sign uplog in
Want to go ad-free? Find out how, here.

Allan Barber reports on the latest Red Meat Sector conference, but struggles to find any transforming solutions proposed

Allan Barber reports on the latest Red Meat Sector conference, but struggles to find any transforming solutions proposed

By Allan Barber

The Red Meat Sector Conference, held in Auckland on Monday, was very well attended by 320 people from all parts of the industry.

There were interesting presentations from overseas and local speakers.

The former spoke eloquently about the outstanding global prospects for the red meat sector, while the latter had plenty of statistics to illustrate their concerns about sheep and beef farming debt and shrinking livestock numbers.

The Prime Minister opened the Conference with an upbeat talk about an $8 billion industry of great importance to the country.

While acknowledging farmer dissatisfaction with the status quo, he said it was up to the industry to drive change, but the government was sympathetic and supportive.

He played up the positive effect of Asia’s growing wealth compared with a weaker Europe, alluding to Chinese forecast that its demand for soft commodities would remain buoyant, while hard commodities would plateau. However it is important to grasp this opportunity in the face of competition from other countries.

He was wise not to step into the hornets’ nest of meat industry politics with bright ideas on how to fix the internal problems, both real and perceived.

There was plenty of farmer representation at the Conference from Beef & Lamb NZ’s directors and council members, Federated Farmers and the MIE Group.

Nothing the public speakers said will have persuaded the farmers that a solution to the industry’s difficulties was just round the corner. But at least they will have gained some hope about world prospects for the sector.

Richard Brown, UK based director of global food research consultancy GIRA, gave an entertaining presentation which underlined global increases in meat consumption and prices, notably in red meat. In particular he noted how UK prices for beef and sheepmeat have strengthened since the GFC, while world prices have been strong, assisted by the increase in China’s consumption.

Farmers have increased their share of the total price paid for beef, but sheepmeat tells a different story with producers’ share of the price paid by consumers declining.

China has been the real good news story for New Zealand sheep farmers with higher volumes and prices compared with static local production.

This trend will continue sharply, as Chinese sheepmeat consumption broadens from ethnic minorities to the fast growing middle class.

ANZ rural economist, Con Williams, painted a more downbeat picture based on a 92% increase in farm debt over the last 10 years, increased liquidity risk and an average of 0.7% profit compared with 6% for government bonds.

He drew attention to some key facts, including 20% of sheep and beef farms have 60% of the debt, while the top 20% of farms are way more profitable than the 65% in the middle of the ruck. The profitability of the top farms is based on productivity, economies of scale, investment strategies and timing as well as greater lambing profit. The challenge remains to get the rest of the farmers up to this level of performance, as identified in the Red Meat Sector Strategy launched in 2011.

Con Williams was not afraid to venture into red meat industry politics. He gave his view that a company controlling 80% of processing and marketing was the ideal; and, although restructuring costs would be up to $1.6 billion to achieve this, avoiding annual processor losses of $150-$200 million like last year would provide a reasonably good return on the investment.

I’m not sure he has thought through all the ramifications of this, particularly since the processors don’t lose that amount every year and the losses were effectively paid to farmers in procurement costs.

It would be the banks not the farmers that would wear the bulk of the restructuring costs.

Hayley Moynihan, Senior Analyst with Rabobank, talked about the changing nature of supply chain dynamics and emphasised the risk the red meat industry faces from the shrinking production base which was not a sustainable model. In contrast to Williams’ leaping to a solution, she was careful not to prescribe what should happen, but made the point any change must be based on delivering greater value to the consumer.

A continued focus on price may come at the expense of an efficient supply chain.

This was more in keeping with the old model of spot procurement and selling, whereas the present model was more about contractual relationships.

This may change in the future to what Moynihan termed a circular economy.

The message here was that the industry definitely has to change to a more collaborative way of operating because the present system is not sustainable.

It will be interesting to see whether the different parts of the industry recognise what they were being advised and just how it might be translated into reality.

---------------------------------------------------------------------------------------

Here are some links for updated prices for
lamb
beef
deer
wool

---------------------------------------------------------------------------------------

Allan Barber is a commentator on agribusiness, especially the meat industry, and lives in the Matakana Wine Country where he runs a boutique B&B with his wife. You can contact him by email at allan@barberstrategic.co.nz or read his blog here »

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

10 Comments

I don't think China is going to save us. I know for a fact that one large forestry company in NZ has told its workers to export as much timber to China, as quick as you can because demand in China is going to collapse within the next eighteen months.
 
The profitability of the top farms is based on productivity, economies of scale, investment strategies and timing as well as greater lambing profit. The challenge remains to get the rest of the farmers up to this level of performance, as identified in the Red Meat Sector Strategy launched in 2011.
Con Williams was not afraid to venture into red meat industry politics. He gave his view that a company controlling 80% of processing and marketing was the ideal; and, although restructuring costs would be up to $1.6 billion to achieve this, avoiding annual processor losses of $150-$200 million like last year would provide a reasonably good return on the investment.
 
I dont believe that a production focus is the answer its just too darn expensive. Lets see how it goes after our markets have collapsed.
 
Bank economists have lost credibility around here.

I dont believe that a production focus is the answer its just too darn expensive. Lets see how it goes after our markets have collapsed.
 
I agree.  I suspect the only way to farm for profit in future will be to farm where the land component of the asset valuation has no associated debt. ( i.e. the land is 'free' and the only debt a farmer takes on relates to stock and plant).  The only way for this to happen is for either a whole bunch of existing landholders to go broke, or those that are broke (i.e. holding underwater assets) get nationalised and the government offers peppercorn type leases for the land to keep the farmers on it and working it. The post-1984 period here which saw the transfer of massive debt from government to private sector - might just end up going the other way in the big reset.  And such accumulation by dispossession is the plan, if you read David Harvey, that is.
 
 
 
 
 
 

But if the government takes on say 35 billion of the 55 billion of farm debt, it won't help its credit rating much.
 Then what about the other debt in housing,  350 billion of debt (?) including  185 billion funded offshore ?
 We don't have the AAA+Govt rating  to take on those debts do we?

I'm alluding to a 'big reset' - the rules re-write as will likely have to happen at some stage in the future.  It's clear that the present gloabl financial model is unsustainable in the sense that it cannot be unwound - all existing debt cannot be repaid in terms of the way the system operates presently.  A new set of 'rules' will emerge and, as David Harvey suggests, the aim of the reset will be accumulation by dispossession.  Meaning, amongst other things, the model of private ownership (owner operator / owner occupier) will become the exception, not the rule.  At least that's how I interpret it.
 
So who knows how such a reset will reallocate and redefine sovereign debt and sovereign credit (i.e. ability to borrow).
 

Im with you on the global reset
Hypertiger

Basically all that Bretton woods did the past 6 decades is loot the USA dry.

Basically all the resources of the USA are burnt to produce US Dollars...that everyone else in the world is demanding for what they supply to the USA...raw materials, finished goods, and services.

The US dollar is still the global trade medium of exchange as per Bretton woods.

Anyone in the world wants to buy anything from the global market...They have to get their hands on US Dollars...

Like Zimbabwe when they drove all the white famers off the land...the food supply collapsed and Zimbabwe had to import food and the only way they could get their hands on US Dollars to buy food was to print Zimbabwe Dollars and buy US Dollars and then buy food...which hyperinflated and annihilated their economy. 
 

     

    Yes, as our government (well any government for that matter) won't want the food supply to collapse - they will need to find a way to keep people farming/working the land.  And in a fossil fuel constrained world, there will be less mechanisation and more 'people power'.  So there will be a drive in future to move folks out of the cities and back onto the land. But land ownership won't figure in that move.  Well, that's what I predict anyway.

    My heart and passion is to see young farmers owning and working on their own farms, these people want to maintain the status quo, of hopelessly indebted farmers continuing on their merry way.  

    Sadly, I don't see it happening. When you think about it much of the land that ended up in private NZ family hands during the colonial/settlement period (and even extended to the post-War years with the ballot) was government owned/confiscated land which was effectively 'gifted' to those folks in 'exchange' for their commitment to develop it for agricultural purposes.
     
    The dispossession of Maori of their land provides a very instructive "model".
     

    When you think about it much of the land that ended up in private NZ family hands during the colonial/settlement period (and even extended to the post-War years with the ballot) was government owned/confiscated land which was effectively 'gifted' to those folks in 'exchange' for their commitment to develop it for agricultural purposes.
     
    The government extends the practice to this day and the recipients abuse/capitalise the privilege. Read more
     
    Shell out $265,000 and collect more than $10 million. It's one of several nice little high-country earners.
     
    That's the mark-up that one South Island runholder couple made from subdividing some of their land freeholded through the tenure review process.

    Indeed.