Speech by Meat & Wool NZ Chairman, Mike Petersen

Speech by Meat & Wool NZ Chairman, Mike Petersen

International Sheepmeat Forum, Brussels, 8 October 2009

Overview of the International Sheepmeat Sector: current trends in demand and supply

Introductory comments

• Firstly can I say that I’m delighted at the high level of international representation and participation at this Forum. I am excited by the opportunity for us to discuss the issues facing sheepmeat producers and industry, and how we can capitalise on the opportunities for us all. I am very appreciative of the positive reception of holding the Forum, and I see this as recognition that there is substantial shared interest on the part of sheepmeat producers and industry worldwide and that the major issues and problems we are facing are the same.
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• I’m also very appreciative of the strong support and the cooperation of many organisations but especially COPA-COGECA and UECBV who, along with MLA and M&WNZ have constituted the Steering Committee to organise this Forum. COPA-COGECA’s support and generous provision of its facilities have enabled the organising committee to waive the registration fee. This has been especially valuable to enable attendance by so many participants from so many countries which will add to the discussion over the next day and a half.
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• My special thanks to Pekka Pesonen for agreeing to accept the role of Chairman of the Forum.
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• I am personally looking forward to our discussions and debate and I am confident that our dialogue will be constructive. I am especially hopeful that some conclusions will be able to be drawn from the Forum that will help us all to identify some pathways to making our industry more profitable and economically sustainable.
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• The concept of proposing a Sheepmeat Forum has been building for the past two years. As some of you know the Chairman of M&WNZ makes an annual trip to Europe to meet with our counterparts and other organisations to share information about the upcoming season. I have undertaken three of these visits, and while we often focus on the few areas where we differ, there is no doubt that we have more in common than we do apart.
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• The simple reality is that sheepmeat producers worldwide share the same challenges of low profitability leading to falling supply, changes in consumer demand, compliance issues, farm succession and the many research needs that are required to improve productivity and address issues like the response of our sector to climate change.
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• Initially we envisaged a Forum focusing particularly on the concerns of farmers. However the relationships between between producers and processors, are very close and in New Zealand there is strong cooperation between M&WNZ and the processors’ organization, MIA. There are two processor and exporter representatives on the Board of M&WNZ and I am pleased both are participating in this Forum.
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Common problems facing the industry

• One or two here might have been somewhat surprised that the proposal to hold the Forum came from New Zealand. My response would be that the origin of the proposal is not important and the Forum is owned by all of us as participants. I have always held the view that our shared interests are vastly more substantial than the differences that might appear to divide us.
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• While the Forum has an international focus, it is necessary to comment on the importance of the region where this meeting is being held. Europe is indeed your market but it is also a critically important market for all of us, as pricing in Europe influences pricing for the rest of the world.
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• The first New Zealand lamb arrived in Europe 127 years ago. Before 1973 New Zealand supplied over 300,000 tonnes a year, mainly but not exclusively to the United Kingdom. Today, under the European Union’s current import quota arrangements, New Zealand is able to supply 227,854 tonnes a year on a carcass weight equivalent basis to all of the EU-27 member countries, about half of our total sheepmeat exports. Total imports from all origins account for only about 20% of the European Union’s consumption of mutton and lamb.
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• So like European producers and processors, we depend on continuing strong demand in Europe. It is essential that lamb is available throughout the year, visible at retail and food service and high quality. Consequently, we in New Zealand are in no doubt that the continued health of our export market in Europe depends absolutely on economic and sustainable sheep production in Europe. Without that, demand would dwindle and consumers would soon cease to regard lamb as a real meal alternative. It would be relegated to a novelty niche product, and if that happened we would all suffer. I am pleased that there are representatives here from many countries, including our Antipodean neighbour, Australia, several Latin American countries, and South Africa as well as many of the Member States of the European Union. The diversity of views from such a wide spectrum of agricultural environments should certainly contribute to both the interest and the value of the Forum.
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• Yet if you look at production in the world’s significant sheep-producing countries there are some interesting trends:
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i. In the main sheepmeat trading countries of the European Union (before the Central European enlargements), Australia and New Zealand there has been a significant decline in the flocks over the last decade;
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iii. In the major South American producing countries and in South Africa production has been relatively stable this decade but at levels markedly lower than the ten years earlier starting in 1990;
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v. In some of the countries with the largest flocks, numbers have increased, including in China, India and Sudan. These countries, as well as some members of the Confederation of Independent States (Former Soviet Union) may have some cross-border exports. However for a variety of reasons including animal health issues and the growing middle classes in some of these countries, they seem unlikely to become significant players in developed country markets, notably Europe, North America, Japan and Korea, in the foreseeable future.
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• From a global perspective, the European Union remains by far the largest high-value market, though the US takes significant volumes of high value cuts. The Middle East also remains significant owing to the historic taste for sheepmeat. China and India, both enjoying strong economic growth, also offer opportunities for greater sales. China is already a significant market though as yet the emphasis is on lower value cuts for traditional dishes. However both China and India are expected to increasingly demand higher value cuts as their purchasing power increases.
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• There are other markets as well, but for the foreseeable future, Europe will continue to present the largest number of affluent consumers who enjoy the quality of lamb. This explains why much of the focus of this Forum will be on the European market.
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• I suggest the real issues we need to address include the following:
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i. Why are sheep numbers declining in virtually all the countries represented here?
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iii. Why are consumers in many of our countries buying less lamb than in the past? We know that lamb is a superior protein alternative, so what are consumers looking for?
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v. How can we persuade Governments to mitigate the compliance costs that have increasingly burdened producers and processing industries in recent years and to avoid burdening us further with costs related to carbon emissions and water use?
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vii. Are there ways in which we can increase our productivity and produce high quality lamb meat more cost-efficiently?
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ix. All the stages in the value chain from producer to consumer are mutually dependent. Is there scope to transfer a greater share back to the producer in order to ensure the sustainability of the sheepmeat sector?
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xi. And importantly, what can and should we do to increase consumer demand for our lamb?
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Flocks in Chronic Decline

• So, in most of the countries represented here sheep flocks are in decline. Why? In the first session we shall hear about production trends and the contributing causes in Britain, France, Australia and Chile.
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• Let me say something about our experience in New Zealand.
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• Our flock has fallen from 70 million in 1982 to a little more than 33 million today (measured in mid-winter). Several recent dry seasons have contributed, but we have also seen sheep farming land being converted to dairying and forestry. The underlying factor is inadequate profitability in sheep farming. That is despite the enormous gains in productivity we have achieved by selective breeding and improved husbandry. Ewe lambing rates have increased from about 90% in 1990 to 125% and average lamb slaughter weights from under 14kgs to 17kgs fed on pasture. These productivity increases have ensured that the volumes of lamb meat exported to world markets have until recently been maintained in spite of the overall decline in numbers.
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• It has to be acknowledged by every sector in the value chain that lamb is not an easy or cheap meat to produce and process. If it were not for the fact that sheep can thrive in some regions that are wholly unsuited to arable farming or cattle, the decline in numbers would probably have been even greater. Lamb is one of the highest priced consumer meats and retailers and consumers cannot expect us to compete on anything like equal terms with pork and poultry or other alternative proteins.
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• This should be seen as an opportunity rather than a problem for our industry, and the challenge for us is to be rewarded with fair pricing that reflects the quality and status of sheepmeat as a food source. There is no doubt that the premium pricing of lamb in the consumer market allows this, and we need to put programmes in place to ensure a greater share of this magnificent product comes back to producers.
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• Ongoing research and development investment is critical to deliver productivity gains and innovation, as well as providing the tools to address emerging issues that are needed to improve the sheep industry’s competitiveness. Yet this comes at a significant cost and often with lead-times that make it difficult to fund the investment.
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• Compliance costs in all major sheep producing countries have grown and are a real threat to our ongoing viability. We shall hear more of this also this afternoon. I am fully aware of the burden of cross compliance in the European Union, of consumers’ expectations in the field of animal welfare and the imminent introduction of mandatory electronic tagging of sheep.
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• Producers in other countries experience similar burdens. New Zealand farmers do not have to comply with precisely the same cross-compliance rules as our European counterparts. However, we have our own comprehensive set of animal welfare rules and we are obliged to comply with an equivalent range of protocols with the retail chains to ensure that we satisfy their consumers’ expectations. In addition we must meet all importing countries animal health and food safety requirements around the world.
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• Climate change and the response of governments to this issue is a challenge to all of us. Like others here today, New Zealand is a signatory of the Kyoto Protocol, and we are now seeing a range of domestic measures being implemented by individual countries as they try to meet their commitments under this agreement. I know there are major concerns among the farmers and industry at this Forum about the burden that a new carbon emissions regime might impose on them. In the second session today we will explore the scope for some common approaches to this issue. There is no doubt that the solution has to be technological advances that reduce emissions without a corresponding drop in production. The real opportunity is more efficient rumen function that increases productivity with a lower emission footprint.
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• Commissioner Fischer Boel is to address us later this afternoon. She will be very aware of these cost challenges facing the sustainability of the industry and we will be interested in her view of the future of the industry in Europe.
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• In any event, it is vital that we arrest the decline in the availability of lamb meat in Europe and other major markets so that we do not see the consumer base erode away. One retailer representative who shall remain nameless is recorded as having recently described efforts to promote sheepmeat as “rearranging the deck chairs on the Titanic” and he described the product as “getting to be a luxury meat for old people”. There would be little future for any of us in that scenario, and we all have a shared interest to ensure that this does not happen.
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Meeting the Challenges of the 21st Century

• How do the challenges facing our industry today differ from those of a generation ago? I suggest they can be summed up under four broad headings:
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i. Meeting the expectations of today’s more demanding consumers;
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iii. Competing with new food products and securing the place of sheepmeat as a genuine convenience food – one that is not too time-consuming or demanding to prepare;
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v. Marketing to build demand and consumer preference for lamb;
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vii. Working within today’s retail distribution structure.
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• Today’s consumers are more conscious of health and nutritional, and social and environmental factors than ever before. They are generally better informed than in the past and less inclined to accept product assurances without evidence or information they can assess for themselves. Sometimes these expectations are codified in official regulations, sometimes they are set out in retailers’ requirements. Either way, while the consumer is not always right, they will always get what they want – eventually!
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• There is a second major area of consumer expectation – convenience. Translated into terms of our product, can it be purchased locally, prepared easily and cooked quickly? There is a widespread perception, especially among the younger generation of consumers, that lamb is too difficult. To dispel that impression we need to look to product development and to carefully focused market development. Later speakers will help us to focus on the key challenges here.
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• Today’s consumers enjoy a huge choice of meal options. The position of lamb is bound to be eroded unless the industry can offer new and more convenient cuts, and bring them to the attention of consumers by the same sophisticated marketing techniques used by our competitors supplying other protein meal options.
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• Branding and the use of indications of origin are part of this mix and will be covered in the final session of the Forum. For many decades New Zealand lamb has been promoted in the United Kingdom and more recently in Germany. We intend to continue to market our lamb but we have no interest in doing so in a way that reflects negatively on lamb from other origins. The seasonal focus of our advertising means that our activity complements European production and assures continuity of marketing and messaging. While all of us can legitimately promote our own origins, the underlying message in all our marketing should be generic and that lamb is a quality product providing the finest meat-eating experience.
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• The fourth challenge of working within the retail distribution structure and getting fair returns for our quality product is complex. Often emotion dominates this debate, when the issues are broader than just focusing on the percentage return of the retail price that flows back to farmers. The real opportunity is to work with retailers to ensure continuity of supply of a quality product that rewards farmers fairly for the commitment they have made. Anything less will see continued decline in sheep numbers worldwide to the detriment of all. I look forward to the sessions tomorrow which will focus on these issues.
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• I shall conclude here. The initial impetus to hold this Forum arose from concerns about declining production, rising costs and fears of an unsustainable sheep industry. Following speakers will explore these issues in greater depth and our industry can only be sustainable and profitable if we always keep in mind that we cannot make the consumer buy what we produce. We must produce a product the consumer will want to buy and one that they are prepared to reward with a price that ensures the viability of the industry.
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• The challenge for all of us here today is to put aside any differences we might have and focus on the issues we have in common. The sheepmeat industry and farmers worldwide will be better off as a result.
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