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Allan Barber is sceptical the MIE group can achieve its shifting goals, even though he supports their aims. He explains why

Posted in Rural News

By Allan Barber

The Meat Industry Excellence (MIE) group has appointed businessman and former sheep and beef farmer Ross Hyland to set up an establishment team, as it ramps up its campaign to achieve a restructure of the red meat sector.

After a series of meetings round the country at which it gained plenty of farmer support for its campaign, as well as backing from Beef & Lamb NZ and Federated Farmers, MIE has decided that it is now time to inject some muscle and structure into its plans.

Chairman Richard Young said last week they had made this decision to ensure that they have an agreed solution and plan ready for the start of next season.

This is in spite of the confidential discussions between the four largest meat companies which have not yet reached a conclusion, but next season is only three months away on 1 October.

MIE has talked to all the main meat companies and appears to have no desire to pre-empt the outcome of those discussions, but wants to try and make sure things don’t drag on well into next season without any progress.

MIE has now reduced its goal of having 80% of the meat industry combined in farmer ownership to a more realistic 60%, although it is still very doubtful how this will be achieved.

Another major goal to have all livestock supply on contract to one processor has also been replaced by a commitment to supply stock to specification.

The goal of transparency and fair treatment for all suppliers remains a key plank of the programme, while the costs of restructuring are to be shared by all industry stakeholders including the Government, except unions.

This is still a very optimistic wish list.

It is uncertain just what a farmer owned trading entity with 60% market share would achieve, even if the necessary mergers and acquisitions happened.

It leaves 40% of the industry in non farmer hands with almost certainly stronger balance sheets and more capacity for innovation and productivity improvement.

My impression is that MIE’s original desire was to sort out the state of the sheep meat sector, but the board has now decided beef must be included, if the plan is to work.

With a maximum of 40% of sheep and beef farmers attending the meetings, this still means 60% didn’t attend, although some of those may support the objectives. It also ignores dairy farmers who provide around 40% of the industry’s cattle supply. A dairy farmer’s only thoughts with his cull cows are to get them off the farm as soon as possible and to receive a fair price for them.

A former livestock manager’s opinion of cull cows was that it’s the only time dairy farmers can behave like capitalists, because everything else is handled by the cooperative.

So it’s hard to see how MIE can expect the meat companies, some of which specialise in grinding beef, to change their procurement methods for this part of their business.

I sympathise with MIE’s intentions, as well as the efforts to achieve progress before the start of the season.

But realistically there will be no industry restructure in three months.

There is currently no indication any of the meat processors are yet in serious financial trouble which reduces the likelihood of a Weddel or Fortex type of event in the near future.

Nor can I see the Government wanting to get involved in forcing a restructure of an industry, none of it state owned, which is completely exposed to commercial forces including the value of the New Zealand dollar and international commodity prices.

MIE says it will seek any required legislation which I presume could mean trying to enforce any of the following measures: merger of the coops, Silver Fern Farms and Alliance, sale into the farmer owned entity of one or more companies to reach the target market share, mandatory livestock supply contracts to specified meat companies, and a moratorium on any new meat plants or additional shift capacity.

What on earth would the Commerce Commission say about all that?

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Here are some links for updated prices for
lamb
beef
deer
wool

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Allan Barber is a commentator on agribusiness, especially the meat industry, and lives in the Matakana Wine Country where he runs a boutique B&B with his wife. You can contact him by email at allan@barberstrategic.co.nz or read his blog here »

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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7 Comments

Allan, ther sheep industry

Allan, ther sheep industry looks screwed. I talked to an Australian friend in the meat export industry, his advice was to get out of sheep and do it fast, Ive taken it.
  Our cost structure no longer supports high cost sheep farming, now we are dependent on China as our 'major' market, we are way past our old friends in Europe, their market and its stability.
 Id say more but would only get my comment removed.

as well as backing from Beef

as well as backing from Beef & Lamb NZ and Federated Farmers
 
If the bastions of the status quo are backing it, the proposal must be a dog.

Its a dog alright , I wouldnt

Its a dog alright , I wouldnt be funding them for all the tea in China . The merger of the 2 Co-ops is seen as some sort of Nirvana - it isnt . The big problem is that too many Companies are involved in Purchase/ Procurement and are losing focus on the key fundamentals which is processing and selling meat .
 
Quite what MIE is proposing as an overall strategy is somewhat of a mystery . The biggest thing we can learn from Fonterra is to auction off bulk product - let there be a global Auction for the lower value cuts ( with the Ausssies ) and let them come from far and wide . By selling stocks regularly we can hopefully stimulate demand and throughput of mear thus lowering holding costs . The high value cuts will sell elsewhere and by present methods .

Yah, much skepicism is indeed

Yah, much skepicism is indeed warranted.
 
Talked to sheep-and-beef son-in-law, at least partly to check that his stock are above water.
 
Around 80% of stock is pre-contracted to one or other of the companies, and that's a reasonable basis for throughpuit planning at works, and on into the marketing process.  Price certainty, throughput certainty, available-to-promise certainty for marketers.
 
Isn't that exactly what the forced-amalgamation crew want? 
 
So:  if most of ther alleged benefits already exist - ya gotta ask:
 
why oh why wouldja wanna stick a big, clumsy hand into That running fan?

So Waymad, im assuming you

So Waymad, im assuming you are saying that your son in law is happy with the consistency returns the status quo is dilivering to him?
 
My understanding of what MIE are proposing is that they are looking at getting genuine experts from outside of the industry to look at the current model and advise on how it can be improved.  They realise that they themselves donnot necessarily have the answers which is where previous farmer led attempts have fallen down. The simplistic, combine the coops and she'll be right, sort of approach. This industry needs a circuit breaker or the continued march towards dairy/dairy support will continue unabated with all the enviromental, social and economic issues that brings with it. At least these guys are trying and I for one am hoping they can facilitate some needed change.

If I had made my mind up that

If I had made my mind up that I should be supporting MIE that comment "...getting genuine experts from outside of the industry... " would have me changing my mind pronto.
 
How often have we heard this type of talk and end up with an a huge mess! 
 
Interesting to hear that with the wet weather dairy grazers are utterly stressed out and fed up with the mess and damage to their pastures that the cows are creating. I am hearing that they will out of dairy grazing next year!
 
Those who think dairying is the way to go, need to wake up. Dairying is not the answer.

SS, here could be a way of

SS, here could be a way of finding out how many farmers actually believe in a Fonterra type model as I'm not so sure all that have turned up to meetings are genuine. Get MIE to work with both co-op boards and draw up a supply agreement for the supply of all livestock for say a 3 or 5 yr period from as many farmers as you can. Farmers would sign up with the knowledge that if the new co-op did not receive a minimum percentage that both boards were comfortable with then it would'nt fly.eg 75%
 
This would eleviate the issue of both co-ops concerns of losing market share and give them enough time to get a good foothold. This agreement would be legally binding and give both the farmer and the new co-op the confidence to move as remember 75% or greater of all NZ stock is committed. It may be that the new co-op wants 85%, 75% is just a figure I've used.
 
If you got the required amount of stock the new co-op would probably need extra processing space and you could toll process through the companies that dont want to take part as they won't have the numbers of stock anymore and their bankers will want something coming along the chains.
 
Is it as complicated as some make out. If farmers are genuine then give them something to vote on.