Steaks are high

This debate – covered in ANZ’s recent Food for Thought - 2024 report – is far from new and resurfaces every few years. In recent months, the issue’s prominence, particularly in the political and media arenas, has been one factor behind the Federal Government directing the Australian Competition and Consumer Commission (ACCC) to conduct an inquiry into the supermarket industry.

"Comparing a saleyard cattle price to a consumer beef price oversimplifies the complexity of the supply chain between the two points.”

While the current inquiry will take place over the coming year, it is useful to look at what impacts the relationship between cattle prices and retail beef prices.

Firstly, comparison between the two is an inexact science. The most regularly used benchmark for cattle prices to compare to beef prices is the saleyard price for trade steer, a young male cow up to 400 kilograms and 18 months old.

Saleyard cattle prices, however, aren’t simply a reflection of the price paid for cattle to be directly processed for meat. They are also impacted by farmers buying cattle to restock their own operations, as well as feedlots buying to fatten cattle.

If the latter two are relatively quiet, the overall cattle price may look lower than the more specific price being paid for cattle to process.

Where’s the beef?

Also importantly, the major supermarkets increasingly source cattle directly from particular farmers, rather than the saleyards. Thus, they may be paying a different price than the market indicator. These offtake relationships give supermarkets greater certainty around supply as well as consistency of meat quality.

Comparing a saleyard cattle price to a consumer beef price oversimplifies the complexity of the supply chain between the two points, and other areas subject to their own cost pressures.

Each of these stages is subject to its own cost pressures, which can be particularly pronounced in a period of both high inflation and high energy costs. This can reduce margins for several stakeholders along the chain.

Cattle prices can be particularly volatile as a result of different climatic conditions. While prices can fall significantly when farmers prepare for possible dry weather by offloading stock and increasing supply, they can also rise quickly when farmers restock their herds in good weather.

Cattle prices shot up after the drought broke in early 2020 and continued to rise for around two years as producers restocked. At the same time however, retail beef prices rose only marginally.

The price of the cow accounted for just over half of the price paid by customers, according to the ACCC’s 2006 report. Processing costs accounted for 13 per cent and retail costs (including slicing and packaging) about 30 per cent.

As such, if the price of the animal goes down and other supply chain costs go up, the impact on the retail price could be minimal.

Even looking at lamb, the data shows a similar difference between the volatility of the saleyard price and the retail price.

While beef products are part of the weekly shopping basket for many Australian households, they are not quite like staple products such as milk or bread. Shoppers are likely to consider whether to buy steak or choose an alternative product – such as chicken or pork.

Arguably, consumers have become accustomed to paying a reasonable price for steak. They believe for this price they are receiving a product of high nutrition, quality and safety.

If steak prices dropped significantly, would more shoppers buy it? Arguably many households are reasonably fixed in their meat-buying habits.

However, if steak prices jumped sharply again, it’s possible more shoppers would reconsider buying it or shift their habits to the cheaper options.

As a result, steak could lose some of that hard-earned market share and may find it difficult to get back.

Michael Whitehead is Executive Director for Agribusiness Industry Insights with ANZ

This article originally appeared as a part of the Food for Thought - Summer/Autumn 2024 report.