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Competition and Exit in Meat Processing: A Queensland Case Study

John Rolfe and Russell G. Reynolds

No 124544, 1999 Conference (43th), January 20-22, 1999, Christchurch, New Zealand from Australian Agricultural and Resource Economics Society

Abstract: Queensland is the largest meat producing state in Australia, has the largest processing capacity and is the major meat exporting state. The processing sector is under substantial pressure for change, with current utilisation rates of 70% or below being sub-economic. There are a number of possible reasons for the decline in the profitability of this sector, including the loss of supplies through the live cattle trade, increased physical capacity and throughput, changed industrial relations and a move to enterprise bargaining agreements, and the impost and structure of government regulation. Of particular interest is the extent to which low utilisation rates, in spite of the current high slaughter, are the result of competitive forces within the processing industry. The development of excess capacity is predictable behaviour in a declining industry where survivor firms position themselves for increased market share. As well, intense competition on price may also be a facet of competitive behaviour designed to hasten the exit of rival firms. However, given the magnitude of redundancy costs it is rational for firms to remain operating while just breaking even, or as long as creditors allow when they are making losses. Paradoxically, fewer, but more efficient producers would reduce processing costs and may increase prices paid for livestock. In October 1998, the Queensland Government committed $20 million to the restructuring of the processing sector to achieve viability and sustainability goals. Determining the effective focus of restructuring will require a clear understanding of competitive forces within the processing sector, and the extent to which over capacity is exogenous to the sector.

Keywords: Agribusiness (search for similar items in EconPapers)
Date: 1999-01
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DOI: 10.22004/ag.econ.124544

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