Confidence and trust central challenge for sector

KPMG-NZ-2013-Agribusiness-Agenda-webConfidence and trust is the central challenge facing the red meat sector, according to KPMG’s recently released ‘State of the Nation’ 2013 Agribusiness Agenda. It makes an interesting read.

Noting “many and varied views on the root causes of the issues the sector faces,” the Agenda also says there is much to celebrate: New Zealand is the largest exporter of lamb, a premium red meat protein delivered to customers around the world, and there are many companies innovating with procurement, processing, products and marketing.

However, issues with the industry’s structure and performance cannot be ignored as KPMG believes the sector “lacks the balance sheet depth to take many more losses of a similar scale.”

The Agenda notes the four companies which reported results in 2011/2012 – Alliance, ANZCO, Blue Sky Meats and Silver Fern Farms – which had a combined revenue of $4.7 billion and a combined loss of $105.37 million.

“Change must follow before the banks, and ultimately the liquidators, are called in,” the report says, acknowledging that part of the 2012 losses related to market conditions, exchange rates and other external factors over which limited control can be exercised.

During 15 Roundtables, over 100 industry leaders – including several present and past meat industry leaders – ranked a series of industry priorities. In 2013, the major focus of agribusiness leaders remain the critical issues of biosecurity, water, people, value-added production and the desire for greater collaboration across industry, says KPMG.

During those discussions, the central challenge facing the red meat sector came back to confidence and trust. Neither farmers or processors trust each others behaviour which is leading to insufficient investments being made by either side, with both sides adopting short-term, trading behaviour in an effort to make a dollar.

“As a result, the more certain returns from dairy farming are attractive to land owners and land conversions continue at a good pace.”

However, the vast majority of leaders contributing to the Agenda do not want to see New Zealand become a large dairy farm.

What’s the answer? Not an imposed regulated solution that overrides individual property rights. “Common commercial ground needs to be identified; but given the urgency of the situation, significant compromises are likely to be required by all parties to achieve a workable deal,” says KPMG.

The size of the prize is significant, KPMG says, but any change is going to require strong leadership both behind and beyond the farmgate.

“… the process needs leaders with the fortitude and willpower to keep pushing forward. We need total focus on the belief that the sector and its participants will ultimately benefit from collaborating or consolidating.”

The KPMG Agribusiness Agenda also looks at the challenges for capital investment beyond the farmgate.

All something for our leaders to contemplate.

Read the KPMG Agribusiness Agenda …

Four more volumes of the Agribusiness Agenda will be released during the year, looking at critical topics in more depth.

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