KEY POINTS:
The balance of power in international meat markets is fast shifting in favour of suppliers, Dunedin-based processor PPCS says.
Chief executive Keith Cooper is just back from a two-week market visit to countries including Britain, France, Italy and Saudi Arabia.
People understood that supply from New Zealand was starting to diminish and would reduce further next year, while the price for other proteins was going up, Cooper said.
"If you're attempting to buy any reasonable volume of lamb you'd struggle today because most people are pretty well sold up," he said.
"It's turning from being a buyers' market to a sellers' market quite rapidly."
Rabobank has said season-average lamb farm-gate prices are about 10 per cent higher than this time last year despite the strong dollar, with signs of pricing strengthening internationally.
International price rises would be sustainable, Cooper said.
PPCS had been indicating there would be a million fewer lambs a year during a three-year period, with inventories going into next season probably the lowest ever, Cooper said.
Sheep farmers have faced low returns for three years, while animal numbers have been affected by drought and some farmers opting to convert to dairy operations.
"The capital stock kill this year, we still haven't as an industry got it pinned down but it's material." The improved sales value for lamb would form the basis of supply contracts into next season at substantially improved levels, he said.
Co-operative PPCS was looking to farmers to commit to the minimum price supply agreements.
"As much as people want us to put focus on marketing and branding, well we can do all that but we need certainty of supply to make that commitment and make that investment in the product."
The market for beef into Europe was strong, with Brazil currently unable to export to the EU after a compliance issue, Cooper said.
"We have learned over recent years when these opportunities occur you often maintain a position of some level when the situation reverses."
Meanwhile, discussions are under way on a mega industry merger which has been proposed by Southland-based processor Alliance Group. The concept aims to lift farm returns by about $400 million a year and deliver short-term gains of about $15 a lamb from market cohesion, reduced overheads and by removing excess processing capacity.
Cooper could see some immediate opportunities for companies to work together and utilise the best each had to offer in various markets "providing benefits within a much shorter timeframe than even an optimistic conclusion to a wider industry rationalisation model".
"It's about how we can co-ordinate supply to the best outlets from a strategic long-term view point going forward," he said. New Zealand meat values had improved, although products were competing with fresh lamb from countries including Britain, France, India, Uruguay and Iran.
"We must recognise there are other suppliers to the markets we export our product to.
"Accordingly we cannot expect to demand prices that do not have some correlation to other lamb or other protein sources.
"We must add value starting from inside the farm gate to the end user which is the basis of the Silver Fern branding strategy."
Cooper did not travel to North America but said that market had under-performed for a variety of reasons, including drought in Australia, over-supply, over-pricing two years ago and economic conditions.
He said none of these issues had been resolved by the dominant position of NZ Lamb Co, which was partly owned by PPCS, Alliance and ANZCO.
