Allan Barber chides those who just seek a 'government solution' to the red meat industry's problems and their flow on effects

Allan Barber chides those who just seek a 'government solution' to the red meat industry's problems and their flow on effects

By Allan Barber

Southland Regional Council chair, Ali Timms, hopes the government will take on board her warning about the effect of the red meat sector’s continued decline on water quality and increased nitrogen levels.

It’s an understandable message from a regional councillor, given the impact on a region’s land uses and water resources.

But it’s no different from the message being promoted by Meat Industry Excellence group and sheep and beef farmers in general, except for the focus on water quality.

Wringing the hands and wishing won’t make a blind bit of difference.

Minister of Agriculture Nathan Guy has repeated his position which reflects exactly what the Prime Minister told the Red Meat Sector Conference last year: if the meat industry as a whole can agree on a restructuring plan, the government will support it.

Otherwise it won’t interfere to provide a legislative remedy to a commercial problem, nor should it.

Unfortunately the meat industry has been hit by a perfect storm which has defeated its best efforts to improve performance to a competitively and commercially acceptable level.

The exchange rate sits at an unprecedented high against the currencies of all major trading partners, while dairy returns have shown the same tendency.

Global consumers of dairy products find themselves both compelled and willing to pay the asking price, although there are strong signs the payout could fall by up to 20% next season.

Beef and sheepmeat are at approximately the same prices they were 13 years ago, when the New Zealand dollar was at about US$ 0.40 (today 0.85) and GBP 0.30 (today 0.52).

If these exchange rates applied today, meat prices would be worth at least 1½ or twice as much as they are; this should be viewed in the context of a global market in which our beef competes with US domestic product and many others besides, while lamb is not a mass market taste and also competes with chicken, pork and other proteins.

The PGP partnership Red Meat Profit Programme highlights some of the factors which are within the farmers’ control and sets out a set of projects designed to help with their achievement. The most striking points are the performance improvement during the last 20 years and the persistent gap between the top 20% of farmers and those in the lower performance brackets.

The comparison shows the small difference between achieved lamb prices – about 3% or $3 per lamb – and the massive discrepancy of 135% between groups on the much more important productivity measure of lambs and dollars per hectare.

Therefore with all due respect to Ali Timms, asking the government to rescue the sheep and beef sector in order to limit the rate of dairy conversions is entirely the wrong approach.

The government in cooperation with regional councils and other agencies responsible for deciding on the acceptable level of pollution in waterways must set and enforce these standards.

No doubt there will be much debate, not to mention water under the bridge, before this question can be satisfactorily answered.

The best possible response would be for the RMPP to lift the profitability of sheep and beef farming to the point where it offers an attractive alternative to dairy.

This would be far better than government legislation to solve the wrong problem.

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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 »

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2 Comments

Maturity
As the industry approaches maturity, the industry life cycle curve becomes noticeably flatter, indicating slowing growth. Some experts have labeled an additional stage, called expansion, between growth and maturity. While sales are expanding and earnings are growing from these "cash cow" products, the rate has slowed from the growth stage. In fact, the rate of sales expansion is typically equal to the growth rate of the economy.
Some competition from late entrants will be apparent, and these new entrants will try to steal market share from existing products. Thus, the marketing effort must remain strong and must stress the unique features of the product or the firm to continue to differentiate a firm's offerings from industry competitors. Firms may compete on quality to separate their product from other lower-cost offerings, or conversely the firm may try a low-cost/low-price strategy to increase the volume of sales and make profits from inventory turnover. A firm at this stage may have excess cash to pay dividends to shareholders. But in mature industries, there are usually fewer firms, and those that survive will be larger and more dominant. While innovations continue they are not as radical as before and may be only a change in color or formulation to stress "new" or "improved" to consumers. Laundry detergents are examples of mature products.

Decline
Declines are almost inevitable in an industry. If product innovation has not kept pace with other competing products and/or service, or if new innovations or technological changes have caused the industry to become obsolete, sales suffer and the life cycle experiences a decline. In this phase, sales are decreasing at an accelerating rate. This is often accompanied by another, larger shake-out in the industry as competitors who did not leave during the maturity stage now exit the industry. Yet some firms will remain to compete in the smaller market. Mergers and consolidations will also be the norm as firms try other strategies to continue to be competitive or grow through acquisition and/or diversification.
 
http://www.inc.com/encyclopedia/industry-life-cycle.html

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