Monday, June 15, 2009

WHY NSW CATTLE PRODUCERS ARE NOT GETTING THE PRICE THAT THEY SHOULD BE FOR THEIR CATTLE

THE PROBLEM

Most of the beef sold to Australian consumers is sold as a single commodity with no differentiation between the good and the bad. The problem is that between 30% and 40% of the table beef eaten in Australian homes comes from old cows, so while consumers may buy good steak one day, there’s a good chance they’ll get bad steak next time round.

Consequently consumer dissatisfaction with poor quality steak sets the price for both the good and the bad, and there is little or no differentiation between the price paid to cattle producers for their old cows and the price paid to them for young steers.

The current abattoir grid price for four teeth steers at 275-290 kg is $2.80 per kilo and the grid price for 275-290 kg eight teeth old cows is $2.70 a kg


THE SOLUTION – A NATIONAL BEEF GRADING SYSTEM

If poor quality beef from older cows were clearly identified to consumers, fewer prime cuts from old boner cows would be sold as table steak on the Australian market. Cow beef would therefore no longer undermine the value of the premium quality product.

If a National Beef Grading System were introduced into Australia, the producers of quality and well finished British breed beef cattle could achieve a premium in excess of $100 a head over and above the price paid for standard grade cattle.

Cow prices, on the other hand, are underpinned by the American hamburger market and hence any cow price decline would be marginal.


GRADING PREMIUM

MLA research shows that over the hooks prices for MSA yearling cattle are between 7-26 cents more than for non MSA yearling cattle. For a 225 kg carcass this translates to a premium between $16.00-$58.00 a head. MLA research also shows that the average wholesale premium for MSA cuts was $1.56 per kg and the average retail premium for MSA beef across all cuts was $1.70 a kg.

In 2005 Cameron Dart (MSA Manager), Dr Barry Griffiths (Beef CRC and NSW DPI Economist) and Professor John Thompson (Beef CRC and UNE Professor of Meat Science) estimated that retail premiums on a whole carcass basis for MSA Graded Carcass was 0.39c per kg and the wholesale MSA whole of carcass premium was 0.29c per kg which translates into a $78.00 retail wholesale premium.

At the moment abattoirs are getting about $3.46kg for MSA carcasses, $3.30kg for grain fed carcasses and $3.19kg for yearling grass fed cattle. The MSA premiums are mainly found in full cuts-rump, strips, cubes and tenderloins.

Rod Polkinghorne, the founder of MSA, told the Senate Standing Committee of the Rural and Regional Affairs and Transport Inquiry into beef marketing in Melbourne on 26 March that the MSA grading premium at the farm level was between $150-$300 a head.


GRADING ALL THE CATTLE

Currently only about 25% of the cattle killed for the Australian market are MSA graded and the MSA cuts comprise only about 16% of the carcass. Hence only about 5% of the beef eaten by Australians is MSA graded.

If the consumer is to have confidence in the quality of the product that they are buying, all the beef sold to the Australian domestic market needs to be graded, not just the top and bottom grades.

It is therefore contemplated that the premium grades of the proposed National Beef Grading System will include top quality grass and grain fed cattle as well as MSA graded carcasses.


TENDERNESS & EATING QUALITY

MLA research and genetic testing has proven that Hereford, Angus and Shorthorn breeds have more tender genes and better eating quality than Bos Indicus cattle.

A joint paper by Professors at the University of New England, Adelaide noted that:
“Australia has two different broad systems of beef production: northern and southern. In the North (Queensland, the Northern Territory and upper regions of Western Australia) cattle properties and herd sizes are very large, extensive cattle production systems, which are characterised by grazing native pastures at low densities. This production system represents 73% of the Australian beef industry and is mainly orientated to exports to the United States. On the other hand, southern farms are smaller and cattle graze intensively on improved pastures and fodder crops. These cattle are sold on the domestic market and exported to Japan and Korea”.


INCREASED CONSUMPTION

Based on the experience of overseas countries with grading systems and limitations on the age of beef consumed the introduction of a National Beef Grading System in Australia will lead to an increase in per capita domestic beef consumption because consumers will have more confidence in the quality of the product that they are buying.

The 1996 Meat Industry Strategic Plan forecast that a National Beef Grading System that guaranteed quality products to consumers would produce a $1.2 billion annual payout to the beef industry.

This can be achieved if the 07/08 per capita beef consumption of 36.3 kg per person were to increase by 5 kg per person back to the 1997 per capita beef consumption of 41.3 kg.

To put it more simply, the $1.2 billion payout could be achieved if every Australian ate one more beef meal every three weeks.


AND THE WINNERS WILL BE...

1. New South Wales and the Southern State cattle producers who have the best quality cattle grazing on the best pastures, and therefore will receive the biggest portion of the windfall payout from increased consumption and premium prices flowing from a National Beef Grading System.

2. All Australian cattle producers and the Australian beef industry as a whole who will all share in the annual $1.2 billion pay out.

3. Australian consumers who will be able to make a buying decision based upon the price and quality of the beef before they buy.


ACTION

If you feel strongly about the introduction of a National Beef Grading System underpinned by legislation please register your comment (use link directly below this week's post) and vote so that we can pass your opinions onto the relevant State and Federal Ministers (use the online poll in the right hand column of this page).