Analysis of the objectives and methodology of the Red Meat Profit Partnership (RMPP) suggests the programme has highlighted the most important issue facing the red meat sector. Briefly stated, it is to work out why there is still such a significant gap between the top farmers and those in the middle of the pack and to lift the average closer to the top performers.
When the Red Meat Sector Strategy (RMSS) identified behind the farm gate specifically as a major area of potential improvement, there was much mumbling about why the industry structure wasn’t being more usefully exposed as the area most in need of improvement. But figures released by the B+LNZ Economic Service show this isn’t the case.
The most graphic demonstration of this appeared in the RMPP brochure sent out last year. Sheep and beef farmers were grouped in 20 percent quintiles for comparison and in this table the second to bottom quintile was compared to the top 20 percent: there was a three percent gap in lamb price achieved, but a staggering difference of 135 percent between the groups when measured on dollars per lamb and dollars per hectare regardless of the class of farm. To put it simply the top 20 percent are nearly two and a half times as profitable on a pre-tax basis.
Obviously the bottom 20 percent lags even further behind. However, this position has improved markedly over the last 20 years with a much greater percentage of farmers moving up the performance scale into a higher quintile. It is tempting to ask how much smaller the national flock would be today, if the level of performance was still stuck at 1991 levels.
A great deal of work has already gone into the RMPP, first in preparation for obtaining Primary Growth Partnership (PGP) funding and second in getting to the stage of signing up the parties to the limited partnership of industry contributors achieved a couple of weeks ago. There is a good cross section of participants including B+LNZ, six meat processors, two banks and Deloitte which have committed to $32.15 million which matches a similar contribution from PGP programme funding.
These are not small sums of money which the partners are willing to invest which should hopefully convince sheep and beef farmers that their future prosperity is considered really important. The target is to increase on farm revenue by $880 million and profit by $194 million per year by 2025.
The funding programme is designed to be spread over seven years, although chairman Malcolm Bailey has said he wants to achieve the outcomes faster than that. There are five distinct projects, the first of which – to understand farmer behaviour – is already well under way towards completion before the end of this year.
This project is essential for setting a firm platform for the programme as a whole with one set of integrated information. This research seeks to establish across all farming groups barriers to change, what works and doesn’t work in farm extension, and what distinguishes the high performing farmer from the lower performing tiers.
The second project focuses on enhancing sector capability, using the banks’ expertise in governance and financial planning, alongside in excess of 80 pilot schemes to be carried out by farm advisors to achieve best practice in breeding, pasture, forage, technical innovation and the development of integrated applied farm systems. An important aspect of this work stream is to attract bright new talent to the meat industry.
The third project will concentrate on providing linkage and integration between farm reporting systems which at present are often not properly integrated. This will enable better farm management decision making through benchmarking against regional and national information. Another priority would appear to be teaching sheep and beef farmers the importance of budgeting, because a recent study found that 65 percent don’t budget, while a further 30 percent don’t budget effectively which only leaves five percent who do it properly.
While the other two projects certainly involve farmers, they also require significant input from other parts of the industry. AsureQuality has the task of ensuring consistency between processors’ quality assurance (QA) systems which will make a common set of standards clear to all farmers. This will also enable the achievement of product consistency to meet the expectations of all customers.
The final project is one which farmers will no doubt welcome because it is designed to achieve efficiency in the chain linking farmer and processor. Knowing how much unnecessary transport happens at the moment, some of it driven by farmers and some by processors, this area touches on the need for capacity rationalisation which is not the responsibility of the RMPP. Deloitte has accepted responsibility for this piece of work.
I am encouraged by the amount of detail and careful planning which underpin this programme because it is of crucial importance to the future of the red meat sector. It demands a great deal of commitment from all the partners, including tax-payers, farmers and commercial operators.
It won’t happen quickly, but far better to do it properly. Farmers stand to gain a lot from the programme’s successful implementation, but so do the meat companies, banks, all businesses that service or supply the sector, and ultimately New Zealand as a whole.
Allan Barber is a meat industry commentator. This item has also appeared at NZ Farmers Weekly. Allan has his own blog Barber’s Meaty Issues and can be contacted by emailing him at firstname.lastname@example.org.