Archive for June, 2013

MIE may be sailing into a head wind

June 24, 2013

The Meat Industry Excellence (MIE) group has appointed businessman and former sheep and beef farmer Ross Hyland to set up an establishment team, as it ramps up its campaign to achieve a restructure of the red meat sector.


After a series of meetings round the country at which it gained plenty of farmer support for its campaign, as well as backing from Beef & Lamb NZ and Federated Farmers, MIE has decided that it is now time to inject some muscle and structure into its plans. Chairman Richard Young said last week they had made this decision to ensure that they have an agreed solution and plan ready for the start of next season.


This is in spite of the confidential discussions between the four largest meat companies which have not yet reached a conclusion, but next season is only three months away on 1 October. MIE has talked to all the main meat companies and appears to have no desire to pre-empt the outcome of those discussions, but wants to try and make sure things don’t drag on well into next season without any progress.


MIE has now reduced its goal of having 80% of the meat industry combined in farmer ownership to a more realistic 60%, although it is still very doubtful how this will be achieved. Another major goal to have all livestock supply on contract to one processor has also been replaced by a commitment to supply stock to specification. The goal of transparency and fair treatment for all suppliers remains a key plank of the programme, while the costs of restructuring are to be shared by all industry stakeholders including the Government, except unions.


This is still a very optimistic wish list. It is uncertain just what a farmer owned trading entity with 60% market share would achieve, even if the necessary mergers and acquisitions happened. It leaves 40% of the industry in non farmer hands with almost certainly stronger balance sheets and more capacity for innovation and productivity improvement. My impression is that MIE’s original desire was to sort out the state of the sheep meat sector, but the board has now decided beef must be included, if the plan is to work.


With a maximum of 40% of sheep and beef farmers attending the meetings, this still means 60% didn’t attend, although some of those may support the objectives. It also ignores dairy farmers who provide around 40% of the industry’s cattle supply. A dairy farmer’s only thoughts with his cull cows are to get them off the farm as soon as possible and to receive a fair price for them.


A former livestock manager’s opinion of cull cows was that it’s the only time dairy farmers can behave like capitalists, because everything else is handled by the cooperative. So it’s hard to see how MIE can expect the meat companies, some of which specialise in grinding beef, to change their procurement methods for this part of their business.


I sympathise with MIE’s intentions, as well as the efforts to achieve progress before the start of the season. But realistically there will be no industry restructure in three months. There is currently no indication any of the meat processors are yet in serious financial trouble which reduces the likelihood of a Weddel or Fortex type of event in the near future.


Nor can I see the Government wanting to get involved in forcing a restructure of an industry, none of it state owned, which is completely exposed to commercial forces including the value of the New Zealand dollar and international commodity prices.


MIE says it will seek any required legislation which I presume could mean trying to enforce any of the following measures: merger of the coops, Silver Fern Farms and Alliance, sale into the farmer owned entity of one or more companies to reach the target market share, mandatory livestock supply contracts to specified meat companies, and a moratorium on any new meat plants or additional shift capacity.


What on earth would the Commerce Commission say about all that?




Turkish agricultural production must be seen to be believed

June 24, 2013

Three and a half weeks in Turkey, most of the time outside Istanbul, have provided many revelations about the people, the country and not least about its agricultural production. Turkey, or to be more precise its government, wants to join the EU, although after the last couple of years of economic struggles and Eurozone problems, it isn’t clear why.


Turkey has enjoyed higher growth in the past decade than any EU member with only one year of contraction. Agriculture represents 25% of employment across an unmatched product base, although the sector is not very efficient with many small farmers and relatively unsophisticated farming methods. Subsidies are still in place, but are in the process of being reduced as part of the process of meeting the EU’s accession criteria.


In 2007 Turkey was the world’s largest producer of hazelnuts, apricots, figs, cherries, quinces and pomegranates and second largest producer of watermelons, cucumber and chickpeas. Other major crops include cotton, tobacco, tea, barley, wheat, rye, oranges, lemons, green peppers, onions, lentils, pistachios and eggplants.


I can also report from personal experience that Turkey has a thriving wine industry with many varieties of grapes, some familiar, but others unknown to the international wine market, producing some very acceptable wines. The level of tax on wine, cost structure and the unfamiliar grape varieties make development of an export market very difficult.


Livestock production is inefficient and stagnating, although Turkey has a a higher sheep population than New Zealand at over 40 million. Many of the sheep are used as gifts for the traditional annual Muslim festivals, while the doner kebab stalls on every street are another major source of consumption. Every restaurant offers a wide range of diced, minced or sliced lamb and beef items on the menu, as well as chicken, eggplant and salads. Tomatoes are an essential part of the diet.


The country is self sufficient in food production, successfully providing food for its population of  in excess of 80 million people. The product list resembles an  Aladdin’s cave of never ending delights which a visitor can witness while driving through the countryside.


The present anti government demonstrations across the country have brought Turkey into much sharper international focus. They highlight the contradictions implicit in a country which spans Europe and Asia as well as being secular, but mainly Muslim. The government has now won three elections, but is seen as increasingly conservative and out of touch with the  younger generation of educated Turks.


The Prime Minister’s insistence on developing Gezi Park, one of the few green parts of Istanbul, has infuriated many people, including students, intellectuals and an increasing number of other groups. There are also strong suspicions of corruption in the deal to build a hotel, shopping centre and barracks.


Recent law changes to ban alcohol between 10 pm and 6 am and lifting the ban on wearing scarves in schools are out of touch with the liberal young and educated voters in the western parts of the country. But the government still retains significant support in the more traditional, conservative and less educated population in the east.


This conflict represents Turkey’s difficulty in convincing the EU that it is, or ever will be, ready for membership. Unless the government returns wholeheartedly to the principles which underpinned the establishment of the Turkish Republic by Attaturk in 1923, there will be continuing unrest.  Attaturk was a visionary who saw the only way to drag Turkey out of the conservative Ottoman times was to create an entirely secular state in which people could practice their beliefs without interference. He also introduced the Latin alphabet to replace the Arabic script in 1928, arguably the biggest single contribution to the modernisation of Turkey.


The EU will not be willing to embrace a Muslim nation which shows signs of wanting to move back to the past, emulating countries such as Iran, Iraq, Syria and Afghanistan, as well as continuing to have a dubious human rights record.


The danger is that Turkey will lose what makes it such a special country with enormous potential. Unlike other Muslim counties the people live in an environment of complete tolerance for different religious beliefs, while they do not appear to have the endemic problems of many Western countries, such as an alcohol fuelled culture of violence or fast food obsession.


Debt has grown faster under Erdogan’s government than at any stage of its modern history

but if Turkey can come through the present period of political unrest, it could become a major force in the world’s economy, whether it joins the EU or not.