Easy to say, hard to do: add value to our agricultural output. How do we build our 'powerhouses' with the 7 key attributes in their DNA

Easy to say, hard to do: add value to our agricultural output. How do we build our 'powerhouses' with the 7 key attributes in their DNA

By Allan Barber

KPMG’s Agribusiness Agenda for 2015 is a comprehensive analysis of the challenges faced by New Zealand agriculture in meeting the government’s target of doubling exports by 2025.

In the light of dramatically falling dairy prices with little sign of recovery, what was always a big ask has suddenly become a whole lot harder.

The Agenda was prepared following a series of Roundtable discussions with a number of leading agricultural personalities from which the views of the participants have been distilled into a number of conclusions.

The key finding is that there is a compelling need to add value to our agricultural output which the report admits is pretty obvious and easier to say than do.

The annualised growth in value of primary sector exports between 2002 and 2014 was 4.5 percent per annum. The report states the majority of the growth occurred through commodity price movements and volume growth, which suggests little progress has been made in realising incremental value driven by the attributes of our products, customer relationships, innovation and branding.

According to Ian Proudfoot, KPMG’s agribusiness partner, the starting point for value adding should be a conversation with the people you expect to consume the product, whereas investment is mostly targeted at operational excellence. While this strategy will lead to improved performance, it will not be enough to create enough additional value.

Products should be developed from a base of thorough understanding of the customer’s requirements, underpinned by continuous innovation and operational excellence built on an organisational culture that is committed to long term investment in the value adding strategy.

There are several reasons companies fail to pursue a successful value added strategy: a one size fits all approach to the market, the tendency to invest in hard assets as opposed to intangibles, confusion between commodity and value add within the same business (shades of Fonterra’s problems with its shareholding structure), confusion about the development of a value add strategy, and the lack of sufficient scale to make a difference.

But as the Agenda notes, ‘The frustrating thing for the primary sector is that all the wise advice it receives telling it to add more value to its production is basically correct. Even if those giving out the well-meaning advice have no real understanding of the practical challenges of shifting the value equation, the industry has no choice but to adopt strategies that provide it greater control over its future profitability and prosperity.’ The most telling statistic is that the producer receives at best 30% down to as little of 10% of the final price of the product. ‘Value creation grows exponentially as you get closer to the consumer’ the report concludes.

Examples cited of organisations that have attempted with more or less success to go down the value added route include NZ Merino, Comvita, Zespri, Tru-Test, First Light and Silver Fern Farms.

The Agenda concludes with an analysis of the DNA of value creation by a KPMG consulting partner which isolates seven characteristics evident in every successful organisation. These seven attributes are pivotal leaders, ambition and attitude, a strategic anchor (or vision), appropriate investment and resource allocation, customer intimacy, capable people and deployment discipline.

Research findings indicate very one of these attributes is present in all successful organisations, but without even one of them the chances of successfully implementing a value added strategy are significantly less. A final plea is ‘to create more powerhouses of the primary sector; this needs leaders that can lead and build value chains. We need organisations that can see the world through a sufficiently ambitious lens.’

It will be very interesting to see whether agribusiness can pick up the cudgels and steadily reduce the country’s dependence on the commodity end of the market.


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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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13 Comments

Make it 8 attributes. Ownership. You don't own it you don't get the benefit .

Valued added, does that include our genetics, or has that ship sailed?

http://www.stuff.co.nz/business/farming/sheep/69338378/shipment-sheep-do...

Things like that shipment, shows the MPI is just a corrupt joke. Same as MBIE sheep in Saudia Arabia.

One rule for the peasants another rule for the government sanctioned crooks.

This has been TOLD to these same people for 40 years.
If they don't know market basics by now what makes anyone think they have the skills to fix things on the collapse. They were so good that they couldn't even observe the previous warning signs, and current crisis, despite being told - and people think they have the observation, skills, experience to turn their own Wile.E.coyote antics to success ?!

Haha, dead right. Successive governments have eroded the skill base, dumbed down the labour force, socially engineered a generation of layabouts and presided over the collapse of the small and medium businesses that drive the economy.

All a bunch of tossers but we've let it happen !

Moving a country through the stages from socialism to communism takes a bit of time....and yes we have let it happen......and those who have pushed their agendas will never be held accountable!!

There is nothing we can do about it !!

I suspect it will be fascism rather than communism nae - definitely a select few scoring the rewards of treachery! Off with their heads...

sad but true

Allan, if it was easier everyone else would already be doing it.

Which is why early on New Zealand recognised that it didn't have the resources to create a range of end products that would fight with foreign national brands in their own markets, especially while they had subsidises, localised production, subsidised manufacturing and research, and we had import duties.
Therefore it made far for sense to work on a feed-in product that those countries manufactures could use, and to take their excess milk product and (provided it met high standards) re-sell and re-process it to build the bulk of our international trade working on the back of that is what we were already best at. That way we could focus plant production into large volumes of what those companies would reliably need thus avoiding the cost of chasing the market and seek to maximise our efficiency to be the best seller in what was ours (modern parlance "Brand Domination"). Thus it was more cost effective and process-easier for those companies to buy "off the shelf" direct to NZ's brand than it was to have to establish their own chain of supply. this of course, is destroyed if thecompany ever just "pooled" milk and sold at open auction (it destroys the Brand Value and ability for the company to add trade conditions). Of course such practices is profitable and the US will actively try to undermine any non-US business which establishes market influence (they do this as national policy).

There are several ways of doing the value add.
This is why top Marketing professionals with impressive University qualifications are paid to examine the market, run it through an almost Alchemical process, splitting things down, testing market segments, looking for ability to pay, faults in existing brands, removing redundancies...and if they're good showing some market segments with potential. Then they outline a potential product, develop demand, then a marketing plan for servicing that demand. Basically, _anything_ unique about your product can be used as a marketing - even if the only thing about it is that it's a cheap clone of everything else (check the "Oak" and "Pam's" brands...or even the Store "own brands") at the supermarket. Part of the difficulty here is establishing a separate identity for _your_ brand...because if you just shove it in an open auction on saleyard day then you've got no promotion ability, no way to set your value add above the rest of the herd, you pretty much get the lowest price that a bidder has to pay ... the exact opposite of what you're trying to achieve with your value add.

So here's a few things:
You need to decide on what you're good at ("know yourself")
You've got to know your market, or markets and know for a start what they can pay ("know your enemy")
(von Clausewitz would be proud)

What are your logistics costs - your product marches on its stomach (ie transport and storage costs)
What is the lay of the land, who are the people, what is the terrain (who are your distribution agents, What access do you want for your customers - how do you reach out to them (shelves? mail order? website? word of mouth??), are your customers highly mobile? change aggressive? distrustful? do they want cash-n-carry?

Where is your return (and how do you measure it! to make sure you're on the correct path)

What things are actually _really_ great about your company. Are you cheap? Are you reliable? Are you the latest technology? Have you got a workhorse cashcow that everyone knows? This goes beyond image, because if you get this call wrong, all the advertising in the world won't put humpty back together again.

Also very important: your product *must* line up with what you say it does.
Your UHT milk has to taste like milk, not reconstituted milk powder - otherwise people will just buy the milk powder.
Your squeaky cheese that resists heat for cooking isn't enough if it doesn't actually taste like Halloumi, that it looks right, sounds right, cooks right isn't enough when it takes like plastic it's just not going to add value to your overall brand and only people without tastebuds are going to buy it.

So the first concurrent step is to get your house in order.
The second, and this one is personal, _stop_ calling it "value add" because that is just going to confuse all the young people and the few honest folk left in your organisation. You're really want a product development that can "add margin". ....if you want to "add value" cut the price by 10% and your customers will have more _value_.

Also if you buy a subsidiary, for Gods' sake buy their best recipes not just the rights to the logos and names! They are the best recipes, their flagships, the few things that kept them afloat - why pay for their best..and then destroy it?? The Khans terrorised the largest empires in the world, not by force, but because they adopted the strength of their opponents into their tribe. Why _develop_ a new product when you can just buy one that is proven? And if you buy it because it's good, learn from it, build it. This last step is a blow to the ego's at the top, and why the empires quaked. You think this is an unsuccessful strategy it was also used by the Yellow Emperor. His opposition was not the soldiers in the field, but the enemy in the stronghold and kingdom government, by guaranteeing his angry opponent a place in governance and solidifying his opponents rule in the bigger kingdom, The mighty Emperor _gained_ strength (brand) not lost it. He established an Empire called Chin; A brand that still stands today, _thousands_ of years later.

Good stuff Cowboy. My business is not in agriculture. But you just gave me the ways forward. Thanks.

If that was helpful consider either a night class in basic Marketing, or possibly a first level paper by "distance learning" (ie correspondence) at The Open Polytech of New Zealand or one of our Universities. I know Victoria is offering MARK101, a first level marketing paper. If the information doesn't quite fit your business it is good to know just what strategies the others are likely to be using, and also where they seem to be deviatng.

consider also the "4 P's of Marketing"

Your Product. What is it, what does it cost to make and deliver, what resources does it consume (or effect like dairy waterways), how is it made, what patent or IP does it involve, How does it help your customers achieve their goals.

Your Promotion. How are you telling people about your product, and more importantly What are they seeing when you tell them, Why do they care about what you're saying, How does it motivate them?

Your Place. Where do customers come if your Promotion reaches them. you've generated demand with your Promotion (and hopefully gauged your production needs), but where can they find you, How do they make a purchasing _action_ once they make a purchasing decision? How does the product get from them to you? Do you Place your product on a street corner (eg drive through) or on a low shelf (budget), is it Internet deliverable, where is your website? how do customers find the website? Which payment provider is linked, what are the prominent things to put on your page?

Then there is Price. Clearly you need to cover cost of production so you need a realistic cost profile of your product ...all the way to the customers hands... If you're in business, you're in business to service a customers needs that they are willing and able to to pay for. Whether it's a bank doing Treasury debt, kids on a lemonade/vegetable stand, or a drug dealer in a shady pub, your customer has to be able to pay for what they want or you might as well sit at home and watch TV it'll be cheaper and less painful. "TV" aka "electronic income reducer" or the new "death of heroes".
So somewhere between your cost and what will leave your customer shivering in the cold is a point that you can both agree on. If it's in the wrong place the buying decision will falter - even if its too low the buyer might feel guilty and suffer from buyer regret and go to another supplier !
There is some real science to picking a top pricing point, but as long as you cover your costs that's the main thing. Also allow for a margin of wastage (loss, damaged stock, returns, theft). The usual way to set the top band is see what others in your line of business are setting their prices. You think you have a market angle, go higher, you think you just need to move product go a little lower, just remember you can reduce your margin but you can't increase it. but this can be a "quick and dirty" way for smaller businesses to at least be in the market price-wise. The better you know your product, your opposition, and most of all your customers, the more accurate your price will be, again, they're buy as cheaply as you'll let them ;)

A few more P's to consider
Packaging. Is it a glam product? Are you selling to a European or Japanese market (you'll need fancy packaging to not look like trash)? Is it a green product (does it say how much recycled product is in the packaging, make sure you don't use bleaches etc)? How does it stack? Will it sit in a bulk stack (bulk sells, weirdly enough) without to much trouble. will it need a stand? How are the customers going to dispose of the packaging? Does it need posting? do you want re-use re-cycle philosophy? Pack in groups? Serving size?
Printing - on the packaging. make sure you get the legal stuff in there! Talk to your printers, listen to what they can do. What runs do you need, how fast can you move them? how fast can you fill them? Do you have warehousing space for the packing process (one step that surprises many Kickstarter/Indiegogo projects. Making two prototypes in your lounge is a mess... having 500 sets from different manufacturers and 500 boxes to store in prime condition is another hurdle altogether.

Pipeline. Make sure you have a folder that has each step in the line laid out. From paddock to plate. This will enable to separate steps out and set KPI's on each "interface" and therefore how to test at each step, and where your signoffs need to be. This is extra important if you're you're doing short high volume runs - with JIT inventories the process is more expensive per item but it pushes you (stress alert), but if you're warehousing you've got to watch your inventory turnover, even a 50% margin will vanish quickly if you end up paying for warehousing for redundant inventory! for the internet this is online storage (usually per GB) and bandwidth (often per TB). If you don't have you pipeline you'll find stuff falling through the cracks.

Profile. Often the biggest battle goes on here. this is Brand. Who are you? Who do your customers see you as? Are you clean green? Are you the consummate professional? Are you the team that shoots from the hip? Are you "trying harder because your second place"? Or "A world like no other"? Is your brand suitable for your businesses skills? Do your customers want your brand profile? Can you afford to build it, or supply it?
you can't have two profiles. You can develop profiles for different product lines when you're big enough but those profiles have to be different enough in a customers mind that they don't just go for the cheap one and ignore all the resources you put into the other.
A Brand takes time (and thus resources) to develop. Don't expect your product to develop your brand or profile for you. Don't let _anyone_ else establish your profile, it will always be bad :)
Take care that you're not "buying" profile (profile in notability this time), your profile has to have sale value on it's own, and the best way to do that is through consistancy, and the only way to achieve that is first know yourself (and your staff).

Our Milk, meat, wool, and any other primary products all have an advantage. It just has not been recognised by the advertising crew.

Milk - Grass fed low carbon footprint low carbon mile's even shipped to the other side of the world
rBST free non GMO and there is a push to make it Biologically produced. next best thing to organics

Meat- As above the Yanks Eruo's go crazy for this sort of Product

Wool- as above and all natural fibre

You get the picture
we don't have to do anything to the product we just have to market it better.

You're right doug123.
Sounds like if Key gets his way though, our beautiful grass-fed, non-GMO produce will soon be compromised with floating, genetically manipulated clouds of pollens...better sort him out first before expecting marketing success for biologically produced!