Tuesday saw the launch of Meat Industry Excellence (MIE)’s report Red Meat Sector – Pathways to Long-Term Sustainability to a relatively small group of invited attendees in Wellington. Allan Barber was one of the invited guests.
The audience consisted of MIE farmer members, directors of Silver Fern Farms and AFFCO, Meat Industry Association chairman Bill Falconer, ANZCO Foods chief executive Mark Clarkson, Rick Powdrell Federated Farmers’ Meat and Fibre chair, various industry analysts and commentators and politicians including the Minister for Primary Industries, Shadow Spokesman and the Speaker.
Rod Oram was the MC with addresses from Alasdair MacLeod, leader of the Red Meat Sector Strategy development four years ago, Ross Hyland, principal advisor to MIE, James Parsons, chairman of B+LNZ and MIE chairman John McCarthy.
Ross Hyland gave the most interesting talk, both stimulating and entertaining supported by several overheads to illustrate his key points. Fortunately, he did not attempt to summarise the report, but focused on some key points which painted the picture of an industry suffering from declining profitability and livestock numbers.
The analysis in the report was carried out by two senior consultants at GHD with many years experience in the New Zealand meat industry. This showed potential savings of $445 million per year provided all companies committed themselves to industry rationalisation and farmers signed contracts to send their stock to the nearest plant. That outcome is an ideal scenario which will be difficult to achieve.
However, the report shows a 47 percent decline in sheep numbers and a 19 percent decline in prime cattle since 1990. At the present time, the report estimates 53 percent over-capacity of sheep processing and 19 percent for beef cattle. If the current trend continues, the excess capacity situation will only get worse, particularly for ovine processing.
GHD’s recommendation is to reduce sheepmeat plants from 36 to 21 and beef plants from 27 also to 21, which would still be capable of handling drought conditions, it believes. The suggested mechanism for achieving this degree of rationalisation is a combination of chain licensing (tradeable slaughter rights) and the creation of ‘Big Red’ into which companies would tip their redundant assets while continuing to operate their remaining assets, either as individual or merged companies.
To avoid a repeat of the Trial Run Holdings exercise from the 1990s when new capacity undid the positive effects of closures, there would need to be a Government-legislated moratorium on new capacity for a specified period as laid down in the legislation.
Nathan Guy, the Minister, has repeated his position that the industry needs to come to him with a rationalisation proposal supported by 80 percent of the sheep and beef processing and farming sector. This is where the tradeable slaughter rights concept failed to get past the early stages of discussion last year when the meat companies couldn’t agree an acceptable basis for an arrangement.
Although there have been changes of chief executive at three of the big four meat companies and an increase in the Japanese majority ownership of ANZCO, I still find it hard to envisage a situation where the companies will reach agreement in spite of the compelling evidence of the need for change. To use an old cliché, turkeys don’t vote for Christmas.
Another problem, by its own admission, is MIE’s shortage of money and resources to do the considerable amount of work required to confirm the financial benefits and impacts of a refined chain licensing scheme. Unless a combined industry group representing both processors and farmers (MIA and B+LNZ) can be persuaded to fund the work required, it is unlikely to happen.
This is a shame, some would say a tragedy, because the alternative of a slow death for our second biggest primary sector group is an outcome the Government would be irresponsible to allow.
Allan Barber is a meat industry commentator. He has his own blog Barber’s Meaty Issues and can be contacted by emailing him at email@example.com.