r new ones is created. This has been observed i n other instances where ob jec t ive product descr ip t ion systems have been introduced.(21) This na tu ra l res i s tance t o change, coupled with t he industry becoming fami l ia r with carcass c l a s s i f i ca t ion a s a t r a d e language, w i l l be r e f l ec t ed i n cos t movements through t h e learning process as producers, wholesalers and r e t a i l e r s vary management processes and prac t ices . The exponential curve gives t h e general ly accepted form f o r the learning process.(22) This ind ica tes t h a t u n i t costs drop very rap id ly i n t h e ear ly phases of a new process.

(21) T . J . T ie r , op. cit.

(22) C. J . Stokes, MmgeriaZ Economics, N . Y . , Random House, 1969, pp. 139-143.

Producer Level

One cost t h a t w i l l be d i r e c t l y incurred a t t he producer leve l is the adminis t ra t ive cos t to t he producer of u t i l i s i n g the carcass c l a s s i f i c a t i o n information i n production and marketing decis ions . I f , however, t h e cos t s of co l lec t ing , recording and transmitt ing t h e information t o t h e producer outweigh the bene f i t s a t t h e a b a t t o i r l eve l then the incidence of these costs could t o some extent be borne by t h e producer i f they are r e f l ec t ed i n t h e form of increased slaughtering charges.

Wholesale Level

Abattoirs

The d i r e c t cos t s of t h e carcass c l a s s i f i c a t i o n schemes have been i d e n t i f i e d a s t h e c a p i t a l cos t s of t h e standard equipment together with labour and maintenance costs and any costs incurred with s t r u c t u r a l changes t o t h e s laughter l i ne . I t was estimated i n 1976 t h a t t h e c a p i t a l costs of t he instruments would be i n t h e v i c i n i t y of $20 000 t o $25 000 per beef s laughter chain. (23) Maintenance cos t s include t h e r e p a i r and maintenance of t he instruments, together with t he costs of ver i fy ing instrument and operator accuracy t o ensure t h a t t h e appropriate degree of technical r e l i a b i l i t y i s achieved.

Labour requirements have been estimated as l i k e l y t o cons is t o f two o r t h ree persons t o record t h e c l a s s i f i c a t i o n information. The labour costs a r e l i k e l y t o vary between chains, depending on the f e a s i b i l i t y of combining c l a s s i f i c a t i o n dut ies with o the r functions.

The BAE estimated i n 1976 t h a t t h e d i r ec t costs (capi ta l , labour and maintenance) of beef carcass c l a s s i f i c a t i o n f o r an a b a t t o i r w i t h a weekly throughput of 1500 two hundred kilogram beef carcasses would be 0.26 cents p e r kilogram.(24) This d id no t include any estimate f o r t h e s t r u c t u r a l costs t h a t might be incurred with a rearrangement of t h e s laughter chain o r c h i l l e r f a c i l i t i e s .

Further research on t h e costs of carcass c l a s s i f i ca t ion a t t he a b a t t o i r l eve l can be conducted i n t he shor t term i n t h e following areas:

1. An evaluation of both t h e d i r e c t cos t s of carcass c l a s s i f i c a t i o n as i d e n t i f i e d above and t h e parameters t h a t a r e l i ke ly t o influence u n i t costs such as slaughtering capacity, throughput,

(23) See C .R . Luckock, 'The Development of an Objective Beef Carcase C la s s i f i ca t ion Scheme f o r Aus t ra l ia ' , op. cit., p. 6 . On t h e bas i s of the beef carcass c l a s s i f i c a t i o n schemes implemented a t M.P.A.B. (Brisbane) and the Northern Meat Co-operative (Casino), t h e c a p i t a l cos t s have been ten ta t ive ly revised a t $40 000. This f i gu re does not , however, include a l l cos t s associated with computer maintenance o r t he cos t of backup equipment i n t h e event of breakdowns.

(24) See BAE. 'Developments i n Beef Carcass Class i f ica t ion ' , op. cit., pp. 51-56. Unless otherwise s t a t e d t h e t e n t a t i v e cos t estimates of beef carcass c l a s s i f i c a t i o n a re based on t h i s paper.

chain layout, meat des t ina t ion (e.g. export o r domestic) and type of a b a t t o i r (e.g. s e rv i ce o r non-service). The evaluat ion t o be based on a syn the t i c costing(25) of t h e d i r e c t costs of carcass c l a s s i f i c a t i o n a t t he aba t to i r s included i n t h e AMLC t r i a l s . A range of a b a t t o i r types have been included i n t h e t r i a l s , namely public, p r iva t e , service and non-service.

2 . An examination of whether any s t r u c t u r a l costs a r e incurred with t he rearrangement of a b a t t o i r f a c i l i t i e s on t h e introduction and use of carcass c l a s s i f i c a t i o n equipment. This w i l l be determined by t h e na ture and layout of ex i s t i ng operations. For example, s t r u c t u r a l cos t s could be incurred with t h e i n s t a l l a t i o n of automatic weighing scales i n those aba t to i r s present ly using manual s ca l e s .

3. An estimate of s laughter ing costs t o permit an examination t o be made of t h e incidence of t he costs of carcass c l a s s i f i c a t i o n a t t he a b a t t o i r level . The d i r e c t costs o f carcass c l a s s i f i c a t i o n and t h e cost savings (benef i t s ) a t t he a b a t t o i r l eve l can be placed i n perspective i f compared with t h e t o t a l costs of slaughtering .

4. Estimates of t he cos t s o f t r a in ing personnel i n t h e new s k i l l s required i n aba t to i r s , together with an assessment of t h e cos t s of ver i fying instrument and operator accuracy.

(25) Three approaches (or combinations thereof) can be used t o analyse cost behaviour - s t a t i s t i c a l , accounting and synthe t ic approaches.

S t a t i s t i c a l Approach : The s t a t i s t i c a l approach is l i k e l y t o produce the most r e l i a b l e r e s u l t s . However, it i s +ime consuming and expensive. Detailed records of cos t and output a r e required and t o allow cos t functions t o be es tab l i shed a wide range i n t h e output data i s required.

Data may read i ly be adjusted f o r changes i n wage r a t e s , mater ia l p r ices and other measureable f ac to r s but adjustments f o r p lan t si'ze, technology and labour e f f ic iency a re d i f f i c u l t t o make.

Accounting Approach : The accounting approach involves c l a s s i f i c a t i o n of expenses i n t o f ixed and var iab le cost categories . A s with t h e statistical approach, a wide range of f luc tua t ion i n output r a t i o i s required. However, the aggregate nature of the da ta forces t h e adoption of t h e assumption of r e l a t i v e constancy i n wage r a t e s , mater ia l p r ices , p lan t s i z e , technology, e t c . i n those firms included i n the analysis .

Synthetic Approach : The syn the t i c approach cons is t s of a systematic estimation of cos t behaviour i n t h e fu tu re , based on fac tors such as the ra ted capacity of equipment together with a knowledge of manpower requirements.

The synthe t ic approach i s t h e only f ea s ib l e method when t h e inadequacy of experience and records prevents a h i s t o r i c a l estimation of cost behaviour. This approach i s the only f ea s ib l e one f o r new innovations, pa r t i cu l a r ly where a subs t an t i a l learning process i s l i ke ly before t h e f u l l bene f i t s can be rea l i sed .

5. An examination of the adminis t ra t ive costs of compiling and returning the carcass c l a s s i f i c a t i o n information t o producers. The quant i ty of information sought by t h e producer i s l i k e l y t o vary with the type of operation. A stud breeder may require c l a s s i f i c a t i o n information f o r individual carcasses whi ls t aggregate information may be s a t i s f a c t o r y f o r commercial producers.

6 . An est imate of t he impac t of carcass c l a s s i f i c a t i o n on c h i l l e r operations. The separation of d i f f e r e n t c lasses i n t h e c h i l l e r could lead t o addi t ional costs i f t h e number of c lasses i s g r e a t e r than t h a t current ly ex is t ing .

Wholesale/Retail Levels

A t t h e wholesale and r e t a i l l eve ls , d i f f i c u l t i e s could a r i s e i f e r ro r s become apparent i n t h e measurement of t h e carcass c r i t e r i a o r i f carcass buyers do no t consider, i n t h e l i g h t of experience, t h a t t h e object ive measurement of carcasses adequately describes t h e carcass cha rac t e r i s t i c s .

I f e i t h e r of t hese d i f f i c u l t i e s occur then it is probable t h a t carcass c l a s s i f i c a t i o n w i l l not become t h e bas i s o f a language. In t h i s event many of t h e bene f i t s outl ined i n t h e next p a r t of t h i s paper w i l l not be rea l i sed .

A s previously s t a t ed , a learning process i s involved with t h e introduct ion of any new process. In t h e case of carcass c l a s s i f i ca t ion , costs could be incurred a s t he meat t rade f ami l i a r i s e s i t s e l f with t h e new language and ad jus t s t o t he new processes.

Governmental Level

An ana lys i s w i l l be required of t h e cos t s t h a t w i l l be incurred a t governmental l eve ls , i n t r a i n i n g personnel and i n t h e promotion and extension of t h e carcass c l a s s i f i ca t ion schemes. In addi t ion, costs could be incurred i n ensuring t h a t adequate market p r i c e report ing accompanies t he introduct ion of carcass c l a s s i f i ca t ion .

Part I11

BENEFITS

The bene f i t s a r i s ing from t h e c l a s s i f i c a t i o n schemes, and discussed i n t h i s sec t ion on a sector-by-sector bas i s , flow from t h e improved information s t a t e t h a t w i l l a r i s e with t h e introduct ion of an ob jec t ive product descr ip t ion scheme.

The b a s i s f o r the acceptance of carcass c l a s s i f i c a t i o n schemes f o r beef , sheep/lambs and pigs i s t h a t t h e individual schemes should b e e f fec t ive product descr ip t ion schemes t h a t w i l l provide a base f o r a t r ade language. The evaluat ion of t he benef i t s o f t h e carcass c l a s s i f i c a t i o n schemes i s founded on t h e premise t h a t c l a s s i f i c a t i o n w i l l become t h e bas i s f o r a t r a d e language. A number of pub l i c i nqu i r i e s have noted t h e

lack of object ive methods f o r describing product qua l i t y i n t h e meat industry and concluded t h a t object ive carcass c l a s s i f i c a t i o n schemes would be a des i rab le marketing reform. (26)

Freebairn(27) notes t h a t two prerequis i tes f o r t he successful introduction of a uniform product descr ip t ion scheme are:

( i ) That a s ign i f i can t proportion of t h e buyers d i f f e r e n t i a t e between un i t s of t he commodity,

( i i ) That market pa r t i c ipan t s have l e s s than pe r f ec t cos t l e s s knowledge about t h e cha rac t e r i s t i c s of and pr ices of d i f fe ren t un i t s of t he commodity.

The meat industry s a t i s f i e s both these c r i t e r i a . Buyers do not t r e a t carcasses as homogeneous u n i t s . The r e s u l t s o f t h r e e t r i a l s conducted a t aba t to i r s and wholesale o u t l e t s i n N.S.W. and Victor ia i n 1972, 1974 and 1975 indicated t h a t , with t h e exception of year l ings , s e t s of measured carcass cha rac t e r i s t i c s can simulate t h e a l loca t ion of more than 60%, and as high a s 88%, of carcasses i n t o t h e i r ac tua l grades o r towards t h e i r actual end users . (28) I t has a l so been shown t h a t par t ic ipants i n t h e Australian meat market a r e i n possession of somewhat less than per fec t cos t less information.(29) G r i f f i t h argues t h a t t h e pract ices of p r ice l eve l l i ng and p r i ce averaging i n t h e Sydney Meat Market would be moderated should a carcass c l a s s i f i c a t i o n scheme generate an improved information flow.

Benefits of t he carcass c l a s s i f i c a t i o n schemes a r e r ea l i s ed i n increased marketing eff ic iency, s p e c i f i c a l l y i n operational and pr ic ing efficiency gains.

Gains i n operat ional e f f ic iency a re l i ke ly t o a r i s e , i n p a r t because object ive product descr ip t ion makes buying and s e l l i n g by descr ipt ion feas ib le . I n tu rn , t h i s would allow rea l i s a t ion o f cos t savings w i t h respect t o s torage, handling, processing and t ranspor ta t ion a c t i v i t i e s . For example, t h e need t o inspec t carcasses i s obviously

(26) For a review of recent meat marketing reform issues see 'Report from the Select Committee of t he Legis la t ive Assembly upon t h e Meat Industry ' , N.S.W. Government P r in t e r , 1972; The Parliament of t he Commonwealth of Austral ia , ' S t ab i l i s a t i on of Meat P r i ce s ' , Report from a Joint Camit tee on M c e s , September 1973; 'Meat Production Processing Marketing; Abat toir F a c i l i t i e s and Fees: Des i rab i l i ty of a Government Supervisory Authority ' , Report of Select Cornnittee of the House of the Assembly, Parliament of Tasmania, 1974; BAE, The Marketing of Livestock and Meat i n Tasmania, March 1974.

(27) J . W . Freebairn, 'The Value of Information Provided by a Uniform Grading System', The AustraZian Journal of Agricultural Economics, Vol. 17, No. 2 , August 1973.

(28) See BAE, 'Developments i n Beef Carcass C la s s i f i ca t ion ' , op. cit., p. 10.

(29) G.R. Gr i f f i t h , 'Sydney Meat Marketing Margins - An Econometric Analysis ' , Review of Marketing and Agricultural Economics, Vol. 42, No. 4, December 1974.

reduced if the buyer has confidence i n t h e product descr ipt ion system. Not only does t h i s r e s u l t i n savings f o r t h e buyer but a l so i n a reduction of t he demands on the s e l l e r ' s se rv ices .

Apart from the operational e f f ic iency gains, improved pr ic ing e f f ic iency i s l i ke ly t o give r i s e t o improvements i n t h e operation of t h e market i n t h e following ways:

( i ) The provision of a common language f o r buyers and s e l l e r s . A na t iona l market report ing system would provide the medium f o r t h i s language, f a c i l i t a t i n g the co l l ec t ion and dissemination of more meaningful market i n t e l l i gence .

( i i ) The leve l of competition i n t h e industry is l i ke ly t o be increased as t he s e l l e r s and buyers of carcasses w i l l more read i ly b e able t o compare pr ices offered. A r e s u l t o f t h i s would be t h a t the market system should more systematically a l l oca t e supplies of meat between export and domestic markets i n terms of t he quan t i t i e s and cha rac t e r i s t i c s demanded and should reward s e l l e r s more prec ise ly . The development of new markets, such a s t he Middle East , i s l i k e l y t o be enhanced a s ex is t ing export grades do not adequately describe t h e carcass cha rac t e r i s t i c s t ha t a r e of ten sought.

( i i i ) The l eve l of pr ic ing accuracy w i l l be r a i s e d i f t h e introduct ion of carcass c l a s s i f i c a t i o n leads t o an increase i n t h e acceptab i l i ty by producers of s e l l i n g over t h e hook. This could be expected t o lead t o some increase i n t he use of t h i s method a s opposed t o s e l l i n g on a l ivestock basis . (30)

Estimates of the benef i t s t h a t w i l l a r i s e with t h e beef carcass c l a s s i f i c a t i o n scheme have been made by t h e BAE. (31) These estimates have been of a t e n t a t i v e na ture only, however, and have been based on l imited empirical s tud ie s . As previously discussed t h e ind i r ec t benef i t s a r i s ing from wider market reform a re l i ke ly t o b e of g rea t e r s ignif icance than t h e d i r e c t bene f i t s . These a r e reviewed below.

I m p l i c a t i o n s f o r Wider Market Reform(32)

Apart from t h e benef i t s t h a t w i l l flow d i r e c t l y from t h e introduct ion of t he carcass c l a s s i f i c a t i o n schemes, other innovations i n l ivestock and meat marketing may be introduced.

Livestock Marketing Channels

The introduct ion of beef , sheep and p ig carcass c l a s s i f i c a t i o n schemes is l i ke ly t o have considerable implications f o r t he producer's choice of s e l l i n g methods.

(30) W.F. Williams and T.T. S tout , Economics of the Livestock and Meat Industry, New York, Macmillan, 1964, pp. 683-684.

(31) BAE, 'Developments i n Beef Carcass C la s s i f i ca t ion ' , op. czt., pp. 44- 56.

(32) For a f u l l descr ipt ion o f t he Marketing Innovations associated with carcass c l a s s i f i ca t ion , s e e A.P. Biggs, op. ci t . ,pp. 75-78.

Further research i s being conducted within t h e BAE on an analysis of ex is t ing marketing channels and t h e implications a r i s ing from the introduct ion of an acceptable object ive standardised descr ip t ion scheme f o r beef.

A discussion of ex is t ing marketing channels i s i n Attachment 11. This attachment reviews, i n a marketing channels context, the pr ic ing and operational eff ic iency aspects o f t h e d i f f e r en t s e l l i n g methods and examines information and product flows, market f inance arrangements and market organisation.

Standardised Price Reporting

A na t iona l carcass c l a s s i f i c a t i o n scheme would enable p r i ce quotes t o b e made on a standardised qua l i t y bas i s both between d i f f e r en t market locat ions and over time. In t h i s respec t , standardised p r i c e reporting could a s s i s t , and f a c i l i t a t e t he acceptance of carcass c l a s s i f i ca t ion as a t rade language.

The assessment of t he market outlook f o r l ivestock would be improved with standardised p r i c e report ing and obviously buyers and s e l l e r s a t a l l levels of t h e marketing chain would bene f i t through t h e provision of the addi t ional market information. Producers would be able t o not only make b e t t e r comparisons between pr ices offered i n d i f f e r e n t market locations but a l so compare pr ices offered through d i f f e r e n t marketing channels.

A t present, market report ing services i n Austral ia a r e mainly concerned with l ivestock p r i ce report ing. In both Aus t ra l ia and some overseas countries(33) the l ives tock market report ing systems a r e character ised by t h e i r fragmentation, with a conglomeration of report ing systems varying with respect t o coverage, terminology and standard def in i t ions f o r such c r i t e r i a as carcass weight, age and condition. A s an example of dif ferences i n terminology i n Aus t ra l ia , ' vea l e r s l and 'year l ings1 a re described by weight ranges which vary between d i f f e r en t S ta tes . Investigations have been conducted, however, by a group of off icers(34) from Commonwealth and S ta t e Departments of Agriculture i n t o methods of bringing about improvements i n t h e uniformity and ob jec t iv i ty of ex is t ing market report ing systems fo r co l lec t ing and recording l ivestock market pr ices . Following these inves t iga t ions a l ivestock p r i ce report ing scheme has been introduced i n New South Wales, Victor ia and Western Aus t ra l ia and i s under consideration i n o ther S t a t e s .

In t he development of t h e standardised p r i ce report ing scheme the need f o r cornpatability between t h e c r i t e r i a underlying t h e carcass c l a s s i f i ca t ion and l ivestock p r i c e report ing schemes t o allow an interchange of information between producers and t h e meat t rade has been allowed for . I f t h i s interchange i s not e f f ec t ed then t h e r e a l i s a t i o n of carcass c l a s s i f i ca t ion benef i ts dependent .on t h e development of carcass c l a s s i f i c a t i o n a s a t rade language w i l l be jeopardised.

(33) For example, see Commission o f Inquiry in to the Marketing o f Beef and VeaZ, Canada, Ottawa, 1976 , pp. 77-81.

(34) Ad Hoc Group t o the Economics and Marketing Committee of t h e Standing Committee of Agriculture.

Futures Markets

The operation of futures markets is l i k e l y t o be enhanced by t h e introduct ion of an e f f ec t ive method of descr ibing carcasses and i t s c lose linkage with uniform livestock pr ice report ing.

Institutions Z Arrangements

I n s t i t u t i o n a l intervent ion, such a s t h e payment of support moneys, could be f a c i l i t a t e d by the exis tence of a standardised product descr ipt ion scheme such as carcass c l a s s i f i c a t i o n . Similarly, any proposal which involved the pooling of an ind iv idua l ' s produce could be f a c i l i t a t e d by such a scheme. I t should be noted, however, t h a t carcass c l a s s i f i c a t i o n may not be a necessary condition f o r an intervent ion scheme and another bas i s could be found t o be more appropriate.

The adoption of a standardised product descr ipt ion scheme would a l so simplify i n s t i t u t i o n a l arrangements such a s the development of co-operative marketing groups o r t rad ing by s t a tu to ry au tho r i t i e s .

B e n e f i t s (By Sec to r )

Producer Leve l

The feedback of information from t h e carcass c l a s s i f i ca t ion schemes t o t he producer w i l l improve the information base on which farm management decisions a r e made. Adjustments t o feeding pa t te rns , breeding and on-farm handling of l ivestock can be expected t o r e s u l t i n carcass improvement i n those cases where producers a r e able t o ad jus t t h e i r resource inputs i n l i g h t of the new information. Information could a l s o be recorded i n associat ion with carcass c l a s s i f i ca t ion t o a s s i s t t h e producer i n disease control and i n t h e reduction of losses through i n - t r a n s i t bruising. Additional costs would of course be incurred i n t h e recording and transmission of t h i s information.

The introduction of any object ive carcass measurement scheme i s l i k e l y t o increase t h e a t t rac t iveness of over-the-hook s e l l i n g a s opposed t o t he t r a d i t i o n a l l ivestock auction system. Producers may a l so expect t o b e n e f i t from any change t o the whole marketing s t ruc tu re consequent upon the in t roduct ion of carcass c l a s s i f i c a t i o n .

L i t t l e research has been conducted on quantifying these benef i t s a t t h e producer leve l and i n many cases t h e benef i t s a r e inherent ly unquant i f iable . The commercial t r i a l s provide t h e opportunity t o contact producers and producer organisations t o allow t h e intangible benef i t s t o be more c l ea r ly i den t i f i ed . In pa r t i cu l a r , t h e form i n which information is returned t o t he producer w i l l need t o be revised i n t h e l i g h t of experience, t o ensure benef i t s a r e rea l i sed .

The importance of carcass c l a s s i f i c a t i o n information a t t h e producer leve l has been documented overseas.(35) Production decisions a r e , however, obviously complex and r e l a t e t o production f ac to r s such a s labour, stockfeed and cap i t a l a v a i l a b i l i t y .

(35) J. Ward, 'Marketing Beef and Sheep', Farm Management, Vol. 3 , No. 1, 19 75- 76.

Benefits a t the producer level w i l l be r ea l i s ed i f market requirements a r e more e f f ec t ive ly transmitted back t o the l ivestock producer as a r e s u l t of carcass c l a s s i f i ca t ion so t h a t t he producer i s aware of t he carcass cha rac t e r i s t i c s sought and can ad jus t h i s production accordingly. An example i s f a t thickness. I f a carcass has excess f a t , not only does t h i s r e s u l t i n addi t iona l processing costs a t t he wholesale and r e t a i l l eve ls bu t , addi t ional ly , t he c a t t l e producer i s l i ke ly t o have wasted resources i n producing t h e excess f a t .

Research i n t o improvements i n carcass qua l i ty a s a r e s u l t of carcass c l a s s i f i ca t ion i s being conducted by t h e N.S.W. Department of Agriculture with respect t o p ig carcass c l a s s i f i ca t ion . An evaluation of qua l i ty improvement a s a r e s u l t o f beef and sheep carcass c l a s s i f i c a t i o n schemes would, however, be more complex and of a longer term nature .

Estimates of t h e bene f i t s a r i s ing from improved carcass qua l i t y on the implementation of pigmeat c l a s s i f i c a t i o n have been made by Griff i th . (36) I t has been estimated i n Canada tha t , because of t he improved carcass information feedback, hog producers have been ab le t o more c losely match market requirements and hence have benef i ted through increased re turns . (37)

Further research with respect t o benef i t s a t t h e producer leve l w i l l concentrate on an analysis of ex is t ing l ivestock marketing channels and t h e implications of t h e introduct ion of successful carcass c l a s s i f i ca t ion schemes. Spec i f ic research pro jec t s could usefu l ly cover:

(a) An operational e f f ic iency study of a shor t term nature t o examine marketing cos t s under d i f f e r e n t marketing channels.

(b) An examination of p r i ce formation and accuracy under d i f f e r e n t marketing channels. Preliminary r e s u l t s could be ava i lab le i n time f o r inclusion i n t h e proposed carcass c l a s s i f i c a t i o n evaluation.

Marketing cos t s w i l l vary depending on t h e marketing channel followed; f o r example, with auction s e l l i n g they would include saleyard dues, t ranspor t and handling cos t s , stock agent ' s commission, and o ther f ac to r s influencing cos t s such as bru is ing and s t r e s s weight loss .

I n t he medium term it i s proposed t o conduct a survey t o determine t h e aggregate importance of t h e d i f f e r en t s e l l i n g methods and the f ac to r s t h a t influence t h e producer's choice of marketing channel.

Wholesale Level

Abattoirs

Benefits a t t h e a b a t t o i r l eve l w i l l a r i s e if t h e improvement i n product descr ipt ion brought about by carcass c l a s s i f i ca t ion leads t o

(36) G . R . G r i f f i t h , 'The Benefits of a National Pig Carcase Measurement and Information Service ' , op. cit. , pp. 8-9.

(37) G . L . Locking, 'Canada's Hog Carcase Evaluation Scheme', Proceedings o f the Carcase CZassification Symposium, Adelaide, May 1976.

improvements i n operational e f f ic iency . This could be r e f l ec t ed i n cos t s savings from more e f f i c i e n t handling, storage, and information processes. Benefits could a l so a r i s e i f t he subs t i tu t ion of carcass c l a s s i f i ca t ion procedures f o r ex is t ing export and domestic grading procedures leads t o cost savings.

The parameters t h a t a r e l i k e l y t o influence the r e a l i s a t i o n of these cos t savings include slaughtering capacity, throughput, chain layout, degree of v e r t i c a l in tegra t ibn with wholesaling and r e t a i l i n g a c t i v i t i e s , meat dest inat ion (e.g. export o r domestic) and type of a b a t t o i r (e.g. service o r non-service).

Although these benef i t s mainly r e l a t e t o aspects o f product flow it i s important t o r e a l i s e t h a t an improved t rade language has wider economic implications i n terms of exchanging information and a l loca t ing resources.

In t he shor t term, during the commercial t r i a l s t h e po ten t i a l cost savings which r e s u l t from t h e subs t i tu t ion of carcass c l a s s i f i c a t i o n f o r ex i s t i ng grading processes, improved carcass handling procedures, and the automation of da t a recording and accounting procedures can be quant i f ied.

Grading: For an a b a t t o i r which grades a l l throughput according t o export grades o r p r iva t e domestic grades, t h e savings w i l l depend on t h e number of s t a f f involved i n t h e grading processes. I t has been estimated(38) t h a t an aba t to i r with a weekly throughput of 1500 two hundred kilogram beef carcasses could have up t o two persons on each of the grading, weighing and recording processes, r e su l t i ng i n a labour cos t of 0 .3 cents per kilogram. This would be reduced t o 0 .1 cents per kilogram i f no grading was undertaken, the labour cos t s being reduced t o those required t o weigh and record carcasses only. During the commercial t r i a l s t h e costs of ex is t ing grading processes can be compared with t h e costs of carcass c l a s s i f i ca t ion t o determine whether c o s t savings w i l l be rea l i sed .

Benefits w i l l a l so a r i s e i f carcass c l a s s i f i c a t i o n is both more r e l i a b l e and more accurate i n meeting market requirements than a r e ex i s t i ng export and domestic grading schemes. These benef i t s w i l l , however, not be amenable t o a s h o r t term evaluation.

Carcass Handling: The need f o r carcass so r t i ng i n c h i l l e r s p r i o r t o dispatch t o d i f f e r en t end users may be reduced following t h e introduct ion of t h e carcass c l a s s i f i c a t i o n schemes i f carcasses a r e s to red and r e t r i eved on the bas i s of c l a s s i f i c a t i o n . The demand f o r c h i l l e r space may be lowered by reducing the need f o r sor t ing r a i l s between carcass hanging r a i l s and the re may a l s o be some cos t savings from a reduction i n t h e need f o r a b a t t o i r personnel t o p a r t i c i p a t e i n t h e inspect ion of carcasses by prospective purchasers .

(38) BAE, 'Developments i n Beef Carcass C la s s i f i ca t ion ' , op. cit., pp. 44-51. Unless otherwise s t a t e d the t e n t a t i v e estimates of t he bene f i t s of beef carcass c l a s s i f i c a t i o n a re based on t h i s paper. Estimates of benef i t s w i l l be ref ined i n l i g h t of t he commercial a b a t t o i r t r i a l s and other research out l ined i n t h i s repor t .

It has been estimated t h a t if improved so r t i ng techniques l e d t o a 25% reduction i n c h i l l e r labour t h i s would represent a 0 . 1 cent per kilogram cos t saving.

The degree t o which c o s t savings can be rea l i sed i n c h i l l e r s w i l l , however, depend on t h e type of aba t to i r . In service aba t to i r s where carcasses a r e predominantly sor ted by operator t he impact o f carcass c l a s s i f i ca t ion may be minimal. In non-service aba t to i r s , although sor t ing may be reduced, t h i s could be o f f s e t by t h e need f o r a more complex c h i l l e r r a i l configuration i f t h e a b a t t o i r -owner had t o increase the number of c lasses of carcasses ava i lab le t o c l i e n t s a s a r e s u l t o f carcass c l a s s i f i ca t ion .

Data Recording and Accounting Processes: Where t h e computer and data recording f a c i l i t i e s used f o r recording the c l a s s i f i c a t i o n c r i t e r i a can a l so be used t o undertake o ther des i rab le operations, such a s t h e automatic provision of k i l l sheet and payrol l information a s well a s o the r accounting ac t iv i t i e s ,bene f i t s could be rea l i sed . No est imates have yet been made, however, of po ten t ia l cos t savings i n t h i s a rea which i n p a r t would depend on economies of s i z e i n t h e computer f a c i l i t i e s .

Exporters

A s previously s t a t ed , long term benef i t s may b e r e a l i s e d by exporters i f the subs t i tu t ion of carcass c l a s s i f i ca t ion schemes f o r ex is t ing export grading standards leads t o overseas market requirements being more accurately spec i f ied with t h e r e su l t t ha t t h e competitive posit ion of Australian exporters v i s a v i s exporters i n o ther countr ies i s improved. The relevance of carcass c l a s s i f i c a t i o n t o t he export market is supported by previous research which has demonstrated i n one t r i a l t h a t objective carcass cha rac t e r i s t i c s accounted f o r 91% of t he var ia t ion i n the pr ices of whole carcasses going f o r export.(39) Benefits i n t h i s a rea w i l l not , however, be amenable t o a shor t term evaluation.

Processors

The wide range of wholesaling functions makes i t d i f f i c u l t t o determine t h e f u l l extent o f benef i t s a r i s ing from c l a s s i f i c a t i o n . The value of c l a s s i f i c a t i o n o r grading information t o aba t to i r s processing meat f o r t h e domestic and export markets w i l l depend on t h e degree of ve r t i ca l in tegra t ion with o ther wholesaling and r e t a i l i n g a c t i v i t i e s .

Where a s ing le processor has t o make a number of decis ions on t h e a l loca t ion of carcasses t o d i f f e r e n t end users t h e decision-making process would be s impli f ied by t h e processor being ab le t o r e l a t e t h e spec i f ica t ions of t he carcass i n object ive terms t o t h e spec i f i ca t ions sought by t h e end users .

Previous research has suggested t h a t carcass processing c o s t s would be reduced i f carcasses s e l ec t ed on t h e bas i s of c l a s s i f i c a t i o n minimised the trimming and cu t t i ng requirements f o r processing a c t i v i t i e s such a s boning room operations.

(39) See BAE, 'Developments i n Beef Carcass Class i f ica t ion ' , op. c i t . , p. 10.

Other WhoZesaling Act iv i t ies

Savings i n s e l l i n g cos t s a t t h e wholesale leve l may a r i s e with t he introduct ion of t h e c l a s s i f i c a t i o n schemes. Studies of meat wholesaling i n N.S.W.(40) have estimated t h a t meat h a l l s e l l i n g cos t s were 12.5% of wholesalers ' cos t s i n 1971-72 o r about 3.6 cents per kilogram a t t he then current beef wholesale margins. The BAE estimated i n 1976 tha t , i f purchasers could obtain t h e i r supplies wholly on t h e bas i s of telephone buying, t h e addi t ional saving t o wholesalers would be approximately 1.0 cent per kilogram f o r t ha t proportion of meat purchased by inspection.

Savings i n procurements cos t s could a l s o be r ea l i s ed f o r t ha t segment of t he industry (e.g. f o r e s t a l l e r s ) which purchases carcasses from aba t to i r s f o r r e s a l e and is no t involved i n processing a c t i v i t i e s . Carcass c l a s s i f i c a t i o n could reduce t h e need f o r the inspection of carcasses and increase t h e percentage of meat bought on a s igh t unseen bas i s .

I f c l a s s i f i c a t i o n enabled more d i r e c t movement from aba t to i r s t o urban r e t a i l e p i t has been estimated t h a t savings i n rehandling cos t s o f 2 cents per kilogram might be possible. Further, f o r those wholesalers who have t h e i r own c h i l l i n g f a c i l i t i e s , cos t savings s imi la r t o those a t t he a b a t t o i r o f approximately 0 .1 cents per kilogram could be r ea l i s ed . The r e a l i s a t i o n of cos t savings w i l l , however, a s previously s ta ted3 depend on t h e degree of sor t ing present ly occuring i n t h e c h i l l e r s and on how t h i s compares with sor t ing a f t e r t h e introduction of carcass c l a s s i f i c a t i o n .

Research can be conducted i n t o t h e c o s t savings associated with t he c l a s s i f i c a t i o n schemes a t t he wholesale l e v e l i n conjunction with t h e commercial t r i a l s t o allow ex is t ing es t imates of procurement, processing, and s e l l i n g cos t savings t o be ref ined o r modified a s appropriate.

The a b a t t o i r s i n t h e Ab&C t r i a l s cover a range of d i f f e r en t types and therefore provide a useful sample f o r obtaining from d i r ec t interviews with wholesale operators d e t a i l s o f t h e i r abattoir/wholesaling a c t i v i t i e s and the l i k e l y costs and benef i t s t h a t could a r i s e with carcass c l a s s i f i c a t i o n .

Wholesaling i s one area of a c t i v i t y i n t h e meat marketing chain on which l i t t l e information present ly e x i s t s , p a r t i c u l a r l y with respect t o cost behaviour. The industry i s marked by a considerable d ive r s i t y i n t h e type and s i z e of business. The loca l independent operator, who i s i n many cases so le ly a wholesale t rader , e x i s t s alongside t h e f u l l y in tegra ted publ ic meat company with nat ional and in te rna t iona l a c t i v i t i e s , from c a t t l e production t o r e t a i l o u t l e t s . In some cases , r e t a i l e r s undertake t h e f u l l range of wholesaling functions whils t i n o ther cases there i s an intermediate s t e p between t h e wholesaler and r e t a i l e r , namely t h e f o r e s t a l l e r . A s well, some wholesale operat ions a r e f u l l y merged with exporters ' a c t i v i t i e s . Further s t r u c t u r a l information w i l l c l e a r l y a s s i s t t h e evaluation of market reforms such a s carcass c l a s s i f i ca t ion .

(40) See D. Mulligan e t aZ., 'Report of a Study Group i n t o t he N.S.W. Meat Industry ' , AustraZian Farm Management JournaZ, June 1975, and G.R. G r i f f i t h , 'More on Meat Marketing Margins', Meat Industry BuZZetin, J u l y 1976.

Retail Level

The types of bene f i t s a t t h e r e t a i l level a r i s i n g from the c l a s s i f i ca t ion schemes a r e i n many cases s imi la r t o those a t t h e wholesale level because of the s imi l a r i t y between functions.

Potent ia l benef i t s may e x i s t with c o s t savings through reduced procurement and processing cos t s , and with t h e improvement i n market s t ruc tu re and conduct t h a t may a r i s e i f carcass c l a s s i f i c a t i o n leads t o an improved t rade language. This l a s t point needs t o be s t ressed , a s a p re requis i te f o r many of t he benef i t s t o flow i s the acceptance o f carcass c l a s s i f i ca t ion by t h e meat t r ade a s a t rade language.

Measurement e r ro r i s an example of a f a c t o r t ha t would a f f ec t t he acceptance of c l a s s i f i ca t ion as a t r ade language. If the leve l o f measurement e r r o r was such t h a t t h e t r ade d id not have confidence i n t h e carcass c l a s s i f i c a t i o n information then poten t ia l bene f i t s would not be rea l i sed .

The poten t ia l f o r operat ional e f f ic iency cos t savings a t t h e r e t a i l l eve l i s i l l u s t r a t e d by a BAE survey of r e t a i l o u t l e t s i n Sydney which showed tha t 41% of t he meat (including sheep and pigmeat) was ordered by telephone while 55% was bought a f t e r personal inspection. (41) The average time spent purchasing meat by telephone was 1.7 hours per week while purchases by personal inspection took an average of 5 . 1 hours per week excluding t r ave l time. Reduced procurement cos t s could a r i s e through a grea te r re l iance on buying by spec i f ica t ion . These savings r e s u l t from a reduction i n t h e required inspection and an associated reduction i n t ransport costs .

On t h e bas i s of t h i s survey it was estimated t h a t t h e average cost saving, i f telephone buying only were used, would be approximately 0.8 cent per kilogram. This estimation does not include an estimation of the cost savings associated with t r a v e l to and from the wholesale o u t l e t s .

The commercial t r i a l s w i l l provide the opportunity t o place t h e benef i ts a t t he r e t a i l l eve l a r i s i n g from carcass c l a s s i f i c a t i o n i n t o a wider perspective. Sight unseen t r ad ing on t h e . bas i s o f object ive measures may lead t o a breakdown of t h e t r a d i t i o n a l buyer-sel ler re la t ionsh ip based on business confidence i n t h e product.

As a r e s u l t , a res t ruc tur ing of industry may be f a c i l i t a t e d with t h e removal o f t h e locat ional cons t ra in t s between t h e r e t a i l e r , meat h a l l and aba t to i r , which have r e f l ec t ed t h e need f o r t he carcass buyer t o v i sua l ly inspect t h e product before purchase.

The r e t a i l e r w i l l have access t o a wider and more d i s t a n t market with s igh t unseen t r ad ing and the re a r e implications f o r s torage and handling a t t he r e t a i l l eve l i f , under c l a s s i f i c a t i o n , t h e r e t a i l e r has suf f ic ien t confidence i n t h e qua l i t y descr ipt ion t o buy on t h e bas i s o f boxed beef o r primal cu ts a s opposed t o carcasses. New demands on market information systems would a l so be expected t o a r i s e with t h e increased use of t rading by descr ipt ion.

(4l)See P . B . Smith. S.A. Parsons and M . D . Cowel1,'Meat Retai l ing i n Sydney: An Examination of Some Aspects of F i r m Structure and Conduct': &uarterZy Review of AgricuZtumZ Economics, Vol. XXX, No. 3, July 1977.

The t r i a l period w i l l allow ex i s t i ng estimates t o be ref ined and modified. The extent t o which carcass buyers' t ransact ions can be s a t i s f a c t o r i l y conducted by telephone and how t h i s var ies , both by type o f o u t l e t (e.g. res tauran ts , supermarkets and r e t a i l butcher) and by species (beef, sheep/lamb and pigmeats) could a l s o be determined.

Reduced carcass processing c o s t s can be an t ic ipa ted i f t h e carcasses se lec ted on t h e bas i s o f object ive measurement r e s u l t i n lower trimming and cu t t i ng cos t s than i f they had been selected under t h e current l a rge ly subject ive systems. This obviously depends on t h e degree t o which t h e carcass c r i t e r i a w i l l account f o r sources of var ia t ion i n carcass qua l i t y , a s r e f l ec t ed i n t h e cut-out value o f t he carcass and t h e cu t t i ng cos t s per carcass. Some recent work i n Austral ia has demonstrated(42) t h a t it i s possible t o give an estimate of t h e y ie ld of sa leab le meat from a carcass , from an equation which uses only t h e hot carcass weight and the f a t cover.

Further research could usefu l ly be conducted i n t h e longer term t o determine the re la t ionsh ip between t h e carcass c r i t e r i a and these qua l i t y parameters. The U . K . Meat and Livestock Commission has monitored the re la t ionsh ip between i t s beef carcass c l a s s i f i ca t ion scheme and aspects of carcass qua l i t y such a s y i e ld of sa leab le beef.C43) However, t he complexity of t h i s research w i l l vary between species. In t h e case o f p ig carcass c l a s s i f i ca t ion , t h e re la t ionsh ip i s more r ead i ly determined than with beef carcass c l a s s i f i ca t ion because p i g carcass c l a s s i f i c a t i o n i s already a ' t r ade language' i n ce r t a in s ec to r s of t he industry with a f irmly es tabl ished re la t ionsh ip between t h e carcass c r i t e r i a and carcass qua l i ty .

P a r t I V

NET BENEFITS : SECTORAL INCIDENCE

Following t h e examination of t h e c o s t s and benef i t s of t h e carcass c l a s s i f i c a t i o n on a sector-by-sector bas i s i t w i l l be necessary t o examine the l i k e l y incidence of t he net benef i t s o r cos t s between sec to r s .

This examination of incidence can be based on t h e f u r t h e r research out l ined i n Par t s I and 11, together with t h e research on l ives tock marketing channels previously summarised i n Pa r t I11 ( see Attachment I1 f o r f u r t h e r d e t a i l s ) .

To p lace t h i s ana lys i s i n perspective, however, a summary o f e x i s t i n g es t imates of t h e cos t s and benef i t s f o r beef (44) and pig(45) carcass c l a s s i f i c a t i o n schemes i s s e t ou t i n Tables No. 2, and No. 3 . It should be noted, however, t h a t t hese estimates o f cos t s and benef i t s w i l l

(42) L . E . Brownlie, 'Carcase C la s s i f i ca t ion ' , Beef and the Future Seminar, Naracoorte, 1977.

(43) U.K. Meat and Livestock Commission, Guidelines for Beef Carcase Improvement, Milton Keynes, 19 75.

(44) See BAE, 'Developments i n Beef Carcass C la s s i f i ca t ion ' , pp. 44-56.

(45) See G.R. G r i f f i t h , 'The Benefits of a National Pig Carcase Measurement and Information Service ' , op. cit., pp. 6-10.

Table No. 2

CARCASS CLASSIFICATION : SUMMARY OF GROSS BENEFITS

Level Nature of Benefit Beef Pigs

PRODUCER . Improved production/marketing decisions as a resu l t of c/kg c/kg additional price/quali ty information . Increased producer confidence i n over-the-hooks se l l ing as a r e su l t of t he standardised t rade language . Increased returns as a r e su l t of improved qual i ty measurement

WHOLESALE 1. Abattoir . Cost savings as a r e su l t of obsolescence of exist ing

domestic/export grading processes 0.1-0.3(b) . Improvements i n carcass handling and so r t i ng i n c h i l l e r s 0.1 (Exporters) . Improved competitiveness vis-a-vis overseas exporters * (Processors) . Reduced trimning and cut t ing costs *

. Reduced c h i l l e r handling costs 0.1

2. Traders . Reduced se l l ing costs as a r e su l t of s a l e by description 1.0 . Reduced procurement costs f o r those traders purchasing carcases from aba t to i r s *

RETAIL . Reduced procurement costs . Reduced processing costs

O(PIIER BENEFITS Potential fo r wider marketing reform ( i ) Standardised pr ice reporting ( i i ) Futures market ( i i i ) Increased marketing efficiency (iv) Increased potential for improved handling systems (v) Simplify ins t i tu t iona l arrangements, e.g. industry

s t ab i l i s a t i on measures

* Benefits unquantified. (a) Gr i f f i ths notes t ha t the divis ion of t h i s saving between producers, t raders and consumers w i l l depend on supply and demand e l a s t i c i t i e s and the market power of each factor . (b) Benefits determined for an aba t to i r with a weekly throughput of 1500 two hundred kilogram carcasses.

Table No. 3

CARCASS CLASSIFICATION : SUMMARY OF COSTS

Level Nature of Cost Beef Pigs

PRODUCER . Additional administration costs i n ut i l is inp. c/kg c/kg - carcass c l a s s i f i ca t ion information i n production and marketing decisions

WHOLESALE/ RETAIL

1. Abattoir . Direct costs (capi ta l , labour and maintenance) 0.26(a) 0.3-0.8

. Structural costs associated with t he re-arrangement of the slaughter chain

Cost of t ra in ing aba t to i r personnel i n new c l a s s i f i ca t ion s k i l l s

2 . Other

GOVERNMENTAL

. Additional costs associated with compiling and returning carcass information t o producers

. I f carcass c l a s s i f i ca t ion becomes the accepted base f o r a t rade language then s t ruc tura l costs could be incurred if any industry re-organisation r e su l t s

. Training of meat inspection personnel * *

. Promotion and extension of carcass c l a s s i f i ca t ion * *

. Development of standardised national market reporting

* Costs unquantified. (a) Cost determined for an aba t to i r with a weekly throughput of 1500 two hundred kilogram carcasses.

be subject t o considerable revis ion i n t h e l i g h t o f t h e commercial t r i a l s . For example, t h e cap i ta l cos t s f o r t he equipment i n t h e t r i a l s w i l l be higher than o r ig ina l ly envisaged and, i n t h e l i g h t o f recent research experience, t h e cos t s and benef i t s t o t h e meat t rade w i l l require some modification.

With t h e advantage of fu r the r research on both t h e cos t s and benef i ts o f carcass c l a s s i f i ca t ion and aspects o f market conduct and s t ructure , t h e d i s t r i bu t ion of c o s t s and benef i t s on a sector-by-sector bas i s w i l l be considered. The ana lys i s is obviously complicated by t h e fact that the divis ion of n e t bene f i t s between producers and consumers and the intermediaries i n t h e marketing chain - wholesalers and r e t a i l e r s - w i l l depend on the e l a s t i c i t i e s o f supply and demand and t h e competitive nature of each sec tor . For example, i f n e t benef i t s accrue a t t h e aba t to i r l eve l with t h e introduct ion o f carcass c l a s s i f i c a t i o n , t hese could be r e f l ec t ed i n higher p r o f i t s o r lower slaughtering charges, depending on t h e competitive nature of t he a b a t t o i r l eve l .

To demonstrate tha t carcass c l a s s i f i ca t ion i s a des i rab le innovation it is obviously not enough t o i l l u s t r a t e that t h e aggregate benef i t s exceed the aggregate cos t s . The d i s t r i bu t iona l e f f e c t s , both between and within sectors , would need t o be examined.(46)

(46) In economic terms, the i dea l would be t h e s i t u a t i o n where some o r a l l of t he elements of t he industry gain from t h e introduct ion of carcass c l a s s i f i c a t i o n whils t none lose . This s a t i s f i e s t h e very r e s t r i c t i v e Pareto c r i t e r i o n of a welfare improvement. I f some elements of t h e industry a r e losers then i n economic terms t h e gainers should be ab le t o compensate t h e losers . Whether such compensatory t r ans fe r s a r e made o r should be made depends on what soc ie ty through Government decides is equi table .

Attachment I

THE CARCASS CLASSIFICATION SCHEMES

Section 1: ~ e e f (1)

Age, sex, weight, f a tnes s and the weight/length re la t ionsh ip a r e the carcass c r i t e r i a selected by t h e Australian Meat Board f o r t h e commercial a b a t t o i r t r i a l s .

2. Age

Age w i l l be ob jec t ive ly measured by recording dent i t ion .

The most common method f o r recording dent i t ion w i l l be f o r t he number of t ee th t o be observed and recorded immediately a f t e r t h e head has been removed. This w i l l require t he part-time services of a man s ta t ioned a t t h e head chain.

2. Sex

Sex w i l l be recorded using t h e following numeric code:

3 Steer/bullock o r ox 5 Heifer 7 Cow 9 Bull(2)

No d i s t i n c t i o n i s made between s t e e r s and bullocks s ince t h i s can be determined from dent i t ion and weight.

/ Sex would be observed and keyed i n t o t h e controllerC3) manually

by t h e c l a s s i f i e r s ta t ioned i n t h e chain.

(1) The technical information i n t h i s sect ion is taken from C.R. Luckock 'The Development of an Objective Beef Carcase Class i f ica t ion Scheme f o r Aus t ra l ia ' , Proceedings of the Carcase Classification Symposium, May 1976, Australian Meat Board, Adelaide.

(2) Although not spec i f ied , p a r t i a l c a s t r a t e s (s tags) w i l l be c l a s s i f i e d a s bu l l s .

(3) This is t h e e l ec t ron ic da t a recorder.

3 . Weight

Weight w i l l be on t h e bas i s o f hot, dry Cor estimated dry) weight i n accordance with t h e Australian Meat Board's standard de f in i t i on

I of a carcass. (4)

The adoption of a standardised carcass de f in i t i on i s obviously fundamental t o t he development of a product descr ipt ion scheme i f i t is t o become the accepted bas i s f o r a t rade language. Further technical evaluation i s required t o t e s t both .the f ac to r s a f f ec t ing t h e acceptab i l i ty of the standard de f in i t i on and the claims t h a t t h e removal of k i h e y knob and channel f a t lead to lower processing and marketing costs. The removal of kidney knob and channel f a t has been shownC5) t o reduce the carcass y ie ld var ia t ion between he i f e r s and s t e e r s . Weight can be e i t he r keyed i n manually ( i n smaller aba t to i r s with slow chain speeds) o r automatically recorded, using equipment t h a t i s ava i lab le commercially. Digital weight encoders a r e obtainable from weight sca les manufacturers and these can be used t o weigh a ' s t a t i ona ry ' carcass o r , i n conjunction with a micro-computer o r programmable ca lcu la tor t o weigh 'moving' carcasses.

I 4 . Fat

I I

i The depth of f a t w i l l be measured a t t h e 12th/13th r i b a s t h i s

has been shown both i n Austral ia and overseas t o be a good ind ica tor o f

I '' (4) AMEi RECOMMENDED DEFINITION OF A STANDARD BEEF CARCASS

1 1. A carcass is the whole body of a slaughtered bovine animal, / passed a s su i t ab l e f o r human consumption by t h e responsible

authori ty , a f t e r bleeding, skinning and eviscerat ion o f a l l i n t e rna l I) digest ive, respira tory, excretory and reproductive organs. The head

i s removed between t h e occ ip i t a l bone (skul l ) and t h e first cerv ica l I vertebra. The f ee t a r e removed between t h e carpus and t h e t a r s u s

(knee and hock joints) and t h e metacarpus (shin and shank bones).

2 . The hot weight is recorded a f t e r t h e carcass has been sawn i n t o 1 , s ides through t h e median l i n e of t he spinal column and a f t e r removal ! I I

of t he following: \

(a) The t a i l a t t h e junction between t h e sacra l and coccygeal vertebrae.

I '

, (b) The thick and th in s k i r t s by separat ing t h e connective t i s s u e s I a s c lose as possible from t h e abdominal and thorac ic walls. I

(c) Kidneys and a l l kidney f a t and a l l f a t within t h e pe lv ic channel.

(d) Udder, o r t e s t e s and penis a l s o a l l udder f a t and cod f a t .

(e) Also a l l items required i n veter inary and hygienic trimming by t h e responsible au tho r i t i e s .

(5) G.C. Ever r i t and K.E. Jury, ' Implantation o f Oestrogenic Hormones i n Beef Ca t t l e ' ; N.Z.J. Agric. Res. 7 : 158, 1964.

overa l l fa tness a s t h e selvedge f a t depth i s constant over a l a rge r surface a rea than a t points an t e r io r t o t h i s .

The object ive assessment of t he thickness of f a t on hot unquartered carcasses has proved t o be the most d i f f i c u l t o f t he Charles fac tors t o measure object ively and has been a major stumbling block i n t h e development of t h e beef carcass c l a s s i f i ca t ion scheme. Research undertaken by t h e BAE(6) found t h a t , of four methods of making objec t ive measurements o f f a t thickness [the introscope, conductivity probe, scanogram and anal fo ld measurement), t he conductivity probe proved t o be the most r e l i a b l e and e a s i e s t t o use . The t e s t s indicated, however, t h a t subs tan t ia l development and evaluation of f a t measurement was still required. I t i s envisaged t h a t f u r t h e r t e s t s on t h e accuracy o f t h e conductivity probe w i l l be required during t h e commercial t r i a l s , and on a continuing bas i s i f t he scheme i s introduced commercially, t o ensure t ha t t he p o s s i b i l i t y of measurement e r r o r i s minimised.

The conductivity probes present ly i n use are f a s t i n operation, have a d i g i t a l d isplay and a r e connected d i r e c t l y t o t h e cont ro l le r , thus eliminating t h e p o s s i b i l i t y of operator recording e r rors .

5. Weight/Length Re Zationship

A weight t o length re la t ionsh ip i s being used a s an object ive measure of t h e shape of a carcass . The development of the equipment i s still a t an experimental s tage and f u r t h e r evaluation w i l l be required under commercial conditions during t h e AMLC t r i a l s .

The standard equipment thus envisaged f o r each chain i n medium to l a rge a b a t t o i r s would comprise one each of t h e following:

Control ler (including data storage) Weight encoder Conductivity probe Keyboard en t ry f o r den t i t ion and sex categories Ticket p r i n t e r Teletype p r i n t e r (Length measuring device)

A l l equipment, with t h e exception of t he te le type p r in t e r , would be s i t u a t e d a t o r near the weight scales . The te le type p r i n t e r would be located remotely i n an a b a t t o i r o f f ice but connected t o the cont ro l le r . Each carcass would be c l a s s i f i e d and t h i s information then s tored and a t i c k e t , showing t h e c l a s s i f i ca t ion d e t a i l s , would be automatically produced on t h e remote p r i n t e r i n t h e o f f i ce .

In fomat ion Flow: The development of t he data recording processes i s still a t t h e developmental s tage. The design of t h e system is obviously important. a s t h e effect iveness of carcass c l a s s i f i ca t ion a s a t rade language i s l i k e l y t o be dependent upon t h e timing and e f f ic iency of t h e information flow.

(6) D . J . Dennes, S.A. Parsons and D.J . Campbell, 'Objective Measurement of Fat Cover on Hot Unquartered Beef Carcasses ',&uarterZy Review of AgricuZturaZ Econmics, Vol. XXVII1,No. 1, January 1975, pp. 25-37.

There a r e th ree main end users f o r carcass c l a s s i f i ca t ion information, namely producers, t he meat t rade and the th ree leve ls o f government.

A suggested l i nk f o r feedback t o producers i s t h e t a i l t a g system i n operation i n some S ta t e s f o r disease traceback. The t a i l t a g number could be s tored on t h e computer together with t h e c l a s s i f i c a t i o n information and a t t h e completion of slaughtering t h e carcass c l a s s i f i ca t ion information could be automatically aggregated f o r each producer. This could range over several days f o r l o t s bought i n saleyards a t non-service works.

The introduction of these da ta recording processes could r e s u l t i n benef i ts f o r aba t to i r management with respect t o procurement and se l l i ng po l ic ies , stock control , production es t imates , and other general accounting procedures. The range and extent of benef i t s r ea l i s ed w i l l depend, however, on the type of a b a t t o i r .

I In t h e case of t h e meat t rade , i n addi t ion t o t he documentation

I of aggregate information f o r accounting procedures, de t a i l ed carcass information w i l l be required with each carcass and t h i s information can be provided on a t i cke t (7) o r possibly a brand.(8) Further technical

1 development i s required t o per fec t t h e t i cke t ing o r branding processes t o ensure tha t c l a s s i f i ca t ion information cannot become separated from t h e product. The prec ise form i n which t h e c l a s s i f i c a t i o n information w i l l be provided a l so remains t o be resolved. With respect t o t h e l a t t e r , t h e

i number of categories adopted f o r t he c r i t e r i a w i l l determine the overa l l complexity of t he scheme. Obviously a t rade-off has t o be made between

. the amount of information t h a t can be provided and t h e adminis t ra t ive and

/I ?communicative considerations associated with t h e scheme. One s t a r t i n g point f o r t he design of t h e scheme would be tha t adopted f o r t h e l ivestock

I price report ing scheme cur ren t ly being t r i a l l e d i n New South Wales and Victoria (see Table J . I ) .

A summary of t h e c l a s s i f i c a t i o n d e t a i l s could be provided , ; regular ly from each a b a t t o i r t o market report ing a u t h o r i t i e s . The da t a )processes t h a t would be adopted t o achieve t h i s would need t o be resolved ;during t h e commercial t r i a l s . I

A t t h e governmental l eve l , carcass c l a s s i f i c a t i o n s t a t i s t i c s ; w i l l provide useful production information, and the po ten t ia l f o r

\ ) information on disease s t a t u s a l s o e x i s t s . ;\\I

The f ive characters used i n t h e c l a s s i f i c a t i o n system w i l l be the same a s t h e beef c l a s s i f i c a t i o n system, with t h e major dif ference

(7) See C . R . Luckock, op. c i t . , Appendix B.

( 8 ) L.E. Brownlie, 'C lass i f ica t ion a s an Aid t o Marketing', Meat Industry Bulletin, March 1977, p. 27.

(9) See R.W. Moxham, L.E. Brownlie. 'Sheep Carcase Grading and Class i f ica t ion i n Aus t ra l ia ' . Proceedings o f the Carcase Classification Symposium, Australian Meat Board, Adelaide, May.1976.

Table 1.1 FRAMEWORK FOR CATTLE PRICE REPORTING

Class of Weight (b) Fat Cover Fat Cover (c) Livestock Sex (a) (kg) Age Description Range (nun)

Bullock (heavy) C 350 Over 2 o r more Very Lean 0/3 permanent Lean 4/8 inc i sors Mediwn 9/12

Bullock ( l i gh t ) C 301/350 2 or more Fat 13/22 Very Fat 23 and over

permanent inc i sors

S teer (heavy) C 251/300 2 o r more permanent Very lean 0/2 inc i so r s Lean 3/7

Medium 8/10 S teer ( l i g h t ) C Less than 2 o r more Fat

or equal t o permanent 11/14

250 inc isors Very f a t 15 and over i

Cows (heavy) F Over 2 o r more Very lean 0/3 250 kg permanent Lean 4/8

inc i sors Medium 9/12 Fat 13/22 Very f a t 23 and over

Cows ( l i g h t ) F Less than 2 o r more o r equal t o permanent

250 inc isors Very lean 0/2

Heifers (heavy) F Over 2 or more Lean 3/ 7 250 kg permanent Medium 8/10

inc i so r s Fat 11/14

Heifers ( l i gh t ) F Very f a t 15 and over Less than 2 o r more o r equal t o permanent

250 inc i so r s

Young c a t t l e M,F,C Over No 160 permanent

i nc i so r s Very lean o/ 2 Young c a t t l e M,F,C 111/160 No Lean 3/5

permanent Medium 6/8 inc i sors Fat 9/11

Young c a t t l e No Very f a t 12 and over M,F,C Less than

o r equal t o permanent 110 kg inc i so r s

Bulls M Over 2 o r more 250 permanent

i nc i so r s No specified

Bulls M Less than f a t ranges or equal t o

(a) C = Castrate , F = Female, M = Male. (b) Dressed carcass weight, a s defined by the Australian Meat Board. (c) Fat cover over t h e 12th/13th r i b posi t ion.

being t h a t , because of t h e speeds of sheep chains [up t o 400 per hour), the assessment of fat thickness w i l l be subject ive. A standardised carcass de f in i t i on s imi la r t o t h a t f o r beef carcasses w i l l need t o be f i na l i s ed during t h e commercial t r i a l s .

The range of technical issues t o be resolved during t h e commercial aba t to i r t r i a l s a r e of t h e same order of magnitude a s those f o r the beef carcass c l a s s i f i c a t i o n scheme.

The proposed system cons i s t s o f recording t h e following: C10)

Hot Carcass Weight: To be based on a standard carcass def in i t ion .

Sex: Two categories : e n t i r e male and female [including cas t r a t e s ) .

Backfat: Introscope probe measurement taken 64mm l a t e r a l t o t h e midline a t t h e level of t h e l a s t r i b .

Tattoo: This allows iden t i f i ca t ion of t h e producer.

The technical matters requir ing resolut ion with p ig carcass c l a s s i f i ca t ion a r e general ly l e s s complex than those assoc ia ted with t h e beef and sheep carcass c l a s s i f i c a t i o n systems. The most complex f a c t o r t o

, measure i s thickness of f a t ; however, t he technical d i f f i c u l t y i s o f a i I

, lower order of magnitude than f o r beef o r sheep carcasses because t h e skin I i s not removed.

\\ Section 2: Carcass S ta t i s t i cs

'\I \ i Apart from monitoring t h e data output from t h e commercial

aba t to i r t r i a l s t o t e s t t h e e f f i c i ency and r e l i a b i l i t y o f t h e recording I instruments, the da ta w i l l be analysed t o gain information on t h e range I I and the d i s t r i bu t ion cha rac t e r i s t i c s o f t h e carcass c r i t e r i a measured. h i s information, together with knowledge of end user requirements, w i l l ' a s s i s t t h e f i n a l i s a t i o n of t h e c l a s s i n t e rva l s f o r t he carcass

, \ c l a s s i f i ca t ion c r i t e r i a . kii '4 The carcass c l a s s i f i c a t i o n da ta avai lable from e a r l i e r t r i a l s

held a t a New South Wales a b a t t o i r i n 1972 and 1974 and a t a Victorian aba t to i r i n 1975 have been analysed by t h e BAE.Cl1) The analysis centred on an examination of t he va r i a t i on i n weight and f a t cover, both within and between sex dent i t ion categories . The s t a t i s t i c a l s ignif icance of

(10) For elaboration see B . R . Wilson, 'The Proposed National Pig Carcase Measurement and Information Service ' , Proceedings o f the Carcase CZassification Symposium, Australian Meat Board, Adelaide, May 1976.

(11) For a descr ipt ion of t he ana lys i s o f t h e carcass c r i t e r i a measured i n these three t r i a l s , s e e BAE, Developments i n BeefCarcass Ctassification, Beef Research Report No. 19, Canberra, 1976, pp. 18-43.

these differences was examined f o r t h e two main sex categories , c a s t r a t e and female, t o provide a guide on a su i t ab l e s t ruc tu re f o r a c l a s s i f i ca t ion system.

The report noted t h a t d i f fe rences i n carcass s t a t i s t i c s (see Tables 1 . 2 and 1.3) exis ted both between regions and over time, and suggested tha t a considerable number of t r i a l s would be required t o quantify t hese d i f fe rences .

Apart from t h e three t r i a l s r e f e r r ed t o above, a fu r the r t r i a l was run i n Northern Tasmania [Killafaddy Abat toirs , Launceston) from 5 June 1975 t o 31 May 1976. This t r i a l was ca r r i ed out by o f f i c e r s of t h e Beef Section of t he Tasmanian Department of Agriculture with some advisory ass i s tance from the Australian Meat Board and t h e Bureau o f Agricultural Economics.

The aim o f t h e Tasmanian t r i a l was t o monitor beef carcass measurements over a twelve month per iod, with t h e object ive of recording var ia t ions i n carcass types and determining t h e f ac to r s , such a s seasonal conditions, causing these var ia t ions .

The carcass f ac to r s recorded include those tha t w i l l be t e s t e d i n t h e commercial a b a t t o i r t r i a l s , namely age, weight, sex, fa tness and an assessment of conformation.

The sampling procedure adopted f o r t h e t r i a l was a 4 x 4 l a t i n square where one sample day per week was se lec ted over t h e f u l l 50 weeks of t he t r i a l . The t r i a l was run f o r a f u l l year t o allow some assessment t o be made of t h e seasonal e f f ec t s on carcass type . A f u l l day's k i l l was required because of t he non-random var ia t ion i n carcass type tha t can occur within a day. For example a run of b u l l s i s of ten made a t t h e end of a day. Similar ly , carcass va r i a t i on w i l l occur between days within weeks because of t he var ia t ion i n both t h e timing and type of demand from domestic and export end use r s .

The r e s u l t s o f the Killafaddy t r i a l a r e cur ren t ly being analysed by o f f i c e r s o f t h e Tasmanian Department o f Agriculture and i t i s an t ic ipa ted t h a t t hese r e s u l t s w i l l be sho r t ly ava i lab le .

Further da t a on t h e ranges and d i s t r i bu t ions o f t h e different carcass types slaughtered i n Austral ia should become ava i lab le from those aba t to i r s included i n t h e commercial a b a t t o i r t r i a l s cur ren t ly being implemented by t h e Australian Meat and Livestock Corporation.

A s imi l a r sampling procedure f o r beef carcasses t o t h a t adopted i n t h e Northern Tasmanian t r i a l could be used with t h e major exception being t h a t t h e commercial t r i a l period may be l imi ted t o periods o ther than a f u l l year. This w i l l obviously reduce the seasonal component i n any var ia t ion i n carcass types.

It should be appreciated t h a t t h e a b a t t o i r s se lec ted fo r t h e commercial t r i a l s w i l l not neces sa r i l y form a representat ive na t iona l sample i n t h e context o f a na t iona l survey on carcass c l a s s i f i ca t ion s t a t i s t i c s . Nevertheless, t he da t a co l lec ted f o r individual a b a t t o i r s during t h e commercial t r i a l s , together with d a t a from previous t r i a l s , w i l l provide usefu l information on t h e l i k e l y ranges and d i s t r i bu t ions of t he carcass c l a s s i f i c a t i o n c r i t e r i a . Some ind ica t ion of t h e influence of seasonal and regional f ac to r s w i l l a l s o become apparent.

1972 Tr ia l 1974 T r i a l 1975 T r i a l

Dent i t ion Number Hot Weight Number Hot Weight Mrmber Hot Weight Group

of Standard Standard Of Mean Standard

Of Mean Carcasses Mean Deviation Carcasses Deviation Carcasses Deviation

no. kg kg no. kg kg no. kg kg

STEER . OX, BULLOCK CO 163 153.29 24.171 252 165.11 23.238 102 169.63 21.307 C1 825 204.48 35.143 476 205.96 34.475 146 196.35 29.663 C2 689 241.80 36.312 391 274.98 62.972 142 259.17 46.675 C4 200 261.77 37.389 192 291.74 56.974 200 313.45 45.727 C6 71 282.60 43.275 90 303.69 51.386 205 358.61 42.305 C8 13 279.45 50.472 64 346.10 45.061 110 378.78 45.490

Total 1961 222.50 47.228 1465 240.72 70.477 905 288.00 83.608

COW , HEIFER FO 74 133.38 27.364 154 146.01 19.037 31 153.95 14.497 F 1 209 155.37 30.470 76 163.36 23.841 16 181.64 19.973 F2 35 194.59 35.604 14 189.35 34.704 23 165.27 35.981 F4 1 3 205.48 38.823 7 212.57 55.596 27 168.55 34.860 F6 14 196.96 35.603 5 209.50 58.313 32 171.97 34.407 F8 125 215.59 39.994 138 240.35 44.441 416 183.02 40.577

Total 470 168.88 394 185.95 545 179.21

W L L , (INCL. STAGJ Total 11 275.91 104.123 11 238.18 75.864 105 304.59 82.293

ALL CARCASSES Total 2442 213.31 51.226 1870 229.16 70.809 1555 250.99 88.606

1976 T r i a l

Dent i t ion Number Group Hot Weight

o f Standard Carcasses Mean Deviation

no. kg kg

S T E W . OX, BULIDCK CO 637 157.3 24.2 C 1 947 186.5 27.9 C2 414 226.9 34.2 C4 188 259.3 37.7 C6 97 276.1 38.9 C8 25 291.3 52.2

Total 2308 196.5 47.0

HEIFm FO 573 139.4 23.1 F1 1021 157.1 22.5 F2 138 183.9 30.2

Tota l 1732 153.4 26.4

COW F2 66 187.0 34.7 F4 179 201.1 40.3 F6 119 207.8 50.8 F8 765 210.5 45.7

Total 1129 207.3 45.3

BULL (INCL. S A G ) Total 91 336.1 90.7

Tota l 5260 187.0 51.6

~ - 9 r .

/ - -.--- A

- -

Table 1.2

DISTRIBUTION OF TOTAL HOT WEIGHT OF CARCASSES : BY SEX AND DEhTITION

1972, 1974. 1975 and 1976 T r i a l s - - --

I

W W

I

Table 1.3

DISTRIBUTION OF AVERAGE FAT COVER OFCARCASSES; BY SEX AND DENTITION(a) 1972. 1974. 1975 and

1976 Tr ia ls

(a) The discrepancy between the number of carcassesin Table 11.1 and t h i s tab le i s accounted fo r by the number ofcarcasses fo r which no f a t cover measuremmts were taken, due t o instrument breakdown, etc .

.

1972 Tr ia l 1974 Tr i a l 1975 Tr ia l

Dentition Fat Cover Number Fat Cover Number Fat Cover Gmup Number

of of of Standard Standard Carcasses Mean Deviation Carcasses Mean Deviation Standard Carcasses Mean Deviation

no. mm mm no. mm m no. mm mm

STEER, OX, B U W K CO 162 4.34 3.127 249 3.86 2.502 97 4.92 3.142 C 1 818 7.94 3.733 460 5.87 3.471 136 5.20 3.479 C2 683 9.14 4.429 376 12.59 9.636 129 9.12 7.556 C4 198 8.27 3.879 183 11.59 7.819 184 13.61 8.256 C6 70 8.21 3.791 87 11.30 6.598 201 17.14 8.464 C8 13 8.19 2.513 62 11.73 6.089 104 17.05 9.762

Total 1944 8.10 4.148 1417 8.63 7.370 851 11.85 8.889

COW, BBIFER PO 74 5.80 4.149 150 5.67 2.998 31 6.54 4.190 F1 208 6.82 3.771 74 5.75 3.315 16 10.23 3.813 F2 35 9.62 5.011 14 6.42 2 815 22 2.64 2.141 F4 12 6.50 4.986 6 6.48 7.103 24 3.75 4.362 F6 13 4.00 3.963 5 4.62 4.166 28 3.75 3.713 F8 113 7.08 5.804 125 7.08 7.059 357 3.69 4.783

Total 455 6.85 374 6.18 478 4.05

BULC (IUCL. RTAGI

Total 11 3.77 3.594 10 3.97 2.673 88 1.90 2.405

ALL CARCASSES

Total 2410 7.85 4.277 1801 8.10 6.985 1417 8.60 8.453

1976 Tr ia l

Dentition Number

Fat Cover Group

of Carcasses Mean Standard

Deviation

no. mm mm

.WEER, OX, BULLOCK CO 634 4.7 2.3 C 1 943 4.9 2.4 C2 412 5.9 3.3 C4 188 6.8 3.6 C6 96 7.6 4.0 C8 25 7.6 3.6

Total 2298 5.3 2.9 E3IFER

FO 570 5.1 2.5 F1 1018 4.8 2.5 F2 137 5.9 3.1

Total 1725 5.0 2.6

cow F2 66 5.2 4.0 F4 179 6.3 5.1 F6 119 6.3 6.4 F8 764 6.7 6.4

Total 1128 6.5 6.1

BULL (IACL. 5TACI Total 89 5.0 4.7

ALL CARCASSES

Total 5240 5.4 3.8

Attachment I I

LIVESTOCK MARKETING CHANNEL ANALYSIS : BEEF CATTLE

This attachment examines l ivestock marketing channels and attempts through concepts of t h e s t ruc tu re and functions of marketing channels t o both review t h e ava i lab le knowledge i n t h i s area and o u t l i n e some of t h e po ten t ia l implications a r i s i n g from t h e introduction of carcass c l a s s i f i ca t ion . It then ou t l i nes t h e research issues which w i l l provide a bas i s f o r examining t h e impact o f carcass c l a s s i f i ca t ion on ex is t ing l ivestock marketing channels.

1. Market ing Channels i n Perspect ive

A l l t h e beef and veal produced i n Australia, some 1.7 mi l l ion tonnes annually, passes through a number of marketing intermediaries t o reach t h e consumer. These intermediar ies l i n k together t o form a complex network of marketing channels. In t heo re t i ca l terms, a marketing o r ' t rading channel e x i s t s once the terms of t h e f ranchises o r agreements spanning t h e whole gap from producer t o consumer a r e concluded between concerns assumed t o possess t h e necessary marketing capabi l i t i es l .C1) The intermediaries i n t h e channels perform a va r i e ty o f functions, each sa t i s fy ing a need t o d i s t r i b u t e l ives tock and meat products t o each subsequent s tage of t he channel. Each 'marketing channel can be characterised a s having a ce r t a in number of s tages o r s e l l i n g intermediaries, between t h e producer and f i n a l buyer1.(2)

The complexity of t h e intermediar ies Ce.g. processors, exporters , and r e t a i l e r s ) var ies with t h e nature of t h e product. The bulk of \exported beef (3) i s i n a frozen, boxed, and boned ou t form while t h e

: ldomestic r e t a i l e r s e l l s t o t h e loca l consumer small meat cuts broken down :from f resh carcasses o r primal sect ions . In addit ion, several by-products , ( l ea the r , f e r t i l i s e r tallow, e t c . ) , each facing a separate demand pa t t e rn , 'are a l so produced from t h e s laughter of l ivestock. The economic a c t i v i t y ,of the market intermediaries adds u t i l i t y by providing these products and

\ lassociated services at t h e time and place and i n t h e form required by t h e i l f i n a l consumer. It i s important t o both suppl iers and consumers,

,,therefore, t ha t t h i s d i s t r i bu t ion system operates e f f ec t ive ly and i s improved whenever possible .

The movement of l ives tock from t h e farm t o t h e a b a t t o i r i s t h e first s t ep i n t h i s complex system and w i l l be t he focus of t h i s paper.

(1) R.F. Breyer, 'Some Observations on 'S t ruc tura l ' Formation and t h e Growth of Marketing Channels', Theory in Marketing, R. Cox, W. Alderson, and S.J. Shapiro, (eds) Homewood, I l l i n o i s , R.D. Irwin, Inc. 1964, p. 165.

(2) P. Kotler, Marketing Management: AnaZysis, PkznniCng and ControZ,Znd Edition, Prent ice Hall Inc. , Englewood C l i f f s , New Jersey, 1972, p . 552.

(3) Over 90% of Australian beef and veal exports a r e i n a frozen, boneless form.

i s pr imari ly concerned with t h e marketing of beef c a t t l e f r o m t h e producer through t h e f irst t r ans fe r o f ownership t o t h e wholesaler.

In t h e marketing of l ives tock , a producer may have a var ied range of ob jec t ives . 'The pr inc ipa l economic object ive, however, i s t o r e a l i s e t he highest possible n e t re turn from t h e s a l e of h i s animals. He i s in t e r e s t ed fu r the r i n a marketing system t h a t , considering both h i s production and marketing resources, w i l l permit him t o achieve t h e highest ne t farm income poss ib leT. (4) Apart from t h i s consideration, however, t h e producer's choice of marketing channel may be influenced by habi t , t r a d i t i o n , chance occurrences and o the r producers. In addit ion, producers may be f inanc ia l ly committed t o stock and s t a t i o n firms. One object ive of an economic assessment of l ives tock marketing channels i s t o highl ight some of t he f ac to r s which producers a r e l i k e l y t o consider i n making t h e i r marketing decisions.

A marketing approach ind ica tes an appropria te breakdown f o r an economic assessment of l ivestock marketing channels into: (a) physical product flow; (b) p r ice formation and accuracy; (c) operational e f f ic iency; (d) information flows and (e) f inance and r i s k .

l a ) Physical Product FLOW

The physical flow which describes t h e actual movement of l ives tock and l ivestock products from t h e producer through t h e marketing channels t o t h e wholesaler provides an appropria te opportunity t o describe the d i f f e r en t l ivestock s e l l i n g methods.(5) Producers have t r ad i t i ona l ly marketed l ives tock for slaughter by t h e following s e l l i n g methods.

Sale by Auction: Although regional dif ferences occur (e.g. North Queensland producers de l ive r a l a rge proportion of t h e i r c a t t l e d i r ec t t o a b a t t o i r s and s e l l through weight and grade(6)), l i v e auction remains t h e pr incipal method of marketing l ives tock i n Austral ia (see TableII.l). An important fea ture of t h e auction system i s t h a t it provides a ' means of quickly c lear ing t h e market o f a comnodity which i s not standardised and i s cos t ly t o s t o r e . Although supply and demand w i l l be equated i n t h e short run t h e r e may be subs tan t ia l p r i ce var ia t ion from hour t o hour, day t o day and region t o region because of t h e constantly

(4) W.F. Williams and T.T. Stout, Economics of the Livestock Meat Industry, The Macmillan Company, New York, 1964, p . 181.

(5) A comprehensive appraisal of l ives tock s e l l i n g methods i n t h e USA i s given by R .D . Johnson, An Economic EvaZuation of Alternutive Marketing Methods for Fed CattZe, Nebraska Agricultural Experiment S ta t ion , June 1972. A broad o u t l i n e o f methods i n Austral ia has been given by B. Cameron, Meat and Livestock Marketing, Australian National Cattlemen ' s Council , Canberra, 19 76.

( 6 ) For point of disposal f igures see BAE, The &ueensland Beef CattZe Industry 1968-69 t o 1970-71, Beef Research Report No. 14, 1974.

changing market conditions. Livestock buyers base t h e i r auction p r i c e o f f e r s on a subject ive appraisal o f each l o t o f fe red f o r sa le , r a t h e r than on any object ive measure. (7)

Costs incurred by t h e producer a t l ivestock auct ions include agent 's commission and yard dues a s well a s c o s t s o f bruis ing and s t r e s s weight l o s s a s a r e s u l t o f t h e handling involved. Sale by auction r e s u l t s i n more handling than, f o r example, over-the-hook sa l e s .

Liveweight Auction: The descr ip t ion of s a l e by auction app l i e s equally t o t h i s method. However, t h e bidding i s conducted on a p r i c e per kg liveweight bas i s r a the r than on a p r i ce per head bas i s . Although producer payment i s based on measured liveweight, buyers must s t i l l subjectively es t imate both l iveweight and y ie ld before deciding buying s t r a t eg i e s . Producer cos t s f o r liveweight s e l l i n g include a l l those f o r per head auction plus a weighing charge. The necessi ty f o r c a t t l e t o be delivered t o t h e saleyards approximately 12 hours before weighing t o enable them t o 'clean ou t ' involves e x t r a handling o f t h e c a t t l e with t h e r i s k of fu r the r bruising and stress weight l o s s .

With a l l auction systems, t he l ivestock move from the property t o t he l oca l ly s i tua ted saleyards o r t h e more d i s t a n t regional saleyards. After s a l e , stock a r e re t ransported t o t he aba t to i r s f o r slaughter. The level of cos t i n t h i s case w i l l depend on whether o r no t t he saleyards a r e adjacent t o an aba t to i r . A BAE survey over t he period 1968-69 t o 1970-71 showed t h a t t he majority of l ives tock were sold a t l oca l and regional saleyards (see Table 11.1).

0

Paddock Selling: Under paddock se l l i ng , stock a r e so ld a t t he point of production and the p r i c e i s negotiated between buyer and

1 producer. Pr ices es tabl ished under t h i s system can be expected t o r e f l e c t 1 the prevai l ing conditions of supply and demand only i f both p a r t i e s have I access t o accurate market information, pa r t i cu l a r ly p r i ce information. I The producer saves t he cos t of yard dues and agent ' s comiss ion and avoids i the weight l o s s from the s t r e s s and e x t r a handling involved with auctions.

Sale negot ia t ions w i l l take i n t o account t he necess i ty f o r t he buyer t o I t r ave l t o t h e property and a l s o t h e expected reduction i n t he incidence of ' \bruising as stock can be transported d i r e c t l y t o t he aba t to i r . This

method s t i l l e n t a i l s subject ive appraisal by buyers of t he l i v e animal.

(7) Measures of t h e accuracy of buyers' ' subject ive appra i sa l ' of l ivestock a r e given by:

R.M.A. Lyons, 'Errors i n Estimating Yield and Grade of C a t t l e Sold on a Live. Weight Basis' , Canadian JoumaZ of AgricuZturaZ Economics, Vol. 13, No. 2. Ju ly 1965.

Pricing Acmacy of SZaughter CattZe, Veal Calves and Lambs, North Central Regional Publication No. 53, S ta t ion Bul le t in 611, Purdue University Agricultural Experiment Stat ion, Lafayette, Indiana, Oct. 1954. Report from the Select C m i t t e e of the Legislative AssembZy upon the Meat Industry; Part 11, Minutes of Evidence, submission by R.N. I r i s h , N.S.W. Department of Agriculture.

Table 11.1

PERCENTAGE DISTRIBWION OF CATTLE SOLD FOR SLAUGHTER : BY DISPOSAL POINT

1970-71

Disposal Point N.S.W. Vic. Qld S.A. W.A. Tas. Aust.(a)

~ o c a l saleyard 69 6 1 46 55 58 44 5 7

Other saleyard 13 24 16 16 16 14 16

Meatworks 6 10 21 24 8 19 14

so ld on property 11 5 13 5 18 2 2 11

Other 1 0 4 0 0 1 2

Total 100 100 100 100 '100 100 100

(a) The percentages f o r Austral ia were calculated from the average annual turnoff f o r slaughter f igures per property from the survey. The Western Australian percentages r e f e r only t o the South West region. The percentages f o r Australia, therefore, do not include the Northern Ter r i to ry arid the r e s t o f Western Australia. The Northern Ter r i to ry and the Kimberley region a r e estimated t o turn o f f some

0 4.7% o f t o t a l slaughter c a t t l e i n Austral ia .

S O ~ O ~ : The BAE Beef Cat t le Industry Survey 1968-69 t o 1970-71.

Over-the-Hook Sales: Producers a r e paid a pre-arranged pr ice depending on t h e weight and grade o r weight and c l a s s i f i ca t ion of t h e dressed carcass. This type of t ransact ion requi res t h e confidence of both buyer and s e l l e r t o be e f fec t ive . As with paddock se l l ing , t he producer needs t o have a good knowledge of market values and addi t ional knowledge of t he r e l a t i onsh ip between l ivestock and carcass cha rac t e r i s t i c s , otherwise he may have t o r e l y on t h e ass i s tance of a stock agent. The, major bene f i t of t h i s s e l l i n g method f o r t h e producer i s t h a t he i s paid f o r what he ac tua l ly produces, both i n qua l i t y and quanti ty. However, there a r e several p i t f a l l s , most of which stem from t h e apparent ' lack of confidence the producer has i n h i s l ives tock , h i s d i s t r u s t of t he Cbuyer) and h i s lack of knowledge of market va lues t . (8 ) Again t h e producer saves t h e cos t s associated with auction s e l l i n g but must bear any losses from bruising o r carcass condemnation. A s with paddock s e l l i n g and o ther forms of d i r ec t s e l l i ng , t he stock move s t r a i g h t from t h e property through t h e a b a t t o i r t o t h e wholesaler.

Consignment SeZZing: This method e n t a i l s t h e consignment of stock t o an a b a t t o i r f o r slaughter on t h e producer's account where carcasses a r e sold by a wholesaler on a commission basis. The producer receives t h e same benef i t s and bears t he same cos t s a s with weight and grade se l l i ng ; he a l so bears commission costs , together with any c o s t s

(8) Report frm the Select Canonittee of LegieZative AssembZy upon the Meat IdUstTy, Chairman, R.A.S. Brewer, N.S.W. Government P r in t e r , 1972, p . 17.

incurred from the holding over of unsold carcasses. The wholesaler agent may have a dual r o l e i f he t rades i n carcasse s i n h i s own r i g h t and as t h i s may lead t o a conf l ic t of i n t e r e s t s t he producers i n t e r e s t may not be f u l l y protected.(9)

Carcass Auctions: Tine descr ipt ion of consignment s e l l i n g on producers1 account appl ies equally t o carcass auctions with t h e exception tha t the wholesaler agent conducts an auct ion s a l e of carcasses .

Ibl Price Fonation and Accuracy

The concept of the per fec t market, desp i te i t s l imi t a t i ons , provides a useful benchmark by which t o evaluate ac tua l market s i t ua t ions . The l ivestock market can perhaps be described a s an imperfect market 'where var ia t ions i n product, s e l l i n g method, services o r numbers of buyers and s e l l e r s and t h e i r information and degree of market power c r ea t e a f a r more complex pat tern of exchange re la t ionsh ips and in te r -ac t ion than the c l a s s i ca l conceptsl(lO) would ind ica t e . Pr ice determination i n such a market is seldom the simplified, automatic and accurate process o f t e n assumed i n economic theory. 'There i s more l i k e l y t o be a cen t r a l core where pr ice equal i ty prevai ls and surrounding t h a t , f r inges where one t ransact ion merges in to another and differences i n terms of exchange e x i s t l . ( l l ) The discovery o f p r i c e s then could a t bes t be described a s a t r i a l and e r r o r process because of t he f a c t o r s mentioned and t h e uncertainty of future conditions of supply and demand.

Based on t h e assumption t h a t t h e demand f o r s laughter c a t t l e i s 1 - , derived from the demand f o r carcass beef, it could be argued tha t t h e

pr ice d i f f e r e n t i a l s paid t o s e l l e r s of s laughter c a t t l e a t auction r e f l e c t - wholesale pr ice d i f f e r e n t i a l s es tab l i shed f o r d i f f e r en t q u a l i t i e s o f

carcasses. However, owing t o the necess i ty f o r subject ive buyer appra i sa l of the l i v e animal and the f ac to r s a l ready mentioned, l ivestock auct ions typ ica l ly display pr ice v a r i a b i l i t y through time and between markets,

\ thereby introducing a degree of p r i c ing inaccuracy t o t he p r i c e discovery process a t the auction market.(l2) 9 These pr ic ing cha rac t e r i s t i c s , coupled with operational efficiency considerations such a s yard dues, agent ' s commission, carcass weight loss from handling s t r e s s and addi t iona l bruis ing, a l l of which a r e

(9) ibid., p. 19.

(10) Edna Douglas, Economics of Marketing, Harper and Row, New York, 1975, p.5.

. (11) This view of competitive p r i c e formation i s a l s o discussed i n J . W . Freebairn, 'The Value of Information Provided by a Uniform Grading System', AJAE, Vol. 17, No. 2, August 1973.

(12) Research confirming the c h a r a c t e r i s t i c s o f auction markets a r e quoted i n t h e Report frm the Setect C m i t t e e o f Legislat ive Assembly upon the Meat Industry, Part 11, The submission of R.N. I r i s h , N.S.W. Department of Agriculture, including J . A . Beruldsen, 'The Efficiency of Pr ice Discovery a t N.S.W. Country Lamb Se l l i ng Centres1 M.Ag.Ec. Thesis, University of New England, Armidale, 1970.

cos ts borne by t h e producer, have encouraged the growth of producer i n t e r e s t i n d i r ec t s e l l i n g methods.

Some authors have suggested t h a t 'Markets characterised by monopoly, ... o r lack of competitive bidding, ... a r e not l i k e l y t o be a s e f f i c i en t o r s a t i s f a c t o r y from t h e standpoint o f p r ices , p r ic ing o r equity a s more competitive markets1.(13) Many buyers and s e l l e r s operate a t auction s a l e s making auctions t h e most competitive of t he s e l l i n g methods described.

The degree of competition a t auctions may be reduced i f l ivestock buyers each operate on behalf o f several companies, thereby reducing t h e e f f ec t ive number of bidders a t t he s a l e . This i s , however, an accepted p rac t i ce i n t he l ivestock industry . On t h e other hand, t h e ex i s t i ng d i r e c t s e l l i n g methods display minimal competition a s t yp i ca l ly they involve individual buyer-sel ler negot ia t ion but t h e pr ices paid have the po ten t ia l t o r e f l e c t more accurately t h e value of the f i n a l product (except i n t h e case of paddock se l l i ng ) a s most of t he subject ive evaluation is eliminated.

The question can then be posed: i s t h e reduction of competition necessar i ly detrimental t o the l ivestock market i f it means an improvement i n pr ic ing accuracy? This question has been recognised by several researchers( l4) and has wider implications i f t he introduction of carcass c l a s s i f i c a t i o n encourages an increase i n t h e ex is t ing d i r ec t s e l l i n g methods which a re based on buyer-sel ler negotiation.Cl5) In t h i s event, concern might be expressed a t an an t ic ipa ted lack of representative pr ice establishment. The sample of s a l e s a t l ives tock auction markets may a t times be too small t o be represen ta t ive of a l l sa les i n a pa r t i cu l a r region o r of a pa r t i cu l a r type of animal. If , a s a t present, t he cen t ra l auction markets(l6) form the bas i s of t h e p r i c e reporting and market information service , t he demise of these markets may have implications f o r t he pr ic ing performance of t h e e n t i r e c a t t l e market. There were f e a r s expressed i n t he USA a t t h e decl ine of t h e terminal markets i n t h e 1960s t h a t t h e l ivestock marketing systemwould co l lapse without a cen t ra l point of p r i c e determination. However, 'when t h e famous and once world's, l a rges t l ives tock terminal market closed i n Chicago in. l a t e 1970, t he market d id not collapse. Modern communication through federal and pr iva te

(13) The concepts o f es tab l i sh ing farm p r i c e s a r e discussed i n W.G. Tomek and K.L. Robinson, AgricuZturaZ F~oduct Prices, Cornell University Press, I thaca, 1972.

(14) J.C. Lowe and T.M. Pe t r i e , 'Trends i n Ca t t l e and Calf Marketings a t Public Stockyards ' , Canadicm Farm E c o m i c s Vol. 11, No. 3, 1975. K.R. Woodward, 'An Empirical Invest igat ion of t h e N.S.W. Meat Market1 unpublished thes i s , University o f New England, 1968.

(15) One d i r e c t s e l l i n g method, namely carcass auctions, r e t a i n s t h e Competitive bidding s t ruc tu re of auct ion s e l l i n g and eliminates much of t he subject ive appraisal o f l ivestock s e l l i n g thereby maintaining pr ic ing accuracy.

(16) Central auct ion markets i n t h i s context r e f e r t o those cap i t a l c i t y and major regional markets which form t h e bas i s f o r present l ivestock pr ice r epo r t s .

market information systems (had f i l l e d ) some of t h e functions f i l l e d by t h e terminals i n e a r l i e r years1 . ( l7 ) The l ivestock industry may therefore f ind i t necessary t o develop an accurate and extensive market information system i f fu tu re l ivestock s a l e s a r e predominantly by negot ia t ion on a weight and c l a s s i f i ca t ion basis .

The problem of reduced competition and the uncer ta inty of representat ive pr ice establishment associated with an increased populari ty of d i r ec t s e l l i n g would be a l l ev i a t ed by a marketing system incorporating object ive s i g h t unseen s e l l i n g coupled with a competitive bidding s t ruc ture . Such a marketing system has been successful ly operating f o r 8 years i n Alberta, Canada f o r t he marketing of pigs . (18)

r (cl Operationu2 Efficiency

Marketing channel e f f ic iency can be considered i n terms o f both operational and pr ic ing a c t i v i t i e s . h e pr ic ing e f f ic iency considerations have already been discussed. Operational e f f ic iency i s concerned with t h e use of cap i t a l , labour and management within and among t h e firms engaged i n marketing l ivestock. I t r e f e r s t o t h e effect iveness o f t he operations of these firms i n adding time, form and place u t i l i t i e s t o l ives tock

1 products a s t h e consumer demands. Operational e f f ic iency includes not I ' only resource use o r input c o s t but a l s o t h e e f f ec t s which a s e l l i n g

method has on n e t re turn.

Turning again t o t h e concept o f t he pe r f ec t ly competitive market, both pr ic ing and physical handling should be f a c i l i t a t e d i f

,grades , standards, weights, e t c . a r e defined and accepted a s a t r ade language. Both l ivestock and meat a r e heterogeneous products, cos t ly t o

\ transport and s to re . The introduct ion of an object ive product descr ip t ion vystem w i l l , hopefully, improve operat ional eff ic iency by enhancing t h e

movement of l ivestock products smoothly along t h e marketing chain and reducing t h e need f o r s torage and t ransporta t ion.

I

The marketing agent o r producer can minimise procurement and d i s t r i bu t ion cos t s by avoiding excess weight l o s s , b ru is ing and t ransporta t ion costs . The producer general ly has several options open t o him for marketing h i s slaughter s tock through any of t he methods described i n Section 1. The auction system, desp i te i t s predominance, i s t h e cause

(17) R.L. Kohls and W.D. Downey, Marketing of AgricuZturaZ Products, 4th Edition, The Macmillan Company, New York, 1972, Ch. 22.

(18) M.H. Hawkins, A.A. Warrack and J . L . Dawson, DeveZopment and Operation of the Atberta Hog Producers Marketing Board, Agricul tural Economics and Rural Sociology, Bul le t in 12, 1971, t h e University o f Alberta, Edmonton.

of s ign i f i can t losses from both s t r e s s weight loss ( l9) and bruising.(?O) A l a rge proportion of t h e bruis ing of stock occurs because of t h e addi t ional handling associated with auction sa l e s . Also the producer who s e l l s by auction, compared with s e l l i n g d i r e c t , u t i l i s e s an addi t ional s tage i n t h e marketing chain and w i l l therefore incur higher average t ranspor t costs.(21) Direct s e l l i n g methods should e l iminate t he s t r e s s weight l o s s and s i g n i f i c a n t l y reduce both t ranspor t cos t s and bruis ing losses .

The storage function i s general ly performed by wholesalers and r e t a i l e r s and i s therefore not of immediate concern t o t h i s paper, but producers s e l l i n g on t h e i r own account may be faced with addi t iona l c h i l l e r charges f o r unsold carcasses. Other s torage costs may be incurred i f , because of t ransport arrangements, l ives tock have t o be ag is ted before s a l e by auct ion o r , i n times of surplus supply, stock have t o be agis ted before s laughter .

The s e l l i n g cos t s involved with auct ions include yard dues and agent ' s commission of from 3% t o 5% of t h e s a l e value. Commission w i l l a l so be paid i f an agent i s used when l i ves tock a r e sold d i r e c t l y i n t h e paddock, on producer's account o r through carcass auctions.

(dl Information Flows

Accurate and timely market information i s an e s sen t i a l ingredient f o r t he e f f i c i e n t performance ' o f any marketing system. 'Improved market information reduces r i s k s i n marketing and thereby reduces (operational) cos t s and ensures t h e most e f f i c i e n t operation of t he market. The farmer i s helped i n t h e planning of h i s production and

(19) Although t h e evidence of s t r e s s weight l o s s from auctions i s inconclusive f o r c a t t l e (see the following references) , est imation f o r lambs of 1 . 3 l b , o r 2 % of carcass weight, was made by K.S. Lysaght and J . M . Sibree, ' A Lamb Marketing Case Study'. This study was included by R.N. I r i s h i n h i s evidence; see, Select C m i t t e e on Meat Industry, Par t 11, N.S,.W. Government Pr inter , 1972. W.R. Shorthose 'Weight Losses of Cat t le P r io r t o Slaughter ' , CSIRO Food Preservation Quarterly, Volume 25, No. 4 , Dec. 1965.

V .R. Kauflin, M.B. Hendrich and W .C. S t r i nge r , Effects of Pre-SZaughter Feeding Regimen on Beef Carcass Characteristics, Research Bul le t in 953, blissouri Agricul tural Experiment Stat ion 1969.

(20) Although t h e extensive work done on l ives tock bruising by I1.R.C. Eleischke and more recent ly by D r . Edward Yeh does not i s o l a t e t h e bru is ing a t t r i b u t a b l e s p e c i f i c a l l y t o auction se l l i ng , t h e average b ru i se t r i m per carcass from 2 kg t o 2.5 kg does ind ica te t h e magnitude of t h e problem. Estimates by P.D. Riche i n November 1973 placed losses a t $3.30 per carcass and these losses could be accounted f o r i n t h e following way - k i l l f l o o r losses from trimming out o f b ru ises (35%), downgrading of carcasses from loca l t o export t r a d e (21%), downgrading of cu ts i n t h e boning room (40%) and time and production losses on t h e k i l l f l o o r (4%).

(21) The bru is ing research has shown t h a t , by whatever mode of t ranspor t , t h e f u r t h e r stock a r e moved, t h e g rea t e r t h e l o s s from bruising.

t he marketing of h i s produce at a time and place, and i n a form, which will maximise h i s re turns . The spec ia l i sed dissemination of information, combined with adequate t ranspor t , enables supplies t o be channelled t o where they a re most needed - a s r e f l e c t e d i n p r i ce s - t o t h e advantage of producers and consumers a l ike1 . (22) The function of marketing information therefore is t o help the f r e e l y competitive marketing system operate e f f i c i en t ly .

The present marketing system f o r l ivestock depends on market information f o r i t s successful operation. The a b i l i t y o f t h e l ives tock producer t o successful ly meet t he dynamic changes i n t h e market place hinges on h i s i n t e rp re t a t i on of ava i l ab l e market information, including pr ices , yardings, production t rends and forecas t s . The p o s s i b i l i t y e x i s t s t ha t t h e knowledge, once gained, may not be used i n t e l l i g e n t l y o r e f fec t ive ly by t h e producer i n making h i s marketing decisions.(23)

There a r e several fundamental problems concerned with market information tha t make the producer 's t a s k more d i f f i c u l t . There i s a lack of data. One researcher judged t h a t ' t h e information lacks d i r ec t ion , i s unco-ordinated and i s o f t en i n a language u n i n t e l l i g i b l e t o producers'.(24) Data a r e s ca t t e r ed and of ten not able t o be compared.

Recognition of t h e shortcomings of market information i n t h e Australian l ivestock industry can be seen from t h e Standing Committee on Agriculture, Economics and Marketing Committee's appointment o f an Ad Hoc Group

' t o (1) Invest igate methods o f bringing about improvements i n t h e uniformity and ob jec t iv i ty of t he systems f o r co l l ec t ing and recording l ives tock market p r i ce s .

(2) Develop a s t r a t egy t h a t would provide f o r uniformity and -. I ob jec t iv i ty t o be achieved t o t h e maximum extent possible . \ (3) Report on t h e d e s i r a b i l i t y of confining t h e appl ica t ion o f -. such a s t r a t egy t o publ ic agencies i n t h e f irst

instance' . (25)

When comparing t h e d i f f e r e n t s e l l i n g methods i n terms o f t h e market information ava i lab le t o buyers and s e l l e r s it i s apparent t h a t , t o

(22) C.D. Vincent,'Marketing and Economic Development' i n T.K. Karley, AgricuZturaZ Producers and Their Markets, Blackwell, Oxford.1967. The word i n brackets has been in se r t ed i n t h e quotation.

(23) This i s t o suggest t h a t technical e f f ic iency is not achieved i n t h e use of information, a s discussed by J. Ph i l l i p s , ' A Revised Approach t o Marketing', Revia, o f Marketing and AgricuZtuvlZ Economics, Vol. 36, No. 1, March 1968.

(24) T.M. Bock, Natiomt Aurvey o f Market Information Requirements of h'imary Producer, Agricultural Extension Research Unit, School of Agriculture and Forestry, University of Melbourne, May 1976.

(25) Report of Ad Hoc Group Invest igat ing Livestock Market Pr ice Reporting t o t he SCA Economics and Marketing Committee, March 1977.

gain f u l l benef i t from t h e d i r ec t marketing methods, t h e producer must have a good market knowledge. A necessary pre- requis i te f o r successful market negot ia t ions i s f o r both buyer and s e l l e r t o be adequately informed of recent market movements and t o be aware of p r i ce s i n a l t e rna t ive markets and t h e t r ans fe r movement cos t s t o those markets.

In t h e case of s a l e by auction f o r example, t h e producer must be aware of p r i c e t rends and stock qua l i t y if he wishes t o e f fec t ive ly exercise h i s r i g h t t o s e t reserve pr ices .

The information flow back t o t h e producer d i f f e r s with each marketing channel. A s mentioned i n an e a r l i e r sect ion t h e producer who s e l l s ove r - the - hook(26), on consignment o r through carcass auctions gains p r i ce information d i r e c t l y r e l a t e d t o carcass cha rac t e r i s t i c s . The producer who s e l l s through t h e auction system, however, o f ten receives confusing p r i ce s igna ls .

With t h e introduction and acceptance of a method of s a l e by descr ipt ion with improved feedback of market information, the po ten t ia l e x i s t s f o r producers t o r ea l loca t e farm resources t o match production more closely with market requirements. Some of t he po ten t ia l improvements i n resource a l loca t ion within t h e l ivestock marketing system from more accurate, more complete and more up t o date market information a re discussed i n t h e main t e x t .

(el Finance and Risk

Kotler(27), i n h i s discussion o f marketing channel decisions, points out t h a t f inanc ia l re la t ionsh ips can involve a f irm i n r e l a t i ve ly long term commitments t o o ther firms i n t h e channel. In r e l a t i on t o the sect ion of t h e l ivestock marketing channel under discussion, such a commitment can r e s t r i c t producers' choice of s e l l i n g methods. Stock and s t a t i on agencies operate widely i n servicing t h e ru ra l sec tor i n areas such a s f inance, marketing, farm management, e t c . The pastoral finance companies (incorporating stock and s t a t i o n agencies) forwarded loans t o ' producers i n 1975 of $279 mil l ion (representing approximately 9% of t o t a l ru ra l indebtedness) almost e n t i r e l y i n t h e form of stock and produce mortgages. A s an overdraf t type f a c i l i t y , t h e stock mortgage provides operating finance t o t h e producer, using h i s l ives tock a s security.C28) When loans a r e obtained i n t h i s way i t i s common t h a t redemption of t h e loan i s achieved by s e l l i n g through t h e company furnishing t h e loan. This form of f inance places cons t ra in t s on t h e producer 's choice of s e l l i ng method f o r h i s l ives tock .

Producers who choose t o s e l l s tock through stock agents a r e , however, guaranteed prompt payment, thereby overcoming any r i s k o f delay

(26) Until a carcass descr ipt ion system i s introduced, s a l e over-the-hooks on a weight and grade bas i s w i l l involve subjective grading appra i sa l . Differences e x i s t between grading systems of d i f fe ren t carcass buyers.

(27) P. Kotler, op. c i t . , Chapter 15.

(28) For a discussion of pastoral company finance and a l l forms of ru ra l c r ed i t s e e BAE, A Review of Credit i n the Australian Rural Sector, May 1977.

or defau l t . This r i s k , which producers usual ly wish t o cover unless t hey arrange immediate cash sett lement, is present whenever s tock a r e so ld without an agent.

2. Summary and Imp1 ica t ions

Although l ivestock auct ions have t r a d i t i o n a l l y been t h e predominant s e l l i n g method i n Austral ia , t he re appears t o b e a growing i n t e r e s t i n more d i r ec t methods of s e l l i n g . Producers changing t o s e l l i n g d i r ec t quote the high cos t o f auct ions and t h e improved pr ic ing accuracy (more spec i f i ca l ly t h e premium p r i ce s paid f o r t op q u a l i t y stock) of t h e weight and grade ( c l a s s i f i ca t ion ) method a s reasons f o r t h e i r decisions. (29) High cos t s and p r i c e v a r i a b i l i t y a r e c h a r a c t e r i s t i c s o f l ivestock auction markets a s discussed i n e a r l i e r sec t ions .

Producers, pa r t i cu l a r ly i n South Austral ia , have recent ly formed marketing groups(30), both formal co-operative s t ruc tu re s and o ther informal arrangements. In t h e i r e f f o r t s t o obtain maximum benef i t s from marketing d i r e c t t o wholesalers, t h e groups have been formed both t o increase producer bargaining power and t o streamline t h e i r marketing arrangements. The groups a l l s e l l l ivestock d i r e c t on a weight and specif icat ion (SAMCOR) bas i s . (31) They a l so enjoy t h e advantages of t h e r a t i ona l i s a t ion of t ransport arrangements and a market informat ion feedback system. A s imi la r marketing arrangement has operated i n Western Australia s ince March 1977, where Westralian Farmers, a l a rge producer co-operative, o f f e r s d i r e c t (telephone) .livestock s e l l i n g on a f l a t 2% commission.

With t h e proposed introduct ion o f a carcass c l a s s i f i c a t i o n scheme many a l t e rna t ive s a l e by descr ipt ion methods become p o s s i b i l i t i e s . Several proposals have been voiced:

> 4 . . A producer s e l l i n g organisat ion, South Australian Producer I 1

Marketers, a group already d i r e c t l y s e l l i n g l a rge numbers o f stock on a weight and spec i f ica t ion bas i s , proposed i n February 1977 a computerised Dutch auction system f o r a l l l ives tock incorporating cen t ra l and regional s e l l i n g centres and a sophis t icated information service .

. A proposal prepared within t h e Queensland Department of Primary Industr ies ou t l i nes a system of d i r ec t de l ivery o f c a t t l e t o aba t to i r s , where a f t e r s laughter t h e c l a s s i f i e d carcasses would

(29) 'Direct Marketing o f Meat1 i n Fanning F o m , Vol. 4 , No. 1, March 1976, Economics Section, S.A. Department of Agriculture and Fisheries; C. Hunt, 'Livestock Marketing, Which Way Ahead?' S.A. Department of Agriculture and Fisher ies , 1976.

(30) The f i r s t , Class i f ied Meats Co-operative Ltd, was es tab l i shed i n 1974 ..

(31) South Australian Meat Corporation which operates Gepps Cross Abat toir conducts a carcass spec i f ica t ion scheme which i s t h e bas i s f o r pr ic ing and payment f o r the marketing groups.

be so ld on a t e l ex carcass auction system under t h e control o f Central Marketing Authorit ies i n each S t a t e . C32)

Other va r i a t i ons of computerised s e l l i n g of l ivestock a r e operating i n North America(33) and may be considered p o s s i b i l i t i e s f o r t h e future marketing of l ivestock i n Austral ia .

The introduct ion of s a l e by descr ipt ion and t h e improved information flow based on c l a s s i f i ca t ion should favour t h e expansion of d i r ec t s e l l i n g . Clear ly , t he producer who continues t o s e l l through t h e szleyard w i l l be unable t o accurately r e l a t e reported carcass p r i c e t o received saleyard pr ice . However, t h e complete 'demise of t h e auction system would mean t h e loss o f t he res tocker and l i v e exporter from t h e market place.

The broad implications of carcass c l a s s i f i ca t ion on t h e d i f f e r en t marketing channels and, i n pa r t i cu l a r , on l ivestock s e l l i n g methods a r e d i f f i c u l t t o pred ic t . The p r inc ip l e objective of t h e research program out l ined below i s t o determine the influence of l ivestock marketing channels on t h e leve l and v a r i a b i l i t y o f re turns t o producers f o r beef c a t t l e . Additionally, however, t h e research w i l l provide a more sound bas i s f o r development, evaluation and review o f l ives tock s e l l i n g methods i n l i g h t o f marketing innovations such a s carcass c l a s s i f i ca t ion .

3 . Proposed Research i n t o L i v e s t o c k Market ing Methods

( i ) In p a r a l l e l with t h e evaluation of carcass c l a s s i f i ca t ion , a cost ana lys i s w i l l be ca r r i ed out t o inves t iga te t h e po ten t ia l cost savings of t h e d i r e c t s e l l i n g methods and t o assess t h e i r operation i n comparison with t r a d i t i o n a l l ivestock auctions. The marketing cos t s i n t h i s ana lys i s w i l l include t ranspor t and handling cos t s , saleyard dues and agents ' commission where appl icable .

( i i ) Further research of a longer term nature w i l l be undertaken t o examine market p r ice formation and accuracy under d i f f e r en t s e l l i n g methods. The research could involve t h e t rac ing of l ivestock f r o m t h e saleyard through t h e a b a t t o i r t o t h e c h i l l e r t o allow comparisons t o be made between auction pr ic ing and pr ices quoted under weight and grade o r spec i f i ca t ion , consignment and carcass auct ions . Preliminary r e s u l t s o f research i n t h i s a rea may be ava i lab le i n t ime f o r inclusion i n t h e evaluation of t he proposed carcass c l a s s i f i c a t i o n schemes.

Research i n t h i s area i s based on t h e assumption t h a t t h e demand f o r s laughter c a t t l e is derived from t h e demand f o r carcass beef so tha t

(32) This s e l l i n g system, dependent on t h e introduct ion of a carcass c l a s s i f i c a t i o n scheme, was proposed by I . F . Whan, Queensland Department of Primary Indus t r ies .

(33) Television, telephone and te le type s e l l i n g methods a r e described in:

Ronald Anderson, Primary Industry Survey, October 1976, R.D. Johnson, 'An Economic Evaluation o f Alternat ive Marketing Methods fo r Fed C a t t l e ' , op. cit .; Report on Conmission o f Inquiry i n t o the Marketing of Beef and Veal, Minister o f Supply and Services, Canada, 1976.

wholesale p r i ce d i f f e r e n t i a l s es tabl ished f o r d i f f e r en t q u a l i t i e s of carcasses would tend t o be r e f l ec t ed back i n pr ice d i f f e r e n t i a l s paid t o producers of slaughter c a t t l e . Clear ly , t h e qua l i t y p r i c e d i f f e r e n t i a l s can change over time, and t h i s would have t o be allowed f o r . One way of

' reducing t h e e f f ec t of changing p r i c e d i f f e r e n t i a l s is t o co l l ec t data during a period when no changes occur.

( i i i ) The benef i t s a t t h e producer leve l l i k e l y t o a r i s e from t h e introduction of object ive carcass c l a s s i f i c a t i o n w i l l be governed by t h e choice of marketing channel used t o s e l l l ivestock. One aspect o f research would therefore involve a survey o f producers t o determine the aggregate importance of t h e d i f f e r en t s e l l i n g methods. The numbers of live'stock sold through each method, how t h i s va r i e s between regions, S ta tes , producers and types o f stock and what f a c t o r s a f f ec t t h e producer's choice of marketing mode w i l l a l l be assessed. . ,

This w i l l involve such f a c t o r s as :

. The producer's f inanc ia l s t ruc tu re - he may be constrained t o s e l l stock through an agent because of t i e d f inanc ia l commitments .

. Location of property - t h i s may make t h e a v a i l a b i l i t y and cos t of t ransport major considerat ions .

I . General management considerations concerning t h e a v a i l a b i l i t y

of , access t o and s k i l l i n in te rpre t ing market information.

I 8 Such a survey would enable researchers t o i den t i fy any d iscern ib le pa t t e rn

i n producers' co l lec t ive marketing decisions and a s s i s t i n t h e assessment of the impact of carcass c l a s s i f i c a t i o n . The information w i l l form a bas i s f o r the po ten t ia l of d i f f e r e n t methods o f s a l e by descr ipt ion t o be \\ estimated and bmad policy opt ions f o r t he meat and l ivestock industry t o

$e explored. Because of t h e nature of t h e pro jec i , r e s u l t s w i l l not be avai lable i n t he short term.

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