Ruffled feathers: is the power imbalance in Australia’s chicken industry making shortages worse?

The domination of the chicken processing industry by a few large players has contributed to the shortages in supermarkets across Australia, farmers and industry representatives say.

But that claim is rejected by chicken processors, who say the current supply chain crisis is “unprecedented” and not related to the number of processors or the structure of the industry.

Chicken farmers are contracted to provide the land, sheds, equipment, utilities and labour necessary to grow the chickens for large processing companies such as Inghams and Baiada, who own the birds.

James Jackson, the president of NSW Farmers, says chicken meat production in Australia is dominated by a small number of vertically integrated businesses where the ownership up the supply chain is controlled by a single operator, from the hatcheries through to the processing plants and distribution.

Jackson says in 2020 Inghams Enterprises and Baiada Poultry supplied 70% of Australia’s chicken meat while 90% is supplied by just six processors.

He says while the supermarket shortages were a result of the impact of Covid-19 on the workforce, the concentration of ownership in chicken processing has also played a part in reducing supply options.

“Chicken processors, red meat processors, truckies and warehouse workers – no one has been spared from Covid,” Jackson says.

“More broadly we have raised the importance of having options in our supply chain so that when one or two big companies have issues – as we have seen recently – our dinner plates aren’t left empty.”

NSW Farmers has described the chicken meat industry as a “regional monopsony environment”. A monopsony is a market dominated by a single buyer with the power to influence prices.

John Courtney, a former chicken farmer, says the conditions in the chicken meat market make it particularly vulnerable to supply chain disruptions.

“With very few suppliers, it’s all concentrated in the hands of the two big players, so when you have a hiccup, it’s major,” he says.

“Whereas before, being spread out among half a dozen smaller operators, there wouldn’t be a problem of keeping up supply.”

Courtney and Jeremy Cruickshank were two of the 13 farmers in the New South Wales northern rivers who were contracted to Sunnybrand Chickens, a family-owned processing company with a plant in Byron Bay.

The company was bought by Inghams, which shut down the Byron Bay plant and made the farmers send their chickens to Brisbane.

Courtney and Cruikshank were both told their costs were too expensive and their contracts were not renewed.

“Whiz kids with degrees in economics started calling the shots and didn’t know a chook from a chihuahua … and they said you fellows are too dear, we’ve got too much freight to Brisbane,” Courtney says.

“I had to go get a job at 65 just to pay the bills.”

Courtney and Cruikshank say the expensive infrastructure their contracts had required them to invest in became valueless without contracts to grow chickens.

Cruikshank says more processing areas would reduce the risk of Covid-19 affecting the workforce, and believes the industry’s lack of diversity could produce further shortages in future in the event of avian disease.

“The biggest problem with the industry is the only way they can save money in growing chicken is by putting 100 sheds in one row – makes it a lot cheaper to transport out of that spot.

“But what will happen is if we get avian influenza or Newcastle disease? It’s going to wipe out not just three farms that are separated by kilometres like it usually does, it’s going to take the whole operation out.”

Inghams was contacted for comment and referred the inquiry on to the Australian Chicken Meat Federation (ACMF).

A spokesperson for the ACMF, which represents chicken processors, said there were multiple chicken suppliers in Australia of various sizes and across several states.

“The chicken industry is extremely robust and stable,” the spokesperson said. “What we are currently experiencing is unprecedented, and has affected nearly every industry in the country.

“The current supply issues experienced by industry have nothing to do with the size and/or number of processing plants, nor the structure of the industry.

“All processing plants – big and small and across all suppliers – are experiencing the same difficulties, which are resulting from staff shortages due to COVID-related absenteeism, and all have impacted supply in the same way.”

The ACMF spokesperson said the staff shortages were not just at processing plants but right across the supply chain, including transport.

“Over the past few weeks there have been times when we haven’t had enough staff to collect birds from farms, but at other times plants have been able to produce the product but had to cancel orders because of transport industry issues – there were not enough truck drivers to deliver product to stores.”

The perishable agricultural goods inquiry report released by the ACCC in 2020 acknowledged the power imbalance in the chicken meat industry.

Michael Moore, the executive officer of the Australian Chicken Growers Council, said since the turn of the century smaller processors have been absorbed by larger ones, leading to decreasing levels of competition at the processing level and as a result monopsony conditions.

“Processors are more able to put in place pricing that may be pushing growers to the edge of unprofitability. If they are the only person out there offering a contract, it’s take it or leave it, that is the price.”

Moore said processors used to be prepared to issue contracts for up to 10 years, which would cover the cost of building new farm infrastructure, but contract terms have fallen steadily over the years with many growers on yearly contracts.

Cruikshank says Inghams gave his farm and 12 months notice that it would not be renewing its contract and left him “to go broke”.

“That’s what we’ve got from chicken farming.”

The contract had required the investment of millions of dollars in modern feeding, lighting, ventilation and water systems.

“Because these sheds are so specifically designed for growing chickens in, you’re left with no real options for what to do with your sheds,” Cruikshank says.

Peta Easey, poultry meat manager at NSW Farmers, says chicken growers are forced to compete in a pool system and the final buying price can vary significantly from batch to batch.

A decade ago, in NSW there were nine significant chicken meat processing plants owned by six different companies, but now there are only four processing plants in the state owned by just two companies, according to Easey.

Staff shortages have been worst in processing plants, where chickens are cut into pieces such as thigh and breast fillets, resulting in more whole chickens shipped to supermarkets and other retailers.

Moore says that meat processing plants are vulnerable to the spread of viruses as people need to work in close proximity.

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