Change needed for meat and beef farming

CONOR ENGLISH
Last updated 11:31 09/04/2013

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OPINION: Recently about 1000 meat and beef farmers met in Gore.

This meeting highlighted the concern that these farmers have about the profitability and sustainability of their farming businesses.

There are questions about the ability of the current supply chain arrangements to deliver appropriate returns to farmers so that they and their families can get ahead while New Zealand as a country can take advantage of the increasing market opportunities in a world of more people, protein and wealth.

About three years ago Federated Farmers launched a T150 campaign, which set the aspiration of farmers receiving $150 for a mid-season lamb. It's a simple idea.

Right now this seems a pipe dream, but it is actually critical to New Zealand that this target is reached sooner rather than later.

As a speaker at the Gore meeting I stated that the status quo leads to peasantry; change is required; change needs to happen now; and no-one is exempt from change.

Too often both farmers and companies have talked past each other, suggesting it's the other's responsibility to change.

The reality is everyone needs to be prepared to make some changes. That's what happens in a dynamic marketplace.

The trick is to get sentiment translated into real action that actually does make a difference. So what should be changed and how?

To give a contextual framework, the 2011 Red Meat Strategy promoted action in three key areas:

*In-market co-ordination

*Efficient and aligned procurement

*Sector best practice

While this strategy specifically, and perhaps unhelpfully, ruled out recommendations on industry structure, it does provide a useful framework.

In recent correspondence I have had with my counterpart at the National Farmers Union in the United Kingdom, he has expressed concern that New Zealand lamb is apparently selling at half the price of domestically produced lamb.

If this is indeed the case on an apples-with-apples basis, it is not good for farmers in either country. There are many anecdotal stories of New Zealand companies undercutting each other in the market.

This has been a long-rehearsed argument for change by farmers, some of whom suggest a meat sector "Fonterra Model" is the silver bullet.

However, it's all about incentives, and many of the incentives in the meat sector are around volume, rather than value. We need to start to unpack what the "Fonterra model" actually is.

It simply has to be acknowledged that meat and milk are different products, with selling meat more complex as it disaggregates a carcass into over 100 different components, while milk essentially gets the water sucked out of it.

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However, it is still possible to run a procurement model as per the Fonterra procurement model.

In the Fonterra procurement model all farmers sell their produce at the farm gate to one processor/marketer and every farmer receives the same price per kilogram for his/her product irrespective of when they supply it.

It is essentially a nationwide, year-long pool system which gives out advance cash payments and an end-of-season adjustment.

Any extra revenue earned at peak times or from high-value customers is simply tipped into the pool and everyone gets to benefit from it.

It's pretty straightforward and dairy farmers seem to like it.

For the meat sector to do this would mean essentially running a nationwide pool for each of the grades of meat.

This would mean that farmers would receive the same price whether they sold in December, February, May or September.

As with Fonterra, a kilogram price per grade would be announced at the beginning of the season, for example $6.50.

This would be reviewed a couple of times during the season. An advance payment would be made of say $3.50 per kilogram and at the end of the season there would be an under and over wash-up. T

his could work. It would be a dramatic change for the sector and needs to be more thought through.

For some farmers, the "Fonterra model" means one company doing most of the processing and marketing. For meat this means consolidation of the farmer-owned co-ops and perhaps others.

An alternative suggested is almost the old Dairy Board model where there are a few processors focus on processing efficiently, while a separate organisation undertakes a reasonable chunk of the marketing of the product.

That there needs to be change, and change by all, there is no doubt. However what those changes should be is a work in progress. Watch this space.

Conor English is chief executive of Federated Farmers

- Waikato Times

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