The meat industry is heading for a train crash but it will be market forces which dictate when and where that accident happens.
There appears to be a Mexican stand-off among meat companies, each waiting to see who moves first as they all suffer from the swing from sheep, beef and cropping to dairying and dairy support, especially in the South Island.
Carbon farming and drought in the North Island has contributed to a steady decline in sheep numbers, but processing capacity has largely stayed unchanged.
New Zealand's 24 million sheep meat kill could be handled in 26 weeks if current capacity operated at its peak, an equation which has not changed in 10 years.
Meat and Wool New Zealand is forecasting the annual lamb kill to stabilise at 23 to 24 million.
Meat industry leaders accept there will be plant closures, but no-one is prepared to say where or when they will occur, but pressure must start to bear in Canterbury and Southland, the parts of the South Island where dairying has grown the most rapidly.
Successive droughts on the North Island's East Coast has decimated sheep numbers there, and Affco last month closed its Wairoa plant for up to five months this year, instead of the traditional six to eight week closure.
Adding to the pressure is the industry's lack of profitability.
In the 2008-09 financial year Affco reported a $25 million net profit after tax on turnover of $1 billion; Alliance a $19 million profit (after pool payments) on revenue of $1.5 billion; and Silver Fern Farms $43.5 million (boosted by one-off gains) off $2 billion of revenue.
News this week Silver Fern Farms was reconfiguring two of its Christchurch plants with the potential loss of 174 jobs, has once again thrown the spotlight on surplus sheepmeat processing capacity in an era of declining sheep numbers and land use change.
None of the job losses involved sheep meat slaughtering plants.
The restructuring affects a lamb cutting facility at the Canterbury plant and casings and rendering at the Belfast works.
Silver Fern Farms attributed part of its decision to declining sheep numbers.
Addressing those factors was not as simple as closing plants, as farmer-owners of co-operatives require their companies to handle a seasonal supply bulge and to kill stock during drought or before winter.
Large integrated works manage periods of short supply by not working a night shift or overtime, but that still does not address the problem of companies being driven by throughput to reduce fixed overhead costs, leading to companies paying prices for livestock unrelated to the market.
In 2008 Silver Fern Farms closed five sheepmeat processing chains in Canterbury and Hawkes Bay to address financial pressures, but no other company has followed suit.
Indeed, in recent years the Alliance Group has bought one plant and reopened another in the lower North Island, Affco has bought a small works in Canterbury and hinted at plans to expand it, and it has also entered a joint venture with Talley's Group to build a single-chain plant near Invercargill.
The reality is that the market and economics will force the hand of companies and that will be driven by changes in land use and whether access to markets eases or tightens.
The ANZ Commodity Price Index shows export lamb prices have reached record levels, but that does not directly relate to incomes that are competitive with other land uses, and that will ultimately dictate meat company actions.
