By Allan Barber
It was a Roman general who first said the best strategy was to make haste slowly and this may now be occurring to John McCarthy, MIE’s chairman.
It certainly doesn’t look as though there is any likelihood of making fast progress, even if, as he told me this week, there is plenty of support for MIE from farmers and other industry stakeholders.
The organisation’s challenge can best be summarised by looking at the poll on the FW Plus website which asks respondents to say why the proposed industry summit has been scrapped.
29% think MIE was wildly optimistic about farmers’ willingness to back words with action, 57% think farmers don’t care enough to do anything and 14% reckon farmer unity is a lost cause.
MIE’s efforts since April last year have entailed a lot of hard work by a small group of volunteers, starting with farmer meetings in Gore, Christchurch, Feilding and Gisborne to drum up support for meat industry reform.
If the poll is remotely accurate, it is a pretty depressing commentary on the state of the red meat sector.
The government should be really worried about farmers’ apparent state of disillusionment.
The decision by MIE to call off the industry summit was preferable to ploughing ahead with an event which was guaranteed to fail.
It would have a major setback in a campaign which has created plenty of discussion and debate, as well as achieving some successes, without making the progress desired.
MIE’s main success has been to put up three candidates for the boards of Alliance and Silver Fern Farms who were duly elected. Without this achievement, MIE’s campaign would have died.
The next positive development was B+LNZ’s agreement after its AGM to allocate $200,000 of levy funds to fund the development of an industry reform programme.
These funds have not yet been paid because MIE must first produce a robust business plan which provides detail on how the strategy will be realised. However I understand MIE is getting close to clearing this hurdle.
McCarthy says the key element of the business plan is an analysis of the size of the opportunity to create increased farmer wealth as a result of cooperation at those points of the value chain over which New Zealand industry participants exert influence.
This analysis will be rigorously peer reviewed before it is presented to farmers for their consideration and buy in.
After that it’s up to farmers to decide whether they want change or are happy with the present state of their industry.
The challenge identified by MIE is to identify how to grow the size of the pie that suppliers, processors and exporters, and customers have to share. The overseas customers pay what they must to secure supply, but no more; therefore the present industry model dictates that farmers and processors have to share what is left.
At current exchange rates this is not sufficient for both parties to make a consistent profit.
I don’t believe MIE alone can solve this problem with or without farmer support.
In fact the whole meat industry including producers, processors, bankers, consultants, and industry good organisations has been trying to find a solution for the last 30 years. Unfortunately all these efforts have failed to come up with an answer that works.
This strongly indicates finding a solution that suits most participants is just not possible.
As observed on many occasions the government refuses to get involved unless 80% of the industry’s participants present an agreed solution. But that stance is looking increasingly like a copout.
Government assistance (or interference) offends apparently sacrosanct commercial principles which the government is perfectly happy to ignore when faced with demands for subsidy by Warner Brothers and Rio Tinto or cries for help from Solid Energy. It begs the question which industry is more important to New Zealand’s prosperity.
If the government is remotely interested in finding a structural solution to the problems of New Zealand’s second largest source of overseas funds, it has to get involved, because it is the only body with the power to bring about a sea change.
It is hard to take seriously the platitudes expressed by MPI and the Minister of Agriculture about the success of the meat industry, when much of the export revenue is as a direct result of the slaughter of capital stock and cull dairy cows. This won’t produce the predicted growth trend line which requires a reinvestment in breeding ewes and cows instead of a continued change of land use to dairy.
The Red Meat Sector Conference takes place in Wellington at the end of July, starting with a panel discussion at Parliament. This seems to me to be the ideal time to apply pressure to MPs of all parties to support a process aimed at finding a solution to what is undoubtedly a multi-faceted problem.
Unless the government wakes up soon, the combined efforts of farmer groups and investment by processors and industry good bodies in PGP programmes may be a waste of time and money.
-------------------------------------------------------------------------------------------------------------------------------------------
Farms For Sale: the most up-to-date and comprehensive listing of working farms in New Zealand, here »
-------------------------------------------------------------------------------------------------------------------------------------------
Here are some links for updated prices for
- lamb
- beef
- deer
- wool
P2 Steer
Select chart tabs
---------------------------------------------------------------------------------------
Allan Barber is a commentator on agribusiness, especially the meat industry, and lives in the Matakana Wine Country where he runs a boutique B&B with his wife. You can contact him by email at allan@barberstrategic.co.nz or read his blog here ». This article was first published in Farmers Weekly and is here with permission.
57 Comments
My farm is generating great returns. Beef is the highest price I have ever received, sheep prices especially for Ewes are record.
My costs are where the devil is, they are totaly out of control. They are ruining my profitability and taking far to much of my time. Markets are markets and I can adjust to demand if I get the right signals, costs stalk me every day, they never go down and stay well above CPI.
We are being driven out of business by a ridiculous cost structure.
AJ, And those costs are largely driven ever higher by Government (central and local) programms and charges. What Barber and his ilk want is more Government coercion and a Statutory monopoly, fontera style, so they can gouge consumers and taxpayers with impunity. JoKey will probably oblige one day.
Regards, Ergophobia
As the increasing costs of energy percolate through the economy what did you expect?
Recall july 2008 when oil went to $147 a barrel and then collapsed to $40 as the economy imploded. Rinse and repeat for how many commodities?
The bitch is of course there is no other game in town.
regards
I dont find that the case, price seems flat to me for 4+ odd years. (Though I buy little as I am supposed to be vegitarian, haha). So I keep a close eye on the small amounts I do buy. Last night I paid $17a kilo for chicken breasts the cheapest for a while, ($18 to 21 more normal) premium beef mince (I love chili con carni) the same, $17 and $18~19 more normal.
Fish now yes I'll agree 100% its ugly. If you can get fish worth buying that hasnt sat on a shelf for 10+days, Countdown Im looking at you its more expensive than beef. I mean Blue Cod is $40 to $48 a kilo, more expensive than fillet steak.
DC basket of goods I asume tracks prices more acccurately.
I think the problem the meat industry has its deluded in thinking that people can just keep paying more. So sure they might form a cartel and force up prices but I think they'll see a volume collapse as a result. Not all bad as too much meat is bad for you anyway. I think the same thing happened when cheese etc shot up in price, it became a non-staple for NZers.
Oil/petrol us a classic example, we see demand destruction in the developed world. The oil companies have woken up to that fact and are canceling field exploration and development, which we wont feel the impact of for 5~8 years, oh boy then lookout.
regards
As a farmer i agree that, price of red meat in the supermarket is expensive. But you should realise that in the case of beef we have been getting paid between $4 to $5kg for it this year. So if you are paying $17 to $18 for mince you can get an idea of the extra costs and mark ups added by middle men.
That $4 to $5 we are paid a kilo is including bone, which weighs a lot. And the processors cant do much with it. If a 400 kilo heifer heads off to the works, there will probably be 100kg of meat for the butchers to sell. At present the farmer will get around $900 net. To get that someone has had to farm its mother for 4.5 years. 2 before mumsy gets preggers. 9 months in calf, and 18-20 months for bubs to get to 400kg ( if farmed well) Consider that most beef farmers only get 85% calving at best. Its a dodgy business this beef farming. Consider also the government requires you pay tax on mumsy cow up front as a yearling and onward, then you also pay tax on said heifer. So 4.5 years of paying tax on said animals before you get any return in your sweaty palm. This includes ACC of over 5% on the governments valuation of said animals. So your $20 to $30 bucks a kilo for your steak is cheap cheap cheap. Stop complaining
You are absolutely right we are probably getting $6 to $8 for it if you take out the bone. i agree i think beef is not bad buying. Lamb chops on the other hand $23 per kg at our supermarket (obviously including bone) is quite pricey considering the farmer can get about $6 per kg for it.
There is a plan to take all Sheep and Beef boning to Asia, that will free up a lot of labour in NZ to do other productive enterprise, and significantly lift returns to the meat industry who are simply reacting to the high costs in NZ.
If the Chinese stop buying then its 'all over rover', but thats another story.
As most know there are undrlying issues in the industry one being over capacity of killing space. This drives overly competitive stock prices so processors aren't able to make a large enough profit to invest in tecnology and market development. There is little point in having 2 farmer owned coops working against each other. Surely as a start they could combine by having an inderpendent valuation of the two coops and if it is a 2 for 3 share swap so be it that would be a start doing the same thing and expecting a different result is as Einstein says pure lunacy.
AJ, that competition provides crumbs off the table. Its a result of huge overcapacity that hangs like a noose around meat company necks as a result of the surge to dairy/dairy support. No company wants to close a plant because they incure all the cost and every other company benifits. The result is that they all limp on inefficently,unable to make enough profit to reinvest in new technology,branding and marketing etc, the things required to fully capture the real opportunity that exists. Thats why a whole of industry solution is preferable hopefully led by the end of the madness of having two farmer owned co operatives in full blown competition with each other, as zeebeck correctly identifies. If either of the co ops should fail then we will almost certainly end up as wage slaves to foreign owners who would have no incentive to pay us a cent more than they had to, to secure supply.
Shags sheep, Don't get me wrong I'm a huge fan of co-ops. I've jsut lost faith in the system. Its a plutocracy now, some how, over the past few decades we lost our democracy and control over our lives. While you intentions are admirable the deck is stacked, the supermarkets will always get the last laugh and China is a f-ing frightening mess that the market for %60 of our sheepmeat, a huge amount of our beef and milk and almost all our wool.
It's going to a fight for survival.
Losses Mount in China Loan Fraud
http://www.rfa.org/english/commentaries/energy_watch/fraud-072120141044…
I couldnt agree more AJ and thats why we have to preserve and build our co ops. If we lose control of the supply chain to the Chinese for the sake of some short term gain we will live to regret it. Unfortunately, as you say, the co ops have lost farmers trust by not remaining true to their values with some shareholders being treated more equally than others. That has to change! By the way keep posting the interesting links, theyre a highlight of the sight.
Shaggers, Im more than a little concerned by some of the developments I'm seeing overseas. Potentially game changing for us, our high cost structure is going to really count against us.
I worked in Canada when I was young and the large farmer I worked for in his mid 60's has no children going farming (like here) and he tells me some of the big corporates who are having a go at farming in Alberta and Sas, are going to exit ignomoniously, as I suspect will many of the operators of large scale corporate dairy farms in NZ, thank God, Jenny Sipley is here to save us in her role with the China Construction bank. That bank has assets of 2.5 Trillion US$, so they should save our banks from stress by relieving them of their 'assets'.
I'm looking at a few ideas in the States, they are anti change, but its going to happen whether they like it or not, and could be an interesting few years for them, not so promising for us. If you need a job let me know ;-).
Other friends who used to work for me are doing surprising and exciting things in Europe.
NZ cannot afford to sit still, but with this cost structure its whats going to happen.
Andrewj......."OUR HIGH COST STRUCTURE IS GOING TO REALLY COUNT AGAINST US" and that is the biggest issue that is facing NZ......and no one is bloody well listening......farmers understand this but f the rest of the population doesn't have a clue.
NZ had potential - but too many people wanted to ride off the pigs back......
Maybe no one is listening because you talk rubbish. Of course a cost structure can be common across all countries. So oil is $110US a barrel, but all farmers world wide in effect pay that (up from $40 a decade ago), ergo its effect relatievly is neutral. Same with fertilizer. With grass fed produce as opposed to feed fed however?
Same with Govn rules and regulations. ie you dont have to remove regulation especially as that is no more than a race to the bottom you just need reasonable regualtion and policy that protects the long term viability of the economy and not a slash and burn attitude.
regards
You have no idea re the regulatory costs involved in agriculure here in NZ or other competitor countries.
Why is it that you jump on the bandwagon and make assumptions that all regulation is necessary!!! You also assume that all regulation is administered efficiently and effectively!!!!
If NZers are demanding all this regulation then those who are doing the demanding should do the paying.....maybe you would like to contribute 5 to 10% more in your personal taxes to cover all the costs that get foistered upon business.....call it a regulatory tax!!!
Do you even know the difference between direct and indirect costs and regulatory costs or are you just shooting off from the hip when you compare oil, fertiliser, grass, feed etc across borders?
And you have an idea? somehow relying on the opinion of someone such as yourself with an extremist politcal axe to grind just doesnt make sense.
I dont assume all regulation is necessary, I do assume is broadly beneficial but needs tweaking. Some needs repealing, some new is needed.
No, NZers can "demand" that businesses pay the true cost (say damage to the environment). At that point the business sees the true cost it has to meet and no longer getting a free ride at the expense of others or future generatiins it can act accordingly.
The point is when you complain of direct costs and indirect costs all businesses/undertakings "suffer" these. It is not a case of NZ has these costs but they are too high and claim its all the Govn's fault. If everyone is paying these true costs then the problem isnt one of regulation or Govn it is one of the input costs are too high because they intriniscally are. Ergo we cannot continue with growth/ BAU, which we cannot.
Sure we can try to kick the problem(s) down the road to future generations as it seems generations before us have done. Trouble is, this generation it are up against it ie we cant be kick any more unless you really destory masses of future value in a last gasp "putt". The debt taken on in the last 20 years and especially the last 5 is one such play. All you are looking to do is do the same with NZ's one time resources so you can enjoy them, leaving nothing for the future generations. Now you may consider that morally OK, but I certianly do not.
Or maybe you odnt have any children so dont care? not an uncommon thing Ive found.
regards
The notaneconomist you describe sounds like a pretty awful person, but not one that any reasonable reader of notaneconomist's writings would actually recognise.
You seem to assume that the costs of regulation are the same as the true costs of damage to the environment. There is no basis whatsoever for that assumption. Notaneconomist is not demanding that businesses should be free to pollute the environment or have free access to finite resources. Pointing out that some regulation is inefficient, disproportionate and unnecessarily costly is not remotely the same thing.
You forget that regulation requires OIL......and as you have stated oil is a fossil fuel...and peak oil......
Every litre of petrol those regulators are using are emitting around 2.3 kg of direct CO2
https://nz.answers.yahoo.com/question/index?qid=20080415010249AAmG1sS
Regulation has to be highly efficient if you're concerned with environmental issues.
Well to start with the context, and of course relative. So bad practices and pollution cause more harm than enforcing the regulations? yes I suspect so by a long way.
In terms of the bigger picture less energy, means less complexity and centralised Govn, both are dead men walking.
And where did I say it shouldnt efficient? never ever.
regards
What apples with apples comparisons do you make steven. There are many options available for farmers to belong to various discounted schemes e.g. 10+cents/litre petrol discount - but each scheme has eligibilty criteria and not all farmers will meet them. So what are your apple with apple comparisons that are similar across all farms?
wow. I'm familar with the Purchasing Power Parity model, but I never thought anyone was actually naive enough to believe it. So there is no point me shifting my business model or being more environmentally mind, because if all farms have similar cost structures, then we'll all use about the same amount of fuel, equipment, fertiliser and produce the same level of pollution....no matter what we do.
PPP is BS on so many levels.
with Oil at $100US a barrel we wouold be paying about 3 times what German pays, and nearer to 5 times what the US does. ...what doesn't change is the amount of physics work done by the equipment... even if our equipment does cost 50%-100% more (and we pay triple INTEREST rate on it... oh...and double the taxes.... and have more levels of complsory bureaucracy to pay for in the the process.... with less population and profits to split the overheads with.... I can't imagine why we actually end up with a higher cost structure!!!!
yep, but Im in the early stages and talking to suppliers etc. Some big changes going to come in agriculture as long as the economy can keep limping along, which Im beginnig to doubt.
Prices for land in the Mid-West have become bubble territory, it will be interesting to see what will happen if money starts costing again, free money is a massive distortion and its going to hurt, it's so cheap to borrow and build, cheaper than buying existing operations in not so competitive countries like NZ. Thats why Im so concerned about our drift into dairy and question thats it's been that well thought through? We had a good level of production ten years ago alot of new conversions could be mal-investment but going to hurt us all with the debt.
My neighbour has just started to convert to dairy in CHB, he's already got the cows on, he's purchased dry cows to mate, ready for next year, he's irrigating with center pivots. Looks like a lot of young dairy heifers on to. I'm not convinced its what the market is signaling, in fact I suspect it would, if it was able to give a signal tell us the opposite.
Beef cattle in an auction North of Sacramento made $3.00 a lb last week and thats considered crazy by all my friends. Chicken and pork is gearing up production as shoppers seak ulternative protein sources, some problems with the chicken breeders, mind you nearly all are cheaper than milk.
http://mobile.reuters.com/article/idUSKBN0FE0C820140709?irpc=932
check the comments on this article second one http://www.shropshirestar.com/news/2014/07/21/tumbling-beef-prices-hitt… Midwest tensions http://online.wsj.com/articles/u-s-corn-farmers-face-a-cash-crunch-1406…good links, the next one over in the Shropshire News was this;
Lessons from Kiwis on turning grass into cashHow would you like to increase your farm size by half for free, asks Robyn Hulme ?
I have been travelling the country for the last two weeks with Murray Rohloff, one of New Zealand’s leading sheep farmers and consultants. Our trip has taken us from Dorset to Aberdeen and involved 13 different farmer meetings.
The theme throughout is how sheep farmers can increase their profits or in some cases reduce their losses with minimum cost.
http://www.shropshirestar.com/farming/2014/07/19/lessons-from-kiwis-on-turning-grass-into-cash/
Henry, most of the sheep farmers I visit in the UK are pretty much onto it, many have even worked in NZ. I visited several sheep farmers in France, mostly ex UK farmers and they all had young Kiwis from the South Island working for them. Farming sheep in France was difficult and some wished they had stayed in the UK.
In Alberta the cattle are now wintered outside this has made it much easier for them, god knows how the Angus do it, they just get a tractor and make a big windbreak from the snow and feed them well. They don't get rain in winter though and most days the sun shines, its just bloody cold. I was amazed how in winter they just turn the horses out and they come back in spring in great condition.
The USA sheep farmer has some room but I find most farmers are smarter than they look ;-).
I have several friends in Chile who have purchased land are cattle farming or dairy, NZ farmers have done a great job of inflating the value of land, I have family in Chile and i'm being tempted by a friend into a joint venture there at present, however my brother in law is a well known local and I would only go into business if he was a partner. His farm which is just for holidays, has been brought back from the government 4x in his families past, nationalisation is always a risk in Sth America.
Aussie sheep farmers I take it are still converting to sheep meat away from wool due to poor returns. Aussie sheep meat is available whole carcass in California and boned back legs at $4.50 a lb at Costco.
I've a friend just back from Columbia and he had some interesting photo's he's heading back to live for a while. If you take oportunity away from young farmers in NZ,due to high capital cost,and poor returns due to costs, then its only logical they will take their skills and filter out around the world. I met a Kiwi farmer in Romainia, he was buying farm machinery for a farm in Hungary, we were both rather surprised to find each other. Romania had potential and all the farms were big but coruption was a major problem. John Deere had purhased a lot of land(unconfirmed) in the south, I don't know if they still own land there or not .
I went to a great meeting with Rabos man from Brazil, it was an eye opener. Just ask Fonterra, looks like they have some decent sized operations doing well.
The reality is that marginal land used to be north of Gisborne where young people could go and make a life, now its somewhere overseas.
As Ive said up top of this thread, my returns at present are great in NZ, but return on capital is a joke as my 250 acres has a GV of 1.6 Million and I have over a 100k invested in livestock. I pay over 8 k in rates my insurance is over 5k, my accountant likes to charge over 6k, my fert bill is over 10k and on and on it goes.
I agree with Andewj when he talks about costs. I went to university 25 years ago and did a business degree in those days the emphasis was on efficiency. In the last three years i can not believe how many stupid rules have been implemented by council and govt, across all industries that have no basis in common sense. By efficiency i mean what benefits have the rule changes achieved and at what cost? What difference has nait made and for what cost? Why does a builder have to put scaffolding around a single story house when installing a flat roof? What is the benefit of this, for the massive cost? What are the measurable benefits of very expensive town effluent schemes? I don't disagree with regulation, but we get slammed with what seems to be the most expensive solutions.
When I was in business 25 yrs ago, "efficiency" was a dirty word. Effectiveness was the law.
The "expensive solution" is literally there to stimulate the economy and make jobs. The home owner is _obviously_ rich, because they can borrow, this is the main input of money into the system!!! He pays the builder, who has to pay all the extra people, who pay all the bureaucrats, all who can be taxed because the homeowner can borrow....
... bu it's PQ+i, it's all on the "never never", the money injected to the system is disproportional to the benefit to the homeowner, as all the interest reduces the input-persons ability to sustain the system, add on extra's and the burden is heavier, as interest must be paid for the extras, (higher tax rates increase the pay back time, meaning the interest rates is even more damaging to the economic fountainhead)
Perhaps if the government were keen on helping the meat industry the requirement to pay tax and Acc on ones stock years before they are sold should be wiped. It is totally illogical to pay tax on something that one has not received any income from. In fact it is theft.
Lol in english please Stephen. I understand how it affects my rural business, eg one has to come up with provisional tax payments on income that is way into the future. If purchance your animals die. And the old saying is if you have livestock you have deadstock. You have paid tax and ACC on something that doesnt exist. But how does this affect other businesses, and is it as bad for them as it is for us?
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.