"Weak market position"

Looks like the co-ops in the sheep farming industry are in danger. As one farmer says:

"I know things have their times and spans, but co-operatives are farmer-owned. All of a sudden in the last two years the farmer-owned part's been totally forgotten about. They are selling the family jewels.

As the diary industry shows, farmer-owned co-ops can be the most beneficial industry structure for farmers.

So why change?

But while farmers may be reluctant to change their co-operative tradition, other factors may force change upon them. The meat industry has suffered from poor returns for the past three years in a row as overcapacity in processing plants combined with a weak market position and a volatile currency.

Figures from Meat & Wool NZ show average farm profit declining from $73,265 in 2004/05 to $36,475 in 2006/07, in real terms. Over the same period, Silver Fern has become increasingly indebted, and last year adverse currency movements led to a breach of covenants on its interest cover ratio on debt of some $500m.

A high exchange rate translated into fewer NZ dollars even if all else remained the same. That said, there appears to be a huge gap between the farm gate price and what you pay in the supermarket for a cut of lamb.

"But we can't just have a blue sky approach to value because there's no point in saying we're going to get $5 [a kg] when the market won't pay it. We've got to make sure we get lamb, beef and venison, for that matter, positioned relative to other choices the consumer has.

The market won't pay $5/kg but lamb in the supermarket is often $17/kg.

Rising demand for food worldwide should see prices rise. At the same time, I know I buy less lamb now than I used to because it is relatively expensive....at the same time farmers are getting less money for their meat, undermining the industry and forcing farmers to move to dairying.

Something wrong there. Where is the money going?