It’s not enough for a Cooperative to simply market itself as one to get your business!

In theory I am a strong advocate of cooperatives as quite simply the producers are the shareholders of the entity and as such you would expect everything to be done in the best interest of the shareholder.  However in reality I am far from convinced this is the case.

My concerns in this regard have again been highlighted by the official signing of the Silver Fern Farms (“SFF”) Joint Venture arrangement with a Chinese company.    Alliance Meats (“Alliance”), who I am a shareholder and supplier of, have reiterated in their meetings, articles, weekly emails etc that “we are the only cooperative left and as such the only one that truly has the farmers’ interest at heart”.  I am paraphrasing here, but this has been a familiar marketing theme for over 12 months now.

The problem is this in itself is not a good enough reason to supply a cooperative.  It would be if the theory holds true above, but I am not sure that it is, a cooperative ALSO has to be good successful business that commands support and loyalty of its shareholders through its business acumen, returns, integrity, transparency etc

In a recent article Murray Taggert (Chairman of Alliance) apparently said “Grand Farms wanted to process more imported meat and was pushing more to an ‘up market’ level”.   Grand Farm being the processing giant in China that Alliance is looking to strengthen their existing relationship with (their words not mine).  I am sorry but isn’t this the very thing that we don’t want (it was certainly one of my concerns with the SFF joint venture): that we remain a supplier of whole carcases of lamb/mutton.    How does such an arrangement whereby a company in china processes the meat, into presumably the cuts the consumer wants (‘up market level’), extract more money for me the shareholder/supplier of Alliance.   The added value is surely going directly to the Chinese company Grand Farms!   I would have thought such an arrangement was the antithesis of what most, if not all, meat industry commentators suggest should happen if we are to extract more added value through the chain of supply, so the farmer, in this case Alliance shareholders, received higher returns at the gate.

Then on top of this Alliance has now entered into a joint venture with the New Zealand Merino Company   (“NZM”) to process and market merino meat under the Silere brand.   In my humble opinion, this was originally simply a contract entered into by SFF with the primary purpose to procure livestock.  I understand a premium was paid, which no doubt was ultimately cross subsidised by other suppliers to SFF at the time. 

I thought SFF may have actually stumbled into a good thing here, as historically most would accept that merino (or merino cross)  and Southdown (or Southdown cross) lamb is the best tasting meat (incidentally this to do with the fineness of the wool translating into fine textured meat, something that any experienced stockman will tell you, but I have yet to see any meat company do trials on).  However I was reliably informed by an Alliance executive, in a general discussion some months back, that there were major issues with Silere brand because the colour of the meat made the marketing of it very difficult.

Logically if it was a great money spinner, why would SFF give it up?  The cynic in me wonders if the premiums that I understand were paid by SFF for Silere meat, which they now have no legal obligation to pay, and more importantly no longer wish to pay because there is no money in it, is why SFF’s partnership with NZM is now at an end.

Accordingly if any of these things (if not all) of the above are correct, why have Alliance entered into partnership with NZM to process and market this Silere brand.  Moreover if Alliance pays a premium, because again it’s back to the same old chestnut of procuring stock, then I for one will be bloody annoyed at subsidising a brand and product which presumably has not been a success to date.

I will continue to supply Alliance, but I have to say that my loyalty is being seriously tested and realistically it’s not far from being broken.

What and how should we market ourselves to the World?

What incensed me enough to write about this were Labour’s Damien O’Connor and some Green MP waffling on about what and how we should be producing and marketing ourselves.    I say waffling as both seem to draw no distinction between marketing ourselves as clean and green and marketing ourselves as organic producers of food, as if these two things were interchangeable.   These terms are not interchangeable they are very different with very different consequences for our economy.

I need to make it quite clear that I am not anti-organic farming, it’s a niche area of the economy where a few producers can make good money.   The key thing to remember with Organics though is that it relies on the rest of the world’s (or a major portion of it) economy doing really well.  As successful organic farming is highly dependent upon people having a high discretionary income and as such being prepared to pay a substantial premium over and above a non-organically produced product; their desire for such product drops away quickly when times are tough. 

A perfect example was the global financial crisis in 2008; it killed the market for organic milk; the market and the price for it went through the floor.   It’s only in the last coupler years that Fonterra has again sought to ramp up its organic milk supply and paying a decent premium for it. 

You need a considerable premium for organics because as a general rule your productivity is considerably less.   How much less is debateable, but anecdotally based on samples and scaling up, possibly 30 to 40% less than what we produce now.    Some would say well the difference in price would outweigh the loss of production, but quite bluntly that would be crap because the reality is that all these niche markets are limited in size and as such it doesn’t take too much extra product to flood such a market which then means the price drops dramatically and hey presto you end up with the price you were already getting for non-organically produced food, but now producing a lot less of it.

Accordingly for Green MPs to continually harp on about organics being the way to go for New Zealand and citing Fonterra with organic milk as an example, shows their ignorance and complete lack of understanding of the market for such a product.

Again good luck to any organic farmer supplying their niche market, but don’t try and tell the rest of us this is what we should all be doing, because if we all did, we would swamp the market and destroy any premium they presently gain.

The clean green image is a different story: this is not something that applies only to organics, this is about our mountains, our rivers and lakes, our air and beaches and how we feed and raise our animals on grass and wide open spaces.

 

This is the marketing story that needs to be associated with virtually every food product we sell overseas.  We need to continually reiterate this story to the rest of the world, have labelling and packaging that reflects it.  All brand names need New Zealand in big letters, so the word New Zealand becomes synonymous with the clean green image we wish to promote.

All packaging should be in colours that back up this clean green image we wish to promote, i.e. blues, greens, clear water, pictures of mountains and rivers etc, animals grazing in wide open spaces.    This sort of marketing, which some companies presently do well, others not so, is what helps to differentiate our product from other countries and in turn allows us to obtain a premium (certainly not as much as organics) as the market we are targeting is more mainstream and inevitably will still be price sensitive but nevertheless it’s a premium that we obtain simply because of where it has come from.

Housing it needs to go up, not out!!!

Housing is the political football at the moment and it would appear there is no easy solution.  From an agricultural perspective I hope everyone in Auckland and every other town and city in New Zealand remembers that our economy and our standard of living is still highly dependent on agriculture.


They need to be mindful of this fact because we simply can't keep subdividing agricultural land off to build more houses for more people in towns or cities to live in.   In almost all cases the taken land is our top producing land and the same land that drives our economy.

A topical example is Auckland's encroachment on Pukekohe and the surrounding area. This is arguably some of New Zealand's most productive country for various forms of horticulture and viticulture.  It's the same all over New Zealand -  good producing flat land on the outskirts of a town is subdivided off to build houses. This land is never recovered and rarely is the stoney hilly garbage country that produces little replaced by housing.


Even worse are lifestyle blocks with 20 acres sectioned off to build a house. The initial phrase of: "I can't wait to live in the country" soon tires and I believe something like 80-90 per cent of these lifestyle-yearning owners want out within two years mainly because they didn't realise the work required to look after 10 sheep, two goats and cattle beast. This work has to be done in the evenings or weekends because of the full time job they hold down. Worse, this land is almost always good productive land which is lost to farming for good.


What's the answer?  Quite simply we need to build upwards.  That's easy for me to say as a farmer living in wide open spaces, but it's the reality and I would point out that I am hopefully contributing on a productive economic basis to the economy to enjoy such a privilege.

We have to get beyond this quarter acre section mentality that New Zealanders have basically considered a right for many decades now.   Sure, compared with the rest of the world we have a low population density, but not many countries enjoy our standard of living because of our reliance on agriculture.   Accordingly, the subdivision of good productive land can't continue if we want to maintain our standard of living.  


The housing crisis needs to remedied by building decent apartment blocks with green areas and communal facilities. We need to build adjoining houses. We need to repopulate the centres of cities and live in the area you work so we can cut down the need for a car. We need good green areas and playgrounds for families. Again, this is not something that just applies to Auckland; it applies to every town and city in New Zealand.  Surely the repopulation of urban centres with most people living where they work will also help to alleviate the transport problems a city like Auckland, in particular, faces.  I am just stating the obvious, but it never ceases to amaze me how often the obvious seems to get overlooked in politics.


There are numerous examples around the world where cities have repopulated the centre of the city and built upwards in a tasteful manner.   It can be done in a classy way.  I recall in the last year a television programme about a major Canadian city that has done exactly this.

England is often criticised for all sorts of things by New Zealanders; but I was always impressed by how easy it was to access the country and see productive farming operations given its population. This was possible because of  their densely populated villages, towns and cities.   Adjoining houses with no lawns or little sections and apartment blocks made this possible, although granted they have some awful council estates.  A New Zealander would take the mickey out of these things when living there, but the reality is this is the sort of thing that has to happen in New Zealand now. 

Encouraging young people into Farming-how do we do it?

Young People into Farming- How do we do it?

I have read a few articles lately around new and renewed initiatives to encourage young people into the farming industry.   

It is a major problem for farming whether it’s dairy, beef, sheep or cropping etc: the average age of a famer is right in the target demographic of a Winston Peters rally (grey power).

Any initiative is good, but I am of the view that most come too late as they focus only on kids about to leave or have left school, or in the early teens or the young unemployed.

We have a major disconnect today between farmers and what we call townies.  Increasingly the majority of people living in cities have very little or indeed no contact with a farm or farmers.   In the past it seemed most  city children had an uncle aunty grandfather etc that were farming  whom they would visit regularly, stay with or indeed spend much of their school holidays on the farm.  It is from such experiences that a city child catches the bug, the passion to want to be farmer.   Without such an experience a child is unlikely to enter the industry, as farming like all professions, is about your passion for it (if you are to be good at it);  yes you need to make a living and hopefully a good one, but if you don’t have a passion for it, money alone won’t keep you in the industry.

This brings to me an idea I have had for a while and would like to see developed: namely a competition that is split into two age groups (if a success, perhaps more).  One group being primary school Kids, the other Secondary School Kids.  The competition is around raising a pet ewe lamb from say a week old to weaning (90 to 100 days), these lambs are taken to compete against others at what would be a designated regional show (for example Leeston Show in Canterbury, needs to be an early spring show), some thought needs to be given on how they are judged, primarily on conformation (you obviously keep the conversation away from carcasses and death etc).  A designated number of place  getters at regional shows could then go forward into an island or national competition at a bigger show, e.g. Canterbury A and P show.

The lambs could be either bought outright at a week old for say $120 or for $30 at the beginning and then returned to the farmer after the competition (hence the need for ewe lambs as there is a chance of being kept as a replacement)  This arrangement in itself would require two visits to a farm.

These lambs would primarily be raised on milk and some sort of pellets at their homes in the city (information packs would be given to all children who want to enter on how to do it, getting lambs raising them and returning them etc.)

The key to this working in my view is substantial sponsorship and therefore prize money: for secondary school student winners there should be something like a S5000 a year scholarship (perhaps more) for 3 years towards a University degree with an agricultural focus of some sort.  Primary school category; again some sort of significant relevant prize.  It needs to be significant to encourage parents to get on board with what would require significant effort on their part.   If there is a major carrot at the end of it with little cost to them (need sponsorship of the milk powder and pellets to grow the lamb) parents would get behind it.

You market it through the schools and I believe (with a significant prize that appeals to children and/or their parents) you would get a significant uptake of Kids who want to do this.  Out of this participation (going to the farm, raising the lamb, attending the show) there would be a number of children who would catch the bug and the passion to want to be a farmer or be involved in the agricultural industry and an improvement in the relationship between the rural and city community.

This is just an idea that I would love someone or some entity to take, develop and implement.

The director’s responsibility to the shareholder?

There are a number of legal obligations as set out in the Companies act, which anyone can go and look up, but what I want to address is what I consider the director’s core responsibility, namely the one to the Company’s shareholders.

Most would be directors go around campaigning on a particular mandate, get elected to the Company (presumably on such a mandate), but then we never hear from them again, why is this? 

Some classic examples in recent years is the Meat Industry Excellence candidates elected to the Silver Fern Farms (“SFF”) and Alliance Meat companies:  publicly at least you have essentially heard nothing from them and moreover as we have seen with SFF they have actually gone against the very mandate they were elected on.  Now there may be good reasons for this as one of the biggest problems with being on the outside and professing how things should change is that you are not privy to all the information and facts the entity has and moreover there may be good reasons why the mandate upon which you campaigned cannot be implemented, perhaps they were simply stupid ideas!!!!

My problem, in both instances above, is the failure of directors to advise their shareholders why their ideas can’t be implemented, or why things are different to what they thought.  It’s simple communication.  If we are kept fully informed of what is going on we are more likely to accept the situation, albeit that we are unhappy with it.  Commercial sensitivity is often cited as the reason for saying nothing which is just a smokescreen for not fulfilling this core role to the shareholder, in my experience, in general you can still be kept informed without disclosing the detail that may jeopardise a company’s operations.

The SFF meetings last year re the proposed Joint Venture (“JV”) were another example of how directors forgot about the core responsibility to the shareholder, those meetings were sales pitches for the joint venture to go ahead, not information dissemination to shareholders so they could be fully informed before voting.    At the meeting I attended, we were advised us of the positives of the JV, but what of the negatives and lets face it there are fair few negatives: 60/40 split cooperative always in control, but 50 50 split potential to lose control just one example.    Moreover an SFF banker explaining why they were in favour of the JV as opposed to making money by lending to SFF as it was sold at the meeting, may have been helpful.   A director is not a salesperson; a director is a facilitator and disseminator of information both positive and negative to the shareholders.

Finally, and speaking generically, directors, councillors etc, need to continually remind themselves that they must act in the best interests of all its shareholders (or constituents etc) and if not all, then in the best interests of the majority.   It is not a forum to promote what suits you best, but unfortunately there are directors, with vested interests, who endeavour to push through things that aren’t in the best interests of all or the majority.  It’s a simple basic tenet, namely that all those you represent should be treated fairly, something that should go without saying, but I think is sometimes forgotten.

Making millions farming sheep!!!!

Another year has gone by with sheep meat returns being garbage.  All the attention is on dairying, but it’s the same old for all us sheep farmers, one decent year of returns in who knows, last 15 years. 

Why: exchange rate too high, oil prices low, slowing growth in China, slow growth in Europe, oversupply of lamb in Britain, blah blah.  I presume all very valid excuses for poor returns, but what is being done different to make us less vulnerable to all this?  Despite the repetitive rhetoric, I would suggest it could be in reality 5/8’s of FA.

As an outsider looking in and hearing quotes like “can’t move hindquarters (not sure exact word used) in Europe, China’s demand for forequarters and offal reduced dramatically” suggest to me that we should be years beyond marketing and selling products in this form. 

Chicken, decades ago, was essentially only sold as a whole chicken.  Today, it’s predominantly sold in a variety of “one meal portions”; surely today whole chicken sales comprise a very small percentage of supermarket sales.  I personally only ever buy chicken breasts, chicken mince, chicken nibbles etc in a portion size suitable for one meal.   We are told continuously this is what the modern consumer wants, so why are we still selling whole lamb as hindquarters (leg of lamb), forequarters (shoulders) etc. 

Surely the focus needs to be on it breaking it down into one portion meals.   Hopefully the following is already being done by Meat Companies:

1.      Research and develop how to portion out a lamb carcass into one family meal portion sizes (ultimately a different optimum carcass weight may be required to achieve the best cuts); and

2.      Research various (good) ways to cook such portions (quickly), with instructions on packaging (perhaps get Maggi on board!); and

3.      Taste needs to be the number one priority, above yield for Meat companies.  I always ensure overseas guests taste home killed mutton and every time they are stunned as to how nice it is.  A great taste will get new repeat customers, but similarly one bad experience you won’t get them back again!   Meat companies need to reward those farmers who supply lambs that are in good order with a bit of condition on them over and above those that supply lambs that weigh okay but are hard (the first lot of lambs will taste a lot better than the second). The Meat Companies are certainly not doing this at the moment.  You need some fat on a lamb/ mutton when killed, if it is to taste good on the table;; and

4.      Market and package it in a way that utilises what New Zealand is known for around the world; clean, green, mountains, pristine water, lakes, blue skies, outdoors etc.  Accordingly “New Zealand” must always feature strongly in the brand name.  Alliance’s “Pure South” brand does little for me, but at the very least surely it should be “Pure South New Zealand”.  Similarly package the product in a way highlighting the features that people love about New Zealand namely mountains and lakes, use sky blue and greens on the packaging.  I don’t understand Silver Fern Farms packaging of its meat, in my view it’s hideous it represents nothing.

I am constricted by the size of this column, as I certainly have more to say.  However I ask Meat companies to be transparent and publicly respond by letting us know what, if anything, you are doing along the lines above and if not why not.

Silver Fern Farms (“SFF”) proposed joint venture with Shanghai Maling (“SM”)

I like many interested farmers and shareholders recently attended a Silver Fern Farms Road show sell as to why shareholder should vote for this joint venture (“JV”)

To be frank I did consider the presentation to be more of a hard sell of the proposal to shareholders as opposed to the provision of all the facts to shareholders for consideration.

A lot of the presentation was on how good their “Plate to Pasture Strategy” is and will be and how much SM wanted to be part of it as opposed to the nuts and bolts of the JV.

As most pundits are predicting I think it will go through, however, in an ideal world I would like to see it remain as a cooperative for the following reasons:

1.      One of the reasons share price of a cooperative is generally of little consequence to a farmer is what we are worried is how much we are going to be paid for the animals we supply, that is what we want to see maximised.  However the tension that comes with this 50/50 joint venture is that the cooperative half of the JV (in theory) requires the company to maximise what it pays to farmers for the animals they supply, while SM have an obligation to its shareholders to maximise their returns.  These obligations are very different are in direct conflict with one another: the more you pay farmers the less of course you can return to SM’s shareholders.

Now while there is still strong competition in the meat industry and primarily Alliance succeeds (being the only remaining cooperative), then I don’t think there will be any major issue as the JV will have no alternative but to pay farmers, at the very least the same as its competitors.  But the risk is years down the track if the likes of Alliance and perhaps other companies tank and fail, SM (which SFF pointed out repeatedly at the Road show is essentially an SOE (State owned enterprise owned by the Chinese Government)) and as such has very deep pockets it clearly has the ability to take advantage of any financial weakness it may perceive. 

The cynic in me would suggest that is why SM have put up a lot of money for 50% i.e. equal control.  If SM put up a bit less money for 40% ownership, then surely this would still provide all the same so called access and capital advantages SFF has been promoting on their road show, but the control of the JV would clearly remain with the cooperative farmer shareholders.   I would imagine that SM would never been interested in such an arrangement.

2.      SFF when questioned about such a JV leading to a procurement war were quick to say that it has no intention of doing this.  However there denials of this happening is basically only rhetoric, I am sure that the SFF Board before the 2012 season (I think 2012) would have made similar statements before dramatically overpaying for stock that year. Again as SM is essentially owned by the Chinese government and accordingly has very deep pockets it has the ability, particularly if in the future its’ competitors are in a precarious financial position, to pay well over and wear the loss if it means destroying its competition.  I reiterate you need strong competition to ensure the farmer is getting paid the best price for the animals they supply. This is a worst case scenario however it is a risk associated with such a 50/50 joint venture.  This would also depend on farmers, if many decide to change suppliers from SFF, I am sure this JV will be looking to pay what is required to get a minimum throughput at least.   I think we all agree that any procurement war that is not based what the consumer pays at the end is not good for the industry.

3.      SFF put a lot emphasis on how brilliant their plate to pasture strategy is and it’s the only one of its kind.   I hope it is, but given they emphasised how:

·         much they have reduced debt levels;

·         there was no plan B if shareholders did not vote for this JV;

·         they will have real issues obtaining the appropriate funding from their banks if this JV does not go ahead.

All this begs the question what are the banks concerns about this strategy and SFF’s management given a bank before lending money has to evaluate risk etc associated with it.

Surely if SFF is well managed, has a good marketing strategy and have shown in the past years how it has lowered its financial vulnerability (dramatically reduced debt levels) it would be nice to know why the banks have major concerns, as clearly that’s how a bank makes money, by lending it!

4.      Any extra value the JV does succeed in obtaining in the market for their meat, only 50%  is likely to come back to the farmer supplier, as clearly the other 50% will be going back to SM’s shareholders.  The only way all such incremental value gains will be returned to the farmer supplier is if its competitors are also succeeding in gaining the same increase in value; for example presumably and hopefully Alliance being a cooperative would return all such gains to its farmer suppliers and as such this JV would have to pay its farmer suppliers a similar price to its competitors.

I think this will go through as many farmers will see it as a way of getting some cash out, but also because no real alternative has been put forward.  The risks outlined above are very real, how risky is another matter, which is very dependent on the competition. If we have good competition that is also financially strong then the risk is minimal, but if not, who knows what our meat industry will look like in 10 to 15 years.