New Zealand Executive Government Speech Archive

· Greater Investment in the Marketplace
· Greater Control Over Distribution Chains
· Paying Farmers for Producing What the Market Wants

These three fundamentals must all be underpinned by long-term relationships, and I’m going to focus mainly on that issue today. I haven’t met anyone in the industry who disagrees with my message. The most common response from meat companies is that they claim they are already taking the approach I’m advocating. Wool exporters agree with the message, too, but point to difficulties like ensuring contracts are honoured in markets such as China, India, Nepal and Iran. The criticism I’ve encountered, then, is not that my message is wrong, but that I am thought to be ignoring the positive developments which are alleged to be under way already, or that I am overlooking the difficulties.

I have no difficulty with criticism. I see my role as minister to be provocative. I have no power to force the industry in the direction I believe it should be going. My main power is persuasion: to challenge people in the industry, get them to address the issues of concern to farmers, and force a response.

Where I also see an important role for me as minister is to try to break down the hostility between exporters and farmers, and encourage the development of the long-term relationships I see as so critical. The Producer Board Acts Reform Bill will help build those relationships, and I’m pleased that finally I have been able to get it drafted and before the House. I regret that I can’t see it being passed prior to the election. But it does have multi-party support and I don’t envisage any problems with it being passed promptly after the election unless we wind up with a totally aberrant MMP parliament.

You know that I’ll be encouraging the Select Committee to remove the carcass classification system from the legislation. The intention is not to do away with the system overnight, but allow the industry to do away with it if it wants without having to get the permission of politicians.

I’m also keen to allow for the evolution of boards, perhaps through Order in Council, on the advice of the board concerned, rather than requiring further legislation. Again, the intention is not for me to be able to demand further changes but to allow changes to happen quickly should they be deemed appropriate by the industry and producers. The intolerable delay we’ve had on this legislation is argument enough for developing a mechanism to allow further changes without the industry having to go cap in hand to politicians.

Although the bill is going to help build long-term relationships between producers and exporters, it is far from the final answer. The long-term future of the red-meat industry does not lie in the offices of the Meat Board or the Meat Industry Association. The future is in the hands of farmers and meat companies.

It is the meat companies that have to do the investment in the marketplace, and build the distribution networks. They can only afford to do that if they can free resources from procurement. They can only guarantee supply to customers if they have guaranteed supply themselves.

I have told farmers around New Zealand that if they are not prepared to get into bed with meat companies then it would be better for them to sell their farms now and leave the industry. There is no long-term future for them personally or for the industry as a whole unless they build those relationships.

It’s not necessarily a popular message. In too many farmers’ minds, meat companies are “those bastards”, not partners. And, to some extent, the same is true, I fear, vice versa. What’s more, long-term relationships mean farmers will give up the right to take the best price on the day in the spot market which exists right now. And many, at least initially, will fail to meet specification often enough to earn the premiums on offer. But if I’ve managed to build any political capital over the last few months, I’m quite happy to expend it on promoting those long-term relationships, despite the resistance that I will face.

I don’t believe we have much time to get the message across. We are about to have a significant shortage of stock, with the risk of a procurement war. That is precisely the last thing the industry needs right now, particularly beef. Establishing long-term relationships in advance can minimise the risk.

In the case of lamb - and, in the next few years, beef - prices will improve, and the enthusiasm for change will diminish. When prices are low is the time to change the culture. If we fail to do so, we set ourselves up for an even worse slump in a few years time, because inevitably the next time commodity prices fall they will go lower than this time round.

The problem is, that even though farmers accept the need intellectually for long-term relationships, on the emotional level, the deep distrust they have towards companies is a massive barrier. Companies must try to build the trust and the confidence that we need. Mindful of the need to protect commercial secrets, they need to communicate better to farmers how they are investing in the marketplace, positioning their product and how they are seeking to control distribution lines. They have to bring them into their confidence.

It is no good saying that is happening already. As a farmer, I have little knowledge of what my company is doing in the marketplace. Even as Minister of Agriculture, I have found it difficult to get hold of that kind of information. But as Minister, I am seeking the information I need to try to promote some of the positives in the industry, to try to demonstrate to farmers that companies do have a commitment to improving product positioning.

Last week, I wrote to five companies - AFFCO, Alliance, Lowe Walker, PPCS and Richmonds. I asked them to nominate one market for lamb and one for beef where they have invested in the marketplace, identified consumer values and positioned product accordingly. I guaranteed that I would respect any need for confidentiality. I have received a response from four of them.

There was some evidence of some encouraging progress. For example, one company sought to reposition New Zealand lamb in a market with 115 years of history, the UK. The aim was to introduce a new tranche of consumers, the wealthy and the young, to new high-priced products. Taken into account was the fact that the average household in the UK consists of 1.6 people. Studies confirmed that New Zealand lamb was perceived to be an attractive, but low cost, product for the middle to bottom socio-economic groups. Wealthier consumers saw New Zealand lamb as being safe and tender, but unattractive, non-convenient, too large in product size, and lacking recipe information. New products were trialed through focus groups, members of which were given sample products and recipes. Feedback is positive, but more work needs to be done.

Another company in another market has found the same perceptions about New Zealand lamb. The traditional leg was too large, cooking and serving were considered difficult. While other cuts had consumer appeal, major changes were needed with packaging and pack sizing. In response, a range of specially packaged products were developed for a retail chain. Legs were cut in a different way and part boned. The company is now the largest supplier of New Zealand lamb in this market.

Another company reported that taste panels and consumer reactions to price and quality form an important part of its research for lamb. It is developing a lamb product to compete against finger foods like pork ribs and chicken wings. Twelve flavours were evaluated initially. Concepts were presented to retailers, and consumer taste panellists were used in stores to monitor acceptance. From there, specifications were developed, and modified following product trials. The product will be launched next month.

In beef, one company advised me that direct consumer research into an important market by the company itself would be inappropriate because of the critical role of importers and distributors. Instead, it has formed a partnership with a company whose views on product and market developments were consistent with its own. With the partner, it has identified the product attributes which are important to consumers, and which it could capitalise on given New Zealand’s unique features. It then developed a quality based grading system which selects animals within the required specifications, which include size, meat and fat colour, pH and fat cover. Premiums are paid to farmers if overall specifications are met, and producers are supplied with individual animal data which allows them to plan breeding programmes. The product is positioned at the premium end of the market and attracts a premium of about 5USc a pound over a major competitor.

Another company says it has worked out that in some Asian markets there is demand for lean beef, which returns significantly higher value. It says that the future market requirement will be for cartoned and added value products in preference to Bone In Quarter Beef.

So there is some investment in the marketplace, particularly for lamb, with beef a very poor second. But what I haven’t seen much evidence of, and what farmers want to see evidence of, is companies going to the next level. Not starting out with product ideas and then testing them, or analysing sales trends, or even asking consumers how they perceived different protein choices, but determining the values which are important to consumers, and then going about developing and positioning the product to latch into those values. There is some evidence of it, such as the shift to foods which are smaller and easier to cook, which latches into life-style changes, and changes to family structures.

While not denigrating what is being done, I’m not seeing the sort of research into consumer values that I believe is needed. That may be because I’m not being told about it. But if companies expect large numbers of farmers to sign long-term contracts, and lose access to the spot market, then I believe they are going to have to provide far more information on their marketing activities to build the necessary confidence.

That’s my message to you today. I look forward to spending the next 40 or so minutes in a more informal discussion.