When it’s natural, real and as nature intended we have a real competitive advantage so long as we have our story straight, says St John Craner

When it’s natural, real and as nature intended we have a real competitive advantage so long as we have our story straight, says St John Craner

This the second part of an article first published here.


By St John Craner*

My fellow speaker at the East Coast Farming Expo this week, Dr Derek Moot suggested a legume farming system would help substantiate a back story to a “as nature intended” red meat proposition.

Using nitrogen fixing lucerne can help reduce our dependence on synthetic fertilisers which in turns adds greater credence and authenticity to our “as nature intended” story.

With the likes of Atkins Ranch growing your stock on specified herbs they will pay a premium which discerning high-end consumers have been able to fund. Nick Pyke, recent CEO of FAR, went further and suggested we could also be part of the plant protein market to stop the cycle of commoditisation in arable cropping. Rather than see plant-based meat as a threat we could view it as an opportunity.

It makes sense to diversify the risk when you think of those recent farmers hit by mycoplasma bovis who not only lose their cows but the genetic worth of those herd that have been built up over decades.

We could hedge and spread our bets or diversify our farming systems to de-risk our exposure like a good managed fund does. Could we look at more dual animal and plant protein systems within farms?

To counter the threat of “fake meat” we could also think about producing the most nutritionally dense food from the most nutritionally dense soils.

Dr WA Albrecht was a renowned Professor of Soil Sciences who worked for decades promoting the direct relationship between healthy soils and healthy animals and therefore humans. Even back in the 1950s, Professor Albrecht risked his academic reputation warning of the public health risks posed by big, big, industrial agriculture. Albrecht claimed the declining health of our population (poor health, nutrition deficiencies) was a direct correlation to was correlated to the declining health of our soils. He argued that the health of people couldn’t be restored without restoring the health of our soils. Even today, this same thinking makes a lot of sense when you consider the food chain.

When I talk about synthetic meat with farmers they they ask me in frustration: “How have we got here?”.

My answer is simple: a failure to innovate.

Sustaining innovation comes in the form of small incremental changes that offer more efficiency in a current market with current customers.

We see this type of innovation being employed across meat works up and down the county - robotics, more accurate cuts, greater use of the whole carcass. However tightly controlled and closed supply chains suffocate innovation and the lack of capital means there isn’t a fighting fund to invest in new R&D to examine new emerging markets that don’t reward with profit straight away - profit that meat companies need like oxygen.

Disruptive innovation comes from the likes of Alibaba, Airbnb or Netflix. New models with new customers and new markets that carry little or no inventory or profit at the time of start-up. Disruptive innovation that our capitally constrained meat companies can’t entertain as their payback needs to be more immediate. Because our meat companies are so capitally constrained from pursuing a high volume, low value commodity model they are starved of the ability to invest in new disruptive technologies and so the commodity cycle continues with incremental efficiencies applied along the way.

If you’re not buying the natural argument here look at the success of All Birds. NZ Merino shoes sustainably produced and marketed who this March sold their one millionth pair. They saw a market niche that would value sustainably produced shoes with a great back story. All Birds are now the corporate wardrobe of the tribe that is Silicon Valley. And if that isn’t endorsement enough Time Magazine called All Birds “the most comfortable shoe in the world.” All Birds is a success story we can all learn from and has demonstrated the sustainable nature of wool which is an industry that also faces its own challenges outside merino.

So, what’s the solution? If your meat companies won’t support you in your drive for innovation and disruption find a collective of like-minded farmers in your region that do. Pulling combined resources together can help share the risk and provide the scale and support to become something bigger and better together.

Coastal Spring Lamb did it and now export into Macau, Vietnam, the Philippines and many other South East Asian countries.

Iwi farming operations are doing the same on the East Coast by looking at how they can reduce the intermediaries in the value chain to provide a better return to their shareholders. There will be others I’ve missed.

In my Kellogg report I suggested the concept of local producer groups who can differentiate on their provenance and terroir because I wanted to offer solutions rather than more “conversations”. All year supply and scale pose challenges but I believe where there is a will there’s a way.

The technology is here already to connect farmer and consumer.

Eating animal protein is what humans have done for centuries in the same way we have a deep intrinsic connection with fire. Both provide energy. They are both real and natural resources. As humans we have a huge affinity to the land as well. We foraged from the land and still today live from the land.

Maori and the principle of Kaitiakitanga can explain this far better than I am ever able, and I wonder if urban New Zealand has lost touch with this concept because of its lack of contact to the natural environment (out of sight out of mind?).

In the end some consumers will want to eat plant protein and some will opt for animal protein. Is one better than the other? That depends on the customer and the choice they make.

What it teaches us is that we have to deeply know and focus on the right customer segments. All we can do is our best which is to promote our own story of truths rather than leave a communications vacuum for others to fill. Or we can leave the gate open and allow others to tell our story. But this means the space we’re left with is dictated to us rather than one we can actively choose ourselves. 

While dairy beef is the sector to most likely suffer from cheaper, more efficiently produced synthetic meat because of US paddy market, the rest of the sector should take great heart. This is exactly the wakeup call our red meat sector needed.

We got complacent and we haven’t told our story well.

Have we got anything to fear? Hell no. We have everything to gain.

If we can get our act together with the right quality assurance and accreditation we can offer a distinctly different proposition to big industrial farming which is the same brush we’ve been tarred with and one which modern and future consumers have a growing distrust of.

Let’s talk towards this synthetic meat challenge and meet it head on, not shy away from thinking it might go away because it won’t.

When it’s natural, real and as nature intended we have a real competitive advantage so long as we have our story straight.


St John Craner is managing director of Agrarian: an independent advisory whose clients are agribusiness firms who are under-performing in sales and marketing. His archived blogs can be found here where you can connect with him, or follow him on LinkedIn. This part two of a two part article. The first part is here.

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Export exactly what, and what great tonnage, into Macau, Phillipines, Vietnam?? Are you saying that each carcass is 100% marketed and distributed in natural proportions as such.? It is all very well to extol that a prime cut such as a boneless shortloin can yield $xxxx pkg but unfortunately a carcass does not consist of 100% of high value cuts.. In fact if you yield it out in bone in form approx 60% are fore and brisket low end cuts. In other word what is left after you remove the pistola, and if you know anything at all about meat, you shouldn’t need to look that one up.Personally, and for reasons that are more than obvious, have no problem at all with the concept of maximising returns from prime high value cuts but along with that there are labour, freight and shelf life considerations that make it difficult to compete with domestic production in the relative market, except that off season availability is of assstance for northern hemisphere markets. That is all well and good but the stark reality is that the production of high value cuts, called further processed in the old days, has to be of sufficient value to more than compensate the cuts of meat , and the relative boning cost,etc, on the carcass that remain as primals. Any kid who knows how to do a spreadsheet could show you that. The industry needs volume but you cannot ignore that most of the meat produced from any one carcass is only suited for manufacturing, commodity if you like and that market has to be developed as well.

Thanks for your comments anonymous Foxglove.

Appreciate my argument might come across to some as rather naive or a little simplistic. Understand dress out, yield, pelt etc. all contribute to a more profitable outcome and most meat companies profit relies on utilising the whole carcass or even depend on the very last few % of that carcass to make a profit. Allan Barber is better placed than me to comment on the trend in meat companies profitability and ROA here. However think you might have missed the point I am trying to make here - synthetic meat isn't a threat if we get our story right and can clearly demonstrate value. SFF doing a great job w their JV with Proliant. Classic Sheepskins I believe are looking at what they can do too in emerging markets.

Lower cuts like brisket are enjoying a renewed boom with chefs and restaurants trying to tell a different story using lower commodity cuts to give them a point of difference and support higher margins: https://www.bighospitality.co.uk/Article/2017/05/23/The-whole-hog-5-ways...

Why have the meat companies had to wait for emerging savvy chefs to show them this opportunity?

So what's the solution here my friend? Accept status quo with the same old commodity volume game that will lead us to law of diminishing returns. Or leave it to a case of last man standing whilst supermarkets play meat companies off each other destroying margin for themselves and their farmers? Does this MO arm them with necessary capital to invest in new R&D to fund new consumer insights on new product lifestyle uses and markets?

Tyson Foods were in a position to be able to invest in a stake of alternative protein company Memphis Meats. I imagine the drivers were diversifying business risk. Remember Blockbuster said no to Netflix in 2000 when they asked for a mere $50m. Instead Blockbuster stuck to their knitting. In 2010 they went bankrupt with $1.1b of revenue losses. Netflix now has a market cap of $32 billion (about 10x what Blockbuster was worth at their peak).

Unfortunately our meat companies don't have that option and when they do want capital they have to go offshore. Sustaining innovations with in-plant efficiencies will only get us so far.

Can we afford to accept same old, same old? Or shall we wait till the next cycle of sustained drop in schedule prices before we look at all of this again?

Appreciate the comments.

Thank you for your consideration and response. Actually it seems we share a misunderstanding. As with you I have little fear of any synthetic meat threatening either the integrity or viability of NZ meat product. It is not a case of nylon versus wool. Far from it. We are now living in the age of technology, but you cannot eat either software or hardware. NZ has huge potential of being able to deliver a safe and high quality product well beyond of it’s own population’s need. You mention Tyson’s. As it happens I visited the plant in Pennsylvania that caused the stink, two days before it happened. Total volume, total out of control. But the key to the success of the NZ meat industry in the old days, was likewise throughput. And the key for its survival today is increasing volume.

My point is this. You must be cognisant of the difference between commodity and high end retail and in so doing be prepared to both economise and maximise the value and return for each. The best example of that is in the mid 1980’s when ANZCO & JANMARK was established for the former and latter respectively. The worst example of the confusion between the two, is Fortex but Waitaki before that, would have been a close second.

The problem with your article is that it falls into the old trap of highlighting an extremely high percentage of price for a very small percentage of cuts. But there is just as much potential, in fact I suggest more, for the far less sexy commodity type cuts. For example the age old supply of cow fore and hinds to the hamburger trade in Nth America is uncomplicated, efficient and does all that is required. But nowadays it is more or less a by product of dairying. There it is.

I think we'll have to leave it here and agree to disagree my friend.

Your last comment reads like you're resigned to the tools of the past? If you'll forgive the analogy here, I prefer to drive using the windscreen, not the rear view mirror. I tried to highlight the potential of low cuts in my previous comment, chef initiated I might add, but you seemed to have overlooked this.

If you think volume and commodity cuts will sustain this industry let alone the low end hamburger pattie market which synthetic meat can easily cater to at 1/10th of the price and environmental footprint I can only wish you well.

We have to get more from less not more from more. Our land and farming systems can't sustain it any other way.

Agreed. But surprised too. Most academics I have met do have at least some acquaintance with Santayana. There it is.

BRAZIL’S DOMINANT ROLE IN WORLD AGRICULTURE

The increase in Brazil's farm production has been stunning. Between 1996 and 2006 the total value of the country's crops rose from 23 billion reais ($23 billion) to 108 billion reais, or 365% and they continue to grow. Brazil increased its beef exports tenfold in a decade, overtaking Australia as the world's largest exporter. It has the world's largest cattle herd after India's. It is also the world's largest exporter of soybeans, poultry, sugar cane and ethanol. Moreover, Brazil supplies a quarter of the world's soybean trade on just 6% of the country's arable land.

No less astonishingly, is the fact Brazil has more spare farm land that all the spare land in both Russia and the U.S.. This is land in the right areas with the right rainfall that can be placed into production. This dominance has allowed Brazil to be labeled the world’s breadbasket and has turned Brazilian meat companies into the largest in the world. JBS and Marfrig, the purchaser of a majority interest in National Beef, are the number one and number two beef processors in the world.

As we all have read, doing business in Brazil like many other countries around the world is or has been tainted with payoffs and bribes. The wheels of commerce are oiled with payments, both political and commercial, to allow goods to flow in and out of the production venues. Reform is always just around the corner and it may happen. One thing that appears certain is some of the Brazilian giant ag companies are not going to wait to see, they are extending their grasp abroad and the U.S. is a important target.

The entry of Margrig into the beef processing business in the U.S. brings global expertise to our industry. The Brazilian companies now control something short of 50% [with JBS and Marfrig combined] of our processing capacity and will plan to source much of our domestic beef for export shipment. They also will challenge our own beef companies to innovate and will provide a competitive landscape for American beef producers to market their cattle.

All of our beef processors are making large profits currently and so long as new slaughter capacity is not forthcoming, that will continue. But they have an achilles heel – the labor force. Slaughter volumes have been curtailed by difficulties keeping the beef plants staffed with a sufficient labor force to manage the daily slaughter requirements. The industry is crying for innovation and new imaging and automated cutting technologies that will lessen the labor requirements.

The companies owning the beef plants that were built in the 1960s and 1970s will not be anxious to abandon those productive and profitable assets. This could set the stage for a disruptor to appear on the scene and revolutionize the industry in much the same way Currier Holman did with IBP 60 years ago. Stay tuned.