Lifting New Zealand products out of the commodity trap
There are a couple of schools of thoughts with regards to positioning New Zealand’s largest export product categories: meat and milk.
The first school of thought is we need to be doing everything we can to lift the value of these products and in doing so, become independent of the volatility of commodity cycles.
The second school of thought is we should accept that our meat and milk products will remain commodities, and concentrate on adding value to other products, which may currently be on the fringe.
In the words of Steve Carden, the Landcorp’s CEO when discussing meat and milk: “the branded opportunity across these big product categories left years ago. The costs of creating that now are disproportionate relative to the size of the now diminished (in the case of lamb) or increasingly commoditised (in the case of milk powder) segment.” (Source: Fresh thinking will transform New Zealand farming, NZIPIM)
I fall firmly into the first school of thought and strongly believe that there are still enormous opportunities to add value to New Zealand meat and milk products through a variety of mechanisms in a variety of markets.
Initially this might occur ‘on the fringe’, but learning from what occurs on that fringe can be transferred to the wider offering of products. Here are the main reasons for my belief:
- The shift in our trade volumes from west to east: China has only recently become our largest export market and increasingly other parts of Asia, including India, want New Zealand products; the opportunity to create branded products in these markets is still alive.
- The global demand for protein: this is forecast to grow at a staggering rate.
- The New Zealand story: whenever I travel in Asia, I am struck by how many people know about New Zealand and was lyrical about what an amazing country we have- compare this with traveling in the United States 20 years ago- “New Zealand, is that somewhere near England?”
- Social media: one of the arguments against lifting our products into the FMCG (fast moving consumer goods) category is the sheer cost of marketing directly to consumers; with the advent of social media, we have an unprecedented opportunity to connect directly with consumers with smaller budgets than would have been previously tenable.
The opportunities to create value and de-commoditise meat and milk are there for the taking but there are many challenges if we are to take this path. Perhaps the biggest challenge lies in aligning the supply chain, or as we now call it the ‘value chain’.
When you think about the steps a meat product has to take from farm to market, it is pretty complex: farm-processor – shipping - international market – customs – transport - packaging centre – retailer - consumer.
At each of these steps there are different pressures, changing dynamics and personnel. In the meat industry there are a couple of ways in which we can take immediate action:
- Total alignment of farmers and processors: this means commitment of farmers to processors so processors can shift their energies from securing procurement to cementing market relationships- I personally believe the co-operative model is ideal for doing this, allowing farmers to have a long-term stake in the end product.
- More processing and packaging here in New Zealand: this has become a viable proposition with our reputation in Asia as the source of choice for quality food products.
Cynical people will tell me that they have heard all this before and they have little faith in any of this happening in either our meat or milk sectors. I will tell them in return, we can do this and we only need to look for inspiration from companies like New Zealand King Salmon and Comvita who are taking this path, learning along the way and slowly reaping the benefits.
This week I am lucky enough, through AbacusBio, to be hosting Mary Shelman – from Harvard Business School – and Professor Damien McLoughlin – from University College Dublin – to facilitate the Queenstown Agribusiness Symposium. During the week a group of New Zealand companies will examine international agribusiness case studies where these challenges and issues have been successfully overcome.
We don’t need cynicism and defeatist attitudes to overcome the very real challenges ahead. What we do need is a shared vision, great international partnerships and an aligned value chain. I am fired up at the thought of my week ahead pondering these very issues and I promise I will share with you some of the key take-home messages in my next column.