Positive outlook for meat industry

ANZCO Foods chairman Graeme Harrison is confident that the meat industry has a positive future.

He said the industry is not broke and farmers should take a “level headed” approach to its future – because it does have a good future. 

ANZCO, a 24-year-old private company, is the fourth biggest player in the New Zealand sheepmeat market and the second biggest in the beef and veal markets.

It has in the last three years invested $125 million in new plants and upgrades and in food manufacturing expansion, says Harrison, a significant individual shareholder.

“We wouldn’t be making these investments if we didn’t think there was a good future for the business.”

By way of example Harrison says ANZCO has only recorded one loss in its 24 year history – in 1998 – “because of an investment outside New Zealand”.

“I’m sick and tired of all the negative publicity about where the meat industry is…. I’ve got confidence so producers should be taking a very level-headed view of this (debate) instead of being carried away with all the negative publicity.”

When prices are low, costs are rising and balance sheets in the red, it is easy to become pessamistic but I agree that the industry has a bright future.

Harrison says this was the message he gave a recent gathering of producers for ANZCO’s CMP business and he wants to repeat it to all meat growers as they debate the future of their industry.

“The problem sector in the meat industry is lamb and it’s in the South Island because of competition for land use (dairying).

” We have an industry with four players, all with about the same financial strength. Forget about sales turnover and market share … what you actually have is declining livestock numbers and supply is the key to this business. Where companies are similarly resourced clearly you are going to have severe competition. The long and the short of it is, some fallout is going to occur. What we have is livestock supply eroding in sheepmeat at a rate we haven’t seen since the mid-1980s. So clearly there is going to be change.”

Harrison says market forces are at work and farmers are responding to them. The biggest market force is the dairy boom.

“It’s the biggest boom in New Zealand agriculture since the early 1950s.(when dairying converted to sheep, particularly in mid-Canterbury and Southland). We’ve got a reverse of that now but on a bigger scale. Good mixed farming areas are going into dairying and the reason is comparative profitability.

“There’s nothing new about this…but extraordinary things happen in those environments. I’ve been trying to make the point that the meat industry is not broke. There’s been far too much talk about this, though it is true that financial rewards have been poor in the last four years.

“Sooner or later when you have poor returns there will be an effort to rationalise.”

If we still had subsidies we’d probably still have 60 million sheep and a mountain of lamb and mutton deteriorating in freezers. Instead we now have fewer than 40 million sheep and farmers are looking at their options and making rational business decisions based on the markets. Some are persuaded by dairy returns to convert their farms to dairying or dairy support. Others who don’t want to do that are looking at the positive impact dairy prices are having on their own land and selling.  Some still belive there is a future in sheep and beef, which of course there is.

Harrison supports the creation of an “innovative and market responsive” meat industry dominated by two companies – a farmer co-op and a publicly-listed business. In his vision, the duo would co-operate in selected key markets but compete domestically. There would still be room for small players and entrepreneurs to participate.

The dairy industry is often held up as having the best structure on which to model the meat industry. But the fertiliser industry might be a better example. It is almost a duopoly dominated by two farmer-owned co-operatives, Ballance and Ravensdown. There are a few minor players but it is the two major companies which dominate supply.

The dairy industry used to be like that with two strong co-operatives – Kiwi Dairy Group and New Zealand Dairy Co-operative. Now there is just one major player, Fonterra, but several small companies have been established which appears to be leading to the sort of fragmentation that is blamed for many of the ills besetting the meat industry. I am not convinced it would be as attractive for the new players if there were two major competitors rather than just one.

 

Harrison, an industry veteran with co-op leadership experience, says there are many myths about the New Zealand meat industry, including that producer co-ops are the most efficient model, that the market quota allocation system is the root problem, and that the industry is highly fragmented.

One myth that particularly offends him is that New Zealand lamb is poorly market-positioned.

“There is so much misinformation about where lamb is placed in the market. Lamb is actually a very highly priced product. It’s the most expensive red meat product in the UK as it is in most other markets, and it has actually moved up over the last 30 years to be the most expensive – higher than beef, higher than pork.

“But there is a point where the consumer can only pay so much. That seems to be forgotten. There is of course a gap between New Zealand and domestic (UK-grown) lamb but even that gap is way above beef. So the fact is lamb is not poorly positioned – the industry has actually made great strides.”

Another misconception is that processing over-capacity is a New Zealand problem, Harrison says, noting that a leading US cattle processor has decreased its capacity by 21% in the past two years.

“When you get into a situation where market forces are at work, it’s a matter of individual company judgment whether or not to make moves, based on short, medium or long term prospects.”

Market forces are driving the conversion to dairying, but that doesn’t mean the end of the meat industry in New Zealand. Lamb is high quality, low fat protein with lots of iron. The world needs more of it and because of that the short term outlook is improving and the medium and long term prospects are even better.

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