New Zealand Executive Government Speech Archive

Dr Graeme Longdell; Leaders in the beef industry.

I'd like to thank the meat industry, AGMARDT, Tradenz and MRDC for their support of the institute's research which will be released today. It's exciting research. It will help us identify a possible path forward for the industry and for beef farmers. It is the sort of investment in the marketplace that I've been promoting, and I'm pleased to see it already happening.

I've travelled the country over the last three months and I've been deliberately provocative. Some of what I have said has got up the noses of one or two players in the industry. But, throughout the country, there is real concern amongst farmers about the direction of the beef industry. Low schedule prices without the promise of any short-term relief have had their effect.

But I don't perceive that low prices are the source of all the concern. Farmers have a sense that not enough is being done to shift our beef out of the swings and roundabouts of commodity trade and into the relative safety of retail markets. They don't believe there is sufficient investment in the marketplace. They believe not enough is being done to control distribution lines. In particular, they feel they aren't being paid for quality, or for meeting market specifications.

This is all serving to add to the hostility of farmers towards the industry, and that hostility is undoubtedly the greatest barrier towards the ideas I've been promoting, such as long-term relationships between farmers and meat companies.

Some of the concern can be attributed to poor communication about what the industry is doing already to position itself in the retail marketplace. If nothing else, this seminar, hopefully, will serve to inform farmers that the industry does have a commitment to market research and better processing.

But I'm hoping it will do more than that, and start the process of developing a new vision for how we can position New Zealand lean beef in the international marketplace. Unless we do that, the beef industry in New Zealand has only a limited future.

We've already seen a trend towards dairy and forestry conversions. In this open economy, if the returns from the beef industry are uncompetitive compared with other options, resources will flow from beef farming to areas of higher return. That's a certainty. And the days where the Government would step in and "save" an industry - while damaging the economy - are over.

So there's no use anyone saying that everything is on track, and nothing needs to be done. Clearly we do need to make change. We need to start from what we know.

We know that, for as long as we maintain an inflation advantage over our trading partners, the industry is going to be operating in an economic environment with a domestic currency which trends up. There's not going to be any Government devaluation to give the industry a short-term boost.

We know that, over time, the value of commodities will tend to trend down, while the value of retail products will tend to trend up. We know that part of every animal we produce will end up on the commodity market. And we know that we are able to make efficiencies, especially if we maintain lower inflation than our trading partners, which will enable us to deal with some degree of long-term price reduction in commodity markets. But we know its preferable to get as much of our product as possible out of commodities and into retail marketing of chilled, high-quality table meat.

The fastest growing retail markets can be found in Asia. But, in Asia, we know we're up against tough competition from the North Americans. We suspect that the Americans have an advantage because the Asian market prefers marbled beef, while we know they have an advantage because of an Asian perception that, in most things, American is Number One. But there is a fairly clear consumer trend towards healthier food.

Finally, we know that it is more expensive to produce marbled beef in New Zealand than lean beef, given that we grass-feed our cattle. A crude approximation I received from Massey University yesterday suggested that it took three times the energy to add one kilogram of tissue to a fat animal than it did to add that kilogram to a growing animal. It is significantly more efficient, energy-wise, for us to produce lean animals than fat animals.

At the end of today, we should know more about the Asian market and how we can get more high-quality table beef out of an animal. But there is already a picture emerging about how best to increase returns, to ensure the beef industry continues to attract its share of the economy's resources.

I'm not such a great believer in "adding value" to a product. It helps, but it needs to be cost-effective. I believe there is value in a market and our job is to extract it by matching our product as closely as possible to consumer values, and controlling distribution as close as possible to those consumers.

It appears that our future lies in the Asian market, not competing directly with the Americans, but indirectly with all alternative sources of protein. We don't need to capture a huge market share. We don't produce enough beef to do so anyway. We need only a very small share of the total market, but one at the top-end, marketing New Zealand lean beef as a health product, produced in a quality environment. I suspect there is a niche there for us to exploit. We'll hear more later in the day about the Asian market.

If there is a niche for New Zealand marketing lean beef, then I believe it gives us a double advantage, because that's our specialty. As I've mentioned, it's more efficient for us to produce lean beef than fatty beef, so if we are able, market-wise, to shift our focus rather more in that direction I believe there are efficiency gains for us to capture. That will benefit us even in commodity trading.

We're going to hear today the results of market research in Asia. We're going to hear how it's possible to get a greater percentage of an animal into high quality table cuts. I'm looking forward to participating. I wholeheartedly commend the industry for investing on this industry. My thanks to MIRINZ and all involved. Today, I hope we can work to get a clearer picture about how we need to position our beef into the 21st Century - to extract greater value from that growing Asian market.