Meat industry reform urgent
Reforming the meat industry was the topic of conversation 20 years ago, when I left pastural farming behind for farming grapes, and not much seems to have changed.
Today, with the continual rise of the dairy industry, sheep numbers are falling as land suitable for dairying is converted and yet more land is turned over to dairy support. Capital stock has been killed in large numbers and one wonders what the future will be for the meat industry following such a depletion.
Meat Industry Excellence (MIE) was formed to allow sheep and beef farmers to establish a farmer controlled entity with sufficient critical mass to optimise returns for all stakeholders.
This is a fantastic initiative. All that is required, it would seem, is sufficient farmer support to succeed. However, some farmers are growing impatient and calling for a quicker solution, along the lines of a Fonterra model imposed on the industry. Whether this would offer a quicker solution is a moot point as Fonterra took eight years to come to fruition.
One of the big differences in the dairy industry is that supplier shareholders are committed to supplying to the co-operative and have substantial capital tied up in shares. Sheep and beef farmers to date, have generally been reluctant to do either, let alone both.
Fonterra controls most of New Zealand's milk production, while in the meat industry the two co-operatives control a little over half.
Given the tremendous strengthening of international dairy prices, would a Fonterra model of combining the two meat industry co-operatives mirror the success of the dairy industry?
I doubt it as we have not seen the same lift in meat prices internationally. Plus the meat industry has a surplus of processing capacity that must be addressed. This will not be an insignificant cost and one that will have to be borne by the industry.
There is no doubt that surplus processing capacity is hampering processing efficiency, but which plants should be closed and which ones should stay?
Individual meat companies will want to retain as much of their own capacity as possible and to date that has been a real stumbling block to reform.
So what to do? I believe if enough farmers formed a joint industry marketing group, or JIM, they would get the co-operatives together without the complications and expense of amalgamating assets.
JIM farmers would have to commit all of their production to either of the co-operatives at the industry average price of stock procured in the week of processing. The one condition of this commitment being that the co-operatives must jointly market that meat for the best return.
This would give the co-operatives surety of supply and optimise returns to farmers, which is the aim of the Meat Industry Excellence group.
The benefits of an increase in profits to the co-operatives would be to the advantage of the farmer shareholders and to the meat industry as a whole.
This approach is much less complicated and in my opinion more achievable than a merger, which would be very costly. An imposed Fonterra model would have the cost disadvantages of a merger.
The only winners of either of these options would be the banks and the lawyers (not necessarily in that order).
A solution to the meat industry's woes will not be found by "banging a few heads together", as some would claim.
JIM offers an opportunity for farmers to take matters into their own hands and move the issue forward.
However, it will take a commitment from those farmers and they will have to have some skin in the game.
* Stuart Smith is the National Party candidate in the Kaikoura electorate.
The Marlborough Express