Energy Prices for the Red Meat Processing Sector Need Review
(26 September 2018)
Energy cost and supply is the most significant and pressing concern for the Australian red meat industry, which is dealing with increasing costs, limited energy competition and limited ability to implement cheaper and more sustainable options, according to the Australian Meat Industry Council.
Australian Meat Industry Council (AMIC) CEO Patrick Hutchinson says the development of government policies that ensure the reliable availability of energy to all sectors of the Australian economy, including the red meat processing sector, is urgently needed.
A reliable supply of affordable energy is a national necessity and should be a priority for the Federal and State Governments. Endless squabbling and back-flips serve no one. We need good solutions and we need certainty.
Red meat processing is an energy-intensive activity. Sharp increases in the cost of energy in Australia are putting significant pressure on the ability of processors to remain profitable.
AMIC is the peak council representing retailers, processors and smallgoods manufacturers and is the only industry association representing the post-farmgate Australian meat industry.
Mr Hutchinson says member are coming to him every day with concerns around energy supply and cost.
Among our concerned members are businesses like Australian Lamb Company (ALC) in Victoria, which is trying to deal with rising energy costs so it can continue to employ over 800 people in the state, he says.
ALC is a leading lamb and mutton processing company based in Colac, in regional Victoria, and Sunshine, in western Melbourne with a workforce of 820 employees across the two locations.
In the calendar year of 2017, ALCs energy costs (electricity & gas) increased by over 100% compared to 2016. This represented an increase of over $1.2 million in cost to the bottom line.
The company operates an export-accredited, fully-integrated processing facility with a capacity of 60,000 lambs per week. ALC is the leading employer in the township of Colac with over 80% of ALC Colac groups products exported to 60 countries.
To help mitigate the rising electricity costs, we implemented a $3 million Solar Panel project across both sites which is covering 25% of our electricity needs. The payback on this investment is 6-7 years, which is well below the payback on other projects we could invest in. However, we felt as a business we need some certainty (which is not available in the current regulatory environment) and cannot incur continued unanticipated price increases such as what we have experienced, says Dale Smith, ALC CFO.
ALC and other Australian processors are competing against other countries such as New Zealand where the price of gas is approximately 1/3 of what we are paying. For our gas supply we have no ability to negotiate because there is only one supplier.
The increased energy costs we have recently incurred, and continue to incur, means there will be more times during the course of the year we will need to reduce hours and therefore jobs as the company cannot make the margins we need to continue operating, Dale says.
The concerns for rising energy costs are not isolated to the red meat industry but across the whole post-farmgate supply chain. The Australian Agricultural Manufacturers Alliance (AAMA), which represents the shared interests of agri manufacturers, has created a list of five key priorities, with energy right at the top, Mr Hutchinson said.
The AAMA alliance was created to represent the shared interests of agri manufacturers and contribute to recognition, growth and sustainability of the sector.
On behalf of our members we are calling on government to commit to the supply of energy from an effective, competitive market, without monopoly behaviour, including in remote areas. The Government needs to prioritise a review of the market structure and market rules for energy supply, with an ideal outcome being the limitation of the ability of energy suppliers to game the market. It also needs policies that encourage the meat industry to innovate in its energy investments, especially in regional environments, said Patrick Hutchinson, CEO, AMIC.
CEO, Australian Meat Industry Council