Strategy overdose will be good for meat industry

The most positive aspect of the slew of recent announcements about future meat industry strategy is the willingness of diverse industry participants to invest money and time to try to resolve long standing problems. It’s also good to see the red meat sector get some positive coverage for a change.

The two programmes are at different ends of the investment spectrum – the meat sector strategy is rumoured to cost around $500,000, whereas From Plate to Pasture (FPP) will cost the taxpayer and the lead partners $151.9 million over seven years. I am interested to see whether these programmes are in conflict with each other or which one should logically come first, especially as the Silver Fern Farms led value chain integration project is, conceptually at least, much further ahead.

SFF CEO Keith Cooper told me the sector strategy would provide the framework for the substantially more detailed and in depth programme about redeveloping the value chain. It would surprise me if the sector strategy didn’t come to many of the same conclusions, for example about the need to get away from the Sunday night auction, for the meat industry to change from competition at both livestock procurement and market ends of the value chain, and for the industry as a whole to collaborate to meet customer demands. In any case it will be difficult for the strategy project not to be influenced by the thought process behind FPP.

If the thinking that informs the meat sector strategy is too much at variance with the seven year project, you would have to think one of them is heading in the wrong direction. But I don’t sense a huge amount of disagreement with the intended outcome from talking to several of the major players, although I suspect a degree of pique from Silver Fern Farms’ competitors at implied suggestions of the scheme’s innovative nature, when many of the initiatives have been part of their normal business practice for many years.

The problem is their individual efforts haven’t led to consistently improved returns for farmers, seen as the inevitable result of farm gate and in market competition. If companies pay too much for the livestock, cash constraints often make it necessary to sell inventory at less than optimal prices, one obvious cause of price fluctuation from one season to the next.

The proposed structure of FPP, emphasised to me by Keith Cooper and Landcorp CEO Chris Kelly, is designed to enable other companies to join the programme and apparently enquiries of this nature have already been made. The philosophical basis of the structure is flexibility and collaboration at the supply end of the chain in New Zealand and ensuring the supply of a product appropriate to customers’ wishes. The means of achieving this is FarmIQ, a company separate from the three partners, SFF, Landcorp and PGG Wrightson with independent board and management, which will manage the relationship with suppliers and potentially the customer with responsibility for all aspects of the FPP programme.

It looks very much as if Silver Fern Farms will end up as a contract processor, receiving purpose bred and farmed livestock to specification which will theoretically earn a higher return from the market, capable of being returned to the farmer. Of course, the constant challenge in the meat industry is that of adding value instead of cost which is far from guaranteed by this process. The quickest way to lose supplier commitment to a different method of supply is to fail to deliver on contractual supply agreements.

Chris Kelly made it clear Landcorp’s supply arrangements won’t change in the short term, but longer term will be channelled to where the returns are best. This course of action will be mirrored by all farmers while they decide which strategy they prefer and will eventually determine whether other companies join the programme or not.

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Tags: Landcorp, Meat strategy, PGG Wrightson, Si, Silver Fern Farms