Livestock and Meat Marketing in Australia An economic...

Bureau of Agricultural Economics

Industry Monograph No. 1

Livestock and Meat Marketing in Australia An economic evaluation

Australian Government Publishing Service Canberra 198 1

O Commonwealth of Australia 1981

ISBN 0 642 0581 8 0

Printed by C. J. THOMPSON, Commonwealth Government Printer, Canberra

Foreword

This report on livestock and meat marketing is the first of three reports bq the BAE on the marketing of major Australian rural commodities. The reports were undertaken following a request by the (then) Minister for Pri. mary Industry, the Hon. I. McC. Sinclair early in 1978. The Bureau's objec. tive in preparing them was to put problems, suggestions and options f o ~ change in the marketing system into perspective. This has been done to h e l ~ provide a basis for the development of sound marketing policies for the industries into the 1980s. This objective needs to be kept firmly in mind in considering this report. It is aimed at the development of sound long-term policies, not the provision of instant solutions to complex problems. It does no1 provide answers but should help those interested in the Australian livestock and meat industry to develop better informed answers.

In the process of preparing the report, the Bureau consulted with marketing authorities and industry organisations throughout Australia. The conclusions drawn in the report are based not only on views obtained from industry but also on the results of research both within the Bureau and elsewhere In drawing together such material and in reaching conclusions, judgments have been made on the basis of currently available evidence. In many cases the judgments are those necessary to guide the direction of future research. In other cases, where the evidence and research results allow, suggestions are made on the direction which future policy development might follow.

The conclusions presented in the paper are those given in the summar) paper to AGRO 79-a conference held in Perth in March 1979. However they have been rearranged with some minor editing to take account of more recent research and to provide a ready referencing to the body of the report A comprehensive index has also been provided.

An important consideration at this stage is the appropriate action thai night be taken now that the report is being published. For its part, the BAE will be taking account of the conclusions in determining the direction of it: 'uture meat marketing research. It is also intended that the report bc xought explicitly to the attention of Commonwealth and State Govern- nents through the Standing Committee on Agriculture and the Australiar Agricultural Council. I do hope, however, that producer organisations and ndustry bodies will be willing to put in the hard work that is needed to

ensure that the potential benefits of a study such as this can be realised through practical future policies for the industry.

The report does not present specific recommendations to the industry or to governments. However, the exhaustive discussions in the text and in the summary and conclusions do contain many implications for current meat industry policy and for research and policy development for the future. These implications will be translated in to wise practices and policies only if they are carefully read and thought about by the practical people involved in the conduct and administration of the Australian livestock and meat industry.

The three studies, on grains, livestock and meat, and wool marketing, were initially undertaken under the general direction of Dr Guy Motha. However, Dr Robert Bain contributed to the direction and final preparation of this study.

Mr Peter Biggs led the group in the Livestock Marketing Analysis Sec- tion involved in the conduct of the study. Major sections were also contributed by Dr Jim Longmire, Mr Michael Todd and Mr David Weissel. In fact, the views expressed in the report reflect contributions from a large number of people throughout the Bureau. It is not possible, nor desirable, to acknowledge all. Responsibility for the report is therefore accepted, on a col- legiate basis, by the organisation as a whole.

Geoff Miller Director Bureau of Agricultural Economics Canberra, A.C.T.

December 1980

Contents

Foreword

Summary and conclusions Livestock selling methods Livestock slaughtering Wholesaling Retailing Shipping Meat exporting

Government intervention in prices Pattern of beef price variability Prospects for instability Basic characteristics of the beef industry Objectives of stabilisation schemes Evaluating stabilisation schemes Alternative schemes Meat inspection Meat promotion

Meat marketing authorities Conclusions

Clhapter 1 Introduction

Scope of the report

Zhapter 2 Description of the marketing system

Supply and demand conditions Livestock

Existing selling methods : pricing aspects Existing selling methods : marketing costs

Meat Livestock slaughtering Domestic wholesale and retail

4hapter 3 Avenues for future development

Livestock Market reporting Product description Lot size and interlotting

Meat Slaughtering costs Alternative domestic distribution methods Shipping Meat exporting Beef stabilisation schemes

Page iii

1

2 4 5 5 6 6 8 8 8 8 9

10 11 15 15 16 16

21 23

25

28 28 3 1

3 2 35

45

45 45 46 5 5 5 5

56 57 58 68 I

84

Institutional arrangements Regulation Research Promotion Trading by statutory authorities

Appendix A Livestock and meat marketing inquiries in Australia: summary of reports of public inquiries

Appendix B Marketing costs: different livestock selling methods Appendix C Summary of major cost components of freight rates ~ References Index

Figures 1 Marketing system diagram 2 Brisbane (Canon Hill) heavy ox average annual prices 3 Melbourne (Newmarket) monthly lamb prices 4 Marketing costs and c.i.f. price for Australian manufacturing cow beef 5 Gross revenue from beef exports: by country: July 1977 to June 1978 6 Relationship between market price, stabilisation price, effective price and

payments to or from buffer fund 7 Lamb prices in Western Australia, South Australia and Victoria

Tables 1 Australian producers' share of the consumer dollar 2 Distribution of cattle sold for slaughter: by selling method: 1977-78 3 Annual yardings of cattle: by size of saleyard 4 Distribution of costs: existing selling methods: 1978 5 Estimated use of capacity for selected abattoirs according to location and

ownership: 1975-77 6 Components of export marketing costs: boneless beef ex New South ~ Wales to USA 7 Movement in freight rates 8 Summary of special regulatory measures applied to imports of meat from

Australia: 1973-80 9 Summary of expenditure on promotion by AMB-AMLC

10 Main charters of statutory bodies in livestock and meat marketing B. 1 Livestock (cattle) marketing costs: existing selling methods: Adelaide

area: 1978 B.2 Livestock (cattle) marketing costs: existing selling methods: south-east

area of South Australia: 1978 B.3 Livestock agents' costs in marketing cattle: 1978

1 B.4 Livestock cattle sellers' costs at saleyards: 1978 B.5 Cattle buyer costs: existing selling methods: 1978 C.l House-to-pier container freight rates (port-to-port): Australia to East

Coast North America C.2 Currency adjustment factor and bunker surcharge as at 30 June 1977

vi

Page 8 8 8 8 90 90 9 3

Summary and conclusions

The aims in this report are to appraise Australia's meat marketing system, to put problems and suggestions for change into perspective and to help provide a basis for the development of marketingpolicies for the future. In the process o f developing the report, consultations with marketing authorities and industry organisations were held. Views obtained from these bodies and recent economic research are drawn on in considering existing policies, recent developments and trends. In some areas the available research is inadequate forJirm conclusions to be reached. In these instances, conclusions are drawn concerning the direction of the additional work required.

The complex nature of the production and marketing of livestock and meat has resulted in a very diverse marketing system, largely co-ordinated by the price mechanism. Forces from domestic and export markets are largely free to determine prices for both livestock and meat.

While Australia is a major exporter of meat, conditions in importing countries largely determine prices for meat exports. High substitutability among meats on the domestic market places limits on the potential market power of the red meats group. Fluctuations in output, the perishability of product, a large range of meat types, cuts and qualities and the high degree of diversity and instability in markets are some of the major factors contributing to the continued use of the pricing mechanism to co-ordinate meat marketing. Hence, an eficient pricing system is a prerequisite for an eflcient meat marketing system.

This summary covers selected avenues which could be followed for the future development of marketing policies. The avenues are largely those which would facilitate the operation of open market pricing. Avenues for assisting the development of improvements in livestock pricing are summarisedfirst. The scope for future policy developments in slaughtering, wholesaling, retailing and shipping is noted. Attention is given to the effects on prices of export control schemes and government intervention. Other institutional involvement by public authorities and meat inspection services and industry-wide promotion are examined.

Aims

Diversity of marketing system

Importance of eficient pricing mechanism

Scope of summary

Auctions

Avenues for improving selling methods

- livestock market price reporting services

- objective carcass classification

method of introduction

selling methods YAE survey results show that, in 1977-78, 66 per cent of slaughter cattle vere sold at auction. However, the costs associated with the auction system :ontribute significantly to livestock selling costs. The Bureau's analysis ruggests that the main avenues for improving livestock selling will involve nore direct selling of livestock and, in the longer term, development of right-unseen trading methods. Nevertheless, auctions will remain a major 'kature of livestock marketing, particularly for store cattle and sheep.

A number of avenues for improving existing selling methods are ~ppropriate. These include:

Market reporting

Existing market reports available to buyers and sellers of livestock are 3ften linked to broadly defined product descriptions which lack vtandardisation. Consequently, communication in the marketing channels between producers and consumers is restricted and livestock buyers are wore likely to be better informed than individual livestock sellers. The ~rovision of standardised livestock market price reporting services (LMRS) for major auction centres in New South Wales, Victoria and Western Australia now oflsets, to some extent, past inadequacies in market information services. Further development in market reporting services through extension of LMRS, and ensuring that existing reporting services for over-the-hooks sales are compatible with LMRS, would help buyers rrnd sellers to make price comparisons. It would thereby facilitate the use of Iower cost direct selling methods. Livestock agents should be encouraged to provide price reports on the same basis as the LMRS.

Product description Availability of a uniform objective method of describing carcasses would have implications for all stages of the marketing chain. With respect to livestock selling, the development of uniform objective carcass classification would provide a standard, objective and neutral basis for direct selling. Uniform description could be a key factor in achieving wider market reform in livestock selling such as competitive sight-unseen trading.

Carcass classification does entail costs, however, and should not be imposed on an industry-wide basis but should be allowed to develop step by step as its usefulness is demonstrated. This would allow the various segments of the industry to perceive and adopt those aspects which would provide economic gains. The rate of development of carcass classification will depend on whether experience demonstrates that gender, age, weight and fat cover are in fact the major characteristics forming the basis for carcass trading.

The most economical methods of measuring and communicating the carcass characteristics will need further analysis.

While some of the direct benefits of carcass classification can be assessed, many of the implications of its introduction are of such a radical and long-term nature that the quantitative impact on the marketing margin cannot be precisely evaluated.

The development of carcass classification will call into question the continued use of broadly defined export grades. The relevance and precision o f Australia's export grades should be reviewed in relation to the requirements of specijic major overseas markets. Also, some endeavour should be made to achieve comparability between export grades, carcass classification and L M R S descriptions.

Livestock agents' charges At present, agents' commission charges are set as a percentage of livestock prices and, generally, this percentage does not vary according to the different services provided. For example, the same charges are often made for auction selling and direct selling, even though the underlying costs can be shown to vary significantly. A closer linking of charges to specific services could tend to improve the eficiency of livestock marketing.

Direct selling Direct selling methods have potential advantages over existing livestock auctions. However, the further development of direct selling would require the development of standardised, equitable conditions. The rights and obligations of each party must be clearly understood with respect to such issues as delivery, change of ownership, carcass definition and payment arrangements.

The longer term development of competitive, sight-unseen trading would also require the acceptance of standardised conditions of sale.

Liveweight selling

Liveweight selling has grown in popularity in recent years, particularly in New South Wales and southern Queensland. In Victoria, liveweight selling has been introduced recently at Newmarket.

The major potential benefit is an improvement in pricing accuracy with the removal of liveweight estimation errors. However, the magnitude of this benefit has not yet been identified and carcass yield errors still exist. Costs include capital costs associated with the provision of liveweight scales and changes in saleyard design, selling cost increases, including additional labour, and potential bruising as a result of the additional handling.

Currently, liveweight selling procedures differ between States. Eliminating these differences would assist buyers and sellers who operate in more than one State. The extension of liveweight selling to store markets also appears worthy of serious consideration.

Saleyard rationalisa tion There are about 36 cattle saleyards in Victoria. -The seven largest saleyards account for about 67 per cent of cattle sold at auction, while the fourteen smallest account for only 5 per cent. A similar situation exists in Western Australia and South Australia. Some degree of rationalisation of saleyards due to market forces has occurred in Queensland and New South Wales. However, in Victoria, saleyard numbers have not decreased. Victoria is the only State to give financial assistance to municipalities for their saleyard

1 operations.

implications for export

- linking agents' charges to services

- using direct selling

- extending liveweight selling

- achieving saleyard rationalisation

- interlotting cattle

Implementation of improvements

Beef futures

Future role of auctions

Structure of abattoir sector

Degree of competition

Eficiency of abattoir operation

Factors influencing costs

A number of industry sources, including livestock agents, have pressed for further rationalisation of saleyards. While it has been suggested that prices received in small saleyards would be lower on average, the available evidence does not support this. This is an area which should be researched further. At present, however, there is no evidence in favour of subsidising small saleyards.

Interlotting at saleyard auctions

A case study undertaken within the BAE has shown that a price premium for lot size existed for a number of cattle types at two livestock auction centres examined. An apparent advantage could be gained by building larger lots of animals of similar types. Further research is necessary to ascertain whether such price premiums operate as a general rule. Additionally, the cost of interlotting cattle needs to be assessed.

The development of livestock marketing along the lines proposed is expected to involve a considerable learning process. The process of change is likely to aflect the roles of livestock agents. Clearly, there is scope for a continuing role in developing improved communication of market information to producers and in the progressive adoption of direct and sight-unseen trading methods. In addition, such services as locating buyers, assessing livestock, short-term financing and assuming del credere risks associated with livestock sales will continue to be required by producers.

A recent development in the formation of livestock and meat prices has been the development of beef futures markets. Such markets complement the formation ofprices at livestock auction markets.

If; in the longer term, the role of auction markets were to decline markedly, attention would need to be given to alternative methods of price formation and communication in the industry.

1 Livestock slaughtering Meat is produced in approximately 100 export-licensed abattoirs in Australia. These account for about 80 per cent of all meat produced. Their numbers may be compared with some 600 meat-processing establishments and some 8000 retail outlets. The ten largest abattoirs in 1977 were responsible for some 20per cent of slaughterings.

Generally, there appear to be substantial levels of competition between abattoirs in the more intensively settled areas. However, in parts of northern Australia, the extensive nature of cattle production and long distances limit the degree of competition.

The eficiency of operation of abattoirs has frequently been questioned, often on the basis of the wide range of charges which prevail for basically the same services. The Prices Justification Tribunal report (PJT 1978) has focused attention on the eflect of the tally system on utilisation ofplant and the incentive to introduce new technology.

Studies of factors influencing costs of operating export abattoirs in Australia showed that the two external factors which substantially

influenced costs were the variability in throw&put and the level of utilised capacity. A marked seasonal pattern in production will cause significantly higher abattoir costs than a more even slaughteringpattern.

Livestock slaughter operations are relatively labour intensive, with wages and salaries accounting for about two-thirds of slaughtering costs. Therefore, the economics of labour resources, particularly rates of pay, conditions of employment, the stafS structure in abattoirs and the opportunities for adjusting staj-to changing throughput all have important ej-ects on costs of operations.

The Australian livestock slaughter industry is characterised by an array o f State and Federal awards covering most aspects of the slaughtering process. These awards have developed over the years to bring some stability to employment conditions. However, some of them may have adverse effects on the eficient operation and development of abattoirs.

There is clearly scope for further investigation of the factors afecting abattoir costs with a view to improved eficiency. Matters warranting attention include labour and industrial relations issues but questions such as management under various forms of abattoir ownership and charging policies and regulations, which may inhibit eficient plant operation to reduce competition among abattoirs, are also worthy of further investigation.

Wholesaling There are a large number of operators in this sector of meat marketing. Competition is strong among wholesalers. However, considerable resources can be required in double handling of carcass meat and in the several transactions between slaughter and retailer.

The key feature of domestic wholesaling is that beef carcasses are distributed to retail outlets mainly in the form of chilled quarters. This method of distribution is in contrast to the 'boxed meat' methods employed for the export market and used in domestic distribution in the USA.

There are many factors influencing the relative merits of alternative distribution systems. These include the relative economies of various met hods of meat distribution. Other factors include tradition and the absence of a satisfactory method of stating the quality of meat in boxes. Streamlining of the wholesale distribution system will occur gradually. However, the process is likely to occur more readily with the availability of objectively based description of carcasses and, subsequently, of meat.

The existing wholesaling system represents substantial investment and is based on traditional skills in carcass assessment.

Retailing Meat is sold predominantly in the form of chilled cuts by specialist butcher shops. In 1973-74, approximately 70 per cent of retail meat outlets were specialist butchers. They accounted for about 85per cent of total meat sales in Australia. The total number of butcher shops and their share of meat sales were both slightly lower than was the case five years earlier.

5

Slaughtering labour-intensive

I Alternative distribution systems

Specialist butchers predominate

Retail price stability

Shipping costs

Market access

Australian export policies

Export control schemes

'Sole trader' policy

A more recent study indicated that supermarkets accounted for only 15 per cent of sales in Sydney. This study also showed that the emergence of large shopping plazas and malls was having an impact on meat retailing. It identified cost and size advantages of larger retailJirms and supermarkets. It is likely that the trend towards a greater concentration of sales through a smaller number of outlets will continue.

Studies of pricing practices indicate that retailers tend to hold prices stable relative to short-term movements in wholesale prices and that they may vary the size of their margin between meat types. Retailers take into account factors other than the price they paid for their meat. These include local competitive injuences and the demand from their customers.

Shipping Shipping costs from Australia to the East Coast of the U S A account for almost 40 per cent of total costs of slaughtering cattle and exporting meat to America. There are a number of major issues concerning shipping methods and freight costs. These include the pricing practices of the Conference lines and freight equalisation policies. Clearly, the development of handling technology and the negotiation and distribution of freight charges will continue to have a major influence on total marketing costs.

Meat exporting The volume of meat shipped to most of Australia's main markets is strictly limited by the trade policies of the importing countries. In some instances, prices are also centrally administered. Major changes in market access during the 1970s played a substantial role in destabilising and depressing cattle prices in Australia.

The policies adopted in Australia in response to those developments have been twofold. Firstly, an attempt has been made to negotiate guaranteed access to Australia's major markets on acceptable terms. Secondly, export control schemes have been devised to restrict shipments to the prescribed levels and obtain maximum revenue from the markets.

Efforts to improve market access and better trade conditions on world markets have formed a major part of Australia's effort in the Multilateral Trade Negotiations under the GATT, in its relationship with other international organisations such as OECD, and in its bilateral trade negotiations.

The development of export control schemes has proved particularly d i ' cu l t . Producers feel that the beneJits of the schemes accrue largely to exporters. Any scheme invariably adversely aflects one or more groups of economic interests. Particular exporters or abattoirs or producers in some regions consider that they will lose relative to others. Therefore, a scheme with a high level of industry support is hard to achieve.

It has been suggested that, in trading with countries which have a single purchasing agency, export sales be closely controlled by Australian authorities. One option could be a 'sole trader' exporting policy to reduce price competition between Australian exporters, particularly where the

overall quantity is specified, for example the Japanese and Republic of Korea beef import tendering arrangements.

The gains in revenue from 'sole trading' would depend on both the nature of demand in the importing country and the availability of beef for competitive exporters. For countries which import beefonly from areas free from foot-and-mouth disease, and in markets where import prices have a relatively minor effect on wholesale and retail prices, sole trading may offer realistic prospects.

Trading with the USA, our major market, presents a diferent problem. The main features of this market are:

In most years, imports are restricted, in effect, by country quotas; the quantity varies annually and sometimes within years. Prices received for imports are virtually the same as the U.S. domestic prices and these are usually above average world levels.

An export control scheme to the USA needs to include a flexible and equitable method of allocating quotas to exporting firms. Some means of disbursing the price premium is also required. This disbursement can affect both income distribution in the industry and allocation of resources to the production and processing of beef in the long term.

Entitlements have been allotted to individual exporters according to their export performance. The actual markets and base periods for quota allocation have changed over the years for a variety of economic, administrative and other reasons. In analysing this policy, the Bureau has concluded that the system has become a fairly routine administrative procedure. However, even with competition among exporters, it may not always lead to a substantial share of the U.S. price premium being passed back to producers. In earning the entitlement to a share of the U S . quota by exporting to other markets there may be a transfer of part or all of the U.S. price premium to importers andlor consumers in these other markets. It would be expected, however, that some proportion of the U.S. price premium would benefit Australian producers in the form of relatively higher saleyard prices.

There are a number of possible alternative methods of initially allocating entitlements. These include the AMLC (Australian Meat and Live-stock Corporation) selling the entitlements at a predetermined price or by auction or by tender. Such proposals are stongly opposed by exporters who have invested in and developed their operations around the current system. Also, they could have some implications for Australia's trading relationship with the U S A and could afect the structure of the beef-exporting industry in Australia.

However, exporters frequently buy and sell entitlements after they have been allocated by the AMLC. This is an economically rational method of ensuring that the firms which are best placed to export to the U S A in a given season, due, for example, to heavy supplies of cattle in a specific region, are able to acquire entitlement from firms which are less well placed.

7

Trading with the U S A

Export control scheme to the U S A

Export entitlements

Sale of entitlements

Entitlement trading

Saleyard prices

Instability to continue

Key characteristics

- supply

Entitlement trading has caused concern to some producers. However, the Bureau considers that such trade, as distinct from the initial allocation, is not detrimental to producers. Rather, revenue to producers would tend to be increased as a result of trading.

The development of this market in entitlements on an open, freely competitive basis should be encouraged. In this manner the degree to which entitlement ownership may become more or less concentrated and other issues related to the trading will become more clearly understood.

Government intervention in prices

Pattern of beef price variability The pattern of saleyard prices after the early 1950s showed a fairly consistent upward trend until 1973-74, when prices fell by nearly 70 per cent. Prices have since recovered to above the trend. Examination of movements of average saleyard prices indicates, however, that changes of more than plus or minus 14 per cent have been unusual.

It was not possible to analyse variations in the prices for individual transactions over an extended time period, due to the lack of both relevant data and a satisfactory system for uniformly describing beef cattle. These prices would certainly show much greater instability than the saleyard averages.

Prospects for instability The main underlying causes of instability in the cattle market which are likely to continue into the 1980s are changes in export prices and in access to overseas markets. With approximately 7 per cent of world beef production entering trade, the international market for beef is likely to remain unstable in the 1980s. A number of developments point to continued instability. The prospective instability of beef prices in the 1980s suggests that government intervention in the Australian beef market will remaifi a key issue. Further research would be required for an assessment to be made of the probability of the occurrence of a beef slump of the severity experienced in the mid-1 970s.

Basic characteristics of the beef industry Two basic characteristics of the beef industry-the nature of beef supply and the nature of beef marketing-imply that approaches to stabilisation fundamentally diferent from those adopted with other industries have to be considered. These characteristics imply that schemes operated through the market are likely to be less efective for the beef industry than for other industries.

Beef supply difers from the supply of many agricultural products in two main ways. First, production lags are longer because of biological factors. Second, cattle have a dual role in beef production, being either capital stock ( i fkept for purposes of breeding, rearing or fattening) or part of current output (if sold for slaughter). This dual role implies that there is

8

a strong link over time between cattle numbers and levels of slaughterings. Any increase in current slaughterings implies that fewer cattle will be available for future production and vice versa.

There are three basic characteristics of beef and its marketing which impinge heavily on the evaluation of stabilisation schemes:

- beef is a perishable product; - live cattle, carcasses and beef are products with quality attributes which

are difficult to define; and - beef marketing is highly decentralised.

Objectives of stabilisation schemes A number of goals for 'stabilisation' schemes have been expressed. These are:

- income stabilisation - assistance to low-income producers - improvements in livestock marketing - stabilisation or smoothing of prices - other objectives.

A fundamental principle of efficient policy formulation is the correct 'assignment' of particular policy measures to the achievement of appropriate objectives. In the preparation of this report, the effectiveness of stabilisation schemes in meeting each of the objectives listed above was carefully evaluated. The main conclusions are summarised below.

Income stabilisation

There are a variety of reasons for concluding that there is no satisfactory basis for determining the average effects that variations in the returns of individual commodities will have on the variability of incomes of farms in particular regions or sectors. Farms have different enterprise mixes and, even on farms producing a single commodity, price and quantity variations inevitably differ from those in the industry as a whole. Because of this, the most potentially effective approaches to the specific objective of reducing farm income fluctuations are those which operate directly on income, e.g. income equalisation deposits. Nevertheless, considerable research is required to evaluate their efectiveness in practice.

1 Income support

The effect of stabilisation on low-income producers has been evaluated by varying the prices used in projecting incomes for properties in the Australian Grazing Industry Survey. It was found that movements in prices which would be likely to occur in most years under a stabilisation plan would be unlikely to reduce substantially the number of producers earning negative incomes over the long term, although in specific years the eflect on incomes could be quite significant. Other measures, such as those provided for in the Rural Adjustment Scheme, including direct income supplements, seem more appropriate for achieving the objective.

- marketing

Goals

Policies and objectives

Direct approach more effective

Effect on low-income producers

Direct approach to marketing

The introduction of a stabilisation scheme based on payments at point of sale or point of slaughter of livestock would almost inevitably result in some changes to the livestock marketing system. However, many of the perceived shortcomings of the current system would not be affected, and it would not reduce the need for a direct approach to improving the marketing system. Any benefits to improved marketing resulting from a stabilisation scheme should therefore be regarded as 'by-product' benefits, rather than as constituting the main objective of such schemes.

Major role-price smoothing

Price stabilisa tion

It was concluded that a major role for price stabilisation would be in the smoothing of market prices to assist producers in making long-term investment decisions. As well, price stabilisation could apply in the short term for taking some of the 'dips and bumps' out of the market during a year. These eficiency and equity considerations were thought to be the most appropriate goals to pursue in the development of stabilisation arrangements.

Other objectives

Stabilisation of - cash flow

- wealth

- slaughterings, trade and infrastructure use

Major task-price stabilisation

Costs and bene$ts

Stabilisation of cash flows of producers, which are affected by changes in levels of borrowing and investment as well as income, may also be a separate and useful objective to pursue with stabilisation schemes. Price and income stability might concern producers less ifcash flow were in some way stabilised.

Stability of wealth, the current net value of an individual's or industry's resources, may also be important because of its consequences, particularly for rural finance, for movement of resources, and for welfare and distribution of wealth.

Other important objectives of stabilisation relate to regional effects and to utilisation of capacity in infrastructure. These include stability of slaughterings of livestock, volume of trade in the wholesaling and retailing sector, retail meat prices and volume and value of exports. The last, however, could probably be pursued only internationally.

Considerable empirical research remains to be undertaken on the trade-offs and general relationships between different objectives. However, the major task ahead is to develop schemes oriented towards stabilising the incentive to produce and market, i.e. 'price' stabilisation. The effects of such schemes on other objectives could then be part of the evaulation process rather than the central focus in the development of a scheme.

Evaluating sta bilisa tion schemes Possible stabilisation policies should be appraised by attempting to evaluate the costs and benefits of market intervention against the current situation of 'nun-intervention'. Putting figures to the costs and benefits of stabilisation policies is a complicated task. However, a rational policy judgment should be based, at the very least, on a good qualitative consideration of the carefully enumeratedpotential costs and benefits.

10

Overall, the benefits and costs of instability and stabilisation raise a number of issues. For a number of these benefits and costs, only qualitative evaluation can be undertaken. Items of benefits and costs most suited to quantitative evaluation appear to be:

the impact on the level and stability of prices and incomes of alternative schemes; the trade-ofl between stability and costs of stabilisation Ifinancial, administrative, hidden revenue eflects); the income transfers between different goups such as producers, domestic consumers and overseas consumers; implications of stabilisation for selling, slaughtering and transport operations.

As well, there are a number of criteria against which each policy proposal can be evaluated. These are whether the scheme proposed:

is selj-financing and involves a higher or lower level of funds; is compulsory or optional; is equitable, both within the beef industry and between that industry and others in the economy; involves a larger or smaller degree of administration and regulation; is based on an automatic mechanism or is established by negotiation; distorts, or does not unduly distort, short-term flows of product through the market; requires changes in marketing practices or can be accommodated with existing infrastructure and practices.

Alternative schemes The following major categories of policy proposals appear worthy of

further evaluation, although not all of them are seen as eficient stabilising mechanisms.

'Non-in terven tion' This can be seen as the bench-mark for comparison of other schemes and hence it is important to understand what it implies. Methods available to individuals for stabilising prices, incomes and liquidity include maintaining flexible lending from financial sources, diversi$cation of enterprises, selling livestock over a number of sales through time and hedging on the futures market.

Options made available by government to individual producers for stabilising income and liquidity directly include income equalisation deposits, drought assistance, tax averaging, the carry forward of losses for taxation purposes and provision of carry-on finance through the Rural Adjustment Scheme.

A number of these general stabilisation measures have to date been little used by producers. Further research into the eflectiveness of these schemes in practice and ways by which they could be made more acceptable to producers continue to warrant high priority. Negotiation of continued access to export markets and the provision of more accurate and readily

- quantitative

- qualitative

Major categories

Government options

Existing schemes need further research

Two types - 'point of sale'

- 'payment to producers'

Comparison of advantages

Simulation of buffer fund schemes

Results

Operating rules and price smoothing

understood information and outlook services are further 'non-intervention' options for governments.

Buffer fund schemes

Two types of buffer fund schemes have been considered: 'point of sale' and payment to producer'. Under the former scheme, payments into or out of a buffer fund would be made when cattle were sold or when they were slaughtered. While a scheme could operate using standardised live cattle descriptions, it could operate only on the basis of average market prices and, therefore, it would not overcome fluctuations associated with individual transactions taking place at prices unrepresentative of average market levels. It could possibly destabilise the returns of some producers.

The payment-to-producer' scheme would be based on producers' total cattle production including allowance for net sales and changes in herd size. Producers would not be required to market their stock in order to obtain stabilisation payments.

Both schemes are considered to ofler some advantages. Point-of-sale schemes might have some relative merit from an administrative viewpoint but could alter producers' price expectations and, thereby, adversely influence slaughtering patterns and prices received. Payment-to-producer schemes would present some practical and administrative problems but they would result in direct payments and thus reduce the incentive to market cattle in times of low prices because of liquidity pressures.

A number of buffer fund schemes were simulated by the Bureau with the aim of analysing the size of the funds required, the degree of stability that might be achieved and the effect on industry revenue of a bufler fund. Several operating mechanisms, which varied according to the method for setting the stabilisation price, the width of the stabilisation band and the size of the fund, were compared. The simulations were run over the period 1955-56 to 1979-80.

The results suggest that very substantial funds would need to have been accumulated over much of the period to have provided significant support to producers in the recent severe downturn in prices. Conversely, a substantial fund deficit of up to $800m by 1976-77 would have occurred under most operating rules if a fund had entered 1974 with a zero or small positive balance.

Under the assumed operating rules, cattle producers would have paid a considerable amount into a fund had it operated in the Jinancial year 1978-79. This amount, depending on the particular set of rules chosen, would have ranged from about $300m to $1 1 OOm.

The extent to which prices were actually smoothed would be very sensitive to the nature of the operating rules that were adopted. Any constraint on the surplus or deficit which was permitted to accumulate in the fund would also reduce the stabilising effect of the scheme. Further investigation of bufler funds would need to include an examination of the eflects of the scheme on supplies, exports and other aspects of the beef market, as well as the principal flow-on effects in regions and in the national economy.

12

Supply management

Over the longer term, it may be possible to develop supply management arrangements to bring some stability and improvement to industry revenue. These could range from providing more information to producers to establishing a rigid supply management scheme. However, more research is needed before proposals of the latter type can be evaluated efectively. Cur- rent knowledge of supply and demand relationships in the beef industry does not constitute a suficiently jirm basis for establishing operating rules for a supply management program that would not involve a significant risk of substantial losses in industry revenue.

Two specific supply management proposals have received some attention. The jirst is a proposal that Australian cattle supplies should be managed so that slaughterings would be countercyclical to the U.S. industry. The essence of the second is that the size of the herd, cattle slaughter- i n g ~ and supplies to specific markets should be controlled to maintain relatively high and stableprices.

Successful operation of a countercyclical policy would require the ability both to forecast the U.S. situation and then, on the basis of the forecasts, to intervene in the Australian market to achieve the appropriate output. Both the forecast and subsequent intervention would pose major problems.

There is not a perfect correlation between U.S. cattle production and prices. Demand factors can cause prices to be relatively high even when output is above normal. The length and severity of U.S. cycles are much less regular and predictable than frequently supposed. Given the long lags in beef production in Australia and the complex nature of producers' response to price changes, it would be most dificult for a marketing authority to set prices to ensure that a given number of cattle were slaughtered several years hence. The influence of other factors such as droughts, wool prices, and access to

1 the overseas markets could also tend to upset production plans.

A policy of restricting the herd size and supplies to markets would involve a number of undesirable economic features.

While lower supplies would, on average, result in higher prices, the additional returns would tend to be capitalised into land and stock values and therefore long-run profitability might be no higher than existing average levels. The allocation of production quotas would involve extremely dificult equity and economic issues. Administration and policing of the number of cattle owned and marketed by individual producers would be a major problem. The restrictions on the industry would cause rigidities and ineficiency in production methods and misallocation of resources on farms and between farms and regions.

A major issue posed in the analysis of all supply management options concerns the accuracy of forecasts. There is no evidence to suggest that an

Insuficient base for establishment

Two proposals

- countercyclical policy

- restricting herd size

Accuracy of forecasts important

Further analysis of emergency schemes

Other schemes - market

discrimination

- two-price schemes not recommended

I - industry-wide price schedules

limited scope of State schemes

administering agency would have access to more accurate forecasts than those available to market participants, including beef producers. This, then, raises the issue of whether an agency is in a better position to guide individual decisions on production than the individuals themselves. Our judgment is that producers are in the best position to take those decisions, providing costs of market information do not prohibit widespread dissemination of market forecasts.

Emergency schemes

A general set of stabilisation schemes which warrant further research are those set up to handle emergency situations only, such as major market collapses as occurred in 1974 or as would occur ifthere were an outbreak of foot-and-mouth disease in Australia. These, in efect, would be bufer fund or price insurance schemes which operate with relatively wide tolerances, so that they operate only in years of major price movements. Further analysis should be undertaken to evaluate the efectiveness of a scheme of this type. Assessing such arrangements would also involve an assessment of the prospects of market collapses similar to that of the 1970s occurring in the future.

Because of diferences in demand relationships among export markets and between the domestic and export markets, there are possibilities for improving and stabilising producers' revenue by discriminating between markets.

Most proposals for market discrimination in relation to price stabilisation have been based on schemes which would raise domestic prices relative to export prices for meat. However, higher domestic prices would tend to increase the proportion of production sold on unstable export markets, which runs counter to the aim of price stabilisation. Analysis suggests that an increase in the domestic price of beef would cause total revenue to the industry to increase when export demand is more price elastic than domestic demand. However, if a range of elasticities is used, the potential benefits of such schemes appear to be relatively small and the risks of small losses in revenue significant. Any revenue gains would be at the expense of domestic consumers through higher prices. Overseas importers would gain from the lower prices resulting from greater export supplies. Such schemes are not, therefore, recommended.

Minimum price schedules for livestock have been used in Western Australia. In 1974 the Western Australian Government established a two-tier beef price scheme for export and domestic markets. However, this was suspended in 1976. The Western Australian Lamb Marketing Board has continued since 1972 to buy lambs according to a schedule of prices.

Generally, it would be very dificult for a State authority to maintain a supply-demand situation which did not reject the national market. This would be particularly so in the eastern mainland States. Livestock and meat are easily moved interstate and carcasses originally destined for export can be diverted onto the domestic market.

The pricing arrangements for livestock in New Zealand have been mooted as an example for Australia. However, the New Zealand livestock industries are relatively compact and homogeneous and are characterised by a fairly high degree of administrative involvement and control. Implementation of the New Zealand scheme in Australia would involve signiJicant changes to the Australian industry. The Bureau's judgment is that the necessary additional costs and controls would be unlikely to be oflset by greater longer term stability or higher returns to producers.

Meat inspection The PJT report pointed to apparent ineficiencies created by the dual inspection systems operated by State and Federal authorities. The report of a Committee of Inquiry (chaired by the Hon. C. R. Kelly) established by the Commonwealth Government in 1979 recommended that a single meat inspection authority be established (Commonwealth of Australia 1980). The Bureau has not evaluated theJindings of the Kelly Report.

Meat promotion From 1972-73 to 1977-78 the AMLC (and its predecessor, the Australian Meat Board) spent on average about $800 000 a year on promotion. Of this, an average of about $200 000 a year was spent on the domestic market. However, expenditure on domestic promotion expanded substantially in 1978-79 and 1979-80, and reached $1.1 m in each year.

The distribution of the returns from promotion within the industry is a complex issue. Some of the increased demand will be passed back to producers in the form of higher cattle prices while the suppliers of marketing services such as abattoirs, wholesalers and retailers may also beneJit.

Promotion on export markets has a role in generating increased demand and a preference for Australian meat. It also is important in creating a favourable relationship with the meat trade and government and private industry organisations controlling meat imports and distribution in overseas markets. Clearly, some markets and marketing systems are likely to provide greater returns than others from promotional activity.

Promotion on the domestic market can be aimed at maintaining or increasing consumer expenditure on meat. This may be achieved, for example, by encouraging innovation in meat marketing, by assisting food retailers in the handling and display of meat and by advertisements aimed at consumers.

The revenue-generating eflect of promotion depends on the nature of the supply and demand for meat on the domestic market. IJ for example, additional supplies of meat are readily available by diverting a small proportion of exports to the domestic market, then the price of meat may not be aflected by a shift in domestic consumer demand due to promotion. Additional sales, and therefore greater revenue, would be generated on the domestic market but export revenue may decline. It is doubtful, on balance, whether the Australian meat industry would be well advised to allocate

N.Z. pricing arrangements

Ineficiencies in current system

Distribution of returns

Export promotion

Domestic promotion

Revenue-generating eflects of promotion

State-owned abattoir charges

Main avenues for improvement via direct selling

- market reporting

- product description

- livestock agents' charges

- direct selling

large sums to direct consumer advertising on the domestic market except at times when prices are falling rapidly and advertising may be used to quicken consumer response.

The effect of direct meat advertising on consumer tastes and consumption is extremely dificult to evaluate.

Meat marketing authorities

It was not possible to undertake a detailed examination of State meat marketing authorities within the context of the BAE study. Clearly, State authorities have major responsibilities with respect to such matters affecting the meat industry as health regulations, public transport, publicly owned saleyards, abattoirs and meat wholesaling facilities.

The PJT Inquiry (PJT 1978) found that charges in some major State-owned abattoirs were among the highest in the industry and suggested a number of reasons for this. In the course of the BAE study it became clear that State regulations, particularly those relating to trading, have significant implications for the efficiency of meat marketing.

Conclusions

Livestock selling

The main avenues for improving livestock selling are those which enhance the operation of lower cost direct selling methods. In the longer term, sight-unseen trading offers substantial potential benefits. However, saleyard auctions are a major feature of existing livestock selling and are likely to remain so, particularly for store cattle and sheep.

Market reporting would be improved if there were further development of standardised livestock market price reports now available in some States. As well as ensuring that existing market reports of over-the-hooks sales were on a comparable basis with standardised livestock reports, improved reporting would facilitate competition among buyers and the use of lower cost direct selling methods.

Product description could be improved for livestock and meat trading. However, the relevance of carcass classification for trading on the domestic and export markets will be firmly established only by continued experimen- tation and commercial experience. There does not seem to be a case for compulsory classification at this stage of development.

Effective carcass classification would have implications for many stages of marketing, although many o f these may be unquantijiable. The adequacy of existing export grades needs to be reviewed in the light of the developments in carcass description and standardised livestock market reporting.

Changes in the structure of livestock agents' charges would improve livestock marketing. For instance, selling fees could be more closely related to the specific services provided.

Direct selling of livestock has advantages over saleyard auction. Devel- opment of standardised and equitable conditions for direct selling is needed to encourage its greater use.

16

Liveweight selling of cattle, while popular in some areas, is not clearly of net benefit. Development of a standardised set of liveweight sellingpro- cedures would assist buyers and sellers.

Rationalisation of saleyards is occurring in many areas. There is little evidence in favour of slowing down this process by subsidising small saleyards.

Interlotting to build larger lots of cattle at saleyard auctions may improve returns from small lots. Further examination of the economics oj interlotting to assess its potential is warranted.

Development of improved livestock selling will involve considerable learning as new methods are tried out. In this process, livestock agents could continue to play a major role. There also appears to be considerable scope for improving cattle producers' knowledge of the cattle futures market.

Livestock slaughtering

The livestock slaughtering sector, while generally competitive, could be improved if factors influencing costs could be controlled more efectively. There is scope for the investigation of factors likely to aflect future slaughtering costs. This would involve labour issues as well as abattoir charging policy and other aspects of management and regulation under various forms of abattoir ownership.

Wholesaling

Streamlining of wholesale operations may be realised through the development of 'box-beef systems. The rate of this development will depend on various market forces and the availability of an accepted method of carcass description. Industry-based research would be required to establish whether objective carcass classification under development could provide such a method.

Retailing

The scope for development of future policy initiatives in retailing appears to be confined to maintaining a competitive environment rather than intervention to control prices or margins.

Shipping

A number of existing arrangements influence the costs of shipping faced by the meat industry. Factors aflecting shipping methods, pricing practices and freight equalisation arrangements warrant further analysis.

Exporting

Policies adopted by Australia in response to major variations in its access to export markets have been twofold. A continuation of attempts to both negotiate stable access arrangements with importing countries and devise appropriate control schemes for exports to restricted markets is necessary.

Export control schemes would be more clearly understood and implications of alternative policies more readily seen with more open trading in entitlements to export markets.

17

- liveweight selling

- rationalisation of saleyards

- interlotting

Control of costs

'Box-beef ' systems

Maintaining a competitive environment

Methods, pricing and equalisation

Access negotiations, and control

Three main areas of intervention

Prospects of buffer fund schemes

Substantial funds involved

Smoothing average cattle prices

Further evaluation required

Rationalisation of present system

Promotion on some export markets

Further analysis of export control schemes, particularly their economic effects, is warranted.

Government intervention in beef cattle prices There are three main areas for the development of stabilisation policies for the beef industry. Variation in cattle prices can be influenced by export marketing and trading arrangements, by the adoption of market intervention schemes and by changes in the conduct of the cattle marketing system.

The main policy instruments considered to date by the BAE study on beefprice stabilisation relate to intervention schemes. After various types of schemes were considered, it was concluded that, given the current state of knowledge concerning supply and demand relationships in.the beef market, buffer fund schemes offered better prima facie prospects for smoothing cattle prices than the alternatives of supply management, two-price schemes or a single price schedule.

The provision of significant market support during a severe downturn in prices such as occurred in 1974 would require the accumulation of very substantial funds during years of buoyant prices. The revenue effects of the scheme depend very much upon the nature of demand for beef through time. The complexities of the beef market suggest that substantial administrative costs, whilst not quantified, could be involved.

None of the schemes studied could be relied upon to achieve complete stabilisation of the beef market. It would be possible to smooth average cattle prices around basic market trends using a buffer fund scheme. However, the scheme could not guarantee that all prices received on individual transactions would be stabili'sed.

Further research to evaluate stabilisation schemes should include consideration of carefully enumerated potential costs and benefits. Proposed schemes worthy of further consideration-although not all are seen as e'cient stabilising mechanisms-are buffer funds, supply management and emergency schemes. These should be evaluated against the bench-mark of non-intervention, taking into account future prospects for instability.

Meat inspection The BAE argues that some rationalisation of meat inspection is appropriate. However, the findings of the Kelly Report have not been evaluated in this report.

Promotion

The effect of direct meat advertising on consumer tastes and consumption is extremely d i ' cu l t to evaluate. However, application of economic principles leads to the conclusion that, despite possibilities for meat promotion on the domestic market, some of our export markets are more likely to offer returns to promotion.

Promotion campaigns should be clearly aimed at a specific purpose and evaluated professionally.

Meat marketing authorities The limited market power available to an authority to influence meat prices, the perishability of meat and the decentralised nature of its production suggest that, in most instances, competitive, open pricing is the most appropriate approach for the meat industry. Existing regulations appear to have significant implications for the eficiency of meat marketing. It seems likely that removal of impediments to the operation of an essentially free market process will be more successful in achieving objectives than increased institutional involvement.

Less, rather than more regulation

Introduction

Australia's meat industries form a major part of the rural economy. In the five years ended June 1979, the average annual gross value of farm production was $6768m, of which the gross value of livestock slaughterings, at $1866m, averaged around 28 per cent of all farm production.

Slaughterings of all livestock in the same period yielded some 2870 kt (carcass weight) a year. Of this, beef and veal accounted for 66 per cent, mutton 10 per cent, lamb 9 per cent, poultry 8 per cent and pig meat 7 per cent.

The value of meat and livestock exports averaged $953m a year in the five-year period-almost 20 per cent of total rural exports. Exports of beef and veal accounted for 15 per cent of the total value, followed by mutton at 2 per cent, live sheep at around 1 per cent and lamb at somewhat below 1 per cent.

The inherent characteristics of livestock and meat production and consumption have resulted in a complex set of marketing functions. For example, both output and markets are widely dispersed and subject to considerable variability. There is a long production cycle but output can be influenced by short-term changes in prices and seasonal conditions. Livestock and meat are heterogeneous and difficult to store compared to, say, wheat and wool. Many aspects of meat quality and consumer preference depend on qualitative judgment.

The m'arketing system links consumption and production with a series of physical and exchange functions (Figure I).' These functions may involve a large number of firms which process, grade, pack, handle, transport and store products. In so doing, value is added in a variety of ways to the basic commodities produced on farms. Major activities resulting in changes in value are slaughtering and processing of carcasses, shipping and meat chilling, freezing and storing.

This report is concerned principally with beef, mutton, lamb and pig meat. The production and marketing of poultry is different from that of the other meats in many respects and it was considered that it would be

' For details of marketing channels in one major Australian locality, see Smith, Parsons and Cowell (1977).

Size of meat industry - value

- volume

- exports

- consumption

Marketing system provides linkages

Scope of report

inappropriate to attempt to analyse the poultry industry within the same framework as the others.

Figure 1: Marketing system diagram

1 Economic

-Supply and demand for products and inputs M a c r o policy S t ruc tu ra l change -Technological change

I Institutional

-Government intervention -Regulation and industry co-ordination -Research and development -Information dissemination

I Community attitudes

I -Human health

(optional processing element)

I Table 1 : Australian producers' share of the consumer dollar

Domestic (a) Export Beef

Year Beef Lamb Pork USA ( b ) Japan (c)

% % % % % 1976 38.8 42.2 64.7 30.0 5.4 1977 40.9 44.0 59.2 37.5 6.l(d) 1978 49.8(e) 46.0(e) 57.2(e) 3 6 . 4 0 5.7(g)

(a) Derived from New South Wales Department of Agriculture data. (b) Estimated by BAE from USDA data on retail meat prices for ground beef. (c ) Estimated by BAE from AMLC data for retail prices of medium-quality beef. (d) Average January-June 1977. (e) Average January-October 1978. V) Average January-July 1978. (g) Average January-May 1978.

The livestock producers' share of final consumer expenditure varies substantially between domestic and export markets. This is accounted for largely by the cost of freight to export markets, by differences in final retail prices in both domestic and export markets and by differences in the type of meat sold at the retail level (Table 1). The margins between producers' return and final retail price may also change over time as a result of increases in major cost components or because of marked changes occurring in the type of services embodied in the final product.

It is difficult to obtain accurate measures of the relative shares of the on-farm and off-farm sectors but it is estimated that, in recent years, the producer received around 40-60 per cent of the Australian consumer dollar. Data on changes over time in the share of the consumer dollar passing to livestock producers do not necessarily show that the producers are necessarily better or worse off. Improvements in the economic welfare of livestock producers depend on the level of both input and product prices as well as the productivity of the resources used.

The livestock marketing system is continuously adjusting to changing market circumstances. Changes occur constantly in consumers' needs and tastes in both export and domestic markets. Technological changes in meat processing functions have enabled productivity and cost-saving adjustments to be incorporated into marketing activities.

In such a complex nationwide marketing system, requirements of the public are reflected not only by price but also through governmental health and quarantine regulations. Strict hygiene controls exist on the slaughtering of livestock and the processing and handling of meat intended for human consumption.

The structure of the marketing environment and patterns of consumption and production influence the way in which marketing activities are performed. Livestock and meat may be transformed in a number of alternative ways, e.g. cattle may be bought privately by firms to process and sell at retail, or livestock may be killed 'on account' in a publicly owned abattoir and sold in bulk for export. Within each of these, different transport and storage methods may be used to varying degrees along the distribution channels. Moreover, price formation at various levels of the market and the transmission of market signals are achieved through many different means. Open market prices can be circumvented by a system of administered prices or they can be accompanied by government regulation.

Scope of the report

An efficient marketing system is one that meets the demands of consumers while operating to achieve a long-run least-cost situation, irrespective of the form of organisation involved. To achieve this, producers and other market participants need to keep abreast of technical developments and innovations and be adaptable to changes in their segments of the marketing system. At the same time, the marketing system must be able to accurately and rapidly transmit market signals between participants. These two aspects of

Share of consumer expenditure

Producers' welfare and share of consumer dollar

Marketing system constantly evolving

Strict hygiene controls

Diversity of marketing system

Marketing efficiency

Competitive market

Marketing system not perfect

Justification for intervention

Effective policy instruments required

Focus on marketing chain

Public inquiries

marketing efficiency, meeting consumer demand while minimising cost (operational efficiency) and effective transmission of signals (pricing efficiency), are basic prerequisites for an efficient functioning of the marketing system.

The overall system of livestock and meat marketing is essentially competitive, with less direct institutional involvement than most other major rural industries. In the main, individual objectives determine the actions of participants and influence their attitudes and reactions to changes in the marketing system.

In a system as diverse as the Australian livestock and meat marketing system, it is unlikely that major changes will simultaneously benefit all participants. The possibility also exists that, due to market imperfections, changes may not occur, or may occur only slowly, if left solely to the market. Conse- quently, intervention is often advocated to achieve or speed up change.

Intervention may be justified if it can be established that there exists a market imperfection which results in an inefficient working of the market. This could result from an imperfect market structure that distorts prices to consumers and producers.

Intervention could also be justified if there exist externalities, potential gains from learning through research, promotion or scale economies. For example, government intervention in research or regulations to set uniform meat description standards are justifiable if the national benefits outweigh the costs. In such cases, the need for intervention is because individuals or private firms are highly unlikely to have sufficient incentive to undertake such activities on their own.

Even where adequate economic reasons exist for government intervention, a further criterion needs to be met before a particular policy instrument is supportable on economic grounds: that is, that an appropriate policy instrument can be found which will enable the benefits to the community to be realised to exceed any costs imposed by additional administration and regulation of the industry.

The segments shown in Figure 1 concentrate on marketing as it relates to the major product divisions along the marketing chain. In this report, available data and research results have been used to assist in the close examination of these segments.

A number of public inquiries have been held into various aspects of the livestock and meat industry, e.g. Parliament of New South Wales (1972); Cozens (1973); Parliament of Tasmania (1974); Government of Western Australia (1976). More recently, the Prices Justification Tribunal (PJT 1978) reported on its inquiry into meat marketing and processing charges. The scope of that inquiry, while differing from this report, involves considerable overlap and, where possible, the PJT's findings have been considered in this report.

Description of the marketing system

The aim in this chapter is to present an overview of the meat and livestock marketing system. The major demand and supply forces that influence the market are reviewed and the major components of the present marketing system, namely livestock, slaughtering, wholesale, export and retail, are described.

Supply and demand conditions

Saleyard prices for beef cattle are determined by aggregate demand and supply forces. Although the markets for beef can be identified broadly as either export or domestic, these markets are not clearly differentiated at the saleyard level. Several BAE studies and other investigations have established three major sources of influence on saleyard prices; these are changes in the supply of beef, export demand and domestic demand (Papadopoulos 1973; Hinchy 1978; Longmire and Main 1978).

Shifts in domestic demand for beef may occur in response to changes in the prices of substitute meats such as mutton or lamb or to changes in consumer tastes. Shifts in export demand, particularly the U.S. demand for manufacturing beef, have a significant impact on livestock saleyard prices. The influence of export demand (other than that of the USA) on saleyard prices increases when a greater share of exports goes to these markets. Domestic demand itself has been shown to be price elastic (Main, Reynolds and White 1976), indicating that any increase in beef price has the effect of reducing beef consumption by a more than proportional amount. In contrast, export demand is regulated through quantitive controls in the higher priced markets. In the non-restricted markets, export demand is price responsive, partly due to competition from other exporting countries.

Saleyard prices for lamb typically display a marked seasonal pattern, largely reflecting supply variations. Since 1960, the export market has accounted for an average of 11 per cent of production. Lamb exports fell sharply in the mid-1970s. However, the development of the Middle East market has led to a recovery in recent years to about 45 kt-between 15 per cent and 20 per cent of total production. Export demand for mutton is an

25

Aim

Saleyard prices for beef

Domestic and export demand for beef

Saleyard prices for lamb

Saleyard beef price variations

increasingly important determinant of saleyard prices. The rapid growth of the live-sheep export trade since 1974, particularly to the Middle East region, has also been an important factor influencing saleyard sheep prices.

Year-to-year movement of a typical saleyard beef price is indicated in Figure 2, which shows annual prices for heavy ox beef at Cannon Hill saleyards over the period 1949-50 to 1979-80. From 1950-5 1 to 1973-74, the annual deviations in the heavy ox price stayed within plus or minus 10 per cent of a fitted trend line. However, year-to-year changes in prices averaged 1 1.5 per cent for the same period and 18 per cent from 1949-50 to 1979-80. Although year-to-year price variations, on average, have not

Figure 2: Brisbane (Cannon Hill) heavy ox average annual prices: estimated carcass weight

exhibited marked changes, dramatic movements in prices of 52 per cent, 61 per cent and 109 per cent were experienced in 1951-52, 1974-75 and 1978-79, respectively.

Bain and Hearn (1972) found that, for the sixteen years to 1970-71, saleyard prices for lamb at Newmarket (Victoria) displayed substantial seasonal variation. Saleyard prices at Newmarket reach their peak in April to August, the 'off production season, and decline to a seasonal low in October-December.

Figure 3 gives an indication of the degree of variability in lamb prices which producers faced over the period 1961-62 to 1978-79. Since 1972, prices have been more variable, reflecting the influence not only of variations in supply but also in demand, particularly changes in export demand for both mutton and live sheep.

Saleyard prices for pigs are influenced by both supply and domestic demand. The latter accounts for the bulk of pig-meat production while exports account for less than 2 per cent. Prices, however, along with feed costs, which comprise the bulk of production costs, also influence the future supply of pig meat through their influence on the size of breeding herds and, hence, the number of pigs. Bacon and ham comprise the greater proportion of pig-meat production and have averaged about 70 per cent of production in recent years. Pork production has recently increased and it now accounts for about 38 per cent of pig-meat production. This increase has been associated with a fall in saleyard and retail prices for pork which has stimulated demand for pork. Prices which producers receive may also be influenced by the method of selling, i.e. through a live auction system (saleyards) or over-the-hooks.

Saleyard lamb price variation

Saleyard prices for pigs

Figure 3: Melbourne (Newmarket) monthly lamb prices

I Existing selling methods: pricing aspects Livestock saleyard

Saleyard auction system

A central institutional feature in price formation is the livestock saleyard. Livestock saleyards are important in the price formation process because they provide the physical location for buyers and sellers to determine prices in a competitive auction framework.

The percentage distribution of cattle sold for slaughter in 1977-78, by selling method, is shown in Table 2. The dominance of the use of saleyard auction for the sale of slaughter cattle is clearly evident.

The saleyard auction system provides a relatively competitive environment for price formation in the sense of being employed by a large number of buyers and sellers. Results of a BAE survey of cattle producers indicate that they considered saleyard auctions to have a higher degree of buyer competition than direct selling methods. In this paper, direct selling methods are defined as those which involve direct buyer-seller negotiation outside the auction system, i.e. paddock selling and over-the-hooks selling on the basis of weight, weight and grade, and carcass classification.

Table 2: Distribution of cattle sold for slaughter: by selling method, 1977-78(a)

Method N.S.W. Vic. Qld S.A. W.A. Tas. N.T. Aust.

Saleyard auction Liveweight auction Over-the-hooks Paddock sale Other

Total 100 100 100 100 100 100 100 100

(a) Averages from the BAE Australian Agricultural and Grazing industries Survey, 1977-78.

While auction markets are broadly similar, in that they provide the physical location for the clearance of stock, they vary considerably with respect to factors such as the number and type of buyer and seller, the number and kinds of livestock handled, type of ownership, frequency of sale, market information provided by reporting services and methods of operation.

Price variability ~ Short-term variability identified

A detailed analysis of price variability between markets over time or on a1 transaction-by-transaction basis within markets has been hampered until recently by the lack of a standardised livestock description. This has been overcome to some degree by the introduction of improved livestock market reporting services (LMRS) in a number of States. From a preliminary analysis of the LMRS price series for two common cattle types over 59 weeks at the Homebush auction markets, the average price variation between weekly markets was of the order of 20 per cent. However, no statistically significant price variation between the Tuesday and Thursday markets

within each week was found . Over a period of fifteen weeks at the Wagga Wagga cattle market a price variation of some 10 per cent was found when the LMRS price variation for two cattle types was examined on a transaction-by-transaction basis within a sale day . These figures were derived from data obtained from the New South Wales Department of Agriculture. Wagga Wagga Regional Office .

Table 3 shows cattle throughput. by saleyard size. for five States .

Table 3: Annual yardings of cattle: by size of saleyard

State Saleyard category (a)

Number of Proportion Proportion saleyards of total Throughput of total

New South Small . . . . . . . 5 5 51 686 000 15 . . . . Wales(b) Intermediate 38 36 1 866 800 42

Large . . . . . . . 14 13 1 898 000 43

Total . . . . . . . 107 100 4 450 800 100

Queensland(c) Small . . . . . . . 92 87 508 073 33 . . . . Intermediate 6 6 215 389 14

Large . . . . . . . 7 7 802 632 53

Total . . . . . . . 105 100 1 526 094 100

South Australia(d)

. . . . . . . Small 7 50 75 000 11 Intermediate . . . . 3 2 1 77 500 12 Large . . . . . . . 4 29 517 500 77

Total . . . . . . . 14 100 670 000 100

Victoria(e) Small . . . . . . . 14 39 114 194 5 Intermediate . . . . 15 42 669 475 28 Large . . . . . . . 7 19 1618676 67

Total . . . . . . . 36 100 2 402 345 100

Western Small . . . . . . . 19 76 101 990 16 . . . . Australia0 Intermediate 5 20 220 740 36

Large . . . . . . . 1 4 302 870 48

I Total . . . . . . . 25 100 625 600 100

(a) Size classes were set as follows: Small. less than 500 headlweek; Intermediate. 500-1500 headlweek; Large. over 1500 headlweek . (b) Estimated yardings from Knox (1979. Appendix B) . (c) Estimated yardings from Hall (1978) . (d) Estimated yardings-the Country Saleyards Committee provided yardings for the small saleyards. while other size category yardings were based on actual yardings for 1977 . (e) Actual yardings from the Victorian Department of Agriculture for the 12 months ended September 1976 . The yardings are for municipal saleyards. accounting for 85 per cent of cattle sold in Victorian saleyards . (n Estimated yardings from the Western Australian Department of Agriculture and Darowa Marketing Reports for 1977 .

Efficiency of price formation

Price differences found

Reasons for price differences

Features of direct selling methods

Futures market

Role of speculators

An appreciation of the efficiency of price formation at saleyards can be gained by examining the relationship between prices formed at different selling centres. Economic theory suggests that, if price formation is efficient, prices between different selling centres should be equal after allowance has been made for value differences because of time, form and place.

Research has been undertaken within the BAE (Hogan and Todd 1979) to examine price differences between pairs of auction centres in Victoria and New South Wales. It was found that the condition that prices should be equal after allowance for transfer costs did not hold in three of the four pairs of cattle types examined.

Factors that could account for these price differences between the centres include lot size, the degree of buyer competition and the accuracy of price reporting. BAE research results (Hogan and Todd 1979) tentatively support lot size as a factor influencing price levels between centres rather than the degree of buyer competition.

It can be argued that existing direct selling methods are less competitive than livestock auctions as, typically, they involve individual buyer-seller negotiation with prices commonly being established either in the paddock or at abattoirs. This is offset for paddock sales, however, to the extent that the producers are in a stronger bargaining position as they can more readily withhold their stock from sale. Additionally, over-the-hooks selling has the potential to reflect more accurately the value of the final product as pricing is on a carcass basis and errors incurred in pricing livestock, such as those arising from yield estimates, are removed.

A futures market for beef cattle was established at the Sydney Futuref Exchange in 1975 and a boneless beef futures contract was established ir April 1979. A futures market has the basic role of price setting througk speculative activity and hedging. Hedging is of particular relevance to thc livestock producer. In hedging on a futures market, contracts are madc between buyers and sellers for delivery of an agreed number of cattle of 2

specific type at some specified time in the future (up to one year). Ir principle, a livestock producer who does not want to carry the risk of cattle prices falling in the ensuing months and wishes to sell his cattle f o ~ approximately the same as the current price can sell cattle futures contract! to the estimated equivalent value of the cattle (current prices) and then buj back his futures contract at the later time when his cattle are finally sold. 11 cattle prices have fallen (risen) in the meantime he could make a profit (loss on his futures transaction which would be similar to the fall (rise) in value o his stock. Most transactions are completed by exchange of contracts anc relatively few cattle are actually delivered.

In a study on the Sydney cattle futures market, Richardson (1978) founc that the average daily number of contracts traded each month ranged fron three to about twenty over the period July 1975 to December 1977. Morc recently, with the rise in saleyard beef prices, there have been sharl increases in the daily number of contracts traded.

The role of speculators in a futures market is important. Speculators cal provide a balancing function and broaden markets which may otherwise bc extremely thin.

The demand for hedging in the livestock and meat industry may be most important to the potential for growth of a beef futures market in Australia. Well-patronised futures markets in the USA indicate that their success depends on participation by operators, such as storage firms or feedlotters, who are open to substantial price risk (Working 1970).

When operating effectively, a futures market allows producers to gain protection agahst unexpected price fluctuations. There appears to be considerable scope for futher improving livestock producers' understanding of the role of futures markets. The role of the futures market with respect to hedging needs to be understood, as price uncertainty is a feature of the livestock industry.

Existing selling methods: marketing costs I Movement of livestock from the farm to the abattoir may be via a number of channels and the type of selling method chosen by the producer for slaughter animals can influence the total marketing cost per kilogram of meat as well as the marketing costs for the individual producer. Direct methods of selling livestock allow producers to eliminate some of the costs associated with livestock auctions. Results from a BAE survey of cattle selling methods suggest that producers who use direct selling methods believe that such selling methods have relatively low selling costs. This assessment was also reflected in the opinions of producers using the livestock auction system. They considered that the selling costs under saleyard auction were high relative to direct selling methods. Further, results indicate that users of the

Table 4: Distribution of costs: existing selling methods: 1978

Hedging

Considerable scope for futures

Importance of marketing costs

- --

Direct selling

Livestock auction Paddock Over-the-hooks ( a ) Carcass auction

Cost per Proportion Cost per Proportion Cost per Proportion Cost per Proportion Category head oftotal head oftotal head oftotal head oftotal

$ % S % $ % $ %

Gepps Cross Producer 11.52 3 5 . . . . 4.00 16 34.00 100 Buyer 21.54 65 26.05 100 20.82 84 . . . .

Total 33.06 100 26.05 100 24.82 100 34.00 100

Country saleyard 8.32 24 . . . . 5.68 21 35.68 100

26.34 76 27.73 100 20.82 79 . . . .

Total 34.66 100 27.73 100 26.50 100 35.68 100

(a ) Over-the-hooks selling covered sales on the basis of carcass weight, weight and grade, and carcass classification. An additional classification charge of 20c per head was incurred by the buyer under carcass classification in this study.

Cost differences between selling methods

Cost variation and distribution

Substantial costs in slaughtering

Slaughtering charges

predominant selling method-saleyard auction-choose it for the sake of convenience, with off-farm marketing costs being a minor factor in their choice.

Estimates of costs from farm to the wholesale level for different cattle selling methods were made from research into livestock marketing conducted in South Australia (see Tables B.1 and B.2, Appendix B). The estimates were based on selling cattle by various methods at Adelaide and at a country selling centre in the south-east of the State. The country selling centre is not named here as the information from co-operators was obtained on a confidential basis. The following selling methods were examined: paddock selling, livestock auctions ($ per head), over-the-hooks selling (carcass classification and weight and grade) and carcass auctions.

Whilst the results of this study may be more pertinent to South Australia than to other States, they do provide an indication of the relative cost differences between selling methods.

The total cost of selling livestock through to the wholesale level, using the traditional auction system at Gepps Cross, was $33.06 per head. Cost variations with alternative selling methods range from a saving of 25 per cent, or $8.24, for over-the-hook selling, to an increase of 3 per cent, or $0.94, for carcass auctions. The distribution of the costs varied between the producer and buyer, depending on the selling method and the point in the marketing chain at which change of ownership occurred (see Table 4).

The major areas of cost difference between existing selling methods are agent's commission, saleyard costs, buyer costs and transport costs. Of these, livestock agent's commission is the major contributing factor to cost savings under direct selling (the results and discussion on the major areas of cost difference are given in Appendix B).

Livestock slaughtering The greatest change in the form of the product occurs in the livestock slaughter segment of the marketing system. Consequently, costs incurred in this segment are high. For example, in recent years, charges for slaughtering cattle have equalled some 20 per cent of the saleyard value of cattle and 25 per cent of the saleyard value of lambs.

Charges for slaughtering livestock and other charges made by abattoirs are established by the firms and government bodies operating them. The PJT (1978) found that charges differed widely and that many submissions to it had referred to this variability. The levels of charges established can be expected to reflect competition among abattoirs, the local supply of livestock, the demand for slaughtering facilities, the cost structure faced by each establishment and any support received from local or State government authorities. i

Competitive structure and organisation

In Australia, meat is produced in approximately 100 export-licensed abattoirs, which account for about 80 per cent of all meat produced. In comparison there are some 600 meat-processing establishments and some 8000 retail outlets. The ten largest abattoirs in 1977 were responsible for some 20 per cent of slaughterings.

The degree of competition among abattoirs in Australia varies with the structure of the livestock slaughter industry in different areas. In areas such as northern Australia, competition between abattoirs is limited by the large distances between them although to some extent this is offset by government subsidy payments for the transport of livestock (Vernon, Buik and Parsons 1977).

In contrast with the northern beef-producing areas, southern beef-producing districts have a market structure which lends itself to greater competition among abattoirs. There is a larger number of abattoirs in relative close proximity to each other. It has been found for the lamb industry in New South Wales, for example, that country abattoirs were fairly evenly spread throughout producing areas and had an average distance between them of 77 km (Biggs 197 1).

Costs of distribution of livestock and meat products are influenced by the location of the abattoir. Savings in transport costs may be realised by carrying meat as opposed to transporting live animals. Average transport costs for meat are lower than for live animals by several dollars a head. Wastage through bruising and weight losses also tends to be lower. A study in 1970 suggested that a better locational pattern for abattoirs in Queensland would have resulted in savings in transport costs in that State of around $ l m (Cassidy, McCarthy and Toft 1970).

However, the spatial distribution of abattoirs is also influenced by other factors such as the supply of livestock, the availability of labour, and services such as electricity and water as well as demand for by-products.

Variability in abattoir throughput and capacity use

The seasonal pattern of beef and lamb production in Australia has a number of features relevant to the economics of operation of abattoirs. A study of factors influencing costs of operating export abattoirs in Australia showed that two external factors which substantially influenced costs were the variability in throughput and the level of capacity used (Parsons and Guise 197 1 ). A marked seasonal pattern in production can lead to higher abattoir costs because full capacity cannot be maintained throughout the year. For plants with a capacity of about 60 000 cattle equivalent units a year, these external factors were more important in influencing operating costs than was absolute size of an abattoir. Seasonal supplies of livestock for slaughter, which are more pronounced in northern areas of Australia, affect the degree of variability in abattoir utilisation. Use of abattoir capacity is also influenced by irregular or less predictable factors such as drought.

The seasonal pattern of demand for slaughtering services can be gauged from estimates of variability in the levels of capacity use in abattoirs. Table 5

33

Industry structure

Competition varies by locality

Transport costs

Factors influencing slaughter costs

Use of slaughter capacity

Labour intensity

Conditions of employment

Tally system

shows estimates of the average use of capacity and its variability for a range of abattoir types. For the three-year data period, substantially different rates were obtained, especially between publicly owned metropolitan service works.

1 Table 5: Estimated use of capacity for selected abattoirs according to location and ownership(a): 1975-77

Average CoefJicient Location Type of abattoir Abattoir use of variation

% % Metropolitan service-public I . . . . . . 50.8 35.7

2 . . . . . . 74.1 19.3 3 . . . . . . 83.1 13.9

Metropolitan service-private I . . . . . . 69.9 20.0 2 . . . . . . 71.8 28.8 3 . . . . . . 77.4 17.1

Country service-co-operative 1 . . . . . . 72.4 20.2 2 . . . . . . 80.9 14.3 3 . . . . . . 74.1 26.6

Country non-service-private 1 . . . . . . 70.4 27.7 2 . . . . . . 84.1 21.3 3 . . . . . . 74.9 23.3

( a ) Cattle chainsonly. Source: Derived from Department of Primary Industry data of slaughter returns.

Abattoir productivity and labour use

Livestock slaughter operations are relatively labour-intensive activities. Published reports from service abattoirs in Australia show that labour costs account for approximately two-thirds of total costs. In view of the importance of labour costs in this segment of the industry and the variable demand for abattoir services, the economics of labour resources have important implications for operating costs. The rates of pay, conditions of employment, the staff structure of abattoirs and opportunities for adjusting staff to changing throughput all affect costs of operation.

The Australian livestock slaughter industry is characterised by State and Federal industrial awards covering, amongst other conditions, rates of pay for slaughtermen, classification of employment and job duties and their related matters. A common feature of each of the awards is the provision for payments to labour to be based upon a piecework system of payment or tally. The level of the tally is determined by negotiation in the industrial courts and entered into the relevant awards. Tallies may vary according to such factors as the type of stock to be processed, the level of technology such as mechanical aids on a particular slaughter chain and the capacity of ancillary abattoir services such as boning-out rooms, chiller space and other processing activities. Tallies may also be altered by agreement between management and unions to suit conditions in particular abattoirs.

It has been claimed by industry sources (ANCC 1978) that the system of payment for abattoir labour has hindered the introduction of new techniques that substitute capital for labour. It is argued that additional economic surplus achieved from new techniques is likely, under the tally system, to be distributed mainly to labour in the form of shorter work periods. This is because the tally system has tended to improve labour output per unit of time worked, following the introduction of labour-saving investments. There is less incentive for management to improve productivity of all resources used.

The Prices Justification Tribunal recommended that 'the Government should institute a specific inquiry to review the tally system and its dampening effect on productivity gains' (PJT 1978, p. 1 12). In August 1979, the Commonwealth Government announced that a Working Party of Commonwealth officials had been established to explore all issues relating to improved efficiency and productivity in the abattoir sector.

Domestic wholesale and retail Distinction of wholesale segment It is frequently not possible to clearly delineate domestic wholesaling functions from those of export wholesaling. Domestic wholesaling operations are frequently undertaken by many firms engaged also in exporting and operating through the same abattoir. On the other hand, many vertically integrated operations combine livestock slaughter and wholesaling functions. Some firms may also include retailing in their overall operations so that a proportion of all meat wholesaled and processed is also sold at retail by the one firm.

The exact number of meat wholesalers in Australia is not available. Re- cent estimates for New South Wales and Victoria suggest as many as 550 wholesalers operate in these States (Potter et al. 1978). Profits of wholesalers and the keen competition among them are detailed by the PJT (1978).

The key feature of domestic wholesaling is that the distribution of meat to retail outlets is mainly in the form of chilled quarters of beef and whole carcasses of lamb and pork. This method of distribution is in contrast to the boxed-meat methods of distribution for the beef export market, which are also used in domestic distribution in the USA. Carcass and quarter meat requires a considerable labour to handle it through meat markets and road transport to retail stores. The labour intensity of meat marketing services was also noted by the PJT (1978).

Economic structure of domestic retailing The retail segment of the meat industry in Australia is a dynamic one involving a large but declining number of firms. Competition is evident in the provision of services and in prices but variation in the degree of competitiveness may exist. The degree of competition may vary between retail shopping localities and in the extent of integration of firm operations.

In Australia, meat sold at retail is predominantly in the form of chilled meat cuts by specialist retail butcher shops. In 1973-74, according to the Australian Bureau of Statistics, over 11 800 outlets sold meat and, of these,

Substitution of capital for labour

Review of tally system

Multi-purpose firms common

Wholesaler distribution of meat

Retailing evolving and competitive

Predominance of retail butcher shops

Changes in type and number of outlets

Costs and margins

Savings in meat purchasing

Variety of services to customers

3460 (7 1.4 per cent) were specialist butcher shops, which accounted for 84.6 per cent of total meat sales. These figures may be compared with those in 1968-69, when a total of 13 946 outlets sold meat in Australia. Of these, 3821 (70.42 per cent) were butcher shops, which accounted for 89.03 per sent of total meat sales that year. More recent data from a BAE study by Smith, Parsons and Cowell (1977) showed that, in 1975, specialist butchers zontinued to dominate retail sales in Sydney. Non-chain outlets represented 62 per cent of the 1829 outlets surveyed and accounted for 45 per cent of total meat sales, while chain outlets represented 30 per cent of those surveyed and sold 40 per cent of meat. Supermarket meat departments sold only 15 per cent of total meat sales from 8 per cent of the total outlets.

Further, the survey results showed the recent emergence of plazas, malls and arcades, particularly in high-density retailing locations. It was found that stores in these locations had higher levels of resources per outlet than single establishment firms. Given the cost, size and marketing advantages of the larger retail firms and supermarket stores, as shown by the results of the Sydney study, it is likely that the trend toward a greater concentration of sales through a fewer number of outlets will continue. This is consistent with changes in meat retailing occurring overseas.

Retail distribution and costs

The level of costs and margins in meat retailing has been examined in some detail by the PJT (1978). In its report, the PJT noted that labour costs continued to account for a high proportion of total retailing costs. Scope for reducing retailing costs is, thus, likely to be related to the labour intensity of meat retailing. The industry appears to be adjusting to lower cost methods of retailing through the use of improved equipment and more efficient use of labour in retail outlets (Smith, Parsons and Cowell 1977), and through alternative meat purchasing methods by retailers.

For example, it was estimated, on the basis of 1975 labour costs, that savings of 0.8c/kg could be made if telephone buying by retailers from wholesalers were used. From the Bureau's study of retail meat marketing in Sydney it was found that 41 per cent of meat bought by retailers was ordered by telephone and 55 per cent after personal inspection. The average purchasing time spent by retailers was 1.7 hours and 5.1 hours a week, respectively, for these two buying methods.

The present array of retail meat outlets from small suburban shops through to large chain shops in shopping malls and supermarket meat departments provides a wide variety of services to consumers. These are complemented by the availability of 'bulk meat' from outlets specialising in cutting and packing whole or major portions (e.g. hindquarters) of carcasses for consumers to store in home freezers. As a result of this diversity, consumers can choose the range of services, and hence retailing costs, suited to their individual requirements. In addition, some opportunities exist for livestock producers to market meat direct to consumers. Consequently, it appears that little benefit to consumers or livestock producers would arise from attempts to regulate retailing costs through margin controls.

It has been suggested (PJT 1978) that opportunities could exist for reducing retailers' costs by adjusting employment throughout the week to match the pattern of sales. The advantage of this would be in butchers' services and costs being better matched with consumers' demand for meat and, hence, sales, which are concentrated around Friday and Saturday morning.

Retail pricing and consumers

The pricing practices of retailers and the stability and level of retail prices has been the subject of considerable investigation (Parish 1967; Woodward 1968; Naughtin 1977). Previous inquiries into the retail meat industry and a number of empirical investigations (for example, Parliament of New South Wales 1972; Cozens 1973; Griffith 1974; PJT 1978) have suggested that retailers influence prices through levelling and averaging. Price levelling at retail refers to prices being held stable while wholesale prices rise or fall. Price averaging refers to setting low margins on one meat type and compensating for any losses by setting higher margins on other meat types.

Retailers' pricing practices, of necessity, take into account factors other than the amount paid by the retailers for meat. The task of changing prices, itself, is likely to involve costs. Recently, Naughtin and Quilkey (1979) stressed the importance of the economic behaviour of retail butchers on marketing margins. They argued that butchers will adopt a pricing policy which takes account of shoppers' habits and behaviour as well as other factors influencing the total profit of the retail store. Hence, margins for any one meat may not change in a way which maximises pricing efficiency.

However, the extent to which pricing efficiency is affected was not established by Naughtin and Quilkey. To the extent that wholesalers and livestock producers are aware of the effects of retailers' pricing practices and adjust their price expectations, resource misallocation through pricing inefficiency may be slight. It may be possible, however, that, in the short run, the practices of levelling and averaging do interfere with the pricing mechanism of some of the resources used.

Consumers may favour a regime of more stable prices. It seems that some degree of inflexibility in retail meat margins is unavoidable. This may have some detrimental effects, but direct intervention, even if feasible, might do little to offset them. Retail pricing practices which offer price discounts for off-peak shopping periods as noted by Smith, Parsons and Cowell (1977) may provide a further avenue to lower retailing costs.

Studies have been undertaken by the BAE (1967, 1970) and the Australian Meat and Live-stock Corporation (AMLC) (Spectrum Research 1978) into meat consumption patterns. The studies were designed to determine the importance of factors influencing consumption of different types of meat. The AMLC study found that the average household weekly expenditure on meat was just over $10.

Total meat consumption per person in Australia has been found to vary little in response to changes in incomes compared with consumption in some

3 7

Price levelling and averaging

Pricing involves several factors

Pricing efficiency

Meat consumption studies

Meat consumption patterns

Changes in prices and consumption

Non-standardised meat quality descriptions

Criticism of export grades

Meat exporting

newer export markets, e.g. J a ~ a n . ~ A consequence of this is that there is little scope, say by way of promotion, in Australia to speed up changes in total per person meat consumption as incomes increase.

In Australia, meat consumption in total is also relatively unresponsive to price changes. The retail price elasticity of demand is estimated to be around -0.3. However, marked changes in the consumption of individual types of meat occur in response to price changes. Estimates of the price elasticities of demand for meats at retail made by Reynolds (1978) were, for all meat, -0.3; beef and veal, -1.3; mutton, -1.4; lamb, -1.5; pork, -1.4; poultry, -0.9. The relatively high consumption response to change in prices for individual meats has important implications for the relative share of individual meats consumed. In addition, due to the substitutability of meats in consumption, the changes in prices for meats usually tend to be related.

Quality description on domestic and export markets

Meat quality descriptions used in Australian retail meat stores are not standardised. Lamb carcasses are branded as such in several States. However, the criteria used for deciding what lamb is vary among the States. Only in Queensland are beef grades branded on carcasses so that brands are still visible on retail meat cuts. Quality of meat appears to be identified more with store image and customers' experience in meat purchasing than with the information provided on packages or display cards (Spence 1973). The development of a consumer-oriented description scheme for meats could reduce the consumers' subjectively determined 'image' factors of meat quality by standardising the quality descriptions and separating them from consumers' images of retail outlets.

Control of export quality is regulated under the Export (Meat) Regulations in which export grades are specified and procedures for their implementation defined. Export marks, Australian brands and logos are also used on Australian meat exports.

The export grades, standard of meat preparation, packaging of cuts and availability of export control arrangements have been criticised by importers from time to time, e.g. Andrews (1972); BAE (1975); Roberts (1974); Walker (1974). Such criticisms arise mainly because the export grades currently in use were designed for a carcass meat trade oriented to the U.K. market and are not necessarily appropriate for current export market requirements.

Cases have been cited where importers' values are in the reverse order to lamb grades (Berner 1977).

Export

The export segment is closely linked to the livestock slaughter segment through the processing of chilled carcasses into frozen boxed meat for a number of major markets. Much of the beef exported to the USA is boned

BAE estimates of the income elasticity of demand for all meat in Australia is 0.3 and for beef and veal 0.4. For Japan the income elasticity has been estimated to be just about 1.1 (BAE 1975).

and sliced, packed, frozen and transported. As with the slaughtering of livestock, boning-out and slicing of meat are labour-intensive processes. These account for approximately 15 per cent of the costs of transforming livestock to meat landed in the USA. Freight costs are also a major cost component and represent about 37 per cent of these export marketing costs (Table 6).

Table 6: Components of export marketing costs: boneless beef ex New South Wales to USA (c.i.f.)

Item 1973 1974 1975 1976 1977 1978

% % 76 % % % To kill, dress and deliver to

chiller(a) 30.6 33.1 35.7 39.5 34.8 37.1 To bone, slice and pack 15.6 16.5 14.4 13.3) 20.2 114.8 Packing materials 5.0 4.3 3.3 4.3 3.2 Freezing and storage 6.6 5.9 4.6 4.3 4.6 4.5 Freight from plant to

wharf 4.6 4.3 3.9 3.9 3.5 3.3 Freight to East Coast,

USA 37.6 35.9 38.1 34.7 36.9 37.1

Total 100 100 100 100 100 100

(a ) Based on published slaughter charges for Homebush; average export slaughter charges are likely to be lower.

Source: BAE estimates derived from AMLC data.

Distinction of the export segment The distinction between operations which service export as opposed to domestic markets in the livestock and meat industry is not always clearly discernible. In some parts of Australia, meat products are produced predominantly for export markets. In other areas, livestock may be produced and slaughtered for both markets.

The functions performed, costs incurred and the risks borne by wholesalers and processors in this segment vary greatly between markets and as market conditions change. Preparation of frozen boxed manufacturing beef to visible lean specification requires a different set of processing functions from the trimming and defatting of hindquarters for distribution in chilled form. Also, the specific requirements of export demand for beef can lead to differing proportions of each carcass being exported. A continual readjustment occurs both from within and between cattle types to suit these changing market requirements.

Processing and distribution costs The costly operations from the slaughter floor through to boning, packing, freezing and handling of meat both into and out of shipping containers have been the subject of much study and comment (see, in particular, Chua

Changing export market requirements

Costs of handling meat

Labour-intensive loading methods

Economic incentives important for loading

Shipping freight costs

Increasing freight rates

Reasons for increased rates

Shipping issues

977a,b; Trace 1977). Considerable research into carton handling and lackaging has also been set out in unpublished papers by the CSIRO's Meat iesearch Laboratory. These studies have highlighted the need to assess :hange against the criteria of cost reductions to the overall system, e.g. oading of containers is an operation that is influenced by technical factors in lacking and freezing as well as economic incentives applying to the use of :ontainers.

Research has shown that most abattoirs use labour-intensive methods for oading containers (Chua 19773). For example, the number of direct ~articipants engaged in loading containers (in depalletising, stacking and ~perating forklifts) is dependent upon the method used while the number of on-direct participants (branders, tally clerks and supervisors) is dependent lpon the structure of the work-force in the individual plant. Survey results ;how substantial variations in man-labour required to load containers. The lumber of cartons loaded per man-hour ranged from 36 to 295, according to :he method used (Chua 1977b).

The importance of economic incentives for loading containers efficiently IS illustrated by the shift in the proportion of full container loads filled at naximum working capacity, after incentives by way of freight concessions an meat were introduced in 1975. This proportion went from 25 per cent in 1975 to some 78 per cent in 1977 (AMB 1977).

Shipping

Australia is a major supplier of meat to a number of international markets, particularly the USA. Shipping freight costs for meat are estimated to be about $200m a year (Cunningham 1977). The meat industry's demand for refrigerated shipping space is relatively small on some routes, such as to the U.K.-Continent, but on others, such as the Australia-East Coast North America (ECNA) trade route, it represents around three-quarters of all refrigerated cargo.

Freight rates to major destinations have increased significantly in recent years (Table 7) and are the largest single marketing cost incurred by the :xport beef industry. In 1978 they were about 25cJkg or around 37 per cent of total export marketing costs for boneless manufacturing meat shipped to ECNA. Figure 4 illustrates the changes in slaughter charges, processing and shipping costs and the c.i.f. prices for Australian cow beef in the USA for the period from mid-1973 to the June quarter of 1978.

lncreases in total freight costs for recent years have resulted largely from adjustments in the freight rates negotiated for particular trades and from increases in bunker fuel costs and the currency adjustment factor (CAF) (see Appendix C).

Data are not readily available to determine the amount of the freight rate for meat which is attributable to container terminal handling charges. Nevertheless, it has been reported (Cunningham 1977) that this factor is important both in terms of the percentage of freight rate paid and of its movements over time.

There are a number of issues concerned with shipping where changes are likely to lead to improvement in the competitiveness of Australia's meat

Figure 4: Marketing costs and c.i.f. price for Australian manufacturing cow beef 2007

.So!rne\ c.1 I prlcr lor A u r l r ~ l ~ a n honelessmanufaclur~ngcow beef (90% V . L . ) basedonoffer\ hy U S. lmportrr\. A M B (1977). A M L C (19790) M:~rkcl~ngco\!s: BAE es11rn;tlrs baaed on A M L C dal,i

Table 7: Movement in freight rates Consolidated rates (a)-meat in cartons FCL

Eastern Mediterranean(b) ECNA Japan

Year ended 30 June Rate Index Rate Index Rate Index

c/kg c/kg c/kg 1972 8.88 100 11.84 100 10.17 100 1973 10.30 116 11.67 99 9.88 97 1974 12.97 146 13.15 111 11.32 11 1 1975 21.46 242 18.93 160 14.70 145 1976 25.76 290 19.76 167 15.00 147 1977 31.31 353 24.15 204 17.95 176 1978 37.97 428 25.01 211 21.21 209 1979 30.02 338 27.51 232 23.36 230

(a) Based on fillage of container of 16.329 t. ( b ) Piraeus congestion surcharge not included. Sourcec AMB (1977) and AMLC ( 1 9 7 9 ~ ) .

Conference lines

Factors influencing rate setting

AMLC and freight rates

Equalisation of rates

exports. These issues relate mainly to outward cargo movements and have been discussed in various reports, e.g. Deakin (1973); Trace (1974, 1977); Zerby and Conlon (1976); Chua (1977~); Director-General of Transport, Western Australia (1977); Chudleigh (1978); Bureau of Transport Economics (1980). Selected issues which are of particular importance to the meat industry are now discussed briefly below.

Freight rates

A discussion of shipping freight rates from Australia cannot be undertaken without discussing Conference lines in shipping transport systems. This is because a feature of most cargo carried by liners in world trade, and indeed for Australia, is that it is carried by shippers belonging to a Conference line (Deakin 1973). A Conference is a group of shipping lines operating to some extent as an entity, but particularly for promotion of services and setting freight rates on a trade route. Conferences trading from Australia are mostly 'closed', that is, of restricted membership. Price formation under the Conference system is shown to be a complex issue (see Deakin 1973, ch. 4). Conferences appear to act as price-discriminating monopolists, with freight rates being set mainly according to the market characteristics for the cargo being carried rather than just the costs associated with carrying that cargo.

There is a great deal of evidence to suggest (see Trace 1977) that Conferences rely upon the volume of cargo, distances travelled, opportunities for return cargoes, and the handling characteristics of the cargo (e.g. whether bulk or unitised) when setting freight rates. Among other market factors having an important influence are the unit value of the cargo, the elasticity of demand for the sea transport, the import elasticity of demand for the cargo and the opportunities for subsidisation of rates across products.

The AMLC maintains a relatively strong bargaining power when negotiating maximum freight rates to the USA because of the importance of meat to the refrigerated liner trade to this market. There is a known volume of meat through U.S. import quotas and, hence, of likely demand for shipping each year.

A further issue in determining the structure and level of freight rates for meat exports is the question of equalisation of rates from Australian ports. The former AMB (now the AMLC) adopted a policy of applying uniform shipping freight rates from Australian ports. This policy was designed to allow equal access by exporters, regardless of exporting port, to each market. It has the effect of averaging out shipping costs for all exporters and causing, ceteris paribus, increased output from areas where shipping costs tend to be relatively high and lower production in areas where shipping is relatively cheaper because, for example, complete shiploads of various commodities are available from a single port.

Also, a system of equalised freight rates is likely to lead to less competition between ports (Chudleigh 1978), particularly those which offer the same cargo handling facilities.

Centralisation and containerisation I Centralisation of meat cargoes has become an important development for shipping meat. It refers to the movement through a few major ports of meat destined for export markets. Containers facilitate a policy of centralisation and, with adequate supplies of containers, savings in meat handling and distribution may be possible. Containers are considered to be a more technically efficient method of on-line handling of exportable products, particularly because of the reduced number of days spent in port relative to sailing time. Container consortia in the Australia-Europe trade have scheduled a 100-hour turnaround (time in port) on the Australian coast, calling at Fremantle, Sydney, Melbourne and back to Fremantle, compared with some 3-4 weeks for a conventional break-bulk ship handling the same volume of cargo (Stonham 1970 p. 203).

Savings in internal handling and distribution are likely to arise in a number of ways through the use of containers and by implementation of a policy of centralisation. Containers loaded directly at abattoirs rather than at wharf terminals reduce the incidence of meat handling. By loading containers at abattoirs, processors are also better able to maintain continuous production.

Unit loading I Unit loading applies mainly to conventional and roll-on roll-off vessels and applies to the quantity of cargo loaded on a pallet, usually 1 t in the case of meat. In general, unit loads such as pallet-loaded cargoes reduce the volume of cargo which can be carried compared with non-unitised or conventional loads individually stacked by hand. However, savings in labour costs from unit loads may outweigh losses incurred through reduced space utilisation.

Unit loading of cargoes onto ships is reported to enable ship loading time to be reduced by up to two-thirds, depending on ship size and type (Scott and Co. 1973). Other savings may accrue from greater flexibility in the use of wharf labour, lower stevedoring handling charges (for example, see PJT 1976) and lower trucking costs. The increased use of unit loading practices, where meat cartons are currently conveyed and loaded by hand on conventional and roll-on roll-off ships, can be expected to make loading and unloading faster. By increasing the incidence of unit loading, costs of loading and unloading could be reduced, over normal break-bulk cargoes.

Containers facilitate centralisation

Savings in using containers

Main application

Savings in using unit loads

Avenues for future development

Livestock The preceding chapter has provided a brief description of the livestock and meat marketing system. This section attempts to identify and discuss some aspects of the livestock marketing system where there is potential for change. The avenues are largely those which would facilitate the operation of open market pricing.

Market reporting The adequacy of existing market information systems is closely linked with the adequacy of product description. Two problem areas are apparent in the provision of market information. Firstly, with the increased sophistication of the marketing system in terms of the range of services provided, communication between producers and consumers is more complex and, consequently, price signals to the producer tend to provide less information on specific consumer preferences. Secondly, whilst market participants are unlikely to have perfect knowledge of market conditions, it is likely that buyers of livestock have better access to market information and a better communication system than producers because of their more continuous involvement in the marketing process.

Although the marketing processes have become more complex there is little compatibility within or between livestock and carcass descriptions commonly used by buyers and sellers. This has been reflected in market information. There is a marked lack of standardisation in the livestock categories underlying market reports which are frequently not comparable either over time or between the centres reported. However, improved livestock market reporting services (LMRS) have been introduced over the past two years at most major centres in all mainland States. Livestock agents should be encouraged to report prices on the same basis as the LMRS reports. The AMLC report weight and grade prices for Queensland. However, the prices are reported on the basis of export grades which are not directly comparable with prices reported from saleyards in Queensland. Over-the-hooks selling will be facilitated when reported prices for this method are on a basis comparable to livestock auction reports.

Avenues for change

Problems in providing market information

Lack of standardisation

Changes in communication likely

Potential benefits of classification

- operational efficiency gains

- improved pricing efficiency

- more meaningful market intelligence

There are likely to be considerable changes in the provision of market information to producers and other market participants as new communication systems de~e lop .~ The advent of improved information systems will create a need for government and industry bodies to ensure that the overall package of information provided is standardised and readily comprehensible. In this context, government, stock agents or producer associations could give consideration to providing additional services on a 'user pays' basis4

Product description

Carcass classification

The advantages of improved product description have been described by a number of authors (see BAE 1974, 1976, 1978a; Biggs 1975; Griffith 1978). With respect to carcass classification, the potential benefits to be realised are at many levels of the marketing chain and arise through operational and pricing efficiency gains.

Gains in operational efficiency are likely to arise, in part because a potential benefit of carcass classification is to facilitate sight-unseen trading. For example, at the retail level, the need to inspect carcasses is reduced if the buyer has confidence in the product description system. Not only does this result in savings for the buyer but also in a reduction of the demands on the seller's services.

The improved pricing efficiency is likely to arise from the provision of a common language for buyers and sellers. In this context, the role of carcass classification in trading on the domestic and export markets is of key importance. Carcass classification has been viewed as an alternative to domestic and export grading. The AMB accepted that 'the connotation of "superiority" or "inferiority" implied by grading terms such as first quality, prime quality or third quality and manufacturing quality, might be detrimental on export markets' (AMB 1972). The AMB then went on to state that classification 'facilitates channelling of a specified product to the appropriate market'. At present, export grades are the basis for some price reports and are used in the Australian Defence Forces food specifications and by some institutional buyers.

Carcass classification will also facilitate the collection and dissemination of more meaningful market intelligence. In addition, the level of competition in the industry is likely to be increased as the sellers and buyers of carcasses will more readily be able to compare prices offered. Of key importance, however, is the likelihood that it could open up the prospect of wider market reform in livestock selling such as competitive sight-unseen trading with

A number of television companies have proposed the introduction of an information service called Teletext. A broad range of information can be provided to television viewers under this system. The British Post Office's Prestel system allows viewers to select the information they require or transmit and receive messages from other users. In Canada, a producer organisation provides such information on a 'user pays' basis through a service called 'CANFAX'.

consequent implications for the overall structure of the marketing system for livestock and meat.

However, carcass classification will entail costs. The major impact will be at the abattoir level where capital, labour and maintenance costs will be incurred. Although estimates of the costs and benefits of carcass classification have been made, these have been of a tentative nature only (BAE 1976; Griffith 1978). Many of the benefits are difficult to assess because of their indirect nature and the costs of automated systems cannot yet be clearly defined. Existing trials have concentrated largely on addressing technical issues, and the implementation of carcass classification has been considered largely with respect to these issue^.^ To ensure that the potential benefits of carcass classification are realised, the role of carcass classification in improving marketing should be a major factor influencing the program for its development and implementation.

A staged approach to the development of carcass classification is advocated. The initial stage is to ensure that a carcass classification service is available for those who demand it. During this stage, there would be no need to classify all cattle slaughtered in any one plant.

The initial phase could be introduced by making the classification service available in at least one major service abattoir in each State for those who wish to avail themselves of the service. Trial services of this type have begun at the SAMCOR plant in South Australia and in abattoirs in Western Australia.

The primary objective of the initial phase is to facilitate improved direct selling.

A potential second stage in the development of carcass classification is the revision of existing subjective export and domestic grades on an objective carcass classification basis. At present, there is no objective basis for domestic grades. A voluntary domestic beef grading service exists in Queensland. It appears that this system, although subjective, could be revised to an objective classification basis with little difficulty.

Export grading on an objective basis may prove more difficult in the short term. It would be necessary to provide a carcass classification service in all export abattoirs before revised export descriptions could be intr~duced.~ A careful and co-ordinated approach between industry and government is required to ensure that trading is facilitated with any revision of export and domestic grades. Individual sales could, of course, be made on the basis of

At present, a carcass classification service can be made available by a manual classification system. Under the staged development of carcass classification recommended in this section it is suggested that the decision on automation could be left to individual abattoirs to determine when such systems become viable. The cut-off point as to whether an abattoir should have a manual system or one that is automated to some degree is not clear and will depend on the demand for the service as well as business management factors that will vary from firm to firm. The Irish Republic has recently revised its export grades on a carcass classification basis so that Irish livestock will more accurately meet the requirements of other EEC countries. The Irish scheme is mandatory for export carcasses. Export grading in Australia is compulsory only for bone-in meat. However, export grading is often undertaken for boxed bone-out meats on a voluntary basis.

Costs of classification

Staged approach to classification

- trial services

- revision of grades

Objective export grading difficult

Technical trials under way

Strip branding

Marketing charges

Agents' commission

Percentage commission approach

Reasons for varying costs

The AMLC, in conjunction with the States, is conducting technical trials to develop carcass classification systems. These trials need to assess carefully the benefits and costs of each specific system currently being trialled so as to facilitate identification of the economies of the systems that are technically Feasible. In addition, the relevance of carcass classification for trading on the domestic and export markets will need to be firmly established from the current AMLC and State trials, as this is a prerequisite for many of the potential benefits.

Meat descriptions

Strip branding on carcasses has the advantage that it allows carcass information to flow through to the consumer. If the Queensland grading scheme is revised on an LMRS basis, the potential for consumer feedback to producers will be enhanced. The development of standardised quality descriptions at the retail level involves a number of issues which have not been resolved as, to date, attention has been focused largely on carcass classification.

Livestock agents' charges

The issue of the basis for marketing charges has attracted the concern of livestock producers over recent years. It has also been considered by the Prices Justification Tribunal and the Trade Practices Commission.

In Australia, the percentage rate of agents' commission varies little within States and little price competition between agents is apparent. In contrast, livestock marketing services in the USA have been provided traditionally under a variety of fee scales including a percentage charge, a fee per head or a combination of both methods (USDA 1958).

The Prices Justification Tribunal (PJT 1977) considered the percentage commission approach to charging. The Tribunal recognised that a case existed for the retention of some percentage commission element in the charges as an encouragement to agents to sell at best values. In 1979, the PJT inquired into prices being charged for supplying services for selling sheep and cattle. It found (PJT 1980) that the prices at which the companies were supplying their livestock selling services were justified. Further, it found no evidence to warrant the intervention of the PJT in existing systems of charging, and noted that some companies had recently improved thei~ services.

The costs borne by livestock agents in providing marketing services have been noted by the Tribunal to vary for the following reasons:

( 1 ) Size of consignment-large consignments generally allow livestock to be sold with considerably lower unit costs than would be incurred with smaller lots.

(2) Different services-not all producers avail themselves of all the selling services offered by aients.

( 3 ) Different selling methods-the services provided for a paddock or over-the-hooks sale are different from the services provided in connection with auction sales.

(4) Economies of scale which are related to size of branch-the evidence before the Tribunal showed that the few agents charging lower than the usual industry commission rates operated in the larger markets. Research evidence from the USA confirms this finding (USDA 1958,1959).

(5) Type of livestock-the costs of handling different kinds of livestock are dissimilar.

On economic grounds there is a case for changing the method of charging to a more cost-related approach linked to the specific services provided and to demand and supply influences. Agents' commission, which is set at a percentage of livestock prices, generally does not vary between the different services provided even though the underlying demand and supply factors vary. For example, the demand for agents' selling services varies between auction selling and direct selling. Supply forces also vary because of the different capital and labour requirements. In the case study presented in Appendix B costs were lower under direct selling methods.

Improved direct selling

An important feature of the selling method reforms considered in this section is that a step-by-step approach is advocated. This is because a considerable learning process is likely as a result of changed roles for producers, buyers and intermediaries such as livestock agents.

In addition, the suggested approach is supported by earlier evidence that existing auctions are characterised by high selling costs, high price variability and low producer bargaining power. It is considered that, as the approach to direct selling advocated in step 1 below will be based on buyer-seller negotiation, it is unlikely to gain widespread producer support. The BAE producer survey, reported in earlier sections, pointed to three major constraints to the use of direct selling methods. These were the lack of competition, the inconvenience, and the possible inappropriateness to cattle type and lot size. The direct selling by negotiation proposed in step 1 is, therefore, likely to be adopted only on a limited basis.

The introduction of the competitive environment in step 2 is designed to overcome producer criticisms of direct selling whilst maintaining the producer's bargaining position.

The developments suggested below are to be viewed in perspective. There are likely to be many problems to be resolved and further research is needed before such changes receive wide acceptance. Additionally, these proposals involve changes to the role of intermediaries in the marketing system. There are also a number of other changes already discussed, such as carcass classification and livestock market price reporting, which need to be established on a firm basis prior to the implementation of the approach suggested here. At most, therefore, the following approach should be considered as a broad direction for policy changes over the next decade. Even

Change to cost-related methods

Step-by-step approach advocated

Constraints to direct selling

Broad direction for policy changes

Prices negotiated for standardised classes

Charges should relate to costs

Role of agents

Background to proposal

S.A. example

3tep 1. Direct selling by negotiation

though the proposals concentrate on direct livestock auction system is envisaged.

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selling, continuing

The first step in the development of the proposed new livestock selling system would be to develop standardised, equitable conditions for direct selling, to illow sight-unseen trading with prices negotiated on the basis of itandardised carcass classes. Although sight-unseen trading exists at )resent, the bases on which prices are negotiated vary significantly between Juyers. Compatible livestock and carcass price reporting services, as 3reviously suggested, would be required to facilitate the establishment of a :ommon language to underlie direct selling. In addition, a standardised beef :arcass would need to be defined to form the basis for negotiations. Sovernments are already active in the area and they have an important :xtension role to facilitate a wider understanding of the issues.

It is suggested that the role of livestock agents during this stage could liffer in two important respects from their present role. Firstly, as previously iiscussed, it is considered that charges should be more closely related to the :osts of providing selling services. Direct selling will be encouraged should the charge for this service be substantially lower than the rates of :ommission charged for auction selling as suggested by the research iiscussed in Appendix B.

Secondly, it is considered that the livestock agent could play an important role as an intermediary between the buyer and seller during this stage. Sight-unseen trading is dependent on the ability of the producer to accurately describe his livestock, as a buyer is unlikely to purchase stock unless he has confidence that the stock will be of the type required. If livestock agents were to become skilled in relating live-animal measures to carcass measures they could play a major role in arranging the direct sales. The development of a specialised agency service for direct sales in Western Australia is currently provided by a large producer co-operative, under a scheme known as 'Telstock'.

Step 2. Competitive sight-unseen trading

The second step would be to move from direct negotiated sales to competitive sight-unseen trading where prices were established simultaneously by a large number of buyers and sellers. The proposals are put forward against the background that similar schemes are in operation overseas and that some economic research has been undertaken supporting these schemes (Johnson 1972; Livestock Marketing Study Group of South Australia 1977). A recent development in pig marketing in Australia is a move toward a scheme of this type.

In South Australia, a method of livestock selling by classification has been developed. An auction is conducted in an Adelaide city office among buyers who choose from a catalogue of pigs being offered for sale. The catalogue is prepared by agents from offers to sell particular lots by pig producers. The descriptions used in the catalogue contain estimates of the

weight and fatness of each lot of pigs. Buyers agree to purchase on the basis of these descriptions, subject to revision of fat and weight if these are found to differ from the estimate at the time of slaughter. A special set of conditions for sale has been developed for the auctions. They include a standard set of 55 classes used to group the fat and weight measures and, for heavy pigs, sex is also specified. A fee is charged for the service which is self-financing except for the supervision of the classification service, and the development and promotion of the scheme provided by a carcass classification officer of the State Department of Agriculture and Fisheries.

To date, the auction of pigs by classification has been well accepted and is used for up to about 1000 pigs each week, i.e. about 10 per cent of pigs slaughtered each week or about 30 per cent of the volume of pigs auctioned in livestock saleyards.

The initial considerations in the development of a competitive framework for sight-unseen trading are the basis for price establishment, the method of communication, and acceptable contract conditions. A discussion of these three issues follows:

Price establishment

Options for methods of competitive bidding include British auction (ascending bids), Dutch auction (descending bids), sealed bidding or bidding by tender and discretionary bidding.

On the basis of the limited comparisons conducted to date, it appears that, under different market conditions, the progressive British auction, the modified Dutch auction and the discretionary tender system either show inconclusive results or the systems produce the same price. To draw firm conclusions as to the superiority of any particular system of price establishment, other criteria have to be considered.

These might include:

(a) the speed with which the price for an item can be realised; this influences the potential size of the market;

(b) the susceptibility of price formation to the number of bidders participating;

(c) the efficiency of the system in communicating market information; (d) the stabilising characteristics of the price formation mechanism

when market equilibrium is disturbed; and (e) the cost of necessary facilities and services for each system.

Communication method Several options are available for the communication of information in a competitive sight-unseen trading system. These range in sophistication from word of mouth to fully computerised markets with buyers and sellers widely dispersed. Between these two extremes are a number of alternatives which utilise teletype, computer, telephone or video facilities.

Of these options the only one currently available for selling livestock in Australia is sale by telephone. A telephone link is available for Victorian meat buyers who wish to participate in the South Australian pig auction by

Use of S.A. system

Three initial considerations important

Methods

Criteria for assessing methods

Several options

Sale by telephone

Television or video technique

Teletype systems

Selection of a system

Terms of contract

Critical issues

- change of ownership, and identification

classification. A trial of cattle selling through a computer-based system is I I

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Aanned for early 1981 in New South Wales by the University of New England's Agricultural Business Research Institute.

The television or video technique has also been used in the USA for large ;ales of feeder cattle (Anderson and Associates 1976; Johnston 1979). This -equires the assembly of buyers but overcomes the need for a method of ~ o d u c t description as the product is visually displayed on film. However, .his technique is probably more suited to large, even quality lots of cattle .han to variable-size lots of cattle of mixed qualities.

Teletype communication systems for livestock sales are used in Canada :Hawkins, Warrack and Dawson 1971), particularly for the sale of pigs. The systems have been successfully operating for many years but, like telephone 3uctions, their adaptability to cattle sales relies on an acceptable method of product description. This system was one of several discussed and appraised at the Livestock Marketing Study Group Workshop in South Australia in December 1977 (Livestock Marketing Study Group of South Australia 1977).

A major consideration in selecting a system is the cost of the technology and facilities required and the potential costs of expanding the system. The potential size of the market in terms of the numbers and dispersion of buyers and sellers to be serviced is also an important consideration. The efficiency of any system in the receival and transmission of sale information in relation to the size of the market is also important. It is possible that, within Australia, there will develop a number of different competitive systems, ranging from simple telephonic systems to sophisticated computer-based systems, depending on the type of market and location.

Contract conditions

A sale contract with terms of sale acceptable to both buyers and sellers is a necessary condition for competitive sight-unseen trading. Initially, consignment contracts with sellers could be specified in a way that ensured the seller would deliver cattle as specified provided the 'no sale' or 'pass in' price was surpassed. Penalties covering failure to deliver could be included in the contract terms. Additionally, buyers could be required to provide some guarantee of credit standing in order to obtain access to the market.

Two critical issues are the point of ownership change and the necessity for penalties for incorrectly describing livestock for sale. Change of ownership is closely related to the point of price establishment which determines the incidence of bruising costs, transport costs and costs associated with delays and industrial stoppages at the abattoir. Producers may favour an ownership change closer to the farm gate than to the abattoir. However, change of ownership at the abattoir is considered more feasible as prices are established on a carcass basis.

One problem that arises with change of ownership at the abattoir level is that the lot identification process becomes considerably more complex as individual producer identification is required. Each producer's lot must be separately identified to enable the finalisation of payment, allowing for

penalties or condemnations. The stock would be offered for sale, with the producer providing a product description and nominating a point and time of delivery. It is suggested that producers could nominate a delivery point from a prespecified list of alternative delivery points. Upon price establishment other sale details would be determined and become binding under the sale contract unless altered by negotiation between buyer and seller. If price were on a per unit carcass weight basis, the terms of sale would need to include a clause ensuring slaughter within 24 hours or other specified time period to protect producers from abattoir stoppage or delay. Stock would be fed and watered at buyer's expense if slaughter were delayed past the agreed time period.

With respect to the incorrect description of livestock, the buyer would enter the market an good faith assuming that the animals for which he bids are truly and accurately described. However, the buyer should be paid the appropriate discount if the product was not accurately described. Disputes could easily arise in such a situation. It would be imperative, therefore, that the terms of sale, including any penalties for incorrect description, be clearly understood by market participants. The procedure for any dispute would need to be formalised and resolution may initially require a third party.

In the development of competitive sight-unseen trading, agents could have a continuing role as livestock/carcass assessors to advise producers on the correct product description before offering livestock for sale. If producers, because of the small scale of their operation or lack of skills, did not have the capacity to define livestock classes accurately, they must have either to suffer price penalties or avail themselves of the services of an agent.

Livestock agents are one obvious industry group that could establish and manage the facilities required for competitive sight-unseen selling. Additionally, they could assume responsibility for del credere risk which is an important role that agents presently fill in the livestock auction system.

A key role for governments in facilitating competitive sight-unseen trading would be to encourage broad industry discussion of the issues and provide incentives and encouragement to the private sector to identify and develop improved systems, the benefits of which outweigh costs. In some cases, with the more sophisticated systems, an option may be a joint industry approach, as these systems are likely to be appropriate for the marketing of a number of rural commodities.

Liveweight selling

Liveweight selling has grown in popularity in recent years, particularly in New South Wales and southern Queensland. In Victoria, liveweight selling was introduced recently at Newmarket, where bidding is conducted on a price per kilogram liveweight basis rather than on the price per head basis of the open auction. Producer payment is based on measured liveweight, thereby representing an improvement in pricing accuracy over open auction. The disadvantage of liveweight selling is that producers are called upon to pay a weighing charge in addition to the usual auction charges. Also, it is usually required that cattle be delivered to saleyards some 12 hours before

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- incorrect description of livestock

Role of agents in sight-unseen trading

Key role for governments

Recent developments

Errors in estimation of carcass weight

Limited potential of liveweight selling

Scope for standardisation and extension

Recent rationalisation of saleyards

Saleyards in Victoria

weighing to enable them to 'clean out'. This involves extra handling with the added risk of further stress and bruising.

There has been a lack of published research to establish the benefits associated with liveweight selling. Some research has been conducted on buyer errors in the estimation of carcass l eight.^ However, these errors contain two components-liveweight estimation errors and yield estimation errors. The introduction of liveweight selling will remove only the former error. The benefits that result and accrue largely to producers from the elimination of buyers' underestimation of weight will need to exceed the costs associated with the provision of the weighing service. However, it should be noted that, when the producer sells on a carcass basis, he avoids buyer errors with respect to both liveweight and yield estimates.

In conclusion, liveweight selling does not have the same potential advantage as the sight-unseen, over-the-hooks method of trading proposed later in this paper, as carcass yield errors will still exist and additional stress and bruising will be imposed. The wide acceptance of liveweight selling could tend to reinforce the livestock auction system and hinder moves for direct selling reforms. Nevertheless, liveweight selling is becoming more widely established.

Currently, liveweight selling procedures differ between States. Eliminating these differences would assist buyers and sellers who operate in more than one State. The extension of liveweight selling to store markets also appears worthy of serious consideration.

Saleyard rationalisation

In discussion with industry sources it was commonly suggested to officers of the BAE that there is scope for further rationalisation of saleyards with the need for fewer and larger saleyards. However, rationalisation has been occurring on a continuing basis as a result of market forces. For example, in a recent study of auction selling centres in Queensland, Hall (1978) noted that, for the period 1972-73 to 1976-77, the throughput of the nine largest saleyards increased from 47 per cent to 56 per cent of total saleyard throughput, and ten of the smallest yards ceased to function over this period. Although there is no published evidence on how the numbers of New South Wales saleyards have changed over recent years, the degree of concentration of cattle auctions has increased (Hodgkinson and Campbell 1978).

In Victoria, however, the number of saleyards has not decreased. A Victorian parliamentary committee (Meat Industry Committee) noted that Victoria is the only State to give financial assistance to municipalities for their saleyard operations (Parliament of Victoria 1977). The Victorian Stock and Station Agents' Association (1976) and the Australian Council of Livestock Agents (1978) have pressed strongly for a rationalisation in the number of saleyards.

' TWO Australian studies (Beruldsen 1970, and Naughtin undated) indicate some evidence of the underestimation of carcass weights, namely a 3 per cent underestimation for lamb carcasses and between 1.9 per cent and 3.5 per cent for cattle carcasses.

54

The issue of rationalisation of saleyards needs to be placed in perspective. In the first place, rationalisation could lead to operational efficiency gains through scale economies, but no research has been published in Australia to show that such gains exist. While there is evidence that there have been isolated instances of abnormally low prices to producers, the limited research to date does not support the contention that there are pricing efficiency gains through rationalisati~n.~ Available research, however, shows that lot size can ' be an important factor related to the prices received by the producer with

larger lots obtaining higher prices. It is plausible that the scope to realise these higher prices will be greater at the larger saleyards. However, the implications for the rationalisation of saleyards will be determined in part by whether the higher prices outweigh the costs of interlotting.

A related issue on rationalisation of saleyards is equity considerations. Some State Governments have actively supported the continuation of smaller saleyards. While a larger number of saleyards provide producers with facilities for disposal of cattle at relatively lower transport costs, it is necessary to examine the trade-off between lower transport costs and the possible loss of revenue due to other marketing inefficiencies, if any, of smaller saleyards. Further research on the operational and pricing efficiency aspects of saleyards is necessary before any strong conclusions could be drawn on the question of rationalisation.

Lot size and interlotting An auction market study by Hogan and Todd (1979) involved an examination of pricing at two auction selling centres (one small, one large) less than 50 km apart. It was found that, after allowance for transport costs, the most significant factor affecting price differences between auction centres was lot size. The price premium per unit increase in lot size ranged from $0.45 per head (0.09c/kg liveweight to $1.06 per head (0.33c/kg live weight) depending on cattle type and centre. After adjustment for lot size, no consistent price premium in favour of the large centre remained.

The results support the need for consideration to be given by livestock agents to providing an interlotting service to realise the price premium for larger lots. To the extent that lot building would be easier where more cattle are sold, larger centres offer a greater potential for interlotting. Interlotting should be facilitated by the widespread availability of standardised livestock descriptions (LMRS).

Meat The development of policies in key areas of meat marketing which are likely to bring potential improvements will require a co-ordinated approach by a number of different marketing agencies, governments and organisations involved with both livestock and meat.

In a case study of price differences between a small and a large auction selling centre in New South Wales, Hogan and Todd (1979) found that the overall levels of competition were not markedly different. The number of buyers attending sales was found to have no effect on the price level of an auction centre.

Rationalisation and efficiency

Equity considerations

Price premiums and lot size

Price premiums and interlotting

Co-ordinated approach to policies required

Methods to reduce throughput variability

- more shifts

- more flexible labour supply

I Distribution in cartons to lower costs

Influences on merits of alternative distribution systems

'rom pressure for change through market forces. Governments have a role in muring that the marketing system operates effectively and relatively freely.

Many improvements are likely to be of a continuing nature and to result f e

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Slaughtering costs Slaughtering costs have been found to be influenced substantially by the rariability of throughput and the level of plant capacity used. A number of nethods are available to abattoirs to reduce the variability of throughput. rhese include variable charges to encourage the increased flow of cattle to abattoirs during off-peak periods.

An alternative approach may be to increase the number of shifts using the same abattoir fa~i l i t ies .~ While this should provide scope for improving abattoir productivity and lowering average costs, consideration would also need to be given to cleaning operations to ensure that health and hygiene standards were maintained , as well as to the availability of labour and a sufficient level of throughput.

In addition, a more flexible system than the present arrangements for adjusting labour costs to levels of throughput is warranted. Policies employed by abattoir management to adjust labour requirements vary greatly between abattoirs and with the tenure of employment and conditions set out in awards. In one case study the use of a simulated 'flexible labour supply' found that lower labour costs per unit of output could be achieved under differing rates of throughput (Robinson 1972). Flexible labour was defined as the casual labour supply able to be adjusted daily. It should be stressed that this case study related to one type of abattoir in one region of Australia and may not hold in general for all abattoirs. However, the differing freedom of action, especially in relation to industrial matters, that managers have in State instrumentalities and in private enterprise was documented by the PJT (1978). Accordingly, the principle of employing a 'flexible labour supply' remains worthy of closer examination.

Alternative domestic distribution methods Distribution of meat, particularly beef, in cartons or boxes to retail

outlets in Australia has been suggested as a potential development toward lower distribution costs (ANCC 1978; Boulten 1978). Some moves towards this have been reported (PJT 1978) and factors important to vacuum packing the meat in plastic bags before it is placed in a carton have been summarised by Boulten ( 1978).

There are many factors influencing the relative merit of alternative distribution systems (Duewer and Crawford 1977; Anon. 1977; Boulten 1978; PJT 1978). In summary, those which have been identified in Australia and overseas are:

relative economies in size through breaking beef carcasses at a central location because of the use of specialised equipment and labour and the improved utilisation of by-products;

A submission was made during 1978 to the Australian Conciliation and Arbitration Commission to seek the right of management for one abattoir to operate afternoon shifts on cattle slaughtering chains (Anon. 1978).

relative economies in transport and refrigerated storage; where transport and refrigeration costs are important, distribution of bone-out cuts is less costly than distribution of carcasses; relative economies within the retail outlet from improved control of wrapped carcass meat, e.g. lower inventory costs and lower discounting on slow-moving cuts; relative economies because consumer demand for particular cuts can be matched, at greater return, where cuts are distributed in proportions different from those in carcasses or quarters of carcasses; relative costs of skilled labour and other services at dispersed retail outlets compared to fewer locations possibly in country areas; relative economies of weight loss in storage and transport. Loss of weight from dehydration can be reduced by distribution systems using vacuum packing of meat; consequently, the advantages of these systems increase as meat prices rise and the value of weight loss saving increases; relative economies in passing inspections may also influence the use of alternative systems; some interstate reinspection charges in Australia have been cited as favouring carcass meat distribution (PJT 1978, p. 94).

The continuation of carcass-based distribution systems in Australia appears likely until changes occur in the following factors:

the relatively low carcass value of meat in Australia; this means that weight losses in carcass form are less important than in many other countries; the diversity of meat types processed at any one slaughter plant and the ability to assemble large volumes of uniformly graded meat for the domestic market; the method of distribution by wholesale, retail and other meat companies; the extent to which retailers prefer to select carcasses for their own shops and to cut them according to individual customer specifications.

Carcass classification could be important in streamlining the wholesaling system. The development of an objective trade language relating to the main carcass characteristics important to retailers and consumers should lead to an increase in direct and sight-unseen trading in carcasses and meat in boxes. However, this process will be a gradual one. The existing wholesaling system represents substantial investment and is based on traditional skills in subjective carcass assessment. It will change only when there are clear economic incentives to do so.

Shipping Future developments in exporting meat will depend, to some extent, on likely changes in shipping. For example, changes in the relative volumes of cargoes which generate the aggregate demand for refrigerated shipping may result in some adjustments in the structure of freight rates between commodities. However, there is nothing to suggest that such a change will result in an overall net gain from reduced freight costs for Australia. With economies of ship size and the trend towards increased capacity on trade routes, it is likely

5 7

Changes required in present system

Role of carcass classification

Exports and changes in shipping

Freight rates and economies of sale

Freight rates and AMLC role

Improved use of container capacity

Government intervention

Intervention by importing countries

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periodic underutilisation available capacity thereof nay be used by Conferences as a basis for increases in freight rates :specially if fuel-oil prices rise. Where competition among shipping lines can )e maintained, these developments should enable lower freight rates.

Higher levels of operating costs may be found where little scope exists for :conomies of scale to be realised because of the continued use of multiple Iort facilities. The larger specialised container ports require high levels of hroughput to achieve economies of scale. Thus, it is likely that a policy of :qualising freight rates from all ports in Australia may be an appropriate ~olicy on grounds of producer or exporter equity but not on an economic :fficiency basis. Also, such policies are not necessarily consistent with :entralisation of cargo movements through fewer ports. It appears that scope :xists for greater liaison between port authorities, the livestock and meat ndustry and shipping companies in designing policies for streamlining :xport cargo movements both to ports and onto ships.

Measures designed to control large increases in freight rates for meat are ikely to involve the collection of detailed information on the role and ~peration of Conference organisation and practices and of the costs of Freighting by various services such as container lines, unit loads on roll-on roll-off vessels, time chartering and air transport. This could lead to greater lirect participation than at present by the AMLC in freight rate setting for markets of particular importance to Australian exporters.

In the case of containerisation, improved use of available capacity will tend to reduce average costs. Likely developments in packing of containers ~nclude the greater incidence of loading at abattoirs and more use of mechanical loading methods and, with developments in packing technology toward lighter and thinner materials, it should be possible to increase container loads. For example, at present a container load of meat (approximately 16.3 t ) contains around 1 t of packing material. The use of lighter and less bulky materials would allow increased weight of meat to be packaged up to size and storage limits.

Meat exporting With the present structure and organisation of the world beef markets and the dynamics of world demand and supply forces operating in these markets, government intervention to restrict trade flows has a marked impact on meat exports. Intervention is frequently aimed at restricting supplies into the importing country although it may also be linked to price policies. A number of special regulatory measures are set out in Table 8.

The effects of direct intervention by importing countries upon Australia's meat exporters is increased instability and uncertainty in market prospects, particularly total export returns. Further, the sudden and unpredictable introduction of additional temporary measures to control imports aggravates export market uncertainty. As a result, major exporting countries such as Australia seek to gain more reliable market access through international trade negotiations.

5 8

Table 8: Summary of special regulatory measures applied to imports of meat from Australia: 1973-80

Type of control

'Voluntary' restraint(a)

Signijcant Monopsony Importing via via mini- import Import buying country quantity mum price levies quotas agency - -- - - - - - -

USA * Canada * * Japan * * * EEC * ( b ) * * USSR * Sweden * * Korea * Iraq * Iran * Egypt *

(a) Negotiated as an alternative to mandatory quotas. (b) For sheep meat commencing 1980. * lndicates that the particular measure applies.

In most circumstances, 'shocks' arising from these restrictive import measures are borne by exporting countries. Where importers desire a reliable supply of a consistent type and quality of meat, a reciprocal commitment regarding future stability of access for major exporters should be expected. Such undertakings would improve export opportunities for major agricultural exporters by providing greater surety upon which to base production and investment decisions at each stage of the marketing chain.

The importance of uncertainty generated by fluctuating export markets is related partly to its effect on the cost structure for domestic production and marketing services. There is evidence, for example, that farmers are risk averse (IAC 1978). Risk-averse producers may use a lower level of inputs, tend to maintain higher liquidity levels and tend to seek greater flexibility in their operations. This may lead to a slower rate of adoption of technology and cause underutilisation of plant and equipment which affects the costs of operation both on farms and elsewhere, such as livestock slaughter facilities,

eat storage and transport equipment. There are three main approaches in which policies can be considered to

ounter the effects of direct intervention by importing countries. The first eks to improve access to these markets directly, by fully understanding tervention policies and the forces operating and by seeking, through ternational negotiations, to find ways of guaranteeing Australian exporters share of the markets. Secondly, policies may be developed to control

xports through various schemes which aim to match the restraints placed on ports. Thirdly, various pricing or stabilisation schemes in Australia which e designed to counter the price effects of fluctuations in export market nditions may be considered. Each of these three approaches is now

lscussed in more detail.

Uncertainty from export markets

Countering direct intervention by importing countries

I Access arrangements

Fluctuations in Australian meat exports

Control of U.S. meat imports

I Potential impact of new U.S. import law

Beef self-sufficiency in Japan

Australian meat exports have been characterised by substantial variability. Although Australian exports of beef and veal rose by 112 per cent in the period 1970-79, exports rose by 88 per cent between 1970 and 1973, fell by 53 per cent the following year, and rose by 157 per cent between 1974 and 1978. They then fell by 10 per cent in 1979. Early figures suggest a further fall in 1980. Similarly, while Australian exports of mutton and lamb fell from 1970 to 1979 by 28 per cent, exports rose by 27 per cent from 1970 to 1972, and this was followed by a sharp decline of 71 per cent to 1974. Subsequently, there was a recovery of 134 per cent to 1977 and a further fall of 17 per cent to 1979.

The rationale and operation of the various market intervention schemes in major beef-trading countries have been examined in a recent paper (BAE 19786). The principal features of these various schemes operating in the major importing countries are mentioned here.

Imports of beef, veal, mutton and goat meat into the USA are controlled by legislation. From 1964 to 1979, this control was exercised by the 1964 Meat Import Law (PL88-482). However, from 1 January 1980, a new Act (PL96-177), which had been enacted late in 1979, came into force. This Act will regulate imports countercyclically to domestic production. The level of imports will be determined by a formula which incorporates both total U.S. production of the above-mentioned meats and changes in the level of cow-beef production, subject to access not being less than 1250 million pounds (about 570 kt) in any calendar year. Under certain very restrictive provisions in the Act, the President will have some discretion to increase imports above the level which would otherwise apply under the formula. Under the legislation, should the formula result in a figure which is equal to or lower than the estimated level of imports for the year in question, individual countries would be informed of the total permissible level of imports and their individual shares of the total figure.

The main differences between the new law and the old import law are:

- the countercyclical component related to cow-beef supplies; - the floor on imports; and - tighter restrictions on Presidential discretion to increase imports.

The potential impact of the new law was reported by Weeks (1979). The effect of the law will depend on the pattern of beef production and cow slaughterings in the USA. The aim of the law is to attempt to stabilise the U.S. market by varying the level of imports inversely with changes in U.S. cow-beef production. Thus, fluctuations in U.S. cow-beef output may be reflected in sharp changes in the level of imports. However, the degree of stabilisation achieved in the U.S. market overall is likely to be small, as imports provide only about 7 per cent of total beef supplies. Greater stability1 may be achieved in the U.S. non-fed beef sector, since imports provide a larger share of this market.

In Japan the Ministry of Agriculture, Forestry and Fisheries operates a highly protective policy for domestic beef production. The main devices used to encourage self-sufficiency in beef production are:

60

- a domestic price stabilisation scheme; - a system of levies on imports; - an ad valorem tariff on beef imports; and - quotas on beef imports.

The main area causing instability for Australian beef exporters is in the fixing of import quotas. There is considerable uncertainty as to the quota level, which is set for six-monthly periods only. Without longer term assurances on access, the beef-exporting industry faces difficulties about sequencing the flow of beef on to the Japanese market. As well, there remains some hesitancy about Japan's longer term reliability as an importer-a legacy of the market closure in 1974. The Japanese import policy on sheep meat is markedly different from that for beef. Although Japan employs a general import duty of 10 per cent and a GATT duty of 5.6 per cent, it is currently charging no duty on imports of sheep meat. Also, Japan has no quantitative controls on sheep-meat imports.

In the EEC, instability has been passed to the Australian export beef market in several ways. EEC beef production in excess of demand is purchased by intervention agencies and placed in cold storage for later release, both internally and to third country markets. Intervention aims to provide price support against internal cost pressures. At the same time, import levies operate to isolate EEC prices from world markets. In addition, imports into the EEC have been curtailed heavily by quantitative restrictions since 1974. The EEC has become more dominant as an exporter of beef, often making sales at subsidised prices. Australian beef exports to the U.K., traditionally the main European outlet for Australian beef and veal, have declined sharply since 1972, requiring sales to other less profitable markets. Currently, levy-free Australian access to the EEC market binding under GATT is restricted to 5 kt of high quality beef.

The EEC Ministry of Agriculture agreed in 1980 to adopt an EEC sheep-meat regime-similar in principle to that operating for beef. Until now, the only common restriction on sheep-meat imports has been a tariff of 20 per cent which has been bound to Australia and New Zealand under GATT. Besides this tariff, France has periodically closed its market to other EEC markets and third country suppliers. The closure by France of imports of lamb from tl-ie U.K. (the so-called 'lamb war') was found invalid in September 1979 by the European Court of Justice. Since then, France has ignored the ruling and pressed strongly for a sheep-meat regime to be adopted.

As an alternative option to intervention buying, a system of variable premiums has been instituted, and the U.K. has chosen to operate under this. Essentially, the U.K. will be operating under a 'deficiency payments' type of scheme so that, for buyers, sheep-meat prices in the U.K. will remain below the higher French prices. French producers will also receive annual deficiency payments. In September 1980, Australia reached agreement with the EEC on a voluntary restraint agreement, to operate from 20 October 1980, under which Australia agreed to limit, from 1981, its exports to the EEC (existing members plus Greece) of mutton, lamb and goat meat to 17.5

Japanese import quotas

EEC policies

EEC sheep-meat regime

Effects of sheep-meat regime

Canadian quota restrictions

Seeking reliable access to markets

International beef market becoming more restrictive

Hygiene restrictions

kt (carcass weight). New Zealand concluded a similar agreement covering exports of 245 kt. The impact of the sheep-meat regime on world sheep-meat trade and on Australia is yet to be assessed. Nevertheless, it is clear that EEC imports of sheep meat are likely to be restricted, particularly in the longer term as increased EEC production and lower consumption give rise to a need for further restrictions. As well, it is likely that a certain volume of Oceanic sheep-meat exports which would have entered the EEC without a sheep meat regime will be diverted to other export markets, notably the Middle East. It is also likely that, with the stimulus to production, surpluses could develop and these could possibly lead to increased subsidised exports of live sheep and sheep meat from the EEC to third markets.

The Canadian Government applies quota restrictions on the importation of live cattle and chilled and frozen beef as well as various price restrictions. Quotas are generally allocated to the USA, New Zealand and Australia on the basis of their historical shares of total Canadian imports. Pending the enactment of permanent beef-import legislation, Canada has currently established a scheme of voluntary restraint on exporting countries such as Australia.

With the enactment of permanent beef-import legislation, Canada is likely to introduce a countercyclical law relating imports inversely to the level of domestic beef production, similar to the law which has been implemented in the USA. In effect, this would signal a move by Canada, similar to moves by other beef-importing countries, toward greater intervention in world beef trade.

Possible developments in access arrangements

Australia should continue to seek to secure reliable export markets and to seek a share of any growth in present outlets. Methods of establishing greater reliability in access to markets will depend upon the particular trade arrangements, the marketing infrastructure of both importing and exporting countries and the types of intervention measures controlling imports.

A development in the international beef market in the past fifteen years has been the changing structure of markets and of product forms. In particular, greater institutional involvement has come about as importers seek to protect or assist domestic meat-producing industries. There are now quantity controls in most major importing countries, while pricing issues have also become important as a result of the changing structure of international trade and pressures which develop for currency readjustments. Changes in access arrangements are bound to occur in the future so that initiatives and policies stemming from the actions of one or more importing countries will continue to cause uncertainty for beef exporters. From Australia's point of view, this requires greater understanding of economic and agro-political factors in importing countries.

Another aspect of access to overseas markets concerns hygiene, disease-free status and related aspects of quality. Australia and New Zealand have been restricted much less on aspects of hygiene and disease than have exporting nations in South America. A recent study indicated the

enormous impact that a major export market closure, because of foot-and- mouth disease in Australia, would have on the Australian beef industry (Longmire, Main and Reynolds 1980). More subtle restrictions on trade, such as hygiene requirements for abattoirs, methods of slaughter etc., will have to be met if Australia is to maintain its levels of access. In certain circumstances, the question of whether the benefits of achieving access to certain markets outweigh the costs of obtaining access might prove negative. Access should therefore be seen as a right which, in practice, has associated costs.

A general approach in maintaining access to markets would be to seek sufficient flexibility in production and marketing arrangements. For instance, if the mix of livestock exports, carcass and boned-out meat (chilled or frozen) produced for export remains flexible, Australia, as a meat exporter, would be in a position to meet unforseen changing market requirements. As much as possible, Australia should attempt to obtain early notice of changes in requirements so that changes in product, methods of hygiene, and so on can be made without interrupting trade.

Control schemes for exports

Origin and development of schemes Imports of meat are restricted by several major meat-trading nations (Table 8). Corresponding to these trade barriers, a system of differential pricing on world markets has evolved, with higher prices generally prevailing in the restricted markets and lower prices in unrestricted markets (Figure 5). The nature of the restrictions on imports in particular countries, i.e. the USA, Canada and Japan, puts the responsibility for restricting imports back on the exporting nation. Export control schemes have, therefore, been implemented in Australia by the AMLC for regulating supplies to the USA, Canada and Japan.

In the USA, a trigger level is set at 10 per cent above the total import quota level. If exporting nations ship more meat in total than the agreed trigger level, the more restrictive global quota restraint is imposed. In practice, individual exporting countries are allocated a specific quantity, based on historical performance. If any individual country exceeds its allocation, further imports from that country may be stopped for the relevant calendar year. Exporting nations, therefore, attempt to control exports to the USA at a level just below their respective voluntary restraint levels. Australia first implemented export controls to the USA in 1968 under the 'export diversification scheme' (AMB 1969).

Under that export diversification scheme, exporters earned entitlement to ship to the U.S. market according to their sales performance in all other export markets. An export diversification ratio was fixed (quantity shipped to other export markets to earn entitlement to ship to the U.S. market).1° Exporters were then able to adjust their individual export pattern to match

l0The export diversification scheme was suspended from March 1973 until December 1974, following continued suspension of restraint measures by the USA.

Flexibility in export ' market access

Export control schemes

Export controls to USA

' U.S. export diversification scheme

Figure 5: Gross revenue from beef exports: by country (a): July 1977 to June 1978

( a ) b) the ten largest revenue sources plus groupings o f other markets ranked from highest to lowest prlce.

( I ) Market\ with prlcesgrcater than the U.S. market prlce:

Greece Brunei Libya Chr~\ tma\ (\land Norway Italy Ghana New Caledonia Gilbert Islands New Hebr~de\ Bahrain Yemen Turke) Saud~ Arabia France 1.1berla Netherlands Indonesia Denmark Panama Guam Portugal Norfolk Island Kuwalt Oman Seychelles Switzerland United A r i ~ b Emirates Lebanon Belgium-Luxembourg Qatar Thailand U.N. Trust Territories* India Nauru

* Comprising Manana Ihland except Guam (includes Caroline Islands and Marshall Islands, administered by the USA)

( 7 ) Market\ w~ th in price\ between thoseof the lJSA and USSR:

IJ.S Pacilic l\l;lnd\* Malta Israel l roq Germany. F.R. Antille\ Polynesia

* Other U.S. adrn~n~slered Pacilic Islands including Palmyra. Howland and Baker Islands.

( 3 ) Markets with price\ between thoseofthe USSR and the Republicof Korea.

t ~nl ;~nd Hong Kong Bulgaria Gibraltar Nigeria Singapore Auhtrla

( 4 ) Markets with prlces between tho% o f Republic o f Korea and Egypt: F l j l

( 5 ) Markelh wlth prlceh between thoheof Egypt and Yugoslavia:

Mcxlco Malaysia Jordan Trinidad Reunion Ta~wan M a u r ~ l ~ u \ Venezuela Poland

( 0 ) Market\ w ~ t h prices less than that o f Yugoslav~a:

Sp,l~n Windward Islands Chlna Ro~nania Bahamas Ph~lippines Barhado\ Papua New Guinea Maldives N~ger Korea. D.P. R. Samoa (USA) I.rench Wc\t Indie\ Jamaica Tonga Solomon I\land\ South Al'rlca Western Samoa

the diversification ratio, e.g. 2:1, and set or balance their position through buying or selling shares (credit) of the overall quota. The volume of permissible exports to the USA and the surplus available for other markets was estimated periodically by the AMB. The ratio of these two quantities (USA: 'other' markets) determined the rate at which shipments to non-U.S. markets earned credits to export to the USA. Difficulties with the scheme arose because of difficulties in forecasting exports to other markets and when prices in some other markets exceeded prices obtained in the USA.

Under a revised scheme introduced in 1976, credit entitlement to the USA was based on sales performance to export markets in the previous year such that:

Sixty per cent of quota entitlement was allocated to all exporters according to exports to all destinations in the preceding quota shipment year. Forty per cent of quota entitlement was allocated to all exporters on the .basis of exports to all markets except the USA and Canada in the preceding quota shipment year.

Following the introduction of import permits in Canada and a quota allocation to Australia in 1976-77, an export control scheme to Canada was initiated in January 1977. The main provision of the scheme was that the allocation to individual exporters of the Australia quota was done on the basis of equally weighting past export shipments to the Canadian market for the preceding four years and all export markets for the past year.

A similar scheme operated on Japanese exports from November 1977 to May 1979 following the announcement of Japan's global import quota for beef for the second half of 1977. The method used for allocating the quota to individual exporters was similar to the scheme for Canada except that exports to Japan for the preceding three-year period were weighted in a 7:3 ratio with exports to all export markets in the past year. A distinctive feature of the control scheme to Japan was its role in reducing competition among Australian exporters. After the scheme was introduced, prices received for beef exports to Japan increased and the Australian share of imports fell.

In 1979, a control scheme was introduced for exports to the USA, Canada and Japan and was based on export performance in the previous year to all export markets. With this scheme administered by the AMLC, individual exporters received allocations of import quotas according to their individual shipments to all export markets in 1978. Japanese import quotas were removed from this scheme as from June 1979. Entitlements were tradeable amongst exporters, and new exporters were permitted to borrow entitlement for use in the current year against anticipated future allocations in the following year (AMLC 1979~) .

In 1980, the export control scheme has been suspended because the U.S. import quota has been temporarily suspended. Implementation of control schemes in the future will depend on the USA reimplementing import quotas.

The development of export control schemes since 1976 has involved considerable discussion of a suitable method for determining allocation of entitlement, within the broad framework of allocation on export performance (AMB 1977). To gain a consensus on a suitable scheme both

Revised U.S. scheme

Export controls to Canada

Export controls to Japan

1979 control scheme

Effect on domestic prices

Uncertainty in schemes

Trade-off between lags and uncertainty

Importance of control schemes

1 Allocation of and trade in entitlements

economic efficiency and equity considerations are involved. A control scheme can have important economic effects through its influence on prices in Australia. Equity considerations arise among exporters and between exporters and livestock producer groups (Waugh and Murphy 1979).

Export control schemes operated by Australia have tended to influence domestic prices, in addition to their prime task of matching exports to limits set on the U.S. market. The various diversification schemes, in particular, have enabled some of the 'rent' from the higher priced markets to be transferred back to Australia. This has encouraged sales to 'other' export markets but overall it has had, if anything, an upward effect upon saleyard prices. Exports to other markets tend to be encouraged and there is a tendency for a small decline in the amount of beef consumed on the domestic market (Freebairn and Gruen 1977; Reeves, Longmire and Reynolds 1980).

A factor influencing the effect of export control schemes on saleyard prices is the degree of uncertainty inherent in the various schemes. Periodic changes in diversification ratios and the freezing and unfreezing of entitlement credits create uncertainty for exporters, as does separation in the time between when entitlement is earned and exports occur. The effective return from a sale to an unrestricted market is the actual price plus some expected value of the credit earned. The longer the time between earning that credit and the final sale against it the lower is an exporter's expected value of entitlement credits likely to be (Waugh and Murphy 1979).

Thus, there is a trade-off between reducing the lag period and the degree of uncertainty likely to be created. Shorter lag times place emphasis on the forecasting accuracy of the administering agency, as was apparent with early export diversification schemes. Shorter lag times also add to administ~ative costs and may cause inequity between exporters and producers with different seasonal production patterns.

Guidelines for future development Export control schemes operated by the AMLC are likely to be an important instrument for implementing voluntary restraint agreements on meats in the 1980s. Besides being used to restrain beef exports to key markets, they are likely to become more important for voluntarily restraining sheep-meat exports in the 1980s, at least to the EEC. A number of questions concerning the export control schemes that are implemented remain to be evaluated. Important questions to ask in a review of such schemes include:

For which countries should entitlements apply? For which markets should entitlements be earned? Are there other ways of more efficiently allocating entitlements such as auctioning or trading more openly? What is the likely impact on livestock markets of alternative export control schemes? Are there other export control mechanisms, such as co-ordinated or single seller trading, and how might their efficiency relate to the most recent scheme operating? Can control schemes be developed to contain more forward-looking aspects, especially in the light of the USA adopting a countercyclical meat import law?

Freebairn and Gruen (1977) proposed that auctioning of entitlements would improve efficiency in their allocations to exporters. Providing trade is

open, the current method of trading in entitlements after these have been allocated by the AMLC is an economically rational way of ensuring that firms which are best placed to serve a particular market in a given season are able to obtain entitlements from firms which are not so well placed. Trade in entitlements has caqsed concern to some producers. However, such trade is not detrimental to livestock producers and could lift cattle prices by permitting more flexibility in exporting operations.

Exporters have indicated some concern about the uncertainty of access to entitlements under an auction method of allocation, especially with annual auctions. It has also been suggested that exporters and the industry in general would find little favour in an auction scheme which generated visible revenues which might be put to some other purpose (Seiper 1979). Adoption of an auction method of allocation may influence the present structure of some parts of the industry. For example, parts of the industry which have benefited at times by special allocation of entitlement, e.g. sections of northern Australia, would have to compete with all others wishing to export.

The development of the trade in entitlements on a more open basis should be encouraged. One way of achieving this would be for the AMLC to publish a weekly average quotation for entitlements. Additionally, all trades in entitlements (volume and price) should be placed on public record. More publicly available information is likely to improve the efficiency of allocation of export entitlements. As well the extent to which the entitlement ownership is concentrated and other equity issues related to trading would become more clearly understood.

Entitlement trading could also be used to develop and control sole trader arrangements. In countries where a single purchasing agency imports meat, a sole Australian trader may gain a bargaining advantage which competing sellers could not obtain. The occurrence of gain from such markets will also depend on Australian exports having a dominant role in the market. This may be more likely in markets where foot-and-mouth disease is not endemic and thus there is a limited number of potential supply nations. Where it is suspected that sole trading arrangements may be to Australia's benefit, exporters could be given the opportunity through entitlement sales for one of them to take up all the entitlement to that market. This would allow an exporter to extract the (bargaining) gains from sole trading. By regular reoffering and sale of the total entitlement, all or part of these gains could be passed back to the AMLC for use by the meat industry in research, promotion, subsidising particular exports and so on. Equity and efficiency considerations would arise in devising a suitable system to pass back the gains to the industry.

In the longer term, alternative proposals to the current scheme, such as the selling of entitlements to restricted markets either by auction or on some other pricing basis, should be evaluated. Auctioning could operate by exporters bidding for entitlement at public auctions conducted under the auspices of the AMLC. Auctioning would not prohibit later trade in entitlement. Auctioning the right to export to restricted markets has the advantage of allowing more rapid adjustment by exporters to changing

Entitlement trading

Methods of selling entitlements

Concern with auctioning entitlements

Auction-based scheme preferable

Alternative schemes

market circumstances. The scheme would more equitably allocate market shares according to the individual exporter's bid and would not arbitrarily determine market shares, disadvantage new exporters or fix the industry's structure for a period of time. Further, exporters would be able to specialise to some degree in those markets in which they considered they had a comparative advantage.

Principal areas of concern with the auctioning of export entitlement rights lie with the distribution of funds collected and the possibility of large operators buying all the entitlement. Funds could be reallocated to subsidise sales to otherwise unprofitable export markets, in much the same way as the current scheme. This could have a stabilising effect, particularly in periods of depressed prices.

Problems of entitlement being monopolised by large operators are unlikely to occur under the auctioning of entitlements for a number of reasons. The geographical spread and the current number of exporters are likely to ensure that companies remain competitive. Where entitlement is concentrated into the hands of fewer companies, the problem of non-execution of entitlement may increase. Limitations could be imposed on the entitlements to discourage exporters from failing to resell or ship their entitlement and thus provide a disincentive to control large volumes of entitlement.

On economic grounds, an auction-based scheme for initially allocating export entitlement is a preferred alternative to the current arrangements. It is likely, however, that the effect upon saleyard prices may not be greatly different from the present.

Concern over the buildup of funds from the auction may also develop. However, the fund could be used for financing other activities in the industry such as inspection, industry promotion and research. The fund could be used in place of presently collected slaughter levies.

Other possibilities for alternative schemes include combining entitlement auctions with diversification targets. Eligibility to enter the entitlement auction could be obtained by meeting a diversification target in a previous period. This proposal and the auction proposal, as well as others which might arise, need closer study and consideration. In particular, the expected performance of these schemes under widely changing market conditions

I needs to be closely simulated. Such a study should aim to show the stability of the schemes in the face of uncertain market conditions and their ability not only to control the quantity of exports shipped but also to maximise the benefits which can be returned to Australia and their ability to distribute these equitably through the marketing system. Close costing of methods of auctioning the entitlements and necessary legislative changes would also need investigation.

1 Countering instability

Beef stabilisation schemes The third area in which market instability might be countered is through government intervention in the Australian beef market with some form of stabilisation scheme. Industry organisations, individuals and governments

from time to time have suggested various schemes designed to stabilise prices. Most of the proposals aim to maintain aspects of competitive trading while removing large fluctuations in prices which result from changes in market demand. A number of schemes and their potential stabilising impact have been analysed in the Bureau's report on beef price stabilisation (BAE 1979) and in the proceedings of a workshop on beef stabilisation convened by the Kellogg Rural Adjustment Unit (1978).

Prospects for instability in the 1980s

In 1980, Australia is likely to export approximately 55 per cent of total production of beef and veal. Exports to the IJSA are likely to make up approximately 34 per cent of total production.

Given the importance of export trade to the Australian beef market, prices of beef in the 1980s are likely to continue to be influenced largely by changes in demand and supply conditions overseas and changes in market access.

With approximately 7 per cent of world beef production entering trade, the international market for beef is likely to remain unstable in the 1980s. A number of developments point to continued instability. These include:

Restrictions on imports of beef and veal in all major importing nations, including the adoption by the USA of a countercyclical meat import law from 1980, and possible adoption of a similar law by Canada. Cattle numbers in the major beef-exporting countries have tended to move in phase with the U.S. cattle cycle since the early 1970s. The world energy situation, political developments, high inflation and slow economic growth in major industrialised countries suggest that trade in commodities will remain subject to:

- uncertain political interference, and - unstable demand in the 1980s.

Further research is required to assess the probability of occurrence of a beef slump of the severity experienced in the mid- 1970s. An argument could be mounted that a set of circumstances with a very low probability of occurrence led to the mid-1970s slump. Nevertheless, the prospective instability of beef prices in the 1980s, even if not as volatile as in the 1970s, suggests that continued requests for government intervention in the Australian beef market will remain a key issue in the 1980s. This is particularly so in view of the fact that other major rural industries operate under the umbrellas of 'stabilisation' schemes.

Basic characteristics of the beef industry

Two basic characteristics of the beef industry imply that approaches to stabilisation fundamentally different from those adopted with other industries have to be considered. The two characteristics are the nature of beef supply and the nature of beef marketing.

Beef supply differs from the supply of many agricultural products in two main ways. First, production lags are longer because of biological factors. Second, cattle have a dual role in beef production, being either capital stock

69

Export trade important

Developments which point to instability

Continued requests for government intervention

Two basic characteristics

- nature of beef supply

- nature of beef marketing

Characteristics impinging on stabilisation

Impact of intervention on key variables

(if kept for purposes of breeding, rearing or fattening) or part of current output (if sold of slaughter). Beef producers can be seen as investment managers attempting to manage, amongst other things, an investment portfolio of cattle. This dual role of beef cattle implies that there is a link over time between cattle numbers and levels of slaughterings. Any increase in current slaughterings implies that fewer cattle will be available for future production and vice versa.

The nature of beef supply has several important implications for government policy with regard to beef stabilisation. First, since beef producers can be seen as managing cattle as an investment portfolio, their supply decisions will be based on current market prices in relation to expectations of market prices a number of years into the future, rather than on current prices per se. This means that price stabilisation schemes would be largely ineffective unless producers perceived prices to be stabilised well into the future. A contrast can be made with stabilistation schemes for annual crops, in which a stabilisation price can be announced early in the year and planting decisions can be based on that price.

A second and related implication is that beef-production decisions are likely to be influenced by the costs of holding cattle, as well as by current prices and expected prices in the future. Holding costs include not only on-farm resource costs but also capital costs. This means that decisions to sell cattle in periods of low price can be more profitable, at times, than decisions to hold cattle and sell in later periods of high price. Thus, it may not be profitable, even on a national basis, to attempt to counter the cattle cycle. Considerable research remains to be undertaken with farm-level models of beef production to evaluate alternative marketing strategies in relation to the cattle cycle.

There are three basic characteristics of beef and its marketing which impinge heavily on the evaluation of stabilisation schemes:

- Beef is a perishable product. - Live cattle, carcasses and beef are products with quality attributes which

are difficult to define. - Beef marketing is highly decentralised.

The implication of these characteristics is that many stabilisation schemes that can be applied to other industries are not economically feasible for beef.

In principle, schemes operated through the market are likely to be less effective for the beef industry than for other industries because of the nature of beef supply and marketing.

Objectives of intervention in the Australian beef market

By definition, intervention in the beef market implies changing the levels and stabilty of some key variables in the market over time, particularly cattle numbers, slaughterings, exports, domestic consumption, prices and incomes. The impact of such changes extends beyond beef producers to include slaughterhouses, transport operators, wholesale and retail establishments and suppliers of inputs, as well as to the wider economy.

70

Undoubtedly the most discussed objective of government intervention in the beef industry is 'stabilisation'. In its wider sense, stabilisation refers to a range of schemes proposed for government intervention in the beef market. Four principal goals for price stabilisation were outlined in BAE (1979). They were:

- stabilising incomes; - increasing prices and providing assistance to low income producers; - improving livestock marketing; and - stabilising or smoothing prices.

A fundamental principle of efficient policy formulation is the correct 'assignment' of particular policy measures to the achievement of appropriate objectives. In preparing this report, the effectiveness of stabilisation schemes in meeting each of the objectives listed above was carefully evaluated.

Stabilising incomes

There are a number of factors which suggest that price stabilisation policies are not the most efficient means of stabilising producer incomes. Firstly, income levels depend not only on output prices but also on production levels and input costs. Secondly, income stability depends on the enterprise mix on the farm; the major part of Australia's beef herd is run on mixed farms with a variety of other enterprises. Thirdly, the extent to which price stabilisation would stabilise producers' incomes differs markedly between individuals. This occurs because of the vast range of production and management strategies and the geographical spread of the industry. Both production costs and slaughtering patterns vary widely at any given time; thus, large differences could be expected in the effects upon incomes of stabilising only prices. On the basis of considerable evidence submitted to the IAC, it was concluded that 'price stabilisation is not very effective at stabilising the income of individual producers, and may even destabilise' (IAC 1978, p. 5).

Levels of assistance to low-income producers

The results of surveys conducted by the BAE indicate that there have been serious economic and welfare problems affecting a large proportion of beef producers. For example, in recent years some 30-40 per cent of beef producers have had negative incomes.

Calculations were made in the Bureau, using different assumptions about prices, in order to determine the effect upon producers' incomes in 1975-76 (Johnson and White 1977). The results suggested that, even if beef prices increased by 100 per cent above the levels of 1975-76, the viability of just below 20 per cent of specialist beef producers would still be doubtful.

As it turned out, beef prices in 1979-80 were approximately 180 per cent above 1975-76 levels, after allowing for inflation. Nevertheless, approximately 25 per cent of beef producers had negative net cash incomes. It seems likely that the low-income problems of many producers will continue. These producers could be more effectively assisted by welfare and adjustment measures such as are provided under the Rural Adjustment Scheme. The low-income producers are likely to be subject to considerable commercial

Goals of government intervention through stabilisation

Price stabilisation policies not the most efficient

Producers' economic and welfare problems

Higher prices don't eliminate income problem

Direct approach desirable

Floor prices costly

Strict definition of stabilisation

1 Factors to be stabilised

pressure to adjust, unless other sources of income offset the low income from the beef enterprises.

Improving livestock marketing

Improvement in the operation of the marketing system through the operation of a stabilisation mechanism appears a doubtful objective. The introduction of a stabilisation scheme based on payments at point of sale or slaughter would almost inevitably result in some changes in the livestock marketing system. However, many of the perceived shortcomings would not be affected, e.g. export market access and costs of slaughter and processing would not be affected. A direct approach to improving the marketing system would still be required. Any benefits to improved marketing resulting from a stabilisation scheme should, therefore, be regarded as by-product benefits rather than the main objectives of such schemes.

Proponents have claimed that provision of floor prices could prevent producers being disadvantaged by short-term falls in market prices, i.e. within a single sale or between weeks. Although short-term aberrations in beef cattle prices were identified earlier in this report they tended to be relatively small in magnitude.

A scheme aimed at overcoming these aberrations would be very costly until such time that selling method technologies have advanced dramati- cally. Each animal sold would have to be classified and its guaranteed value established. The large number of staff required to perform this function and to establish price levels for all cattle types at all saleyards in Australia would almost certainly result in the costs exceeding the potential benefits.

Stabilising prices

Schemes for intervening in the beef market are often loosely defined as stabilisation schemes. A stricter definition of stabilisation is adopted in this paper. Stabilisation is defined as reducing the variability of elements in the beef market (such as prices, supplies and income) over time without directly altering their longer term trends. In practice, stabilisation could also indirectly affect the average levels of such elements, since reductions in variability could encourage expansion of the beef industry over the longer term.

The aim of achieving stability in the beef market inevitably must be related to the factors to be stabilised. In the BAE (1979) report on beef price stabilisation, considerable discussion was devoted to the issues of stabilising producer prices of beef and stabilising beef producers' incomes and to the potential for achieving these two objectives. Price stabilisation was seen as applying either:

to the longer term-to smooth out major movements in beef prices and, hence, to assist producers in making long-term investment decisions; or to the short term-to take some of the 'dips and bumps' out of the market within a year and provide price stability within a season.

These efficiency and equity considerations were considered to be the most appropriate goals to pursue in the development of stabilisation arrangements.

Other objectives of stabilisation

One factor yet to be analysed is the stabilisation of cash flows of producers. Stabilising cash flows is a separate (although not mutually exclusive) objective from stabilising price or income. The essential distinction between stabilising cash flows and stabilising net income is that cash flows are affected by changes in levels of borrowing or investment as well as changes in net incomes. It could be argued that producers would be less concerned with price and income instability if cash flows were in some way stabilised.

Stability of wealth is a factor also yet to be considered in the debate on stabilisation. Wealth is defined as the current net value of the resources of an individual or an industry. Fluctuations in wealth have important consequences for the rural finance market, for movement of resources within agriculture and between different sectors of the economy, and for considerations of welfare and distribution of wealth.

Besides producers' price and income and the financial variables discussed above, stability of other factors may be important objectives in stabilisation policy:

slaughterings of cattle, with consequences for employment in beef marketing and processing; throughput in the domestic meat wholesaling and retailing sector, with consequences for margins and employment in the domestic meat trade; retail prices of beef, with consequences for domestic consumers, domestic meat prices and the consumer price index; and volume of exports and value of exports, with consequences for exporting companies and balance of payments.

Overall, the objective of stabilising the beef market should be seen as having implications for the stability of a number of factors in the market. As well, the issue of stability extends beyond the beef market to the impact on regional economic stability and to more general economic variables, e.g. balance of payments, the overall inflation rate and the general level of economic activity. Considerable research remains to be undertaken on the trade-off and general relationships between different objectives. For example, it remains an open empirical question whether stability of price has a dominant stabilising influence throughout the beef market.

However, the major task ahead is to develop schemes oriented toward stabilising the incentive to produce and market (i.e. 'price' stabilisation). The effects of such schemes on other objectives can then be part of the evaluation process rather than the central focus in the development of a scheme.

Costs and benefits of stabilisation

Possible stabilisation policies should be appraised by attempting to evaluate the costs and benefits of market intervention against the current situation of 'non-intervention'. Putting numbers to the costs and benefits of stabilisation policies is a complicated task. This is particularly so for industries such as the beef industry which have significant flow-on effects to regional

Stabilising cash flows

Stability of wealth

Other factors

Stabilisation affects many factors

Evaluation of costs and benefits of

I intervention needed

Importance of market trends

Direct costs

- funding and administration

Hidden revenue losses or gains

Less tangible costs

Three main economic benefits

economies and to the overall economy. However, a rational policy judgment should be based on a consideration of the carefully enumerated potential costs and benefits, even if they cannot all be quantified.

Costs

Stabilisation schemes are faced with a number of different costs and benefits. A potential cost to the nation is that stabilisation schemes that are not properly related to market developments can insulate prices from long-run economic trends. If fundamental market forces are ignored by an industry, the adverse effects on the economy can be significant. Therefore potential stabilisation schemes must be devised so that prices are not insulated from long-run market trends.

There are two types of direct costs of stabilisation schemes:

- costs of funding the scheme - costs of administration.

These are relatively straighforward to measure. The formula and rules of the stabilisation scheme and the movement of prices through time are major factors influencing costs of financing. Direct administrative costs are influenced largely by the number of people employed-although indirect administrative costs might also be borne by producers and others in the market.

Hidden revenue losses (or gains) are another potential cost (or benefit) of stabilisiation. These losses (or gains) are 'hidden' in the sense that they would not show up as losses (or gains) in the accounts of a stabilisation agency. However, the operation of stabilisation schemes which influence supply alters the timing of sale of product and, therefore, alters the revenue flow that producers receive.

Generally, hidden revenue losses (or gains) will depend very much on the nature of demand in periods when product is diverted away from the market and that in periods when product is diverted back on to the market. For beef, hidden revenue losses (or gains) remain an open question which will be difficult to resolve empirically because of the problems of distinguishing between alternative forms of the demand functions for beef. Further analysis of demand, particularly export demand, is required before some assessment of the hidden revenue effects can be made. There are a number of issues to be resolved in this difficult area of analysis.

Besides the potential costs mentioned above, less tangible costs of stabilisation might also be mentioned. There is, for example, the possibility that exports assisted either directly or indirectly by a stabilisation scheme which was not self-financing might be subject to countervailing duties or anti-dumping action in key export markets. Such costs also include possible reduction of personal freedom, reduced incentive for innovation in marketing, and slower decision making induced by additional regulation.

Benefits

Three main economic benefits of stabilisation schemes are worthy of comment. The first is that specialisation is encouraged, so that producers can

concentrate their resources on those forms of production in which they are likely to have the comparative advantage. The second is that producers can be relieved of the function of spreading risk in particular marketing strategies, so that they can concentrate on production activities. The third relates to the utilisation of capacity in both on-farm and off-farm activities. Pastures, transport and slaughtering are all activities for which the unit cost might be expected to be reduced if throughput were more consistent. In the case of pastures, reduction in price uncertainty may result in less conscious understocking. There may also be benefits of a social nature if, for instance, fewer producers are forced into liquidation because of purely fortuitous episodic events.

Overall, the benefits and costs of instability and stabilisation raise a number of issues which require more detailed research. For a number of these benefits and costs, only qualitative evaluation can be undertaken. Perhaps those items most suited to quantitative evaluation are:

the impact on level and stability of prices and incomes of alternative policies; the trade-off between stability and costs of stabilisation (financial, administrative, hidden revenue effects); the income transfers between different groups such as producers, domestic consumers and overseas consumers; implications of stabilisation for selling, slaughtering and transport operations.

Criteria for evaluation policy options

As well as the impact on the level and stability of major variables in the beef market there are a number of criteria against which each of the options can be evaluated:

whether the scheme under evaluation is self-financing. If not, by implication, the industry is being subsidised (or taxed) in some way and the economic case for the subsidy (or tax) must be evaluated closely. Related to the issue of financing are the more specific questions of maximum and minimum levels of funding, the length of time for which money might be held in a fund or for which a fund might be in debit, how subsidies and levies are collected, and so on. whether the scheme being evaluated is compulsory or optional. As a rule, schemes which are optional allow producers more flexibility to express their attitudes to risk. Optional participation, however, poses the 'free-rider' problem if people can obtain the benefits of the scheme's operation while not paying the costs. Certain types of schemes are less likely to be adversely affected by firms choosing to stay out. It is important to assess whether a particular scheme might fail if not made compulsory. whether the scheme is equitable. In a number of ways, inequities can be introduced by intervention in the market

- between beef producers and other sectors of the Australian beef market - betweem the industry and other groups in the economy

Areas for future research

Criteria for evaluation

- self financing?

- compulsory or optional?

- equitable?

- administration involved

- mechanism automatic or negotiated?

- distortion of short-term product flows

- changes in marketing practices required

Non-intervention as a bench-mark

Major options

Market-oriented options

- hedging on futures market

- between sectors within the industry (between the export-oriented sector and the domestic-oriented sector and between fatteners of cattle and breeders of cattle).

the degree of administration and regulation involved in particular schemes. One of the major hurdles posed to date in developing stabilisation schemes for the beef industry has been the burden of administration. whether the arrangements in the scheme for setting a stabilisation price, and so on, are based upon an automatic mechanism or are established by negotiation. The formula approach to establishing stabilisation prices, and so on, is generally to be preferred since the uncertainty that is likely to be associated with negotiation is removed. whether the scheme might unduly distort short-term flows of product through the market. Evidence overseas suggests that producers (and other sectors of the beef industry) would attempt to anticipate policy changes and this could severely distort short-term flows of product. the requirement for changes in marketing practices, e.g. certain schemes could require extensive involvement of statutory authorities trading in meat. Other schemes could require standardised reference prices. These could be provided by a standardised livestock market reporting service.

The following major categories of policy proposals appear worthy of further evaluation although not all of them are seen as efficient stabilising mechanisms.

Option of 'non-intervention'

In considering the alternative stabilisation schemes that appear worthy of further evaluation and development, the option of 'non-intervention' must be seen as a bench-mark for comparison. It is, therefore, important to understand the alternatives available for stabilisation in the 'non-intervention' case.

Although the beef industry is one of the few rural industries in Australia without some form of stabilisation scheme, beef producers still have many options available for stabilising prices and incomes. These include both market-oriented options and options made available by governments.

Market-oriented options available to individuals for stabilising prices, incomes and liquidity, or for offsetting the consequences of instability, include maintaining flexible lending from financial sources, diversification of enterprises selling cattle over a number of sales through time and hedging on the futures market.

Hedging on the futures market offers scope for offsetting the impact o short-term price fluctuations but:

It is not costless as it involves costs of commission and clearing hous charges, costs of financing the hedge, and costs of obtaining timely information. The degree of stability that can be achieved is not certain:

- the ultimate outcome depends upon the trading skills of individuals or brokers in liaison with individuals.

It, applies more directly to domestic-oriented producers than to breeders and export-oriented producers.

Options made available by government to individual producers for stabilising income and liquidity directly include income equalisation deposits, drought assistance, tax averaging, the carry forward of losses for taxation purposes and provision of carry-on finance through the Rural Adjustment Scheme.

These general stabilisation measures can be developed further to make them more suitable and equitable for producers as well as to achieve greater stability. In addition to the options currently available to individual producers, measures are also currently operating to stabilise export returns at the national level. These include the export control scheme and government negotiations over access to export markets.

To date, some of these methods of stabilising prices and incomes have been little used by beef producers. This could reflect either a conscious decision by producers against their use or a lack of awareness of their potential benefit. If the latter is the case, further expenditure on extension services may be justified to inform producers of the options available to them. Alternatively, if these schemes and methods are effective stabilisation options but producers have decided against their use, then either they are costly methods of achieving stability or producers may be choosing to bear the risk of instability. In the latter case, there would seem to be less justification for further stabilisation measures. Information on the types of stabilisation strategies adopted by farmers and on farmer awareness of options available to them is scarce and further research in this area appears justified.

Given the importance of export demand variability, an important option in the current package of policies for the beef industry is negotiation of

I access to markets overseas. It is extremely difficult to evaluate the pay-off to negotiating access to markets since it is difficult to attribute responses to particular negotiations. Nevertheless, the negotiation of access is likely to remain an important instrument in attempting to reduce variability in the Australian beef market.

1 Information and outlook services

An option for stabilising the beef industry which would not involve any market interference is the improvement and wider dissemination of market outlook information-particularly that relevant to producers' current slaughter decisions.

Already a number of improvements have been made to the set of information available to beef producers in Australia-including the livestock market reporting service, wider quotation of overseas market developments by the AMLC, the BAE and State departments responsible for agriculture, the herd-monitoring survey of the AMLC and the wider quotation of futures price movements.

Governmental options

Little used by producers

Negotiation of overseas market access important

Improvement of market outlook information

Improvements to date

Improving forecasts

Research into buffer funds

Principles of operation

Financial aspects

Method of operation

Point-of-sale schemes

Average market price the basis

There will always be scope for more accurate forecasts and the AMLC, the BAE and State departments are undertaking work on methods of improving forecasting procedures, including ways of ensuring that the forecasts are relevant and readily understood by producers.

Buffer fund schemes

Considerable analysis of the effect of buffer fund schemes on price stability has been undertaken by the BAE (1979). However, the stabilising impact of buffer fund schemes on other aspects of the market, such as supplies and exports, is yet to be undertaken.

As well, the principal flow-on effects of buffer fund schemes to regions and the national economy is yet to be evaluated. The stabilising properties of buffer fund schemes result from 'skimming' revenue from the market and using the funds to supplement producers' returns in times of low prices. The principles of operation of buffer fund schemes are shown in Figure 6. Buffer fund schemes with widely differing characteristics can be envisaged. The nature of the procedures which are adopted for collecting and disbursing funds is particularly important in determining the effect of a buffer fund scheme on producers.

It should be noted, however, that buffer funds offer little more than an alternative to existing financial institutions already available to producers. The advantages of a buffer fund result from the fund managers' ability to borrow funds, often under government guarantee, when individual producers may be unable to obtain borrowings during periods of depressed prices. Concessional interest rates may also be obtainable. However, it is unlikely that a buffer fund could invest money at significantly higher rates than individual producers during periods of high returns. As well, if a compulsory buffer fund scheme were implemented, individual producers would be unable to plan their own financial affairs in the manner most appropriate to their own circumstances.

The method of operation of buffer fund schemes can significantly alter the benefits obtained and the costs incurred. In the Bureau's report on beef stabilisation two alternatives were considered (BAE 1979)-point of sale and payment to producer. While both require payment into and out of a fund, the former requires identification of all cattle sold while the latter deals only with producers and their stock-inventory levels.

Point-of-sale schemes are the most commonly discussed group. Under these schemes, if prices fall below some stabilisation level, payments are made from the buffer fund to the owner of the livestock, either when the cattle are sold for slaughter or when they are actually slaughtered. If market prices exceed the stabilisation level, a levy is deducted from the proceeds from sales of cattle for slaughter.

Point-of-sale schemes have been based on the assumption that an average market price would have to be used as a basis for the operation of the buffer fund. The size of any payment or levy is assumed to be calculated from the difference between the average market price and the stabilisation price for the specified period.

Figure 6: Relationship between market price, stabilisation price, effective price and payments to or from buffer fund

Effective price .... ..... . .... Market price

I Time '

The stages in the marketing chain at which payments are made or levies are collected are likely to influence the impact of the scheme on the market. The collection of levies or stabilisation payments would be most easily undertaken at the point of slaughter of the cattle. Documentation of slaughterings and ownership is likely to be reasonably complete and verifiable at this stage. However, this would have the disadvantage of not enabling payments from the fund to be made directly to producers for those cattle which were sold at auction or privately, prior to slaughter. Alternatively, payments from the fund could be made to producers on the basis of account sales from livestock buyers or agents. However, problems of stock being sold more than once before slaughter would need to be guarded against.

Because the point-of-sale scheme would influence returns received by growers from the sale of the stock in particular periods, it could affect the flow of cattle to the market and, therefore, change prices and market revenue. Whether revenue was increased or diminished due to changes in the number of cattle marketed would depend on the exact nature of producers' supply response, the length of time that the market price was below the stabilisation price, and on how the elasticity of demand changed through time.

Problem of payment

Effect on cattle sales

Payment-to-producer schemes

Value of cattle production the basis

Market forces would operate

Long-run profitability of the schemes

Aims of simulations

Payment-to-producer schemes enable producers to receive a payment from the stabilisation fund independently from their short-term marketing decisions. They would be based on a producer's total cattle production and would include allowance for net sales and changes in herd size. Producers would not be required to market their stock before being eligible to receive payments from the fund.

Payments from the scheme would be based on the estimated value of cattle production for each participating producer, rather than just the value of cattle sold; this would be value of sales less the value of purchases plus the net change in cattle inventory valued at a weighted average of sale and purchase prices over the preceding year.

Depending on the relationship between the stabilisation price and the actual market price, payments would be made directly to each producer in proportion to the average of his value of cattle production over the previous two years. During periods of 'high' prices no payment would be made. Payments would increase from zero to a specified maximum as market prices fell relative to a stabilisation price.

In practice, a payment-to-producer scheme would allow market forces to operate. Producers would receive direct stabilisation fund payments in periods of low prices. At a time of low prices producers would not be forced, to the same extent, to sell cattle to maintain a cash flow. This scheme could, therefore, tend to reduce marketings during low price periods and thereby help smooth prices over time, and possibly increase market revenue. If, for example, a scheme resulted in higher slaughterings when demand was relatively elastic (i.e. when overseas market access was relatively good) and lower slaughterings in times of inelastic demand (i.e. restricted export market access), then average prices would tend to be higher in the long run.

The long-run profitability of beef production under both types of buffer fund scheme would not be affected significantly. However, in the long term, both types of scheme are likely to lead to an expansion of the beef industry attributable to a reduction of perceived price risk. In the short term, the payment-to-producer scheme would be likely to reduce supply during downturns in the market because of reduced liquidity pressure on producers. The point-of-sale scheme would be likely to have two opposite short-run supply effects-a negative response relating to the impact of producer liquidity on slaughter, and a positive effect when producers speculated that the market price plus fund payment would decline. The direction of the net change in slaughterings would depend on specific market and seasonal conditions operating at the time.

A number of buffer fund schemes were simulated with the aim of analysing the size of funds required, the degree of stability that might be achieved and the effect on industry revenue of a buffer fund. Several operating mechanisms, which varied according to the method for setting the stabilisation price, the width of the stabilisation band and the size of the fund, were compared. The simulations were run over the period 1955-56 to 1979-80.

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The results suggest that very substantial funds would need to have been accumulated over much of the period to have provided significant support to producers in the recent severe downturn in prices. Conversely, a substantial fund deficit of up to $800m by 1976-77 would have occurred under most operating rules if a fund had entered 1974 with a zero or small positive balance.

Under the assumed operating rules, cattle producers would have paid a considerable amount into a fund had it operated in the financial year 1978-79. This amount, depending on the particular set of rules chosen, would have ranged from about $300m to $1 100m.

The extent to which prices were actually smoothed would be very sensitive to the nature of the operating rules that were adopted. In the case of a buffer fund scheme with unlimited funds and a 3-year moving average formula, there was a 40 per cent reduction in the standard deviation of the effective price to producers. With a 5-year moving average, there was a reduction of 67 per cent. Any constraint on the surplus or deficit which was permitted to accumulate in the fund reduced the stabilising effect of the scheme. For example, when the buffer fund was constrained to a maximum fund size of $300m (credit or deficit), the standard deviation of the effective price to producers was no lower than that of the free market case.

Supply management

Supply management is taken to mean inducing producers to act differently from their 'normal' response to a particular market situation. Such schemes could take many forms involving widely differing objectives and measures of implementation. Methods of implementing supply management could range from direct control of herd size to the provision of market forecasts and market information. Other schemes include subsidies and levies aimed at altering the pattern of slaughterings or retentions over time.

Objectives could range from complete stabilisation of herd size to varying the level of slaughterings to match anticipated changes in export demand (BAE 1979). One possibility is that supply management options might be related by formula directly to the U.S. countercyclical formula. For example, incentives to slaughter cattle might be offered in times of likely high access to the U.S. market and incentives to retain cattle, might be offered in times of restricted access.

Generally, the major issue with regard to going 'counter' to 'countercyclical' import laws is whether it is more efficient to provide producers with more information than to set up a supply management scheme. At this stage, the odds favour the former approach, although further evaluation of supply management schemes is warranted.

Two specific supply management proposals have received some attention. The first is a proposal that Australian cattle supplies should be so managed that slaughterings would be countercyclical with respect to the U.S. industry. The essence of the second is that the size of the herd and cattle slaughterings and supplies to specific markets should be controlled to maintain relatively high and stable prices.

Size of fund required

Price smoothing sensitive to operating rules

Supply management schemes

Objectives

Two proposals

- a countercyclical policy

problems

- control of herd size

problems

Undesirable economic features

Successful operation of a countercyclical policy would require the ability both to forecast the U.S. situation and then, on the basis of the forecasts, to intervene in the Australian market to achieve the appropriate output. Both the forecast and subsequent intervention would pose problems:

There is not a perfect correlation between U.S. cattle production and prices. Demand factors can cause prices to be relatively high even when output is above average. But a countercyclical policy would cause Australia to reduce supplies in these periods. The length and severity of U.S. cycles are much less regular and predictable than frequently supposed. Given the long lags in beef production in Australia and the complex nature of producers' response to price changes, it would be most difficult for a marketing authority to set prices to ensure that a given number of cattle were slaughtered or volume of beef produced several years hence.

Estimates of an econometric model developed by the BAE suggest that slaughterings of cows, heifers and calves tend to fall (rise) in the short term when prices rise (fall). Further, the estimates suggest that the level of slaughterings is not highly responsive to short-term price changes. Thus, it would be difficult to regulate prices in such a way to draw the necessary response in the level of slaughterings from changes in demand. The administrative tasks involved could be costly and might have un- wanted side effects. The influence of other factors, such as droughts, wool prices, and access to the overseas markets, could also tend to upset production plans.

Proposals have been put forward that levies or subsidies be placed on female cattle slaughtered. Such schemes have some appeal as a supply management option, since the level of slaughterings is a prime determinant of current production and the level of female slaughterings is a major factor underlying long-term changes in the herd. Major difficulties with subsidies or levies on slaughterings of cows include:

They would destabilise price in the short term. Whether the industry could withstand this short-term instability for potential gains in longer term stability is doubtful. Whichever way the levies and subsidies were applied, considerable uncertainty would surround the way producers would respond to the scheme. It is unlikely that the scheme would be self-financing so that problems of funding the scheme would, therefore, arise. It may introduce inequities, particularly between cattle 'breeders' and cattle 'feeders'. The payment of subsidies may lead to retaliatory action in importing countries.

A policy of restricting the herd size and supplies to markets would involve a number of undesirable economic features.

While lower supplies would, on average, result in higher prices, the additional returns would tend to be capitalised into land and stock values

and, therefore, long-run profitability might be no higher than existing average levels. The allocation of production quotas would involve extremely difficult equity and economic issues. It is also unlikely that a system of production quotas would be acceptable to Australian livestock producers. Administration and policing of the number of cattle owned and marketed by individual producers would be a major problem. The likely development of a black market could undermine such a proposal. In its recent report, the PJT (1978) doubted that a supply control scheme was workable. The restrictions on the industry would cause rigidities and inefficiency in production methods and misallocation of resources on farms and between farms and regions. Producers could lose the opportunity to supply unexpected but highly profitable markets, so that the growth of the industry would be curtailed.

Over the longer term, it may be possible to develop supply management arrangements to bring some stability and improvement to industry revenue. However, more research would be needed before proposals of this type could be evaluated effectively. Current knowledge of supply and demand relationships in the beef industry does not constitute a sufficiently firm basis for establishing operating rules for a supply management program that would not involve a significant risk of substantial losses in industry revenue.

Provision of market forecasts and market information is a method of indirect supply management. Producers who are aware of likely developments in the countercyclical law, overseas cattle cycles and so on would be in a position to adopt their own 'supply management' strategies. Indeed, cases could be quoted of producers who have profitably adopted strategies which are opposite to general price and supply developments. Of course, if all producers took the opposite course the provision of market information could, in part, be self-defeating. Scope exists for further research on the response of producers to forecasts and this would shed some light on the issue of providing market information and supply management.

A major issue posed in the analysis of all supply management options concerns the accuracy of forecasts. There is no evidence to suggest that an administering agency would have access to more accurate forecasts than those available to market participants, including beef producers. This then raises the issue of whether an agency is in a better position to guide individual decisions on production than the individuals themselves. Our judgment is that producers are in the best position to take those decisions, providing costs of market information do not prohibit widespread dissemination of market forecasts. A further issue is how variable seasonal conditions can be catered for in supply management schemes. The presence of drought might rule out any possibility of supply management, even when indications are that some benefits might accrue from such an option.

Emergency schemes

A general set of stabilisation schemes which warrant further research con- sists of those set up to handle emergency situations only, such as the major

83

Indirect supply management through forecasts and information

Accuracy of forecasts

For emergencies only

Market discrimination and price schedules

Aim is to increase producers' revenue

Practical problems of two-tier pricing

W. A. two-tier pricing

an outbreak of foot-and-mouth disease in Australia. These schemes, in effect, would be buffer fund or price insurance schemes which operate with relatively wide tolerances-so that they would operate only in years of major price movements. Further analysis should be undertaken to evaluate the appropriateness of a scheme of this type. Assessing such arrangements would also involve an assessment of the prospects of market collapses similar to that of the 1970s occurring in the future.

Other schemes Other schemes for stabilising prices have been proposed or tried in both the beef and lamb industries. These can be grouped under two main headings- market discrimination and price schedules. Neither type of scheme is fundamentally structured to have a substantial impact in smoothing out major movements in livestock prices and, hence, assistifig producers in making long-term investment decisions. Because of this and risks outlined below, these schemes are not included among those listed for further consideration as ways to stabilise major movements in prices.

Market discrimination

The aim of market discrimination is to increase producers' revenue by allocating supplies between markets according to the nature of demand in those markets. Typically, demand is regarded as being more price elastic on export markets than on domestic markets, and the aim would be to raise domestic prices relative to export prices. Discrimination in this way may be classified as spatial discrimination as opposed to temporal market discrimination (supply management). The AMLC can influence the allocation of Aus- tralian exports between markets through direct controls and, less directly, through policy instruments such as the beef export control scheme. Domestic prices could be increased relative to exports by various levying or taxing methods operated by State or Commonwealth authorities.

Some of the practical problems associated with implementing two-tier price schemes for the domestic and export markets include:

differentiating and identifying domestic and export beef in the wholesaling-processing stages; enforcement of price schedules; co-operation between States on interstate trade; costs of operation; and the possibility of retaliatory trade barriers in export markets.

However, it is likely that many of these would be mitigated if the economic benefits of a two-tier scheme provided sufficiently strong incentives.

Attempts to establish two-tier pricing through product differentiation at the saleyard level were made in Western Australia under an Act of State Parliament (the Beef Industry Committee Act 1974). Under the scheme, reserve price levels were set for classes of cattle suitable for the domestic

market. Reserve prices were set at the saleyard, with all stock in these categories not sold above the reserve price remaining the property of the vendor. The scheme covered approximately 15 per cent of the total cattle yardings in its initial stages and was covering 40-50 per cent of total yardings when it was suspended in January 1976.

The effects on producers' revenue of raising the domestic price depends on the elasticities of demand for meat in the various markets and upon the relative quantities going to those markets. For example, if the demand for beef on the Australian market is inelastic, an increase in price will bring about a rise in revenue from this market. However, evidence suggests that the elasticity of demand at retail is about -1.3 (Main, Reynolds and White 1976). Thus, attempts to increase domestic prices could cause domestic revenue to fall.

However, the demand for most meats is likely to be less elastic at the wholesale level than at retail because the marketing margins are unlikely to change by the same amount as prices. It is probable that the elasticity of demand at the saleyard for beef for the domestic market falls within the range -0.5 to -1.0. Therefore, an increase in domestic saleyard prices could tend to raise revenue. However, this may or may not be offset by losses in export revenue.

Analysis (BAE 1979) suggests that an increase in the domestic price of beef would cause total revenue of the industry to increase when export demand is more price elastic than domestic demand. However, using a range of elasticities, the potential benefits of such schemes appear to be relatively small and the risk of small losses in revenue are significant.

The effects upon domestic consumers of a two-tier price scheme should also be taken into account. Any scheme which involves raising prices to domestic consumers at one time without offsetting declines in other periods reduces overall consumer welfare. The main beneficiaries in this situation would be overseas consumers, governments or agencies that are able to obtain cheaper supplies of meat.

The smoothing effect, if any, on livestock prices over time of such a two-tiered price scheme would depend on the proportion of meat production sold on the domestic market where, subject to the above practical difficulties, prices could be raised and/or smoothed administratively. The larger the proportion of production sold domestically the more likely would be the chance of smoothing livestock prices. However, unless the prices of all meats were set in unison, substitutability between meats would lead to a substantial offsetting effect on returns to producers due to sales increasing on unstable export markets.

llndustry-ride price schedules

In Australia, the publication of a weekly price schedule giving producers a bench-mark for their marketing decision has obvious appeal. The development of a single, industry-wide schedule involving all the major exporters would, however, have implications for the level of competition in the market.

Elasticities of demand important

Less elastic at wholesale than retail level

Effects on domestic consumers

Smoothing effects of scheme

Weekly schedules appealing

Minimum price schedules

- W.A. Lamb Marketing Board scheme

Australian experience with minimum price schedules for livestock has consisted of two Western Australian schemes. The first is the localised version of two-tier pricing for cattle at the saleyard level (as already discussed) and the second is based on acquisition of livestock and run by the Western Australian Lamb Marketing Board. The Board commenced operation in December 1972 and has continued to acquire lambs delivered for slaughter in Western Australia south of the 26th parallel. Payments to producers are on a weight and grade basis. Prices and terms for the sale of all lamb products acquired are set by the Board. The Australian Meat Export grades were adopted as the basis for the grading system but a number of modifications were made.

Figure 7: Lamb prices in Western Australia, South Australia andvictoria

----- - South Australia Western Australia

When the Board commenced operation, the price differentials between the various classes in the schedule were based upon existing differentials for equivalent stock sold at auction. Since 1974, when exports to the Middle East began \to increase substantially, the changes in the differentials have reflected mainly the demand for various types of carcasses in this market.

The Board has as an objective the removal of price variability that is a feature of the auction system. Clearly, as long as the Board does not vary its price schedules within a day (price schedules are generally set on a weekly basis), within-day price variation is eliminated. However, movements in the Board's prices over longer periods, while somewhat less variable than movements in auction prices, have generally followed the same pattern (see Figure 7).

Generally, it would be very difficult for a State authority to maintain a supply-demand situation which did not reflect the national market. This would be particularly so in the eastern mainland States. Livestock and meat are easily moved interstate and carcasses originally destined for export can be diverted to the domestic market.

At present, many meat firms in other States issue their own price schedules. These differ between firms according to the specific costs and markets pertaining to the individual firms. Under current arrangements, competition between firms would tend to be maintained to a greater degree than with a single industry-wide schedule. Producers are presently able to obtain schedules from different firms before deciding upon consignments.

In New Zealand, livestock marketing is based largely upon a schedule of prices for all grades ofsheep, lamb and beef for export. The price schedules become, in effect, minimum livestock prices and also form the reference point for New Zealand price stabilisiation schemes.

The New Zealand livestock marketing system has two elements ensuring that schedule prices reflect world market conditions. The New Zealand Meat Producers' Board monitors prices and costs associated with meat exporting. The Board can intervene directly in the market or endeavour to persuade exporters to change their schedule of prices according to movements in world prices. Secondly, New Zealand lamb producers have been able to readily arrange for slaughtering and exporting of their stock on their own account to the U.K. market. Thus, if producers felt that exporters were not paying enough they could decide to export lamb themselves, for example, through co-operative arrangements with other producers.

A large proportion of New Zealand's meat trade has consisted of standard grade fat lambs sold to the British market. Consequently, this trade has been relatively easier for New Zealand producers to enter and to monitor than would be the case for Australian producers who wished to enter the export trade, particularly in beef.

The pricing arrangements for livestock in New Zealand have been mooted as an example for Australia. However, the New Zealand livestock industries are relatively compact, homogeneous and characterised by a fairly high degree of administrative involvement and control. Implementation of the New Zealand scheme in Australia would involve significant changes to

8 7

Objective is stabilisation

Firms issue schedules in other States

N.Z. price schedules

N.Z. schedule prices reflect world market

Standard grade fat lambs

N.Z. scheme for Australia unlikely

Calls for increased public involvement

Roles for institutions

Government intervention

- in hygiene and distribution

- in marketing

- review of

the Australian industry. The Bureau's judgment is that the necessary additional costs and controls would be unlikely to be offset by greater longer term stability or higher returns to producers.

Institutional arrangements

In recent years, changes have been made to the powers and potential roles of both Federal and State meat industry organisations. In many cases, these changes have followed calls by producers for increased public involvement in the marketing of meat and livestock, particularly in trading and pricing arrangements.

Particular issues examined in this chapter of the report are regulatory guidelines for competition and meat inspection, research, promotion and trading roles of public authorities. Other roles for institutions involving price control schemes and information services are covered in earlier chapters of the report.

Regulation Institutions play a major role in regulating many of the activities carried on within the livestock and meat industry.

There are various bodies existing at the Commonwealth, State and local government levels whose roles are, in part, concerned with a range of functions ensuring that meat for human consumption is produced in a clean and hygienic way in the abattoir and distributed throughout the marketing system in the best possible manner. It was not feasible to undertake a detailed study of State meat marketing authorities within the context of this report. Clearly, State authorities have responsibilities with respect to such matters affecting the meat industry as health regulation, transport, publicly operated saleyards, abattoirs and wholesaling facilities.

There are many ways in which government intervention in meat marketing could influence the marketing system. Some of these, such as government involvement in the operation of saleyards, abattoirs and the setting of trading hours and awards for payments to labour, have been covered earlier in this report. Other policies, in which governments directly intervene in the operation of the marketing process, and which often result in increased marketing costs, include State and Federal road regulations,

1 controls on pollution, regulation of labelling, differential taxation policies on private and government companies, policies for the decentralisation of industrial activity and declaring designated consumption areas and the levying of meat introduced from outside specified areas.

There is, therefore, economic reason to review the measures, both existing and proposed, of government intervention. Some consideration needs to be given to assessing the resulting market distortions and to determining whether the available instruments presently being applied are the most effective.

Competition

Competitive activity may be facilitated in two ways. Direct intervention, such as trading by statutory authorities, may be to maintain and increase the general level of competition in the market. As well, bodies such as the Prices Justification Tribunal and the Trade Practices Commission have a significant role to play in regulating the general nature and level of competition within Australia; their powers are limited to some extent with respect to livestock and meat.

For example, with respect to a meat price inquiry, the PJT was limited in its powers of obtaining evidence, especially from non-corporate and non-governmental bodies. Although there are penalties for not complying with certain requirements of the PJT, companies are not obliged generally to comply with the PJT's recommendations-reliance being placed on the force of public opinion.

Existing legislation and codes of practice provide a framework to support the watchdog role of the Trade Practices Commission. However, there is a diversity of commercial practice needed in the livestock and meat trade, especially the bases of trade for over-the-hooks sales of carcasses. Doubts and disputes can easily arise over such issues as trimming factors, time of weighing and shrinkage during cooling. Legislative support for standard carcass definition and procedures for weighing should assist in the maintenance of reliable and trustworthy commercial practice. The diversity of practices needed could then be explicitly agreed as departures from standards. The benefits of such a change would not only result in improved competition but also lower the costs to buyers and sellers of establishing the bases for over-the-hooks sales.

Regulation of the competitive activity of private firms may, at times, conflict with arrangements most appropriate to extracting monopoly gains due to limited access to export markets or economies of size in selling to a large single buyer organisation, e.g. Prodintorg.

Meat inspection

A major area of the facilitating role of government in the livestock and meat industry is that concerned with hygiene aspects of meat produced for human consumption. Institutional regulation of health activities ranges from the construction of abattoirs to the standards for hygiene and meat inspection.

Under present arrangements in Australia, there are problems with the varying levels of duplication of standards and services by the States and the Commonwealth in meat inspection within the Australian States. In particular, dual meat inspection results in increased costs because of the additional labour and staff amenities involved, as well as creating a more sensitive industrial climate.

The net effect is that dual meat inspection hinders a co-ordinated approach to other market reforms, such as carcass classification. Already in the carcass classification trials, demarcation problems have arisen and a number of staffing issues have to be resolved before carcasses can be classified.

89

Direct and indirect intervention in competition

PJT powers limited

Role of TPC

Role of government in hygiene

Dual meat inspection

- hinders carcass classification

- Commonwealth criticism

Single inspection recommended

Total expenditure on research

Rural research mainly by CSIRO

Research funding

Limited funds for marketing research

AMLC meat promotion

A committee of inquiry established by the Commonwealth Government has recently made a number of criticisms of the dual meat inspection services and recommendations on meat inspection (Commonwealth of Australia 1980).

Chief among its recommendations were a proposal for a single meat inspection service and a change in the method of charging for meat inspection services.

Research Total expenditure in Australia on rural research is reported to have increased at an average annual rate of 15 per cent in recent decades to reach around $200m a year (IAC 19766, p. 1). This figure compares with a 6 per cent annual increase in the value of rural output over a similar period.

Rural research in general, as well as research into the livestock and meat industry specifically, is undertaken mainly by CSIRO. However, various Commonwealth Government departments and agencies, State Government instrumentalities, universities, specialist research institutions and private industry also undertake various levels of research into livestock and meat.

For the livestock and meat industry, research is funded largely by slaughter levies on livestock. The Australian Meat Research Committee (AMRC) is responsible for allocation of these research funds between organisations and projects.

Because of the rise in research costs relative to levy collections, funding of meat research has been faced with difficulties in maintaining constant real levels of finance. Livestock and meat industry groups have called into question the principle of basing the distribution of research funds on the

1 sources of collection by indicating that only limited funds have been made available for research into agricultural marketing systems. In recent years around 75-80 per cent of AMRC funds have been expended on farm production oriented research. Of the remaining 20-25 per cent, a large proportion of the funds is still allocated to technical, regional or basic background gathering research, which is of little direct benefit to improving the operation of the marketing system. In discussions which BAE officers have had with industry representatives, frequent references were made by the latter to the inadequacy of research funds for livestock marketing.

Promotion Meat promotion on both domestic and export markets is a function of the AMLC. Promotion on these markets funded by the industry is by way of special projects, films, pamphlets and leaflets, trade missions and various education programs for consumers and the meat trade organisations. Promotion may be directed to expanding consumer demand for meat or to changes in methods of processing and marketing. An example of the latter is the promotion of 'tenderstretch' as an alternative method of meat processing.

The extent of industry-funded meat promotion is shown by the expenditure on promotion given in Table 9. Promotion by individual firms would be additional to this expenditure.

Table 9: Summary of expenditure on promotion by AMB-AMLC

Market 1972-73 1973-74 1974-75 1975-76 1976-77 1977-78 1978-79 1979--80 (a )

Overseas Domestic

Total

(a) Budgetary estimate. Sources: AMB (1977) and AMLC (1979a)

Gross expenditure on promotion by the AMLC has fluctuated from year to year, reflecting mainly the changing patterns of expenditure on export markets as prospects in these outlets vary. Expenditure on the domestic market has tended to increase in the period since 1972-73 (Table 9). The AMLC's allocation for promotion on the domestic market for 1978-79 was more than double the level of 1977-78.

In addition to budget allocations by the AMLC, assistance is received from the Overseas Trade Publicity Committee (OTPC) and the Meat and Allied Trades Federation (MATF). The OTPC acts as the co-ordinating body for the allocation of funds which the Commonwealth Government may make available for assistance with promotional activities on overseas markets. The MATF provides assistance for meat promotion on the domestic market.

In principle, promotion can expand or change consumer demand for meat, or influence processing and marketing activities so that demand for livestock at the farm level changes.

Sellers can benefit if promotion enables them to sell more with no price change, and/or induce higher prices with no reduction in sales volume. This does not mean that all sellers will benefit from promotion, as factors such as the characteristics of the market to which promotion is directed will influence the size and distribution of benefits.

The distribution of the returns from promotion within the industry is a complex issue. Some of the increased demand will be passed back to producers in the form of higher livestock prices, while the suppliers of marketing services, such as abattoirs, wholesalers and retailers, may also benefit.

Market conditions are particularly important when promotion is considered for the meat industry. As prices for meat are influenced by conditions in both domestic and export markets, promotion that expands sales in one market will influence the volume of meat available for sale to the other market. For instance, a promotion campaign that successfully expanded the volume of domestic sales could reduce export sales by a corresponding volume.

AMLC expenditure on promotion

OTPC and MATF promotion roles

Consumer demand and promotion

Sellers and promotion

Distribution of returns from promotion

Market conditions and promotion

Factors influencing promotability

Export market promotion

- better directed to traders

and those who control imports

Domestic promotion

- aimed a t consumer expenditure

- revenue generation depends on supply and demand

The extent to which sales can be altered by promotion in either market will depend on many factors and these need to be considered simultaneously with the expected price responsiveness (Parish 1963; De Boer 1977). These factors which influence promotability can be summarised as follows ( IAC 1976a):

existence of a profitable opportunity to convey information to consumers; scope for differentiation of the Australian product from others in response to competitive pressure; opportunity to influence traders in order to assist dissemination of new technology and/or overcome market imperfections in the processing and distribution channels.

On export markets, profitable opportunities may exist for increasing demand for meat through advertising and promotion, particularly in those markets where there is little familiarity with a meat diet and consumers have rising incomes. However, any gain from overall meat promotion which arises may benefit other suppliers of meat as well as Australia. In such cases, some joint industry promotion, together with differentiation of Australian meat, should be considered.

Scope for differentiation of Australian meat is related to the uses made of imported meat in other countries. The bulk of meat imports are not for direct consumption-additional processing has been the more common end use (New Zealand Meat Producers' Board 1974) particularly for U.S. imports. Consequently, efforts to develop and maintain an image for Australian meat would be better directed to traders rather than consumers. It may also be possible to segment certain overseas markets, and concentrate promotion of, say, high-priced cuts to the higher income group.

Promotion in export marketing of meat can be directed at influencing authorities or industry representatives who can control imports. Such promotion may be accompanied by technically oriented promotional activities aimed a t assisting the processing, distribution and sale of meat in importing countries.

Promotion on the domestic market can be aimed at maintaining or increasing consumer expenditure on meat. This may be achieved, for example, by encouraging innovation in meat marketing, by assisting food retailers in the handling and display of meat and by advertising aimed a t consumers. Also, its sole aim may be to increase the volume of meat sold on domestic markets.

The revenue-generating effect of promotion will depend on the nature of the supply and demand for meat on the domestic market. If, for example, additional supplies of meat are readily available by diverting a small proportion of exports to the domestic market, then the price of meat may not be affected by a shift in domestic consumer demand due to promotion. Additional sales, and therefore greater revenue, would be generated on the domestic market but export revenue may decline. The net effect on revenue would depend on the elasticity of demand in the respective markets. It is doubtful, on balance, whether the Australian meat industry would be well

advised to allocate large sums to direct consumer advertising on the domestic market. An exception to this may be when prices are falling rapidly and advertising may be used to quicken consumer response.

The effect of direct meat advertising on consumer tastes and consumption is extremely difficult to evaluate. The range of possibilities for promotion complicates the choice of where and how promotional campaigns should be directed. Choices are frequently made in the allocation of funds for promotion amongst epport and domestic markets and between different target groups, e.g. meat consumers or meat traders. To assist in improving the use of funds spent on promotion, clear-cut objectives and systematic evaluation should be used. In this way, livestock producers and others who contribute to and benefit from promotional funds should be able to improve their returns from promotion.

Trading by statutory authorities Several State and Federal bodies have legislative power to trade in meat although, in a number of instances, this residual power has not been exercised. A summary of the main bodies and their roles is given in Table 10. At the Commonwealth level, the AMLC has not yet entered into trade, although the AMLC, like its predecessor, the AMB, has the power to purchase and sell meat. Direct sales were, however, made by the AMB. For example, in 1970 the Board handled a contract with Prodintorg, the USSR purchasing agency, for 25 kt of beef and 33 kt of mutton. More recently, however, sales to Prodintorg have been negotiated by a consortium of private exporters.

At the State level, the Western Australian Lamb Marketing Board has been trading since its inception in 1972. The Board sells on both the export and domestic markets and will resell to the owner who delivered the lambs for slaughter, e.g. wholesalers or retailers who bought lambs at auction.

The involvement of State authorities in trading has been linked in several States with the operation of public abattoirs. This involvement by institutions received considerable discussion in the report by the PJT (1978) on beef marketing, particularly as regards the advantages and disadvantages. In general, State and municipal abattoirs are predominantly service works and it is on this basis that direct government involvement is usually justified.

While at times a number of State authorities have been significantly involved in trading, there has recently been a tendency to withdraw from trading. A number of the State abattoir authorities which are both running abattoirs and trading in the market place have recently faced financial difficulties.

Livestock and meat products are, by nature, difficult to standardise and costly to store. This explains to a considerable extent why institutional involvement in trading has been less than for products such as grains and wool. As well, there are a number of competing meats on both export and domestic markets, which limits the degree to which market power can be concentrated in one institution.

Effectiveness difficult to evaluate

Bodies with power to trade in meat

- AMLC

- W.A. Lamb Marketing Board

- State authorities and public abattoirs

Nature of product and institutional trading

Table 10: Main charters of statutory bodies in livestock and meat marketing

Statutory insfifufion(a)

Activity

The Queensland Western Meat Industry New South South Western Australian Australian

Organisation WalesMeat Homebush Australian Australian Lamb Meat and and Marketing Industry Abattoir Meat Meat Marketing Livestock

Authority Authority Corporation Corporation Commission Board Corporation

Residual power to purchase or acquire livestock

Sale or regulation of meat or livestock - withinloutside the

State - export

Abattoir - acquisition - construction - maintenance

inspection - management and/or

control Meat markets including

meat selling arrangements - provision of meat halls - management

Market information services Product description Producer stabilisation

schemes Abattoir hygiene

( a ) In addition, State and local government bodies not mentioned above exist to control and conduct the operation of public abattoirs in all States.

* A major part of the body's activity is under this heading. t Activity under these headings is a minor part of the body's activity. Source: Relevant empowering legislation, and the offices of the authorities.

AMLC trading

Review of public sector abattoirs

Trading by the AMLC could require changes to industry financing arrangements. These could be along lines similar to those applying for other market authorities. Producers could also be called upon to pay a levy to cover any losses that might arise and the AMLC would have appropriate rights to borrow funds. The extent of funds required would depend on the particular trading operation envisaged.

The operation of public sector abattoirs is another issue closely linked with trading that could usefully be subject to further review. Although the evidence is far from clear, it appears that certain public-sector abattoirs have higher fixed and operating expenses that require higher charges than other comparable private or co-operative abattoirs. The PJT (1978) found that the highest charges are at the State Government works at Homebush and Cannon Hill. It remains to be shown that these higher charges are offset by wider benefits to the industry.

Livestock and meat marketing inquiries I Appendix A in Australia : summary of reports of public inquiries

A number of public inquiries have been held into livestock and meat marketing in Australia. These provide a useful setting for consideration of the current state of knowledge in the marketing of these products. Investigations of certain aspects of livestock and meat marketing have been conducted at the Federal level. A Joint Parliamentary Committee on Prices reported on meat prices in 1973 (Parliament of the Commonwealth of Australia 1973). The Prices Justification Tribunal has recently reported on charges and margins for beef processing and marketing (PJT 1978).

The following summary of major findings has been prepared from State inquiries into the meat marketing system. The summary of recommendations of the PJT report are presented separately. The main State inquiries have been those by New South Wales (Parliament of New South Wales 1972); Victoria (Cozens 1973); Tasmania (Parliament of Tasmania 1974) and Western Australia (Government of Western Australia 1976).

Each of these inquiries received written and oral submissions from meat industry organisations, government departments and informed individuals associated with the meat industry. This appendix summarises issues of livestock and meat marketing identified by these Committees and their recommendations.

Summary of issues common to the public inquiries I the encouragement of alternative avenues for marketing livestock, including direct selling, sale by weight and grade, co-operative marketing and sale on producer's own account, all based upon a system of carcass classification;

the developmeht of nationally uniform objective carcass classification schemes for beef, sheep (including lambs) and pigs;

increased powers for government authorities particularly with respect to trading and market reporting activities;

improved systems of livestock market reporting covering both auction sales and processor sales and with control by an independent authority; improved feedback data to producers with producer education of livestock characteristics;

the suitability of present retail operations and the appropriateness of alternative systems for cutting and distributing meat.

Many public inquiries

- Federal

- State

Alternative marketing avenues


Government powers

Market reporting

Meat distribution

Grading for retail

By-products

Single meat authority

Agents' commissions

Live exports

Bruising

Abattoir licensing

Abattoir charges and management

Inspection

Cost savings

Legal definitions

Transport

Saleyards

Liveweight selling

Weighing

Agents' charges

Market reports

Weighing equipment

Freight rates

Summary of issues arising from specific public inquiries

the development of a meat identification-grading system for consumers to use at the retail level;

the importance of the by-product industry and its regulation as to standards for edible material;

the vesting of all meat industry matters in a single meat industry authority or, where relevant, the incorporation of regulatory and control functions of present industry affairs into existing statutory regulations; commissions charged by livestock agents should reflect the cost of providing the service (e.g. paddock sales should incur lower charges than auction sales);

live-animal exports as an alternative method of marketing livestock, and the extent of government monitoring and control;

greater awareness of aspects of livestock bruising and an education program on the economic consequences of bruising; single licensing authorities for abattoirs with uniform standards in design, safety and hygiene requirements;

alternative charging systems for abattoir services and of systems of management of abattoirs in line with the competitive nature of this sector of the industry;

role and administration of dual systems of State and Commonwealth inspection services; the potential for operational cost savings, particularly from changes to livestock and meat buying patterns, where competitive meat wholesaling exists;

legal definitions of items such as carcasses, sale by weight, measurement, condition of sale and health requirements; the appropriateness of systems of road, rail and sea transport.

Summary of recommendations and suggestions of the PJT

Livestock selling that State Governments, particularly in the Southern States, should aim to phase out a number of the smaller saleyards;

* that liveweight selling of cattle be extended;

that cattle be weighed prior to, rather than after, the auction sale when sold by liveweight and the weights given to buyers;

that the producer be charged specifically for each service requested from livestock agents;

that State departments responsible for agriculture and the AMLC provide more reliable and authoritative reports on livestock sales at major provincial centres in addition to those at capital cities;

that approved electronic weighing equipment be installed compulsorily in all abattoirs;

that the wide differentials in freight rates for cattle in the various railway systems be reviewed.

Abattoirs and processing that Governments should exercise restraint over increases in processing charges at State-controlled abattoirs and give greater attention to the incidence on the industry of governmental levies and charges; that there should be a thorough overhaul of Australian meat inspection, both from the standpoint of manpower and procedures; that duplication should be eliminated; and that there should be a continuing scrutiny of such activities in the light of developing knowledge and circumstances; that the whole question of carcass classification should be reviewed thoroughly from first principles and that this should be done before any more financial commitments are made; that the Government institute a specific inquiry designed to review the present tally system and its dampening effect on productivity gains.

Retailing that the AMLC devote some of its resources to devising a simple grading system for beef which would be helpful to consumers.

Suggestions on beef marketing methods the Tribunal strongly supported measures to provide better marketing information to producers in the form of more extensive short, medium and long-term outlook information; the Tribunal considered that minimum price schemes for cattle with or without government guarantees may well aggravate rather than assist the producers' situation in a period of over-supply.

Levies and charges

Inspection


Tally system

Grading for consumers

Market information

Minimum price schemes

Marketing costs : different livestock selling methods

The data presented in this appendix and tables B.l and B.2 were collected in mid 1978. The four major areas of cost difference between selling methods were identified as agent's commission, saleyard costs, livestock buyer costs and transport costs.

Agent's commission The avoidance of livestock agent's commission is the major contributing factor to the cost savings under direct selling. In the estimation of these cost savings, it has been assumed that the producer does not use the services of an agent. This is, of course, not necessarily the case. In many cases, the producer may wish to use the services of a livestock agent and in other cases the producer may feel obligated to do so because of financial commitments. Livestock agents usually charge a fixed percentage commission which does not vary with the type of selling method. In South Australia and Victoria, the commission rate on the sale of livestock is generally 5 per cent. In other States it is usually between 3.5 per cent and 5 per cent. Exceptions are the producer marketing groups which also operate in the market, arranging for the direct sale of stock. These agents generally charge a commission rate varying between 1 per cent and 3 per cent. Table B.3 details livestock agents' costs for a single country selling centre in South Australia for the auction system and direct selling methods.

The cost components detailed do not cover indirect costs such as office overheads. Nevertheless, it is shown in this particular case study that stock agents'costs under direct selling are considerably lower than under auction selling, primarily because of the saving in capital and operating costs associated with livestock saleyards. Further research is required to determine the wider applicability of these results.

1 saleyard costs Costs of using saleyards can differ, depending on the range of services provided. For example, costs to saleyard users ranged from 80c per head at the country saleyards to $1.92 per head at the Gepps Cross saleyards (see Table B.4). Saleyard dues cover capital and maintenance costs associated with the saleyards.

At liveweight auctions, an additional cost of approximately 60c per head was incurred by the producer to cover the weighing charge. As well, liveweight auction may involve extra handling and, consequently, bruising which could lead to a reduction in returns to the seller.

Appendix B

Four main areas of cost difference

Avoidance of agent's :ommission

Agent's costs lower under direct selling

Saleyard costs differ

Liveweight auction costs

Buyer costs for alternative methods

Savings by selling over-the-hooks

Two transport stages

Example of transport costs

Bruising loss

Stress weight loss

Livestock buyer costs In Table B.5, details of buyer costs for alternative cattle selling methods are given. In determining the cost components, selling methods were grouped into three categories. The buyers in the survey considered that the costs within a category were of the same magnitude.

The cost components were determined through an examination of the operations of seven firms operating in the Adelaide market. The firms selected covered functions ranging from individual activites, such as retailing or wholesaling, through to a combination such as wholesaling, processing and exporting. Firms in the sample accounted for approximately 40 per cent of cattle bought at the Gepps Cross auction over the period of the study.

Buyers' costs of 22c per head for the 'over-the-hooks' selling represent a saving of 72c per head, or 77 per cent, when compared with Gepps Cross auctions, or a saving of $1.23 per head, or 85 per cent, when compared with country auctions or paddock buying.

Transport costs Additional transport costs are incurred with livestock sold through the auction system as two transportation stages are involved-property to saleyard and saleyard to abattoir. The additional distance and transport charge will be relatively small where the saleyard is located adjacent to an abattoir but can be significant in the case of a country saleyard.

To examine the significance of the latter, a sample of properties that sent cattle to a saleyard in the south-east of South Australia was selected. The average transport cost per head from the properties to Adelaide direct was estimated at $5.68, as compared with $6.21 for cattle sold at the country saleyards and then shipped to Adelaide. A saving of 9 per cent, or 53c per head, therefore resulted with direct selling methods.

These cost savings are, however, an underestimation as there are other costs associated with the auction system which may be quite substantial-for example, bruising and stress weight loss. Losses from bruising (Riche 1973; Yeh 1976) have been estimated at 2.0-2.5 kg of trim or $3.28 per beef carcass. Of this cost, 35 per cent was attributable to the trimming out of bruises, 21 per cent to the downgrading of carcasses from local to export trade, 40 per cent to the downgrading of cuts in the boning room and 4 per cent to time and production losses on the kill floor. Although research has been unable to isolate the bruising specifically attributable to auctions, the handling of livestock at auction may be an important source of bruising.

The evidence of stress weight loss from auction is inconclusive for cattle (Kirton and Paterson 1971; Hughes 1976) although it has been estimated at some 2 per cent of carcass weight for lambs (Lysaght and Sibree 1972). Reliable estimates in this field are difficult to obtain. Such factors as condition of the stock, temperament, delay before slaughter and climatic factors affect the variable which the researcher is interested in measuring.

Table B.l: Livestock (cattle) marketing costs : existing selling methods : Adelaide area : 1978

Gepps Cross Direct selling

Type ofcost

Livestock auction Paddock Over-the-hooks ( a ) Carcass auction

Cost per Proportion Cost per Proportion Cost per Proportion Cost per Proportion head oftotal head oftotal head oftotal head oftotal

Transport (property to saleyard/abattoir) Gepps Cross

Saleyard expenses Agent's commission Buyer costs Net abattoir costs

(SAMCOR) Wholesale commission Freight to wholesale ( a )

Total 33.06 100 26.05 100 24.82 100 34.00 100

(a) In the case of carcass auction lh~s is the fre~ght cost from abattoir to carcass auctlon locat~on.

Table B.2: Livestock (cattle) marketing costs : existing selling methods : south-east area of South Australia : 1978

Direct selling

Type of cost

Country livestock auction Paddock Over-the-hooks Carcass auction

Cost per Proportion Cost per Proportion Cost per Proportion Cost per Proportion head o f fo ta l head oftotal head oftotal head oftotal

Transport ( a ) (property to Adelaide abattoir) 6.21 19 5.68 2 1 5.68 21 5.68 16

Saleyard expenses 0.80 2 . . . . . . . . . . . . Agent's commission 5.60 16 . . . . . . . . . . . . Buyer costs 1.45 4 1.45 5 0.22 1 . . . . Net abattoir costs

(SAMCOR) 18.10 52 18.10 65 18.10 68 18.10 5 1 Wholesale commission . . . . . . . . . . . . 9.40 26 Freight to wholesale ( b ) 2.50 7 2.50 9 2.50 10 2.50 7

Total costs 34.66 100 27.73 100 26.50 100 35.68 100 - -- - - ~p

(a) The transport costs for livestock auction contains two components, i s . property to saleyard : $1.92, (6 per cent) and saleyard to Adelaide ab.dttoirs : $4.29 ( 1 3 per cent). (b) In the case of carcass auction this is the freight cost from abattoir to carcass auction locat~on.

Table B.3: Livestock agents' costs in marketing cattle: 1978 ( a )

Country Direct Item auction selling ( b )

Number of visits to client's property

Costs connected with visit Salary Travel Phone

Costs connected with auction Salary (plus casual) Yards (capital and maintenance) (c)

1.56 0.50 0.71

( a ) Estimated average number in consignment from property for auctnon was 13 head, for direct selling 37 head. The costs in this table do not include capital costs other than those of the saleyards and vehicles used for the property visits. ( b ) Where direct selling ~nvolves a stock agent and covers both paddock selling and 'over-the-hooks'selling. (c) The country selling centre on which the costing was based had a set of cattle saleyards jointly owned and maintained by the stock agencies in the town.

Table B.4: Livestock cattle sellers' costs at saleyards: 1978 (a)

Gepps Country Type of cost Cross saleyards saleyards

Saleyard dues 0.84 0.60 Droving and branding 0.56 . . Sorting and loading . . 0.20 Hay and holding paddock lease 0.52 . .

Total costs 1.92 0.80

(a) Preliminary BAE estimates.

Table B.5: Cattle buyer costs: existing selling methods: 1978

Type of cost

Country auctions/ paddock buying

(south-east South 'Over-the-hooks' Gepps Cross auctions Australia) e.g. weight and grade

Cost per Proportion Cost per Proportion Cost per Proportion head of total head of total head of total

-

$ % $ % $ %

Labour 0.88 94 0.88 6 1 0.09 4 1 Accommodation . . . . 0.13 9 . . . . Transport 0.04 4 0.31 21 . . . . Phone 0.02 2 0.13 9 0.13 59

Total cost 0.94 100 1.45 100 0.22 100

Summary of major cost components of freight rates

The components of freight rates which have altered the total rate are shown in Table C.1. Of those, the currency adjustment factor (CAF) is an important component, particularly to Australia's major beef markets, Japan (CAF at 30 June 1977 was + 13.57 per cent of the freight rate) and North America (CAFs of + 16.9 per cent and + 15.5 per cent for the East Coast and West Coast, respectively) (Table C.2). The bunker surcharge is another element of the freight rate but this has declined as a percentage of the total freight paid since 1975, while the CAF has increased to reach 14 per cent of the total cost per container (Table C. 1).

Appendix C

Currency adjustment factor important

Table C. I : House-to-pier container freight rates (port-to-port): Australia to East Coast North America: Using a stow of 16.329 per IS0 20' x 8' x 8' refrigerated container. Rates do not include wharfage ex Australia.

Bunker surcharge Currency Total cost as proportion of adjustment CAF as proportion Less

Cost per Bunker total cost per factor of total cost per 'to house' per per Year container surcharge container (CAF) container allowance container tonne

$A $A % $A % $A $A $A

1973 Jan.-June 2 071 . . . . . . 30 2041 125 July-Dec. 1 937 16 0.8 . . 30 1923 118

1974 Jan.-June 1937 217 10.2 . . 30 2 124 130 July-Dec. 2 226 26 1 10.3 9 1 3.6 39 2539 155

1975 Jan.-June 2 792 319 10.5 -25 0.8 46 3 040 186 July-Dec. 2 876 328 10.6 -62 2.0 39 3 103 190

1976 Jan.-June 2 836 308 9.5 82 2.5 . . 3226 198 July-Dec. 2 836 269 8.2 165 5.0 . . 3 270 200

1977 Jan.-June 3 105 269 6.8 587 14.8 . . 3961 243 July-Dec. 3 141 272 6.9 553 13.9 . . 3 966 243

Source: AMLC

I Table C.2: Currency adjustment factor and bunker surcharge as at 30 June 1977: 1 Percentage of freight paid

I Destination

Bunker CAF surcharge

United Kingdom/Continent/Mediterranean Hong Kong, Philippines, Taiwan Japan/Korea (Republic of) North America

East Coast West Coast

South Africa/Mauritius Arabian Gulf Singapore, West Malaysia Papua New Guinea

* Incorporated into freight rate Source: A M B (1977).

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Index

abattoirs charges 5, 15,17,32,94,96-7 container loading 40,43 cost of carcass classification 47,97

see also carcass classification effect of export controls 6 effect of meat promotion 91 efficiency 4,34 export abattoirs 4,33 licensing 96 management 5,56,96 public ownership 15,93-4 utilised capacity 5.33, table 34 weighing equipment 96

see also weighing see also tally system, throughput, Cannon Hill

AGRO 79 Perch 1979 iii agents

see livestock agents America

see United States of America AMLC

see Australian Meat and Live-stock Corporation ANCC

see Australian National Cattlemen's Council auctions

carcass auctions 32 entitlement trading 67 price variability 87 see also livestock auctions

Australia-East Coast North America trade route 40 Australia. Bureau of Agricultural Economics iii, iv, 2,7,8, 12,

15,18,25,30,36,37,69,77,85,90 see also Bain, R., Biggs, P., Longmire, I., Miller, G., Motha,

G., Todd, M. Weissel, D. Australia-politics and government

see Australian Parliament, government intervention, statutorv authorities

Australia. Department of Primary Industry iii Australian Agricultural Council iii Australian Bureau of Statistics 35 Australian Council of Livestock Agents 54 Australian Defence Forces food specifications 46 Australian Grazing Industry Survey 9 Australian Meat and Live-stock Corporation 7,94

freight rate negotiations 42,58 meat promotion 15.90-1 1979 export controls 65,84 reporting 45,77 sale of entitlements 7 study of consumption 37 trials of carcass classification 48

Australian Meat Board 15,46 see also Australian Meat and Live-stock Corporation

Australian Meat Research Committee 90 Australian National Cattlemen's Council 35 Australian Parliament

see government intervention, Sinchir, the Hon. I. McC., Standing Committee on Agriculture

Australian Parliament-Committee of Inquiry 1979 15,18 Australian Shipping Conference

effect of pricing practices 6

bacon share of pig-meat production 27

BAE see Australia. Bureau of Agricultural Economics

Bain, R. iv beef carcasses

distribution 5 see also boxed meat, carcass classification, chilled meat

beef futures markets 4,30-1.76 see also speculators, Sydney Futures Exchange

beef industry characteristics 8.69 effect of buffer schemes 80 supply management 13,69-70,81-3 yield 21 see also cattle producers, veal

beef marketing characteristics 9 export freight rates 40 export values 21,60 intervention 70-3 market instability 68 see also marketing costs, stabilisation schemes

beef slump see cattle prices

Biggs, P. iv bilateral trade negotiations 6 boneless beef 40 boxed meat 5,17,35,56

see also boneless beef bruising 96

in liveweight selling 3,99 in transport 33

buffer fund schemes 12,18,78-81 emergency schemes I4 payment-to-producers scheme 12 point-of-sale scheme 78-9 summary 12 simulation 12.80

Bureau of Agricultural Economics see Australia. Bureau of Agricultural Economics

butcher shops 5,35 by-products 96

CAF see currency adjustment factor

Canada import quotas 62 market reporting 46

Cannon Hill abattoir Queensland 94 carcass auctions

see auctions carcass classification 2, 16-1 7.46-8,89,95

advantages 46,57 costs 47 for direct selling 28 see also strip branding

carcass handling 5 carcass yield 21

errors 3,54 pricing on 30

carcasses auction selling table 31 carcass-based distribution 57 see also beef carcasses

cattle industry herd size 13,8 1 north Australia 4 saleyard handling 54 selling table 28 stress weight-loss I00 see also beef industry, cattle producers, store cattle, veal

cattle prices effect of importing countries' policies 6 effect of point-of-sale buffer 79 elasticity 85 futures market 17 instability 8.61,69 saleyard prices 25, table 26,28,29 supply response 82 see also meat prices, price stabilisation, weekly price

schedules cattle producers

attitudes to auction system 28 to government options 77

buffer fund schemes for 12.80 low-income producers 7 1 2 stabilising cash flow 73 supply decisions 70,8 1 3

chilled meat carcasses in export trade 39 quarters and cuts 5

in domestic market 35 Commonwealth Scientific and industrial Research

Organization see CSIRO

competition 89 between abattoirs 4 between meats 93 in retailing 17,35

competitive sight-unseen trading see sight-unseen trading

Conference lines 42,58 see also Australian Shipping Conference

conferences and conventions see AG RO 79

consumption ~~ ' edomes t i c market, export market

containers see shipping

co-ordinated approach 55 costs

at export abattoirs 4 buyer costs 100 costs savings 96,99 in liveweight selling 3.99 of carcass classification 2,47 of stabilisation schemes 17.74 shipping 6,40 slaughtering 5, 17,34 tables 101 2 transDort costs I00 see also livestock agents, marketing costs

CSIRO 90 CSIRO Meat Research Laboratory 40 currency adjustment factor40,lO3, table 104

demand see domestic market, export market, prices

direct selling 2,3, 16,30,49 50 agents' charges 3 cattle producers'attitudes 28 contact conditions 52-3 effect of carcass classification 47 effect on marketing costs 31 see also over-the-hooks selling, paddock selling,

sight-unseen trading diseases

effect on exports 62 3 see also foot-and-mouth disease

distance effect in north Australia 4 from export market

see shipping from saleyards

see transport domestic market 1,21

consumer services 36 demand elasticity 25, 38,85 effect of stabilisation schemes 73 effect on cattle prices 25, 85 livestock producers' share 23, table 23 promotion 15,91 see also Meat and Allied Trades Federation

drought effect on abattoirs 33 effect on production 13 effect on supply management 83

drought assistance 1 1,77

ECNA see Australia-East Coast North America trade route

E EC see European Economic Community

elasticities of supply and demand see cattle prices, domestic market, export market, meat

prices emergency schemes 18.83 4

summary 14 employment conditions

at abattoirs 5, 34 entitlement trading 7 , 6 6 8

and diversification targets 68 European Economic Community

beef import policies 61 sheep meat policies 61 2 see also France. United Kingdom

export abattoirs see abattoirs

export control schemes 1,6, 1 7 , 6 3 8 to the USA 7,63 to Canada 63.65

export entitlements 7 see also entitlement trading

export grades 2, 16,38,45,87 difficulties 47

export market 1-2,6,17,38,58-68 boxed meat 5,39 effect of stabilisation schemes 10,73 effect of changing demand 8,25 importance 69 live exports 9 1

see also sheep livestock producers' share 23 value 2 1 see also export promotion, guaranteed access, meat

importing countries, shipping, 'sole trader' policy export promotion 15,91

farm incomes 9,7 1 see also income stabilisation, marketing costs

foot-and-mouth disease 7,84 effect on beef industry 63

France 61 freezing 2 1,39 freighting

see transport futures market

see beef futures markets

GATT see General Agreement on Tariffs and Trade

General Agreement on Tariff and Trade 6,61 see also Multilateral Trade Negotiations

Gepps Cross saleyards South Australia cost variation 32, 100

government intervention 1 in beef market 8,18,68,70-3,84-5 justification 24 'non-intervention' 10,76-7 State government authorities 16,84 see also meat industry organisations, meat inspection,

Prices Justification Tribunal, public inquiries, Rural Adjustment Scheme, stabilisation schemes

grading see export grades, retailing-grading

Greece 61 guaranteed access

Australian negotiations 6,17,60-3 reliability 62

ham 27 health regulations 15,23,88

and export markets 62-3 see also meat inspection

herd size see cattle industry-herd size

Homebush saleyards New South Wales weekly markets 27 Homebush Abattoir Corporation 94 charges 94

hygiene controls see health regulations

I AC see Industries Assistance Commission

import controls see meat importing countries

importing countries see meat importing countries

income equalisation deposits 11,77 income stabilisation 10,71

by market discrimination 14 government options 11.77 see also drought assistance, income equalisation deposits,

Rural Adjustment Scheme, tax averaging industrial relations 5 Industries Assistance Commission 71 information services

see market reporting instability

in cattle market 8 interlotting 4, 17,55

Japan consumption patterns 38

export controls to 65 import tendering arrangement 7 protective policy 60

joint industry approach 53 see also co-ordinated approach

Kellogg Rural Adjustment Unit 69 Korea

see Republic of Korea Kelly, the Hon. C. R.

chairman of Committee of Inquiry 15 see also Australian Parliament-Committee of Inquiry

Kelly Report 15, 18 labour

in liveweight selling 3 in livestock slaughtering 5,34,56

effect of awards 5,56 in meat marketing 35,40 in retailing 36 see also employment conditions, industrial relations

lamb industry abattoirs 33 carcass branding 38 carcass distribution 35 exports 21,60 in New Zealand 87 prices 25, table 27,86 volume 2 1

legal definitions 3, 52,96 live sheep

see sheep livestock agents 2

and price reporting 45 and saleyard rationalisation 4 charges 3, 16,32,48-9,96,99 costs table 102 effects of change 4 role in direct selling 50 role in sight-unseen trading 53 see also Australian Council of Livestock Agents, Victorian

Stock and Station Agents livestock auctions 2,54-5

agents' charges 3 auction of pigs by classification 51 communication options 5 1-2 costs table 31 effect of lot size 30,55 future role 4, 16 prices for beef 24,86 prices for lamb 24 prices for pigs 27 see also Homebush saleyard, interlotting, livestock prices,

saleyards livestock industry iii

and carcass classification 2 seasonal patterns 5 see also beef industry, joint industry approach, livestock

producers, meat industry, pigs, poultry, sheep livestock industry organisations iii

see also Australian Meat and Live-stock Corporation livestock market price reporting services 2,28,45 livestock marketing iii, 2, 16

and price stabilisation 10,72 alternative avenues 95 costs table 101 effect of promotion 91 improvements 72 systems 23,99

efficiency 23 see also direct selling, livestock auctions, liveweight selling,

market reporting

livestock marketing authorities iii see also statutory authorities

livestock marketing policies avenues for change 45,49 export control schemes 65-6

Livestock Marketing Study Group of South Australia 52 livestock prices 1

effect of export demand 24 effect of promotion 91 hedging 3 1 price smoothing 81.85 variability 28 see also cattle prices

livestock producers contract conditions 52 effect of entitlement trading 8 effect of export control schemes 6,83 effect of price stabilisation 10-1 1 effect of U.S. price 7 livestock descriptions 50 market information needs 4,46 share of consumer expenditure 23 see also cattle producers, farm incomes

livestock selling see livestock marketing

livestock slaughtering see slaughtering

liveweight estimation errors 3

liveweight scales see weighing

liveweight selling 3, 17,53-4,96,99 LMRS

see livestock market price reporting services Longmire, J. iv

management of abattoirs 5,56,96 see also cattle producers

market discrimination 14.84-5 see also two-price schemes

market forecasts effect on supply management 13,83 improvements 77

market information see market reporting

market reporting 2,16,45-6,77,83,95 see also livestock market price reporting services, market

forecasts marketing costs 99-102

differences between selling methods 32, table 99 distribution table 3 1 importance 31 retailing costs 36 see also currency adjustment factor

marketing margins 85 and carcass classification 2

marketing policies iii, 1 market intervention schemes 60,88 see also livestock marketing policies, market

discrimination, meat marketing policies M ATF

see Meat and Allied Trades Federation Meat and Allied Trades Federation 91 meat chilling

see chilled meat meat distribution 35,92,95

alternatives 5,56-7 costs 39 retail distribution 36 see also retailing, wholesaling

114

meat freezing see freezing

meat importingcountries 1 restrictions 69 trade policies 6,58, table 59 see also European Economic Community, Japan, Middle

East, Republic of Korea, United States of America meat industry iii

size 21 share of household expenditure 37 see also by-products, red meats

meat industry organisations iii, 35,88-90 single meat authority 96 see also Australian Meat and Live-stock Corporation,

Australian Meat Board, Meat and Allied Trades Federation, New Zealand Meat Producers' Board, Western Australian Lamb Marketing Board

meat inspection 89-90,96 inefficiencies 15 rationalisation 18

meat marketing iii, 55-6 effect of promotion 91 see also beef marketing, domestic market, export markets,

health regulations, meat distribution, meat promotion, product description

meat marketing authorities iii, 19,94 singlemeat authority 96 summary 16 see also Australian Meat and Live-stock Corporation, New

South Wales Meat Industry Authority, Queensland Meat Industry Organisation and Marketing Authority, Western Australian Lamb Marketing Board

meat prices 1,85 effect of export control schemes 66 emergency schemes 14 retail demand elasticity 25,38,85 stabilisation schemes 10 see also beef futures markets

meat processing 21 effect of promotion 91-2 establishments 4, 33 see also 'tenderstretch'

meat promotion 15, 18,90, ruble 91 domestic 38,92 effect 92-3 export promotion 15,92

meat quality description see production description

Middle East lamb market 25,62,87

Miller, G. Director BAE iv Motha, G. iv Multilateral Trade Negotiations

Australia's efforts 6 mutton

exports 21,60 volume 21

New South Wales liveweight selling 3,53 marketing reporting 2 Parliamentary inquiry 1972 24,95 saleyards 3,54

New South Wales. Department of Agriculture. Wagga Wagga Regional Office 29

New South Wales Meat Industry Authority 94 New Zealand

export restrictions 62 livestock pricing arrangements 15.87

New Zealand Meat Producers' Board 92

Newmarket saleyards Victoria lamb price variation 27 liveweight selling 3,53

non-intervention 12.76-7 as bench-mark 11

North America see Canada, United States of America

north Australia abattoirs 4,33

objective carcass description see carcass classification

OECD 6 open market pricing 1,45

supply and demand conditions 25 Organisation for Economic Co-operation and Development

see OECD OTPC

see Overseas Trade Publicity Committee overseas markets

see export markets Overseas Trade Publicity Committee 91 over-the-hooks selling 28,30,45,89

costs table 31, 100 ownership

of abattoirs 5

paddock selling 28,30 costs table 3 1

piecework see tally systems

pigs marketing 50 saleyard prices 27 volume 21 see also bacon, ham, pork

PJT see Prices Justification Tribunal

plazas and malls see shopping malls and plazas

pork carcass distribution 35 share of pig-meat production 27

poultry industry outside scope of report 21 volume 21

price insurance schemes emergency schemes I4

price smoothing see livestock prices

price stabilisation 10, 12, 18,70-2,97 see also stabilisation schemes

prices domestic retail price stability 6,37 effect of futures market 30 effect of promotion 92 instability of cattle market 8 price differences 30 price establishment 51 pricing accuracy 3 retail pricing efficiency 37 seasonal variation 27 U.S. price premium 7 see also cattle prices, livestock prices, meat prices, open

market pricing, price stabilisation, pricing mechanism Prices Justification Tribunal

revort (PJT 1976) 43

I report &to meat marketing and processing charges (PJT 1978) 4,15,24,32,35,93,96-7

reports (PJT 1977,1980) 48 role in competition 89

pricing mechanism 1 Prodintorg 89,93 production description 2, 16,46

non-standardised 38.45 see also carcass classification

public inquiries 95-6 see also Australian Parliament. Committee of Inquiry

1979, Australian Parliament. Joint Committee on Prices 1973, New South Wales-Parliamentary inquiry 1972, Prices Justification Tribunal, Tasmania-Parliamentary inquiry 1974, Victoria-government inquiry 1973, Western Australia-Parliamentary inquiry 1976

quarters see also chilled meat

Queensland lightweight selling 3,53 market reporting 45 saleyards 3,54 voluntary domestic beef grading 47

Queensland Meat Industry Organisation and Marketing Authority 94

red meats 1 Republic of Korea

import tendering arrangements 7 regulation of imports 59

research 90 see also CSIRO

retail outlets 4.33 chilled quarters 5 see also butcher shops, supermarkets

retail price stability in domestic meat market 6,37,73 levelling and averaging 37

retailing 1, 17,35 effect of meat promotion 91 effect of stabilisation schemes 73 grading 96-7 price stability 6, 10 pricing practices 37 transactions with wholesaler 5 see also butcher shops

Rural Adjustment Scheme 9,11,71,77 Russia

see Union of Soviet Socialist Republics

saleyards costs 32,99 design 3 prices 8.72.85 public ownership 16 rationalisation 3, 17,54,96 role in price formation 28,30 throughput table 29 see also Gevos Cross salevards. Homebush salevards.

~ewmarhe t saleyards, wag&+ Wagga saleyarhs SAMCOR

see South Australian Meat Corporation seasonal patterns

and supply management 83 at abattoirs 5,33

selling costs see marketing costs

sheep EEC regime 61-2 Japanese import policy 61 live-sheep exports 21,26 marketing 2, 16 see also lamb, mutton, wool prices

shipping 1, 17,2 1,57-8 containers 39,43 costs 6,40 table 41,42, tables 103-4 unit loading 43 see also Conference lines

\hopping niall\ dnd pla/d> effect on meat re td~l~na 6.36 see also supermarkets-

Sinclair, the Hon. I. McC. iii sight-unseen trading 2,16,46,50-3

standardised conditions for 3,50 simulations

of buffer fund schemes 80 see also buffer fund schemes

slaughtering 1,4,21 countercyclical to U.S. industry 13,81-2 costs 17,32,56 effect of cattle numbers 9.33.56 effect of stabilisation schemes 10,70,73,80 hygiene controls 23 labour-intensive 5,34 stabilisation payments 79 volume 21 see also abattoirs

smoothing of prices see livestock prices

'sole trader' policy and entitlement trading 67 reduces price competition 6

South America effect of diseases 62

South Australia agents' charges 99 Meat Corporation 94 pig marketing 50 research on marketing 32 saleyards 3 trial carcass classification 47

South Australia. Department of Agriculture and Fisheries 51 South Australian Meat Corporation 94 specialist butcher shops

see butcher shops speculators

role in futures market 30 stabilisation schemes 68-88

benefits and costs l l definition 72 effect a t buffer fund schemes 12 in beef market 68-84 objectives 9 'price' stabilisation 10 see also buffer fund scheme, emergency schemes, income

stabilisation, non-intervention, price insurance schemes, price stablisation

Standing Committee on Agriculture iii statutory authorities

trading in meat 93-4, table 94 see also Australian Meat and Live-stock Corporation,

Australian Meat Board, Homebush saleyards, New South Wales Meat Industry Authority, Queensland Meat Industry Organisation and Marketing Authority, South Australian Meat Corporation, Western Australian Lamb Marketing Board, Western Australian Meat Commission

stock and station agents see livestock agents

store cattle marketing 2, 16,54

strip branding 48 supermarkets

meat retailing 6,36 supply and demand

see domestic market, export market, prices supply management

see cattle producers, stabilisation schemes Sydney Futures Exchange

establishment of beef cattle futures 30 establishment of boneless beef futures 30

tally system 34 effect on abattoir efficiency 4 proposed review 35,97

Tasmania Parliamentary inquiry into livestock and meat industry

1974 24,95 tax averaging 1 1,77 technological changes

in livestock marketing 51-2 in.meat processing 23

telephone for livestock selling 51

teletype in livestock marketing 52

television in cattle marketing 52

Telstock 50 'tenderstretch' 90 throughput

at abattoirs 5,33,56 at saleyards table 29

Todd, M. iv trade 6,38-43,58

relations with USA 7 trading by statutory authorities 93-4 see also Australia-East Coast North America trade route,

bilateral trade negotiation, export control schemes, Multilateral Trade Negotiations

Trade Practices Commission 48,89 trading in entitlements

see entitlement trading transport 96,

costs 33,39,55, 100, tables 103-4 see also shipping

two-price schemes 1 4 , 8 4 5

uniform carcass description see carcass classification

unit loading see shipping

United Kingdom New Zealand lamb 87 sheep-meat policy 61

Union of Soviet Socialist Republics 93 see also Prodintorg

United States of America 7 countercyclical meat import law 69 country quotas 7 domestic meat distribution 5.35 export control scheme 7,60,63 export costs table 39 major market 7 prices 7 shipping costs 6,40

University of New England. Agricultural Business Research Institute 52

see United States of America USSR

see Union of Soviet Socialist Republics

veal exports 2 1,60 volume 21

Victoria agents' charges 100 government inquiry 1973 95 market reporting 2 saleyards 3.54 telephone link to pig auctions 5 1 see also Newmarket

Victorian Stock and Station Agents' Association 54 video

in cattle marketing 52

Wagga Wagga saleyards New South Wales cattle market 29

weekly price schedules 85 weighing 3,54,96 Weissel, D. iv Western Australia

direct sales 50 market reporting 2 minimum price schedules 14,85 Parliamentary inquiry 1976 24,95 saleyards 3,86 trial carcass classification 47

Western Australian Lamb Marketing Board 14,86-7,93-4 Western Australian Meat Commission 94 wheat 21 wholesaling 1, 17.35

effect of meat promotion 91 effect of stabilisation schemes 10 in meat marketing 5 public ownership 16

wool 2 1 wool prices

effect on beef production 13

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Livestock and Meat Marketing in Australia An economic...

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