Savings and efficiencies achieved by reducing the number of plants from 34 to 21 would add another $5.75 a lamb to farmer returns, MIE said in its industry blueprint, quoting work by international consultants GHD.
Closing six beef processing plants and leaving 21 open could add $39.25 to the value of each head of cattle processed.
Total savings a year across both species would be about $444 million, from the rationalisation of processing, making the procurement activities more efficient and allowing market supply chain improvements.
Processing savings alone would be about $215m. Total costs of closing the sheep and beef plants would be about $197m, including redundancy costs of $63m.
It said 53% of sheep meat processing capacity was unused and 47% of beef capacity was unused.
The lamb kill now was 21 million a year but there was capacity in the 15 South Island plants alone to process 26 million lambs, the report said.
The 17 North Island plants could process 21m lambs. GHD said the drop in capacity over the last decade had been only 3.4% compared with a 25% fall in total sheep numbers.
If the closures were put in place, Silver Fern Farms could close five of its eight sheep meat plants, at Wairoa, Waitotara, Fairton, Silverstream and Waitane.
Alliance would close three of its six plants, Levin, Nelson, and Smithfield. AFFCO would shut three of six including Rangiuru and Malvern, Ovation would close Feilding and ANZCO Foods its Rakaia plant.
Among beef plants, the West Coast looked like it would lose both Silver Fern’s Hokitika plant and ANZCO’s Greymouth plant. Alliance would lose Levin and AFFCO would lose Wanganui and Rangiuru.
In the South Island there would be no export meat processing north of the greater Christchurch area, nor on the West Coast, and none in Bay of Plenty in the North Island.
The report said sheep meat plants now had total capacity of 46m head, with only 47% use.
After proposed rationalisation, capacity would fall to 36.4m and have 59% use.
Beef capacity would fall to 3.24m head of cattle from 3.87m and use would rise from 59% to 70%.
Overcapacity of processing facilities caused the inefficiencies in procurement because processors were more focused on maintaining throughput at their plants to cover high fixed costs and minimising losses than they were on maximising returns from the market, GHD said.
Rationalisation to get greater use of supply contracts or committed supply would reduce the cost of third party commissions and save another $40m a year.
The report also claimed major inefficiencies in stock cartage. It estimated the average cost of transport to the nearest plant was $3.20 a head for sheep. However, it was also estimated that half of the sheep processed were taken past the nearest plant, increasing the actual cost of transport to $5.50 a head.
Redirecting half of that stock to the nearest plant would save $12m a year with $65.m savings from reduced weight loss.
For beef, the average cost of transport to the nearest plant was estimated at $35 a head but having 50% of the stock going past the gate lifted the actual average to $60 a head.
The report also found that reduced processing capacity would not put farmers at risk during droughts. If those plants were closed, the remaining plants had ability to meet short term demand “by moving to world best practice” and increasing double shifting or even triple shifts.
GHD found that Alliance’s big Lorneville plant in Southland, with double shifts, could process 7.3m head of sheep over 240 days and Silver Fern’s Finegand plant could do 3.35m in the same period – those numbers represented the total South Island lamb kill.
All up, the 15 South Island plants could now process 26m lambs a year compared with the national lamb kill of only 21m.
That was 24% national overcapacity in the South Island alone.
North Island plants could kill 21m lambs, equal to the nationwide tally.
One practical solution to drought demand issues would be to ask the Government to regulate, enabling the industry to work out a level of “default capacity” – say 15% to 20% over demand forecasts – with all companies contributing to the cost on a pro-rata basis.
MIE said farmers could also develop plans to reduce drought impact by growing crops (the likes of plantain and chicory) able to withstand the typical February/March dry periods.
Estimated plant closure costs were based on the value of fixed assets held by the three largest companies (Silver Fern, Alliance and AFFCO) and the total apportioned across all plants on the basis of their share of kill capacity.
MIE HIT LIST
The plants Meat Industry Excellence says should close are:
Sheep
Silver Fern Farms: Wairoa, Waitotara, Fairton, Silverstream and Waitane.
Alliance: Levin, Nelson and Smithfield.
AFFCO: Rangiuru and Malvern and one other.
Ovation: Feilding.
ANZCO Foods: Rakaia.
Beef
Silver Fern: Hokitika.
ANZCO: Greymouth.
Alliance: Levin.
AFFCO: Wanganui and Rangiuru.
