Silver Fern Farms putting money where its mouth is

For obvious reasons, I had some questions about SFF chairman Eion Garden’s comment on SFF’s proposal for PGP funding to invest $60 million in developing new strategies ‘that will grow the industry’ (Farmers Weekly 21 June). For a start, where on earth would SFF find $60 million and how would they invest twice that amount?

The cynical view of the meat industry is of an underperforming collection of increasingly outdated businesses scrapping over a declining livestock base and then cutting each other’s throats to sell a commodity product to overseas retailers which depress the prices paid to farmers. I have always tried to present a less jaundiced view of meat exporters’ efforts to market a premium product to best effect, while being hindered by a combination of unsympathetic exchange rate, unpredictable livestock supplies and ever stricter compliance requirements.

But it’s now an inescapable fact, traditional meat and wool production is in constant decline because of competition from other land uses. So it’s high time for urgent action to reverse the trend, hence my interest in finding out how SFF intends to spend the money and where it will come from. Conversations with CEO Keith Cooper provided clarification of what aims to be an industry changing programme.

The programme is based on a fundamental premise: the industry’s business model is broken. The industry at present is production led and disjointed with participants at every point in the chain seeking to maximise their individual profit. This means commercial sensitivity limits information flow between processors and exporters, while little of it flows back to the producer.

SFF, the programme lead partner investing the bulk of the money, has been joined by PGG Wrightson and Landcorp as foundation partners in a proposal to the Independent Assessment Panel to invest $60 million in cash and kind over seven years to be matched by a similar amount of PGP funding. A MAF unit advises the IAP by working with participants to test the business case before it is submitted for confidential assessment. The programme also involves various co-partners with capabilities relevant to the programme, although their investment is likely to be in time and knowledge rather than cash.

The programme group’s proposal, facilitated by Deloitte, has assessed the red meat supply chain against a set of dimensions, including company performance, information systems, inventory management and data management, concluding the business model is outdated. It has identified key issues holding the industry back as minimal information flow, lack of co-ordination of activities, management of input costs entirely behind the farm gate, and minimal ability to tailor products to customer specification. Generally farmers act individually with a resulting loss of industry profits and poor asset utilisation. In contrast, if the programme is approved, it will provide farmers with the knowledge, genetics and a plan to rationalise farm inputs and optimise returns.

The group’s proposal quotes the vision held by respondents to the recent MAF study, Meat: The Future, of ‘an economically and environmentally sustainable industry that invests in innovation, has a greater focus on the market and is more co-ordinated across the value chain.’ The programme’s projects are designed to deliver new capabilities to achieve this vision which are expected to be transformational, when they are combined with each other. There will be seven projects which address the issues identified, using the collective capabilities and knowledge base of the foundation partners and their co-partners. The projects run the gamut of the industry across market analysis, database, genetics, collection of phenotypes or observable species characteristics, farm productive activity, processing improvements and technology transfer.

The programme aims to achieve four primary outcomes: to increase the industry’s sustainability, create more collaboration between participants, increase productive capacity and the provision of products to consumer specification. The success of this integrated value chain model will be measured in parallel against the traditional supply push model.

Sceptics will say this programme is a rehash of the original motivation behind PGW’s failed attempt to buy 50% of SFF, plus the compensation payment, and it is true much of the rationale has already featured heavily in SFF’s statements addressing declining sheep and beef numbers and farm profitability. Others will point to the just announced meat sector strategy which will also result in applications for PGP funding, raising questions about the value of two potentially costly exercises seeking the same funding. Keith Cooper sees the two programmes as complementary, with the sector strategy providing a framework for parties to cooperate on specific projects, in contrast to the SFF led integrated value chain.

The investment SFF, bolstered by an improved balance sheet, and its partners are willing to commit suggests they are deadly serious about their chances of success and the lack of alternatives. The rest of the meat industry may have to suspend disbelief, because it may just be the industry’s salvation.

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