Red meat industry mulls globalDairyTrade-type commodity trading platform

Thursday 6th October 2011

New Zealand’s red meat industry is considering the scope to set up a trading platform, similar to what Fonterra Cooperative Group has done for dairy products, as it attempts to establish benchmark prices for commodity products.

Fonterra’s globalDairyTrade auction site has created “a transparent and competitive process for the pricing of bulk-traded commodities,” according to the first report of a group established to drive the Red Meat Sector Strategy.

The group will initially produce a discussion paper on an online trading platform for lower-value meat commodities and co-products.

“A lot of companies struggle with understanding the value of commodity co-products,” said Mike Petersen, chairman of Beef + Lamb and a member of the Strategy Cooperation Group that produced the report.

“The issue uncovered in the report is a lack of transparency in co-products in particular,” he said. “There’s a multitude of sellers and buyers and they’re not dealing with big volumes.”

The meat industry doesn’t have the same volumes of commodity products that Fonterra sells, such as milk powder. Products that might fit include slipe wool, extracted from meat plants, and tallow.

New Zealand’s exports of rendered products such as meat and bone meal, and tallow, are worth about $300 million a year.

The Meat Industry Association’s Renderers’ Group of 19 companies is investigating new applications in emerging markets, including replacement of higher-value protein and lipid inputs which would garner premium prices and wouldn’t be contenders for a trading platform.

Meat and edible offal generated $5.5 billion of export sales in the 12 months ended Aug. 31, about 12% of total merchandise exports, ranking it second and roughly half the size of dairy products. The meat industry says total annual export sales are closer to $8 billion.

Other animal originated products, which includes pig bristles, bone meal, feathers and ivory, was valued at $360 million in the latest year, and raw hides, skins and leather were worth $524 million. Animal and vegetable fats and oils were worth $181 million while meat and fish preparations amounted to $285 million.

If the idea of a trading platform doesn’t fly, the Strategy Cooperation Group has a fall-back option of looking at benchmarking historical prices to give company sales executives a level on which to base their prices.

Petersen says he is yet to be convinced on the merits of a trading platform, given there’s fewer meat co-products that could be sold that way than there are commodity dairy products.

BusinessDesk.co.nz

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