NZ meat industry urged to bite bullet on rationalisation, rewards worth 'billions'

Monday 16th March 2015

New Zealand's meat companies has been urged to bite the bullet and carry out long-mooted industry rationalisation, which could deliver "billions of dollars" in benefits, a new report says.

The "Red Meat Industry – Pathways to Long-Term Sustainability" report commissioned by Meat Industry Excellence, a farmer-led group campaigning for industry reform, says that over-capacity in the industry "is costing farmers and processors a great deal, and distorting market behaviour to the detriment of export value."

It looks at various options to reduce over-capacity in the meat industry, noting that an amalgamation of Silver Fern Farms and Alliance Group alone could produce $400 million of benefits over five years. Adding Anzco and Affco to the mix, which would bring New Zealand's four biggest meat companies to the table to work on "a coordinated and managed consolidation" could generate more than a billion dollars in savings, the report says.

"Returns to sheep and beef farners are too low and not sustainable," said MIE chairman John McCarthy. "If we don't turn this around, New Zealand's number two export industry will dwindle as its productive base erodes."

The report says that at the current pace of conversion of sheep and beef farms to dairy, the number of ewes across the country could fall to 15 million in five years’ time and 10 million in 10 years, from about 21 million currently. By contrast, the national dairy herd could grow to 7.5 million from 6.5 million now.

The report said farmers broadly supported a "consolidated, cooperative model" although they have historically contributed to the problem of over-capacity among meat plants by shopping their stock around to companies who will pay a premium to ensure they get enough livestock to run their plant to capacity.

The report said over-capacity "is imposing a heavy cost on farmers", with benefits from rationalising processing plants estimated at $444 million a year.

"The analysis shows that the industry can currently kill its lamb and beef production more than twice over each year," MIE said in a statement. "The resulting competition for stock throughput means that, for example, 50 percent of sheep and cattle are transported beyond the nearest processing plant, more than doubling the cost-per-head of transporting stock."

The report makes eight key recommendations including meat companies putting aside their differences and agreeing to work collaboratively on an industry-wide solution; investigating 'chain licensing’; creating a holding company to own redundant processing capacity and help facilitate plant closures; gaining meaningful support from the government; convince farmers and processes to agree to committed, or contracted supply; using the electricity industry as a model for managing seasonal or peak processing; winning support from farmers for raising new capital; and moving the industry from a production-led model to a "consumer focused, value added model".

BusinessDesk.co.nz

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