New funding arrangements for overseas meat promotion

The impact of last year’s referendum decision to stop paying wool levies from April is becoming much clearer, as Meat & Wool NZ goes through its restructuring programme. As Mike Petersen said at the time, the effects are much broader than just expenditure on wool research and promotion.

The cuts have already been announced, entailing a reduction in staff numbers and expenditure budgets to match the reduced funding available to the organisation. Among the most significant changes will be the relocation of meat marketing away from the Wellington Head Office and the formation of a new jointly funded marketing entity. This is the subject of much planning and discussion with the structure originally hoped to be announced at Meat & Wool’s AGM on 24 March and implemented from 1 April.

Although Scott Champion, Meat & Wool’s CEO, and Rod Slater, the current Chief Executive of Beef & Lamb New Zealand, held positive discussions with the major exporters before Christmas, it’s clear this timetable is much too tight. Mike Petersen told me the renaming of Meat & Wool will be ready to be announced at the AGM, along with the internal structure of the marketing division, intended to be based in Auckland under Rod Slater. The domestic and international marketing and promotional activity will consequently be merged, while administration, research and market access will continue to be based in Wellington with reduced numbers at head office and more resources in rural areas.

The meetings with the exporters were designed to get buy-in to the concept of a jointly funded organisation taking over full responsibility for overseas marketing under the direction of a separate board of directors. My understanding is a cautious willingness to discuss joint contributions from the exporters, subject to more detail about the structure and the programmes to be funded, but a definite lack of enthusiasm for the additional governance structure proposed.

AFFCO for one is averse to the compulsory funding model, preferring to know whether industry-good promotion will deliver a better return than investing the money in its own business. Sam Lewis, AFFCO’s Chairman, also told me the compulsory model will impose higher costs because of the additional governance structure. However, despite these reservations, AFFCO is supportive of the joint venture approach, providing there is a very strict assessment of the return on investment.

Dennis McClenaghan, Chairman of Beef & Lamb, says the present board could easily handle the governance requirements of the joint domestic and export marketing activity with the addition of two meat company representatives to the board. This board already includes two Meat & Wool directors, the CEO of the Meat Industry Association, and Dennis representing the local meat processors. There is also retailer involvement in board discussions, reflecting the joint funding model across meat processors, Meat & Wool and the retailers.

Dennis believes this is a very cost effective governance structure, since all the board members are paid by their company or representative body, not by Beef & Lamb. The addition of international marketing and exporter representation would equally impose no extra costs, but would enable the monitoring and direction of New Zealand’s total meat marketing effort by the enlarged Beef & Lamb organisation.

Mike Petersen does not expect the jointly funded model to be fully operational from day one, more likely there will be a one to two year lead in period before full implementation for jointly funded marketing programmes. As he said realistically, “companies want to see details of the new marketing structure and marketing programmes before making a firm commitment.” One meat company CEO I spoke to said he wasn’t yet able to comment on the proposals because Meat & Wool hadn’t completed providing feedback following the meetings with the companies and his company’s position would depend on feedback from all the companies.

As I suggested last time I wrote on this topic in December, the issue of agreement between the companies on the type of programmes they are prepared to commit their marketing funds to is absolutely crucial to a jointly funded marketing operation. The type of international in-market activity, whether generic or product specific, compulsory or voluntary funding model, calculation of funding contribution, measurement of investment return, board composition and governance structure will all be key issues which must be answered satisfactorily, before there is agreement on moving forward.

The projected marketing budget of about $14 million will be matched by a similar figure from the meat industry in an ideal world, but there is still a lot of negotiation required for this to become anything like a reality.

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One Response to “New funding arrangements for overseas meat promotion”

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