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Luxton Speech - ‘In Search Of A Flying Pig’


‘In Search Of A Flying Pig’

New Zealand Pork Industry Board Industry Conference Old Town Hall Complex, Wellington 28 July 1999 (check against delivery)

Chairman, board members, farmers, ladies, gentlemen...

New Zealand agriculture is at a critical turning point. In the past fortnight Parliament at the request of the Apple and Pear, Kiwifruit and Dairy industries has sent three hugely significant industry restructuring bills to a Select Committee.

Each of these industries has charted a path to the future and they have each decided on a new structure to deal with the changing market circumstances they anticipate for their industry in the 21st century. Each industry is looking to improve viability with innovative marketing plans, new quality control systems, new investment and innovation.

But what has this got to do with pork I am sure you are wondering? The answer, is everything.

Today I want to talk about the fresh thinking that has been applied across the spectrum of New Zealand agriculture over the past decade and then pose a question to you - one which I am sure you are asking yourselves anyway today.

Is there a better way? Is there a way to reverse the decline in the earnings of pork producers and other agricultural producers?

I for one am sure there is.

Producer Board reform is a key element in the Government's strategy to address these challenges. As we move into the 21st century it is increasingly clear that old industry structures are not always appropriate to changing circumstances.

We need to constantly reassess them.

Our task in Government is to promote a local competitive environment, excellence in exporting, and foster trade reform. The fundamentals of the New Zealand economy are very sound and set for the future.

Agriculture will long remain the underpinning of the New Zealand economy In order to succeed New Zealand needs to sell higher value products into high value markets. Our strategy is a natural consequence of this.

The producer board reform process is therefore all about delivering quality durable solutions to industries to assist them in their transition to a new, more competitive, international market undergoing rapid change.

It is an unfortunate fact that the New Zealand Pork Industry is arguably sharing the company of wool at present in the stakes for the least profitable sector of New Zealand farming today.

In the past 15 years since large-scale reform of the primary sector and the wider economy began under the then Labour Government, the New Zealand pig kill has fallen by 75,800 pigs (from 851,500 to 775,681) or 9%. In the same period per capita pork consumption has risen a credible 2.3kg per head or 16%, which is a significant increase and against the trend for red meats. Imports of pork products have increased by 100,000 tonnes.

In 1984 New Zealand pork producers provided 98.3% of domestic consumption. Last year it was 79.3%.

These figures only tell part of the story though. In Europe last year pig prices fell 25-40% as soaring output collided with a collapse in Russian and Asian export markets. Prices in North America are also at an all time low.

The impact of this can now be seen on New Zealand supermarket shelves, bacon priced at $10 a kilo - and sometimes less. As bacon-lovers pile three rashers on their plate in the morning, pig farmers are driven to despair.

Elsewhere in the meat industry, the complaint is that low pork and poultry prices are threatening others in the sector.

Recently in the domestic market red-meat has been achieving some gains in consumption as a result of its Qualitymark and Iron campaigns, nevertheless from a consumer's point of view, comparative price advantage is a difficult problem for food producers to compete against.

So what does this mean for you - New Zealand's pork producers?

Essentially there are two paths you can take at this point.

You could take the approach of continuing to try and force down the price of production which is becoming more difficult.

And at the same time you can - as you are doing - seek protection against subsidised imports and thereby try to improve domestic prices.

The problem with this as I am sure you are well aware, is that ultimately it is a game of diminishing returns. Frankly I agree with you that the Australian and Canadian pork imports are subsidised and unfair, although I'm not sure how much such subsidies actually alter the reality of a world surplus of pork.

The long-term outcome of any attempt to gain protection against imports will always be uncertain.

The only things you can be certain of is that it will cost you a large amount of money and will take a painfully long time

And if some barrier is finally achieved will it be a cause for celebration? Assuming you have a good season or two, how long will it take for the commodity trap to pull you back in?

Another possibility might be to try and encourage the New Zealand Government to play a similar game to that played by the Canadians and Australians. But would you really want us to make cash grants to pork abattoirs for capital works, as the Australians have done?

Realistically this is not a politically viable option. I should imagine the red-meat industry might also be keen to receive transitional assistance in the form of capital grants for works improvements. So would the dairy industry. Apples too.

So what is the alternative? Well for a start it is not one founded on despair which is essentially the only destination the, "its not fair", argument will in the long-term take the industry.

I would like to begin answering this question with an illustrative example. In the early 1980s the New Zealand wine industry was in a similar position to that which the pork industry now finds itself in.

Back then New Zealand wine makers were commodity producers making cheap wine for the domestic market.

Tariffs and other barriers meant there was no cheap foreign wine available.

There was money to be made for New Zealand wine makers at the bottom end of the market, where there was no competition.

Why compete at the top end of the market with the French and Australians if you have the bottom end of the domestic market tied up?

When the Government opened up the market, many of the smaller vineyards couldn't match the economies of scale of the large foreign producers.

They faced a difficult choice.

Try to compete at the top end of the market or go out of business.

Well, they didn't want to go out of business. So they competed and they won.

We now produce some of the best wines in the world - the best for some varieties and the wine industry's export earnings are forecast to rise from $117 million last year to $275 million in the next five years.

But wine is nothing like pork you reply. But is it really so different?

Think about it from the consumer's point of view. A kilo of bacon costs the same as a cheap bottle of wine. Both are roughly the same size and both are sold in a supermarket.

In terms of the present construction of the pork industry I would have to agree with you that there are serious challenges to be faced before New Zealand pork stands much of a chance of becoming an export earner. At present, for example, there is almost no industry experience in differential branding.

The Pork Industry Board says that it considers that generic marketing is the most cost-efficient approach it can take to enhancing grower returns.

That is not an assumption I am inclined to agree with. One of the problems with this approach, is that the promotions paid for by you, ends up delivering the same benefits for imported pork, as it does for the local product.

Another and possibly more significant problem is that it sets up in the consumer's mind the idea that all pork products are the same.

With respect, if this is the approach you take as an industry, then you are destined to remain in the commodity trap. If you do not encourage consumers to believe that there is a reason to pay for quality then you cannot expect to be able to extract a premium. And if you can't extract a premium, and can't reduce production costs you are kind of stuck.

Recently the pig industry has been the target of an animal welfare campaign.

Now I have no desire to take sides in this debate save to make the following observation. If I as a bacon consumer feel strongly about this issue but still want to eat bacon, what can I do? What are my choices?

Can I knowingly buy free-range bacon in my supermarket? The short answer is no. Consequently my only choice is either to give up bacon altogether, or try to ignore my concerns at the treatment of pigs. From my perspective as a consumer, neither option is particularly satisfactory.

The second half of the 20th Century has seen the rise of consumerism. At the dawn of a new millennium consumerism is an expanding, exploding phenomena.

The BSE scare in Europe - growing concerns over genetic modification of food - the explosion in the number of Asian restaurants - all these things are part of a global trend towards consumers becoming more interested in what they eat.

For an industry such as the pork industry this potentially provides an opportunity. The costs of pork production have been driven down in recent years all around the world by roughly equivalent production methods.

Now I am not saying that it will be easy - nor am I suggesting that free-range pork is the answer, because there are many correct answers - rather my message is simply that the answer to the pork industry's woes will only come through looking outside the square and from a preparedness to change.

I know your industry can and is adapting and becoming increasingly internationally competitive despite feed prices. The key is to focus on the opportunities and to aim high. Remember if you can aim for the moon you may just catch a passing flying pig.

On that note - hopefully of optimism - I would like to conclude by saying that it is my pleasure to be here at your annual conference today - I gather you have a fair amount to talk about.


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