Owen Hembry: Meat & Wool's future on the line

Restructuring of the meat industry has been one of the biggest agricultural stories of the past few years, with a series of headline-grabbing initiatives that promised much but in the end came to nothing.

The next chapter comes in August when farmers vote on whether to re-mandate industry good body Meat & Wool New Zealand - whose pitch will include delivering a strategy for the whole sector.

However, there is more at stake than developing a strategy because a no-vote would kill off Meat & Wool altogether, including work on research and development, promotional activity, education and economic service.

Meat & Wool chairman Mike Petersen says the Commodity Levies Act means there will be just one proposal on the table.

"If we get a no-vote the organisation and all of our activities ... it shuts down, so there will not be a Meat & Wool New Zealand," Petersen says.

Many attempts have been made at structural change in the meat sector, in which the national sheep flock has more than halved from a peak of 70.3 million animals in 1982 to 34.1 million by June 30, last year.

In 2007 Southland co-operative meat processor Alliance Group turned down an opportunity to merge with rival Dunedin-based co-operative Silver Fern Farms.

In April last year a mega merger proposed by Alliance aimed at involving five companies collapsed amid recrimination.

In June last year a Meat & Wool New Zealand taskforce headed by Sir John Anderson set up to develop a sector strategy was shut down because it lacked consent.

Resolutions put forward by the Meat Industry Action Group seeking support for a single farmer-owned co-operative and to force Silver Fern Farms and Alliance Group to work together was voted down in September by Alliance shareholders.

And in November Silver Fern Farms pulled the plug on a plan for NZX-listed rural services business PGG Wrightson to buy half of the processor for $220 million after PGG was unable to finalise bank credits and missed the first instalment.

Meat & Wool chairman Mike Petersen says the farm side part of a sector strategy is being completed - originally part of the job planned for last year's failed taskforce.

"In the referendum round coming up we're now trying to seek a mandate from farmers to be able to lead the industry along into that whole of sector strategy," Petersen says.

Returns to sheep farmers have improved this year, with the average farm gate price for a 19kg lamb of about $105, compared with about $67 last year.

"That would be a concern that I'd have is that because farmers are getting better money they've actually put restructuring back on the backburners," Petersen says.

"We need to make sure we keep pushing and trying to re-organise the sector.'

Despite past failed restructuring attempts the calls for action keep coming.

Federated Farmers says a comprehensive strategy is the best way to achieve a profitable, sustainable future.

Federated Farmers meat and fibre chairman Bruce Wills says Meat & Wool New Zealand is best placed to lead the way, with most meat companies keen to get behind a pan-industry strategy.

Meat industry restructuring is an important part of impending vote but only a small part in the scheme of things, Wills says.

"It's just one of the issues that they want to pursue and I think to be fair that one's got a lot of support."

A more contentious issue is spending money on market development, which some argue should be carried out by commercial players rather than a farmer levied funded body, Wills says.

Another area of debate is around spending money on promoting wool.

"That's had a fairly strong push back from farmers," he says. "Farmers are saying, ' We've spent hundreds of millions of dollars in the past promoting wool ... it's got us the lowest price we've ever got so we don't want to go there'."

Nothing comes for free. Industry bodies cost money and a series of poor years is unlikely to be conducive to spending money.

Meat & Wool collected about $28 million in levies this year and spends about $42 million a year, with a suggested spend of $39-$46 million for the next five years.

Petersen says the interest earned on about $90 million of reserves is likely to be lower in coming years, while nine million fewer sheep since last year at 40c a head equates to $3.6 million less from the sheep-meat levy alone.

"I think there's a recognition that Meat & Wool New Zealand needs to be there and there's a set of core activities we need to do and now the debate's really around the fringes," he says.

Consultations will run until the first week of July.

"It's fair to say the restructuring debate ... there's not a lot being done but there's a lot of talk at the meetings about what needs to be done."

"We're certainly seeking support for us to carry out the sector strategy work that we've started and we want to complete ... we'd like to finish that within six months of the organisation being re-mandated in September, if that happens.

"But that won't be about the structure of the industry that'll be about the strategy that's required ... we're pretty hopeful that that will start to bring the industry together better structurally, particularly in the market with some of their activities" he says.

"If we can get them comfortable with each other, collaborating with each other around the strategy then that may lead to some structural reform."

Recent experience warns against banking on any outcome in the meat industry.