Why red meat sector needs to reform

An analysis of the livestock population over the last 25 years provides compelling evidence of how the ratio of sheep and beef to dairy has changed dramatically. Although we are aware of this change from all the publicity about the growth in dairy farming, it’s a shock to see the bald statistics from B+LNZ’s Economic Service which show a 92% increase in the dairy herd compared with a decline of 47% in the sheep flock and 20% in the beef herd.

 

Competition for land has become the key influence on the changing nature of land use and farming types. Not surprisingly the relative profitability of different types of farming has driven, and continues to drive, the trend towards dairy and away from sheep and beef.

 

The meat industry has changed a great deal during the past quarter century, but not sufficiently in some critical ways to reflect this dramatic shift in livestock numbers. As a result the sector has followed a downward spiral with only occasional blips on the radar briefly giving rise to hopes of a more permanent improvement.

 

The fundamental structure of the industry has remained the same as it was in the 1980s. The number of companies and plants in operation has fluctuated, but there are actually more of both than in 1986 when the sheep flock was 37.5 million, 50% higher than today. In 1986 there were 45 plants compared with 52 today, although in 1992 there were a massive 29 companies and 64 plants.

 

The configuration and capability of processing facilities have changed: smaller plants capable of operating on multiple shifts as distinct from the old monoliths covering vast tracts of land, cutting and packaging equipment, the level of sophistication of consumer ready product forms, the end uses for which co-products can now be saved; the degree of computerisation and the hygiene standards all plants must comply with. The retail customers have become increasingly demanding.

 

But in other ways, the industry seems to have remained rooted in the past: basic processing functions starting in the stock yards and progressing through to the slaughter floor are not that different from thirty years ago; livestock procurement and drafting are in many ways as they have always been, apart from the use of mobile technology for communication and stock bookings.

 

As we can see there are still at least as many plants as there used to be with little change in the number of livestock agents and buyers; the average age of sheep and beef farmers has not come down. And yet, apart from dairy cows livestock are not nearly as plentiful, while the countryside has been progressively altered by irrigation.

 

In spite of all this the red meat industry is still locked in its previous business model based on competing for decreasing livestock numbers to fill the plants, relying on a combination of old and new procurement methods, a mixture of traditional plant labour, old and new processing machinery and modernised plants alongside purpose built new ones.

 

With the present industry model of tight margins, cutthroat farm gate procurement, over capacity and competitive market behaviour, it is difficult to see how it can ever emerge from the quicksand.

 

As a whole the processing and exporting part of the sector has not made a profit for years; for every good or reasonable year there have been seriously bad ones when previous gains are wiped out and more besides. Although some private companies are consistently profitable, there have been some horrendous losses by the large companies to offset these.

 

Somehow there has to be a game breaker which persuades farmers and processors to cooperate by sharing closely guarded information and learning to trust each other. It is also necessary for the banks to front up to the consequences of their determination to lend more money to fund the building of assets.

 

The industry must start to focus on the small segment of rich global consumers who are prepared to pay a premium price for high quality products, although there remains much of the livestock to shift to more price conscious customer groups. But we cannot produce enough output to feed the world and must make sure we market to those who are prepared to pay the best price.

 

For all its success in recent years, the dairy industry is still chasing a largely commodity market which just happens to be willing to buy more product at a higher price than customers for red meat products.

 

Both dairy and meat industries have to move away from their focus on commodities to capture the upmarket dollar, but the meat industry has less time left on the clock.

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Tags: B&LNZ, commodities, irrigation, livestock procurement, meat processing, sheep and beef farmers