Allan Barber: Bill confirms legality of meat-quota allocations

The Meat Board Amendment Bill passed its second reading last week and, with the strong probability of passing its third reading later this month, will become law.

This confirms the status quo which came into effect in the Meat Board Act 2004, confirming the legality of the allocation of meat quota to all export- licensed meat processors, irrespective of whether they export or not.

The amendment bill has been made necessary by the potential for challenges to the Meat Board's system of allocation which could have resulted in it facing litigation, if upheld. To avoid any chance of this, the bill backdates the effect of the legislation to July 1, 2004.

The public may be asking why this situation ever arose, who stands to gain and who will lose from Parliament's decision and, ultimately, whether the method of quota allocation earns the maximum benefit for farmers and the country?

Quota grants meat exporters access to the lucrative United States and European Union markets, providing the highest-paying destinations for large quantities of beef and lamb. Without the respective quotas - which cover more than 40 per cent of our meat production - New Zealand would have serious problems selling it all at an acceptable price. In 2004-05, meat exports were worth $5.35 billion.

The reason for allocating quota to all export-licensed processors, whether they export or not, may appear strange and forms the basis of opposition to the bill by the two largest meat exporters, PPCS and Alliance.

The previous system of restricting quota for product sold on the domestic market was reviewed in 1997 at the request of the exporters, because weakness in overseas markets meant they had to sell a lot of meat here. But they still wanted to earn quota for it.

The board's review recommended a moratorium until 2000 to allow local abattoirs to upgrade their plants to export-licence standard, if they wished, when they would be entitled to earn quota.

The present system of quota allocation came into effect in 2000. Last year, when overseas market prices were at an all-time peak, these same exporters lodged a submission that the board should eliminate local market processors from quota allocation.

By this time, some domestic processors had spent substantial amounts on upgrading their premises to gain US and EU licences, employing more vets, meat inspectors and quality-assurance staff to maintain the required standards.

In the past seven years, the quality and market perception of meat sold here has improved dramatically - boosted by the Beef and Lamb Marketing Bureau - and the phrase "export quality meat" has disappeared from the vocabulary.

Farmers no longer raise livestock specifically for the local or export trade, but can sell at a similar price to either market, because there is little difference between the type of stock required for both, and certainly no difference in quality.

So the two main questions are whether the present system of quota allocation distorts the market for prices paid to farmers, or results in less money returning to New Zealand as a whole. These are really two sides of the same question.

Parliament's primary production committee formed the view in recommending the bill that there was insufficient evidence of returns not being maximised. The sale of quota between processors who did not use it in full, and exporters that needed it, would enable the maximum return to be achieved.

These conclusions certainly don't support any change to a quota system which has lifted the quality of meat sold and served in this country to the high standard it has now reached.

* Allan Barber is a freelance writer, business consultant and former chief operating officer at Affco. www.BarberStrategic.co.nz