Tag Archives: Allan Barber

$38 million funding for greenhouse gas research

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Allan BarberThe Pastoral Greenhouse Gas Research Consortium (PGgRc) has just announced that it has secured funding for a further seven years’ research into greenhouse gas (GHG) mitigation. $2.3 million per annum will be contributed by industry partners to be matched by the Ministry of Business, Innovation and Employment with the balance to come from AgResearch in its capacity as leader of the research project. Meat industry commentator Allan Barber has taken a look in his latest blog post.

The consortium has been in existence since 2002 and to date has spent about $45 million of 50/50 joint venture funding from industry and government. Its members are Fonterra, Beef & Lamb New Zealand, DairyNZ, AgResearch, Landcorp Farming, DEEResearch, PGG Wrightson Ltd and Fertiliser Association Joint Venture.

As its name indicates, the consortium’s sole focus since it started 11 years ago has been on finding ways to mitigate greenhouse gas emissions and during that period it has made some significant advances. It has developed knowledge specifically in sequencing the first rumen methanogen genome, developing a low emission sheep flock and finding feeds that can reduce methane emissions.

Mark Aspin, consortium manager, told me that a continuation of the funding will enable the programme to focus on five key areas of research:

  •  Refining  animal breeding tools for low emission livestock
  • Identifying more low greenhouse gas feeds
  • Identifying inhibitors that reduce ruminant emissions
  • Developing a vaccine to reduce ruminant emissions
  • Understanding the productivity effects and enhancing the adoption of mitigations.

The refreshed research programme, while recognising the long term commitment required, will be strongly focused on delivery of mitigation solutions, developed through an increased partnership between the consortium and the New Zealand Agricultural Research Centre (NZAGRC). Both of these organisations will coordinate their operations to ensure rapid delivery of effective options for farmers.

While New Zealand’s greenhouse gas emissions would constitute a significant proportion of our obligations under any future commitment to reduce emissions, political points scoring tends to obscure why it is so critical to get it right. Our economy and our agricultural sector in particular both depend on deciding on the correct entry point which is, I suspect, why the present Government has been so reluctant to commit itself.

Agriculture contributes 46 percent of New Zealand’s greenhouse gas emissions, a proportion no other country comes even remotely close to producing. Ireland with 27 percent is the closest and all other first world economies are in single figures.

The PGgRc has set itself an ambitious goal, stating in its press release “The new work aims to develop a suite of ready-made tools that will reduce greenhouse gases by 30 per cent by 2030 while supporting the agricultural industry’s growth targets of two per cent each year.” The benchmark year is 2008 when I understand emissions were at 1990 levels. As Aspin said “it’s a big challenge, but we think we can get there.”

I suspect the Green party won’t be satisfied with this progress, because anything short of total commitment to eliminating greenhouse gases is unacceptable, whatever it costs the country. But it is a very solid programme of work backed by science and industry and public money which has some challenging, but achievable goals.

The best thing about it is that it won’t send agriculture and the country into a state of bankruptcy, but it should produce some real improvements in our GHG emissions.

Allan Barber is a meat industry commentator and has his own blog Barber’s Meaty Issues. This item has also appeared at www.interest.co.nz.

 

PGP project suggests meat industry ready to co-operate, says Barber

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Allan BarberYesterday’s announcement of the Red Meat PGP Collaboration Programme for Greater Farmer Profitability at a total investment of $65 million is fantastic news for the whole industry, says meat industry commentator Allan Barber. The key words are ‘collaboration’ and ‘farmer profitability’, he writes.

The first of these has usually been notable by its absence, while the second combination of words has only been evident at irregular intervals.

Half the funding will be made available from the Ministry for Primary Industries (MPI)’s Primary Growth partnership fund, while 30 percent will come from farmers through Beef & Lamb New Zealand Ltd (B+LNZ) and Meat Board reserves and the balance from six meat companies, two banks and Deloitte.

B+LNZ’s contribution is contingent on levy paying farmers voting in support of the proposal at its annual meeting on 8 March. Although nothing is ever certain, it would be a shock if this support wasn’t forthcoming, because the programme represents a significant step towards fulfilling the objectives of the Red Meat Sector Strategy conducted by Deloitte and completed nearly two years ago.

The aim of the programme is to lift the performance of all farmers to match that of the best performers which was identified in the strategy as the best way of improving industry profitability. There is a significant gap between the top and bottom performers in farming methods and profitability. If this gap can be closed the gains for the sector and New Zealand are enormous.

The participation of the six meat processors – AFFCO, Alliance, ANZCO, Blue Sky, Progressive Meats and Silver Fern Farms – is as meaningful as it is welcome. These are the key sheepmeat processors which is recognition that it is the sheep meat sector in particular where the greatest gains are to be made. However, the focus behind the farm gate shouldn’t obscure the fact that there are substantial gains to be made from greater collaboration in the market place.

A striking aspect of yesterday’s press releases by Ministry of Primary Industries, B+LNZ, Alliance and Silver Fern Farms (SFF) was the difference in tone between the statements by the two meat companies and the enthusiasm with which Beef & Lamb is greeting the opportunity.

The tone of SFF’s press release was less than enthusiastic, emphasising the need for a levy vote in support before the programme could begin and the care taken to ensure this programme did not cut across SFF’s Farm IQ programme which was the first project out of the blocks.

In spite of a first sentence which confirmed SFF’s support for the collaboration programme, the main impression from the statement was that the company was a somewhat unwilling participant and would be guided by the farmers’ decision. If this happened not to be supportive, I was left with the feeling SFF would not be particularly upset.

In comparison with Keith Cooper’s guarded support for the programme, Alliance chief executive Grant Cuff was positively euphoric, stating:

“This new coordinated collaborative initiative will enhance the knowledge and capability in the sheep and beef sector and help improve farm performance, productivity and profitability.

“New Zealand can make significant gains in its export earnings by ensuring all parts of the value chain collaborate so suppliers are using the best available farm and business management practice and tools.

“This initiative is an important step in the implementation of the Red Meat Sector Strategy. We’re supportive of any steps to lift the industry’s game and improve on-farm profitability.”

After my recent call for a sheep meat strategy, I am cheered by this progress. Admittedly, results won’t happen immediately, but it provides an investment over several years during which industry participants will work together for the collective good.

This must be one of the best possible outcomes for an industry which is noted more for its divisiveness than its potential to cooperate in the interest of a better future for all the parties.

Allan Barber is a meat industry commentator who writes a number of columns on the topics. He has his own blog Barber’s Meaty Issues.

Is this the year for a sheepmeat strategy, asks Barber?

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Allan BarberIs this the year for a sheepmeat strategy, asks meat industry commentator Allan Barber in his latest column. The key question for the meat industry this year is whether anybody will make any money, he writes.

After last season when farmers enjoyed unprecedented procurement prices and the meat companies lost millions of dollars as a result, prices have headed south and look set to remain there for the foreseeable future.

Sheepmeat is the product most under threat with the traditional markets all showing serious signs of indigestion. As an example, a US importer has been reported as saying he has a year’s worth of inventory and can’t buy any more and neither is anyone else. This signals a major problem for middle cuts like lamb racks, while Europe isn’t exactly rushing to buy any product either.

This explains the amount of cheap sheepmeat available on our domestic market, although unfortunately local consumers have been turned off buying lamb as a standard part of their diet by last year’s high prices – no different from the rest of the world; and expecting New Zealand’s minute population to absorb any significant part of the oversupply is a bit like expecting Fiji to win the World Cup or the Black Caps to win the series in South Africa for that matter.

Beef may resist the worst of the price downturn because US demand remains steady against a backdrop of falling domestic cow numbers and consequently an increased share for imported beef. Asian demand will also remain firm, while New Zealand exporters may be able to pick up some of Australia’s market share, as Australian supply to the USA is anticipated to take the lion’s share of the increase there.

But even beef will continue to struggle under the impact of our dollar which is set obstinately at about 84 US cents with the greenback unlikely to strengthen at all, unless Congress can agree on a fiscal solution to the enormous American debt problem. In spite of averting the fall over the fiscal cliff, the US really hasn’t solved its long-term problem, merely postponed a decision.

The main difficulty for sheepmeat is the amount of inventory held by wholesalers and exporters which is waiting to be sold into a market which doesn’t need it and, even if it did, can’t afford to pay a price for it which will compensate for our exchange rate sitting at 52p and 0.63 Euro. This inventory problem will only be exacerbated by another season’s production which will hit its peak in less than three months.

If my pessimistic assessment is even only half correct, 2013 bears all the signs of an extremely difficult season for all participants in the sector. MPI’s forecast for farm incomes, down on last year, is still reasonably positive at least in historical terms, but it must come under pressure from any further price drops or cost increases. There is most unlikely to be any spare cash around.

After the beating taken last season by the processors, shown factually in the annual accounts of Silver Fern Farms, Alliance and Blue Sky Meats, and by implication in the results of the others, all the meat companies will be under pressure to get back into the black. The only way they can achieve this is to reduce procurement costs, increase operational efficiencies and sell inventory into the market, preferably with a profit margin on what it cost them.

This last one will be by far the hardest. There is already plenty of evidence of product being offered at very competitive, or silly, prices in spite of Keith Cooper’s claim before Christmas that working capital tied up in inventory is ‘good’ debt because it restrains companies from dumping product. Now if that isn’t a case of making a virtue out of necessity, I don’t know what is.

Logically if there is an inventory problem, it makes sense to quit it at the going rate rather than waiting for the market to recover by which time there will be more inventory in the freezer tying up more working capital.

The meat industry is becoming increasingly a division between sheep (very hard to make a consistent profit) and beef (quite or extremely profitable, mostly because of the livestock sourced from the dairy industry). Those companies which specialise in beef from dairy regions, notably Greenlea and Universal, appear to be very profitable without interference from the volatility of sheepmeat pricing.

Alliance has traditionally been the outstanding performer among the processors with a commitment to the sheep industry. Silver Fern Farms has reinvented itself as a company with a significant beef business which has reduced its vulnerability. But as last season’s results showed, the sheepmeat business placed serious pressure on their balance sheets which will inevitably continue throughout this year.

This may be the year when some serious strategic thinking is applied to finding a viable industry model for sheepmeat alone, instead of trying to find a single solution for the meat industry as a whole.

This column has appeared in NZ Farmers Weekly and interest.co.nz and is reproduced here with permission. Allan also has his own blog Barber’s Meaty Issues.

 

American sheep farmers suffering even more than here

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Allan BarberIt’s tougher in the US for sheepfarmers, Allan Barber has found.

An article headlined ‘Drought, high feed costs hurt sheep ranchers,’ appeared last Friday in the Northern Colorado Business Report, he writes in his latest blog posting. It makes the problems being experienced currently by New Zealand sheep farmers look comparatively pretty small.

This isn’t meant to denigrate the difficulties here, but it puts things in context. One rancher has cut his 2,000 head flock by a third and is losing US$80 on every lamb he sells. According to the article, drought, consolidation of the sheep-packing business, increased feed costs and plummeting lamb prices have created hardship among sheep ranchers across Northern Colorado. The situation has deteriorated so much for ranchers that the federal government is investigating whether meat packers have played a role in the market’s collapse.

In 2011 lamb prices soared above US$2 per pound, or about NZ$5.25 a kilo. But today the same lambs fetch only 85 cents per pound (NZ$2.20), while rearing a lamb costs more than $1.30 per pound (NZ$3.40 a kilo). Feed costs have also risen from $250 per ton of grain in 2011 to $400 in 2012.

As lamb prices declined in 2012 demand also softened, causing the US Department of Agriculture to buy $10 million worth of lamb as a drought relief measure. An insurance policy designed to insulate ranchers against fluctuating lamb prices is too expensive at present price levels.

There is also a suspicion that the packers may have been manipulating the market by buying lamb supplies and holding them on feedlots to guard against being caught with insufficient stock to process profitably. This is apparently in violation of the Packers and Stockyards Act which prohibits price manipulation.

A further disadvantage is the fact Japan has been closed as an export market for sheepmeat for 10 years because of mad cow disease – I’m not sure why this was the case, as sheep were not the problem and lambs are too young to pose a risk.

The USDA has asked for any evidence of price manipulation by the packers, as it ‘takes allegations of anti-competitive behaviour very seriously.’ But it doesn’t look as though there will be any relief for sheep farmers any time soon because of low consumer demand and the high cost of feed as a result of the drought.

None of this will be any comfort to New Zealand sheep farmers, especially with the implications for export demand from the USA, but at least our exporters have developed a much broader range of markets for sheepmeat and co-products. This spreads the risk for producers. Equally farmers here don’t have the same worries about feed costs, as the vast majority of sheep and lamb feed generally grows naturally as a result of regular rain.

That said, it is important for New Zealand’s sheep industry, as distinct from its beef industry, to develop a strategy which can ensure our industry doesn’t fall into the same hole as that of Colorado.

Allan Barber is a meat industry and agribusiness commentator. This article has appeared at www.interest.co.nz and also at Allan’s own blog Barber’s Meaty Issues.

Outlook cloudy for 2013

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Allan BarberHappy New Year to you all. Meat industry commentator Allan Barber has already had his head down thinking about what’s likely to pan out for the industry later in 2013.

His latest blog, which also appears at www.interest.co.nz, talks of a weak US dollar, weak export demand and low prices for Kiwi producers. However, Allan’s picking that there will be less effect on New Zealand beef than on sheepmeat and he foresees more pressure on lamb this year.

Looking globally, he sees aversion of the fiscal cliff in the US, will allow US economic recovery to emerge, will also allow recovery in China and for Europe to “move further back from its own economic disaster”. In turn, both New Zealand and Australia should avoid the worst impact of an extended downturn in main markets, he says.

His “big questions” for 2013 are whether all meat companies will survive the year and whether the increasing use of farm data will assist the co-operation between farmer and meat processor. Read more …

Debt is good under some circumstances, says Barber

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Allan BarberAfter Allan Barber’s column last week about meat industry debt levels, Keith Cooper, chief executive of Silver Fern Farms, took him to task for incorrectly reporting the situation with Silver Fern Farms’ debt facility, he writes in his latest guest blog.

I stated that these expired in September 2012 and therefore the company was operating on a temporary extension. The correct position was that the debt facility was originally negotiated for two years from September 2010 and consequently due to expire in September 2012. This remained the position at balance date in September 2011. However in the 2012 annual report, the facility was stated as expiring on 31 December 2012.

Clearly, the company had arranged a three month extension at some point before the original two year facility expired and this was not a temporary facility, as I implied. Nevertheless, it was no more than a three month extension, while the next longer term arrangement was being negotiated.

I apologise for any incorrect interpretation, but still maintain the company’s current debt level at balance date was higher than could be considered comfortable.

However, in an interview with Jamie Mackay on the Farming Show last week, when asked to comment on the industry’s debt level, Cooper gave his opinion that the debt was a good thing. Because it was tied up in inventories, it would ensure the industry acted responsibly. This is almost exactly what I wrote last week, although I saw the discipline on the companies as a necessity, not a virtue.

In Cooper’s radio interview, he stated after record prices last year, meat companies are reining things in.

“It’s a damn good thing we do have stock in store and we do have high debt because that means meat companies are acting responsibly, and are feeding the product to market to create stability of price. I’m quite happy that us and other companies have debt because that means they’ve got stock in store and that means we’re managing markets well.”

I must give Keith credit for being unreservedly a ‘glass half full’ kind of guy which you have to be to survive in what I believe is New Zealand’s toughest industry. He promises farmers that things will improve.

“We are living in volatile times. There will be volatility, but through the volatility we will see a steady increase in the price we will receive from offshore,” and he expects meat companies will pay farmers around 90 dollars per lamb this year.

I’m not sure the glass is quite as half full as Keith Cooper suggests, especially in the sheep meat market. Although lamb leg prices in the UK are holding fairly well, especially for chilled product, prices for middle cuts, like racks, loins and tenderloins, in North America and Europe are under pressure.

The price of loins and tenderloins have dropped by as much as 30 percent in the last couple of months, while there are fears of another collapse in lamb rack prices because of competition from low priced Australian product. As a result, importers are not placing orders for New Zealand lamb, because they remember the last time prices collapsed.

The Middle East has gone quiet on lamb shoulders because of cheaper Australian product, although China is still firm. Here, it appears New Zealand exporters benefit from less Australian competition with fewer China licensed plants in Australia.

All this explains why the New Zealand consumer is able to buy plenty of well priced lamb available on the domestic market. But this won’t provide more than a minimal contribution to managing the existing inventory levels and it certainly won’t cope with next year’s peak production. The industry will be keeping its fingers and toes crossed for an early economic uplift in our main markets, UK, Europe and North America, because otherwise the glass won’t have much in it at all.

Allan Barber is an agribusiness commentator, with particular interest in the meat industry. He has his own blog Barber’s Meaty Issues. This item has also appeared at www.interest.co.nz.

Meat companies high debt levels must concern the banks

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New Zealand meat companies’ high debt levels, must be of concern to the banks, says meat industry commentator Allan Barber.

Silver Fern Farms (SFF) is operating on a three month extension to its bank facility which expired at the end of September, but reported current (expiring within 12 months) loans of $316.7 million at the end of its 2012 financial year, Barber writes.

In its last published annual accounts to September 2011, ANZCO had current and non-current loans of $220 million which must surely have increased in the very challenging 2012 year. Lastly at the end of September Alliance had $331.8 million of assets and non-current loans of $196.1 million which are clearly not causing any immediate concern.

The two big co-operatives published their annual reports last week and neither makes pretty reading. Both results benefited from a large tax loss which, to be effective, must of course be offset eventually by profits.

Alliance’s financial position was fully flagged in its announcement of a $50.8 million post tax loss including the $19.4 million write down of its Mataura sheep processing unit, which was actually a pre-tax loss of $70.6 million before tax credits. Its balance sheet with 51 percent equity ratio is still strong, although not nearly as strong as twenty four or even twelve months earlier.

SFF had already announced an after-tax loss of $32.2 million which was also, in reality, a loss of $44.2 million pre-tax, which included no restructuring costs. Debt rose during the year from $111 million to $316 million, a massive increase which was largely accounted for by the inclusion of $35 million insurance payout for Te Aroha in the 2011 accounts, the cost of the rebuild, $83 million of higher livestock and finished product inventory, and the funding of the annual loss.

A careful study of the annual reports sheds an interesting light on the company’s banking arrangements. Its 2010 report stated that its facilities had been renewed for two years till September 2012 and included $75 million for repayment of its SFF030 bonds. The 2012 report notes that its facilities expire in September 2012, hence the classification of all secured loans as a current liability, as was the case in the 2011 accounts.

I understand from chief financial officer Keith Winders that SFF has been operating on a temporary extension to its banking facilities since the end of September; he claimed this was quite normal because of the annual renewal arrangement with its bankers. However it appears unusual to me, because firstly SFF previously had a two year facility and secondly it can’t be ideal to carry $300 million of bank loans into the new financial year without negotiating secured banking arrangements. However, the directors must have received solid assurances of the company’s continued trading ability to allow it to continue to operate and incur liabilities.

Winders was also quite definite that there would be no significantly different terms and conditions attached to the new facility when finalised. This suggests the operating environment since September must be at least stable, although there is little evidence of an improvement in market demand, especially for sheepmeat which caused all the problems last season.

The only major improvement I can see is the reduction in lamb prices which have fallen from $140 to $90 in a year for a 17.5 kg lamb, but the season hasn’t yet got sufficiently into its stride for trading performance to have recovered many of last year’s losses.

What is absolutely crystal clear is that the banks will be watching their exposure to the industry like hawks and will demand some dramatic improvements for the rest of this season for which the critical period will be from January to May. Last season’s problem was that the price was much too high to start with and none of the processors was brave enough to lead the way to get it down when stock numbers were low.

I imagine none of the meat companies will have any appetite for chasing market share at the expense of margin this year and, if they do, their banks will be down on them like a ton of bricks. Farmers had a bonus last season, but there’s no point in hoping for a repeat any time soon. This presupposes that processing capacity is fairly well aligned with livestock volumes because the last thing the industry can afford is a procurement led price war.

Unfortunately my impression is that there is still excess capacity in the country, even after the closure of Mataura, but for the time being the companies will all be determined to rebuild their balance sheets. Past experience suggests industry peace will only last as long as necessary to repair the damage before the companies find the prospect of grabbing market share too hard to resist.

The only long-term remedy will be rationalisation of processing capacity and ownership, combined with seasonal supply commitment like the dairy industry. The banks are one of two critical factors in a change of this nature, but they would have to work together and accept write-offs in the interest of a lasting solution.

Farmers are the other critical factor, but the process of converting them to seasonally committed suppliers is a slow one and nothing will make this happen overnight.

The meat industry appears likely to be consigned to a further period of instability, but this season may give some indication of whether it is heading in the right direction.

This item has appeared at interest.co.nz and also at Allan’s own blog Barber’s Meaty Issues.

MWU has net assets of $5 million

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A year after meat industry commentator Allan Barber started to try to uncover the true state of the Meat Workers Union (MWU)’s finances, the consolidated accounts have been posted on the Incorporated Societies website.

In an item that has appeared in NZ Farmers’ Weekly this week and at his own blog, Allan says that in contrast to the original set of accounts which showed the national office as having net assets of less than $1 million, the true picture incorporating all the branches shows net assets of $5 million.

In his analysis, Barber says “there doesn’t appear to be anything suspicious in the corrected accounts” and that they provide an accurate figure of annual membership fees, expenses incurred on behalf of the membership and the assets owned by the MWU. Fixed assets of $1.051 million include a $481 million loan to the Canterbury Meat Workers Welfare Society, which has been used to buy holiday cottages which are available for the benefit of all of the union’s members, according to the annual accounts.

Two items of particular interest for Barber are the substantial amount of money in the bank, reported as well in excess of $4 million, and the fact the Union as a whole has run at a loss for at least the last two financial years.

Barber notes that annual subscriptions, almost certainly falling in line with lower livestock numbers and efficiency improvements, are not quite enough to cover the level of expenses but appear to be under control.

“So other than the cost and inconvenience of being required to present consolidated accounts for all branches and head office, this all seems as though it will be a fairly painless exercise in future,” says Barber.

Read more …

Landcorp to return $20 million dividend to government

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State-owned farm, Landcorp, has had a solid performance this year according to its latest accounts, says meat industry commentator Allan Barber.

Landcorp’s net operating profit of $27 million for 2011/12 was down on the previous year, but still a good performance, Barber says in a recent blog, adding that the SOE will pay a $20 million dividend to the Government.

During the year, it produced 10,176 tonnes of sheepmeat, 9,715 tonnes of beef and 2,258 tonnes of venison, as well as large volumes of milk solids, wool and timber.

Landcorp has a target of selling 80 percent of its lambs on fixed price contracts to Silver Fern Farms, Alliance and other meat companies and last year achieved in excess of 70 percent by this method, proving to its satisfaction that this provides less volatile and overall better market returns than spot trading. Lamb production is geared to meet specific weights and specification to fulfill meat companies’ contracts with northern hemisphere retailers.

As a founder partner with Silver Fern Farms and the Ministry for Primary Industries in FarmIQ Systems, Landcorp is committed to the development of integrated value chains from pasture to plate, designed to align New Zealand production and supply with consumer demand preferences. Twelve of Landcorp’s farms are now on FarmIQ’s farm management system.

The development which attracted the most publicity was the joint venture with Shanghai Pengxin to manage the 16 Crafar dairy farmers bought from the receivers and expected to get underway shortly. This fits in with Landcorp’s goal to increase its involvement in the dairy industry and a further “extension to Maronan Dairies in mid-Canterbury and further development Wairakei Estates near Taupo will contribute to this,” Barber believes.

Sheep and beef finishing has been boosted by the development of Cheltenham Downs in Manawatu and this has helped recovery from the drought years of 2007 and 2008, reports Barber.

Over the past 22 years, Landcorp has paid dividends to the government; therefore, New Zealand as a while, of nearly half a billion dollars.

“There’s no evidence that Landcorp is constrained by public ownership or that it would benefit from part privatisation,” concludes Barber.

Read the full blog item here at Barber’s Meaty Issues …

This item has also appeared at www.interest.co.nz.

 

Meat industry lacks leadership according to Cooke

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The National Meat Workers Union’s General Secretary Grahame Cooke stated last Monday the large loss published by Alliance Group would be the first of several for the 2012 year. His point is fairly accurate, confirmed by Silver Fern Farms’ loss announced on Tuesday, writes industry commentator Allan Barber.

Of the other companies ANZCO and Blue Sky Meats will file their results with the Companies Office at the end of March. AFFCO is now a wholly owned subsidiary of Talley’s and doesn’t disclose its results, although the Meat Workers Union says (optimistically) these will be horrendous because of the lock out earlier this year. AFFCO’s results may not be as bad as all that because of the lack of a peak kill.

Cooke’s next point was the losses would inevitably lead to more industry rationalisation; this in turn would cause job losses for the meat workers who have already been affected by several plant closures in recent years. Job and earnings security suffered from fewer stock numbers and shorter season with workers being paid piece rates for shorter shifts; also higher average weights mean better productivity which is true for lambs, but not cattle.

His final point was about the lack of industry leadership in spite of the fact there are a number of good individual companies, all competing vigorously with each other. Cooke said the meat industry has not changed in the last fifty years with poor marketing and plant closures quickly followed by the addition of more capacity. He described the industry graphically as behaving like a cow with its head chopped off.

A look at the Union’s website provides more information on this topic: plant capacity has increased over the past decade with new plants, rebuilds and upgrades at nine plants across the country as well as capacity increases at several more. The Union believes the Government must initiate a ‘meat summit’ to address this.

So the questions are whether Cooke is correct or the industry is behaving in a perfectly rational manner.

My first reaction is the Government will never initiate a summit, almost certainly just another talkfest, because it realises the industry has a functioning commercial model. It competes in a global market and government should never interfere with privately owned businesses, provided they comply with the law. The meat industry has its own industry body, the MIA, which deals with all sorts of industry issues, but not those which impinge on competition between its members.

In addition, land use changes dictated by relative sector profitability will continue to occur regardless. The government would not be wise to get involved in picking winners or hobbling one sector’s ability to adjust its processing facilities.

My next reaction is meat processors and exporters are not the whole industry. There is a value chain which starts behind the farm gate and finishes in restaurants or consumers’ homes. The Red Meat Sector Strategy, FarmIQ and other company based initiatives attempt to define what can be done to join links in the value chain so they contribute to higher, more consistent returns. But it’s up to the farmers to produce to these specifications.

Meat exporters have done a great job over recent years to convert yesterday’s freezing industry into a sophisticated red meat member of the food industry, while also expanding into high value medical and other non-food product areas. More can always be done, but the industry has moved light years from the age of subsidies.

However, this process of modernisation has of necessity been achieved at a cost to overall jobs and terms of employment. The older plants were inefficient and built to service a different industry structure from a previous age. The period following deregulation and more particularly the removal of subsidies saw many farmers in serious financial straits, so their only option was to change farming practice or land use or sell. An unavoidable, even desirable, outcome was a big decline in sheep and prime beef numbers, offset to some extent by the growth in the dairy industry and the US manufacturing beef market.

Owen Poole made the point to me the losses are a sheepmeat problem and Alliance has responded by making the appropriate plant decisions, such as closure of Mataura sheepmeat processing, doubling Mataura’s beef capacity, increased venison processing at Smithfield and rendering at Lorneville. Keith Cooper also confirmed his satisfaction with SFF’s footprint in relation to livestock volumes, having already taken some tough capacity decisions.

This emphasises the regular requirement for new plant configurations to meet the demands of the market place and consequently the workforce must adapt as well. My experience tells me the meat industry does a pretty good job of responding to changes in market conditions, while generally trying to keep its workforce employed. But there is no future in keeping inefficient plants running to protect workers’ jobs, because these will disappear sooner rather than later.

Equally there are no prizes for leaving customer orders unsupplied when competitors are still prepared to process livestock. I certainly wouldn’t fancy the chances of the industry leader who sets an example by refusing to pay the money and has to tell Tesco or Marks and Spencer his company can’t supply because the stock costs too much this week.

Leadership is not as simple as it appears.

The item has appeared in NZ Farmers Weekly and at Allan Barber’s blog Barber’s Meaty Issues.