Meat industry in better shape today to cope with downturn

When I started to trawl through possible topics to write about this week, I had the bright idea it might be worth asking meat processors what contingency plans they have in place in case an employee, more particularly one on the processing floor, tests positive for the Covid-19 coronavirus. So far my research suggests it’s not yet an issue that has received a great deal of consideration by many companies, although it’s certainly on their radar.

 

In an update to farmers, Silver Fern Farms states its position as “The reality is that an outbreak, or the understandable precautionary response of our people, is likely to see an impact on our processing capacity in coming weeks. It is realistic to expect that with a workforce of 7000 we will at least have precautionary isolation within our workforce. We have processes in place to ensure that, should this occur, it can be managed. We are working on the various contingent options and will keep you updated should there be any disruption to processing.”

 

Greenlea Managing Director, Tony Egan, told me, it is a fast evolving situation which his company could mitigate with its two separate plants, as well as asking administrative staff to work from home. Wilson Hellaby’s Fred Hellaby has ensured Ministry of Health guidelines have been distributed to staff, with special emphasis on anyone with cold or flu symptoms staying away from work. He also said the processing floor was an environment in which workers are well protected with whites and face masks, but the breaks would be the most challenging times to ensure separation.

 

In the event of a case on plant, or indeed in any work environment, alternatives would seem to range from individuals self-isolating, while the rest of the facility continues working, to the other extreme where a whole production unit may be required to close down and staff go into a 14 day quarantine. Clearly production cannot happen remotely, so productivity and profitability would be totally compromised. Whether workers receive payment other than sick-leave would depend on their employment contract, while the ultimate viability of the business may be threatened.

 

The potential impact of the current shock on cashflow, revenue and expenses from a downturn in customer purchasing patterns or business interruption will be a lot less serious for the meat industry than would have been the case 10 or 15 years ago. Meat company balance sheets were stressed and there was significant industry overcapacity which meant several processors were heavily indebted to their bank syndicates. Recapitalisation and balance sheet strengthening as a result of external investment and improved profitability have made the sector much more robust.

 

New Zealand’s internal problems pale in comparison with the potentially disastrous effects of a global recession with lockdowns in much of Europe, North America and Australia. New Zealand has so far had a mere handful of Covid-19 cases, all individual travellers being identified and isolated, but the speed of transmission uptake in other countries suggests this could change at any time. Our government, on the back of strong medical advice, is focusing on delaying the spread of the Covid-19 outbreak before it takes hold. This approach is seen as providing the best means of ensuring the health system isn’t swamped, as well as avoiding a state of panic.

 

The government has taken the bold step of requiring all international arrivals until end April, except from the Pacific Islands, to self-isolate for 14 days. This decision is designed to protect public health, while the $12.1 billion package announced on Tuesday targets support for businesses, employees and beneficiaries. This is a clear, decisive first step to minimise what has been called a bigger crisis than the GFC.

 

 

Unlike the GFC in 2008 which was purely a financial problem, resulting in banking instability, Covid-19 has multiple impacts across the world without any clear end in sight. Economists are quite correct when they say the world economy will recover, although nobody knows how soon, but it’s likely the world order will never be the same when it does. Many businesses will fail in the meantime. People will have got used to new ways of living – shopping, working, holidaying, entertaining themselves, sport – and probably won’t fully revert to their old habits. Some may find their asset base or disposable income permanently impaired, while others will have discovered out of necessity a new way of earning a living and building their wealth.

 

It’s also certain the level of economic activity will suffer a one-off fall which won’t be replaced when the virus has passed, because expenditure and activities foregone can only be postponed, not repeated. A deferred fridge, car or overseas holiday is a one-off blow to economic activity and GDP. Airlines, cruise companies, hotels and tourist businesses will sustain a massive hit. The sports bodies which depend so heavily on broadcasting rights and sponsorship are unlikely to have it so good ever again.

 

The coronavirus may not turn out to be a very serious health problem in the long run, but it will have a long lasting effect on world economic activity and the intricately interwoven supply chains which have replaced traditional methods of production in the past 20 or 30 years. Many industries will have to develop a whole new way of interacting with their customer base to survive.

 

Hopefully global trade patterns on which New Zealand depends will be more robust, because essential commodities will still be required. It is difficult to assess the impact on agriculture, but New Zealand’s healthy, natural and sustainably produced food products will surely still be in demand when the world returns to a new normal.

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One Response to “Meat industry in better shape today to cope with downturn”

  1. Rural round-up | Homepaddock Says:

    […] Meat industry in better shape today to cope with downturn – Allan Barber: […]

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