Media release: EMBARGOED UNTIL Monday 16 March 2015
How to boost red meat earnings
A new study of New Zealand’s red meat sector shows that savings of hundreds of millions, potentially billions of dollars
can be made through industry rationalisation and consolidation.
The report, to be released in Wellington on the 17th March, ‘Red Meat Industry –Pathways to Long-Term Sustainability’ provides independent analysis of the industry, commissioned by Meat Industry Excellence (MIE), to help farmers and
industry players make progress to reform the structure of the sector.
The report extrapolates various savings estimates from industry rationalisation and consolidation. It shows that more
than $400 million in gains is available over five years just from the two big meat co-ops Silver Fern Farms and Alliance
Group getting together.(Refer Table 19 from Report).
POP are privately operated processors.
More than a billion dollars in savings could be realised from a rationalisation process that included the four largest
companies agreeing to a co-ordinated and managed consolidation, (Silver Fern Farms, Alliance Group, ANZCO and AFFCO).
MIE chairman John McCarthy says the report highlights the gains possible if the industry can tackle its structural
The report finds:
• There are hundreds of millions of dollars to be made if the two big meat co-ops alone get together, let alone
further consolidation which offers billions of dollars in gains.
• Farmers support a co-operative led sector and are very concerned about the risk of foreign ownership of their
• Providing a cohesive and comprehensive strategic plan is developed, farmers would be willing to invest to boost
• Over-capacity is costing farmers and processors a great deal, and distorting market behaviour to the detriment
of export value.
Mr McCarthy says MIE’s focus is on returning more money to farmers so that the industry’s productive base stops
shrinking and returns to growth.
“Returns to sheep and beef farmers are too low and not sustainable,” he says.
“If we don’t turn this around, New Zealand’s number two export industry will dwindle as its productive base erodes.”
The report notes that current rates of conversion to dairy, shows that ewe numbers could fall from 21 million today to
15 million in five years and 10 million in ten years, while the national dairy herd climbs to 7.5 million from around
6.5 million today.
While New Zealand dairy farmers were the best paid in the world, Kiwi sheep and beef farmers earn on average, around
half what their overseas counterparts do, says Mr McCarthy.
“We want to make New Zealand red meat farmers amongst the best paid in the world so that our industry grows and thrives,
and provide land use competition to dairy farming,” he says. “A balanced land use portfolio is in the national
“The export opportunities for New Zealand meat protein are enormous, but we are hamstrung by an inefficient and
destructive industry model.”
The report finds strong support among sheep and beef farmers for a consolidated co-operative model.
A feature of the report is the extent to which over-capacity in the processing sector is imposing a heavy cost on
farmers. The report finds the total value of benefits from rationalisation of the processing sector to be $444 million
per year, the largest savings coming from rationalising processing capacity, as well as savings in supply chain and
The analysis shows that the industry can currently kill its lamb and beef production more than twice over each year. The
resulting competition for stock throughput means that, for example, 50% of sheep and cattle are transported beyond the
nearest processing plant, more than doubling the cost-per-head of transporting stock.
Included in the report are eight recommendations in support of the rationalisation of the industry:
• Red meat sector processors need to put individual differences aside and work collaboratively to find and
• ‘Chain Licensing’ is an initiative worthy of review.
• A structure or holding company, e.g. ‘Big Red’, may be needed to park redundant processing capacity and
facilitate plant closures. It would also enable the whole industry to participate and that makes rationalisation viable.
• The government has an essential role to play in enabling the consolidation and stabilisation of what is a
cornerstone industry in New Zealand.
• Committed or contracted supply is pivotal to achieving long term stability.
• The red meat sector should consider initiatives employed by the New Zealand electricity industry in considering
how to deal with seasonal or peak processing events.
• Farmers are likely to support a future capital raising proposal, if it were to provide a clear vision and
pathway into the future.
• Structural change must result in a transition from a production led model to a consumer focused, value added
Mr McCarthy said that the report would be made available for farmers and other parties interested in the detailed
analysis on MIE’s website along with the individual reports from various contributors.
He said it was important for farmers to have a robust, warts and all understanding of the sector, so that they could
engage with their co-operatives and other industry stakeholders to promote change.
“Farmers are the ones with most at stake, and it’s extremely tough for sheep and beef farmers at the current low levels
of returns,” he said,
“But it also matters a great deal for the NZ economy that our second biggest export industry is in crisis and performing
so poorly, when in fact the opportunities are so significant.
“The potential here is for another national champion to rival or even balance dairy exports, but this won’t happen
without structural reform.”