Chairman Mike Petersen’s speech to Meat & Wool AGM

Chairman Mike Petersen’s speech to the Meat & Wool New Zealand AGM at Te Kuiti, 24 March 2010

The Annual General Meeting this year for your organisation Meat & Wool New Zealand is symbolic for a number of reasons.

Firstly, this is heartland sheep and beef country, and it is synonymous with our desire to connect more strongly with grassroots farmers. To the best of my knowledge no industry organisation has ever hosted an AGM in Te Kuiti, and we are delighted to be able to offer farmers the chance to interact with us on your home turf.

Secondly, King Country is proudly claimed as the shearing capital of the world and is home for the Fagan family, probably the most famous shearing family in the world. The irony is hard to escape, as in three weeks time there will be no farmer levy investment in wool activities following farmers’ rejection of the wool levy in the referendum held last year.

As a consequence of that your organisation will no longer be able to use the word “wool” in its name, and therefore this will be the final AGM for Meat & Wool New Zealand as it is currently known.

And thirdly, it is symbolic as we start the next five years with our sole focus as a meat only organisation, investing funds on your behalf to improve the performance of sheep and beef farming.

Later today we will travel to the property of William and Karen Oliver for a farm tour, and to get an appreciation of the district and the farming within it. We are grateful for the opportunity to visit this property and I know that considerable time and thinking has gone in to ensure that the day on the farm will be informative and interesting.

It will also be a fitting close to our AGM, with a barbeque on the farm and an address by the Deputy Prime Minister and Minister of Finance Bill English.

In my presentation today I will look back on the past year with some observations, but our focus is clearly on the future. Much of what you hear today will be talking about the role of your organisation in realising our vision and desire to see a growing sheep and beef industry providing sustainable profits for future generations.

The planning for a new generation organisation started well before the referendum and has culminated in the strategic plan that we delivered to you this morning. While there have been some changes with the loss of the wool levy, the direction and intent is broadly the same, with a strengthening of our presence in the regions and more activity to encourage farmer engagement.

The strategic plan is significant in many ways, not just for what your organisation will do, but also for what we don’t do, and where we expect others in the industry to play their part in achieving our previously stated vision.

Before I expand on this, let me look back over the previous year and offer some observations firstly for meat and then for wool.

The past year

Over the past 18 months the focus for many has been the financial crisis that has dominated global economies. The unraveling of leveraged funds and investments has introduced new words and language that we have never heard before, and brought permanent change in how the global financial system will operate.

For the meat sector there was considerable nervousness about how this would impact on the better product pricing we had received as farmers in the 2008/09 year. The good news is that we have come through the global recession well, with farm gate pricing remaining firm in spite of the strength of the NZ dollar which has taken the cream off the top.

Meat companies in New Zealand deserve praise for the way they have managed pricing and product flows in a difficult year. In spite of paper thin margins for the industry, market prices for both sheepmeat and beef have continued to climb and a greater share is coming back to the farm gate.

The focus for many a few years ago was on the farm gate share of retail pricing and many complaints that it was too low. We have seen a remarkable turnaround here, and the most recent Meat & Wool New Zealand Economic Service estimates show that in export markets, 44% of the retail price is being paid out in farm gate returns and in domestic markets 54% of retail price comes back to the farm gate.

Let’s give praise where praise is due, and recognize that when the Australian meat industry is literally on its knees the New Zealand industry is delivering returns from export markets that others would be proud of.

The strong wool sector has shown some improvement and willingness to change, although farm gate returns have continued to languish. Improved pricing in recent months has been welcome but remains insufficient for farmers to take a real interest in wool as a primary revenue earner.

Three notable changes have occurred during the past 12 months for wool.

Firstly, we have seen the emergence of Elders and Wool Partners who are taking a leading role along with Wool Services International to improve the way wool is taken to market. We have continued to push for commercial solutions to ensure better returns can be delivered to the farm gate and we encourage these companies to continue their good work.

However our strongly held consistent view is that these companies would serve farmers interests better if they combined their efforts, instead of pursuing the same strategy in the same markets, and fighting at home for a decreasing supply of wool.

At Meat & Wool New Zealand we have never been given a mandate by farmers to invest in promotional activities and it has been left to the commercial companies to do this work. In our view this effort has been dismal, and we urge the companies to pick up the pace on the targeted marketing of wool and woolen products that we have consistently argued for.

If you have any doubt that the system is flawed, the second significant feature in the wool industry over the past year was the decision by farmers to reject the wool levy proposal in the referendum in August 09. While the levy passed on a weighted basis, it failed on a one farm one vote basis which is sufficient to ensure its downfall.

There is no doubt that farmer frustrations with returns from wool have had a significant bearing on this result which is the risk in a five yearly referendum cycle.

From an organizational point of view, we have respected the outcome of the referendum and moved on with cutting the research projects and staff accordingly. While this has been tough on research providers and the people involved, the message has been clear. Farmers are prepared to invest in research and promotion, but the returns from wool have to lift significantly before that can happen.

The third notable feature over the past year has been the report from the Wool Taskforce that was commissioned by the Minister of Agriculture following the referendum last year.

This report has backed up our long held views that there is absolutely a future for the strong wool industry, and there is an urgent need to lift returns from wool to ensure the sheep industry can prosper. There is also strong support for the targeted marketing of wool and woolen products that I previously referred to, and the need for a single and unified voice for the sector.

We have agreed with Federated Farmers to advocate jointly for farmers in this next round of discussions, and we look forward to working with Dr Murray Horn to progress the objective of forming a fresh single voice to advocate for the wool industry.

In summary, the meat and wool sector has seen a better year than many had predicted, but net farm returns are still not able to stem the flow to more competitive land use options. This is the market at work, but clearly improvements are required if we are to see the vision of a growing industry come to fruition.

Shortly we will look more formally at Meat & Wool New Zealand over the past year and drill down into the activities and financial performance.

The opportunity

Let us now look to the future, and the opportunity that clearly exists for sheep beef and dairy farmers in a world that is struggling to reconcile between the two issues of climate change and food security.

Over the past two years I have been talking a consistent message that is now clearly coming to fruition. While the emotive headlines have been about climate change and attempts to save the world from this phenomenon, the real issue is the availability of safe food.

Every Monday morning when the world starts its working week, there are another 1 million more mouths to feed than there was the week before.

It is a staggering statistic, and one which needs expanding on.

Our strength as a meat exporting nation is the positioning of our quality meat products in the mature markets of Europe, the USA and Japan. These markets are crucially important to us and will remain so for some time to come.

However the real growth opportunity is in the emerging markets of China, India and the ASEAN group of countries in South East Asia. Population growth and more importantly income growth will be the biggest opportunity for our meat and wool products over time, and it is vitally important we set ourselves up to be able to take advantage of this now.

The Australians are doing this with greater urgency, and gaining a footprint that we may struggle to catch.

It is with this theme in mind that we are disappointed that the Emerging Markets Project is not proceeding as planned. For those who have not heard of this project, this was a joint initiative facilitated by Meat & Wool New Zealand and including Alliance Group Ltd, ANZCO Foods and Silver Fern Farms, targeting China’s super premium food sector as a new market for New Zealand red meat.

This decision has been reached after nearly two years of strategic thinking, extensive market research, and business case development over recent months. In our view this was a template for collaborative work in the market, and satisfied our objective of reducing the reliance on Europe and the USA for New Zealand sheep and beef farmers.

Unfortunately while China’s growing population and emerging middleclass wealth appeared to make the market an obvious choice to pursue, the business case was challenging, and in the end it did not get the universal support from participating meat companies that was required for further investment.

I would like to congratulate the three companies who remained with us in this project in the first instance. All companies were invited to participate initially, and we started with five companies which then reduced to three for the main stage of the project. The goodwill of these three participants working constructively with our staff contributed to a very robust process.

The disappointment from Meat & Wool New Zealand is tempered with the reality that not all initiatives come to fruition.

My personal view is that the rejection of this project by the industry was based on competitive tension domestically, supported by the lift in pricing in our more established markets. If we are looking 15 years out then there is no doubt that in my mind that strategically this was absolutely the right approach to this market and the relatively small level of investment was a worthy one.

We are now getting very frustrated at the lack of engagement and commitment by industry to several initiatives that have been championed within the sector in the past two years. A cynic might say that there is no chance of getting the industry to work together which is an argument that has some validity given recent setbacks.

The Meat Industry Taskforce, a possible merging of farmer and industry into a single industry good body, the Emerging Markets Project and resistance to joint funding of promotional programmes are four examples of these.

While I have given some bouquets to the industry today I am now going to deliver a brickbat.

Farmers are giving us a clear message up and down the country that they want to see a change in attitude among the wider industry towards more collaborative work for the long term betterment of the sheep and beef industry. The “last man standing” strategy that is in place today is not in the best long term interests of farmers, and the lack of constructive engagement and collaboration on key issues will see land use change continue.

During the referendum, we sought and obtained support for the development of the industry strategy that we have been championing for the past 18 months. We are now embarking on the first leg of this industry strategy, and we need to see a real commitment to this work from the wider meat industry.

The time frame we have set is ambitious, but we have had enough talk about strategy without it coming to fruition. There will be an invitation to engage, but if that invitation is not accepted then we will push ahead and complete this work for the benefit of farmers.

The future for Meat & Wool New Zealand

Earlier today we unveiled our strategy for the next five years. The reorganisation within Meat & Wool New Zealand is nearly complete, and we are embarking today on a new path as a meat only organisation.

This new path has been well thought through, and is centred on more regionally based activity and more opportunities for farmers to engage in our activities. Enhanced Monitor Farms, Demonstration Farms, and more informative seminars are some of the practical offerings that will evolve. Greater use of the Sheep and Beef Council to act as more of a “Stakeholders Council” to bridge the gap between the organisation and grass root farmers is another significant move.

Our vision is clear, and we have spent a considerable amount of time identifying the needs for farmers and the role of your organisation in achieving success.

However all of this will have little impact if farmers do not engage themselves. It is easy to sit on the sidelines and be critical, but I would urge all farmers to get involved and help influence the future of your organisation and industry.

The rewards will come to those who choose to help themselves.

Industry and attitudes

I would like to finish with some comments on the pessimism and negativity that seems to pervade our sector. There is a real danger that this will become a self fulfilling prophecy, which is not in the interests of anyone in the business of sheep and beef farming.

There is no doubt that the global trends I talked about earlier offer huge opportunities for our sector. We are ideally positioned to capitalise on these, but the ability to capture the opportunity may be constrained by short term negative thinking that seems to exist.

I am not expecting everyone to become a cheerleader for the sector. However it is time that industry leaders and leaders within the wider farming community put away the knives and fought for this sector more than they are doing now.

Sheep and beef farmers are fiercely independent which is a strength, but also a constraint at times, as we seek to get momentum on some common industry issues. One thing I am sure of is that if we rowed the boat in the same direction it would make a huge difference to the speed of travel to a more prosperous future.

Thanks

I would like to offer some thanks before closing off this address today.

Firstly, to those farmers and others who are active participants in our Monitor Farm Programme or Sheep and Beef Council we thank you for your time and commitment to our sector. Other countries in the world are now implementing these models after seeing them in action here, and this is a great tribute to you and those who have served before you.

I would also like to offer our sincere thanks to Scott Champion and the management and staff at Meat & Wool New Zealand. This has been a difficult year with the loss of the wool levy and the cuts that have been required. Your professionalism and dignity through this process has been greatly admired when friends have been falling around you.

Finally I would like to offer thanks to our two retiring directors this year, Ron Frew and David Douglas. Your commitment and tireless efforts on behalf of farmers through a difficult time has been greatly appreciated by your colleagues, and we wish you well for your future endeavours.

Congratulations to both Kirsten Bryant and Anne Munro who are the two new directors joining us at the conclusion of this meeting. We look forward to your enthusiasm and input as you commit to your organisation and industry.

Conclusion

Ladies and gentlemen my presentation today has followed the theme of the previous two years in commenting on some past issues but mostly focussing on what lies ahead.

The past year has been challenging for Meat & Wool New Zealand but we have responded to the mandate farmers have given us and redefined our strategy.

Our vision and plan is clear but two way engagement is required.

The global opportunity is real but there is a need to plan strategically over longer time frames than is currently evident today.

Finally I would ask everyone involved with our industry to cherish your independence, but look constructively at where you can use your passion and skills to help progress the industry.

The sheep and beef sector has a proud heritage of success, but we need your input to ensure we take the next step to a more prosperous future.

ENDS

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