PGP project suggests meat industry ready to co-operate, says Barber

Allan BarberYesterday’s announcement of the Red Meat PGP Collaboration Programme for Greater Farmer Profitability at a total investment of $65 million is fantastic news for the whole industry, says meat industry commentator Allan Barber. The key words are ‘collaboration’ and ‘farmer profitability’, he writes.

The first of these has usually been notable by its absence, while the second combination of words has only been evident at irregular intervals.

Half the funding will be made available from the Ministry for Primary Industries (MPI)’s Primary Growth partnership fund, while 30 percent will come from farmers through Beef & Lamb New Zealand Ltd (B+LNZ) and Meat Board reserves and the balance from six meat companies, two banks and Deloitte.

B+LNZ’s contribution is contingent on levy paying farmers voting in support of the proposal at its annual meeting on 8 March. Although nothing is ever certain, it would be a shock if this support wasn’t forthcoming, because the programme represents a significant step towards fulfilling the objectives of the Red Meat Sector Strategy conducted by Deloitte and completed nearly two years ago.

The aim of the programme is to lift the performance of all farmers to match that of the best performers which was identified in the strategy as the best way of improving industry profitability. There is a significant gap between the top and bottom performers in farming methods and profitability. If this gap can be closed the gains for the sector and New Zealand are enormous.

The participation of the six meat processors – AFFCO, Alliance, ANZCO, Blue Sky, Progressive Meats and Silver Fern Farms – is as meaningful as it is welcome. These are the key sheepmeat processors which is recognition that it is the sheep meat sector in particular where the greatest gains are to be made. However, the focus behind the farm gate shouldn’t obscure the fact that there are substantial gains to be made from greater collaboration in the market place.

A striking aspect of yesterday’s press releases by Ministry of Primary Industries, B+LNZ, Alliance and Silver Fern Farms (SFF) was the difference in tone between the statements by the two meat companies and the enthusiasm with which Beef & Lamb is greeting the opportunity.

The tone of SFF’s press release was less than enthusiastic, emphasising the need for a levy vote in support before the programme could begin and the care taken to ensure this programme did not cut across SFF’s Farm IQ programme which was the first project out of the blocks.

In spite of a first sentence which confirmed SFF’s support for the collaboration programme, the main impression from the statement was that the company was a somewhat unwilling participant and would be guided by the farmers’ decision. If this happened not to be supportive, I was left with the feeling SFF would not be particularly upset.

In comparison with Keith Cooper’s guarded support for the programme, Alliance chief executive Grant Cuff was positively euphoric, stating:

“This new coordinated collaborative initiative will enhance the knowledge and capability in the sheep and beef sector and help improve farm performance, productivity and profitability.

“New Zealand can make significant gains in its export earnings by ensuring all parts of the value chain collaborate so suppliers are using the best available farm and business management practice and tools.

“This initiative is an important step in the implementation of the Red Meat Sector Strategy. We’re supportive of any steps to lift the industry’s game and improve on-farm profitability.”

After my recent call for a sheep meat strategy, I am cheered by this progress. Admittedly, results won’t happen immediately, but it provides an investment over several years during which industry participants will work together for the collective good.

This must be one of the best possible outcomes for an industry which is noted more for its divisiveness than its potential to cooperate in the interest of a better future for all the parties.

Allan Barber is a meat industry commentator who writes a number of columns on the topics. He has his own blog Barber’s Meaty Issues.

PGP programme being welcomed by industry

Grant Cuff, Alliance Group.The new PGP programme, Collaboration for Sustainable Growth, announced yesterday is being welcomed by the industry.

Leading meat processor and exporter Alliance Group has welcomed the initiative designed to improve farmer profitability.

Grant Cuff, chief executive of Alliance Group Limited, one of the founding organisations taking part in the initiative says the new co-ordinated collaborative initiative will enhance the knowledge and capability in the sheep and beef sector and help improve farm performance, productivity and profitability.

“New Zealand can make significant gains in its export earning by ensuring all parts of the value chain collaborate so suppliers are using the best available farm and business practice and tools,” he says, adding that the initiative is an important step in the implementation of the Red Meat Sector Strategy (RMSS). “We’re supportive of any steps to lift the industry’s game and improve on-farm profitability.”

Alliance Group is already implementing many of the RMSS recommendations “as we strive to improve sustainable profitability for the sector,” Cuff says.

Alliance Group has invested significantly in technologies such as Hoofprint, VIAscan and Central Progeny Test trials and research into sheepmeat eating quality, which all aim to assist suppliers to produce high quality livestock and improve farm productivity, he says.

Mike Petersen, B+LNZ Ltd chairman.Another programme partner Beef + Lamb NZ Ltd (B+LNZ)’s chairman Mike Petersen has also welcomed the initiative which he says “will be a huge boost for the sector and will accelerate progress in an increasingly collaborative approach across a range of issues that are important for sheep and beef farmers.”

B+LNZ has been working increasingly closely with meat processors in recent years through its joint venture market development programmes and collectively with processors and exporters via the Meat Industry Association (MIA). The Collaboration programme goes behind the farm gate to help improve productivity and profitability and addresses a number of the issues highlighted in the RMSS, developed by B+LNZ Ltd, the Meat Industry Association and the government in 2011.

Red meat industry to work together

Wayne McNee, MPI.The red meat industry has agreed to work together to promote and assist in the adoption of best practice by sheep and beef farmers, as part of a new $65 million dollar sector development project with Government co-funding.

Wayne McNee, director-general of the Ministry for Primary Industries (MPI), has just approved a commitment of up to $32.4 million from MPI’s Primary Growth Partnership Fund (PGP) for the red meat sector’s new Collaboration for Sustainable Growth programme.

This seven-year programme will bring together a number of participants in New Zealand’s red meat sector including co-operatively owned and privately owned processing companies that together account for a substantial majority of New Zealand’s sheep and beef exports, two banks and Beef + Lamb New Zealand Ltd.

It aims to ensure that red meat producers consistently have access to and are able to effectively use the best-available farm and business management practices, by addressing gaps in technology transfer and ensuring stronger co-ordination between organisations and individuals working with farmers.

MPI Director General, Wayne McNee says the new PGP programme will transform the delivery of knowledge and capability within the sheep and beef sector.

“Importantly this is the most comprehensive collaboration of its type ever seen in the red meat sector, and the opportunities are very exciting. The Collaboration programme will build base capability, delivering benefits across the sector and aligned with other PGP programmes.”

The next step to establish this PGP programme is to develop the contract with the Crown and to seek farmer support for their portion of the investment. It is anticipated that once the required farmer and company approvals and contracts are in place programme delivery can begin, expected to be in the third quarter of this year.

Organisations presently in this initiative are: AFFCO, Alliance Group, ANZCO Foods, ANZ Bank, Beef + Lamb New Zealand, Blue Sky Meats, Deloitte, Progressive Meats, Rabobank and Silver Fern Farms. The programme is designed to be open, enabling others to invest. Participants will establish a formal partnership to run the Collaboration programme.

Chairman of the programme’s Steering Group, Dr Scott Champion says the Collaboration programme is built on the findings of the Red Meat Sector Strategy and will deliver significantly on the Strategy’s sector best-practice theme.

“This initiative is evidence that the industry is committed to delivering on the recommendations of the sector strategy. More industry collaboration is high on the list of Strategy actions, and so to have the red meat industry focused on supporting farmers and united in this programme is of major significance. Importantly, the Strategy also underlined the returns available to all farmers by lifting productivity and management towards that of the country’s highest performing farms.”

The PGP programme comprises several elements, including investigating how farmers prefer to receive and use new information and what drives their profitability, as well as benchmarking and integrating relevant databases. New tools, services and knowledge will be packaged and delivered in a range of ways by programme partners.

“With a new awareness of what drives farm profitability, the Collaboration programme will change the sector’s focus from one that is dominated by price to one focused on performance, productivity, profitability and the factors we can control,” Champion said.

“This investment will support the sector to better control its future and ensure confidence for continued investment.”

The Red Meat Sector Strategy was jointly developed by Beef + Lamb New Zealand and the Meat Industry Association, with funding support from the Government. It was released in May 2011.The Strategy identified a range of activities that, when implemented, will improve sector productivity and profitability, and provide greater certainty for participants.

 

Meat industry lacks leadership according to Cooke

The National Meat Workers Union’s General Secretary Grahame Cooke stated last Monday the large loss published by Alliance Group would be the first of several for the 2012 year. His point is fairly accurate, confirmed by Silver Fern Farms’ loss announced on Tuesday, writes industry commentator Allan Barber.

Of the other companies ANZCO and Blue Sky Meats will file their results with the Companies Office at the end of March. AFFCO is now a wholly owned subsidiary of Talley’s and doesn’t disclose its results, although the Meat Workers Union says (optimistically) these will be horrendous because of the lock out earlier this year. AFFCO’s results may not be as bad as all that because of the lack of a peak kill.

Cooke’s next point was the losses would inevitably lead to more industry rationalisation; this in turn would cause job losses for the meat workers who have already been affected by several plant closures in recent years. Job and earnings security suffered from fewer stock numbers and shorter season with workers being paid piece rates for shorter shifts; also higher average weights mean better productivity which is true for lambs, but not cattle.

His final point was about the lack of industry leadership in spite of the fact there are a number of good individual companies, all competing vigorously with each other. Cooke said the meat industry has not changed in the last fifty years with poor marketing and plant closures quickly followed by the addition of more capacity. He described the industry graphically as behaving like a cow with its head chopped off.

A look at the Union’s website provides more information on this topic: plant capacity has increased over the past decade with new plants, rebuilds and upgrades at nine plants across the country as well as capacity increases at several more. The Union believes the Government must initiate a ‘meat summit’ to address this.

So the questions are whether Cooke is correct or the industry is behaving in a perfectly rational manner.

My first reaction is the Government will never initiate a summit, almost certainly just another talkfest, because it realises the industry has a functioning commercial model. It competes in a global market and government should never interfere with privately owned businesses, provided they comply with the law. The meat industry has its own industry body, the MIA, which deals with all sorts of industry issues, but not those which impinge on competition between its members.

In addition, land use changes dictated by relative sector profitability will continue to occur regardless. The government would not be wise to get involved in picking winners or hobbling one sector’s ability to adjust its processing facilities.

My next reaction is meat processors and exporters are not the whole industry. There is a value chain which starts behind the farm gate and finishes in restaurants or consumers’ homes. The Red Meat Sector Strategy, FarmIQ and other company based initiatives attempt to define what can be done to join links in the value chain so they contribute to higher, more consistent returns. But it’s up to the farmers to produce to these specifications.

Meat exporters have done a great job over recent years to convert yesterday’s freezing industry into a sophisticated red meat member of the food industry, while also expanding into high value medical and other non-food product areas. More can always be done, but the industry has moved light years from the age of subsidies.

However, this process of modernisation has of necessity been achieved at a cost to overall jobs and terms of employment. The older plants were inefficient and built to service a different industry structure from a previous age. The period following deregulation and more particularly the removal of subsidies saw many farmers in serious financial straits, so their only option was to change farming practice or land use or sell. An unavoidable, even desirable, outcome was a big decline in sheep and prime beef numbers, offset to some extent by the growth in the dairy industry and the US manufacturing beef market.

Owen Poole made the point to me the losses are a sheepmeat problem and Alliance has responded by making the appropriate plant decisions, such as closure of Mataura sheepmeat processing, doubling Mataura’s beef capacity, increased venison processing at Smithfield and rendering at Lorneville. Keith Cooper also confirmed his satisfaction with SFF’s footprint in relation to livestock volumes, having already taken some tough capacity decisions.

This emphasises the regular requirement for new plant configurations to meet the demands of the market place and consequently the workforce must adapt as well. My experience tells me the meat industry does a pretty good job of responding to changes in market conditions, while generally trying to keep its workforce employed. But there is no future in keeping inefficient plants running to protect workers’ jobs, because these will disappear sooner rather than later.

Equally there are no prizes for leaving customer orders unsupplied when competitors are still prepared to process livestock. I certainly wouldn’t fancy the chances of the industry leader who sets an example by refusing to pay the money and has to tell Tesco or Marks and Spencer his company can’t supply because the stock costs too much this week.

Leadership is not as simple as it appears.

The item has appeared in NZ Farmers Weekly and at Allan Barber’s blog Barber’s Meaty Issues.

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.

 

 

Year of significant contrast, says MIA

For the New Zealand red meat sector, the year to June 2012 has been one of significant contrast, given the good prices for many products that were seen early in the financial year, then the steady drop in market prices, particularly for lamb, over the middle six months, says the Meat Industry Association (MIA), in its annual report for the year.

In the foreword to the report, MIA chairman Bill Falconer and chief executive Tim Ritchie note that this volatility, and a further decline in the volume of sheepmeat exports of nearly 27,000 tonnes, has meant the value of the ‘core’ industry exports has reduced this year to just over $6 billion, some $200 million less than for the year ended June 2011.

Highlights during the year included work to strengthen the relationships with the new Ministry for Primary Industries, implementation of the Post-Mortem Inspection reform and the development of a Red Meat Regulatory Strategy.

Halal has been another area of significant MIA activity, with the ongoing implementation of the Halal Notice, while the Ovine Automation Consortium progressed a number of projects, following last year’s commercialisation of the brisket cutter and auto-evisceration robotic systems.

Other research and development projects were progressed through the Meat Research Fund and the Industry Initiatives Fund, ranging from projects measuring energy efficiency in processing plants, through to research into extending the shelf-life of chilled meat – which is of significant interest to the industry given the ongoing volatility and extension of transit times in shipping services.

The long-term forecasts are for meat demand to grow, particularly in Asia, the foreword says. The volatility experienced during the year reinforced the need to continue to implement the recommendations of the Red Meat Sector Strategy “to ensure that we have a strong, sustainable sector that will allow us to be well place to continue to meet the growing long-term demand for high quality, safe protein.”

This article appeared in Food NZ magazine (October/November 2012).

Nearly quarter of a billion being invested in red meat

Nearly a quarter of a billion dollars is being invested by the meat industry and the government in projects aimed at adding a potential $3 billion to returns over the next decade.

Ministry for Primary Industries (MPI)’s director-general Wayne McNee took the opportunity at the Red Meat Sector Conference to announce approved funding for the latest Primary Growth Partnership programme, which will enable the production of high-value marbled grass-fed New Zealand beef for premium export and domestic markets.

The initiative will develop marbling in grass-fed beef in the New Zealand beef herd, using Wagyu beef genetics, McNee explained. “MPI will invest in this programme with Brownrigg Agriculture and Firstlight Foods. The PGP is committing $11 million over seven years, for a programme worth a total of $23.7 million.”

Marbling, the distribution of fat through meat, is a primary determinant of quality in table beef in international markets such as Japan, China and the United States. Internationally, such high quality beef is produced mainly from cattle housed in pens and fed grain. ANZCO Foods has been producing a supply of hand-selected steers for Japan, raised on grass but finished on Canterbury grain at the Five Star beef feedlot near Ashburton for over 20 years.

To produce a comparable meat fed using New Zealand grass, the new PGP programme is aiming to develop an integrated value chain for the beef. It will combine high marbling Wagyu sires for the yearly mating of dairy heifers and cows and the development of rearing and grazing systems that will support year-round growth of the cattle.

McNee said the programme aligns well with the Red Meat Sector Strategy.

“The programme will produce unique New Zealand high-value beef for discerning consumers. It will link specialists in dairy farming, cattle breeding, finishing, processing and marketing and deliver market signals effectively right through the value chain,” he said.

David Brownrigg of Brownrigg Agriculture says it will be a significant opportunity for beef and dairy farmers to lift the quality and value of their calves and finished cattle.

“The New Zealand dairy sector represents an under-utilised resource for producing quality beef calves. Brownrigg’s Wagyu crossed with ‘Kiwi’ dairy cows and Angus beef cows will produce outstanding beef and help us lift our game in international markets,” according to Brownrigg.

Gerard Hickey, managing director of Firstlight Foods says a planned marketing programme to selected high-end global consumers will enable beef farmers to build their businesses with confidence.

Minister welcomes announcement

Welcoming the announcement, Minister for Primary Industries David Carter says, “The Government’s total investment so far of more than quarter of a billion dollars in PGP programmes, demonstrates its firm commitment to boosting economic growth through primary sector research and innovation.

“All New Zealanders stand to gain from the partnership because, alongside our internationally prized lamb, our beef sector is pivotal to the success of our economy.”

The announcement lifts the total government-industry PGP spend over the past three years to nearly $600 million. Nearly $86 million of government PGP funding has been allocated to three meat industry projects worth a total of nearly a quarter of a billion dollars to date. These are estimated to potentially put over $3 billion more on the country’s GDP by the mid-2020s.

To date, PGP-supported meat projects include funding of up to $59.5 million over seven years for the $151 million Farm IQ project with partners Silver Fern Farms, PGG Wrightson and Landcorp Farming aimed at creating a demand-driven integrated value chain for red meat. Seven project streams and 18 sub-projects are working to improve the capture and utilisation of both market and farm production information. The information will then support the development of new value-driven genetics and extension work that underpin the programme.

Another $36.6 million PGP project with NZ Merino, including $15.15 million of PGP funding, is looking to develop merino sheep with meat, wool and other products suitable for market demands over the next seven years.

Also in the wings, is a project that has been approved to business plan stage and will potentially to be funded to the tune of $37 million, led and matched by funds from Beef + Lamb NZ Ltd focused on implementing a number on-farm elements of the Red Meat Sector Strategy. Other meat industry projects are also in the pipeline, according to MPI.

The PGP is expected to be fully subscribed by next year, says McNee.

An abridged version of this article appeared in Food NZ magazine (August/September 2012).

The future is bright

The future looks bright for New Zealand’s red meat export business, if you go by the presentations at the recent Red Meat Sector Conference in Queenstown.

Over 250 delegates, drawn from processing, farmers, service companies, shippers, economists, and government officials, crammed into the Rydges Lakeland Resort hotel on Monday 16 July for an absolutely packed itinerary of presentations from 17 excellent speakers – several of them from overseas – all with inspirational and thought-provoking messages.

The veritable smorgabord of information, mustered back into its time slots by some able session chairmen, revealed recurrent themes of massive potential for New Zealand meat in emerging markets in Asia, especially China, water issues, the need to engage in best practice, to tell the industry’s story to the public and the rapid, mind-boggling change the emergence of social media has wrought on getting those messages out there.

The first early shoots of progress on the Red Meat Sector Strategy (RMSS) were evident too, not as fast as some would  like, but it’s a start. Nearly a quarter of billion dollars of industry-government money is being spent on re-shaping and vertically integrating some parts of the red meat chain over the next seven years through Primary Growth Partnerships (PGP) programmes. These are alone forecast to add somewhere in the region of $3 billion to the country’s GDP by the mid-2020s. Meanwhile B+LNZ Economic Service’s team, under the guidance of Rob Davidson, have been developing a natty set of matrices that will enable industry to see how it is progressing along the Strategy’s path (more of that later).

Delegates will be picking out of it what they need. They were certainly upbeat and eager to hear more right to the last speaker of the business sessions, Nigel Latta, who talked about behavioural change and how to make it.

There is no doubt that more is bound to come from discussions at conference and later. Well done to the joint organisers, the Meat Industry Association and Beef+Lamb NZ Ltd.

A more full report will appear in Food NZ August/September 2012 magazine in early August and MeatExportNZ will be covering other items emanating from the conference over the coming week or so. You can find most of the presentations already up online at the MIA website, along with the programme.

 


KPMG’s Agribusiness Agenda points the way forward

Link

The KPMG Agribusiness Agenda 2012, released this week, contains interesting observations which have been gathered from conversations with nearly 100 business leaders, says Allan Barber, who recently reviewed the report.

But like most strategy documents I have ever read, the conclusions never quite seem to live up to the anticipation. However, this is a solid document with good ideas. Read more …