KEY POINTS:
Meat industry restructuring picked up pace last week with news that Dunedin-based PPCS plans to close its Oringi sheep and lamb processing facility.
It's perhaps not quite the restructuring that was envisaged a few months ago when rival processor Alliance Group's proposal for a major new entity compromising
five companies appeared to have the wind in its sails, only to sink just outside the harbour.
Mega merger or not, restructuring is needed, and individual companies are rightly getting on with their own plans.
PPCS has 25 plants, including Oringi, 12 of which are in the South Island where it will be looking at further proposals as part of its restructuring programme.
PPCS has as many plants as Alliance (8) Affco (10) and ANZCO Foods (7) put together so can be expected to make the majority of restructuring headlines.
In fact Alliance and Affco, which has previously restructured, have both said they have no plans to rationalise.
So the pain is going to fall mainly on PPCS but as the saying goes, no pain no gain - and what comes out the other end will undoubtedly be a leaner, fitter company.
The cost of redundancies at Oringi - which employs 466 people with an opportunity for about 100 to be relocated within the company - will be about $14 million to $15 million with operating cost savings of about $15 million a year.
A fitter PPCS will have another card to play - a good geographic and product spread.
PPCS has sheep, beef and venison plants across both islands, which arguably makes it easier for a restructured company to ride out rough times.
Years of poor returns have hit sheep farmers hard and conversion to the booming dairy industry is finding welcome green pastures south of Cook Strait. Much of the east coast of the North Island, where most North Island lamb comes from, is not suitable for conversion.
Fonterra will take all the milk it can get and this season's forecast payout is a record $7.30 per kg of milksolids compared with $4.46 the previous season.
Tempting may be an understatement.
Sheep returns are improving as international prices rise and reconverting a farm is not a quick task, but dairy is still king.
PPCS says there will be at least two million fewer lambs next season in the South Island and a drop of more than 500,000 in the North Island during the next three years.
Beef was a big sticking point in the mega merger collapse, with PPCS wanting to stick to the original proposal for a single entity managing 80 per cent of sheepmeat supply with similar amounts for beef and venison.
Alliance said beef would be significant but less than 80 per cent, and processor ANZCO Foods said the problem was more focused on sheepmeat.
The mega merger may have ended in an acrimonious press release joust but the fitter PPCS gets, the better the chance of having another go.
PPCS is expecting better performances in future, having lost $40.3 million in the year to last August but posting a first-half profit this financial year and cutting debt by $63 million.
Less baggage being carried into merger talks means fewer issues to argue about and more chance of success.
RAINY DAYS
The rain may be falling after a summer drought which hit many areas but a committee and telephone number set up to help farmers still have a job to do.
Federated Farmers president Charlie Pedersen says grass is growing in most places, although there are still problems in the Otago region.
"The rest of the country it's wet, wet enough to grow grass now and still warm enough to grow grass," he says. "So it's kind of fingers crossed that that continues and we end up with enough pasture growth during winter to satisfy our animals' needs until they get through to the spring."
It's warmer than it often is at this time of year but the drought committee still needs to remain active, he says.
"There's a need for surveillance to make sure that there isn't an impending situation anywhere."
During winter some farmers will find they have feed available they can sell but others for whom the weather has not been kind will be looking to buy it in.
"So we need to still have something ticking over so that we can put those people together in the late winter, early spring."
Farmers had acted early during the drought, de-stocking animals down to levels that they were capable of supporting, he says.
A drought can hit farms hard but a greater impact can come the following year when costs come in and income can be decimated.
EMISSION MISSION
Dairy exports could plummet 18 per cent and about 11,000 pastoral sector jobs could be lost if the Government's emissions trading scheme is not changed. This is the dire warning from the Dairy Companies Association of New Zealand.
The association represents companies including Fonterra, Goodman Fielder and Open Country Cheese.
Chairman Earl Rattray says research by New Zealand Institute of Economic Research shows the pastoral sector would shrink by 8 per cent in the long term.
"Punitive pricing that neither considers the technology we have available to reduce emissions nor whether our competitors face comparable costs, will have a negative impact on our economy and do little for global emissions," Rattray says.
Under the Kyoto Protocol, New Zealand must reduce its net emissions to 1990 levels or purchase emission units internationally to cover any shortfall. The Government's beleaguered emissions trading bill aims to encourage emitters to make reductions by applying a cost.
Under the proposals, participants would have to count their emissions and could then buy and surrender an emissions unit for every tonne of greenhouse gas for which they are responsible.
People who undertake actions that remove greenhouse gas emissions can earn a unit for each tonne they remove, which they can then sell.
As things stand, all gas and coal burned in power stations will count from 2010, and all transport fuel from 2011.
Large industrial emitters will be included from 2010 and the farm sector from 2013, although both get an initial free allocation equivalent to 90 per cent of emissions in 2005 - reducing to zero between 2018 and 2030.
According to the Net Position Report 2008, released last week by the Ministry for the Environment, 48 per cent of total emissions are produced in the agriculture sector.
Between 1990 and 2006, the emissions from dairy grazing increased by 5.4 million tonnes of carbon dioxide equivalent, and emissions from the application of nitrogenous fertiliser were up by 1.5 million tonnes. However, emissions from sheep grazing fell by 2.8 million tonnes due to a reduction in animal numbers.
Rattray says the scheme as it stands would not contribute to a reduction of global emissions but merely allow other less carbon-efficient overseas competitors to fill the demand for dairy, thereby increasing global greenhouse gas emissions.
The Dairy Companies Association says the dairy industry here is considered low carbon compared with overseas competitors and it would be better to use an intensity- based scheme.
"Focusing on reducing greenhouse gas emission per unit of production or emission intensity would reward and encourage greater efficiency of New Zealand food production," Rattray says. "It would also better align with consumer interests in seeing the greenhouse gas efficiency or carbon footprint of a product they are buying."
Federated Farmers president Charlie Pedersen says he is concerned about the future of farming and rural communities under the Government's plans.
"As it stands the emissions-trading scheme poses a huge economic burden on the main driver of our economy namely agriculture, which earns the bulk of the nations export dollars," Pedersen says.
"Analysis produced by the Ministry of Agriculture and Forestry and the New Zealand Institute of Economic Research raises huge concerns about the practicality of the proposals. These figures show that some sections of New Zealand's food-producing sector would simply be unviable."
Some arguments are not black and white.
Farming and the dairy industry are vital to New Zealand's economic wellbeing. So why shackle them with an extra cost compared with overseas competitors?
The phase-in period is generous, with more than two decades from now to prepare for full exposure to the scheme.
Unfortunately, the best place to make a difference is likely to be in the biggest industrial sectors, which logically will be the most successful and nationally important.
But why act alone? In the cause of fairness surely it would be better if all nations acted together.
Kyoto nations have an obligation, how they get there is up to them.
In the end if we as a nation believe it is important to join other countries in reducing global emissions then we have to act. If everybody waits, then nothing will happen.
In New Zealand, responsibility has to be spread as fairly as possible across all emitters and provided it is, eventually all sectors will have to step up and be counted.
