Tag Archives: New Zealand lamb

Debt is good under some circumstances, says Barber

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Allan BarberAfter Allan Barber’s column last week about meat industry debt levels, Keith Cooper, chief executive of Silver Fern Farms, took him to task for incorrectly reporting the situation with Silver Fern Farms’ debt facility, he writes in his latest guest blog.

I stated that these expired in September 2012 and therefore the company was operating on a temporary extension. The correct position was that the debt facility was originally negotiated for two years from September 2010 and consequently due to expire in September 2012. This remained the position at balance date in September 2011. However in the 2012 annual report, the facility was stated as expiring on 31 December 2012.

Clearly, the company had arranged a three month extension at some point before the original two year facility expired and this was not a temporary facility, as I implied. Nevertheless, it was no more than a three month extension, while the next longer term arrangement was being negotiated.

I apologise for any incorrect interpretation, but still maintain the company’s current debt level at balance date was higher than could be considered comfortable.

However, in an interview with Jamie Mackay on the Farming Show last week, when asked to comment on the industry’s debt level, Cooper gave his opinion that the debt was a good thing. Because it was tied up in inventories, it would ensure the industry acted responsibly. This is almost exactly what I wrote last week, although I saw the discipline on the companies as a necessity, not a virtue.

In Cooper’s radio interview, he stated after record prices last year, meat companies are reining things in.

“It’s a damn good thing we do have stock in store and we do have high debt because that means meat companies are acting responsibly, and are feeding the product to market to create stability of price. I’m quite happy that us and other companies have debt because that means they’ve got stock in store and that means we’re managing markets well.”

I must give Keith credit for being unreservedly a ‘glass half full’ kind of guy which you have to be to survive in what I believe is New Zealand’s toughest industry. He promises farmers that things will improve.

“We are living in volatile times. There will be volatility, but through the volatility we will see a steady increase in the price we will receive from offshore,” and he expects meat companies will pay farmers around 90 dollars per lamb this year.

I’m not sure the glass is quite as half full as Keith Cooper suggests, especially in the sheep meat market. Although lamb leg prices in the UK are holding fairly well, especially for chilled product, prices for middle cuts, like racks, loins and tenderloins, in North America and Europe are under pressure.

The price of loins and tenderloins have dropped by as much as 30 percent in the last couple of months, while there are fears of another collapse in lamb rack prices because of competition from low priced Australian product. As a result, importers are not placing orders for New Zealand lamb, because they remember the last time prices collapsed.

The Middle East has gone quiet on lamb shoulders because of cheaper Australian product, although China is still firm. Here, it appears New Zealand exporters benefit from less Australian competition with fewer China licensed plants in Australia.

All this explains why the New Zealand consumer is able to buy plenty of well priced lamb available on the domestic market. But this won’t provide more than a minimal contribution to managing the existing inventory levels and it certainly won’t cope with next year’s peak production. The industry will be keeping its fingers and toes crossed for an early economic uplift in our main markets, UK, Europe and North America, because otherwise the glass won’t have much in it at all.

Allan Barber is an agribusiness commentator, with particular interest in the meat industry. He has his own blog Barber’s Meaty Issues. This item has also appeared at www.interest.co.nz.

Success depends on innovation

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Success depends on innovation, says the head of one of the world’s leading retailers – and a major customer for New Zealand lamb.

Speaking at the FT Innovate 2012 conference in London in early November, Tesco Plc’s group chief executive Philip Clarke said: “Be it nations or companies, if you don’t innovate; if you cling to the old way of doing things in the forlorn hope that the pace of change will slow; if you dare not take risks for fear of failure – if you do these things, then decline is inevitable.”

Change and innovation are part of every successful businesses’ DNA, he said and related the story of Tesco’s founder Jack Cohen “an innovator to his fingertips.”

It was Cohen who helped bring the concept of a self-service supermarket to Britain after World War II “an innovation that changed the entire retail industry.”

His innovative streak was borne out of an attitude of mind. “He’d travel, he’d constantly ask questions, spark ideas, try things. Lesson one from Jack then: to innovate we must create the right mindset.”

Since then Tesco has been leading innovation in retail “everything from new formats like Express to centralised distribution, which have revolutionised the supply chain here in the UK,” said Clarke.

The digital revolution is heralding a new era of retailing. While the customer always was king, thanks to digital technology, today’s customers are more powerful than ever. “Not just with more information and choice of goods and services to buy, but a choice of ways to shop at whatever time they like,” he said, adding that social media creates fashions in seconds, making or destroying brands within a day.

In the wake of the change has come data. “The vast, almost infinite quantities of data now available means no retailer has any excuse not to abide by the first law of business: know your customer.”

The insights gleaned by Tesco by its Clubcard, launched in the 1990s, turbo-charged Tesco’s growth. Data is now helping Tesco to drive innovation: “Which is why we own Dunnhumby, our marketing services business.”

While data is important, experimentation is vital. “Try, try and try again. And in the face of failure look for what is good about the experiment. Encourage your people to try again, to build on the success, not blame them for the failure.”

People said, when Tesco.com was launched in 2000, it would not work. “Today it is the world’s largest and most profitable online grocery retailer and we are rolling out the service across all our markets. Already more than five years old in Korea and Ireland; we have launched it in Slovakia, Czech, Poland. Thailand follows very soon.”

That roll out has been made possible thanks to an innovative IT platform that has been developed by Tesco’s Hindustan Service Centre, the company’s global services arm based in Bangalore, said Clarke.

“Employing over 3,000 technologists, this is where we develop new web services and systems so they are on a common operating platform, allowing is to set them up easily in markets around the world.”

Clarke described Tesco as a ‘blueprint led organisation’. “Once innovations are proved successful, a blueprint is developed and managers trained to speed adoption around the world.”

In each of their markets, Tesco.com’s offer has to be tailored to meet the local culture and tastes. New innovations to aid speeding delivery to the customer include Mapster, an application which tracks Tesco vans in real time and is being piloted in some stores around London. Tesco has also created a virtual store in Seoul, Korea, where commuters can use their smartphones on the platforms of the city’s underground to scan the barcodes of the products they want – and then their shopping gets delivered to the address of their choice later on the same day.

“Our Korean colleagues lead on digital innovation for the Group – not because we asked them but because we fostered a culture of innovation; we encouraged innovation and recognised colleagues for trying.”

Clarke liked to think that Jack Cohen would be proud of what Tesco did with Facebook, asking customers what ice-cream flavours they wanted – the 21st century equivalent of his 1930s store tours in Hackney. “Asking customers what they want isn’t new, but doing it the digital way is.”

Looking to the future, Clarke said for retailers it’s no longer going to be sufficient to innovate simply to meet an existing customer trend. “We need to innovate to anticipate what customers want. Successful retailers will not be those who meekly follow the customer like some obedient puppy. They will be one step ahead, offering people new ways to make their lives that bit better.”

Those innovations have to fit a powerful trend created by the power of digital technology,. “People want and increasingly expect personal service, a personalised choice, a sense that a brand – be it a retailer or media organisation – has tailored what they offer to fit their own unique needs and wishes.”

The drive to personalisation will be propelled even further by the internet of things. “Everything from the light bulb in your house to the car you drive will be connected to the internet… Mass personalisation, plus the internet, will determine everything, from pricing and promotions to the internet.”

Innovations depend on much more than just clever people who are experts at technology; and they rely on much more than just using customer insight in an intelligent way, Clarke said.

“From the perspective of any CEO, a company that truly excels at innovation is a company whose culture rewards innovation. It is a culture where people understand that, to change, to create something new, means taking risks. A culture where people know that innovations can certainly fail, that mistakes happen, but you learn from them; where aiming high, having a big, bold idea is not frowned upon, but encouraged. A culture in which the leaders think the biggest mistake is not trying, not experimenting, not taking a risk.”

 

Emissions from global agriculture bigger than thought

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Britain’s Daily Mail newspaper ran an article this week suggesting that (un-named) ‘experts’ were claiming British shops should sell New Zealand lamb because British farming methods produce twice as much greenhouse gas.

The item, which has been picked up and run in various New Zealand papers, was based around a newly released United Nations Consultative Group on International Agricultural Research (CGIAR) analysis Climate Change and Food Systems. Taking a closer look it’s clear that the comprehensive study itself didn’t actually say that but it was an interesting read, presenting for the first time the GHG footprint for the global food industry and showing that global agriculture is a much larger contributor to climate change than previously thought.

The analysis, which was recently published in the 2012 Annual Review of Environment and Resources presents figures showing that feeding the world released up to 17,000 megatonnes (Mt) of carbon dioxide into the atmosphere in 2008, contributing up to 29 percent of greenhouse gas (GHG) emissions. But while the emissions ‘footprint’ needs to be reduced, a companion policy brief by CGIAR’s research programme on climate change, agriculture and food security (CCAFS) – Recalibrating Food Production – lays out how climate change will require a complete calibration of where specific crops are grown and livestock raised.

Together, the two reports “shed new light on the intertwining evolutions of climate change and the world’s food system and their potential impact on humanity’s relationship with food,” says CGIAR.

Climate change mitigation and adaptation are critical priorities, according to Bruce Campbell, CCAFS’ programme director. “Farmers around the world, especially smallholder farmers in developing countries, need access to the latest science, more resources and advanced technology. This research services as an urgent call for negotiators at the upcoming UN Framework Convention on Climate Change in Doha.”

CGIAR Consortium chief executive Frank Rijsberman says: “We are coming to terms with the fact that agriculture is a critical player in climate change. Not only are emissions from agriculture much larger than previously estimated, but with weather records being set every month as regional climates adjust and reset, there is an urgent need for research that helps smallholder farmers adapt to the new normal.”

Climate Change and Food Systems assesses the entire food system’s emissions ‘footprint’ – in total somewhere between a fifth and a third of the greenhouse gases emitted by people on this planet. “This figure accounts for every aspect of food production and distribution – including growing crops and raising livestock, manufacturing fertiliser and storing, transporting and refrigerating food. Agriculture accounts for around 80 percent of these emissions, but the combined contribution of transport, refrigeration, consumer practices and waste management is growing,” according to CGIAR.

“The food-related emissions and, conversely, the impacts of climate change on agriculture and the food system, will profoundly alter the way we grow and produce food. This will affect different parts of the world in radically different ways, but all regions will have to change their current approach to what they grow and eat,” says Sonja Vermeulen, the head of research at CCAFS and the lead author of the study.

Delving deeper

Climate Change and Food Systems adds the figures across the aggregate global food chain, and assuming a growth in emissions of three percent a year, gives the total global greenhouse gas (GHG) emissions for 2008 in the range of 9,800 to 16,900 megatonnes of carbon dioxide equivalent (MtCO2e) from the food system, inclusive of indirect emissions associated with land-cover change. “Thus the food system contributes 19-29 percent of total global anthropogenic GHG emissions … Of this, agricultural production, contributes 80-86 percent at the global level, while the remainder comes from pre-production (predominantly fertiliser manufacture) and the post-production activities of processing, packaging, refrigeration, transport, retail, catering, domestic food management and waste disposal (landfills).”

Reflecting findings from New Zealand’s own 2010 GHG footprint for lamb, where 80 percent of emissions were also found to be from on-farm, the study notes that packaging for both vegetables and meat “is of minor importance in terms of total food emissions.” Transport “makes a large direct contribution” – for example, of the 19MtCO2e produced transporting food around Britain in 2002, 10Mt were emitted in the UK, all from road transport. An interesting estimate from a US researcher is that the same amount of fuel “can transport five kg of food only one km by car, 43 km by air, 740 km by truck, 2,400 km by rail and 3,800 by sea”. So, if that is correct, transporting the five kg of food 3.15 kms by car is the equivalent of a 12,000 km journey by sea, in terms of fuel used. For New Zealand lamb, transport accounts for five percent of the product footprint.

Refrigeration is noted to be the “major energy-intensive component of the food chain”. Limited data brought together by the study suggests that it accounts for one percent of total global GHG emissions and another researcher has estimated it accounts for 15 percent of electricity use worldwide. Food waste also contributes to GHG emissions directly through methane emissions from landfills and handling the waste to get it to landfill.

New Zealand: lead role

New Zealand has been taking a lead role on the world stage in tackling agricultural emissions. The Pastoral Greenhouse Gas Research Consortium (PGgRC), was established in 2002 and the New Zealand Agricultural Greenhouse Gas Research Centre (NZAGRC) opened in 2010. The latter recently released its highlights for 2012 detailing progress made in research focusing on mitigation of methane and nitrous oxide emissions, in understanding soil carbon and in developing integrated systems. The work on the GHG footprint for New Zealand beef was also recently released and will be covered in the forthcoming Food New Zealand magazine (December/January 2012) and included in this blog.