Cornering the market

Auctioneers in action at a recent sale at VLE Pakenham. 203937.

Livestock saleyards seem an unlikely battleground, but in West Gippsland there’s a simmering unease about the state of stockyards after two decades of consolidation, closures and erosion of market choice, that seems set to break into outright hostilities. In the first of a three-part series, ANDREW CANTWELL takes a tour of the trenches and looks at who’s firing the latest shots – and why.

“If two different businesses commit let’s say $5 million each – one of them is going to lose $5 million … I can’t think of anyone who would think that was smart.”

A new set of saleyards in any farming region is always a big deal.

But to have two planned – in the same neighbourhood – has locals scratching their heads.

Bunyip and Longwarry, in West Gippsland, are just five kilometres apart, but have rival saleyards backers staking claims to their respective territories.

On the one hand, a consortium of West Gippsland stock agents and farmers say they’re unhappy about the stranglehold on market services of West Gippsland’s ‘big kid on the sales block’, the Victorian Livestock Exchange (VLE), and play up fears of rising fees and losing saleyards altogether in West Gippsland, one of the state’s most productive dairying regions.

With plans for new saleyards announced in 2018, the consortium in recent times purchased a holding at Longwarry and is pursuing plans through Baw Baw Shire Council to build a $13 million facility, selling up to 120,000 head each year.

And on the other, the state’s first and arguably most successful privately held saleyards operator, the VLE, isn’t taking the rival bid sitting down – snapping up an 84-acre site at Bunyip late in 2019 with a view to consolidating both its Warragul and Pakenham yards there at some time in the future, nominally three to five years.

The VLE says its move will secure livestock marketting in West Gippsland for the next several decades.

Playing out in the background is the planned closure of the Warragul saleyards within the next two years. The Warragul yards had been an independent player in the regional livestock markets, and a competitor to VLE, up until about 18 months ago when the business was bought by VLE.

The rivals point to VLE’s pattern of buying up competing yards and eventually closing them as a key motivator for the Longwarry move. Regional yards at Traralgon, Sale, Yarram and Korumburra had previously been bought and eventually closed.

Longwarry saleyards consortium chairman Greg Price told the Gazette that agents around Gippsland had long been concerned with the erosion of competition.

Mr Price, a principal of Gippsland stock agency Alex Scott, said the group had an equally deep concern about the prospect of being “without a facility” in West Gippsland if the VLE packed up shop and centralised at their other major selling centre at Koonwarra, near Leongatha.

The Koonwarra facility is considered one of the best in Victoria, with ample room to expand, unlike the existing Pakenham saleyards, which is now surrounded by a booming industrial estate, so a move to consolidate there is plausible.

But VLE managing director Wayne Osborne told the Gazette that the VLE’s position was clear.

“We won’t be vacating our position in West Gippsland.

“And we haven’t announced plans to close Pakenham, it will stay open until Bunyip is built,” he said.

Industry insiders watching the positioning of both camps have been reluctant to take sides, but have told the Gazette they fear one of the camps must be in for a bruising, as they can’t see how both sites can be viable so close together.

Well-respected farmer Noel Campbell, a former president of Australian Dairy Farmers, runs a herd on 185 hectares at Yannathan.

His assessment is direct.

“I find it ludicrous they’re both competing with each other … it’s likely only one will survive.”

Veteran stock agent Terry Ginnane, of Landmark in South Gippsland, described the prospect of two saleyards five minutes apart as “absolutely ludicrous”.

“If two different businesses commit let’s say $5 million each – one of them is going to lose $5 million.

“I can’t think of anyone who would think that was smart.”

Yet the Longwarry consortium is determined to press ahead.

The heart of the issue, it seems, is one of trust … and costs.

On the issue of costs, one West Gippsland farmer, who asked not to be named, said that without competition at Longwarry, there would be no way to keep saleyard fees in check – VLE could charge what they liked as the dominant market operator.

He pointed to what he described as relentless fee increases at VLE yards.

“Handling fees go up each year … each October … that’s pretty automatic.”

The consortium’s Greg Price also gleefully points out figures collated by Alex Scott agents around the state on saleyards fees.

He said the four top yards in Victoria for fees were at Sale, Warragul, Koonwarra and Pakenham.

Three are run by VLE, and the other, Sale, was managed by VLE from 2006 to 2012.

VLE’s Wayne Osborne has no qualms about the fees.

“Farmers pay a five-star fee, but get five star services,” he said.

The markets at Pakenham and Koonwarra attract better buyers with the results that farmers get better prices.

Wayne indicated the expertise built up by VLE over 20 years of operation meant the paperwork for sales, transfers, weighing and handling were hassle-free; and the cattle ended up where they belonged.

Their operation was more convenient and resulted in a better experience for all involved at the market, from producers, to livestock transport, agents and buyers.

“Buyers will pay a premium for that,” he said.

Figures available from the Meat and Livestock Authority (MLA), which notes prices at saleyards around the country, back that claim.

MLA records show that VLE saleyards consistently bring the best prices for livestock in Victoria.

On the issue of trust, the rivals have concerns about the commercial imperatives of the VLE. Although they won’t say it out loud, there is a clear indication they question whether the dominant player’s motives are to provide a service to producers or to provide a profit for shareholders.

The roots of this mistrust go back over two decades, to the time of council mergers, when rural shires hived off municipal yards to private operators.

Many agree that under the old shire structure, saleyards were provided as a service to rural ratepayers – who paid thousands in rates on the value of their farms, but got precious little in return.

The many small and local saleyards offered an orderly service for farmers to trade livestock, with the costs subsidised by rates.

The closure of the historic inner city Newmarket saleyards in the late 1980s flagged an end to that kind of council largesse.

The last 25 years have seen a radical change in ownership structures, the number and scale of facilities – with the most dramatic changes occurring in West and South Gippsland.

Back when this scribbler was a pup, there were small municipal and agent-owned saleyards – mostly modest affairs – dotted around the West and South Gippsland region handling everything from calf sales, chopper cattle, steers, herd dispersals, herd replacements and more; and there was even a pig market in the early days.

Under commissioners, leases were given over saleyard operations as a way of introducing some commercial reality into the sector.

When the Korumburra yards – then hosting the largest bullock market in the Southern Hemisphere – were up for lease, a report to commissioners detailed losses of $100,000 a year that were covered by ratepayers.

When the important Dandenong municipal yards closed in 1998, they were reported as the last to be owned … and operated … by a council.

It could be said that, like a bull at the gates, the Victorian Livestock Exchange charged onto the scene after the closure of the Dandenong yards as the only private saleyards owner/operator in Victoria, operating from Pakenham.

The upstart VLE’s Pakenham yards were a revolution – roofed to protect livestock from the heat of the sun – and with soft flooring, earth and wood chips replacing harsh concrete.

Critics said the roof would blow off or the facility had cost too much and would never make a return.

But just seven years later, in 2006, VLE went on a buying spree, snapping up yards and businesses at Traralgon, Sale, Yarram, Koonwarra and Korumburra.

The purchases were subject at the time to an ACCC investigation into the market power that would be obtained by the VLE.

The ACCC was satisfied that although VLE would be the dominant player in the region, other regional sales centres at Mernda and Warragul would provide sufficient competition.

The yards at Mernda have subsequently closed, and Warragul was snapped up by the VLE in 2018.

Yet many farmers and stock agents agree the VLE consolidation was necessary and beneficial.

One agent the Gazette spoke to, a 30-plus year veteran of the trade, recalled that when the yards at Korumburra were closed and operations centralised at Koonwarra, farmers and agents were saying “this is the worst thing under the sun”.

But the facilities were upgraded, leading to greater comforts for both cattle and cockies … and the all-important buyers.

The VLE’s entry into the sector, although uncomfortable at the time, had led to dramatic improvements

“Concrete pads and no cover … stock agents doing 24-hour shifts – you wouldn’t have it these days,” the agent said.

And new markets built in the last two decades have all followed the VLE model.

So, too, will the Longwarry yards – although proponents prefer to point to the Mortlake and Ballarat yards as models.

The Longwarry bid faces its own hurdles, with nearby residents fearful of what proposed 3.8-metre barriers, the traffic, noise and smell will mean for their chosen rural lifestyles.

According to the planning application, there are two properties directly bordering the planned site that could be directly impacted, with a few scattered houses further around.

The VLE is also on record as saying it will fight the proposal tooth and nail.

The last shots in this skirmish are yet to be fired.

In the second part of the series next week we take a look at the dominant player in West and South Gippsland, the VLE – at what drives it and what its plans are for the future.

In the final week, we take a look at the challengers, and why they’re risking millions of dollars on a market alternative.

Got some insights you’d like to share on the issue. Contact us at dailyeditor@starnewsgroup.com.au