Hard to see where sheepmeat solution will come from

Not surprisingly farmers are dissatisfied with the state of the sheepmeat market. The impact of drought has brought about a near 20% increase in the kill for the first quarter in a season where the full year lamb kill is forecast to be 1.7 million lambs below last year.

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Owen Ferris – New Zealand lamb’s finest salesman

The recent death of Owen Ferris marked the passing of one of the major characters of the New Zealand meat industry, but one who was relatively little known in this country because he was an Irishman based in London. During his career he sold more than 30 million carcases of New Zealand lamb and this may be an underestimate.

 

Born in 1942 in Streatham but evacuated to Ireland during the war, Owen arrived in England at the age of 19, starting work at a slaughterhouse near London before working as a butcher in Piccadilly. His connection with the New Zealand sheepmeat trade began in 1971 and he soon joined AFFCO’s UK agents Michie and White and subsequently New Zealand Farmers for whom he worked until his retirement in 1999.

 

New Zealand Farmers, located just round the corner from Smithfield and founded in 1976, was owned by Alliance and AFFCO throughout Owen’s career, although it is now a wholly owned subsidiary of the Alliance Group. For nearly 40 years, NZF has been the biggest importer into the UK of New Zealand lamb and sheepmeat, moving during that period from predominantly frozen carcase trade to today’s mix of chilled and frozen cuts.

 

Owen played a major part in that success through to his retirement. He was a specialist in selling frozen carcases and cuts to the wholesale and manufacturing trade, although in his later years he had to adjust to the growing fashion for chilled cuts to the retail sector.

 

Everybody who came in contact with him speaks of his generosity, sense of humour and total commitment to the New Zealand sheepmeat industry. He often talked of trying to extract the price of a Cartier watch for New Zealand lamb legs, although he wasn’t always successful. However in contrast to the common idea of exporters undercutting each other and selling below the market, Owen always tried to sell for as high a price as possible.

 

The regard in which he was held is illustrated by his appointment as a Freeman of the City of London and a Liveryman of the Worshipful Company of Butchers.

 

Outside work his main interests were horse racing and rugby. As expected of an Irishman steeple chasing, especially at Cheltenham, was his passion and it was fitting that his memorial service was held in London on the same day as Cheltenham’s opening for the season. Also a poem ‘Arkle’s Battlefield’ was read at the service and, for those who don’t know, Arkle was an Irish jumper, the best steeplechaser of all time, and Cheltenham was the scene of his greatest successes.

 

None of this may mean very much to those people who are unaware of Owen Ferris’ contribution to the New Zealand meat industry (or English jumps racing!), but, without people like Owen, New Zealand lamb would not command the same level of consumer awareness it does.

 

This brief resume of his life and career put a human face to the efforts of our exporters and their representatives to sell New Zealand lamb overseas, one of our biggest exports since that first frozen shipment in 1888.

Global animal protein trends become more complex

At the Red Meat Sector Conference Luke Chandler, General Manager of Rabobank’s Food and Agribusiness Research Advisory group in Australasia, presented an interesting perspective on global protein trends and the increasing complexity required to feed the world’s growing population.

Challenge of creating a strong red meat sector

I am obviously not alone in trying to work out ways of creating a strong red meat sector with profits being shared equitably between the participants. But it is an elusive model which nobody has yet succeeded in identifying. It makes me wonder if it is an impossible dream, but there are a number of determined dreamers who are still intent on finding the solution.

 

Recently I have had an exchange of emails, not always amicable, with John McCarthy, chairman of MIE, who is committed to achieving consensus among farmers about a future industry structure which will get away from the price taker model.

 

He takes me to task, quite legitimately, for seeing things from the companies’ perspective which, he says, focuses on making a profit for shareholders. But this doesn’t satisfy farmers’ objectives of being sustainably profitable which is the only way a strong red meat sector will emerge. He agrees the top farmers are performing satisfactorily, but in his view these only comprise 20-25% of farmers.

 

McCarthy says what he would like to see as part of MIE’s push for reform is a credible analysis of the sector’s risks and rewards. Questions to be answered include whether we can grow the pie through a NZ Inc approach, if committed supply will give bankers certainty and allow for a more sustainable model. He would also like to know whether the companies can be transparent and share the marketplace, if there is an advantage and how to gain it.

 

These are the questions which the summit proposed by MIE would attempt to answer.

 

I agree wholeheartedly with McCarthy on the need to improve the present red meat sector model, because clearly the present model is not working equally for all participants. The traditional way it works is for meat processors to have control when livestock supply is plentiful, particularly in drought conditions, whereas farmers are in the driving seat when grass is plentiful.

 

However market demand and the exchange rate determine the final size of the pie, while the way the pie is shared depends on the flow of livestock. From one year to the next farmers make decisions about their farming enterprises and over the last decade this has seen a dramatic reduction in sheep and to a lesser extent prime beef numbers, primarily because of the improved economics of dairy farming in relation to red meat.

 

There are other factors such as farmers’ age profile and the increased influence of corporate farm ownership, but above all the cause of the change has been the relative discrepancy of earnings from dairy in comparison to sheep and beef.

 

This discrepancy is not the result of the formation of Fonterra, although the timing is coincidental. But earnings from dairy have been underpinned by a combination of growing global demand for dairy based commodity products and the growth of trade with China, especially whole milk powder and infant formula.

 

Conversely sheepmeat and prime beef are premium products being sold into high value, lower volume end uses; the red meat sector’s predominant mass market product is lean beef for the fast food trade which is provided ironically by dairy and bull beef.

 

So the key questions to be answered are how to grow the size of the pie and how it can be shared to all parties’ satisfaction.

 

I am not convinced there is much more the exporters can do to increase the value of sales apart from applying the principles of continuous improvement, because the industry has made, and continues to make, enormous gains in products and markets in spite of the strength of the exchange rate. Government and industry are working together to conduct research into new and better ways of doing things. The NZ Inc approach is also essential for the negotiation of market access and tariff agreements, but would not necessarily grow sales and profits in more generic ways.

 

In contrast the processing part of the sector has too much capacity which is capable of processing total throughput in a little over 20 weeks. This would not be possible in drought induced peaks, but nevertheless this overcapacity is a charge on the sector which reduces the amount of profit to be shared. However the location and ownership of the surplus capacity is not evenly spread across either country or companies.

 

The meat exporters have attempted several times in recent years to find a common solution to this problem without success. I don’t believe a summit would be any more effective because of the conflicting interests of the different companies’ shareholders and bankers.

 

The Rabobank Agriculture in Focus 2014 report identifies a lack of capital investment in infrastructure and productivity improvement as a serious handicap to the development of the sheepmeat sector, stating that new capital could be either local or international. Chinese investment in Blue Sky Meats may be the first such development.

 

Therefore it comes back to trying to achieve the achievable. Without wanting to incur John McCarthy’s annoyance again, I don’t believe farmers can make many gains, unless they can unite under a common banner. MIE faces a big challenge to organise a meaningful pan-industry summit with any hope of an agreed and constructive outcome.

Smoke and mirrors or business as usual

This season shows many of the normal characteristics of the red meat sector, but it’s getting harder than ever to unravel the complexities of an industry which epitomises Winston Churchill’s 1939 quip about Russia – a riddle wrapped in a mystery inside an enigma.

More than one side to meat industry debate

Hearing Tony Egan, MD of Greenlea, on Radio NZ emphasised what I already knew, but may not have commented on sufficiently in my column in Farmers Weekly about the Meat Industry Options paper.

Meat exports steady, but no silver bullet in sight

Meat industry exports for 2012/13 were virtually the same as the year before at $4.4 billion, but there were some significant differences in how the total was made up. Notably within two years China has grown from 1% to 10% of total red meat volumes. Sheepmeat sales were slightly higher in value than beef at $2.3 billion compared with $2.1 billion.

Lies, damned lies and statistics or historical facts about sheepmeat

A brief comparison of sheepmeat and milk solids prices since 1991 throws up some interesting facts. These give the lie to the belief that the dairy industry is consistently more profitable than the sheep sector.

ANZCo’s published result confirms anticipated loss – but could have been worse

ANZCO’s financial result to the end of September 2012 was posted on the Companies’ Office website on Friday in compliance with the statutory requirement for private companies. ANZCO reported losses of $25.6 pre-tax and $19.2 million after tax. We now have the details for the big three meat companies which publish their results and, as anticipated, none makes pleasant reading – total pre-tax losses of $140.4 million and post-tax $102.2 million.

American sheep farmers suffering even more than New Zealand

An article headlined ‘Drought, high feed costs hurt sheep ranchers,’ appeared last Friday in the Northern Colorado Business Report. It makes the problems being experienced currently by New Zealand sheep farmers look comparatively pretty small.