Comment: It’s all about marketing, says Calder

Mick CalderOne of the Strategic Themes of the Red Meat Sector Strategy (RMSS) was a call for ‘Increased co-ordinated in-market behaviour’, notes Mick Calder in his latest blog post.

For all the puffery surrounding the strategy, an ordinary bloke like me, sitting in the provinces, would be at a loss to discover any increase in co-ordination in the markets for red meat.

All I could find was a Quarter 4 2011 report released in October 2011; where is the 2012 report?

That report notes an increase in co-funding by processor partners in the Meat Promotion Group, but the Group was in existence prior to the RMSS, so it was hardly a new co-ordination initiative.

There is the NZTE Red Meat Sector Market Development Contestable Fund which is designed ‘to encourage market development projects that lead to profitable and sustainable growth for the NZ Meat Industry’, with projects that can have a transformational impact for the wider red meat sector. But they are individual initiatives, rather then co-ordinated approaches. So one is led to conclude that the co-ordination of in-market behaviour is just plodding along.

It should be recognised that the RMSS report described the ‘Marketers’ as being predominantly within processor companies and had the following characteristics:

  • They are often only a small team,
  • They undertake very little investment in marketing and market development activities, and
  • They share some common customers in key markets.

This description raises the question as to why there has not been a greater focus on the marketing activities, rather than forever trying to wrest better returns from improving productivity of already stretched producers, or from processor mergers, closures and restructuring.

Looking at the developments in the fortunes of other sectors of the primary sector the one major difference is there is a distinct lack of marketing co-ordination or co-operation in the sheep and beef sector. Its all about marketing, not only for the red meat sector but also for wool.

At the risk of being labelled a ‘market socialist’ I would suggest that as the red meat industry is predominated by two co-operatives maybe attention should be focussed on the advantages of the formation of a marketing co-operative. It may even be possible to persuade some of the privately owned companies to participate.

If you are looking for guidance on the pros and cons of marketing co-operatives then the best place to look is that hotbed of capitalism – the USA – where co-operative agricultural marketing organisations flourish. However the Danes, Dutch, German and French are also avid supporters of co-operative corporations; not just in the form of farmer owned organisations, but centralised co-operatives undertaking marketing and other services for its regional or smaller member co-operatives. New Zealand has its marketing co-operatives in the form of Fonterra and Zespri.

The benefits of co-operative marketing are generally recognised:

  • Economies of Scale – the economies of joining forces with the consequent reduction in costs, and marketing under a strong brand;
  • Marketing Expertise –a larger co-operative marketing organisation enables processors with predominantly production skills to engage marketing managers with the expertise to develop profitable market channels and brands;
  • Bargaining Power – the establishment of a larger group provides a greater degree of market power in dealing with customers and probably other service providers such as transport companies and even bankers;
  • Flow of Product – a joint marketing organisation would assist in meeting the requirement from retail customers these days for a consistent flow of product despite adverse events, droughts or floods or even seasonal volatility which disrupt that flow;
  • Product Returns – the net income generated by the marketing organisation is returned to the members in proportion to the volume of product supplied adjusted to take account of different product formats.

There can of course be some challenges such as agreeing on a common mission and recognising that there has to be some give and take between the processor members and the marketing organisation so that one does not predominate. As directors of the marketing co-operative are invariably representatives of the processor members they should be reminded they are there to work for the good of the marketer not the directors’ own companies.

The biggest challenge however is to develop trust in the other members particularly with respect to sharing of information relating to both processing/production issues and market intelligence. Such trust is essential to ensure that the members remain loyal to the organisation and do not try top circumvent it for their own advantage.

I am an advocate for the co-operative marketing model because I have seen it working well. The New Zealand Lamb Company was established to market lamb in North America, and had a volatile history, but in the late 1990s it was restructured along co-operative marketing lines. Despite some issues with declining supplies from NZ and changing membership due to the restructuring of the industry here, the co-operative organisation has thrived and produce reasonable returns for its members.

So the model exists and I reckon it would be worth considering either a co-operative marketer for other key export markets or even a central buying and marketing organisation for all markets. But that may be too close to the NZ Power proposal.

Mick Calder says he’s a ‘generalist’ having started in agricultural science then marketing economics and trade policy, and finished in business management and administration, with elements of bookkeeping and legal drafting thrown in. His professional roles include former board secretary for the New Zealand Meat Board and later the NZ Lamb Company. He was co-author, with Janet Tyson, of Meat Acts, a history of the New Zealand meat industry from 1972 to 1997, which makes fascinating reading (Published 1999: ISBN: 0-9582052-2-1). He has written countless other reports, newsletters and articles for magazines and newspapers. He also maintains his own blog, Agriphile.

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