Competitor watch: New plan for NZ meat processing expected soon

Beef Central, 02/06/2015

A PLAN for a new export meat cooperative structure for the New Zealand beef and lamb industries, developed by the industry reform group Meat Industry Excellence is likely to be unveiled this week, NZ media suggests.

Membership of the cooperative, which will require farmers to commit livestock supply for three years will be open to all New Zealand sheep and beef farmers, MIE chairman John McCarthy told NZ farmer.

The proposal had the backing of a major bank, he said.

Options will be presented for payment and joining, but no other details would be provided prior to the the proposal’s launch, he said.

MIE was formed in 2013 by NZ farmers concerned about poor returns, despite the sector being one of New Zealand’s largest export earners and global demand for quality protein products.

The value of meat, skins, wool and co-products was estimated at $8 billion last year by NZ’s Ministry for Primary Industries.

In March, MIE published a special report on the industry, fuelled by farmer surveys and funded by farmer levies to Beef+Lamb NZ after a supporting vote. The report said processing over-capacity, including old and inefficient plant technology, ‘over-investment in animal procurement’ compared to investment in marketing, and insufficient industry spending on marketing New Zealand meat was costing the industry $450 million a year.

The report called for several remedies, including consolidation of processing, long-term supplier contracts, and collective closure of plants. Over-capacity was compounded by falling sheep numbers in NZ, the report said.

MIE has also unsuccessfully so far proposed an amalgamation of the two NZ livestock farmer cooperatives, Silver Fern Farms and Alliance Group.

The March report by consultancy GHD said the processing sector would be better off by $444 million a year by rationalisation. A survey of farmers as part of the report found 86 percent would support a restructure of the New Zealand red meat industry.

Mr McCarthy said MIE’s plan for a new export cooperative had taken on urgency with Silver Fern Farms’ current capital raising.

Given current red meat earnings there was little chance of New Zealanders being able to buy in, so SFF, the country’s biggest meat company, could end up foreign-controlled, he said.

“The status quo can’t continue. What we fully believe as a result of our report is there is no hope for this industry unless we have fundamental change. Farmers should not expect better prices or a lift in prices – even a temporary lift – because you have weak markets and overdependence on the Chinese market, which was unwisely taken by some of the major companies,” Mr McCarthy said.

“We also have a situation of diminishing supply and fixed costs and that has come home to roost.”

Source: NZ Farmer




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  1. john gunthorpe, 03/06/2015

    One subject not touched on in your report from the NZ Farmer is flexibility in labour relations. Unfortunately from my experience there is significant rigidity in the relationship between labour and management preventing the opportunity for processors to optimise returns to employees and line speed and other issues that would reduce the cost to process. As with Australian processors I am sure the NZ meat processing industry has enjoyed the benefits from the historically low US beef herd and high import prices over the past two years. Here in Australia drought prevented the opportunity margin being passed back to the producer. So our processors have had two years of unusually high operating profits. This must be reflected to some extent in NZ.

    Again my experience is that banks are the enemy of removing capacity from the processing sector as they prop up those plants that should be closed. Silver Fern have invested considerable monies in their processing capacity in recent years and some of their plants will be close to state of the art. Any merger discussions will be difficult but we wish them every success. NZ are an alley in the meat industry at the moment not a competitor. However their greatest need is to tackle the inflexibility in their employment conditions.

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