It's 100 days since I became Minister of Agriculture. A few journalists at the time suggested I was being easy ride after five and a half years of education. They couldn't have been more wrong. Most prominently, there have been the BSE and fruitfly scares. Dealing with those scares was of immediate and critical importance. But what was unfortunate about the scares, apart from the obvious, is that they distracted attention away from the long-term issue of how to improve farmgate returns, particularly in the sheep and cattle industries.

I know only too well that returns for beef and wool are down. According to MAF, average revenue for sheep and beef farmers was down 6.5% last year. I would have thought it was worse than that. The reason? In the last year, US beef commodity prices have plunged. International commodity prices for wool are down.

Those price drops have been felt directly by farmers in New Zealand. I'm no exception, with my cattle selling for around 25% less than a year ago. To some extent - but, I stress, only to some extent - the impact of the international price drops has been compounded by the rise of the kiwi dollar. In the case of beef, it's responsible for 18% of the drop, compared with the 82% which can be blamed on the US market.

If the dollar were as big a problem as some would have you believe, then it's difficult to see how dairy farmers have experienced a 19% increase revenue in the last year and are receiving an all-time record payout. And if a declining dollar is the key to New Zealand's agricultural success, you would have thought we'd be sitting pretty given the decline you see here from 1979 to 1992. The real issue is the extent to which we can extract value from the marketplace.

As we look to the future, there will be the occasional bump upwards in commodity prices but the general trend will be down. It doesn't matter whether the commodity is frozen beef, frozen lamb, wool or video recorders or personal computers, the price trend for commodities has been down for the last 200 years and it will continue to be down. The rising dollar, while contributing to our woes, is not the key factor. And it has a flip-side in that we have been protected from recent international price rises for fertiliser and fuel.

One hundred days ago, I had my own ideas about how the industry needed to move forward if it was to remain New Zealand's most important. What I didn't know was whether my personal ideas were the way-out views of one Northland beef farmer or whether they could represent an agenda for action. So I've set out to get around the country to find out. I've spoken to farmers as far north as Waitangi and as far south as Winton. I'll re-cap what I've told them.

I look at things from a different perspective from those who talk about adding-value. Adding-value can be useful. But it's no use adding $10 of value if it costs you $20. Barrie Saunders, yesterday, gave examples of value-added approaches where the costs involved exceeded the extra value that could be extracted.

What I believe is that there is value in the marketplace already. Consumers in supermarkets or restaurants overseas are willing to pay premiums for products they perceive to be better, and which they can rely on to be of consistent quality. We need to extract that value - with those premiums - back to the farmgate. That's the only way to avoid being victims of the ever decreasing value of commodities I mentioned earlier.

I want you to look at this. The top line here shows the value of beef on the US commodity market. The bottom line shows the schedule price. They mimic one another. Every time the US price has gone up, beef farmers here have earned more, and thought the industry was doing well. But every time the US price fell, beef farmers have felt it in their pockets, and decried the state of the industry. In fact, in either case the industry has been doing hopelessly. Without being too harsh, I'm concerned that if that US line should just happen to increase a little in the future, we'll lose the current enthusiasm for change.

Now look at lamb, comparing the UK retail price with the New Zealand schedule price. When SMPs were abolished, the schedule collapsed. The industry was forced to change or, by now, there would have been no lamb industry. Look how the schedule price has crept upwards relative to the UK indicator market. More value was extracted from the international market. I don't have comparative data for wool. But given we still rely on the auction system to sell our wool, I'm willing to bet that growers are receiving the lowest possible return for their product. Undoubtedly, the wool situation will be similar to beef.

There are a whole lot of reasons why lamb has done relatively better than beef over recent years. I want to mention just one: marketing of chilled meat. Look how lamb has increased its volumes of chilled meat, whereas beef has remained practically static. Chilled lamb is worth over $8,000 a tonne FOB, compared with carcass lamb that earns just over $2,000. According to the Nimmo-Bell report, chilled beef is worth $4,100 a tonne FOB more than frozen beef.

In other words, by getting out of the frozen meat commodity market and into higher value consumer markets, we can forget about 6.5% changes in income. We can more than double returns. And if we farmers manage to double our returns, then I don't think many of us would even notice what happens to the kiwi dollar, except as it impacts on the price of imports.

How do we get there? Around the country, I've emphasised three factors.

• Greater investment in the marketplace

• Greater control of distribution lines

• Paying farmers for producing what the market wants

Underpinning all that must be longer-term relationships between exporters and overseas users, and between exporters and farmers. Before we do anything, meat companies and wool exporters have to identify what consumers want. They need to identify the consumers who can be encouraged to buy New Zealand products. That may not be what traders want.

The best example is the stupidity in trying to sell fatty beef, especially when the Americans have the fatty, marbled, beef market tied up. The traders love fat on meat. It makes it easier to transport and store, and more forgiving of abuse. But our own Meat Board's research shows that many consumers hate it. That's why they're eating chicken. In researching our market, it's no good trying to me-too our competitors. We need to find a niche for New Zealand products, and, in the case of beef, that niche could be low-fat grass-fed beef.

The second point I've made around the country is that we have to control the distribution of the product as close as possible to the final consumer. You can't sell high quality products unless you can guarantee quality through to the end user. It's just impossible, for example, to sell chilled meat to consumers if you don't control distribution right through to the supermarket. Who knows what some trader might do to it? The third component of my strategy is for exporters to pay farmers for meeting quality standards, based on what the consumer wants. On the domestic market, Woolworths has started to do it. Woolworths pays a premium for meat which meets its specifications. Failure to meet the specifications leads to a reduction in the price.

The system I would ultimately want to see is for us to be able to trace the animal right through to the final cut. And the farmers who produced animals with more of the meat that consumers want, would be paid premiums for it. That, in turn, gives farmers an incentive to breed better animals with more of the meat consumers want.

Better processing can also contribute. Researchers at the Meat Industry Research Institute of New Zealand are examining the possibility of increasing to 30% the muscle of cattle that can go into high quality table cuts. That's up from between 10 and 15% today. In Belgium, they get up to 40% into high quality table cuts, thanks to better breeding and processing.

Underpinning all this must be long-term relationships. For example, in the wool industry, I see an exporter signing a long-term contract with an overseas clothing manufacturer to supply the exact specification of wool required, when required. The exporter would then sign long-term contracts with growers to produce that wool, including premiums for those who most often met the specifications.

I see meat companies signing long-term contracts with farmers to produce the meat that the companies in turn are contracted to supply to overseas supermarket chains. The market signals would be making their way to the farmgate. Farmers wouldn't see themselves as supplying meat for Bob from the meat company, but for the consumer in the aisle of a supermarket overseas.

As I said at the outset, these were my ideas 100 days ago. I've found they have been largely endorsed by farmers around New Zealand. And they have been endorsed by accounting firm Ernst & Young in its report to the Meat Board and the meat companies. Says Ernst & Young: "red meats are largely marketed as they were a generation ago". The firm says: "The Red-Meat Industry is unlikely to compete on price ". The alternative is to compete on the basis of quality and differentiation." It argues strongly that we need to shift our focus away from short-term commodity trading to longer term, stable vending of products. We need to "identify unique attributes of New Zealand meat products that confer benefits on consumers". On distribution, the report is just as clear. "Control of distribution chains will play a significant role in who captures the total value chain for New Zealand red-meat, because branding requires control over the distribution and supply systems."

Ernst & Young says farmers need to be paid for quality. It says the grading and schedule system "splendidly isolated farmers from the subtleties of changing market signals". Farmers are denied "consistent rewards for providing a product that [meets] a particular market specification." "The averaging effect acted as a significant disincentive to farmers considering investment … to improve productivity, for their efforts would go largely unrewarded".

Significantly, the lack of trust between farmers and companies was also highlighted by Ernst & Young. "The single biggest impediment to moving to a focus on quality and differentiation has been the lack of long term commitments and partnerships between farmers and meat processors."

After speaking with farmers and reading reports for the last 100 days, I now have a new question: If the Minister of Agriculture, farmers and reports to the industry all say the same thing, why isn't it happening? I met with the Meat Board, the Meat Industry Association and Federated Farmers last week to discuss the future of the grading system. The Meat Board's reaction to my suggestion that we take the grading system out of legislation was, to be diplomatic, hesitant. I was told that a recent survey showed 85% of farmers in favour of the grading system. In my travels, I must have met the other 15%.

I must say that I think John Acland has misunderstood my proposal, given his comments yesterday. I do not propose scrapping the grading system overnight. I propose only not to include it in legislation. If, as John says, it gives meat companies a market advantage then obviously they will continue with it.

His comments also reflect exactly what I see to be the problem with the system. He says that overseas importers - traders - think we would be crazy to do away with it. Those traders, he says, have ordered our meat sight unseen for the last 20 or 30 years. These are the benefits of the system. And, of course, there are benefits. The system does make life easier for foreign traders.

But John hardly mentioned the consumer. And that is the problem with the system. It is set up to make life easier for the trader. It ignores the consumer. And by doing so it means farmers and meat companies and everyone else in the industry is focused on pleasing those traders. The focus is not on the consumer. The schedule system creates a barrier between the farmer and the people who finally consume our product.

As I said, I do not propose that it be scrapped. But I believe that if we have the system in legislation we give it too great a standing. And we provide the perfect disincentive for meat companies to design more innovative and market-sensitive means of paying farmers. I have yet to decide whether to include the grading system in the Producer Board Acts Reform Bill. I will need to do so in the next few days so as not to delay any further the introduction of the legislation. The bill has been delayed enough already. The parliamentary counsel office has made a liar out of me and I'm not happy about it. But enough pressure has now been put on the office that I'm still hopeful we will manage to sneak it through before the election.

Whether or not the grading system provisions are included in the bill as introduced, I am convinced they should be removed before it is finally passed. Removing the grading system would break down the barrier between farmers and consumers. It would encourage the development of payment systems based on consumer preferences, rather than trader preferences. What may not be so popular is that it would help stop the crazy game - which I've been guilty of in the past - of farmers playing the meat companies off against one another. It would encourage farmers to sign long term contracts with the companies, which would stop those companies from wasting the industry's resources on procurement. It would free those resources for investment in the marketplace.

So this is what needs to happen. I will be an advocate in Wellington for the ideas I'm hearing from farmers around New Zealand. I intend to gather the necessary agreement from the industry to remove the Meat Board's grading system from the final legislation. I intend to host a seminar with the Meat Industry Research Institute to disseminate their latest market research information and to examine how to get a greater proportion of an animal into high value cuts. I will put pressure on meat companies to improve their investment in the marketplace. For that to be possible, farmers need to put aside their hostility and look seriously at developing long-term partnerships with meat companies.

The time for talk and debate and accounting firms' reports is well and truly over. It is time for action by the Meat Board and the meat companies, and also by farmers. We know what needs to be done. It is time for the powers-that-be to get on and do it.