Market share changes produce little progress

Since 2003 quota allocation statistics indicate some significant changes to meat company market shares, but overall there’s been remarkably little progress towards a consolidated industry structure. I have argued in the past farmers have sufficient choice between different types of processor to send their stock to, while suggesting progress towards consolidation depends on commercial realities in an imperfect market.

 

But a comparison of this year’s statistics with those of six years ago made me realise the industry is, if anything, disaggregating rather than consolidating. Therefore leaving it to imperfect market forces isn’t actually working very well, at least not for those farmers who want industry leadership and are willing to make a commitment to one processor in support of it.

 

A quick look at the figures shows the main reason consolidation has gone backwards is ironically the biggest single step towards consolidation when PPCS took over Richmond. In six years the combined Silver Fern Farms (SFF) business has lost a quarter of its beef business and 28.7% of its sheep meat business. This means the big three beef processors now control 65.3% of the business compared with the same companies controlling 72.6% in 2003, while the top four sheep and lamb processors’ share has dropped from 81% to 74.4%. The lesson from this is market share loss inevitably follows a merger, with smaller, flexible operators benefiting more than the large ones from supplier defections.

 

The number of exporters hasn’t changed much over the same period – today there are still 18 significant sheep meat quota holders compared with 20 six years ago and 10 large beef quota holders against 12, which indicates there have been few instances of consolidation. Most attention still seems to focus on getting Alliance and SFF to merge which would only create a company with 55% of lamb and 34 % of beef throughput. Past history suggests these shares would decline from the day of the merger, thus further exacerbating the capacity problems from lower livestock numbers.

 

Bruce Wills, Federated Farmers’ Meat & Fibre Chairman, wants Meat & Wool NZ to lead the industry in pursuit of higher lamb prices to reverse the decline in sheep numbers. But at the moment MWNZ is busy with its referendum and, despite good intentions, hasn’t been able to make the desired change in the past. Meanwhile MIAG received a strong mandate at its AGM to its efforts to achieve change in the industry and Keith Cooper, MWNZ board member and SFF’s CEO, has welcomed MIAG’s continued involvement, saying it is critical the whole industry debates how to insulate itself from future price shocks.

 

This summary neatly sums up the problems: no single body can achieve change alone, while the objective of sustainably higher lamb prices than current historical peaks appears beyond any group’s ability to achieve. Lamb is expensive compared with other meats, so there is little chance of guaranteed higher prices without a virtually impossible combination of low exchange rate, shortage of supply, product innovation, control of the distribution chain, determination, co-operation and luck.

 

This is not to say we can’t improve the present set of circumstances, but hand wringing and calls for others to provide leadership won’t work. For things to change, even in a small way, the parties must want change; an attempt to force any one body or group to change will only work, if that body thinks it’s worth looking at alternatives. The proposed Meat Industry Taskforce which didn’t get off the ground last year failed, because there wasn’t enough ownership by the parties to take part in the debate under an independent chair.

 

If there’s sufficient pressure for change, the first requirement is trust between participants before they will work together and that’s why farmers should be cheered by the opportunity to supply their product to companies who are willing to pay market related incentives and share information about the specifications they need.

 

There’s nothing else obviously about to happen, but merging Meat & Wool and the Meat Industry Association would have been a good start; then you would have had the farmers’ and exporters’ representative bodies at the same table. Time will tell if reduced lamb numbers encourage any of the participants to co-operate further.

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One Response to “Market share changes produce little progress”

  1. Meat, wool: what future? « The Bull Pen Says:

    […] industry analyst and regular Bull Pen panelist Allan Barber makes the point that in the last six years the industry has become less consolidated. In six years the combined […]

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