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INSIDE Page 4 Town meets country — country greets town
Page 10
Bringing home the bacon
Page 38–44
Education
CONTACT US Canterbury Farming 03 347 2314
April 2013
Supply contracts key to meat industry reforms By Hugh de Lacy Replacing the Sunday night procurement ring-around with supply contracts that bind farmers and processors alike is the formula offered by Lincoln University Professor, Keith Woodford, to dig the meat industry out of its latest hole. Woodford was due to address the public meeting of farmers at the Wigram Aviation Museum in Christchurch on April 17, a meeting organisers hoped would attract a crowd comparable to the 1000 who turned out for an earlier such meeting in Gore. The latest impetus to reform the under-performing meat industry follows the combined losses of $150m last season by the two big farmerowned co-operatives, Silver Fern Farms and Alliance Meat, which between them control about 60% of the industry. Previous crises over the last two decades have mostly produced only failed attempts at reform by forcing a merger that would create the model of the single big co-op kept honest by a cluster of private companies, which has led to massive expansion in the dairy industry. Woodford, an agricultural economics and management expert who gained prominence through a book highlighting the potential of A2 milk, told Canterbury Farming an alternative to a merger of the
meat co-operatives would be supply contracts signed about June each year when the farmers have a good idea of how many lambs they will have to sell, and when they want to sell them.
“(Then) there’s a middle game that probably does involve some level of consolidation, but the chances of us all agreeing in advance as to what is the best model . . . well, that’s pretty challenging.
“(But) it will only work if a contract is a contract, which it’s never been before (in the meat industry),” he said.
“We’ve got to come back to the opening game and work out what we can do as a first step, and I think that is to get alignment between farmers and companies. We have to get to a stage where farmers align to a particular company for all their product, at least on a year-byyear basis.
Supply contracts have been available in the industry for decades but they have a parlous history, with farmers prepared to broach them in favour of accepting a higher spot-market price at killing time. “There has to be a way in which contracts are registered, and the industry has to agree that if a farmer breaks a contract then he gets sued; he has to pay a price,” Woodford said. He stressed that the contracts would be flexible enough that in the event of, say, stock losses from bad weather, the farmer would not be held to account on the detail of the contract. “The contract is that the farmer supplies whatever he’s got available, not that he’s going to supply 682 lambs at 17.3kg on such-and-such a day.” Woodford compared reformation of the meat industry to a game of chess. “We all know what the endgame is, which is — we want a profitable, sustainable industry.
“In any one year — say, by June — a company needs to know who its suppliers are going to be for the coming year, and that it knows it’s going to get all their product. “The companies can then, as the season develops, keep in contact with farmers and plan ahead accordingly.” Woodford said he was aware of at least one small company, which he declined to name, already operating this system. “Their farmers tell them in the spring how many lambs they think they have and when they hope to be marketing them — so many in December, so many in January, et cetera. “Then the company puts all that together in a spreadsheet and comes back to the farmer with kill dates.”
The company in question was usually able to provide kill dates within two or three days of the farmer’s preferred time. “Then when it actually comes to the crunch and the truck rolls up to pick up the sheep, once again it’ll be within a day or so of the date scheduled.” Woodford said the industry needed to foster “a culture of alignment” between farmers and companies to defuse the spot market operating on Sunday nights when farmers
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and buyers ring around for stock or killing space for the following week. It was this that led to the meat companies misreading the market signals last season, paying too much for stock, and not being able to on-sell it at a profit. If farmers insisted on retaining the flexibility to dispose of their stock this way, “it’s pretty hard to see how our industry’s going to fundamentally change,” Woodford said.