Instability in the New Zealand meat processing industry : an economic analysis

Abstract

The New Zealand meat processing industry has exhibited a history of industry instability over the last fifteen years, with a number of plant closures. Profitability has also been an issue, with a number of recent reports highlighting the current lack of profitability. Despite these apparent problems, there has been very little rigorous economic analysis of the industry. This research evaluates industry instability in the meat processing industry. By first isolating those microeconomic models that predict an unstable outcome, the research provides a comprehensive review of the contribution of microeconomics literature to the problem. The one model that appeared appropriate to use to appraise the meat processing was the theory of empty core markets. Empirical observations seemed to confirm that the New Zealand meat processing industry appeared to be operating in an empty core market. The principal results of this are twofold. Firstly, the current instability in the meat processing industry is not the result of a short term market environment or mismanagement. It has been shown that this behaviour is consistent with that expected in an empty core market. Secondly, without the implementation of some form of industry cooperation or the advent of some merger or acquisition activity, the current instability in the meat processing industry is destined to continue.