Comment: The dogs are unleashed

MIE Pathways to Long-Term SustainabilityThe dogs are unleashed and waiting for instructions. The long awaited report from Meat Industry Excellence (MIE) ‘Pathways to Long-Term Sustainability’ was released today and is bound to be being pored over by industry.

The report, which was funded primarily by $219,000 from Beef + Lamb NZ (B+LNZ) last July, has been co-authored by MIE chairman John McCarthy and Ross Hyland. It comprehensively draws on the knowledge from farmers and, among others, names familiar in the meat industry: Lincoln University senior lecturer in agri-business and commerce Nic Lees and the University’s Agribusiness and Economic Research Unit (AERU)’s Caroline Saunders and Glen Greer; the Deloitte frontman for the Red Meat Sector Strategy (RMSS) Alasdair MacLeod; former National Bank chief Sir John Anderson, who chaired the original meat industry taskforce in 2008; and “certain processor chief executives, managing directors, chairman and directors who have supported these MIE initiatives (they know who they are)”, writes McCarthy and Hyland.

MIE’s report goes over what it sees are the issues facing the industry – overcapacity, in some cases inefficient and old plant and technology, over-investment in procurement compared to marketing and insufficient investment in marketing – and the quality of relationships between companies and sheep and beef farmers, current and proposed future processing capacity, rationalisation options or pathways. It also covers the key findings from the four reports (from market researchers Cinta; engineering consultancy GHD which included a proposal from Geoff Vautier International for a ‘one hit’ rationalisation strategy; analysis from Lincoln University’s AERU; and discussions with 85 percent of sheepmeat processors and 86 percent of beef processors).

The immediate annual cost of the problems, the work has found, is around $450 million dollars a year if nothing is done. Fixing them is complex, it recognises, but MIE believes that processing needs to be consolidated in order to get scale, there needs to be a determination of the appropriate period for a moratorium preventing new capacity and longer-term supplier contracts. Industry needs to, collectively, close plants, determine reserve capacity for drought and consider ‘chain licencing’ as an enabler.

The report finishes by making eight recommendations from MIE for industry to consider:

  • That red meat sector processors need to put individual differences aside and work collaboratively and in confidence with MIE, to find an industry-wide solution that provides long-term and enduring viability
  • ‘Chain licencing’ is a concept worthy of review. This meat industry proposal was circulated prior to Christmas and includes a moratorium preventing the building of any new plants for a period of time to enable the restructuring outcomes to be ‘bedded in’. This would require support from Government, MIE acknowledges.
  • It advocates a structure and/or holding company for plant closures into which supportive companies could transfer their assets in plants and/or facilities that need to be closed.
  • It contends that Government has an essential role to play in enabling the consolidation and stabilisation of what is a cornerstone industry in New Zealand.
  • It says it has support from the Minister for Primary Industries, should it garner 80 percent support from the processing sector for a restructuring plan.
  • It believes that committed and/or contracted supply is pivotal in achieving long-term stability
  • It strongly contends that the red meat sector consider the initiatives employed by the New Zealand Electricity to respond to seasonal or severe biological events, such as drought, under peak kill demand.
  • It believes farmers will support a capital raising proposal that provides a clear vision and pathway into the future.
  • It believes the structural changes advocated must result in an industry that transitions significantly from a production-led model to a customer-focused value added model.

B+LNZ: Red meat is a dynamic red meat sector

James ParsonsFirst to respond to the report, Beef + Lamb New Zealand (B+LNZ) chairman James Parsons says the red meat sector is a dynamic and exciting sector contributing around $8.5 billion a year to the New Zealand economy. While average farm returns showed room for improvement, averages didn’t always tell the whole story, he believes.

“In reality the performance of the top 20 percent of sheep and beef farmers is neck and neck with the top performing 20 percent of dairy farmers.”

Parsons cited a recent ANZ report, also referenced in the MIE press release yesterday.

“The report stated return on capital averaged 1.1 percent over the last five years. It also stated the top performing 20 percent of sheep and beef farmers were achieving returns at four to 7.5 percent.

“Interestingly this has been achieved under the same market forces and industry structure.”

Parsons said B+LNZ was acutely aware that average farm returns needed to improve and that was why it had invested in the RMSS, and most recently the Red Meat Profit Partnership, to improve profitability and productivity. The goal is to lift annual export earnings to $11 billion by 2025.

Parsons said it was important to remember that in spite of the land use changes in recent years, the red meat sector had continued to make productivity gains and lift export revenue in an environmentally sustainable manner, with earnings now over $8 billion and up from approximately $6.5 billion a decade ago.

Parsons said the MIE report identified opportunities worth exploring to further grow red meat sector exports for the benefit of all New Zealanders.

Beef + Lamb New Zealand funded the report after farmers voted in support of it at the 2014 annual meeting.

“We believe the report is a constructive document and has the potential to inform and stimulate initiatives.

“Every single sector has the opportunity to do better. Even if the savings and gains are not as significant as the report claims, they are deserving of exploration as we continue to grow the prosperity of the red meat sector and New Zealand.”

Parsons said meat processing companies as the mandated commercial leaders now had the opportunity to work collaboratively together, and realise these gains, if they were real.

What do you think??

 

 

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