Rural delivery: Meat exporting still bedevilled by many bits and pieces

By MICK CALDER*

Recent reports on the consolidation of the US meat packing industry show that four firms handle 80 per cent of the beef slaughter.

The focus of the reports was on beef, pork and poultry and had little if anything to say about lamb. But it got me thinking about the New Zealand meat industry.

Our processing sector may have been rationalised for efficiency but our export marketing is as fragmented as ever.

Affco, Richmond, PPCS and Alliance, all with six or more plants, dominate the New Zealand industry. All have been involved in the euphemistically termed rationalisation process over the past 15 years, with closures and consolidation being the prevalent activity.

Whether they handle 80 per cent of the slaughter is commercially sensitive information but it would be close.

This might lead to the conclusion that the industry has achieved that much heralded nirvana promoted by Charles Hilgendorf and Adam Begg of the Meat Board, and Waitaki's John Neilson, in the 1970s and 1980s. They advocated the development of four large New Zealand-owned companies plus some niche operators.

But a quick bit of research shows that after all the changes in ownership, company crashes, plant closures and reconfigurations in the past 15 years, the number of plants has not changed significantly.

According to Meat New Zealand's July 2000 edition of The Business of New Zealand Meat there were 52 licensed meat export plants; just 4 fewer than in 1990.

There are now more beef and fewer large lamb plants, reflecting the change in livestock numbers.

So, superficially, the New Zealand processing industry has been following the same path as the US, but the degree of consolidation is less evident.

While the bigger companies rationalised plants to achieve economies of scale, other entrepreneurs continue building capacity with smaller, single chain plants. Almost invariably they are beef plants located in the northern half of the North Island.

The US reports noted that with the emphasis on cattle feedlots, hog farms and larger production units, it was economical to establish large slaughter units in the vicinity. Changes in plant technology improved scale economies bringing integration of slaughter, processing and packaging.

The wider spread of New Zealand livestock production, high transport costs and little use of feedlots means that is less likely here.

Another US consolidation concern related to reduced competition. The reports pointed out that fewer operators raised the possibility of lower prices paid to livestock producers, and for increased prices to retailers and consumers.

While the possibility of reduced competition for livestock exists here with only two large operators in each island, the flow of stock across Cook Strait can arbitrage any seriously lower price differentials. Any suggestion of collusion would also bring down the wrath of the Commerce Commission, as some operators are painfully aware.

The output side of the New Zealand industry, with its emphasis on export, presents an entirely different picture. We should aim for the best possible returns from the overseas markets, with a structure to ramp up prices, as with the dairy industry mega-merger.

At the latest count there were 263 licensed meat exporters - 46 more than a year ago.

Competing to sell similar products to a limited number of buyers in our major markets means the only uncertainty is price.

Given the recently announced payout in the dairy industry perhaps there is a lesson to be learned.

* Mick Calder is a company manager, agribusiness consultant and freelance writer.