AN independent study into the nature of competition in the beef processing industry has provided comprehensive answers to the plethora of assertions being levelled against the sector in political and competition inquiries.
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The findings, released this week, point to the likelihood that tightening competition in the processing game will in fact do more harm than good to a producer’s chances of getting higher prices for cattle.
The investigation and report by economic consultants SG Heilbron concluded the price of livestock was ultimately determined by the world market and no individual processor had the ability to influence market conditions.
It was commissioned by the Australian Meat Processor Corporation (AMPC) to inform discussion surrounding the Australian Competition and Consumer Commission’s (ACCC) market study on the cattle and beef industry.
Report author Dr Selwyn Heilbron said the linking of concentration in the industry with abnormally high margins did not reflect the reality of how processors operate and compete.
The report recommends addressing the underlying cost efficiency challenges faced by small producers rather than tightening competition regulation in the processor sector. It argues prices of livestock are not the main driver of producer profitability, rather it is costs of production.
There are major challenges posed for policymakers by smaller producers who have difficulty in fully participating in the development of the beef industry, where economic forces generate competitive advantages for those able to realise the benefits of scale, it says. Dr Heilbron said many of the concerns being raised were ‘the province of smaller scale producers who have far higher costs’.
Competition policy as a tool to deal with that would be misplaced and in fact could have ‘all sorts of untoward consequences’, he said.
“The economic justification does not stack up. And if you widen the goal posts to take in ‘concerted action’ or introduce an effects test, it will be at the expense of the competitiveness of the industry which includes livestock producers.
“You will end harming the very people you are trying to protect.”
Dr Heilbron said the tendency to use the concept of market power in a colloquial or everyday sense, rather than the legal definition which the ACCC has to enforce, has proven dangerous.
This process had to be not about taking decisions on emotion but rather convincing evidence, he said.
The high level of scrutiny placed on the beef processing sector had been occurring for at least 20 years, Dr Heilbron said.