Allan Barber says overcapacity in older South Island processing facilities is bringing a reckoning, challenges the red meat sector must face even though regulatory roll-back is taking place

The challenges facing the red meat sector have changed remarkably little in the 13 years since the launch of the industry commissioned Deloitte Red Meat Sector Strategy with one major exception. Back in 2011 there was no mention of climate change as a factor threatening the sector’s survival. It was a known threat at the time, but it was probably the 2015 Paris Accord that pushed climate change to be seen as the world’s biggest threat, not just to agriculture, but to the survival of the planet as a whole.

Since then agriculture has become the main whipping boy in this country to the point where it is almost vilified today by a vociferous minority as the main cause of the warming planet, regardless of the demand for food to ensure the survival of the global population.

No new technology will enable the agricultural sector to achieve sufficient change soon enough to counter the absurd claim it is destroying the planet while simultaneously managing to feed the world. True, technology is changing fast, whether to facilitate greater productivity from a smaller footprint or a reduction of emissions, and is increasingly being adopted by producers. Farmers, either from necessity or conviction, recognise the imperative of behaving in an environmentally conscious manner.

But governments are compelled to respond to the political opinions of their voters as they attempt to navigate their way through electoral cycles, while reacting in panic to the effects of climate change.

Unfortunately voters, especially those affected by floods and cyclones, don’t stop to consider how they might be contributing to the problem with their lifestyle choices – multiple vehicles per family, excessive consumption, use of packaged goods, dietary choices, overseas travel, house size and location to name a few. It is easier to blame farmers for the adverse climate impact of methane emissions and nitrate leaching than to change collective lifestyles.

The wholesale adoption of exotic tree planting, championed by the Labour/NZ First coalition in 2017, the introduction of the ETS to encourage carbon offsets without an obligation to cut pollution, and the dogma of the Climate Change Commission have all ensured a succession of nails being hammered into the coffin that awaits the death of the grassfed New Zealand sheep and beef sector. The current government has recognised the insanity of destroying one of our most productive sectors in the pursuit of a misguided ideology, but the limit on planting pines on land use class 6, as well as 1-5, may be too little too late.

The Deloitte Strategy highlighted three key areas of opportunity for the sector to embrace - coordinated in-market behaviour, efficient and aligned procurement, and sector best practice. In more than a decade since the strategy’s release there has been progress towards each of these, both on farm, by the processors and exporters, and the sector’s representative bodies. The value of exports has grown to date at a slightly lower rate than predicted, although the current market downturn has hindered recent progress. The challenge will be to continue growing as livestock volumes fall.

In-market behaviour has improved with the introduction of the Beef + Lamb NZ initiated Taste Pure Nature programme, designed to create an umbrella brand for New Zealand’s grassfed red meat under which the exporters can promote their individual brands. The meat processors have now taken over leadership of the programme which this is only operating in China at present, after successful trials on the USA West Coast. The search for global recognition will take a long time to make a substantive difference. Meanwhile the global free trade environment is becoming more difficult, especially with Donald Trump threatening import tariffs on all American imports.

Aligned procurement has made some progress with processors getting much better at matching their supply to market requirements through the use of new IT planning programmes and the introduction of market specific plans that reward performance. That said, there is still a significant element of third party procurement, particularly in the South Island because of the more seasonal flow of livestock.

The opportunity to apply sector best practice applies to farmers and processors alike. Farmers are faced with unrealistic targets for various issues including methane reduction and freshwater management. These targets may be imposed either by central or local government, but it is extremely hard to get them changed once they are fixed by legislation. An encouraging trend is the commitment to the assurance programmes NZFAP and NZFAP+ which will ultimately ensure best on farm practice across the sector.

This brings me to the point of assessing how far processors have come in applying best practice in their facilities. It is a truism that the ones most able to achieve this are those with the strongest balance sheets who have made sure they invest aggressively in plant and system upgrades. While much has been talked about supplying what the consumers want, important as that is, it is more critical to reinvest profits intelligently, than to increase ‘nice to haves’ like marketing departments or dividend payments to shareholders. An industry leading processor can pay what is necessary to reward the suppliers competitively and keep enough to make profits for reinvestment, while less efficient operators cannot.

In conversation with several meat company CEOs I received the same message from them all – a well run company that knows its core business and has invested wisely in maintaining its assets is still profitable, even in difficult times. They were all prepared to consider how they could constructively tackle any overcapacity, although this did not imply an intention to consider closure of any of their own efficient plants.

My impression is that at present this is more a South Island problem because of its seasonal nature and the age of some of the plants, borne out by the closure of Alliance’s Smithfield plant and the cooperative’s search for capital. It remains to be seen how this goes and whether Silver Fern Farms is able to help Alliance find a solution if necessary. It is hard to see another company assisting with the process of rationalisation, unless one emerges from offshore.

The challenges facing the sector have become more acute in the last decade and survival demands a careful focus on all the essentials.

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