MIE says merger could save billions

Billions of dollars could be saved through red meat industry rationalisation and consolidation, a report commissioned by Meat Industry Excellence says.

The report, entitled Pathways to Long-Term Sustainability, is being launched in Wellington tonight and provides independent analysis of the industry.

It showed more than $400million in gains were available over five years, from a merger of the two co-operatives Alliance Group and Silver Fern Farms, and more than a billion dollars in savings could be realised from a rationalisation process that included the four largest companies: Silver Fern Farms, Alliance Group, ANZCO and AFFCO, a media statement from MIE said, before the report's release.

Asked how change was going to be achieved, MIE chairman John McCarthy said the group, which was established in 2013 to seek industry reform, was ''trying as hard as we can''.

The first part was getting MIE-endorsed candidates on to the boards of the co-operatives. Industry participants had to agree that there was a problem and then agree that it was a shared problem. The next step was to get people talking in a meaningful way about co-ordinated behaviour and regaining committed supply.

The biggest catalyst for change was farmers' ability to supply and the future lay in the hands of farmers, he said.

The industry was ''going down the toilet'' and the status quo was not an option, Mr McCarthy said.

The report found ''strong support'' from sheep and beef farmers for a consolidated co-operative model and concerns about the risk of foreign ownership of the supply chain.

Farmers would be willing to invest to boost future returns, providing a cohesive and comprehensive strategic plan was developed.

It also found overcapacity was costing farmers and processors ''a great deal'' and distorting market behaviour to the detriment of export value.

Analysis showed the industry could kill its lamb and beef production more than twice over each year.

The resulting competition for stock throughput meant, for example, 50% of sheep and cattle were transported beyond the nearest processing plant, more than doubling the cost per head of transporting stock.

While New Zealand dairy farmers were the best paid in the world, Kiwi sheep and beef farmers earned, on average, about half what their overseas counterparts did, Mr McCarthy said.''

We want to make New Zealand red meat farmers among the best-paid in the world so that our industry grows and thrives, and provide land use competition to dairy farming. A balanced land-use portfolio is in the national interest,'' he said.

The report noted that ewe numbers could fall from 21 million to 15 million in five years and 10 million in 10 years, while the national dairy herd could climb from 6.5 million to 7.5 million, on the current rates of conversion to dairy.

From the report
Recommendations in support of the industry's rationalisation

- Processors need to put individual differences aside and work collaboratively to find an industry-wide solution.

- Chain licensing is an initiative worthy of review.

- A structure or holding company may be needed to park redundant processing capacity and facilitate plant closures.

- The Government has an essential role to play in enabling the consolidation and stabilisation of what is a cornerstone industry in New Zealand.

- Committed or contracted supply is pivotal to achieving long-term stability.

- The sector should consider initiatives employed by the electricity industry in considering how to deal with seasonal or peak processing events.

- Farmers are likely to support a future capital-raising proposal if it were to provide a clear vision and pathway into the future. Structural change must result in a transition from a production-led model to a consumer-focused, value-added model.

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