Processing costs threat to sheepfarming

Press, Volume CXVI, Issue 34106, 19 March 1976, Page 6

Processing costs threat to sheepfarming

Although the lamb industry is going along pretty well at the present time. Mr L. A. Cameron, the managing director of the Gear Meat Company, thinks the viability of parts of the sheep industry could he threatened by increasing costs of processing, particularly when further investment in the industry is taken into account and also declining productivity of workers.

At the seminar on costs beyond the farm gate at Lincoln College last week, he showed that between 1969-70 and 1974-75 costs between the farm gate and f.o.b. had increased by 134.27 per cent for lamb and 146.76 for beef (boneless cow), while costs from f.o.b. to the market had gone up by 171.62 per cent for lamb and 116.38 per cent for beef.

On top of this, he said that the latest season had seen a further large increase in costs from f.o.b. to market at a much faster rate than previously. The costs of beef processing had increased at a faster rate than for lamb, but marketing costs of lamb had increased at a much faster rate.

Net overseas prices c.i.f. were continuing to move up. but at a much lesser rate of increase than costs, and although lamb had a more stable market price than beef, it had not had the good years of beef and indeed was suffering a considerable erosion in net return.

And the net return to the farmer for lamb meat was completely’ dominated by costs, whereas beef returns were still strongly influenced by market conditions rather than costs.

One of the reasons why beef processing costs had increased at a faster rate than for lamb was because beef processing investment had had a priority in recent years. It was only in the last two or three years that meat companies, with some notable exceptions, had begun to invest in lamb and mutton processing facilities, and consequently higher investment costs had to be expected.

For the period between 1968-69 and 1974-75 Mr Cameron presented statistics showing that lamb labour costs had risen by 215 per cent and labour costs for boner beef handling by 141 per cent, whereas total freezing and killing charges had risen by 203 per cent and J 96 per cent.

Lamb labour costs, he said, continued to rise at a faster rate than for beef although the value of byproducts from lambs countered to a certain extent other cost increases. Between 1968-69 and 1973-74 the average wages paid to male workers in the meat industry had increased by 103 per cent, whereas the actual unit cost increase per lamb carcase had been 152 per cent. These figures reflected a serious drop in the productivity of mutton and lamb slaughtering, and possibly to a lesser extent with beef. The value of production

per person in the meat processing industry had increased by 33 per cent but the volume had declined by 2.8 per cent.

The individual worker who earned an average of $2950 in 1968-69 received $5232 in 1973-74, an increase of 77 per cent again reflecting a lower productivity for individual workers than in the base year.

“Yet, in spite of these trends and the dangers they hold to farmers, we still have the farmer politicians complaining about attempts to introduce productivity agreements in meat processing as they object to the high wages being received by individual workers.

‘‘lt is not high weekly wages which are the problem in the meat industry, any more than they are in

the shearing industry, but rather it is a problem of falling productivity and rising labour costs. “In the case of mutton and lamb it must be emphasised that full hygiene and inspection requirements. with their consequent effect on costs, arg yet to be faced by most processing companies. The impact of these costs will be considerable, and with the prospect of a huge new investment in mutton and lamb processing, this must surely raise the question whether mutton and lamb processing in some farming areas will be a viable commercial investment for the future.

“Worse still, new requirements of the Ministry of Agriculture, basically emanating from the E.E.C., such as electrical stunning, have the prospect of increasing the labour content of meat processing leaving mutton and lamb processing to face the almost impossible investment business formula of future high capital investment with increasing labour intensiveness.”

The effects on mutton and lamb production and processing had now

"One can only conclude that lamb farming, more especially in areas other than Southland, parts of Central Otago and Canterbury, the Hawke's Bav area and areas of the south east coast of the North Island are no longer viable sheep farming areas. . . ” The relative problems of mutton and lamb processing compared with beef, in respect of labour intensiveness were further underlined by the fact that to kill and process a weight equivalent of 2000 cattle in one week a mutton and lamb plant required a staff of about 500, whereas a beef processor required less than 250.

Looking at some of the factors that needed to be taken into account in developing a modern industry, Mr Cameron said that there would need to be a complete standstill on capital expenditure on mutton and lamb processing until companies, along with the Meat Board, had agreed on the number of mutton and lamb and also beef processing units that should be either rebuilt or scrapped or what new plants should be established.

It. was obvious, he said, that only a very high rate of profitability in the future and borrowing at very low rates of interest were the sort of answers which must be provided for the meat processing industry today.

Capital expenditure in meat processing, he said, must result in the reduction of numbers, of people employed, a much higher rate of productivity, improved and indeed attractive working conditions, and forms of design and structure of plants which would result in lower investment costs. It was absolutely critical that mutton and lamb processing achieve some form of breakthrough in chain slaughtering. Without this the ultimate erosion of mutton and lamb returns by labour costs would continue. If solutions were not found to the problems of the industry and applied in a very short period of time, it was inevitable that <‘we will all finally go 'under the sheer weight of the New Zealand and overseas debt burden. Manufacturing, dairying, and forestry and all will not be able to put New Zealand together again, not at least until there has been massive unemployment and the dissolution of the welfare state.”

Mr Cameron suggested, among other things, that the farming and processing industries should be given priority for borrowing for increasing production, as well as generous investment development and depreciation allowances. He said he had visited processing plants overseas where the whole plant was written off in only three years. There should also be a clearly agreed plan of rationalisation of meat processing facilities, which would nesure the best working conditions and

reached such proportions that even processing plants which had all the advantages of stock numbers, closeness to a port and economies of scale were facing the prospects of an erosion of their profitability.

economies of scale. This must include a reasonable spread of the kill, meeting an efficient farmer’s requirements as well as the requirements of a, stable industry.

there must also be a policy for meat workers that would ensure all-the-year round employment, even if it could not be provided for seasonal workers within meat processing plants. This could be done by other industries being “tuned” to the meat industry — such as the motor-car industry and others.

Mr Cameron had to answer questions about the possible harmful effect that the productivity agreement his company had negotiated with their workers might have on other sectors of the industry.

In answer, he told the seminar that his company had to live on a processing charge lower than Smith Island companies and in the North Island, like others, was subject to a squeeze in having to compete with the Hawkes Bay Farmers Meat Company.

And they felt that they had a right to go ahead under a private enterprise competitive system.

Through the industry association other interested parties had been kept informed and the agreement had gone to the industrial commission.

The agreement, he said, had originated with the union who had come io them with a complex proposal that did them credit.

And up to the end of last year it had resulted in a substantial reduction in unit costs, but in January and February with the worst inflow of stock ever they had not been able to fulfill their obligation to maintain employment. While admitting that their timing of the introduction of the agreement might not have been the best, Mr Cameron said that no time would have been good.

Mr Cameron suggested that in employer circles there was now much more emphasis on productivity. “This is the first year that employers are very serious about resisting wage claims that do not show some form of productivity. “Do not judge it for two years,” he asked.

The executive director of the. New Zealand Freezing Companies’ Association, Mr P. D. Blomfield, said it was extremely difficult to achieve a productivity agreement unless major concessions were made. It was difficult to get an agreement that combined increased throughput and reduced maiming. Unless there were such concessions, it was hard to get anything out of it money-wise.