Overseas markets holding up

In a recent conversation, Alliance CEO David Surveyor described world red meat markets by comparing them to traffic lights. Contrary to the evidence earlier in the year, when buyers stopped buying because of Chinese New Year closely followed by the Covid-19 shutdown, China has emerged as the brightest light with the traffic lights firmly set on green. The composition of Chinese orders has changed since the virus outbreak with retail and online sales growing considerably, while there are signs of hot pot outlets starting to reopen.

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No need to panic over Brexit

In spite of the fast approaching deadline of 29^th March, when the UK is due to leave the EU, not to mention the latest shipment date able to meet that deadline, there may be no need to get too concerned. There is a huge amount of media-inspired speculation about the potentially dire consequences of Prime Minister May’s inability to achieve an improvement of the exit terms leading to a No Deal Brexit, but word from Britain suggests this is highly unlikely. After all, both the EU and the British Parliament have specifically ruled out leaving without a deal.

Reflections on the year that was

2018 is nearly over and it’s now time to reflect on what were the most notable events and issues of the year. It is also time to think about the implications for the future.

Trade outlook still bright, but not without challenges

Vangelis Vitalis, Deputy Secretary for trade at MFAT and chief negotiator for the CPTPP due to take effect early next year, gave a very thorough and enthralling presentation on the trade landscape to the Red Meat Sector Conference in Napier on Monday. Free trade and market access are a key area of interest to the New Zealand meat industry and the economy as a whole.

Meat exports sold to more than 100 countries

New Zealand’s meat exporters come in for a lot of criticism, either for selling too cheaply or for not adding value, and certainly because they can’t (or don’t) pay farmers enough for their livestock. This final criticism is presumably a direct result of the first two – the prosecution’s case argues if they sold product at a higher price or added more value, they would automatically be able to pay more for livestock.

Future of red meat promotion under threat

Next year’s Commodity Levy Act referendum is one of the factors concentrating meat industry minds on the question of red meat promotional investment. B+LNZ is currently conducting a consultation round with individual meat companies to find out how this critically important, if contentious, topic should be agreed for the benefit of all industry participants.

 

B+LNZ Chief Executive Scott Champion told me it’s too early to make any predictions about the outcome, at least until after completion of the consultation round at the end of September. With the referendum about 12 months away, the process is geared to providing time to gather enough detail for promotional strategy development before taking this out to farmers to test it in advance of the vote.

 

The purpose of the discussions with meat companies is to ensure market expenditure is aligned with what the meat industry wants while enabling B+LNZ to fund its essential activities which must now confront new pressures such as environmental constraints. Any new proposal will also have to satisfy levy payers or risk derailing the success of the referendum, although improved sheep and beef returns if maintained should make a Yes vote more certain.

 

The present mix of promotion funded by the farmer levy includes two main strands – the first is country of origin marketing for lamb in the UK, Europe and North America and for beef in China, Japan, Taiwan and Korea, supplemented by some jointly funded variations that support individual exporter programmes; the second comprises campaigns with matching contributions from participating exporter groups across a range of markets and products.

 

For example since 2011 exporting companies have put $1 million a year into sheepmeat promotion in UK and Europe to supplement B+LNZ’s budgeted expenditure. Equally a group of exporters has shared in a campaign to promote New Zealand grass fed beef in China.

 

This strategy has resulted in a move away from generic mass marketing and advertising to more tightly focused campaigns based on research and analysis. This has reinforced the importance of educating consumers on how to cook beef and lamb. In addition to the website, social media is becoming an increasingly important weapon in reaching the target market.

 

While many years’ brand development investment in the UK has resulted in 90% top of mind consumer recall of New Zealand lamb, research has identified the need for exporters to target consumers closer to the point of purchase because of lamb’s premium price position. A large part of the promotional work in Asia to support New Zealand beef has focused initially on the benefits of grass fed beef – low calorie, low cholesterol and low fat – for the premium restaurant trade as the most effective way to reach consumers.

 

Spending limited funds wisely, whether contributed by farmers or meat exporters, is a crucial issue for New Zealand’s red meat sector, both internationally and domestically. Withdrawal of promotional support as a result of failure to get agreement between meat companies and B+LNZ would effectively mean the industry has chosen to shoot itself in the foot.

 

An immediate issue is whether it will be remotely possible to obtain agreement of all MIA members to contribute funds for the purpose of country of origin promotion and, if so, how much. Of the larger meat companies, Silver Fern Farms’ CEO Keith Cooper has indicated a strong preference for company brand promotion as opposed to the generic alternative. Instead of glossy marketing in traditional markets, he would be prepared to consider some funding for educational promotion in emerging markets. Other companies are still in favour of country of origin New Zealand promotion in specific markets.

 

Since it often seems there’s as much chance of getting an agreed meat industry position as there is of formulating an agreed United Nations resolution on Syria, I suggested to Champion this might be a challenge. However he said he was ‘reasonably optimistic’ of getting an industry agreement.

 

The big question farmers and companies alike must consider is what the long term impact of ceasing all country of origin promotion would be. There will obviously be some changes to the current promotional mix to make better use of available money, otherwise B+LNZ would not be in discussion with the meat companies on developing a promotional strategy that better matches its objectives.

 

The unanswered questions are how much B+LNZ is willing to spend on country of origin promotion as against jointly funded activities and what the companies are willing to contribute to the general rather than individual good.

 

In my opinion the New Zealand brand is an umbrella under which individual company brand activity should function, but it isn’t realistic for any one company to achieve consumer recognition for its brand in one, let alone several, markets without that support.

 

It is obviously important for meat exporters to support their own branded programmes in selected markets, while the New Zealand industry maintains its competitive nature.

 

But levy paying farmers have both an obligation and a right to support their product both in New Zealand and overseas. B+LNZ is farmers’ vehicle for coordinating their investment by investing their levy funds to the best effect. The meat companies have an obligation to reach an agreement which will support this investment constructively. If not the red meat sector will be in danger of completely losing its way.

Thoughts from the UK

While in the UK briefly last week I spent a couple of nights with an old university friend who actually got a First in Agriculture at Cambridge which was the best degree achieved by any of my friends or, not surprisingly, me. He farms near the M4 in Berkshire less than 100 kilometres from London.

 

As usual when I see him, we were chatting about the state of agriculture in our respective countries. He asked me whether I needed a ‘pommie farmer whinge’ to provide some material for a column, so not unnaturally I told him to go ahead. His first complaint was about the amount of New Zealand lamb competing with British lamb in the supermarkets. I suggested the view back home was the natural seasonal fit of New Zealand product didn’t really cut across, but rather complemented, the seasonal availability of British lamb.

 

He partly agreed with me on this, but said the British sheep farmer would still prefer it if the competition from our lamb didn’t exist. I was able to provide some reassurance here by telling him how China had come from nowhere to be the biggest market by volume, if not value, for New Zealand lamb which meant there was progressively less being exported to the UK than was the case even 12 months ago.

 

An aside here which I discovered soon after getting back at the weekend: apparently sales of stockinette are back up to levels last seen in the 1980s when most New Zealand lamb exports were shipped in carcase form. This is clearly a direct consequence of the increase in sales to China, so while we can be pleased with the diversification from our traditional markets, we should be less excited by the return to a product form from the 1980s.

 

As a crop farmer who has a contract with a contractor on a similar profit share basis to our share milking model, my friend is frustrated by the delay in setting the basis for the current season’s EU subsidy. While we may think he’s lucky to be receiving a subsidy at all, as I told him, his frustration is understandable, because until he gets this information, he can’t confirm the profit share with his contractor.

 

Interestingly his calculations indicate that this year’s profits will be higher than last year, in spite of a lower price. This is because the yield this year is so much better than last. After a very wet start to 2014, the weather has been much more favourable and this year’s crop is in much better condition.

 

My friend confirmed the continuing problems being experienced by British dairy farmers who are still losing money on every litre of milk they produce. The supermarkets still dominate the price of milk, while it appears farmers don’t have the ability to supply milk at a higher price for the manufacture of cheese and other value added products.

 

A final impression from my brief visit was the lack of sheep, at least in the parts of England I drove through. In the Cotswolds where I grew up sheep appear to be almost a forgotten species with only the impressive wool churches, built in the middle ages, to serve as a reminder of where the region’s wealth originally came from.

 

But I suspect that has probably been the case for the last thirty years or more. Land use change isn’t restricted to dairy farm conversions in Canterbury and Southland.

Changing world for sheep farming and sheepmeat

It may be a statement of the obvious, but the world for sheep farming, processing and sheep meat has changed dramatically, particularly in the past 30 years.

Lipstick doesn’t hide the ugly truth

Silver Fern Farms released its annual loss accompanied by a press release which attempted to put some gloss on what was in reality an awful result. It was an improvement on the year before, a matter of some pride on the teleconference this morning, but a $36.5 million loss was only $5.8 million less than the previous year.

Debt is good under some circumstances

After my column last week about meat industry debt levels, Keith Cooper, CEO of Silver Fern Farms, took me to task for incorrectly reporting the situation with Silver Fern Farms’ debt facility.