Complete control of supply chain impossible

Nuffield Scholar and recently elected Meat and Wool Director, James Parsons, has been promoting the need for an integrated supply chain from farmer to consumer, if farmers are to reap the rewards of their endeavours. His solution for New Zealand to get out of the commodity trap – which means farmers are far removed from the consumer and last in line to receive a share of the returns – is to redesign the supply chain.

 

This is good common sense which no doubt appealed to the sheep and beef farmers, who voted him to the Board so easily, especially as he was talking about the importance of leadership to bring about the necessary redesign. This implies Meat & Wool can provide the industry’s leadership, providing it receives its mandate in the referendum later this year. At a Sheep and Beef Council seminar, Parsons also referred to mistrust endemic in the meat industry and, I would think, in the wool industry, as a major factor behind the need for supply chain redesign.

 

Unfortunately Meat & Wool’s attempts to get a task force to look at how a meat industry restructure could be achieved didn’t get off the ground, so Mike Petersen says they will continue to push for consolidation as a way to get away from the eternal bugbear of farm-gate competition.

 

This all looks like ‘déjà vu all over again’, to quote baseball star Yogi Berra, because nobody’s yet managed to solve the big problem, although everybody agrees on the goal. Realistically it won’t happen as long as farmers have grass and there isn’t a monopoly processor and exporter. Although logic says farm-gate competition and lack of market influence are the problems, the combined effect of competition law, international trade rules and lack of the funds needed to exert control over all parts of the chain mean the logical, common sense outcome is quite simply impossible to achieve.

 

So failing any magic solution the imperfect market must provide the answers. There are several signs of progress in both meat and wool which should give farmers hope they needn’t always be on the hind tit. In fact there are quite a few farmers around who are quietly going about their business, building a relationship with their processors, using technology to improve efficiency and productivity and supplying to specification. In contrast there are still producers around who play the field, pay too much for store stock replacements and then look to the processor to bail them out, when things turn sour.

 

Without a reasonable guarantee of livestock of the right weight, grading and time of supply, processors can’t develop their relationship with a particular retailer for optimal pricing, but there are positive signs of an increasing proportion of production going into this sort of supply arrangement. While some of these arrangements involve an extra link in the chain, the outcome is added value and more control on the eventual price received.

 

Good examples include ANZCO’s Five Star feedlot producing chilled prime beef for Japan, Atkins Ranch with a profitable business for heavyweight lambs to the United States for years and Rissington Breedline’s supply contract with Marks & Spencer with processing performed by Silver Fern Farms. The jury is out on Wool Partners International, but Elders has already started a direct supply contract with a major US carpet manufacturer.

 

Other UK retailers, such as Sainsbury’s, insist on strict animal welfare and quality standards. Sainsbury’s executives visited New Zealand recently to meet groups of farmers supplying lambs to AFFCO and Alliance for chilled lamb to be shipped during the critical February to June period. Chilled New Zealand lamb is one of only two fresh food products that Sainsbury’s stocks which is a great example of integrating the activities of farmer, processor and retailer to the mutual benefit of all parties. The farmer will be rewarded for meeting specific requirements of weight, grade, timing of supply and animal health and husbandry standards demanded by the retailer.

 

On the domestic market front, Angus is becoming increasingly available through both retail and food service sectors, with Progressive Enterprises selling the brand through an initially restricted number of supermarkets.

 

These are just a few of the instances, where all links in the supply chain are working together to the benefit of the farmer supplier who can meet the desired specifications. Not all farmers are able or willing to meet the strict criteria, but these examples show it is being done.

 

Rather than hammering the old chestnut of industry restructuring to avoid farm-gate competition, it would be more use to encourage farmers to find a processor who is willing to find a market need and demand performance to a standard which will be rewarded.

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6 Responses to “Complete control of supply chain impossible”

  1. Trudi Baird Says:

    Hello Allan,

    I read your column in this week’s NZ Farmers Weekly over breakfast this morning which ironically was straight after my husband and I discussed the latest lamb procurement war going on around us and how we as an industry have learned nothing from the past three years.
    I have been following what James Parsons has been saying for the last while and certainly I do agree with a lot of what he says. But, I also completely agree with your statement about “as long as farmers have grass …” In fact, this was exactly the tone of our breakfast discussions.
    Like you, I do not see industry consolidation being achievable and why would we want it anyway? To me, it is trying to make a quick fix that might last a year or two and then decay. Doing business by consolidation i.e.; monopoly, is old fashioned and represents commodity-style marketing and this is what everyone wants us to get away from.
    The trouble is none of our meat companies have a true competitive advantage and so people start to think that consolidation must be the only answer. Some of our meat companies will flatly deny the accusation they do not have a competitive advantage but I have researched a good many of them and have identified where they pitch their marketing strategies and the simple reality is that all our larger meat companies treat the retailer (supermarket) as their customer . A competitive advantage can only be achieved if a relationship is built with the end consumer (the supermarket customer) and this cannot be achieved by reaching her at supermarket level. We all know that supermarkets hold immense power but this in itself presents a huge challenge/opportunity for us to overcome if only we had more innovative leaders in our industry. All it will take is for one of our meat companies to make the decision to move forward beyond the normal realms of meat industry sales practice and become truly innovative marketers.
    You talk in your column about good examples of companies who have added value and obtained some price control in their supply chain.
    Over the past two years I have researched this area. Rissington’s relationship is with Marks & Spencer and not the consumer. I’m guessing when M&S say jump, Rissington ask how high. Undoubtedly, there is a slight premium for Rissington (and its suppliers) but to me it is nothing more than a token premium that M&S has flicked to Rissington as a sweetner. Rissington work immensely hard for that token and if they had a true competitive advantage they would have more than a token premium attached to the retail value of their brand. Atkins Ranch (Lean Meats) promotes itself as going that little bit further with the end user but from what I have seen it’s promotion is very much based at supermarket level too. ‘Meet and Greet’ (i.e.; a real NZ farmer BBQing lamb in the supermarket for the shoppers isn’t brand building or creating a competitive advantage if it is in isolation and not part of a comprehensive marketing strategy designed to build brand strength in the mind of the consumer). Atkins relationship is strictly meat company to supermarket (although I would like to hear if you believe it is more that this).
    Likewise, you also mention ANZCO’s Five Star feedlot. Last I knew ANZCO is almost all Japanese owned via its Japan interests in both ANZCO Developments Ltd & Itoham Foods. It is not a NZ meat company that has shortened the supply chain here but rather a Japanese one who are very cleverly looking after their own interests (good on them for doing it).
    As for Alliance and AFFCO selling meat to Sainsbury’s, it is undoubtedly all on Sainsbury’s terms.
    I met with Alan Henry (recently retired marketing manager for Alliance
    Group) in 2007 to discuss how we presently market our lamb to the retailer. I spoke with him about the importance of going beyond the retailers and building our relationship with the end users. I included in my plan at least five segmented markets of end users and offered suggestions of potential ways to reach them and build brand awareness, and ultimately brand culture (ie; creating a competitive advantage).
    Admittedly, my plan was rough round the edges and lacked detail but it was designed to present an idea of how a meat company could break out of the present cycle of targeting retailers which is restricting them from building a competitive advantage. Unfortunately Mr Henry could not contemplate how anything like this could be achieved without spending millions of dollars. At the time lambs were valued at about $50 and his department was more concerned with day to day survival rather than the luxury of actually being able to plan for a strong future. While I understood his predicament it does sum up the cycle we cannot get out of as planning for the future should be treated as a necessity and not a luxury. Instead out meat companies, and Alliance is a prime example of this, keep harping on to farmers that unless farmers are loyal then growth cannot be achieved. Whereas, we farmers
    reply: we will be loyal when you pay us top dollar. This ‘chicken/egg’
    argument is ridiculous and meat companies that keep referring to it are showing themselves up as being bad in business if this is what is holding them back.
    As for MWNZ… undoubtedly they do some good in certain places but marketing, in my opinion, should be a complete ‘no-go’ area for them.
    The MWNZ objectives are impartial and therefore not conducive to modern marketing practices. I don’t know they could ever reasonably change this impartial position so why the heck are they involved with marketing. How can they assist a meat company gaining a competitive advantage in the market place when by their very nature they must remain impartial? It is a nonsense really and a waste of our levies (but this is a whole other issue).
    Somewhere I read about James Parsons referring to the ‘push’ style marketing our meat industry does and how we must get away from it. In my opinion he is completely right. Our meat companies are forever trying to push our products into market places. Under the ‘pull’
    marketing system, end users demand a brand and therefore ‘pull’ a branded product through the supply chain. But to do this, our meat industry as a whole has to get over this generic NZ Lamb brand and start thinking competitively. If five meat companies continue to promote ‘NZ Lamb’ as their point of difference, there will never be a competitive advantage. Likewise, if these same five meat companies rebrand (as most of them have) but continue to target the retailer (and not the end user) then again there will never be a competitive advantage.
    One of the major problems I see with our industry is that it is driven by men who are middle-aged and older who lack innovation and flair and certainly lack the understanding of what our end users really want. In today’s age, women make up over 80% of the buying decisions and undoubtedly, when it comes to the weekly food shop, it is much higher than 80%. Given this fact, it is understandable that the aged and highly ‘testosteronic’ nature of our meat company execs is leading to our industry’s continued instability.
    The day one of our meat companies makes the decision to truly build its relationship with the end user – and stop taking all its direction/ advice/research data from retailers – is the day that meat company gains a competitive advantage.
    Also, did you know that by 2010 it is predicted that in the States, the internet will influence 50% of total retail sales. What impact will this influence have on how people buy their groceries in the
    future and how will we reach them? I am being cynical here but our
    meat companies will struggle to undertake their ‘meet and greet’ or BBQ up a fillet steak in the supermarket isle of the internet. The challenges and opportunities this kind of information holds is immense but are we even acting upon it? Are we planning for it, predicting it’s growth or even trialing ideas in this domain?
    Anyway, Allan, this is just after all only my opinion on things, but if there was just one thing I could wish for in our industry is that one meat company – preferably Alliance Group (as it is the one we
    supply) – would make the decision to become truly market innovative and build a real relationship with the end user.
    If you have time, I would love to hear more of your views on this matter. I enjoy your columns.

    Regards

    Trudi Baird
    Twinlaw Farm Ltd

    PS: I appreciate that this season is a good one for NZ sheep farmers but I am sure you will agree it has unfortunately all occurred by default rather than design. It really brings home how much we are still 100% commodity driven. I just hope at least one of our meat companies is using this time to think innovatively and not just sit back and relax.

  2. Philippa Stevenson Says:

    Great discussion, Allan, Trudi. I think Trudi has hit the nail on the head when she says that male dominance is a problem. In fact, I said something similar way back, and so, coincidentally, did Janet Tyson who was then editing Meat News for the Meat Board. It was a sound deduction then, I believe, and still is today. The meat industry grew up at a time when marketing didn’t matter – everything was simply hoovered up by a grateful Britain, no marketing required. It didn’t matter then who ran things. It was just produce, process and ship. But once Britain went into the EEC (now EU) things changed – well they did for Britain but I’m not sure whether the NZ meat companies ever entirely got it. Get a few more women in decision-making roles, as directors, as executives, and a whole different mindset, focus, understanding and set of skills will be brought to bear on the industry. At the moment we have only half the brain power on the job, and as Trudi says, it’s not the half that makes the buying decisions in the shops (or takes it home and cooks it).

  3. Meat debate starts to sizzle « The Bull Pen Says:

    […] Allan Barber’s conclusion over on his Meat Issues blog in a post discussing the future of the meat […]

  4. Tatuajes Says:

    Great Discussion !

  5. Tatuajes Says:

    Great Post !!

  6. Rural round-up « Homepaddock Says:

    […] Complete control of supply chain impossible – Allan Barber: […]

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