Cheaper lamb and beef might hurt producer in long-run: processors

Dropping retail prices is a misdiagnosis that distracts from improving future resilience and profitability, Australian Meat Industry Council's general manager of industry affairs Tim Ryan said.

Further, if the 20 per cent drop in retail meat prices in supermarkets seen in recent times is based on political pressure and reflects a departure from market principles, it has the potential to undercut the profit margins of thousands of independent local butchers across Australia, AMIC argues.

Processors say they must be free to make a profit in the current environment.

They have slammed talk of inquiries that might lead to government intervention in fundamental market demand and supply cycles in the beef and sheep business.

"Processors invest hundreds of millions of dollars into their facilities, with the knowledge that over the long-term they will be rewarded for the level of risk borne in the capital they have tied up," Mr Ryan said.

"Processors wore the losses and paid through the teeth to keep plants operating and staff employed in the previous three years, with the expectation that the increase in supply and favourable trading conditions would eventually return.

"If these profitable periods are capped or undermined by intervention, it will destroy confidence in the processing sector, limit future investment and innovation and ultimately lead to less capacity and competition during the next peak in turnoff.

"Instead of eyeing each other's slice of the pie, if all parts of the supply chain focused on improving their business and what's within their control, the entire pie will grow."

While livestock prices have kicked across Australia in the past month, the heightened publicity on retail meat prices falling may make it difficult for the supermarkets to backtrack on discounts and pass on any rebound in livestock prices, as consumers have been prepped to expect cheap meat going into the festive season, Mr Ryan said.

He said the recent commentary on domestic retail meat prices was unproductive.

"Not only is the emphasis on who gets what share of the retail dollar based on flawed principles, it distracts from understanding the real drivers of returns throughout the supply chain and may have unintended consequences," he said.

Processors maintain the saleyard is not a good indicator of what supermarkets or processors are buying.

Mr Ryan said the calculation for the producer share of the retail dollar glosses over structural changes in the red meat supply chain and Australian consumer behaviour, which means drawing any conclusion from it is fraught.

"While it may leave a bitter taste for producers to see the price of lamb cutlets retail at $50/kg and saleyard lambs below $5/kg carcase weight, both these prices are being driven by market forces," he said.

"At a retail level, consumers have clearly been willing to pay $50/kg for cutlets. This is thanks to the work industry, supported by Meat & Livestock Australia's marketing team, has done in promoting red meat domestically.

"It is counterintuitive that some commentators are calling for this work in building premiums to be undone, simply because they want the consumer price to track the saleyard price more closely.

"Moreover, retailers of meat seek to take volatility out of their pricing and make changes more gradually, softening the peaks and troughs in the underlying livestock market and incorporating a range of other costs into their decisions.

"Taken to the extreme, we would simply confuse and frustrate consumers if retail prices were as volatile as the weekly swings evident at the saleyard."