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David Jones explains why the red meat sector growth targets are not likely without major reform, and what should be done in 2015 with a sector 'unable to help itself'

Rural News
David Jones explains why the red meat sector growth targets are not likely without major reform, and what should be done in 2015 with a sector 'unable to help itself'

By David Jones*

Currently, over 80% of our agricultural produce is shipped offshore each and every year, and over the next decade the sector has big ambitions to double export earnings to $64 billion.

The Red Meat Sector Strategy (RMSS), launched by the Meat Industry Association of New Zealand in May 2011, hopes to achieve growth in the sector of $3.4 billion NZD by 2025, across all parts of the value chain.

The three key influences focused under RMSS are:

• Improving how and what we sell in overseas markets

• Aligning procurement between farmers and processors

• Adopting best practice production and processing

Despite being recognised as a world leader in the field, and its aforementioned aspirations for export growth, New Zealand’s red meat sector is currently contracting.

More and more livestock farmers are converting their properties from meat production, in favour of dairy, dairy support and crop farming.

The 12 months to December 2014 also saw the total number of sheep in New Zealand drop below 30 million – which, given a 1980s peak of approximately 70 million, is a definite indicator that all is not well.

For some time now, the need for red meat reforms has dominated conversation in New Zealand’s agricultural sector.

There is little doubt that if we wish to reverse the current trend of decline, we need to address some core issues impacting the efficiency and profitability of the sector as a whole.

The seriousness of the situation

What we’re seeing today is the culmination of 30 to 40 years of constrained appetite for reform within the industry, driven by a number of factors:

Scale: 
The NZ market, fragmented as it is, lacks the scale of supply to meet the growing demands of emerging markets. There is a need to look at aggregation and leveraging new partnerships and opportunities globally and, more importantly, across the Tasman.

Excess capacity
With major excess capacities, meat-processing plants are battling one another to ensure that they have sufficient stock for each kill run, to maximise efficiency. Largely unsuccessful, this approach also undermines existing systems and alliances and the need for cooperation across the board.

Removal of overheads
There is a need to eliminate unproductive costs from within the industry with multiple handling and intermediaries that don’t add value.  It is essential the value of spend is optimized through generation of on farm productivity.

Improve on farm productivity
It is paramount that we optimize best practice farming systems and apply top decal practices with on farm management and production systems. Driving farm profitability measures and sharing of best practice in science, technology and financial management are a key catalyst to changing fortune of the industry.

Lack of a single global brand
New Zealand currently has a number of suppliers exporting to the global market. This becomes counterproductive, driving prices down as they compete with one another to be stocked in overseas supermarket chains.

Pre-gate investment
Farmers are investing heavily in their own operations, as they seek to work smarter and more efficiently. If they are to see returns on this investment, there is an absolute need for the value-add to generate greater profits. We must smooth the volatile returns of the market as we attempt to deliver consistent revenue flow to the farm gate. Production should be encouraged on a dollar per kilogram basis, making sure we are meeting the demand of markets that best allow us to optimise that return, irrespective of traditional slaughter timings. The industry has invested heavily in positioning New Zealand product better on the global stage - we need to tidy up our back yard and work collaboratively to capitalise on that. This is an undertaking that will need to be driven by scale and consistent returns.

Suggestions to revitalise in 2015

At this stage, the fragmented nature of the industry limits its ability to build a sustainable and enduring offering behind the gate, both domestically and globally.

The sector is unable to help itself.

We need the industry, supported by Government, to step in and take affirmative action above and beyond what it has started with the Red Meat Profit Partnership.

It is crucial, however, that we strike a balance between a totally controlled environment, dictating to the industry what it can and cannot do, and a laissez-faire system.

Anything too prescriptive, by way of moratoriums and mandates, would limit the appeal to foreign investors, who will be instrumental to the industry’s recovery.

Foreign investment brings huge opportunities, by granting access to equity, wider markets for export and better systems. New Zealand produces to feed approximately 40 million people - we are totally reliant on exporting overseas and need to be more accepting of investment from these markets.

There is also a serious need to ensure we are not competing amongst ourselves once we are in those overseas markets.

Exporting under a single global brand would stop us from shooting ourselves in the foot, engaging in a pricing war to be stocked in foreign supermarkets.

Growing to achieve an extra $3-$4 billion NZD in annual export revenue simply isn’t possible under the current system.

Urgent reform is needed if we are to stop the industry’s decline.

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David Jones is the New Zealand Head of Agribusiness at PPB Advisory. You can contact him 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.

39 Comments

You are fighting 'Global trends"  good luck with that.

  The problem is prices are not high enough for farmers to stay in the industry, but my friends who dropped out of beef and sheep to graze dairy heifers missed the great beef prices of the past year, they now face an uncertain future tied to the dairy industry.

 There will be sheep farmers who regret converting to dairy, perhaps the sheep industry is 'as good as it gets' and its finally time to address costs.

 What you are advocating is the same old stuff thats been regurgitated at every farmer meeting i've been to in the past 30 years. Forget about scale thats a lie, smaller volumes should attract higher prices. The works are killing at full capacity at present, we need oversupply to cope with adverse climatic events and the natural seasonality of farming, productivity has 'maxed out' we spend a dollar to get .90 cents back, if we are lucky.

  The Sheep industry is one area I have very liitle confidence in, I don't think the future is bright, costs are high and its is a victum of changing eating trends in Europe.

  We need to address issues like ram lambs, which have a stronger gamey flavour, most farmers won't eat ram lambs for the house but expect the rest of the world to.

  In reality NZ is an expensive little country, no longer suited to produce commodity products and we do have competition. Our cost structure is whats making us uncompetitive. I have frinds who are good farmers, with low debts, running low cost farming operations, that are doing very well at present.

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plus the dealing with supermarket buyers (thats the market at present), at least the old smithfield meat traders were just drunk.

To the supermarket buyers NZ brands mean nothing, its just price-to-specification-to-their margin across geographcail ss areas (of which we are 1). Make no mistake the super buyers look at processing accounts and farmer industry returns before deciding how they will play the NZ producers. In the UK its been like that since the Dewhurst butcher shops business was smashed (themselves often bad days)...

its not foreign investments needed, its foreign buyers and with that goes low and lower than others production/transportaion costs.

Q1: how would one sell volumes of branded food stuffs (to retail consumers) without contact to supermarkets?.

 

 

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It seems farmers who have no debt can and are doing well.  Put the New Zealand noose of debt around your neck and your options narrow.

The value in the trade changes from time to time.  Sheep - dairy - beef.  Has changed and always will.   The debt free people eat those challenges easily.

And I agree with Andrew.  Our off farm cost structures limit us.   And there is nothing wrong at all with farming.   It's been hugely produdctive for our country.  

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Very good Aj, Jones would be better telling government to get it's loopy regulatory costs out of farming and processing rather than squeal for a lada/fontera "solution", with unintended consequences everywhere.

Regards, EP 

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and here is another example of govt ineptitude.

 

http://www.scoop.co.nz/stories/PO1501/S00002/rock-wren-exterminated-fro…

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a) Pretty wacko claims there, it was the 1080, honest Guvn'r....

b) We as voters / tax payers are not prepared to fund the work needed, kind of a guaraanteed fail really and then blame those left in the firing line!

yeah right.

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Oh Aj, don't get me started on 1080 and DOC Noddies!

 

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Andrew j you are better than that.  The use of the headline 'exterminated' is emotive, misleading and based on zere scientific data. It's poor journalism that feeds off the anti 1080 'we know better than science' brigade. Why the bird may or may not be around has not been ascertained - it could be 1080, but could also be a host of other reasons.

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I'm not a fan of the way we use 1080.  Numbers look to be down, I didn't use the word 'exterminated' that came from the article.

http://www.stuff.co.nz/environment/65172880/1080-drop-may-have-killed-r…

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Rastus - exactly what science are you after?? 1080 is not some scientific experiment it is already known to be a very good poison and one that secondary kills. NZ uses around 90% of the worlds supply.

I also find it rather bizzare to believe that the Rock Wren a true alpine bird would perish in the snow!!!

 

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11343620

 

Using 1080 has ramifications not only on the pest being targeted but also on our markets to which we export too.

The only thing the DoC is conserving is their jobs !!!!

 

 

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The Parlimentary Comissioner for the Environment, is confident in the merits of 1080.

I understand the ramifications 1080 has on the pest being targeted, it kills it, but I'm unsure on its effect on our agricultural markets.

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I certainly don't have any confidence in the Parlimentary Commissioner for the Environment.....Interesting is Dr Jan Wright's comments here......she positively gushes at the benefits of 1080.....just as well she is not in charge of crime I suppose....her blanket approach would be something along the lines of a nuclear bomb will give us the best coverage to get rid of all the criminals. Did she mention pre-feeding, bush-lines and other boundaries etc????And talking of pre-feeding I wonder who pre-fed her all the literature to read and who sat around providing briefing etc???  

http://www.1080facts.co.nz/news/two-minutes-with-dr-jan-wright

 

Does NZ inform its customers in regards to 1080? Or do we just use the stuff and wait for them to ask questions? Or do we risk having scares like the milk powder events that have occurred?  Our competitor countries will use any practices that consumers don't like to their advantage......

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There is no evidence that it gets into the water let alone produce.

 

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And what bi-products would you be testing the water for Steven??

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1080 is only used in about 5~6% of difficult to get to conservation areas, not exactly agricultural quality land.

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Jeez Steven really? I live on 3 boundaries. Doc and EW. They last blasted us with the stuff 3 times in 18months recently. Moreporks kaka bush falcon tomtits gone. Ah 5 dogs dead over the years. And you ought to be sat down to watch how they die. We are agricultural land. So how come we have it rained down to within 20 metres of us. Or when they make a booboo all over us. How come they can chopper it into our drinking water. You people that preach from afar on how great it is should try living with it in your back yard. The fear I live with after a drop for my working dogs. Day after day. Month after month...but what the heck. You wouldnt have a clue

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I have a clue on the natives, simple, I accept that that conflicts with humans.

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Do you accept the bykill of the natives? I live on the boundary of some pretty large areas of our best native bush. Have done for over 20 years. Gone through many drops of poison. Its easy bush. Yet they drop it from choppers. Is it ok to kill moreporks? Kiwi? Kaka? Tomtits? Robins? Bats? Frogs? I see the birds every day. Its my home, my work place. When you have 20 kaka fly over you every morning and evening, then after a drop its down to one or two you know. When the moreporks stop calling at night all of a sudden. Tomtits in the garden. Tomtits not. Kiwi screeching at night. Kiwi not. It is sudden. It is consistent. Every drop does it. Some good weather drops seem worse than others. My farm is my vantage point into the forest. As it sits higher. The birds are my neighbours. I know them. I live 1080 year after year. Do you?

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......feeling a bit crook this  morning. Been to the Doctor, told me what was wrong, based on some sort of qualifction he had.  But what the feck would he know - something about science based learning?

Boy, it;s confusing for a real joker like me.  Spoke to a mate, real good block, he's had heaps of health issues over  the years, experienced it all, broken bones, cuts, crook guts.  He reckons all I need is some flax resin and a bit of manuka oil.  I'll reckon i'll go with him - these professionasl have never experianced what us real jokers live thru.  We know better eh!

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less Internet will probably help you feel better...

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Hmm professionals. They are so good at their jobs they were sacked on the pureora job in 1996. Killed the robins and tomtits as they didnt screen the carrots. Not forgotten. As well as the dogs they killed as they didnt inform the adjoining land owner of the poison it was choppering in close to the family home. We put professionals in charge, but in truth they dont deserve to hold a poison licence.

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What I find odd, is that farm runoff is bad but 1080 runoff doesn't affect water quality at all 

 

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Can you prove that 1080 is used in about 5 to 6% of difficult to get to conservation areas???

 

I suggest you do some reading. This article is a very good analysis of the chemistry and how 1080 will break down onto other compounds etc..

http://issuu.com/stuey64/docs/1080

 

1080 was a useful tool at a time when vast tracts of land were smothered in rabbits, they were so dense in places they were eating the fence posts, there was nothing else available that was as effective as 1080 in reducing rabbit numbers.....and then calicivirus was released (please note the bureaucrats were opposed to allowing calicivirus) and in a very short time rabbit populations were reduced......When your only expertise is in laying poison, what does one do for a living if the problem you were working on has been resolved to a point that you are no longer needed in that role??? 

 

It is my experience that bureaucrats keep creating problems....they are very good at lobbying the people to support their projects!!

 

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actually we do not know.  a) its very hard to spot at the best of times.  b) there is no evidence it was 1080, c) extra hvy rat and stoat numbers ie eaten.

 

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Ever watched a bush hawk rear its young over days and weeks, teaching it to hunt. Hearing the screeching, searching the sky every time. Finding the birds and watching mum feed bub. Then nothing. Gone. Ah yes 1080 was dropped last week. Bugger. I dont believe in coincidence any more. Not after 20 years of this.

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Steven. see youtube The Graff boys  ' Poisoning Paradise'  (The Graff family are a dynasty of  real Mountain Men, not DOC type woofters).

 https://www.youtube.com/watch?v=yQRuOj96CRs&feature=youtu.be

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 I agree wth you Andrew. I think the sheep industry will survive. But it may get smaller yet. You can all ways sell meat at a price. It depends on what more profitable uses for  hill country land there are.

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Tim, I have a good friend in the industry in France, he worked with Weddel when he was young. The Fench have  changed the way they consume lamb. However the high Arab population shoud be off setting this. He  is not optimistic for the sheep market.  China has stepped into the breech so we haven't noticed the huge fall in sales in out traditional markets, we would have done without China.

  Sheep is the one product I'm worried about in the short term. I also have concerns now the USA has started farm Holstien Bulls and steers on feed lots, this year numbers could be as high as %25. The dairy industry can supply a year round standardised product to feed lots and grain is cheap here, the product suits the accountants in charge of the feedlots.

 I looked at a large dairy farm here that sent all its heifers to Texas to grow because Texas is closer to the grain belt, so feed is cheaper, it paid to move the cattle to the feed rather than the other way around.

  It's going to be a new era for farming as Asia becomes our main market, I think its going to be a bumpy unpredicable ride.

  I think our cost advantge has become an illusion.

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I also totally agree Andrew. We need the industry 'over capacity'. Without it us farmers would be in a helluva pickle right now. Interesting what you have seen with the bull farming in the states. I have been wondering why only us nzers use these friesian bull calves. Yes now that dairy herds are expanding everywhere, there are more available. How long will it takefor them to get the gist of farming them. About 10 years ago they hooked into it in oz,but it was not successful. God forbid if we send kiwi bull farmers to the states to teach them.

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Some years ago I was required to buy SFF shares with every animal I killed with them. I would like to know exactly how much of SFF I own. However as I have never had any communications from them since this forced purchase, I am thinking they think my equity in their business is theirs. As keen as I am to invest further in the meat industry, I am keenly aware as to how badly some of the players act with investors money.

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A few years back the Meat industry had a lot of debt but farmers had minimal debt with lots of equity, the solution was to pay less for animals and transfer the debt onto farmers, it worked well.  

  Today the debt is more evenly spread so its harder to pay farmers less, but still the easiest way to make profits in the processing industry.  I suspect SFF is run by the banks.

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If you were a young/new farmer loaded up with debt getting in the farming door it didn't work so well AJ......this group of farmers helped carry the can for the previous generation who only got their minimum debt levels due to the heavy farm subsidies they received......

 

These compuslory shares were deducted as stock went to the works.....at a time when interest rates escalated and many areas were in a real drought (not the dry seasons that are called droughts now) and the NZ economy was in another Government/bureaucratic induced economic slump......... I have always questioned the legality of how the meat works behaved.....I would have to search back through old killing sheets but Im pretty sure that is where the deduction/transaction showed up.

 

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Hi Belle,

Your options depend on the class of share you own. If you didn't convert these into ordinary shares at $1 (which are now worth 42c), then the rebate or supplier investment shares can be redeemed from the company at $1 each. SFF has tried to keep this very quiet because there is several tens of millions outstanding, but if you read the annual reports the liability of the company to redeem these at $1 per share is clearly stated. It can also be found here http://www.silverfernfarms.com/our-co-operative/investors under the terms of issue for the respective shares.

I suggest you contact the company, they will let you know how many shares you own and of what class those shares are.

I would suggest you claim this asap as with the current management of SFF, the company may not be around that much longer.

Would be interested to hear how you get on.

Sam

 

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Thank you Sammy. I will pin them down. ...I think they confiscated 10 bux a beast for a share. I wonder what they did with the other $9....positively thinking, perhaps in a good year they paid it back in premiums.

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I think overvalued farms are a big problem with farming. Going back a few years it was only farmers interested in buying farmland. ( we drove past a farm today that i guy paid 3.5 million for, it was so dry you could see a mouse run accross it). Everyone has this idea that there is a big shortage of food in the world , but it relies on strong economies ( like China?) to pay the price to cover the higher cost structures. So i think debt is a big problem with all farming. Maybe farming will come right again if there is another crash in the property markets, which takes some of the speculators out of the market.

 

 

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I can go one better Tim. New dairy conversion not too far from here, done one season, all pumice, extreme pumice, not much topsoil. I think they run about 500 cows, asking over $7 mil. After this week it will be a desert I think. If it sells at that money then I will eat my stinky old hat, throw my arms in the air and go find some valium.

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I note it has irrigation consent...or is that the agents spin on geothermal reinjection? 

Is the capacity debate relevent for the sheep and beef farmers, if they have no ownership and control over processing and marketing? Your product is but a cost to these investor owned entities, much like our milk is becoming to Fonterra.

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Is anyone else having problems with interest.co? My phone freezes up all the time, and now my laptop...only here

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