Meat industry predicts improved lamb prices

Press, 8 April 1988, Page 12

Meat industry predicts improved lamb prices

A steady improvement in lamb prices to farmers is likely in the next two to three years, believes the executive director of the Meat Industry Association, Mr Peter Blomfield. Mr Blomfield has based his expectations of better prices on a significant reduction in the value of the New Zealand dollar, good price returns from Iran, further development of niche markets, and continuing cost reductions in processing. The progressive liberalisation of agricultural trade through the G.A.T.T. discussions and moves to reduce farm subsidies in the E.C. were good omens for the New Zealand lamb trade, he said.

It was essential that New Zealand retained access to ’ the E.C. for 245,500 tonnes at a maximum price. Mr Blomfield told the Meat and Wool Boards’ electoral committee in Wellington that the meat industry had undergone a massive and painful shake-up as the industry realised it was part of a global food business. There were not many meat industry executives left who had a background of only commodity selling, said Mr Blomfield. They were gradually being superseded by professionally trained marketing executives. In answer to "exaggerated” claims of the value of lambs in, the

United Kingdom (often quoted as about $BO a lamb), Mr Blomfield worked through the various costs and charges for a 12.5 kg PL lamb.

Consumers in the United Kingdom were paying about 80 pence a pound for such lambs, equivalent to $59.63 a carcase, said Mr Blomfield. Deductions for retail and wholesale costs, mark-ups and an E.C. levy reduced the | value to $33.75. Freight and insurance charges of $11.13 meant the free-on-board price was $22.62. Storage and interest costs, buying, administration and polybagging j charges were deducted to give a gross schedule of $18.20. Killing and processing charges of $10.05 were deducted to give a net meat schedule of $8.15.

With transport costs and levies deducted, farmers were left with a bare meat value of $4.69. With a net $8 likely for the pelt and wool, the total income per lamb for farmers was $12.69. Mr’ Blomfield said the single greatest barrier to the meat industry’s success was its historic lack of profitability. An independent survey on the costs and profitability of the processing industry done by Sir Lewis Ross, a former chairman of the Bank of New Zealand, showed that the earning rate on shareholders’ funds in meat

processing before tax averaged 12.81 per cent between 1980 and 1985. In 1986, it was -6.4 per cent and in 1987 estimated at 0.86 per cent. By comparison, the average return after tax for all listed companies in New Zealand in 1984 was 14.7 per cent and around 12 per cent in 1986. Mr Blomfield said, however, that he did mot want to give the impression that the meat industry’s future was necessarily pessimistic in the longer term, and he pointed to gains already achieved in productivity and efficiency. Neither the industry’s wage rates nor processing costs had followed the pattern of inflation. Increased labour productivity, cost reductions

and the acceptance of a lower profit margin had allowed processing charges to rise only slightly in recent years. In 1980, the processing charge for a lamb was $7.81 compared with $10.05 in 1987 — if inflation had j been taken into account the charge could have risen to $17.63. During the last seven years, wage increases for freezing workers had been far less than those for the average worker, and wage settlements in the industry in the last three years had been the lowest in New Zealand. x Freezing workers’ rates now would have to be 21 per cent higher to match the inflation rate for all workers and to have kept pace with the Consumers. Price Index they would need to be 30 per cent ’ higher. Mr Blomfield said , one of the injustices of the weight-note deduction system was the way that the carcase value bore the brunt of the charges and costs.

The s largest on-plant cost was the traditional killing and processing charge which, essentially, was the hygienic separation of two products — the carcase and the skin. Mr Blomfield said it was not fair or accurate that the killing and processing charge was metered against the carcase only and he urged that this system be reviewed urgently.