Allan Barber reports on the reaction to the 'moratorium proposal' among the leaders of the key players affected

By Allan Barber

Although not all parties are in favour of it, the proposed moratorium on chain and plant licences has provoked a lot of debate and reaction from all parts of the red meat sector.

Generally the reaction from the farming side has been cautiously positive, although all groups require more clarification of exactly how it would apply and what it would mean to farmers.

Rick Powdrell, Federated Farmers’ Meat and Fibre chairman, said it was important to canvas farmers for their views and hoped other groups, in addition to the Meat and Fibre Council, would discuss it with their members and suppliers.

He also told me he thought the scheme should definitely be considered on its merits and hoped nobody would immediately discount it because it had been proposed by Talleys.

He was pleased there was now momentum for change towards a longer term view which would see the value of meat being set by the market rather than procurement competition.

MIE chairman, John McCarthy, was quoted in this week’s Farmers Weekly as being supportive in principle because the plan recognises industry inefficiency as a result of surplus capacity.

However he does not support the continuation of farm gate competition envisaged by the chain licence proposal which militates against MIE’s vision of a cooperative, farmer-owned processing sector supplied entirely on contract.

The moratorium proposal is, in McCarthy’s words, a case of the tail wagging the dog.

That vision is laudable, but whether McCarthy likes it or not, as things stand at present, the $80 billion farming sector largely depends on the $4 billion processing and marketing sector (his figures – I haven’t checked them personally) for getting its product slaughtered, processed and sold. Whatever the reform process, the status quo is likely to remain for quite some time to come.

As we enter the time of year when plant throughput numbers start to build up, discussions about surplus capacity tend to become skewed by the problem of lead times.

Dean Hamilton, the new CEO of Silver Fern Farms, told Richard Loe on Thursday’s Radio Live farming show the company had never had so much beef capacity on at this time of year, while lamb capacity had recently been tripled because of the late start to spring. He commented farmers would be highly annoyed if they had to wait till January for slaughter space.

This emphasises the enormous difficulty of calculating what the right amount of capacity is and what is too much across a season.

The answer is of course there is no ideal capacity that can cope with every season which is why new chains and plants open in response to changes in livestock numbers, efficiency levels and market opportunities.

Alliance chairman Murray Taggart is lukewarm about the moratorium proposal because it is heavily reliant on government regulation which he does not believe will be forthcoming; he prefers a commercial solution which increases the overall size of the cake, rather than trying to achieve a more profitable sharing of the same cake.

Closures and start ups happen all the time in various industries and his opinion is the meat industry should not be any different.

Taggart believes Alliance is in good shape and backs the company’s ability to handle any competition.

Another side issue of the moratorium proposal has been talk of Trial Run Holdings version two which would involve a group of processors applying to the Commerce Commission for joint approval to take out capacity. AFFCO at least would not support this without agreement to a moratorium on chain and plant licences for a specified number of years.

It looks clear that, in spite of interest in the moratorium proposal, there is still plenty of debate and discussion to take place before any conclusion is reached.

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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 ». This article was first published in the Farmers Weekly. It is here with permission.