The challenge has been to secure a greater percentage of that retail price for farmers, something New Zealand hasn't been achievingIndustry meeting the challenge> Continued Page 28THE failed merger of meat companies may have left a legacy stretching further than its architects and advocates ever imagined.
Farmers appear to have finally realised they own the two key industry players, the co-operatives PPCS and Alliance Group, and the message was clear that it was no longer business as usual.
The meat industry as we have known it was changing.
New Zealand was no longer the United Kingdom's supplier of out-of-season lamb roasts.
In fact, exporters are looking for new markets in the Middle East and Asia to reduce their reliance on Europe.
Throughout the world, lamb was recognised as a high value, healthy and nutritious protein and consumption was growing at a time when supply was falling.
With just 4% of the world's sheep flock, lamb from New Zealand's clean and green pastures was seen as niche product.
But, the days of the traditional lamb supply season of November to May were over.
Consumers in the growth markets of Europe, North America, the Middle East and Asia want New Zealand lamb all year round.
PPCS chief executive Keith Cooper said that meant supplying consumers with product they wanted when they wanted it and that required a partnership between farmers, processors and retailers, linking the paddock with the plate.
The challenge has been to secure a greater percentage of that retail price for farmers, something New Zealand hasn't been achieving.
It has been said that New Zealand has 75% of global cross-border trade in sheep meat, but Mr Cooper said that was meaningless.
Of more relevance was what was available within a market block.
New Zealand has 2% of the African sheep meat market, 12% of the Americas, 2% of Asia and 16% of Europe. It has a 5.5% share of all traded sheep meat.
While debate has raged about creating a Fonterra-type entity, it is the market, not the structure, that dictates price.
There was a view that meat companies had been too slow to shift from supplying the traditional lamb roast to more consumer-friendly products. That view appears to be changing.
PPCS, in particular, has said it no longer wants to be governed by the need to keep its plants full, but rather by what markets need.
Former Alliance chairman John Turner said recently that a degree of sophistication was entering New Zealand's red meat supply chains as each stage along that chain became reliant on the other.
Companies, including PPCS and Alliance, were looking for new markets and new products, which put new demands on farmers, including the need for a year-round supply of lamb.
Some in the industry consider the industry's Achilles heel to be the relationship between meat companies and farmers, rather than the more commonly-held view of the companies' inability to work together.
But first, meat companies hope to see an end to the Sunday night Dutch auctions by farmers negotiating the best price for their lamb with companies which until recently had been driven by plant throughput needs.
They want farmers to commit to long-term supply contracts with premiums paid for stock that meet quality criteria and which encourage year-round supply.
Traditionally, along the supply chain there has been uncertainty as to the customer.
"For the long-term viability of the industry and to capture the opportunities in the market, this must change towards a partnership to work together over the long term with a common purpose," Mr Turner said last year.
Both PPCS and Alliance, rather unfairly considered the dinosaurs of the industry, have initiated change, realising consumers no longer wanted 1kg and 2kg frozen chunks of lamb.
The UK housewife's Sunday roast is being replaced by 300g-400g packs of ready-to-cook meat with recipes, to cater for the growing number of consumers who buy their groceries on the way home from work and make decisions in seconds.
PPCS is taking it a step further by identifying suppliers on the pack, which consumers can trace back electronically to the meat's source and ultimately the conditions in which the lamb was raised.
On Tuesday, PPCS will also be rebranded Silver Fern Farms to try to capture New Zealand values of purity, taste and quality, while also differentiating itself from other suppliers.
Mr Cooper said that to most consumers, the names of manufacturing companies were meaningless letters of the alphabet - PPCS, Anzco and Affco.
To get the product it needs, Alliance and PPCS want to work closer with farmers to help them select the sheep genetics so the most profitable and suitable lambs are supplied.
Alliance has been part of a long-term progeny trial to identify the ideal sires within breeds and farmers are given information on the market suitability of every lamb they supply, information which tells them the appropriateness of the genetics they use.
The Invercargill co-operative has also led the way with yield payment, rewarding farmers supply stock that meet criteria with above-schedule payments.
PPCS is following with its own yield-measuring technology, while it has also developed and introduced new carcass-cutting equipment which has staffing and meat-yield benefits.
In recent shareholder meetings, Mr Cooper has said PPCS would introduce more forward-supply agreements including for out-of-season lambs, long-range pricing, commitment incentives, markets matched to supply, supply-chain management and more certainty.
In short, PPCS sought greater commitment from its suppliers in return for more certainty of price and, ultimately, higher prices for supplying the right type of lamb for the right market at the right time.
Farmers who do not commit lamb could find it difficult to get rid of ewes when required.
Changes, such as winter supply of lambs, would have a significant impact on farm.
According to some reports, PPCS wanted up to 20% of farmers' annual lamb crop supplied over winter.
In the south, that would mean running fewer ewes so lambs could be fed over winter, and growing special crops.
PPCS chairman Eion Garden urged farmers to think outside the square and to adopt new technology when considering how to keep lambs over winter.
Traditionally, a role of co-operatives has been to process shareholders' stock when it was ready, but commercial reality means that could be changing as companies operate fewer plants, longer.
PPCS is thinking differently, airing the possibility of taking its intellectual property and skills offshore in joint ventures or acquisitions in a similar way Fonterra has, or entering joint ventures to secure better prices for by-products.
Meat companies are optimistic - verging on buoyant - about the future of lamb.
The key to their future and those of their shareholders was ensuring that optimism turns in to enough cold hard cash to stop the flood of sheep and beef farm conversions to dairying.
