The Australian meat industry has more bureaucrats per producer than any other industry. There are stock inspectors, meat inspectors, health inspectors, factory inspectors, “research” bureaucrats, state and federal departments of primary industries, health departments, quarantine inspectors, consumer affairs officials, levy collectors, state and federal meat and livestock authorities and hundreds of rules and regulations. All of this funded by fees on every beast that bellows or bleats.
I don’t know what it all costs us, but a US study found that a pound of hamburger meat costs eleven cents more because it was controlled by 41,000 regulations, 200 legal statuses and 161,000 precedent-setting court cases on behalf of consumers. (I do know that Darling Downs Bacon Co-op, once Australia’s largest pork exporter, abandoned pork exporting in 1993 because it was costing $1.7 million per year for export licences and red tape.)
Despite all this costly supervision, the meat industry is regularly hit by meat quality scandals. We’ve had the horse meat switch, the kangaroo caper, the pet meat swap, the cane tops contamination, the potato pesticide problem, and now the cotton trash scandal. Every meat producer, irrespective of the quality of his meat, is hurt by these national meat demotions. Maybe it is time to question whether producers or consumers get value from the costly and high risk nationalised beef brand.
The recent discovery of meat contamination through cotton trash sent a tidal wave of concern through every export market. Despite the extremely limited nature of the contamination, American, Canadian and Japanese meat producers (and their mates in the media both here and overseas) had a field day reporting the withdrawal of Aussie Beef from sale.
Every producer and exporter was punished for an innocent mistake by a few desperate drought stricken farmers and a slack government meat inspection service.
When a nationalised brand name is devalued, the cost is enormous because it devalues every kilo of meat in the country. Our beef industry can no longer afford the costs and risks of nationalised beef brands.
Private brand names have one great advantage — their costs and their benefits are confined to those who deserve to get them.
For example, ten years ago, British Airways served contaminated prawns to its first class passengers. 766 passengers and crew were hit by salmonella poisoning. One died and several became seriously ill. Within weeks the airline had paid out $1.5 million to victims and had been hit by four law suits claiming over $11 million in compensation.
British Airways suffered great damage to its brand name and balance sheet, but (and this is important) no other airline was damaged — only the offending brand. To restore the value of their brand name, British Airways immediately spent $8 million refurbishing their catering centre at Heathrow in London. (This was probably demanded by their insurer, who also had a vested interest in preventing a repeat of such payouts.)
Competing brands are not only shielded from the cost of scandals in competing products, they actually benefit when a competitor falters. Qantas, Pan Am and others were immediate beneficiaries of the prawn problem at British Airways.
However, with nationalised brands like “Aussie-Beef,” the only beneficiaries of its problems are foreign competitors.
The fatal problem of nationalised brands is that no individual or company sees specific benefit in protecting the brand name, and many see the supporting rules and regulations as a cost and an intrusion. What is available to everyone and charged to everyone, becomes of value to no one.
A more insidious problem concerns the tendency towards complacency, laziness, discrimination and corruption in any regulatory service. This alternates with demands for more cash and more power.
Way back in 1975 and 1977, complaints were made to Victorian and Federal meat inspectors about the illegal diversion of low quality domestic beef into the export market. Nothing was done “because of fears the impact of disclosures may have on Australia’s meat export trade.”
Three major Australian Meat exporters complained again in 1980, this time to Federal Police, about meat substitution (which by then included horse meat). Bert Kelly chaired an investigation which reported that abattoir managers were using gifts to induce meat inspectors to look the other way. Bert’s report was shelved.
Nothing happened to fix the problem until Aussie meat hit the mincer in San Diego in July 1981 — out of a shipment of 600 cartons of beef, 102 contained horse meat. The consequences were swift and devastating — trading in beef futures was suspended, Australian beef in the US was quarantined, newspapers headlined the story and the US Department of Agriculture (an arm of the US Beef producers) delegated 2,000 officials to investigate the problem. The price of US, Canadian and NZ beef rose 20c per pound. One of Australia’s largest meat exporters, Smorgon’s (who were not involved in the fraud), suspended their operations.
The subsequent Royal Commission reported administrative timidity, bureaucratic inefficiency, deliberate cover up, corruption among meat inspectors, and a black market in “Australia Approved” meat stamps. (Incidentally, when the Royal Commission was announced, there was an orgy of shredding of “sensitive” files in the Department of Primary Industries in Canberra.)
The scandals and the Royal Commission did cause a major clean up, but they can never solve the root problems. Cycles of excessive cost, complacency and corruption are inevitable in every bureaucratic accreditation scheme. There are too many incentives for cheating and slacking and not enough people with a direct vested interest in quality control and the value of the good name. Public property is no one’s property.
It may be useful for beef producers and bureaucrats to look at the quality controls which regulate the coal industry.
There are many similarities between beef and coal. There are a large number of producers selling a great variety of products into many markets with different preferences. Product specification is difficult, being a blend of measurement, art and tradition. In both, the quality of the product can deteriorate with age and can be degraded by contamination with foreign bodies or inferior products. But in quality control and brand identification, coal works without an army of inspectors and fees and there has never been a scandal to rival the procession of disasters produced by the government beef promotion and inspection services.
Every coal producer has his own brand name and he guarantees the specifications of his product. Every coal shipment is analysed by the producer, by an independent laboratory or by the consumer, usually all three. Every sales contract contains bonuses and penalties if contract specification are not met.
And if a shipment of “Norwich” Brand coal, for example, fails to meet the minimum acceptance standards, no damage is done to the reputation of “Curragh” coal, “South Blackwater” coal or “Burton” coal — in fact, they all would benefit. And you can be sure the next shipment of Norwich coal will meet agreed specifications.
Strong brand names cannot develop in an environment smothered in government regulations and inspections. If it appears to consumers that all beef is of equal quality, guaranteed by the government, why pay more for a particular brand? The possibility of poor quality and fraud is what gives a good brand its value. Bureaucratic quality control destroys the good brands, leaving everyone dependent on the nationalised brand. This faith will always be betrayed eventually because of the three C’s — cost, complacency and corruption.
Our beef market is too important to be left in the hands of bureaucrats. Governments should confine themselves to policing fraud, deceptive labelling, control of contagious diseases and breach of contract. All other quality control is best handled by those with the most to gain or lose.
Japan would not buy “Aussie-Coal”. Why should we expect them to buy “Aussie-Beef”?
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