MIE red meat sector report to be launched

Tuesday sees the public release of the Meat Industry Excellence industry study ‘Red Meat Sector – Pathways to Long-Term Sustainability’ at a launch function in Wellington. The study, funded with the assistance of a grant from Beef + Lamb New Zealand, was commissioned in the middle of last year; it was initially due for release by the end of October, but concerns about the robustness of the findings delayed the process.


According to MIE’s website the two main areas of work were:

  • Firstly a survey to gauge the level of farmer understanding of processing and marketing models in NZ. We are also seeking their appetite for contracts and or longer term commitments to supply and their views on capturing more from the entire supply chain.
  • Secondly, MIE has engaged highly experienced industry experts to attempt to identify cost savings and/or benefits from across the entire value chain.


Critical factors or issues the plan intended to address were:

  • How to develop the pathways to reduce capacity?
  • Current procurement practices are a major impediment.
  • Loyalty in the Red Meat Industry is sadly lacking and restoring ‘2 way loyalty’ will be fundamental.
  • MIE is developing a road map to explain where the industry is heading over the next 10 years.
  • MIE will quantify the stark options farmers and processors face under the status quo.
  • MIE will identify how farmers can retain sufficient control of the value chain.


Rod Oram will chair the launch and address the attendees as well as other speakers including MIE chairman John McCarthy, adviser Ross Hyland, B+LNZ chairman James Parsons and Alasdair Macleod who led the Deloitte team responsible for producing the Red Meat Sector Strategy four years ago.


MIE has already notified key findings of its research which are:

  • We must lift farm gate returns. According to the latest ANZ red meat sector strategy report (Dec 2014), sheep and beef farmers in NZ have received a miserly +0.7% return for the past 7-8 years. This is unsustainable and the pain among red meat farmers is all too real.
  • We need to address over-capacity. Every day we continue with our current procurement and processing model, farmers continue to lose money. By over-capacity, we mean capacity that’s way beyond what’s needed for drought and other processing peaks – the levels of over-capacity identified in the report are far beyond this.
  • We need a procurement model that rebuilds trust between farmers and processors and marketers, to enable committed supply.
  • Farmers overwhelmingly support a consolidated industry based around a co-operative model with scale. The farmer research we commissioned shows this and that with the right strategies and structures, farmers would consider further investment to achieve future gains.
  • Estimated savings in the report have been modelled for various consolidated industry options. For example, a rationalisation process that would need the four largest companies agreeing to a co-ordinated and managed consolidation process (the two co-ops plus ANZCO and AFFCO) offers savings of more than one billion dollars over five years.
  • Major cost savings and efficiency gains are available if we can lift the processing industry to the highest standards currently being achieved.


MIE acknowledges that it can only “facilitate, advocate and support farmer engagement and their involvement in achieving industry solutions.” It recommends making the report available to farmers and industry participants with the objective of gaining a co-ordinated industry-wide approach to the over-capacity problem in order to address the pain from low returns experienced by farmers.


No doubt the meat companies will take plenty of time to scrutinise the cost models produced by industry analysts to support the findings in the report. It will be interesting to see whether there is agreement between the different sets of analysts about the amount of capacity the industry needs to cope with processing peaks at all times including drought conditions.


The contrast between the Red Meat Sector Strategy, jointly commissioned by B+LNZ and the Meat Industry Association, and this latest study commissioned by MIE will possible from an examination of the areas which the respective reports have not analysed in great depth. The RMSS covered the issues of industry structure and over-capacity, but stated that the key issues were co-ordinated in-market behaviour, efficient and aligned procurement and sector best practice.


Inefficiencies in the market, livestock procurement and transport past the nearest plant, as well as the massive difference between the top 20% of farmers and the rest were assessed as contributing the most to a loss of industry profit.


The MIE report will state upfront that over-capacity is the big problem. This is estimated to cost more than $1 billion over five years, compared with a more conservative estimate in the region of $50 million surplus fixed costs in the RMSS analysis. However MIE’s analysis appears to ignore the enormous gains identified from on-farm productivity improvements.


It will be possible to assess the potential for savings raised by the MIE report after its release on Tuesday, but regardless of the recommendations contained in the report, it will take a great deal of negotiation involving farmers, processors and financiers to arrive at an agreed and bankable solution to the meat industry’s problems.


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One Response to “MIE red meat sector report to be launched”

  1. Rural round-up | Homepaddock Says:

    […] MIE Red Meat Sector report to be released – Allan Barber: […]

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