Farm Ireland
Independent.ie

Thursday 17 August 2017

Why are Irish farmers among the unhappiest in the world on price transparency?

 

Anne Kinsella

Price transparency is an issue of concern for cattle producers worldwide, from Europe to South America and South Africa.

Unless farmers know what cattle and beef are selling for, then how can they determine if they are getting a fair price?

Price transparency generates a lot of cost and risk minimisation advantages. It also promotes supply chain trust, co-operation and alternative marketing arrangements.

Where derivative markets such as beef futures exist there tends to be less concern about transparency and fairness.

Futures are standardised, exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, of a specific quantity of feeder cattle (eg, 50,000kgs) at a predetermined price on a future delivery date.

Yet outside of the US and Brazil, few countries have such markets.

Anne Kinsella
Anne Kinsella

Research has indicated that if the US experience is a guide, then mandatory cattle and beef price reporting can overcome price transparency and fairness issues.

Speaking at a conference in Canada last week, Peter Weeks from Meat & Livestock Australia (MLA) presented results from a recent survey on farm price transparency conducted in 32 countries.


He made reference to deteriorating cattle and beef price transparency globally due to increasing buyer concentration and the growth of non-cash marketing.

With the producer share of the retail dollar declining in most countries, he cited transparency as the "magic key" to producers receiving a fair price for their cattle.

Beef price fairness index

One of the questions posed in the survey was: "Over the past two years, how often would cattle farmers have felt they received a fair price from abattoirs?"

Countries were ranked based on a price fairness index. Overall, USA cattle farmers had the strongest price fairness index and were "happy with price", followed closely by Sweden, Austria, Switzerland and Argentina.

In contrast, Spain, Britain, Ireland and Australia reported the poorest experiences of price fairness.

Irish farmers were cited in the presentation for the active way in which they have been highlighting issues of price unfairness.

Images were shown of protesters with 'Beef Price Rip Off' and 'Beef Price Must Rise' posters, drawing attention to price gaps with the UK, and Irish farmers were especially vociferous on getting a fair price versus their British counterparts.

Supply chain market transparency

A further question posed by the survey was how concerned cattle producers have been over the supply chain transparency on price from 'farm to fork'.

Supply chain market transparency was of least concern to USA farmers, and was of little concern to Spanish farmers but somewhat more concern was evident among French, Canadian , Argentinian and Brazilian farmers.

Major concern was expressed on this issue among farmers in Australia, South Africa and Ireland.

Price transparency benefits

Being aware of price differentials regionally can lead to regional market prices moving closer together, increase market stability and promote trust and cooperation along the supply chain .

Global selling methods

For weaners, the most frequently used selling method of the countries surveyed worldwide was livestock auction, with over 40pc of farmers using this method, with the next most popular method cited as direct sale to finishing farm (17pc).

For finished cattle, over 35pc were sold direct to the abattoir, with 18pc sold at livestock auction and a further 18pc sold through a livestock trader.

Price Risk Management Tools

Respondents were also asked a number of questions in relation to the use of risk management tools.

These tools include:

* Futures, which are most common in USA, Canada and Brazil

* Fixed price (Austria)

* Insurance (Canada, Peru)

* Forwards - most common in New Zealand (dairy beef), Switzerland, Canada and USA and also used a little in Australia, Argentina, Austria, Uruguay, France, the UK, Sweden and South Africa.

The proportion of cattle sold (over the preceding two years) using risk management tools was highest in Canada, where over 95pc of cattle were sold with such tools in place.

The next highest proportion was in Switzerland (30pc) with Peru, Brazil and France each at 20pc.

Forwards are the price risk management tool most commonly used in New Zealand, Switzerland Canada and US. The terms of each forward contract can be privately negotiated. Whereas futures are traded on an exchange (eg, CME) forwards are traded over the counter.

Anne Kinsella is an economist in the Teagasc Farm Surveys and Agricultural Economics department. Further information on the survey and results can be found at www.mla.com.au


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