Meat industry strategy under way soon, but unlikely to produce hoped for results

It’s strategy development time again, now Meat & Wool NZ (MWNZ) has announced how it intends to restructure itself to address the removal of wool from its activities and a seriously reduced operating budget. After the release of MAF’s report in June which proposed four scenarios, but deliberately no recommended course of action, MWNZ took responsibility for leading the strategy development process in consultation with the Meat Industry Association (MIA) and other industry leaders.


Earlier in the year the two representative organisations discussed joining forces, so producers and processors could speak with one voice, like Australia, but the smaller MIA members didn’t agree with the concept because it would have reduced their ability to influence policy. In fact a large majority of the members voted against a merger which suggests it won’t happen any time soon. But this won’t necessarily make it harder to reach an industry consensus.


Any strategic planning exercise must avoid straying into areas which are off limits except to individual commercial parties. Industry structure is one such no-go area, although it’s the one which farmers would most like to see ‘solved’, believing, as many do, competing meat companies are almost single-handedly responsible for sub-standard returns from the market.


Recent farmer-led efforts to get the two co-operatives to merge are symptomatic of this belief, when there is plenty of evidence they are better off as separate companies – if you look at Alliance’s consistent ability to buy livestock with schedule and pool payments, as well as pay dividends and invest in its plants, you would be hard pushed to argue it should merge with Silver Fern Farms; in contrast SFF is heading in a high profile marketing direction with its branded consumer products which may well be ultimately successful, but this is a higher risk strategy similar to that followed in the past by Waitaki, Fortex and Richmond.


ANZCO and Alliance are two examples of successful businesses which keep a low profile and are mostly very successful in satisfying their suppliers and customers. They co-operate with industry good initiatives when it makes sense to do so, but I don’t get the impression they are sitting back waiting for an industry strategy. Similarly AFFCO has also performed well in recent years under Talley’s majority shareholding and direction, applying a totally different strategic approach which tends to avoid long term supply contracts or industry co-operation, at the same time forming closer links with the dairy industry.


So there are four large meat companies controlling about 80% of throughput, each with its own distinct strategy and shareholding structure. The rest of the industry comprises a wide range of business types, processing models, market spread and ownership structures. This suggests an industry strategy will be notable more for what it doesn’t include than what it does. It also sums up just how difficult it is for organisations representing industry groups to comply with the interests of all its members. You only have to see how close the CLA referendum vote for MWNZ’s continued existence actually was to realise this.


Any industry body must satisfy its members or it ceases to exist. The chances of a combined MIA and MWNZ being able to do this under their present structures are absolutely nil; the reason the Australian body MLA can do this is its mandate and funding from the Federal Government. So if our Government wants the meat industry to show more cohesion and common purpose, it will have to inject taxpayer funding, initially to fund a joint body with government and industry directors and eventually to encourage the outcomes it sees as desirable. Otherwise it might as well stop trying to jawbone the industry and concentrate on something that really would help, like developing policy settings to bring the exchange rate down.


The industry’s strategy will avoid discussions of structure like the plague, but it will, or should, develop industry responses to issues such as declining livestock numbers, climate change, emissions reduction, optimal land use, soil, pasture and water sustainability, R&D, market access, new markets, traceability and industry productivity. Traceability now looks certain to be progressively introduced, starting with cattle becoming mandatory in 2011, but sheep will remain the elephant in the room, until a final decision is made, possibly after high frequency trials have proved effective.


On balance I’m optimistic about the meat industry’s willingness to develop a coherent set of strategies, but these won’t solve those problems which will be top of mind for farmers, politicians and business analysts. These are the issues the industry as a whole can’t influence like exchange rate, ownership structure, land use and livestock numbers. But longer term industry success depends on tackling all the issues it can influence.


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