NZ sheep and beef farmers more profitable than Northern Hemisphere counterparts

When sheep and beef farmers in New Zealand grumpily ponder their forecast returns for 2016-17, they may be able to take some comfort from the precarious state of farmers in Europe, particularly the UK where they are facing even more uncertainty of income.


Private Eye’s Bio-Waste Spreader column contrasts the rhetoric of the Environment Minister saying farm subsidies must be abolished post Brexit with a report by her own Ministry, Defra, which finds British farmers would be unable to keep going without them. In the 2014/15 year dairy farms were the most profitable averaging GB Pounds 12,700, whereas cropping farms made GBP 100, lowland livestock farms (most like our sheep and beef) lost GBP 10,900 and grain growers did even worse. These profits or losses came before farmers paid themselves any wages or drawings.


The only thing keeping them afloat is the average EU subsidy of GBP 25,000 which Andrea Leadsom, Environment Secretary, would like to get rid of. Apparently one solution suggested by Farms Minister George Eustace would be to pay something that looks remarkably like the Single Farm Payment which applies across the EU and which anti EU Tories like Leadsom and Eustace have been rubbishing for years.


Subsidies make up an average of 25% of farm revenue across the EU, while in Norway and Switzerland farmers receive government assistance of more than twice that amount. In Canada farmers receive almost 20% of their revenue from subsidies and even in the United States they make up 10%. In contrast it appears New Zealand farmers going cold turkey over 30 years ago have done something all other agricultural producing nations have found impossible.


This may be cold comfort for sheep and beef farmers tired of seeing their profits decline year on year, but the fact remains they have been profitable every year, even marginally in 2007/8 which was at a 50 year low. Conversely in 2011/12 average farm profit was $131,100, similar to 2001/2, but 10 years between such highs is clearly unsatisfactory. This sort of trend produces land use changes, as landowners try to find the option producing the best returns. But there don’t seem to be any clues in the rest of the world about how to avoid the commodity trap and achieve consistently high returns.


A London based market intelligence firm Euromonitor International reports global meat consumption rose 2% in 2015 because of increased consumption in emerging markets, but the main area of growth was in chicken and pork with the Middle East and Africa and Asia Pacific being the only regions to post an increase in beef and veal consumption. Consumption in North America declined 3.1% and in Latin America by 3.7%. All meat consumption in Western Europe declined with beef and veal coming down by 1%, while in the USA pork rose by 8% and chicken by 5% as consumers chased leaner meats driven by dietary concerns.


It is difficult to fathom how New Zealand agricultural producers in general, and more specifically red meat producers, will be able to buck global trends which are driven by many factors including regional population growth, health and diet, growth of convenience foods, relative economic prosperity and future technological developments in protein production. As an exporting country New Zealand needs to be acutely aware of what global consumers actually want their food to deliver, how this is changing and how quickly.


What is certain is the increasing importance of maintaining or improving our environmental performance as a means of underpinning our brand reputation. Food provenance has become a critical success factor, particularly in traditional developed markets. It is no longer enough to rely on New Zealand’s slightly ragged claim to be 100% pure, but we must actually demonstrate the truth of such a claim and build a brand story around it. In a world which may be retreating from the removal of trade barriers, it will be essential to improve our reputation for product quality at every stage of the value chain.


With all due respect to the dairy industry’s efforts to introduce stringent environmental standards, it doesn’t appear to be winning the PR battle with some commentators increasingly gaining air time to criticise water quality. This battle must be won, if New Zealand is to build a brand story based on quality of production, environmental performance and provenance.


In a world where synthetic proteins will be able to simulate the taste and texture of meat, it won’t be enough to supply undifferentiated beef and lamb and expect to receive a premium price for it. In order to satisfy the demands of the wealthiest 1% of the world’s population, it will be essential to provide a differentiated food experience targeted at the precise needs of particular market segments.


However these markets must be carefully developed before farmers can expect to be rewarded with a premium for what they produce, unless they meet a tightly defined specification for a product which can be marketed directly to an end consumer who is willing to pay more than usual for it.


As is evident from the incomes earned by UK farmers before subsidies, there is no easy route to higher levels of profitability.


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2 Responses to “NZ sheep and beef farmers more profitable than Northern Hemisphere counterparts”

  1. Graham Thomas Says:

    Cooperatives study measures scale and role but not performance
    Nevil Gibson Tuesday January 24, 2017 Craig Presland
    NZCoop chief executive Craig Presland says the cooperative business model is enduring and successful
    New university research on cooperatives shows they have an overwhelming dominance of the agri-foods sector and a big share of retailing and wholesaling.
    In fact, the role of cooperatives in agri-foods is more than twice that of the global trend and four times that of Australia, thanks mainly to the near monopoly of Fonterra and two much smaller dairy coops, Tatua and Westland.
    Fonterra’s annual revenue of nearly $19 billion is three times larger than the next largest coop, Foodstuffs North Island.
    But together, the two Foodstuffs cooperatives, North and South Island – are the country’s largest supermarket and grocery store operators with combined revenue of nearly $9 billion.
    Other substantial coops are found in the meat industry – Silver Fern Farms and Alliance Group, at $2.4 billion and $1.5 billion respectively – as well as in wholesaling and horticulture (Farmers Trading Society $2.2 billion, Zespri $1.4 billion). Two fertiliser suppliers (Ballance and Ravensdown) are at $890 million and $710 million respectively, while Mitre 10, ITM (timber merchants), Market Gardeners, CDC Pharmaceuticals, LIC and FMG have revenues above $200 million.
    But a research project by Massey and Auckland universities also highlights the fragmentation of the cooperatives sector and, as a result, its lack of strong representation and influence on public policy.
    Membership of 1.4 million
    Cooperative Business New Zealand (NZCoop), the industry organisation that commissioned the study, says only a half of cooperatives are members, though most of the big ones account for 80% of all revenues, which are estimated at $42.3 billion, or 17.5% of GDP, for the top 30.
    Total coop membership of 1.4 million is equivalent to 30% of the total population – with Southern Cross Medical Care accounting for more than 810,000 alone – but this doesn’t translate to political clout, the study argues.
    This size doesn’t always translate into better performance, either, though comparisons with other forms of business are not part of the study’s agenda.
    Craig Presland, chief executive of NZCoop, says two-thirds of its members have demonstrated “endurance and sustainability” by being in business for more than 25 years.
    “We don’t see many cooperatives going under and membership is growing,” he says. “The cooperative model returns benefits on the basis of volume supplied and business transacted.”
    Richardson attacks
    Last year, in an NBR op-ed article, former finance minister Ruth Richardson was harshly critical of the cooperatives’ dominant role in agribusiness.
    “Much akin to the state-owned enterprise model, business performance of the coops is subservient to the dictates of the ownership, capital is constrained and the governance regime suffers from politics at the expense of professionalism.
    “The incentives are all wrong. The board must pay primary homage to the owners with price to suppliers trumping all other business drivers.
    Capital is constrained

    “Available capital for backing a high value play is constrained in two ways. The first call on free cash flow is to bulk up the price paid to suppliers. In turn suppliers, while shunning external capital, are reluctant to fund new endeavours. All this is compounded by a governance regime where director tenure and dominance is a function of farmer politics. It is a self-defeating dynamic.
    “The very things that will drive more value for farmers are smarter governance, access to more capital and commitment to business strategies that shape lucrative markets and deploy the superb provenance of the land in the highest margin categories.”
    Ms Richardson backs her case with the view of the Treasury: “Cooperatives are typically less transparent in performance reporting; owners are more motivated by growing the value of their own business than providing for the growth of the co-operative; usual market disciplines faced by conventionally structured entities tend to be less visible and effective for co-operatives; and governance is also often less transparent and more challenging.”
    Ms Richardson goes on to reference other critics of coops, such as Productivity Commission chairman Murray Sherwin and international businessman Stephen Jennings.
    Mr Presland says future research will focus on the performance of the cooperative model but this will depend on further funding.
    Future opportunities
    Meanwhile, the university report says cooperatives are under-represented in the insurance, banking and finance sector, as well as in heath and social care, compared with other countries such as Australia.
    The financial sector accounts for 45% of revenue of the world’s 300 largest coops and 63% of Australia’s top 100, while in New Zealand it is just 3.4%
    In health and social care, the sector makes up 4% of global revenue and 1% in Australia (specifically housing). New Zealand’s contribution of coops in this area is yet to get off the ground.
    Read more from Nevil Gibson
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    Alliance & SFF were on the right track!!!! after all !!!!

  2. Rural round-up | Homepaddock Says:

    […] NZ sheep and beef farmers more profitable than Northern Hemisphere counterparts – Allan Barber: […]

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