AFFCO Farmer Update September 2021

AFFCO

FARMERS’ UPDATE

SEPTEMBER 2021

FARMER UPDATE L E VEL 3

From today Wednesday 1st of September, most of the country goes down to level 3. We are all crossing our fingers that Auckland and Northland can also move levels as soon as possible. To ensure the safety of both our suppliers and livestock team, while in level 4 our buyers need to stay home.

Under level 3 our livestock team can go on-farm, but only when absolutely essential. With this in mind, you will find our team communicating by phone and email where possible. When on site everyone needs to follow the social distancing rules that we are all now very familiar with. Many

farms will have their own QR codes or tracing registers, so let our team know of any particular requirements they need to follow while on farm.

TAILING-DOCKING

As we are heading into this time of the year, we thought we would remind you all of the new docking rules that came into force in May of this year. MPI announced these new regulations, which aim to improve sheep welfare by clarifying how tail -docking should be done and who can do it.

A sheep’s tail cannot be docked shorter than the distal end of the caudal fold. This means the tail needs to be long enough to cover the vulva in ewes and a similar length in rams. Docking too short can result in a fine of $500, or $1500 for a business, and if multiple sheep are involved it could lead to court proceedings.

Docking of sheep under six months old must be done using a hot iron or rubber ring. Any other method could result in a $500 fine.

Docking of sheep under six months old must be done using a hot iron or rubber ring. Any other method could result in a $500 fine.

For sheep older than six months, the procedure can only be carried out by a veterinarian, using pain relief. Not doing so could result in a criminal conviction and fine of up to $3,000, or $15,000 for a business.

STOCK PRESENTATION

In addition to the tailing-docking regulations, we thought it was timely to remind you of the expectation of stock presentation at our AFFCO and SPM plants. Well presented stock requires less time and handling in the stockyards, so less standing time in the yards and quicker processing times.

It also reduces the potential for carcass contamination during processing, as contamination is easily transferred from the hide/ pelt and onto the carcass during processing. The ramifications of contamination are far reaching- from the chain speed being slowed down so less stock processed, not being able to chill product so unable to send to certain markets, right through to in extreme cases MPI stopping plants from exporting until standards are improved.

None of which are ideal, and are easily mitigated by preparing your stock for processing.

It is also a timely reminder that animals are to be taken off feed and emptied before transporting.

Please watch our livestock presentation video and our guidelines are available here. If you have any questions please do not hesitate to contact your livestock buyer.

A MESSAGE FROM OUR CEO & NATIONAL LIVESTOCK MANAGER The past two weeks have been like back to the future...It was amazing to see how quickly our Operations teams reconfigured our plants with only a few hours’ notice to ensure we continued operating with no downtime after the announcement of Covid Alert Level 4. Many of us in Head Office based roles are now back working on the kitchen table or from the spare bedroom, as is our livestock buying team.

We are again fortunate to be given ‘essential service’ status which enables AFFCO to continue operating to provide food for New Zealanders and the world. While the company has done its best under the circumstances, it’s the continued loyalty of our farmer suppliers, and dedicated work of employees which has enabled us to continue operating, and we are extremely appreciative of everyone’s efforts.

So far we have been able to process all livestock that has been booked in while operating under the Meat Industry Association’s Level 4 Operating Protocols. To be fair, it’s been a stroke of luck that this Level 4 lockdown has occurred in the middle of winter when our livestock volumes are at their lowest. It could have been a different story if this had occurred in the middle of January.

Along with the rest of the industry however, we are operating at reduced throughput levels due to the necessity to make significant changes to the configuration of our factories to ensure the health and safety of our employees. In an attempt to keep the highly transmissible Delta variant at bay, we have implemented an extensive range of hygiene measures including the requirement for everyone on our sites to wear masks, and there is a significant focus on ensuring sufficient distancing between employees. As a company we are working closely with our MPI plant based vets and employee representatives to ensure we achieve the best possible outcomes.

There are several employee related initiatives which we have recently rolled out. For those employees who are genuinely unable to work due to age, health related reasons, or the requirement to self-isolate, we are paying them $600 per week to stay home. This is equivalent to the government wage subsidy. Once again, AFFCO has not applied for the government wage subsidy.

In recognition of the impact of reduced throughput levels on weekly wages, we are currently paying employees based on the higher throughput levels which they were achieving prior to Level 4, rather than the current lower levels of throughput. We are encouraging all of our employees to get vaccinated as quickly as possible, and to assist this we have partnered with the Ministry of Health and local District Health Boards to have vaccinators visit our AFFCO sites.

From a supplier perspective, our livestock buying team has been confined to barracks but is available to discuss your processing requirements over the phone. We hope this is not too much of an inconvenience and that you understand the need to stop people moving about unnecessarily. We thoroughly enjoyed the opportunity to catch up with many of you during our recent round of North Island supplier meetings, and we look forward to running meetings in the South Island once we are able to travel again, and once the current pressures of lambing have eased.

While NZ is in lockdown, international markets are still looking for the quality red meat that we offer. So markets remain strong at this point with healthy demand. We see no obvious signs that this will change in the short term, but in the COVID environment there are always challenges. International logistics and freight movement remains problematic. To counter this AFFCO chartered two break-bulk (non-containerised) vessels during the winter months, and we intend continuing this initiative throughout the new season. This has allowed us to move a significant volume of meat out of freezers and create room for our peak season production. This meat made its way to high value markets in the USA. Our focus over the next two months is to get as much product on to the water as possible so we start the new season in the best possible position in terms of cold storage capacity.

Through the winter months we have issued several lamb contracts.

Each of these has led the market and raised eyebrows when they were issued because prices were significantly above spot pricing at the time. Firstly we issued $9 contracts, followed by our North Island $10 contract. Each of these contracts were underpinned by specific export market programmes put in place by our sales team, which gave AFFCO an acceptable return, and at the same time allowing us to look after our loyal suppliers. For the most part, these contracts have been ‘in the money’ with our contract pricing being above subsequent spot market pricing levels.

Generally our lamb contracts are based on ‘guaranteed minimum pricing’ so there is no pricing risk to you the supplier, while the volume commitment gives us the necessary certainty to keep our plants operating and meet our export sales market commitments - a win/win situation for both suppliers and AFFCO. Spring is officially here and there are signs of new life about which is nice to see. Again we appreciate your support and hope this AFFCO newsletter finds you well and ready for the new season.

Significant market demand remains for New Zealand beef product in both export markets - especially China and USA- and domestically. We continue to see extremely strong growth in the online and meal-delivery segments that AFFCO have invested heavily in recent years. Domestically the outbreak of the Delta-variant of the COVID-19 coronavirus, and resultant lockdowns, have seen exponential demand in both retail and meal-delivery segments. Even with the constraints of social distancing and stringent health and safety protocols applied under Level 4 lockdowns, AFFCO have responded exceptionally well to support its customer base over this time.

The grinding beef market continues to show strong US-Summer demand. While both bull and manufacturing Cow processing is negligible currently, the arrival of our second conventional reefer vessel into our

AFFCO USA sales office has provided important volumes to key customers at this time. Likewise our chilled Prime Steak programmes continue to grow and demand volume - making suppliers of prime cattle across the shoulders of the season critical to our channel marketing efforts!

Key global beef supply is at a low level. Argentina, a key supplier of beef to the world, continues to ban large volume beef exports and AFFCO are doing the best it can during the off season to maintain supply to the key Chinese market at this time. The ‘clean beef’ perspective- beef that is antibiotic free, growth hormone promotant free, and grass fed - continues to develop in China.

Young consumers are understanding that New Zealand represents a healthy and trusted alternative to pork - the traditional protein source in China.

Demand remains strong for all lamb product globally with pricing reflecting that. This validates AFFCO’s market leading winter lamb contracts that are now in full swing. While China continues to lead the way in both demand and shipping viability, we are seeing good activity on the more ‘traditional’ UK and continental European markets who are willing to acknowledge the value of premium New Zealand lamb. Likewise, the US foodservice segment is booming with products such

as lamb racks rebounding and reaching levels equivalent to pre-COVID conditions.

Currently, while the global shipping situation has not improved, we are seeing some superficial improvement in container availability as the seasonal peak for New Zealand exporters has finished.

Therefore, we envisage that this slight improvement is temporary and that the logistics and shipping challenges experienced this year will simply repeat next peak season. AFFCO have recently unloaded its second conventional reefer vessel into the US- this time in the West Coast - and we are finalising plans to expand this operation next season. The learnings we have achieved this year, and the relationships we have forged with conventional reefer vessel owners, will be vital in ensuring AFFCO can export product without complete reliance on container vessels in the coming 2-3 peak seasons.

As outlined above for both Ovine and Bovine, world demand remains strong for our products, and AFFCO is extremely well positioned from a strategic demand as well as a supply-chain (logistic and shipping options) perspective. That said, the recent outbreak of the new Delta variant of COVID-19 highlights how fragile markets can be, and how flexible we must be in order to quickly and decisively adapt.

KNOW YOUR NUMBER By the end of 2022 all New Zealand farmers running 80ha or more will need to know their farm’s greenhouse gas emissions and have a plan to monitor and measure their emissions. These goals have been set to provide an alternative to the Emissions Trading Scheme which applies a blanket tax that doesn’t recognise work being completed on farm.

After our initial newsletter we’ve had fantastic engagement from our suppliers. It is great to see our farmers taking the issue on board, rolling up their sleeves and getting underway.

We appreciate that many suppliers will be new to determining their greenhouse emissions and understandably there will be a few questions. We have had a few questions already which are answered below; I already have a total for my greenhouse emissions, do I need to calculate it again with Beef + Lamb NZ? Many farmers may already have a total calculated using tools such as Overseer or Farmax. If that is the case there is no need to do anything else.

For farmers who have yet to determine their emission total, the meat industry is recommending the Beef + Lamb GHG calculator, as it is a free, on-line tool developed specifically for the red meat sector.

What am I giving away using my GST number as part of the Beef + Lamb NZ GHG Calculator?

The GST number is only used as a unique identifier that allows B + LNZ to see how many farmers have taken part.

This is important as we try to get to the goal of 100% of farmers knowing their numbers.

Any information collected by the calculator is retained solely by Beef + Lamb NZ. How much is it going to cost me?

Using the calculator is free. There will be a price on agricultural greenhouse gas emissions from 2025. The details of this pricing mechanism are still being developed. We’ll keep you updated.

The industry believes this approach is better than a blanket tax applied at the processor level. If we can meet the industry goals we will be introducing a system that reflects what you’re doing on farm.

Why are processors supporting and endorsing this Government policy?

New Zealand has committed to reducing our greenhouse gas emissions. As an industry we need to demonstrate what we are doing.

By working towards the goals we are aiming to have a system that recognises the good work farmers are already doing on farm.

e-ASD‘S All AFFCO and SPM plants are now accepting Electronic Animal Status Declarations (e -ASD's). Because you can complete these on your computer or smartphone, an eASD can be quicker and simpler to complete than the paper form. Recording the data online makes it easier to trace animals, especially for export animals, and reduces the chance of errors.

You will need to register for eASD's through Ospri.

AF F C O H E L P I N G T O P R O T E C T C O M M U N I T I E S AFFCO would like to congratulate Joanne Bell of Te Awamutu for winning the Waikato Champion of the Year at the Neighbourhood Support Awards. AFFCO and Open Country Dairy proudly work with Commsafe in the rural Waipa area to protect the community from crime.

Photo courtesy of the Te Awamutu News

Lambs on their way to our AFFCO Moerewa plant via barge from Moturoa Island in the Bay of Islands.