Comment: MIE may be sailing into a head wind, says Barber

Allan BarberThe Meat Industry Excellence (MIE) group has appointed businessman and former sheep and beef farmer Ross Hyland to set up an establishment team, as it ramps up its campaign to achieve a restructure of the red meat sector. Meat industry commentator Allan Barber says the new organisation may be sailing into a head wind.

After a series of meetings round the country at which it gained plenty of farmer support for its campaign, as well as backing from Beef + Lamb NZ and Federated Farmers, MIE has decided that it is now time to inject some muscle and structure into its plans. Chairman Richard Young said last week they had made this decision to ensure that they have an agreed solution and plan ready for the start of next season.

This is in spite of the confidential discussions between the four largest meat companies which have not yet reached a conclusion, but next season is only three months away on 1 October. MIE has talked to all the main meat companies and appears to have no desire to pre-empt the outcome of those discussions, but wants to try and make sure things don’t drag on well into next season without any progress.

MIE has now reduced its goal of having 80 percent of the meat industry combined in farmer ownership to a more realistic 60 percent, although it is still very doubtful how this will be achieved. Another major goal to have all livestock supply on contract to one processor has also been replaced by a commitment to supply stock to specification. The goal of transparency and fair treatment for all suppliers remains a key plank of the programme, while the costs of restructuring are to be shared by all industry stakeholders including the Government, except unions.

This is still a very optimistic wish list. It is uncertain just what a farmer-owned trading entity with 60 percent market share would achieve, even if the necessary mergers and acquisitions happened. It leaves 40 percent of the industry in non-farmer hands with almost certainly stronger balance sheets and more capacity for innovation and productivity improvement. My impression is that MIE’s original desire was to sort out the state of the sheepmeat sector, but the board has now decided beef must be included, if the plan is to work.

With a maximum of 40 percent of sheep and beef farmers attending the meetings, this still means 60 percent didn’t attend, although some of those may support the objectives. It also ignores dairy farmers who provide around 40 percent of the industry’s cattle supply. A dairy farmer’s only thoughts with his cull cows are to get them off the farm as soon as possible and to receive a fair price for them.

A former livestock manager’s opinion of cull cows was that it’s the only time dairy farmers can behave like capitalists, because everything else is handled by the co-operative. So it’s hard to see how MIE can expect the meat companies, some of which specialise in grinding beef, to change their procurement methods for this part of their business.

I sympathise with MIE’s intentions, as well as the efforts to achieve progress before the start of the season. But realistically there will be no industry restructure in three months. There is currently no indication any of the meat processors are yet in serious financial trouble which reduces the likelihood of a Weddel or Fortex type of event in the near future.

Nor can I see the Government wanting to get involved in forcing a restructure of an industry, none of it state-owned, which is completely exposed to commercial forces including the value of the New Zealand dollar and international commodity prices.

MIE says it will seek any required legislation which I presume could mean trying to enforce any of the following measures: merger of the co-ops – Silver Fern Farms and Alliance, sale into the farmer-owned entity of one or more companies to reach the target market share, mandatory livestock supply contracts to specified meat companies and a moratorium on any new meat plants or additional shift capacity.

What on earth would the Commerce Commission say about all that?

Allan Barber is a meat industry commentator. He has his own blog Barber’s Meaty Issues and can be contacted by emailing him at allan@barberstrategic.co.nz.

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