Gains conservatively estimated at $360 million over five
years have been identified from the first phase of a
two-phase strategy aimed at making the red-meat sector more
profitable and sustainable.
An author of the red-meat sector strategy, Alasdair MacLeod,
of Deloitte, told about 100 farmers and sector participants
in Gore yesterday his research showed immediate change was
needed to reverse declining profits and confidence.
"For this first phase, we need changes implemented now," Mr
MacLeod said.
Phase one of the strategy identified three areas of
beneficial change: exporters competing for market share;
animal procurement systems which gave farmers accurate market
signals and removed stock agents and third-party traders; and
farmers adopting best-practice management.
The estimated $360 million gain was in today's dollars, based
on earnings before interest and tax (ebit) and would be
spread over the whole sector.
The sector needed to determine if something was adding value,
he said.
Stock agents and third-party traders, who bought stock from
farmers, consolidated numbers and on-sold to meat works,
added cost without adding value.
"They are not an integral part of the business and there is
no way I can find how they add value to the sector that
exceeds their cost," Mr MacLeod said.
The audience was in almost total agreement over the need for
change, and there was much discussion about the merits of
Deloitte's suggestions and the cost and failings of the
current system.
One farmer commented there was a certain irony to the
discussion on procurement, given in the South farmers owned
the two largest meat processors, co-operatives Alliance Group
and Silver Fern Farms.
Mr MacLeod said the New Zealand red-meat sector could no
longer compete for markets based on price alone.
New Zealand would never be a low-cost producer of protein and
fighting for market share based on cost was not a sustainable
strategy, he said.
Instead, exporters needed to find ways to collaborate which
would deliver price premiums or higher margins, he said.
Deloitte had devised a similar strategy for the horticulture
industry.
In one case, 69 exporters were selling a single product.
However, those exporters had since found ways to collaborate
to achieve scale, increase returns and become sustainable.
Farmers also had to accept the current system where
processors competed for supply and market share had to end,
Mr MacLeod said.
Farmers had benefited from fierce competition for livestock,
but this was not sustainable, he said, a view many farmers in
the meeting supported.
"If we can't sort out the procurement piece and the need to
get an alignment in behaviour in-market, it is going to be
hard work," Mr MacLeod said.
His research showed processors wanted certainty of supply and
farmers wanted leadership, but procurement competition
prevented those issues being addressed.
Technology was already available to lift the performance of
farmers whose performance was below the top 20%, and no more
needed to be spent on new research and development for them
to benefit, Mr MacLeod said.
Farmers needed to make better use of discussion groups, learn
from top performers, pilot new technology and use
benchmarking, he said.
His survey group had interviewed 100 people, about half of
them farmers, and he said he was disappointed many were
discouraged despite the red-meat sector being economically a
crucial industry and its improvement in productivity on a par
with dairying.
Dairying had done a much better job of projecting a positive
image, he said.
The answer to reversing the fortunes of the red-meat sector
was to embrace change, he said, and he believed there was an
appetite for such change right across the sector, as
evidenced by the co-operation his group had had.
The second phase of the study will look at areas such as the
development of new products
Phase 1
Expected annual savings from first phase of meat industry
strategy:
• $80 to $100 million in year 1 by shortening the supply
chain by removing stock agents and third-party traders.
• $80 to $85 million in year 3 from exporter co-operation in
markets and processing automation.
• $130 to $170 million in year 5 from improved market access
and farm productivity, reduced compliance costs and market
co-ordination.
Report prepared for Beef and Lamb NZ, Meat Industry
Association, Ministry of Agriculture and Forestry and
Ministry Foreign Affairs and Trade. Source: Deloitte.
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