A few years ago Mick Calder came across a couple of reports about the consolidation of the US meat packing industry. The usual 80:20 rule applied in the beef industry – four firms handled 80 percent of the beef slaughter, he writes.
The focus was on beef, pork and poultry and the report had little if anything to say about lamb. But it got me thinking about the NZ meat industry, so I wrote an article about it and recently I reviewed what I had written to see if anything had changed over the years.
Four multi-plant operators – Affco, Alliance, ANZCO and Silver Fern Farms – still dominate the NZ lamb industry, with Ovation running close behind. According to recent data released regarding the 2012 allocation of the EU quota they handle about 75 percent of the lamb going to the EU. The actual numbers of stock processed by each company is commercially sensitive information, so there no figures for total sheep and cattle slaughter, but it is likely that the 80:20 rule applies.
Each of these major companies have been involved in what has been euphemistically termed the ‘rationalisation’ process over the last 30 years, with closures, mergers and consolidation being the prevalent activity, presumably with the aim of matching the processing capacity to the numbers of stock available.
This might lead to the conclusion that the industry has achieved that much heralded nirvana promoted by Charles Hilgendorf and Adam Begg of the Meat Board, and Waitaki’s John Neilson, in the 1970s and 1980s.
They advocated the development of four large New Zealand-owned companies plus some niche operators; this is close to a model structure being promoted by some of the speakers at the recent Meat Industry Excellence Committee (MIEC) roadshow, although the MIEC preference is for one farmer owned company controlling some 80 percent of the business.
But a quick bit of research shows that after all the rationalisation, restructuring, changes in ownership, company crashes, plant closures and reconfigurations in the last 30 years, the number of plants has not changed significantly. Only the names of the companies have changed with Richmond disappearing and ANZCO joining the ranks ot the top four.
According to Beef and Lamb New Zealand there were 56 licensed meat export plants in 2012; this is four more than in 2000 and equal to the number in 1990; so despite all the consolidation activity the numbers remain the same. The only difference is the increase in the number of plants processing beef (there are now 37 handling beef either alone or in a multi-species operation), reflecting the change in livestock numbers and the increase in culled dairy stock.
So while the New Zealand processing industry might be seen as following the same path as the US, there has been little change in the degree of consolidation over the years. While the bigger companies rationalised plants to achieve economies of scale, other entrepreneurs continue building capacity with smaller plants.
The USA reports noted that with the emphasis on cattle feed-lotting, ‘hog’ farms and larger production units, it was economic to establish large slaughter units close to the production source. Also changes in plant technology had improved scale economies, and there had been some vertical integration of slaughter, further processing and packaging activities.
The variable NZ geography, a wider spread of livestock production, high transport costs and little use of feedlotting means that the clustering effect with larger scale processing plants is less likely here. However, further processing and packaging has developed apace with an increase in the proportion of cuts and the greater emphasis on chilled product.
One of the concerns that the USA report considered was that consolidation led to reduced competition. The reports pointed out that fewer operators raised the possibility of lower prices paid to livestock producers, and for increased prices to retailers and consumers.
While the possibility of reduced competition for livestock exists here in NZ with four large operators, the tendency for new small plants to proliferate is likely to provide producers with a reasonable level of competition for their stock.
So the processing sector may have been rationalised to gain efficiencies but the penchant for having small operators to keep the big players honest still prevails. Any suggestion of further consolidation is likely to result more small processing operations to fill in the gap, or to ‘keep the buggers honest’; a case of deja vu all over again.
And the export and selling side is as fragmented as ever.
From a chauvinistic Kiwi stance, we should aim for the best possible returns from the overseas markets. We should have a structure to ramp up prices or at least provide the NZ meat export sector with some market power, as can be seen in the dairy industry.
The reality in meat export marketing is a little different. At the latest count there were 123 licensed meat exporters – this is well down on the 263 registered exporters more than ten years ago, but you still have to wonder what they all do.
While some may be specialising in selected products or markets, many will be competing to sell similar products to a limited number of buyers in our major markets, with price being the only real variable in the equation.
Maybe it is time to look at different structures to provide that market power. Watch this space.
Mick Calder says he’s a ‘generalist’ having started in agricultural science then marketing economics and trade policy, and finished in business management and administration, with elements of bookkeeping and legal drafting thrown in. His professional roles include former board secretary for the New Zealand Meat Board and later the NZ Lamb Company. He was co-author, with Janet Tyson, of Meat Acts, a history of the New Zealand meat industry from 1972 to 1997, which makes fascinating reading (Published 1999: ISBN: 0-9582052-2-1). He has written countless other reports, newsletters and articles for magazines and newspapers. He also maintains his own blog, Agriphile.