In the process of compiling livestock schedules over the years one thing has consistently stood out. That is 9 times out of 10 for sheep and beef the North Island livestock obtains a premium over the South Island equivalents.
Similar patterns exist for bull beef and prime cattle to greater or lesser degrees.
In a quiet moment I tried to make some sort of sense as to what drives this difference as it has existed for as long as interest.co.nz has been collecting data (12 years ago last week). There were a couple of things that occurred to me as possible drivers.
One was the number of processing works versus the number of livestock, working on the principle that more works would create more competition and the other was the makeup of the processor’s ownership, this time working on the principle that fewer owners would lead to less competition.
This second principle actually goes against what meat companies have been telling farmers to do; that is, be loyal to your chosen processor that way more efficiencies are captured, and everybody wins. Actually, following what the processors are saying, this should also lead to fewer ‘owners’ (the driver of the first principle) as works become more efficient and amalgamate.
The actual differences are based on the recorded schedules, and although these don’t capture all the processors but I believe enough to make some basic assumptions as both SFF and Alliance are included and they won’t be to out of step with the average of all the works.
The graphs and data represented below go from the current schedule back mid-January 2018. However, as stated, the same pattern continues back to the beginning of data collection. (The COVID-19 lock down had little impact as the works did make price adjustments which followed the usual trend and subsequent prices, while back on last year, are following similar patterns as previous years).
Lamb Y. 17.5kg (plus pelt)
N.I. average = $134.00
S.I. average = $128.15
Difference = 4.4%
Steer P2 (280kgs – 329 kgs)
N.I. average = $5.39
S.I. average = $5.08
Difference = 5.7%
Bull M2 (280kgs – 320kgs)
N.I. average = $5.08
S.I. average = $4.74
Difference = 6.4%
So, looking at the number of individual livestock processing sites in each Island there was a marked difference. Using Beef+Lamb NZ information the following table can be created.
|North Island plants||12||11||8||31|
|South Island plants||5||7||9||21|
Their data also included bobby calves, but for this exercise they were ignored. As can be seen there are nearly 50% more sites in the North Island. At this stage it is worth mentioning that no study of the throughput of stock was done and so the true capacity cannot be compared which I admit to being a deficiency here.
However, on the surface at least if there is not more capacity then there is certainly more competition with 14 identified different ‘owners’ in the North Island versus 10 in the South Island and the smaller companies in the South seemingly to be significantly smaller than the ‘big boys’.
In total the number of plants with sheep capability in both Islands’ are similar and so plant numbers do not appear to be a reason for the extra competition in the North Island. Especially when it can be shown that differences in sheep numbers between the island is remarkably little.
Beef cattle numbers show a different picture with significantly more beef cattle in the North Island. And to be fair there are considerably more ‘just beef’ plants in the North Island. In fact, the same can also be said for sheep and on the surface it appears the North Island plants specialise more than the South Island plants which appear to be more 'generalists'.
The other data set which provides some insights are the weekly kill data, again published by Beef+LambNZ. It shows that the North Island processing numbers for lamb are considerably ahead up until mid-December and then the South Island numbers take over and through the autumn period are considerably ahead. This makes the South Island kill a lot ‘peakier’ than the North Island and at a time when the schedules are traditionally at their lowest point, driven by this supply.
This would help explain why over a 12-month period South Island lambs achieve a lower average price but not a consistently lower price throughout the season, as shown by the graph. Presumably, cattle follow a similar pattern as it is driven by biological imperatives; that is, getting rid of the bulk of livestock before winter.
So, with sheep there is a similar visible capacity for processing versus the number of lambs in both Islands and cattle look to be at a similar ratio. Seasonal peaks shouldn’t overly influence prices over the year, so, the only obvious thing left is the make up of the meat companies.
The North Island has a lesser impact from the co-operatives with Alliance only operating in the lower North Island and SFF having most of its plants doing beef only and again both sheep plants in the lower North Island. I would have thought the lack of co-op competition would have had a reduction in the competitive environment rather than the reverse which given the greater ratio of co-op plants in the South appears to be happening. The co-ops do have a top-up payout at the end of the season (some years) and that would help the South Island to a greater degree than the North, based upon the processing numbers. But that will only be a degree, with of both Islands’ largely cancelling each other out.
As stated the North does appear to have more specialist plants and this may/should lead to more efficiencies and cattle, where most the specialty occurs, has a greater price differential than lamb. So some potential here, perhaps.
So, the only other reason I can come up with is - because they can.
Perhaps of interest is that the Progressive local trade price is always far closer between Islands than the export schedule and given the human population differences this is one area I could believe the North Island would achieve a premium. Most times they do but not to the same degree as the export price.
I for one would be interested if anyone can come up with a counter proposal or shed further light on the issue. South Island farmers do not seem to be rattling their sabres - however at the end of the day they can’t do a lot except ask some questions at co-op AGMs.