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Look to developing sheep meat markets - analyst

MEDIA RELEASE

3 July 2007

Look to developing sheep meat markets, says industry analyst

An industry analyst says it’s going to take more than structural changes to revitalise New Zealand’s sheep meat industry, and the meat processing industry needs to take a long hard look at developing new products for new markets.

Agribusiness economist Prof Frank Scrimgeour, who’s also dean of the University of Waikato Management School, was commenting on PGG Wrightson’s move to consolidate the industry by purchasing a 50% stake in Silver Fern Farms, one of two rival farmer cooperative processors. An earlier industry merger attempt involving the two cooperatives failed in April.

Prof Scrimgeour participated in a study by the Agribusiness Research and Education network (AREN) analysing the key elements of success and failure in the New Zealand sheep meat industry between 1980 and 2007.

“The PGG Wrightson deal does have the potential to improve capacity utilisation which is critical given declining sheep numbers in some regions,” he said. “However it does muddy the waters to have both a cooperative and an investor owned firm trying to run the one business.”

Prof Scrimgeour noted it wasn’t all bad news in the sheep meat industry. While flock sizes had fallen, lambing percentages and weight per lamb had risen. He said the industry was currently back to its historic average return rate on assets of 2%, but that the shift to dairying would exacerbate problems as less stock became available.

“The industry has been adapting – for example, we’ve moved towards chilled meat rather than frozen, and from carcasses to cuts, but the big question is to what extent the industry continues to focus on the European market,” he said.

Preferential access with quotas has made Europe the market of choice, but Prof Scrimgeour said there was growing potential in Asian markets. “We have to consider whether the European preference for skinny lambs with associated costs is a fit with the costs and specs for other markets. We may yet see the return of the Southdown ram.”

The Southdown ram is known for its high-yielding carcass and meat quality.

Prof Scrimgeour said the industry must be realistic about its prospects. “The PGG Wrightson consolidation move may help, but in itself it will not resolve the fundamental farmer/processor tensions, market development challenges or be able to soften the impact of 40 years of declining wool prices.”


ends

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