18 May 2017

Shrinking sector means more closures possible - Beef and Lamb NZ

7:25 pm on 18 May 2017

A Silver Fern Farms shareholder says sheep farmers need more support and better prices otherwise plants will keep closing as farmers turn to more profitable land uses.

Silver Fern Farms

Silver Fern Farms Photo: RNZ / Maja Burry

The co-operative is proposing to close its Fairton sheepmeat plant in Ashburton, which would axe 370 jobs.

Silver Fern Farms said the plant had been processing less than half of the number of lambs it was seven years ago.

Shareholder Allan Richardson said the proposed closure was not surprising and he expected more in the future.

"It's ongoing... the whole industry has got to take ownership of falling stock numbers. The capital injection from Shanghai Maling is not going to save these sort of things happening in the future - not just Silver Fern Farms but other companies as well."

Mr Richardson said the reality was sheep farming was not as viable as it once was.

"People are moving to other land uses because they are forced to if they want to keep farming.

"You can't blame land use for [the Fairton closure]. It's actually an industry problem of farmers being underpaid considerably over the last two or three decades and this is just the end result."

Figures from Statistics New Zealand show the number of sheep in 2016 fell to 27.6 million.

In 1982 there was a historic high of over 70 million sheep. This dropped to 40 million in 2006, and in the past 10 years sheep numbers have fallen by 30 percent.

The chair of Beef and Lamb New Zealand, James Parsons, said the sector was shrinking and he agreed that other plant closures might be on the horizon.

He said the industry was working hard to support farmers.

"You're not seeing processing companies making kill profits at the expense of sheep farmers. There is no question that numbers of sheep have declined and that other land uses have been more competitive.

"In Canterbury there's large scale conversions to dairy, particularly with the advent of irrigation schemes. But I share Allan's concern. We don't want the sector to continue to shrink."

Figures from Beef and Lamb New Zealand show that Canterbury had been the hardest hit by farmers jumping the fence to dairy or beef.

In 1990-91 lambs slaughtered in the region were running at 9.2m. That has dropped 43 percent to 5.3m lambs slaughtered today.

However, lamb slaughter weights had risen from about 13kg in 1990 to over 18kg in the past couple of years.

This meant the total tonnages of lamb being processed in Canterbury had only decreased by 23 percent from 1990 to 2017. Nationwide the weight of lamb processed has dropped by just 3 percent.

'Natural evolution'

Mr Parsons said the proposal to close Fairton reflected how the industry was changing.

"There seems to be trend towards smaller plants that are more efficient. Some of that is quite natural, if you look around the New Zealand countryside and how many old dairy plants there are that are closed now.

"Some of this is just natural evolution, it's not just that the sector is shrinking - I think we need to keep that in context."

Another problem was that Fairton is an older plant and was designed for smaller lambs being sold as carcasses, and not higher value cuts that are now being sold around the world, Mr Parsons said.

He said the change in efficiency in the sector has also resulted in automation and better technology.

There were too many processing plants for the number of lambs, and companies have been faced with the challenging decision of what to do next, Mr Parsons said.

"Many companies have held off closing plants because it would write down their balance sheet.

He said Silver Fern Farms had made a smart move and recapitalised.

"They're probably in the position where they can afford to reduce some of that excess capacity, which on their ballance sheet may not look so pretty but from a cash flow perspective makes absolute sense.

"This will position them better for the future. In fact this proposed closure has probably been long overdue."

Mr Parsons said the industry will continue to be volatile but he was cautiously picking lamb prices to be strong into next year.