Omnishambles for lamb

‘Omnishambles’, is the word of the year, according to the Oxford Dictionary. Coined originally in a British TV political sitcom, and meaning ‘a situation that is shambolic from every angle’, at first sight it seems a good way to describe this week’s public showing for the sheepmeat industry. It also seems fitting as ‘shambles’ was the old Middle English word for the place where meat is butchered and sold.

High prices for lamb last year, caused in part by high schedule prices to farmers compounded by the ridiculously high NZ dollar and customer resistance to the resulting final prices, resulting in high stock levels have combined to produce announcements of combined losses of over $81.9 million by Alliance Group and Silver Fern Farms this week to add to the $605,000 loss announced in July by the ‘canary-in-the-mine’ Blue Sky Meats.

The situation was signalled earlier in the year, with price resistance being evident, but it wasn’t apparent, until the end of year accounts wash-up, just how bad the situation was. The fall-out continues. According to media reports, Alliance Group has also confirmed this week that it will make redundancy payments for up to 223 staff as a result of the closure of the Mataura sheepmeat processing plant, which it announced earlier this year. In addition, lamb schedule prices to farmers are said to be tumbling as processors react to the reluctance of European customers to pay the higher prices. Both Alliance and Silver Fern Farms have acknowledged they paid too much for livestock for too long.

The vultures gathered as the Meat Workers Union received plenty of coverage this week with its claims of ‘industry over-capacity’ and lack of leadership in the meat industry – sounding, perhaps, a little last century, but calling for government intervention. Hindsight is a wonderful thing.

Strong, but silent. Like a good southern bloke, the industry is taking its medicine. No industry comment has been made to date by any of the industry organisations or by Government. A response is probably brewing.

We know the meat export industry is resilient. It’s been around for 130 years after all. It’s also characterised by businesses: small-to-medium farming businesses supplying to mainly medium and large meat processing businesses producing product for, in some cases and from New Zealand’s perspective, gigantic global commercial concerns. All of which are subject to the current, and extraordinary, global economic pressures.

Contrary to MWU assertions, plenty is happening behind the scenes as a result of the 2010 Red Meat Sector Strategy, this year’s Riddet Institute’s ‘Call to Arms’, the Stanford University boot camp and no doubt also yesterday’s Pure Advantage Green Growth report will have sparked ideas. All of these work alongside and complement the Government’s  Business Growth Agenda. All highlight the importance of the primary sector to New Zealand’s future fortunes.

Stockpiles have already been worked through, new plants are being built, like Silver Fern Farms’ Te Aroha replacement plant for the one that burned down, and old ones adjusted to cater for the shifts in geographic livestock procurement, to adjust for capacity and cater for new customer requirements.

That was all last season. This is a new season. Lessons have been learned. As Allan Barber reported at the end of October, the 2012-2013 season was looking optimistic from the European perspective following the massive SIAL food fair in Paris. Add to that global meat demand is continuing its upward trend and the the fact that New Zealand meat has an exceptionally good reputation offshore and is the envy of many other producing countries, things ain’t looking so bad.

Omnishambles? I don’t think so.

 

 

Business Growth Agenda a big stretch, says Barber

The Government’s Business Growth Agenda progress report on Building Export Markets specifies the target of increasing New Zealand’s exports from 30 percent today to 40 percent of GDP by 2025. It’s a big stretch, says meat industry commentator Allan Barber.

The progress report states that primary sector exports have outpaced the rest of the export sector, growing by half in real terms since 2000 at an average productivity growth rate of 2.1 percent per annum. To achieve the target of 40 percent of GDP, agriculture will have to maintain its growth rate for the next 13 years, while the rest of the economy must lift its game considerably. Manufacturing and services have been increasing by one percent a year and need to lift this to five percent over the coming decade, or alternatively agriculture will be required to expand further to bridge the gap.

This is an enormous challenge, equivalent to creating 250 more knowledge-intensive businesses creating $100 million from exports a year. The report cites Navman as an example of the type of business required. How many more like this can we think of? Not many, so it is highly improbable that these new businesses will emerge from areas totally unconnected with agriculture.

Primary sector exports will therefore have to increase by quite a bit more than the average of the past decade, if the target as a whole is to be reached.

Using a different report and set of figures the Riddet Institute in its recent Call to Arms report challenged the primary sector to treble its exports to $60 billion by 2025, equivalent to New Zealand’s total exports of goods and services today. However exports of $20 billion are only one third of the total. These figures emanate from the Government’s Economic Growth Agenda.

We can quibble with the different measurements and totals used to arrive at the conclusions (GDP, total exports, growth rates), but the fact remains, it’s one hell of a big stretch to see how to reach the target. The goal of the Boot Camp taking place at Stanford University this week is to see whether like-minded companies can develop the strategies required to bring agriculture up the value chain, enabling the sort of increase envisaged.

The question is whether the Government’s progress report on the activities of the Business Growth Agenda will contribute to the big goal and, if so, how significantly. It is a big ask, because it demands growth of between 5.5 percent and 7.5 percent, depending on the economic growth path, compared with Treasury’s forecast for the next three years of 1.8 percent.

The report says with a degree of understatement that “to achieve our target will require a concerted effort to develop more internationally competitive businesses in both the commodity and high-value technology-based sectors.” This may be official speak for ‘we know we haven’t got a hope, but we have to start somewhere.’

The key planks of the export growth development strategy are: Delivering a Compelling New Zealand Story; Improving Access to International Markets; Increasing Value from Tourism; Making it Easier to Trade from New Zealand; Growing International Education; Helping Businesses Internationalise; and Strengthening High-Value Manufacturing and Services Exports.

The progress report finishes with a summary of the strategies under each of these headings and Progress Indicators listing detailed actions underpinning the strategies. There is an enormous amount of work going on, notably in trade negotiations, removal of red tape for business, trade missions into key markets and tourism developments such as SmartGate at the airport.

But all work on developing a compelling New Zealand story is listed as a new project which indicates one of the major problems encountered in lifting our exports as a percentage of GDP. There is no agreed brand image under which all New Zealand’s exports and tourism experiences are promoted. The meat industry’s main brand has for a long time been New Zealand Lamb which has been very successful, but a major complaint has been the competition in export markets between exporters. Apart from North America, cooperation has been seriously lacking.

Part of the problem has been the complete lack of a generic New Zealand brand image. Development of this with a believable and compelling story to back it is an absolute priority, because brands take a long time or a lot of money to gain awareness, probably both.

This progress report is the first of six with the other five to come being Innovation, Skilled and Safe Workplaces, Infrastructure, Natural Resources and Capital Markets. Obviously these other areas will play an important role in achieving the export goal.

The Government deserves credit for coming up with a coherent strategy, but it will have to generate a tremendous response from the private sector if the goal is to come close to being realised. Another challenge is the high proportion of SMEs in New Zealand which must be inspired to pursue the new business opportunities capable of converting them into large businesses with the requisite scale.

This article has also appeared at interest.co.nz.

Building Export Markets, government releases progress report

The Government has today unveiled its first Business Growth Agenda Progress report on actions to boost New Zealand exports. It is a timely appearance as the Primary Sector Boot Camp reaches its halfway point in the US.

Launched by Finance Minister Bill English and Economic Development Minister Steven Joyce, the Building Export Markets report from the Ministry of Business, Innovation and Employment (MBIE) confirms the Government’s target to increase the contribution of exports to the economy from 30 percent to 40 percent of GDP by 2025.

English says this a challenging target and achieving it will require a concerted effort by New Zealand over many years. It will also require the continued development of new and expanding export markets.

“It is only through exporting that New Zealand, with a small domestic market, can deliver the growth and productivity required to enhance the wealth of our country and create more and higher paying jobs,” he says.

“Committing to this ambitious goal means the Government will stay focused on supporting firms to grow their exports.”

Steven Joyce says the report highlights the significant shift in economic power from the West to the East that is expected to happen over the next 20 years.

Building Export Markets is the first of six progress reports on the government’s Business Growth Agenda. Others will address innovation,skills, capital markets, infrastructure and resources. The reports lay out the work programme government agencies are implementing. Each has an informal portfolio group of ministers specifically grouped around the work streams, to drive the Business Growth Agenda forward and focus on what matters to business and companies.

Government intends to see three additional cross-cutting themes to be reflected across the Business Growth Agenda workstreams. These are: Maori Economic Development, Greening Growth; and Regulation. Better telling the ‘New Zealand Story’ is another Government priority and work is already underway with key stakeholders on “developing a compelling and consistent narrative about our country’s special qualities that work for a range of exporters and sectors,” according to the Ministers.

Actions contained in the Building Exports report include improving access to international markets, making it easier to trade from new Zealand, helping businesses internationalise, increasing value from tourism and high-tech manufacturing, growing international education and strengthening high-value manufacturing (including food and beverage manufacturing) and services exports.

“This first report is important, as it lays out the challenge for achieving growth – which is about being much more closely linked into the rest of the world and taking advantage of our opportunities,” says Joyce.

“While the world is going through tough times, the growth in Asian incomes will occur over the next 20 year. So there will be job growth, New Zealand’s challenge is to ensure it occurs in New Zealand, not in Australia, or somewhere else.”

The report shows that beef, lamb and wool accounted for 13 percent of New Zealand’s total $47.7 billion goods exports in 2011.

The Building Export Markets report is available here.

Carter in US for boot camp

Because of its size and importance, New Zealand’s primary sector, which currently accounts for 55 percent of exports is “critical” to achieving the government’s desired growth, the report says, so the outcome of this week’s Primary Sector Boot Camp at Stanford University will also be critical.

Minister of Primary Industries, David Carter, is part of the nine-strong Export Markets ministerial group, which also includes Prime Minister John Key, Steven Joyce, Murray McCully and Tim Groser.  Carter is travelling in the United States this week to attend the Boot Camp and also to talk with US agriculture sector political leaders and officials.

“This is an excellent opportunity for the leaders of some of our most forward-thinking primary sector companies to collaborate on formulating a plan to leverage New Zealand’s competitive advantage globally,” Carter said before he left.

“It’s not often that we can get a powerful group like this representing over 80 percent of New Zealand primary sector exports around the table, and I am confident of a positive outcome.”

About 20 leaders from New Zealand’s dairy, meat, seafood, wine and horticulture industries are among those attending the week-long camp alongside top government representatives from MPI and NZ Trade and Enterprise. The group will be hearing from first class speakers to inspire and motivate their thinking. The event has been supported with a $100,000 grant from AGMARDT.

Among the range of agricultural organisations the Minister is meeting with separately to discuss common New Zealand–US primary industry interests are the Tri-Lamb Group and US Cattlemen’s Association.

“These meetings further strengthen the New Zealand-US bilateral relationship and give our two countries the opportunity to canvass a range of issues in the primary industries policy area.  It is an opportunity to highlight the excellent collaborative work we already have with the US though the Global Research Alliance on agricultural greenhouse gases,” says the Minister.

“I particularly look forward to discussions on the mutual benefits that will be realised through the Trans-Pacific Partnership free trade agreement currently under negotiation.

“The TPP is important to New Zealand’s trade future and this visit will provide the opportunity to take political level readings on its progress.”