Meat industry urged to follow Fonterra model

By JANET TYSON

The meat industry should consider following the Fonterra model to safeguard its viability, says Institute of Economic Research economist Alex Sundakov.

He told the Meat NZ annual meeting in Wellington last week that the industry needed to be more vertically integrated and that it should diversify its sources of meat supply, including from overseas.

New thinking was called for to turn future risks into opportunities. The present "magic combination" of a weak exchange rate and good commodity prices would inevitably end, he said.

There was already some reversal in factors that drove the dollar down. The high current account deficit was being repaid, the unusually weak Australian dollar was recovering and foreign investment was starting to flow back into the economy. Other global factors which for a long time had favoured New Zealand, such as the feeble state of agriculture in former communist countries, were also changing, with the prospect that Eastern European nations could again become meat exporters.

"British farmers are buying up land in the Ukraine to spread their risk. For them, it's just a two-hour flight away."

For New Zealand, it was much harder to run a farm in another country, so different thinking was called for to turn threats into opportunities, Sundakov said.

The meat industry must identify its true value drivers, and whether they related just to growing efficiently from grass.

"If our value drivers are knowledge, skills, branding, organisational capacity ... these can be packaged to apply offshore."

Although the Fonterra model had faults, it seemed the best structural option on offer to ensure meat industry profitability.