What happens when you ingest the hype

02:27, Nov 29 2012

The story of how the big meat co-operatives came to lose $87 million in the past year is only now being revealed.

To those inclined to a harsh view of the industry, it is a tale of incompetence exacerbated by an ingrained distrust. To a jaded majority, it is business as usual.

It appears to have started when marketers broke a cardinal rule: Don't believe your own hype.

It was a good pitch to the crucial British and European market: "Lamb numbers are falling on New Zealand farms, but demand is increasing, particularly in Asia, where they are eating more red meat as incomes rise. You'll need to buy now - and this is the new price."

As one industry veteran told me: "We'd been hearing for years about the imminent explosion in demand for red meat. We talked ourselves into believing it had finally happened."

And, at first, the market responded. The service trade wholesalers and supermarkets accepted the increased prices.


But then the shopper and diner began to resist. Prices were too high. They changed to pork and chicken.

When word of this was passed down the line to New Zealand, the meat companies were slow to react.

"We didn't want to believe it," the manager told me. "So we pretended it never happened."

Confusing matters was that the first warning was buried in the usual market "noise" - conflicting comment about sales, finances, shipping and customer preferences across a range of meats and meat cuts.

Then came a second warning, also ignored, and a third.

By then it was Christmas. Minds were on family, holidays, the beach.

"Then you come back to work and you have an 'Oh, bugger!' moment," the manager says.

Reality hit. The companies stopped shipments, but six weeks' worth were still on the water. They had been bought at high prices, but had to be sold on a falling market. The financial losses started.

While the British and European sales had slowed to a trickle, in New Zealand a flood of supply was building up.

January and February are the peak months. Farmers want to get lambs off their farms before the summer dry sets in.

Cool stores began to fill up.

It could have been worse. The fickleness of nature delivered a warm, wet summer that allowed many farmers to keep lambs on their properties longer. The traditional supply peak was flatter.

Not helping was that a lot of lambs were bought with no markets for them. This is not unusual. As demand rises and falls, there are always parts of the carcasses which are more difficult to sell than others.

Particularly hard hit were the two farmer- owned co-operatives, Silver Fern and Alliance, both based at the foot of the South Island. By the time the worst damage was being done, it was the lower South Island's lambs that were in full flow.

They and other companies were left with meat they either had to sell for much more than they had paid for it, or store it. And so the losses - and the frozen lamb carcasses - piled up.

I'm told it will take all this season for the stores to be emptied.

The fiercely competitive industry is known for its mutual distrust. Everyone knew prices to farmers were too high, but no-one wanted to be first to drop them and earn a bad name their rivals could exploit.

So they came down gradually, a few cents each week as companies took turns, each one closely eyeing the other. It dragged out the pain and deepened the red ink.

Of course, the farmers loved it. They were getting unheard of prices for their lambs - $150 and more.

But this season, there's a more sober outlook. The companies are warning they will seek to recoup their losses. Prices will be a lot lower.

Most farmers accept this. They realise last season was an aberration. And they know that although this season's prices may be low, they are still pretty good compared with other recent years.

The sad thing is that the industry will have to wait longer to reach its ultimate aim, the one companies and farmer organisations agree on.

This is to tie up the bulk of lamb production in fixed-price contracts for greater plant efficiency and closer matching of supply to demand in multiple markets.

For if farmers have learnt one lesson from last season it is that if they remain free agents, windfalls will come their way.

There's no easy answer. Every few years there's a new study with a plan to set the industry to rights, but only disappointment awaits.

The latest whimsy is for the Government to take over the ownership of all meat at the farmgate.

This was tried by the Meat Board for about three years in the 1980s and was working fairly well by the time it was swept away in the reforming mood of the times.

But these are different times and I can't see this Government taking it on. No, the meat industry is doomed to lurch from one crisis to another. You'd laugh if you weren't in tears.

The Dominion Post