Local meat deregulation impact studied

Press, 20 July 1984, Page 22

Local meat deregulation impact studied

Deregulating the meat industry has had some benefits for Christchurch consumers and might give Canterbury farmers better prices for their livestock. These conclusions were reached in a discussion paper released ,by the Agricultural Economics Research Unit at Lincoln College.

The paper, titled Deregulation: Impact on the Christchurch Meat Industry, was by Mr R. L. Sheppard and Ms D. E. Fowler.

Mr Sheppard is a senior research economist and Ms Fowler an . assistant 1 research economist with A.E.R.U. They said deregulating the industry had the potential for more effi- ■ ciency' in processing, wholesaling and retailing. Evidence from the Canterbury region indicated that some of the benefits were already being achieved. More competition in meat slaughtering was brought about by the entry of a successful entrepreneur, C.S. Stevens and Co., Ltd. This company had successfully . established a growing export market for processed meat products, mainly sheepmeat cuts. Legislative amendments ■of 1980 and 1981 had enabled C.S. Stevens to buy the Christchurch abattoir and divert killing space from local to export kill. This meant butchers and wholesalers could look for other slaughter facilities for their stock, and brought about more price competition between abattoirs. Meat wholesalers secured killing space by moving into ownership of smaller facili-

ties outside Christchurch. Abolition of abattoir districts had provided an incentive for relocation, over time, of slaughter facilities into prime meat producing districts. If the move from carcase meat sales to cartoned cuts continued, the establishment of cutting plants alongside killing facilities was likely. This was likely to bring about further vertical integration by wholesalers, said the report. Christchurch, like other urban areas in New Zealand, had a considerable oversupply of urban butcher shops. This resulted from the large and increasing share of meat retailing by supermarkets. Competition between meat retailers was strong and exacerbated by supermarket chains selling meat cuts as specials. Butchers in the Christchurch region were not loyal to specific wholesalers, but bought on price, although variations were small. Quality of meat and availability of offals, although still important, were often considered secondary. Some butchers bought from two or more wholesalers at the same time, said the report. More meat was coming from South Canterbury

works, with lower net killing costs, and this had also increased price competition between wholesalers. Increased wholesale competition had to some extent contained meat retailers’ costs, and might have helped some independent retail butchers to stay in business. This had also reduced the pressure for structural change brought about by the supermarkets moving into meat retailing. The takeover by C.S. Stevens of the Christchurch abattoir, with the intention of supplying much of the ■ capacity for export, caused a deficit in slaughter capacity for local supply. This, along with removal of local supply regulations, stimulated an increase in capacity by expanded local supply plants. Buyers of stock for both export and local kill were likely to find increasing competition for available animals in Canterbury, and possibly an increase in prices. This competition was likely to be stronger for beef, of which there was already a shortage in Canterbury. The paper said that evidence suggested that deregulation had allowed local supply companies to invest

in additional killing space, exclusive of export works. This was being done to avoid the higher costs which appeared to be a consequence of combined killing. Increased efficiency in the use of capital benefiting the local market might have a consequent cost to the export industry by reducing off-season use of chain space in combined works. Although hygiene requirements were now almost the same for both local and export works, lower costs in local works might not be

available to the export industry. Export works might not be able to reduce costs such as higher manning rates for more stringent inspection and grading requirements. Other costs, such as those of industrial conflict and lower productivity, might be affected by the size of the work force and continuity of employment. These might be equally affected by management style and union leadership, said the paper. Similarly, unless there was a very large shift in on-

farm management practices, increased efficiency in capital resources of relatively constant throughput could be achieved only up to the level of prime stock available in winter. Nonetheless, a systematic comparison of how export and local works performed would point up benefits from reducing costlier components of the export industry. These should provide useful indicators to where there would be the greatest benefits if modifications were achieved.