By Allan Barber
Silver Fern Farms CEO Keith Cooper’s decision to resign his directorship of Beef & Lamb New Zealand has obviously come out of the blue, if Chairman Mike Petersen’s reaction is anything to go by.
But it seems Cooper has been questioning the relationship between processors and the farmer elected body, particularly since its call for the reintroduction of the national carcase classification scheme, although there are signs that he also objects to projects subsidised by B&LNZ competing with SFF’s investment in the FarmIQ Primary Growth Partnership programme.
Meat industry politics are never easy because it’s very rare for both farmer and processor to find each other on the winning side at the same time – either the farmer has grass and is able to hold back supply to put weight on, in which case the procurement battle pushes prices up, or peak kills from lack of feed mean the meat companies can force the price down.
During procurement battles, processors tend to blame each other for paying too much, while the supplier smiles and thinks the market is working for him; when stock is plentiful, farmers curse the meat companies and accuse them of taking advantage of their suppliers and of discounting their overseas selling prices to shift inventory.
Very occasionally, as has been the case for the last 18 months or so, international market prices have been at historically high levels and meat processors have been able to make a decent margin as well as keep their suppliers happy. So peace had broken out, as demonstrated by the agreement between B&LNZ and the Meat Industry Association members (all the processors and exporters) to work together to commission the preparation and implementation of the Red Meat Sector Strategy.
While I am sure the respective Chairmen, Mike Petersen and Bill Falconer, remain committed to the strategic goals of the Strategy – procurement alignment, sector best practice and in market coordination – it’s still worth remembering what Falconer stated at the Red Meat Sector Conference in Rotorua last September: that it wasn’t up to the coordination group, chaired by the two industry bodies’ chairmen, to implement the strategy, but farmers and processors.
The coordination group would work to maintain focus on the strategic goals and push for implementation of the actions necessary to achieve them.
Cooper’s frustration suggests that he has found being an industry representative on B&LNZ’s board has compromised his freedom to speak out about things he doesn’t agree with - in particular the slow progress towards the promised land where farmers commit to a contractual procurement programme, like that envisaged in FarmIQ, where suppliers will be provided with breeding and animal husbandry assistance, performance feedback, and ultimately product matched to and rewarded for market requirements.
Although the publicity surrounding FarmIQ’s uptake has been positive, things have gone quiet in recent months.
This may be seasonal, but livestock competition has been very strong as a result of slaughter numbers, especially in the North Island, lagging well behind last year because of plentiful feed everywhere except the far south.
SFF has been competing vigorously for livestock, until two weeks ago when they dropped the price sharply.
This coincided with a note to suppliers providing a market summary which combined with the exchange rate impact concluded that farm gate values would track down – lamb would be down by another 10% closer to $6 per kg or $108 for an 18 kg lamb compared with about $6.70 at present and $7.30 a month ago, while beef, already down by 50 cents per kg from its peak, could well shed a further 60 cents.
These falls would equate to about $23 per lamb and $310 for a steer or bull, not disastrous, but hard to accept when you have been used to the higher levels, especially if the store or replacement market hasn’t yet reflected the changes.
My conclusion is that, although a number of farmers will be prepared to commit themselves to a contractual arrangement which attempts to get away from the traditional spot market, progress on this will be slow, to the extent that the projected six year timeframe for FarmIQ to achieve its objectives may well be optimistic.
Unfortunately during the transition from spot market to long term contract, replacement livestock prices are still subject to market forces which make famers reluctant to put all their eggs in one basket, particularly not a completely new one which makes totally different demands from the previous method of operation.
Keith Cooper has stood up and taken an industry leadership role since becoming CEO of New Zealand’s biggest meat processor, and has been very insistent on the need for a new model. Some of his competitors, particularly Alliance, would say that they are already providing different options including carcase based reward systems and genetic advice, so there is nothing new about what Cooper is pushing.
But I sense that he has suddenly lost patience with an industry, both suppliers and processors, who don’t see things the way he does.
Therefore he has decided to do what he thinks is best for his own company.
Time will tell how industry competition develops and whether farmers decide to buy in to the plate to pasture vision, or continue to do things how they have been doing it for years.
Time will also show which of the meat processors has read their supplier market correctly.
Allan Barber is a commentator on agribusiness, especially the meat industry, and lives in the Matakana Wine Country where he run a boutique B&B with his wife. You can contact him by email at email@example.com or through his blog at http://allan.barber.wordpress.com.