Issues that have plagued industry for years back on agenda now price surge is over and farmers face low returns

A decline in demand from China and the Middle East, combined with dry conditions in parts of New Zealand, has depressed lamb prices which is likely to rekindle talk of meat industry reform as farmers once gain face the prospect of reduced returns for stock.

At the farm gate, South Island average prices for a 17.5kg lamb have dropped to $5 a kg, down from $5.40 a year ago, while the North Island average is $5.08, down from $5.50, according to data supplied by AgriHQ.

The New Zealand average price has tumbled more than $1/kg from the peak price of $6.23/kg last November.

AgriHG head analyst Nick Handley said prolonged dry conditions in parts of the country meant more stock was going to the works earlier than normal, and at lighter weights.

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Handley said lower oil prices were having an impact from the oil-producing economies and demand from China - a big buyer last year - had dropped off.

"At the farmgate, prices have come back quite a bit, in part due to declining prices in overseas in quite a few different places," he told NZME. "Prices are now lower than where they were a year ago, and have been for a few weeks now, which is the first time in a while because prices have been recovering for a couple of years now," he said.

Over the last year, there had been a big decline in lamb byproduct prices, such as casings and pelts. Chilled lamb for Easter trade in the United Kingdom and Europe had another week to go before the last shipment.

Handley said there was concern about sheepmeat orders from China for lamb and mutton. The People's Republic took about 50 per cent of New Zealand's mutton exports last year, up from just 10 per cent the previous year, but falling interest this year meant exporters were being forced to go back to the more traditional markets.

Farmer appetite for meat industry reform was dulled last year when prices surged. In the previous year, when prices were weak, the issues were more pressing, which gave rise to the formation of Meat Industry Excellence (MIE).

The sector has been plagued for years with problems of overcapacity for a rapidly diminishing sheep population and stock procurement, and MIE chairman John McCarthy said lower prices would bring the issues back into stark relief.

"The lamb prices are drought-driven, to a degree, but it is illustrative of the ongoing predatory relationship between farmers and the people who do their processing," McCarthy said. "As soon as it gets dry, they drop their prices. There is no adherence to quality or committed supply controls that a mature trading relationship should encompass."

The meat processing sector is dominated by big co-operative processors, Southland-based Alliance Group and and Dunedin-based Silver Fern Farms.

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Two MIE-endorsed directors sit on the Alliance board. MIE has endorsed West Otago farmer Fiona Hancox for the upcoming Silver Fern election.

Hancox said the status quo had not delivered for Silver Fern Farm shareholders, and that change and reform was needed at the co-op.

Three nominations have been received for the two available positions on the Silver Fern board. Voting closes on February 13.