Processing changes may not mean better capacity alignment

Meat industry latest initiatives are aimed more at efficency than improved capacity, and with more lambs and cattle to process this year farmers will have to be well organised or commit early, to secure space when needed.

With a reduction in stock numbers over the last few years, issues of farmers ability to get stock killed at the optimum time have been scarce, and some will have forgotten how important this issue is.

If areas of the country get dry, space availiability will become difficult with works capacity reduced from previous years. Smart farmers use management practices to minimise the affect of these hold ups such as early lambing mobs, targeted terminal sires to spread the flow of finished animals over the season and reduce the risk of being unable to get rid of stock when under feed stress.

Is this an issue in your farm management planning, and how will you adapt if this situation arises again.

The meat industry will see a number of processing initiatives taking effect over the next 12 months, all of them designed to create greater efficiency for their owners. They may not necessarily lead to better alignment of capacity with predicted livestock numbers for which B&LNZ Economic Service forecasts an increase from 2011 of 5.7% to 20.1 million lambs, second lowest in more than 50 years, and 1.8% more cattle, mainly cull cows reports Alan Barber in his blog.

Individual processors are intent on getting themselves fitter, with decisions focused on better configuration of their existing plants, leading to some interesting initiatives. The most notable announcements this year are Silver Fern Farms’ rebuild of Te Aroha, acquisition of Wallace’s Waitoa plant, the recent purchase of Frasertown Meats and announcement of seven day processing at Waitotara, and the closure of Alliance’s Sockburn plant at the end of the 2012 season.

According to CEO Keith Cooper, SFF’s initiatives are not about capacity increases, more about providing the right type and size of processing facilities to meet local requirements. This signals a move away from multi shift operations to which stock must be trucked long distances, provoking supplier dissatisfaction, and replacing them with small footprint local sites. To a query about the likely capacity available when Te Aroha comes on stream next year, Cooper says the plant’s cost model does not require double shifting to be economical. In his view the double shift model is becoming outdated, although I’m sure at the peak of the season Te Aroha will be capable of double shifts, if needed.

The purchase of Waitoa, not far from Te Aroha, and Frasertown are strategically interesting, because these plants will provide SFF with greater presence at local level to attract new suppliers. However there does not appear to be any intention to change staff numbers or cost structures in the early stages.

In contrast the announced closure of Sockburn is entirely driven by efficiency improvements through fewer Alliance sites with more production capacity being created at Mataura and Pukeuri. Grant Cuff, Alliance CEO, told me this realignment of capacity was the result of a careful study of the options available which showed clearly the lower cost structure to be gained from the change.

One company that already appears to have its plant configuration well aligned with the industry’s livestock dynamics is AFFCO whose North Island plants are mostly multi species with a small footprint, far removed from the dinosaurs of less than 20 years ago. Its two South Island plants are small units designed specifically for the purpose.

It may be premature to examine whether the present wave of processing capacity changes are likely to contribute to the Red Meat Sector Strategy’s (RMSS) goal of achieving informed, aligned behaviour change across the sector. But it is logical for processor decisions to be dictated by their own bottom lines and generally what is good for the processor is also good for the industry.