It is tempting to think the recently ended season’s performance means the meat industry has resolved all its historical issues and will only go from strength to strength from here. An alternative, and probably more realistic, view suggests 2022 was one out of the box, unlikely to be repeated any time soon. In spite of all the positives, it could have been even better, although I suspect most processors and exporters will settle happily for their end-of-year results.
The overriding reason for the successful year was the strength of all markets and consumer demand for products that New Zealand was mostly able to fulfil in spite of labour shortages, shipping delays and cost increases brought about by continuing pandemic issues and the war in Ukraine.
There is no reason to believe any of these issues will go away in the next 12 months, although labour and logistics challenges show signs of easing. But the big difference will be reduced consumer demand, which has already affected the returns for sheep meat, especially mutton, and will almost certainly flow through to beef prices.
The most impressive aspect of 2022 was the way meat companies were willing and able to share their success with their suppliers by rewarding them appropriately for their livestock supply. Alliance announced a distribution of $11.3 million to shareholders, while Silver Fern Farms (SFF) paid an interim dividend of a similar amount with patronage rewards and end-of-year dividend to follow.
Logic suggests non-cooperative companies have already paid equivalent bonuses upfront in their procurement prices.
Alliance announced a record pre-tax profit of $105m, over three times greater than 2021, which enabled capital investment of $45m in plant upgrades and warehouse automation as well as the continued rollout of the enterprise resource planning project, which will drive greater efficiencies in running the business. Chair Murray Taggart told me the year nevertheless posed substantial labour and logistics challenges and he expects strong headwinds during 2023 with tougher market conditions and continuing labour issues. He said CEO David Surveyor has done a great job in leading a significant improvement in Alliance’s performance and “now it’s about evolution, not revolution”.
ANZCO chief executive Peter Conley agreed that it has been a reasonably good trading year with strong revenues across the whole industry. He expects all companies to post proportionately better results than last year. In ANZCO’s case this year’s performance will be off the impressive base of the 2021 record profit of $75m before tax, though he laments the amount of margin left on the table because of the labour and supply chain problems that affected all companies. Most notable was the inability to capture the full amount of added value available from chilled lamb and beef cuts because of labour shortages and shipping uncertainty, while certain “fifth quarter” byproducts also suffered for the same reasons.
Conley sees next year as quite a bit tougher with consumer demand and market prices softening, particularly for sheep meat, combined with inflationary pressures, higher interest costs and a continuation of labour and supply chain pressures.
Greenlea’s Tony Egan confirmed the view of Alliance and ANZCO about the favourable season for margins, although he emphasised the challenges already identified as well as noting the increase in operating and logistics costs. He also referred to softening market conditions, although shipping problems have eased and Greenlea’s plants are fully staffed at present.
Wilson Hellaby CEO Fred Hellaby agreed the season benefited from the ideal combination of rising markets, competitive schedules and a falling currency, although in his opinion the challenges of looking after people, managing logistics and rising costs make it way harder to operate than used to be the case.
AFFCO obviously no longer publishes a separate result, but I understand it has had an excellent year and is now operating with a dramatically improved labour pool and processing availability compared with last year. Its emphasis is no longer on market share, but instead on optimising margin on what it processes and sells.
New Zealand’s biggest processor and exporter, SFF, is now almost unrecognisable from the co-operative saddled with debt and ageing plants before the 2016 deal with Shanghai Maling to sell half the company. This resulted in a fundamental recapitalisation of the balance sheet, which has facilitated a comprehensive plant upgrade and reduced finance costs, as well as the creation of an increasingly market-led product range.
CEO Simon Limmer referred to the difficulties during the year caused by supply chain challenges, labour availability and the impact of Covid in many of the communities in which the company operates, but also noted strong demand in key markets, which enabled it to reap the benefits of record or near-record pricing.
Although major markets are now experiencing greater headwinds as a consequence of global conditions, SFF’s recent strong performance saw $62m of capital investment in the business last year, which will increase to around $100m per year in operations and technology over the next few years.
Limmer noted improved labour availability compared to 2021 thanks to investment in labour planning and immigration, but the company still does not have complete confidence it can guarantee its optimal labour supply for the coming season, which still faces uncertainty from covid disruption.
None of the CEOs spoken to was confident 2023 would see a repeat of the success of 2022 for the reasons stated, but equally all were pleased with the year’s performance, which has enabled reinvestment in operating efficiencies as well as competitive payments to suppliers. Shipping and labour problems appear to have lessened, but trading conditions in main markets – particularly China, but also the European Union and the United Kingdom – look uncertain well into next year.
In 2023 New Zealand’s meat marketers will certainly have a harder job extracting orders from their customers at a good price, which means suppliers won’t receive as much for their livestock.
