Chairman’s Address to the Beef + Lamb NZ Annual Meeting

Welcome to the first annual meeting of Beef + Lamb New Zealand with our rebranding and name change complete, following the final meeting of Meat & Wool New Zealand in Te Kuiti last year.

In welcoming you today can I first thank our hosts Young Farmers. We are very grateful for the opportunity to use the Young Farmers site at the Lincoln Field Days for this meeting, and their hospitality has been superb. Our relationship with Young Farmers continues to go from strength to strength, and Beef + Lamb New Zealand is very excited to be partnering with Young Farmers in a range of school programmes and other activities throughout New Zealand.

Before I talk more specifically about our sector and the work of Beef + Lamb New Zealand, can I acknowledge the people of Canterbury, and particularly those in Christchurch. At Lincoln here today, we are on the edge of earthquake central. The events of 22nd February 2011 will forever be etched on our minds as one of the darkest days in New Zealand’s history.

I was in Christchurch that day and experienced the earthquake first hand. I was one of the lucky ones and was not in danger in the hard hit central city, and all of our colleagues and staff members survived. However many did not, and our thoughts will forever be with the people who suffered personally throughout this disaster.

The past year for our sector has also been one of extremes and the unexpected. The winter storms that hit New Zealand severely impacted many farming businesses, although the record pricing since, has recovered some of those losses for many. Ongoing dry conditions for some reinforces the need for flexibility in farming systems, and this is one of the key priorities for Beef + Lamb New Zealand as outlined in our strategy launch last year.

However the farming story for our sector over the past year has to be the record pricing received for our meat and wool products. This should come as no surprise, and those reading and listening to our messages about food security and the opportunities for New Zealand will recognise the fact that the message has absolutely turned into reality.

On this theme I have a number of bouquets and also a word of caution, but firstly the question that everyone wants answered is - how long is this going to last??

There is no doubt in my mind that this increased pricing can be sustained for the foreseeable future and I say this with the following supporting reasons.

Firstly, as I have been saying for the past two years, food security is the number one issue facing the world today. The availability of quality safe food is occupying the minds of companies, governments and individuals globally, and they do not like what they see. Climate change is a sideshow as all the focus shifts to ensuring the world has sufficient food.

You know the numbers. A global population of 6.5 billion heading to 9 billion in 2030, population and income growth particularly in the Asian region and New Zealand as a country can only feed 20 million people per year.

The head of the World Bank, Robert Zoellick has recently expressed his concern that food shortages threaten global stability, and the recent unrest in the Middle East over democracy will be nothing compared to what could happen if we do not focus our attention on the food security issues facing the world today.

Secondly supply of food, but meat in particular, looks to be constrained and not likely to increase substantially in the near future. Every sheep flock in the world is still in decline and beef production also looks stable. Biofuel subsidies in the USA affecting the price of feed and the subsequent viability of beef production remain a key influence. The recent and ongoing foot and mouth outbreaks in Japan, and both North and South Korea and other parts of Asia are a real concern for those producers as huge numbers of cloven hoof animals are culled.

Many still look to South America as the threat to our markets, but this is not becoming a reality and is unlikely to in the near future. It is true that there is the opportunity for increased production in South America, and this may eventuate in coming years. However common wisdom now accepts that most of any increased production in South America will be eaten in South America with the rapidly growing populations and economies particularly in Brazil and Mexico.

Australian production is forecast to increase, but again the reality is that while this has been forecast for many years, it is yet to eventuate. There is significantly more meat being eaten within Australia but exports have not increased anywhere near the extent that the forecasts have indicated.

We all know what is happening in New Zealand, with supply down for sheep meat in particular and to a lesser extent beef, however this completes the picture.

So supply does not look like rebalancing in the near future, and in fact the ability to increase supply is very constrained by the need first to rebuild flocks and herds which generally shortens supply even further in the short term. This is in contrast to the dairy industry which appears to be increasing supply quite quickly in response to the better pricing for milk products also happening globally.

The third reason for my confidence that increased pricing will remain is the acknowledgement worldwide, that the steep decline in the proportion of disposable income spent on food purchases is at an end. There is now growing recognition that there needs to be increased pricing to ensure sufficient returns to enable sustainable food production.

As an example, Time magazine recently reported that the proportion of USA disposable income spent on food purchases has dropped from 22% in 1970 to 7% today. The Europe numbers are similar with 9% of disposable income being used for food purchases. This is in contrast to the growing economies of India, China and Indonesia who spend between 35% and 43% of their disposable income on food.

This is a graphic reminder of the importance of the wealthy economies and established markets for our sheep meat and beef products. Unlike other commodities, our products are marketed at the top end as far as pricing is concerned. Asia is unquestionably the future opportunity, but we need to target the parts of Asia that can afford to pay what others are paying today.

The final reason for my confidence that today’s pricing can remain is the fact that the price increases are broad based and not just confined to our sector. The increases being reflected at the farm gate are real, and delivered from increased pricing not just for meat, but also the other products commonly referred to as the fifth quarter. These are significant and will underpin pricing for the future.

The other notable point on pricing is that beef, lamb and co-products are tracking in parallel alongside other proteins. If we were out on own here with our products I would be concerned, but these increases are in line with competing and complementary products.

It is here that I want to provide some bouquets to our much maligned sector in recent years.

The sheep and beef sector in New Zealand remains a key part of the New Zealand economy. Our exports of $8 billion per year compare very favourably to the dairy sectors $10 billion. We are 35% of agricultural exports compared to the dairy sectors 45%. The sheep and beef sector is a vibrant and vital part of the New Zealand economy and is certainly not on death’s door as some would have you believe.
However as with all other sectors, improvements can be made and I will refer to the opportunities shortly in our work with the Red Meat Sector Strategy that we are undertaking with the Meat Industry and supported by the Government.

Before I move into the future I would like to recognise the efforts of so many contributing to the sector performance of today.

While supply has certainly made our efforts easier, the performance and behaviour of the processing and marketing companies over the past year has been commendable. Increased market returns are being delivered to the farm gate and we are seeing a very mature approach to marketing in what is a challenging supply environment.

There is clearly some concern from buyers about pricing, however the message I would like to convey is clear. While pricing has risen substantially over the past year we have only just got to the level required for a sustainable industry behind the farm gate. These returns need to remain if we are to see a decline in the rate of land use change and confidence to rebuild supply for the future.

Farmers have faced a challenging few years climatically but we are seeing some superb examples of performance on farm that set the benchmark for others to aspire to. At Beef + Lamb New Zealand we are in the midst of completing some analysis that identifies the traits of top performers and one of the key themes for the coming year is to provide this information for those who are looking for the tools and services to improve to the level of the top 10%. Often it is a case of ‘you don’t know what you don’t know’ and we will be helping you with this over the coming year.

From an industry point of view I would like to pay tribute to the hundreds of industry leaders who have taken on roles to help the industry progress. Our Beef + Lamb New Zealand Farmer Council is the leadership group that have taken on the role of putting in place programmes in the regions for farm and farmer improvement. When you look at the Monitor Farms or any seminars and forums run by the Farmer Council think of the leaders behind these initiatives. Everyday farmers ensuring the right activities are happening in each region to provide the opportunity for improved performance of others. Thank you for putting up your hand for an industry you believe in.

Now let’s look to the future.

You have heard my confidence for the current pricing to remain for the foreseeable future, but also for the opportunity for improvement right through the value chain. The Red Meat Sector Strategy being led by Beef + Lamb New Zealand and the Meat Industry Association, is a crucial piece of work to outline how and where these improvements can be achieved. There has been much press about the process that Deloitte have undertaken on our behalf, and much of this has not focussed on the whole picture.

We have consistently stated our desire for the need for some common thinking strategically for our sector. We now have the most comprehensive piece of work ever been done for our sector nearly complete, with a plan of action for improvement right across the value chain from behind the farm gate into the market.

I would urge everyone to look constructively at this report, and analyse what role they can play in improving their performance in their area of influence. This report should not be viewed as criticism for any part of our sector, but is aimed at identifying the opportunities for increased profitability for the sector as a whole. While I do not know what is in the final report, I do know that every part of the chain can make improvements if they choose to.

Here lies the critical point.

Neither Beef + Lamb New Zealand nor the Meat Industry Association can impose change on the sector. We can, and will, provide the information for the opportunity for change but it is up to the individual participants to make that change. However, if the sector is to progress, all of us needs to take up the challenge of adopting the relevant parts of the Red Meat Sector Strategy to ensure the ongoing viability of the sector.

In closing I would like to reiterate a point I have been making for the last year about confidence. I am fortunate enough to see first-hand the opportunities for New Zealand sheep and beef farmers on the world stage. I come home to New Zealand and talk openly about these and these opportunities are clearly coming to fruition. However we are struggling to get New Zealand farmers and investors to believe in that confidence and invest for the long term.

I get many more offshore investors and overseas controlled investment funds seeing the opportunity and planning for investment in New Zealand agriculture than I get from New Zealand farmers already in the game and with the key skills and knowledge to capitalise on this opportunity.

My biggest concern for our sector today is the lack of belief and confidence that our sector is secure, and the low level of investment that is happening particularly behind the farm gate.

This sector is a powerhouse. In the vast majority of farm businesses equity remains high and earnings are growing strongly. Invest with confidence and gain the benefits of the opportunities now presenting themselves. If we don’t then others offshore will.

Ladies and gentlemen you will have read the annual report and looked at our progress over the past year. Beef + Lamb New Zealand has made significant moves with the regionalisation of our organisation, the strengthened role of the Farmer Council as the bridge between the organisation and grass root farmers, and the devolving of our priority setting and extension programmes to the Farmer Council to put in place what is right for each region. We are gaining real traction with these moves and attendance is up 40% at our events over the past year.

In the coming year you will see more of this and some new initiatives in line with the outcomes of the Red Meat Sector Strategy to enable you to improve your farming business. We look forward to your engagement and enthusiasm as the year progresses.

Can I finally finish by thanking my fellow directors on the Board of Beef + Lamb New Zealand for their tireless work over the past year. The regional delivery of the priority setting and extension by the Farmer Council, has added significantly to the demands on directors in their region and we are grateful for that effort. Can I also thank you for your tireless efforts around the Board table and your professionalism in your roles.

To the staff at Beef + Lamb New Zealand I would like to offer the thanks on behalf of all sheep and beef farmers in New Zealand. There are many activities mentioned in the annual report and other publications in the areas of research, extension, market access, promotion, people and the provision of information that go unheralded by many. To our Chief Executive, Dr Scott Champion and your team please convey our gratitude for the work you do on behalf of farmers and the wider industry in New Zealand.

Ladies and gentlemen this concludes my address for the 2011 Beef + Lamb New Zealand Annual Meeting and I would like to wish you all the best for your business and a prosperous and exciting year ahead.

ENDS

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