KEY POINTS:
The proposal by Dunedin's PPCS to close its Oringi sheep and lamb processing facility is unlikely to be the last major shake-up the meat industry sees in the next year or so.
In human terms, the closure of a major employer in a community is never welcome news - the Oringi plant employs 466 people - but unfortunately rationalisation in the meat industry has been flagged as necessary for some time.
The failed mega-merger proposed by Southland-based Alliance Group had aimed to boost farm returns from market cohesion, reduced overheads and by removing excess capacity, but it barely got out of the blocks.
Agriculture Minister Jim Anderton says ad hoc closures are not the best way forward and the Oringi proposal reinforces a need for a strategic plan for the industry.
The fallout from the failed merger means industry restructuring is going to be something of an individual exercise right now.
A plan encompassing the majority of the industry would have been ideal, but considering the size of PPCS - 25 plants, including Oringi, and about half of all venison and a third of sheep and beef meat exports - acting alone can still bring major improvements for the sector.
PPCS says the Oringi closure reflects the trend of declining sheep numbers and increasing capacity in the North Island during a time when the dollar's value has been high.
North Island sheep numbers are expected to drop by more than 500,000 during the next three years and PPCS chief executive Keith Cooper says that during the past two years processing capacity has increased by two million head, mainly by Alliance in Dannevirke and CMP in Marton.
Next season there will be at least two million fewer lambs in the South Island.
"So collectively as a nation we're going to be processing in the order of 15-20 per cent less lambs over the next 12 to 18-month period."
PPCS says if Oringi goes ahead there will be no more rationalisation of North Island sheep processing but it is yet to complete a review of its beef plants.
PPCS has 12 plants in the South Island and staff there will be understandably nervous.
"Inevitably we will be addressing proposals in the South Island with our plants ... in the near future," Cooper says. "We would see other companies are going to have to equally address their own overcapacity problems which they will have."
Alliance has eight plants and no plans for rationalisation, while other major players Affco and ANZCO Foods have 10 and seven plants respectively.
PPCS, with 25 plants and significant market position, is likely be at the vanguard of industry rationalisation.
PPCS is about halfway through its restructuring programme and is also changing how it goes about its business and its branding, Cooper says. "We are confident that you're going to see a substantially improved performance from PPCS."
The farmer co-operative posted a net loss for the year ending in August of $40.3 million but in the first half of this financial year posted a profit and cut its debt by $63 million.
* Owen Hembry is the Herald's agriculture editor.
