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Allan Barber likes the Irish inclusive approach to industry strategy, which includes "impressive commercial and intellectual grunt", over MPI's silo approach

Rural News
Allan Barber likes the Irish inclusive approach to industry strategy, which includes "impressive commercial and intellectual grunt", over MPI's silo approach

By Allan Barber*

The Irish Department of Agriculture, Food and the Marine’s (DAFM) 10 year strategy report named Foodwise 2025 contains a lot of the same features as MPI’s ambition to double agricultural exports over a similar timeframe.

As an agricultural producer Ireland also has many of the same characteristics as New Zealand: a rural economy based heavily on grass-fed production and produce from the sea, a small domestic market and heavy reliance on exports, an expanding dairy herd and an ageing farmer profile. The agri-food industry contributes a greater proportion of export revenue than non agri-food production which is equally true of New Zealand.

Obviously there are differences, notably the impact of the EU common agricultural policy on Irish farm incomes, the destination of exports, the lower efficiency and smaller scale of farms, and the variation of production volumes.

The DAFM SWOT analysis shows comparable strengths in Ireland’s sustainable grass based production systems and animal health status, and opportunities from the global demand for nutritious food and protein, its clean green reputation and the potential for foreign direct investment. Perceived weaknesses and threats include price and exchange rate volatility, lack of private investment in R&D, scarcity of skilled people and access to finance.

In many ways a SWOT analysis of New Zealand agricultural prospects would look quite similar. One particular threat that was on neither country’s radar until recently, and therefore not mentioned in any of the planning documents, is BREXIT which as I write is front of mind now for many.

Even after the vote, I suspect the full impact will remain unclear for some time, particularly as the ‘Leavers’ won the day. However Ireland’s biggest markets for sheepmeat by far are the UK and broader EU, whereas New Zealand has the growing advantage of the counterbalancing Chinese market. Neither country actually knows what effect a vote to leave the EU will have on exports to the UK.

To me one of the most interesting aspects of the Foodwise 2025 report, presented to the Minister of Agriculture in July 2015, is the size and composition of the 2025 Agri-Food Strategy Committee which consisted of 36 members from agricultural organisations, the farming sector, business schools and the private sector. The secretariat was provided by DAFM as the lead agency, but the sheer weight of commercial and intellectual grunt was impressive.

It is worth asking the question whether New Zealand’s cause might be better served by combining resources in this way, instead of each organisation coming up with its own separate ideas on the best strategic direction. MPI is the lead government agency for the agricultural sector, but it is not clear to me that it necessarily succeeds in capturing the thoughts of each sector through the individual industry organisations representing producers, processors and exporters.

MPI’s strategic objectives contain good ideas such as for example ‘primary sector businesses use attributes of the New Zealand story to enhance their own story’, but the lack of a coherent brand strategy suggests this may be more wishful thinking than reality. I suspect MPI’s plan is viewed by the rest of the industry as a document aimed at satisfying the requirements of government ministers looking for sound bytes. It is not a plan which everybody has bought into, because the rest of the industry had no part in its preparation.

How much better to have convened a group of people from across the sector, including farming leaders, marketing people, retailers, exporters, and scientists, to formulate a strategic plan for the New Zealand agricultural brand.

So my challenge to the agricultural sector is not to let MPI speak for the sector or be captured by the government’s desire for good news, but to decide what agriculture actually needs to succeed and grow and how best to implement the strategy.


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*Allan Barber is a commentator on agribusiness, especially the meat industry, and lives in the Matakana Wine Country. He is chairman of the Warkworth A&P Show Committee. You can contact him by email at allan@barberstrategic.co.nz or read his blog here ». 

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19 Comments

The Ireland model can't work here.

The EU subsidises just about all aspects of agricultural production, and ensures a captive competition free market.

How is it even possible to replicate that here?

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The point I am making in my comparison with the Irish model has nothing to do with EU subsidies. It argues for a cohesive, pan industry approach to marketing New Zealand agricultural products to the world which is not what we ahve at the moment. It also argues that we should not let MPI lead the whole strategy formation process based on its numbers that seem to rely on extrapolations and exchange rate forecasts to give the outcome government ministers demand.

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There is a property of markets called nonstationarity—it is a game whose rules are constantly changing. Most people can figure out how to make money in one set of rules, but when the rules change, they are screwed.
Jared Dillian

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Russia encompasses one of only two soil belts in the world known as “Chernozem belts.” It runs from Southern Russia into Siberia across Kursk, Lipetsk, Tambov and Voronezh Oblasts. Chernozem, Russian for black soil, are black-colored soils with a high percentage of humus, phosphoric acids, phosphorus and ammonia. Chernozem is very fertile soil producing a high agricultural yield. The Russian Chernozem belt stretches from Siberia and southern Russia into northeast Ukraine, on to the Balkans along the Danube .

This past harvest year, Russia surpassed the United States to become the biggest exporter of wheat — a milestone.Russia today also permits foreign leasing of agriculture land. The government is in discussion with Asian food groups in China and Thailand to help invest and modernize key sectors such as dairy production. The Russian Direct Investment Fund (RDIF) has a $2 billion fund with China to invest in agricultural projects. They also recently formed a joint venture with Thailand’s CP Group to build Russia’s largest integrated dairy complex. It’s also working with Egypt to create an export hub for Russian grain on the Suez Canal.

Notable is the fact that many of Russia’s oligarchs, rather than take their riches out of the country to invest in London real estate or football clubs or other projects that do nothing to build Russia’s economy, are now investing big sums into Russia’s agriculture. Tax and other incentives that the Government has put in place are making agriculture investment in Russia hugely profitable for these Russians. Yevgenia Tyurikova, the head of private banking at state-run Sberbank, Russia’s largest, recently told Bloomberg, “The two hottest investments for rich Russians are farmland and European hotels. This trend is absolutely new.”

The month that Putin declared the 2020 food self-sufficiency goal in December last year, one such oligarch, Vladimir Evtushenkov, through his holding, AFK Sistema, bought the huge Yuzhny Agricultural Complex, with greenhouses the size of 2,300 football fields between the Black and Caspian seas. The plants, mainly tomatoes and cucumbers, get pure clean water from melting ice from nearby Mount Elbrus. They are grown by the millions and mostly trucked to Moscow, an 18 hour journey. Sistema spent about 9 billion rubles on agricultural expansion last year, and is now looking to buy more land to become one of Russia’s top five milk producers.

Ros Agro Plc, a sugar and meat producer, owned by billionaire Vadim Moshkovich, got 3 billion rubles ($46 million) in state support. Under the Government incentive program to encourage investment, the company paid zero tax on profits, helping to boost its net earnings margin to 33 percent, larger even than Lukoil. Other oligarchs turning in a major way to building a modern, organic and profitable agriculture sector include Phosagro OJSC fertilizer tycoon Andrey Guryev, real estate magnate Samvel Karapetyan, United Co., Rusal chief Oleg Deripaska.

The next stage in increasing the Russian food self-sufficiency is to bring an estimated 40 million hectares of idle agriculture lands, much of it abandoned during the collapse of the economy in the Yeltsin 1990’s. That’s idle land about the size of Iraq. Putin has urged the state to consider giving some of it away to create more farmers, the opposite of Stalin’s disastrous collectivization. The land give away began this month in the Far East.

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You really know how to depress a farmer Aj.

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Sorry about that Belle. I still think it's about the quality of assets backing the loan. It's like Heartland or farmlands lending to dairy farmers for livestock and using the livestock as security. All good as you know the value of a cow and it's easy to see if heartland/farmlands are liquid or not.
But further up the ladder it's harder to tell. Is ANZ up to it's eye balls in China, would a %30 drop in house values destroy all its equity? Has BNZ got mountains of non performing dairy debt, I don't know and if I don't know and cannot tell, I'm not that keen to lend them money.
Take that to Europe and it's a monster, is Italy good for it's 2 trillion euros of government debt debt? Would you lend to a bank if you didn't know the quality of its assets?

http://www.statista.com/statistics/269684/national-debt-in-eu-countries…

Euro Zone debt web
http://www.bbc.co.uk/news/business-15748696

It's like when you have lots of cattle and it's end of spring and the o/d is pushing it's limits the bank manager has already rung once, and the works price is ok, so you start unloading sooner than you want but oh the relief when the cheques appear in the account. Well when we have lots of debt I think we all get a little nervous, now there is tonnes of debt out there the world is a nervous place and any 'event', makes you want to sell a few to reduce your exposure. I mean how low could price go, and those night sweats you have started getting are not fun?

http://www.thebeefsite.com/news/49846/concerns-over-new-zealands-meat-e…

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This comment in todays FT
What is being realized in France and Germany is that they are holding the bag for the huge, hidden EZ losses. Yes, the UK was never in the EZ but as a member of the EU they were in line to get their share of the losses. Now the UK is safe from those losses.

$2 Tril is small potatoes. When the world realizes how huge the losses are that are being hidden in the EZ (primarily by the ECB), there will be real losses. Get ready for the 4th Greek bailout coming later this year. That ought to push the loss from Greece alone above $1 Tril........and this won't be a market fluctuation. Furthermore the EZ losses are going to be concentrated in the EU/EZ and not around the world.

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The evolution in banking and, particularly, central banking changed the character of the eurodollar markets into a financial conduit for “money printing.” Aided by policy and the ageless desire of banks to ruthlessly expand without limitation, dollars were being created, traded and derived via banks everywhere. This was thought to be an immense privilege of the reserve currency, but in reality it was central bank-aided and condoned debasement and disaster. It was not a privilege at all, but rather a full abdication of responsibility. If you want to know where the asset bubbles came from, look no further.
http://www.alhambrapartners.com/2013/11/15/understanding-eurodollars-pa…

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if you are a farmer think about how unrealisic the target of doubling exports by 2025 is.

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Actually it has been done on a number of recent occassions. From 1991 to 2001, from 2000 to 2010, and from 2004 to 2014 were all decades in which the value of our primary exports doubled. So history shows it is quite achievable.

Your problem with it is probably because you are thinking about volumes. But the goal is stated in value terms. The goal needs improved $ returns for the volumes sold. That will energise output. You are thinking "pasture-to-plate" where farmers expect the world to buy what you produce. You need to turn that around and think "plate-to-pasture" and deliver what consumers want. It is this transition that can make the goal quite realistic.

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So, what your saying is we need to double the value of existing volumes? Isn't that just doubling the cost to the end user, the consumer? What's the strategy when the consumer can't/wont pay that price? The consumer wants nutritious food at an affordable price.

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As a simple example, cheese returns +40% more than WMP. Cervena returns 100% more than carcass. Restaurant beef cuts return more than 100% more than hamburger mince.

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So we are not talking about real increases in production (inflation adjusted). Are we just hoping for inflation in the next ten years or can we be realistic about finding a way to market meat or milk for example to get consumers to pay twice as much for it?

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No. We are talking about real increases in the value of production (inflation adjusted). That in turn will probably result in rising volumes. Price signals are powerful like that.

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I don't think thats going to happen, to many farmers have an eye or sometimes both on the rear vision mirror.
Marginal cost analysis is finally starting to take hold in the dairy industry. Sheep farming is at an interesting junction where many of my farming friends, after hanging in for years are now moving to more intensive bull beef operations. For myself it's very much cost management, as my costs have grown and grown to be a really big deal.
Unless we get back to small niche producers that can grow as they understand the markets better ,I don't see a great future. I don't see a corporate solution to niche marketing. I also at present don't see a growing wealthy middle class, except in parts of Asia and I see that wealth as at risk from a lot of directions, not least the Eurodollar creation mechanism.

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I think the part of the equation that is required is rising demand for agricultural products. That will depend on the world economy, which is largely out of our control.

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We don't have to be fatalistic. Or rely on the scraps from ever rising demand. We could target existing markets with better products. Then it comes within our control. We just need to understand what they want, and provide it. Different mindset.

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David, the trouble is those wealthy markets are also very indebted. Yes we have increased value but in the sheep industry it followed a huge drop in numbers ,over half by now. Yet sheep numbers continue to fall, debts continue to climb and we continue to push up against rising costs.
As I have said, the best market has been bull beef, a product with no added value, although Costco are talking grass feed along with Australia, Argentina, Mexico, Brazil, a lot of who's product is feed pads but then we are no longer clean in that regard. That Cheese market is saturated
>>

Indeed, inventories of cheese in cold storage rose
to 1.25 billion pounds at the end of May, the
highest volume since USDA began keeping records
in 1917.
http://www.milkproducerscouncil.org/updates/062416.pdf

SMP: Stocks EU and USA

http://www.clal.it/en/?section=magazzino_smp

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