Beef supply chain costs

Bernie English, Department of Agriculture and Fisheries
Chris Greenwood, Morganbury Meats

We often hear beef producers complaining about the price of beef in the shops compared to the price they receive on sale to the abattoir.

The costs involved in getting beef from paddock to shop counter are outlined in Tables A–C. These tables show how beef from a 500kg live animal, sold to the abattoir at $3/kg for the hot carcase, will end up retailing for an average of $11.28/kg just to cover costs.

While the prices and costs shown were compiled in 2009 for a small retail butcher shop, the breakdown of where the main costs are is similar. Bigger butcher shops will have better cost structures due to higher throughput.

Table A shows costs in the abattoir, which include costs per kg for some processes as well as the impact that reducing kilograms have on cost. Table B expands on overhead and opportunity costs involved in operating a butcher shop. Table C shows how these costs and processes affect the final average price that must be recouped just to cover costs.

However, up to 40% of over-the-counter sales (mince, sausages, etc) retail for less than the average cost of $11.28. This means the butcher must cover costs and extract the profit margin from the more expensive ‘sweet cuts’.

Table A. Abattoir costs and processes

Process Notes kg of beef Value total Value per kg
Dressing rate 53% dressing rate on a 500 kg live animal yields a 265 kg hot carcase 265 $795 $3.00
Slaughter charge Costs $70 265 $865 $3.26
Shrinkage Yields 97% after 3% shinkage from hot weight to cold weight 257 $865 $3.37
Boning out Costs 40c/kg (before boning)

Yields 68% (after boning)

175 $968 $5.53
Delivery to shop Costs 20c/kg 175 $1,003 $5.73

 

Table B. Butcher shop costs

Butcher shop overhead costs per week
Wages for three staff $3,600
Rent $600
Power $250
Dry goods and supplies $1,500
Total weekly overheads $5,950
Opportunity cost per week (on $300,000 fit out at 10% per year) $577
Total weekly overheads plus opportunity costs $6,527
Butcher shop throughput per week
4 cattle 1,000kg
4 pigs 240kg
12 lambs 240kg
Carton of beef 200kg
Subtotal of weekly throughput 1,680kg
Less trim and wastage factor of 30% –504kg
Product sold 1,176kg
Butcher shop costs per kilo of meat sold
Total weekly overheads plus opportunity cost $6,527
Product sold 1,176kg
Cost of product sold $5.55/kg

 

Table C. Retail sales price to recoup costs

Cost
Cost per kg on delivery from abattoir $5.73
Cost per kg in butcher shop $5.55
Retail cost (average) per kg to cover costs $11.28

 

Further information