One arm of the NSW chicken industry is in danger of being wiped out as poultry giant Baiada weighs up whether to close its Beresfield meat processing plant.
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Baiada, which owns the Steggles and Lilydale brands, wrote to Hunter and Central Coast growers last month about the "possibility of cessation of production of birds" at the Beresfield plant.
Closing the factory could cost thousands of jobs, including plant staff, contracted farmers, feed growers, truck drivers, cleaners, tradesmen and other workers in the supply chain.
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The Baiada letter, signed by chief commercial officer Charles Rapa and obtained by the Newcastle Herald, says COVID-19 has had a "significant impact" on the company.
"The rationalisation options under consideration include total closure, reduced production levels, conversion to a specialised free range operation or free range chicken and turkey production," the letter says.
It warns of a "strong possibility" any new contracts signed in 2022 "may not run the full term".
Baiada said on Tuesday that the company "communicates transparently with growers about current circumstances so they can make informed decisions".
"The letter should not be misinterpreted as an indication we are moving toward closing the Beresfield processing plant," a company spokesperson said.
"There has been no decision to close the Beresfield plant and there may not be any such decision.
"Employment at the site continues as normal."
Hunter chicken meat farmers do not have access to another plant and could be forced to close while holding millions of dollars of unusable equipment.
NSW Farmers president James Jackson described the company letter as "ominous" and "potentially a disaster".
He said the Hunter farmers' plight highlighted how serious flaws in Australia's merger and competition laws had allowed two players to dominate poultry processing in the state.
"Any single grower should have three or four options. That's what they used to have in NSW," he said.
"The case study we're seeing happening in the poultry meat industry will have long-term implications for investment in agriculture."
A Hunter poultry farmer who spoke to the Newcastle Herald on the condition of anonymity said closing the Beresfield plant would have a "pretty fair impact".
"I've been tipping for a few years this would happen because there have never been any real upgrades done to that plant," he said.
"They've upgraded Griffith and Tamworth where there's a new one going in."
He interpreted the letter as a "fairly blunt" warning from the company that the plant could close.
"It's not a joke. It's a lot of people's livelihoods," he said.
An estimated 100 Baiada-contracted family farms are spread across the Hunter and Central Coast within an hour's drive of the factory.
The Farm Transparency Project website lists more than 40 chicken meat farms in the Hunter, including a cluster in the Stroud area.
The farmer who spoke to the Newcastle Herald said Hunter chicken sheds would be "basically useless" if the Beresfield plant shut down.
A 2020 Australian Competition and Consumer Commission inquiry into the perishable agricultural goods industry found "market exits by processors have left a small number of buyers in some regions".
"Growers who have made substantial capital investment have been left with stranded assets and their farms have been substantially devalued," the inquiry found.
Baiada won approval a year ago to triple processing capacity at its Tamworth plant to 3 million birds a week.
Mr Rapa says in his letter that the company's decisions on Beresfield and whether to proceed with the $203 million Tamworth expansion are "not interdependent".
He says staff shortages, rising costs, lower sales and "very little relief on grain costs" are "further escalating problems in our business".
"As a consequence, the current state of play is that senior management and the board are looking closely at growing capacity requirements, and further rationalisation of operations is one of the options being considered to meet these challenges," he says.
The letter says the company's "distinct preference" is to avoid entering into new growing contracts.