Meat processing profit

Meat processing profitWeak export market demand, an appreciating dollar and constraints on livestock supply are producing trying times for the meat processing industry in Australia. Despite this, in 2008-09 this industry slaughtered over 40.7 million beef and sheep, and produced over 3,000 kilotonnes of meat.

Reduced volumes of livestock slaughtering have slowed meat production and left many processing plants operating below capacity. Meat export volumes have dropped. In the five years to June 2010, the volume of meat production is expected to decline by an average of 0.1% a year, while the value of meat exports will have declined by an average of 3.0% a year.

meat-pros-1

Domestic consumption of red meat has remained relatively stable over the past five years, increasing the importance of export markets to industry growth. During 2009-10, the industry is expected to feel the impact of lower export demand and an appreciating Australian dollar. In 2009-10, total revenue for meat processors is expected to drop by 6.8% to reach $12.7 billion. Over the five years to 2009-10, revenue is expected to decline by an average of 1.5% a year.

meat-pros-2

Over the next five years, a modest increase in average meat production of 1.4% a year is forecast based on Australian Bureau of Agricultural and Resource Economics data. Domestically, there is expected to be only modest growth in the volume of red meat consumed, and real prices are forecast to decline with increases in production. Over the five years to June 2015, industry revenue is forecast to grow by 2.4% a year to reach $14.3 billion.

meat-pros-3

Industry outlook

Growth in the Meat Processing industry over the next five years is expected to be constrained by increased competition in beef export markets, falls in prices from production growth, and slow growth in domestic consumption of red meat. The industry will, however, work to increase revenue through increasing production of value-added products and branded products.

Key success factors:

  • Automation – reduces costs, particularly those associated with labour

Automated processes in meat processing reduce labour costs and can increase quality.

  • Economies of scale and scope

Large production and distribution generates cost savings for meat processors. Specifically, economies of scale result in lower unit manufacturing costs due to mass production.

  • Having contacts within key markets

It is important to have relationships with export markets and with domestic purchasers such as supermarkets.

  • Must comply with required product standards

Red meat must meet high quality standards.

  • Production of goods currently favoured by the market

This reflects the extent to which a firm is able to adapt its products to satisfy changing consumer expectations. Processors need to be able to identify consumer requirements and offer meat products to match those requirements.

  • Downstream ownership links

Vertical integration allows meat processors to capture cost savings along the supply chain. It also helps ensure reliability of supply of key inputs.

Barriers to entry

Increasingly, scale is becoming a barrier to entry. Meat processing is generally characterized by large volume production. Scale economies are particularly important in elementary processing. Many of the basic meat products processed by the industry have low per unit values, making scale economies necessary to minimize average production costs. Firms wishing to enter the market will need to establish production of similar scale in order to compete effectively against existing low cost producers. Scale economies are less critical for firms wishing to create higher valued products targeted at niche markets.

For further information click here.

Robert Bryant is the general manager of business information firm IBISWorld.

COMMENTS

Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments
Close
SmartCompany Plus

Sign in

To connect a sign in method the email must match the one on your SmartCompany Plus account.
Or use your email
Show
Forgot your password?

Want some assistance?

Contact us on: support@smartcompany.com.au or call the hotline: +61 (03) 8623 9900.