A drop in lamb numbers combined with lower demand for further processed sheepmeat is putting new pressures on the meat industry.
These factors are behind the Silver Fern Farms meat co-operative's proposal not to open one of its processing plants this season.
The Silverstream plant at Mosgiel near Dunedin operates as an satellite facility, further processing lamb from works in Canterbury and South Otago.
Silver Fern Farms chief executive Keith Cooper said on Monday it is considering merging the management of Silverstream with the larger plant at Finegand near Balclutha.
He says the forecast 8% drop in the lamb kill means the company is expecting to process about 300,000 fewer lambs in the South Island this season.
Mr Cooper says China, which has rapidly become New Zealand's biggest sheepmeat market, is also demanding less processing of the products it takes. It wants lamb cuts with the bone left in, meaning there may be no need for the operation at Silverstream.
"Europe, it's a highly sophisticated market taking a high level of further processed items, is struggling to pay us adequate returns, coupled with the currency, and there's other markets around that want less further processing and give us a better economic return.
"Obviously, it's encumbent on us to maximise value from the market place - and the market mix is changing, which impacts on our processing requirements.
"People have been talking about the Chinese opportunity - and it is an opportunity on one hand - but it does change our requirements of what we need to do to the product on the other hand."
However, Keith Cooper says the meat industry has to be careful not to become too dependent on China.
"It's something that we need to manage. I don't think we want to become solely reliant on China. We started this industry off many years ago being solely reliant on the UK, and it's probably cost the industry a lot over the last 130-odd years.
"So it's about getting balance, about diversification. I think we need to have a range of markets taking a range of products so the challenge will be how to hold the volume that we send to China at a realistic level."
Silver Fern Farms will decide next week what it is doing with its Silverstream plant.