To be or not to be questions for red meat
3 July 2013
To be or not to be questions for red meat
Speech by Jeanette Maxwell, Federated Farmers Meat & Fibre chairperson, to the 2013 Meat & Fibre Annual General Meeting, Ashburton
In writing my address to you today, where we will be discussing the biggest change red meat has faced for a generation, the first four lines from Shakespeare’s Hamlet come to mind. Especially since there seems to be something rotten in the state of our red-meat industry.
“To be, or not to be, that is the
Whether 'tis Nobler in the mind to suffer
The Slings and Arrows of outrageous Fortune,
Or to take Arms against a Sea of troubles...”
Right there I seem to have exhausted my knowledge of Shakespeare!
Suffice to say Hamlet was a tragedy, which is not what we want for New Zealand’s red meat sector. Yet those lines pretty much sum up the position we are in. Do we leave things to chance, or do we do something about it?
Frankly, I’d rather be damned for doing. So I am going to outline my manifesto that will be added to by others on the trade, industry and Meat Industry Excellence fronts.
Setting the stage for reform
As late as October 2004, exports of meat, hides and wool still outpointed dairy and casein. In percentage terms, back then, meat generated 93 percent of dairy’s export value with wool being 12.5 percent. Step forward to last October and the relativity of meat to dairy was 45 percent with wool down to 5.8 percent. Exports of meat, hides and wool are now about half of dairying’s total exports.
So let me start my shopping list; ‘‘Long term sustainable returns, better working relationships within the supply chain, better and greater commitment from all parties involved, unity, consolidation, greater communication and understanding, a sustainable culture, a sustainable industry, a different model, less bricks and mortar, more offshore opportunities, owning processing off shore and greater relationships within the Pacific, Asia and Australia?”
Big isn’t it? There are many options as to what might be the right fit for our red meat industry. So we need to identify the “prize” the size of the “prize” and how we are going to get there.
This is a journey that we all need to participate in; not just for some.
Some organisations can and will play a greater role than others, while some will be able to offer support and expertise. The main thing is that all the group’s work together to achieve the “prize”.
So we know that change needs to occur but it must come on more than one front and I mean the domestic side where almost all of the attention is focused. To be a sheep farmer you need lots of optimism and plenty of patience. You need super budgeting skills and a friendly bank manager who understands sheep farming. It is time and tide stuff for the sheep sector.
Strategies for reform
In 2008 Federated Farmers set up T150 as an aspirational target of $150 for a mid-season lamb within five years. The year it started was arguably the worst ever for our sector. Yet economists thought T150 was achievable and the 2011/12 season looked like we were on the final approach.
From the standpoint of today we have missed by a wide margin. This in itself is not a bad thing because a behavioural issue with farmers is that we tend to overlook the need for change when things look up.
T150 helped to remind us where we need to be and the timescale we have missed.
Where is change
The funny thing about looking at Australia and New Zealand is that we are mirror images of one another. Their dairy industry resembles our meat industry; fragmented and dominated by price takers. Their meat industry is more akin to our dairy industry, internationally focussed and in our eyes at least, successful.
Change is needed everywhere in our industry. From on-farm behaviour to throughout the supply chain and into our market places.
Farmers need to work with the environment around them so that we can produce not only a very cost effective animal for processing, but one tailored to what the markets are telling us they want. We know that tariffs and protectionism is costing each and every one of us $19,000 a year in lost income. The trade agenda is absolutely vital as the United States-South Korea Free Trade Agreement shows us to our cost.
We have a new Special Agriculture Trade Envoy, Mike Petersen. Trade access is a huge priority.
We can also become more efficient on-farm but at the same time, we need to also manage the environment. Efficiency gains should be in real returns and not just about holding our positions with the banks.
Our processors want certainty of supply and they would love farmers to supply product all-year round. Right there is an opportunity for farmers to work closer together to help connect the supply with processors and ultimately our markets. Yet it is the processors help we need to connect these dots by sending market signals.
So should Tradable Slaughter Rights be in the mix? That is something we need to discuss as Federated Farmers and as farmers.
real lessons from Fonterra
My feeling is that we look too enviously at Fonterra and forget it was the end of a long round of mergers and acquisitions. Fonterra did not just happen and when it did, it needed special pro-competitor legislation as a trade-off.
In many respects we are too inward looking. Much of the reform emphasis is aimed fair and square at the production side. MIE has some interesting thoughts on splitting the marketing and distribution from the means of processing. That deserves a fair hearing.
When we look at Fonterra we also forget it is as much a marketing, logistics and distribution company, as it is a processor of dairy products.
There is also innovation happening at the processing end; the advent of robotics and autonomy could be revolutionary. The shame is that this innovation and value-add is being lost at the “other” end. That end being in-market.
There are two practical examples of what I mean and both are Kiwi operations in the United States. Exhibit A is Fonterra in North America. At Fieldays, Minister Tim Groser said “the real winners from comprehensive liberalisation in TPP in dairy will be the US industry, not New Zealand, simply because our dairy production base is far too small to seize the opportunities. This is happening already. Some 60 percent of the increase in demand for milk protein in recent years has gone to the US dairy industry, compared with 12 percent for New Zealand. Today, some 14 percent of all US milk is exported”.
Seemingly bad, bad news for Fonterra but who has become the largest exporter of US milk products? Fonterra. Why? Knowledge Based Capital. Fonterra’s marketing and distribution channels make it the world’s largest milk exporting company. The dependency Fonterra has on New Zealand milk supply is falling as it builds a global milk supply base. Fonterra is also fully integrated into Nestlé’s supply chain.
My other example is one we’ll all know and that is the one that for over 40 years, has supplied the USA and Canada with Kiwi lamb; the New Zealand Lamb Cooperative. It is owned by a consortium made up of Alliance Group, Silver Fern Farms and ANZCO (CMP); three fierce competitors proving they can work together.
It is fair to say the New Zealand Lamb Cooperative website looks like it is 1995. Unlike Fonterra with milk, the lamb company has not seemingly moved to capitalise upon US lamb production to develop Knowledge Based Capital. Yet what it does show is the ability for foes to work together in common interest.
Knowledge Based Capital meets the need for
As exports the recent slide of the Kiwi dollar has been a huge relief. Yet the dollar’s strength is a double-edged sword.
Strategically, the world’s collective economic insanity since the 1920’s has never made it a better time to buy strategic assets offshore. Last year, Craig Hickson, Federated Farmers 2012 Agribusiness Person of the Year, purchased the Welsh processor, Cig Calon Cymru.
In May, we saw China's Shuanghui International move to buy the world's No. 1 producer of pork, Smithfield Foods, for US$4.7 billion. Now reports suggest Sara Lee’s meat business may be split off.
Yet the model must be Brazil’s JBS; the largest multinational food processor on earth for beef, chicken and pork but not lamb. The company has 150 plants around the world including South America, Australia and the USA and from these, they export to 110 countries.
It also has a market capitalisation of US$11 billion. This is the rub. Our focus has not been Fonterra’s Knowledge Based Capital and our balance sheets are so dire that if anything, it could be the Brazilians or the Chinese who may be looking to acquire assets here.
Yet there is opportunity out there.
If you are looking for ‘big ideas,’ for a price in the same ballpark as an inner city rail loop and a harbour crossing in Auckland, we could move on Sara Lee Meats, which when combined with our lamb exports, could put the world’s largest meat company under Kiwi control. This is a radical call for the SuperFund, KiwiSaver Funds and venture capital to look at global meat opportunities like Brazil’s JBS has.
Less radical, but just as important is to develop a Global Meat Trade platform in conjunction with the Australia meat industry. Fonterra’s platform provides a model template.
Without overseas assets it is hard for us to ‘meat’ the market. We lack control of our exported product logistically and are failing to get maximum in-market value no matter how efficient the domestic side becomes.
We need in-market assets to reap maximum value for our products.
So who is going to responsible for
For real change, whatever this is, it needs to happen with all parties involved.
Meat processors have to want to change the way they do business and farmers will have to communicate with companies and support those that align with their philosophies. If farmers want change the only way they can influence change is by who they supply. If processors want better co-ordination in supply they need to engage with farmers. A Mexican stand-off or one pushing another will not work.
I would seriously like to see change for the better far sooner than later.
There could be a role for the New Zealand Super Fund and KiwiSaver funds as I said; these are building huge nest eggs. We used to talk about developing a local Nokia but given its slide from grace we could buy Nokia but who would want to? Food is the big opportunity and investment opportunity.
Minister Groser sees big things in the processed food sector which, in the ten years to 2011, saw compound average growth annual growth rates of 15 percent. With nutraceuticals and innovative food types we are seeing a blurring of what we believe to be food as nutrition and food as health he told us. This is huge in Chinese and many Asian cultures and our extraordinary natural resource base is only partially tapped.
Red meat is very much a crouching dragon.
When do we want these changes to
We all feel that change should have happened years ago but for all the talk and all the strategies the reform driver may be those million plus missing lambs due to drought and poor conditions during mating.
Simply put there will be too many chains chasing too few lambs and something will have to give. That point will come in spring when we find out the true damage of this drought as farmers try to rebuild flocks. Worse, the loss of capital stock may see the overall national flock fall yet again as we go about in ever decreasing circles.
Farmers should not have to wear the brunt of change, we produce the product needed for processing to continue. We are all businesses and we will have to do what it takes to survive.
We know the elephant in the room is structure and the costs associated with this but it is only one part to be addressed. More importantly we have two choices; become a vibrant booming industry again or resize yet again.
We need to see the start of the “new” very soon. We needed to start moving in this direction yesterday. It will take time but everyone needs to be engaged and moving forward.
Federated Farmers will be taking further steps towards looking at the red meat sector and what could or could not work. We will continue to work with those parties who share the same views and this includes the Maori Red Meat Sector.
On another front we need to keep the home fires burning as regional councils try to line up farmers in terms of “rules” for the supposed greater good. The age of compliance farming has almost dawned on us.
We, as sheep and beef farmers, need to understand what we are in for in terms of nutrient budgets and management plans. Farming systems are being pitted against one another and so we must work hard with our fellow pastoral farmers to remain viable right here at home. The sheep and beef farming systems have great stories to tell and it’s time we yelled it louder and harder to get our voice heard.
The days ahead
During the next day and a half this council has a great opportunity to listen, discuss and participate in the discussions around the meat industry. I ask that you really take the opportunity to ask meaningful questions and think about what is being said and what your role might be in driving for change.
Also, during this time, the arable and dairy industry groups are here for their own council meetings. Talk to these group members about the red meat sector, how they engage and what these two groups would like from the meat processing industry. They are a very much part of the equation for change too.
So in conclusion…
Year on year as farmers we are told a variety of reasons for why things are the way they are. Every few years or so there are grumps and groans and at times attempts to change the industry. All too often the price of lamb lifts just enough for farmers to settle down and stop looking at the longer term picture for why we need to change.
Has the red meat sector as a whole hit the wall hard enough for real long term change or we are all still too apathetic to really want and push for change? We are dollar driven as a business and as behaviour and Federated Farmers along with other organisations will be working for our industry, this is the best chance we will ever have of securing real change which farmers can exert influence over. Take it.