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Allan Barber reports that meat processors are assessing the changes they will need to make as forest conversions eat into their livestock supply flows

Rural News / opinion
Allan Barber reports that meat processors are assessing the changes they will need to make as forest conversions eat into their livestock supply flows
empty yards

The consistent fall in sheep and beef numbers will sooner or later place huge pressure on the profitability of meat processors and the livelihoods of provincial and rural communities, particularly in those areas where the local meat plant is the largest employer.

Between 2017 and 2022 210,442 ha of whole farm sales were destined for afforestation.

At a conservative stocking rate each additional 100,000 hectares of land converted to forestry will remove 820,000 stock units, the equivalent of two lamb or mutton chains. The full impact of these conversions will take some time to work through because of planting delays or a shortage of seedlings, but the full reduction will eventually become a reality.

The lamb and mutton slaughter statistics since 2018/19 show a steady downward trend with both species forecast to be more than 6% lower by the end of next season or a total reduction of 1.2 million lambs and 80,000 sheep. Although there are signs that land use change may be levelling off, the impact of ovine livestock reductions has been masked by the labour situation over the past three years - plants have been short of labour due to general labour shortages across the economy, covid related absences, and a lack of migrant labour.  These factors have resulted in reduced peak season capacity, with production spread more evenly across the year.  This has led to reduced procurement competition over the winter months, which along with favourable export market pricing, led to higher industry profitability.

The sector has now entered a period where required labour levels have more or less been fully restored, and export market conditions are extremely challenging.  According to AFFCO CEO Nigel Stevens we will now start to see the true impact of the reduction in livestock numbers; increased labour availability is likely to result in excess plant capacity, a shorter peak season, and increased procurement competition.  Accordingly, industry profitability, particularly for sheep meat, is likely to come under more pressure.  While this year has been challenging, it is possible next season may be even more difficult for lamb processors.

Stevens is also of the view falling sheep numbers will cause heightened procurement competition across all regions, not only the worst affected regions which are mostly the East Coast and to a lesser extent Wellington region, Otago and Southland. AFFCO’s Wairoa site is one of those with the most immediate potential volume impact, although it has benefited from a major efficiency upgrade which puts it in an ideal position to compete for stock. Other East Coast sites are Ovation’s Gisborne and Waipukurau plants, Progressive Meats in Hastings, and Silver Fern Farms at Takapau. Peter Conley, ANZCO’s CEO, told me they are talking about the problem a lot, but have not reached any firm conclusions, as their plants are mainly located in the less affected regions.

Alliance chairman, Murray Taggart, expressed a similar view, saying the company’s main catchment area of Southland was less affected than others. I asked him whether Alliance’s forecast loss for the financial year just ended which the board has admitted will be its worst since 2012 was caused by the need to compete for declining livestock volumes with inefficient plants. He strenuously denied this interpretation, pointing instead to its 30 September balance date which worked against it when the market collapsed in the last quarter of 2022 (the first quarter of its year) wiping $55 million off the value of its inventory.

Taggart also lamented the company’s decision to put on full capacity to service its shareholders during a predicted drought which never arrived, but by then it was too late to reduce the manning levels. He said this season will be very different and margins are already much better. He was adamant the company had invested more than its competitors in its plants over the last five years, although he conceded that had not been the case before then. As evidence he told me Lorneville processing costs used to be $7 per head dearer than Dannevirke, but are now on par, and the plant could now operate profitably on a two shift configuration. However Alliance’s cooperative status would appear to put it at a competitive disadvantage when, as in the most recent trading period, it decides to share the pain with its shareholder suppliers by resisting the urge to pass on the full extent of a market fall. It also unintentionally gained market share when it had capacity on, while its competitors made a tactical decision not to open.

None of the processors I was able to speak to was prepared to admit to any plans to reduce or close capacity, although they would clearly be reluctant to share it with me if they did. Their preferred course of action will be to ensure fixed overheads are kept to an absolute minimum, thereby enabling individual plants to operate profitably at a reduced capacity, while using the best forecasting tools to predict precise livestock flows. The bad old days of competing for livestock, regardless of market need or, dare I say, to keep suppliers happy, are largely a thing of the past, but companies cannot afford to make uncommercial decisions under any circumstances.

Hopefully the forestry conversion peak has passed and the new government, probably with a strong agricultural focus from all parties to the coalition, will ensure a sensible approach to climate change and the ETS. The figures show our sheep meat industry to be under serious threat and every effort must be directed at helping it to flourish, because if not the economy will suffer from the sharp decline of rural New Zealand which will be impossible to reverse.

Current schedule and saleyard prices are available in the right-hand menu of the Rural section of this website.

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For many many years the processing company we supply had the attitude that through the late winter, early spring period they would pay whatever they had to, taking a loss per head as long as the return more than covered the variable costs and made some contribution to fixed costs. Not a great business model that runs a third of the year at a loss and then has to scalp its' loyal suppliers through summer. .  


Probably happy if numbers are low this year going on schedule and forecasts. Imagine if we had 5 million more lambs. Lot of freezers full already I’m told.

Poor growers in the gun again.