Slow China market challenge for OML

Silver Fern Farms meat at a meat processing plant near Shanghai in 2016. Photo: Sally Rae
Silver Fern Farms meat at a meat processing plant near Shanghai in 2016. Photo: Sally Rae
Just one month after resuming production following a compliance problem, Oamaru Meats Ltd (OML) is now hindered by ‘‘congestion’’ slowing products getting into China in the wake of the novel coronavirus outbreak.

The meat processor shut down on September 13 after its access to the Chinese beef markets was suspended.

Some 160 seasonal workers were laid off temporarily because of the suspension, which came from a mistake involving beef fat packaging.

The factory started processing again at the start of January, but OML director Richard Thorp said the extended holiday in China as a result of the coronavirus outbreak had been another setback for the company.

‘‘It’s certainly very disrupting.

‘‘We’re back in business after being sidelined for a wee bit. We’re building our inventories and building our product but we are having to move a number of items ... there’s a lot of congestion in those China ports.’’

OML was not processing at full capacity, Mr Thorp said.

‘‘We’re keeping an eye on all the gauges every day and just making sure where that market is, really.

‘‘There is a feeling that this is possibly going to get worse before it gets better.

‘‘And once again that’s sort of well known and everyone’s aware of that. Look, it’s a bit of an unknown, really.’’

The company had strong relationships with cold storage facilities, which would be used to hold backed-up product, Mr Thorp said.

But, he said it could not stay in cold storage for too long.

Alliance Group was still able to get product into China but due to concerns about the congestion slowing product down, it had diverted some of its stock to other markets.

‘‘We’ve got products going into China but we’ve also diverted product to other markets,’’ Alliance Group general manager of livestock and shareholder services Danny Hailes said.

‘‘Our sales velocity in terms of pace of moving inventory, moving product out, that remains solid so we haven’t changed that.

‘‘We’re comfortable with our inventory position so we’re still moving product into China, but ... more into other markets.’’

He said demand for red meat had clearly gone down and that had hit prices.

‘‘With some people going back to work, that will help. But if there is prolonged interruption in terms of the extension of New Year celebrations, there’s a bit of an unknown as to how long that will go on for and the extent of disruption within markets.

‘‘We know that in some regional provinces they’re mandating every second day rationed purchases to lessen the movement of people.

‘‘But the pricing volatility has meant there’s been downward pressure on pricing for livestock.’’

Mr Hailes said Alliance farmers were kept aware of the evolving situation.

In an update sent to farmers last week, Silver Fern Farms chief executive Simon Limmer said the company had expanded cold storage and looked to other markets outside China.

“On the back of the coronavirus disruption, last week we resolved some early challenges around balancing cold storage and processing capacity, and with some changes to our market mix, albeit at lower market returns, we got back on track with our processing volumes.’’

Mr Limmer said the company was also closely monitoring events in China.

‘‘Businesses, ports and government departments remain operating at restricted capacity.

‘‘People are still under movement restrictions and in many cases cannot get to work, or back home ...

‘‘This is a dynamic and changing situation and we will continue to assess our options daily.’’

Silver Fern Farms also said it had to be careful managing difficult conditions around a lot of the country.

‘‘We are also managing operational challenges around the dry conditions around the country and the restrictions this can place on our plants, and in the South we are managing the state of emergency due to flooding in Otago and Southland.’’

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