THE PRESS THURSDAY, DECEMBER 29, 1988. Meat Industry in turmoil

Press, 29 December 1988, Page 16

THE PRESS THURSDAY, DECEMBER 29, 1988. Meat Industry in turmoil

When New Zealand’s largest meat processing and exporting company, Waitaki International, reported a $97 million loss for the year to October, even the casual observer had to acknowledge that New Zealand’s biggest export industry is in trouble. The combined kill from Waitaki’s works accounts for something like 40 per cent of all sheepmeat produced in New Zealand and about 30 per cent of all beef. Waitaki is by far the biggest player in the meat industry and yet it must be regarded also as one of the trimmest: in the biggest single upheaval in the industry in decades, Waitaki closed its Bumside works in Dunedin and its Islington works near Christchurch last July, as well as selling two others to a Dunedin-based competitor, P.P.C.S., and rationalising its other activities with the Fletcher-owned Challenge Meats group. Some of Waitaki’s loss for the year arose from this rationalisation and the cost of associated redundancies. The company’s managing director, Mr Barney Sundstrum, reported that closing Islington and Burnside cost the group $38.3 million. So far, Waitaki had borne about $lOO million in rationalisation costs, he said. The tough news is that the industry as a whole must expect to pay a lot more before restructuring is complete. Back in July, an industry report on which the Waitaki moves were based estimated that 15 works — nine in the North Island and six in the South — would have to be closed to match killing capacity with stock available, based on stock estimates of about 29 million lambs for 1988. This represented the closing of 46 out of 155 sheep and beef chains and the loss of 8500 jobs. Burnside and Islington were just the start of the retrenchment; the estimated kill has proved overly optimistic and stock numbers are declining still.

The vast over-capacity in the industry is crippling. From a peak kill in the 1984-85 season of 39 million, throughput has dropped by more than a third and more realistic estimates for the current season are for a kill of about 26 million. Some in the industry, including Waitaki spokesmen, are forecasting a further decline in the national kill to as low as 14 million in the following season. Should a decline in stock of this magnitude occur, the cut-back in processing capacity would have to be at least twice that which was being discussed only five months ago, and plainly the industry has had difficulty coming to terms with rationalisation on that scale. It is little wonder that the Minister of Agriculture, Mr Moyle, says that there is no time left to procrastinate, and that radical changes must be started before the end of the present killing season. The high cost of processing for the traditional carcase trade, and the high costs of further processing for specialised markets, must take a considerable share of the blame for the industry’s present woes. Over-capacity is becoming worse as stock numbers decline; stock numbers continue to decline because the industry does not pay farmers enough to make it worth while raising lambs for meat. Seasonal influences, such as drought, also upset lamb production; but, for several years, there has been an accelerating trend away from raising lambs for the meat trade. Rationalisation of the meat industry has been deferred and the introduction of new technology has been obstructed, increasing processing costs. These costs have been loaded on to the farmer as more and more people have taken a cut, or increased the size of their cut, between the farm gate and the shop counter.

Mr Moyle correctly says that the slide in stock numbers will be halted only when processing companies return to profitability and improved returns are passed on to farmers. He can hardly expect farmers to jump for joy, however, when he suggests that the total potential benefits to farmers from the restructuring he envisages “could well be in the vicinity of $l2 to $l3 a lamb.” This, of course, simply confirms that farmers have

been milked of at least $l2 to $l3 a lamb for several seasons past, because the necessary restructuring has been identified for 10 or a dozen years now and has not been pursued until very recently. More to the point, the Meat and Wool Boards’ Economic Service calculates that for farmers to get the equivalent return for their lambs today that they were getting during the 1950 s and 1960 s the average price would have to rise by something more like $3O a lamb than $l3 a lamb.

The trouble for the industry is that, even if the restructuring could take place overnight, and all the savings made were passed on to farmers, there would still be a huge over-capacity in killing and processing plants for several years. So much have stock numbers declined, that any improvement in the amount of stock for slaughter will take three or four years to realise. Indeed, if farmers were encouraged by higher returns to restock and return to lambbreeding, the physical requirements of doing so would mean that throughput at the country’s works — and hence exports — would stagnate or even fall during the restocking phase. Obviously, the restructuring that can no longer be avoided will not take place overnight and so it could be many years before capacity and stock numbers come into balance.

The calculations to achieve this balance are not simple. Even though one in four of New Zealand’s large freezing works has been losing money, the companies must also consider such things as plant efficiency, location, the availability of stock and how far it must be moved, and the competition. The meat works groups measure their profitability and operations as a whole, not just as the profits and operation of individual works, though Waitaki two years ago served notice on its individual works that more attention would be paid to individual performance.

Last week the Government added social and economic impacts on regions and towns to the calculations. The Prime Minister, Mr Lange, expressed the hope that a geographic spread of works would be retained and that wholesale closings could be avoided. He gave as an example Wairoa where, he said, people either worked for the meat works or for the hospital, or they did not work at all. Longer-term considerations must also play a part. Perhaps 26 million carcases is all that the industry will produce this year; but the industry is confident that, given time and more use of further processing and of chilled rather than frozen product, there is room for an increase in production that would require the industry’s present capacity to satisfy it. Closing works now that could be used profitably in a few years time, and which would cost vast sums to rebuild then, makes no sense. Mothballing is not an easy answer either. The easier plants at which to suspend operations for a few years then restart after a thorough steam-clean generally are the more modern and efficient works. Nevertheless, a modern, multi-chain works requires a seasonal throughput of more than a million carcases before it has broken even, and for many of them the numbers simply are not there.

It is hard to be optimistic. These issues have been around for years. Round after round of talks, and joint management-union fact-finding tours of competing meat works overseas have failed to produce the necessary spirit of co-operation without which the industry is doomed. At long last, tentative steps are being taken toward multiple shifts and the adoption of technologies that can reduce processing costs and boost returns to the farmer. Somewhere along the line it was forgotten, or people chose to ignore, that New Zealand’s fortunes are still firmly rooted in agricultural exports and therefore tied to the health of the farming sector. Farming’s serious afflictions will be felt throughout the economy for many years yet.