Times really have changed for the better among the country’s meat processors, not just as a result of consistently better market conditions, but for a whole range of reasons which suggest the meat industry has finally achieved maturity. Counterintuitively, the coronavirus pandemic appears to be the catalyst that has helped to bring this about.
Industry executives I spoke to pointed without exception to the collegiality and trust that exists in stark contrast to any previous decade you care to examine, most notably the horror days of the 1990s and early 2000s. Then, impending and actual receiverships, hostile takeovers, excess capacity and wafer-thin margins produced an environment in which competition for livestock was so intense a number of companies were charged with collusion by the Commerce Commission. The processors colluded in a vain attempt to limit procurement prices to an affordable level. The real cause of unaffordable prices was excess capacity, partially solved in the 90s by the receiverships of Fortex and Weddel and progressively by amalgamation and plant closures.
The role of the Meat Industry Association has evolved over the last 30 years from being a neutral forum for company CEOs to discuss the few topics that weren’t competitive to a body which genuinely represents all its members on a wide range of issues, as well as working closely with the farmer representative organisation, Beef + Lamb NZ. HWEN is a good example of the joint approach.
The recent development of trust between the companies has come from a closer relationship at CEO level and the realisation there are important areas where cooperation, not competition, makes good strategic sense. These areas include day-to-day operational matters like shipping, Health & Safety, access to PPE gear and Rapid Antigen tests, rendering and toll processing. On the other hand, there are several broader strategic opportunities for cooperation and rationalisation on rendering, hide processing, marketing and petfood manufacture.
AFFCO has taken the initiative on contracting break bulk shipments to the West Coast of North America to counteract container shipping delays and capacity shortage. ANZCO and Silver Fern Farms have already taken shipping space, although AFFCO’s GM Sales and Marketing, Mark de Lautour, is keen to see other agricultural exporters, like dairy and kiwifruit, take space to compensate for lower meat volumes in the second half of the year. AFFCO has recently committed to its biggest charter vessel to date which can hold over 5000 tonnes of cargo.
Filling these charters is critically important to encouraging the shipping line to continue servicing New Zealand ports. While this service is not necessarily more or less expensive than containerisation, it does not suffer from the five week container ship delays off Long Beach. According to de Lautour this arrangement could make the difference between being able to slaughter cull cows or not at the peak.
Longer term areas of cooperation are happening in by-product processing and marketing, often referred to in the industry as the fifth (and potentially very profitable) quarter. While farmers may suspect the meat companies of generating income out of parts of the animal they don’t pay for, in fact the by-products are an integral part of the schedule calculation which determines the weekly livestock price. A less profitable example is the dramatic fall in the price for wool and pelts which has had a predictable impact on the schedule for lambs and mutton, disguised by historically unparalleled prices for the meat component.
Fires at the rendering plants at Tuakau and Taranaki Byproducts have placed greater emphasis on industry cooperation to enable rendering volumes to be satisfactorily processed instead of being sent to landfill, while a joint venture between Greenlea, Wilson Hellaby and Glenn Smith to operate the old Wallace plant at Waitoa will enable greater scale and efficiency in rendering in the Waikato. As part of the joint purchase of the Waitoa farm and tannery, Greenlea and Wilson Hellaby have formed a 50/50 JV which incorporates the tannery. Fred Hellaby said the new owners are proud of taking over a plant that was near closure to create scale efficiency in this important part of the industry. The site has significant advantages of existing infrastructure and consents, as well as functioning dairy farms which enable irrigation with treated waste from the processing operations.
The partnership with Taranaki By-Products and Bio Extracts shareholders, Smith and Dallenberg, provides a further added value opportunity to produce gelbone used by the pharmaceutical industry for capsule production.
A profitable offshoot of the meat industry is petfood production and raw material supply. Pasture Petfoods in Waipukurau is a privately owned JV formed in 2011 between Ovation, Taylor Preston, and Venison Packers Feilding which supplies raw material and contract processing to pet food manufacturers such as Nestle and Purina.
Another logical cooperation involves the direct supply by two competitors to AFFCO of calf vells used in rennet manufacture and calf tongue roots for enzyme production, rather than selling these to traders. As AFFCO is the only meat company in this section of the market, CEO Nigel Stevens sees selling these products direct instead of to a trader as a win/win situation made possible by the new level of communication between the companies.
An area of yet to be tested cooperation is the commitment to help each other out with processing capacity in case of covid-induced plant shutdowns. The transmissible nature of Omicron may make this impossible, but the fact this commitment was possible in the first place is evidence of the maturity of the industry today.
More than one CEO made the point the meat processing industry is much better off with this new level of cooperation, although it makes no difference to the fiercely competitive nature of livestock procurement and sales. Another significant reason for the improvement in behaviour is the sustainable profitability enjoyed by the sector, while permitting the sharing of good returns with their suppliers.
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3 Comments
That is good progress. The counterproductive, last man standing procurement wars were utterly self defeating. Processing in volume, throughput driven production was an abysmal failure in management, direction and market reality. Modernised and superiorly labour organised plants are light years ahead of the dinosaurs of last century and into this one. Still it would be encouraging would it not if some new ones were being commissioned? Would that not signal growth rather than treading water with what you’ve got?
Foxglove
You may be right - the emergence of new plants/capacity in the 1990s was the reason companies like Weddel, Alliance and AFFCO either fell over or nearly went into receivership. However the main problem was lack of capital to reinvest and unrestricted new capacity (Fortex building its Mosgiel plant on PPCS's doorstep without any guarantee of livestock to process).
Nowadays the companies are well capitalised, therefore able to invest in plant efficiencies as well as paying competitively for livestock. Remember livestock numbers are trending down, so new capacity would not be guaranteed to be successful.
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