Meat processors may rationalise

A rationalisation plan for the beef-processing industry is being considered by the processors themselves, which could see the number of factories halved over the coming years.

This is the first serious consideration the industry itself has given to rationalisation for several years, although the McKinsey Report in 1997 called for a programme of rationalisation, at that time to be driven by the State agency, Forbairt.

The industry is considering a buy-out scheme, whereby factories which remain in business would compensate those closing under an agreed formula based on animal throughput. The scheme would be operated by the industry itself and would be supported by the banks, with payments made incrementally to those going out of business.

Because the scheme would be implemented and operated by the processors themselves, it probably would require permission from the Competition Authority.

This should not be a problem, provided the authority was satisfied that there still would be real competition in the industry. The dairy processing industry has rationalised considerably and there have been no objections from the Competition Authority.

The plan is to reduce primary processing capacity by between 40 and 50 per cent. There are around 40 processing plants in the State, which means the number of plants could be reduced to between 20 and 25, if the reduction is done progressively.

Mr Derek Breen of Enterprise Ireland, who has responsibility for the meat processing industry, welcomed the move. "It's essential, it's not an option," he said.

"The sector is in a very weak situation and cannot continue with the current structure. Its costs are rising and its revenues are declining and that's not a winning formula."

The buy-out scheme would involve "fairly heavy money", one industry source said. But he pointed out that in 1997, the buy-out proposal was different. "On this occasion, they are starting at the other end, trying to get the funding together, progressing very slowly."

Given the industry's structure of ownership - the main players, AIBP, Dawn Meats and Kepak, control over 70 per cent of processing - it is likely rationalisation will take place across the industry and not just as a means of taking out the many smaller units comprising the other 30 per cent.

"To rationalise, they must have a financial crisis," one industry source said recently. "We need to do something fundamental and underutilisation of capacity is a cost every week on the business," he said.

Another agreed: "They had a good back-end last year but they are bleeding badly at the moment."

Almost two million cattle have been slaughtered annually over a number of years, but the numbers have reduced to around 1.75 million in the current year.

There is no Government funding for rationalisation and Enterprise Ireland, the successor to Forbairt, has set itself against investment in primary processing, which is slaughtering, boning and packing. Instead, it has been pushing the industry towards greater added-value processing, which is consumer-focused.

But last week, Mr Breen said that in a post-rationalisation situation, Enterprise Ireland would look at funding, but added: "We're not throwing money at the status quo."

Under the Food Sub-Programme of the National Development Plan, €353 million is available for market-led, added-value processing projects.