Triple Nine Farms – Project Update

The 999-project began almost by accident as part of a doctoral research program at the University of Otago. Since arriving in New Zealand in 2008, Jim Wilkes had been working as a management consultant out of his Christchurch based boutique consultancy firm troika (www.troikahq.com). During this time, he has been involved in a number of premiumisation and commercialization projects across New Zealand. In doing so, he became curious and developed a fascination with trying to understand why New Zealand’s world class food and beverage offerings were failing to consistently provide a world class income for its producers and farmers. There were many notable exceptions of course, however, strong successful export brands appeared to be under-weight compared to the dominant export orientation of the country. This appeared to be even more so in the SME space, where capital intensity and marketing expertise were constrained. Most of what was produced was exported with little or no value-added component and most of the production (milk, meat and logs) was sold through commodity platforms or commodity derived trading houses. It reminded me of iron ore, except in Western Australia, where I come from, the mining companies supplying the commodities are dominant global giants and they are perfectly designed and well-adapted to play the commodity game.

This New Zealand landscape was interesting to me because all I could see was an opportunity going begging. The working proposition for my DBA thesis and the 999 project is very straightforward. When a product is not differentiated in the consumer’s eyes, it is a commodity. This isn’t good for farmers. In the commodity game, price is the clearance mechanism. In other words, if a consumer cannot differentiate what’s on offer they will automatically default to selecting the commodity with the lowest price, which isn’t great if you are the producer of world class Aberdeen Angus. The commodity game was kick started by the industrial revolution and has gained traction throughout the 20^th Century and the early part of the 21^st Century culminating in what is now being referred to as ‘Peak Commodity’, which occurred in 2011. According to experts and the latest research, the super cycle for commodities is over. And I think that begs a strategic question or two. Where do New Zealand farmers play now, and how do they win?

Winning the commodity game requires operational excellence, scale, and efficiency along with the expertise and mind sets that can thrive in these brutally defining, competitive, capital intense, and mostly  transactional environments. In this world, even one percent can be a significant number. It is into this dynamic New Zealand’s red meat farmers have been supplying their production, and in this crowded trading space, price has been calling the shots. Unfortunately, due to a lack of differentiation global consumers do not always differentiate the animals of New Zealand farmers and this often results in New Zealand farmers becoming price takers with little or no control over the price their animals are sold for. On the flip side, animals provided for sale are not always of the highest quality either and many farmers argue they do not receive enough of a premium to warrant the additional effort and cost of raising super premium animals. This adds to the challenge of New Zealand red meat marketers and frankly, what is the point when most of the production is destined for the grinding market or is sold to intermediaries, which are the ones that end up generating the strongest return. Any cursory glance of the value chain will support this claim. The 999 Project is running a transvection analysis, which is assessing every transformation and sort along the value chain. It clearly demonstrates where the money isn’t made.

It is my personal view that New Zealand farmers and their co-operatives are trying to compete in a game they are wholly unsuited to win…my opinion. In beef, New Zealand supplies less than one percent of the global volume traded and even breeds like our beautiful angus are suffering from declining numbers.  This is a challenging space to operate a successful business model from. How can you win if you don’t call the shots? And how can you call the shots if consumers think you’re simply another one, just like the other one. So, what is the answer? Farmers know what the problem is, they can see it in their low returns. Processing companies feel the pressure too. Their Annual Reports reflect the downstream impacts of commodity trading. What hasn’t been so obvious, is the way out.

And that’s a big question with many moving parts and there are as many experts as there are opinions. I don’t think there is one right answer. I think future success will stem from choosing the right overall strategic direction. I think the words collegiate, collaborative, and cooperative will also play an important role in the future. The 999 project is all about defining, assessing and developing a range of options to escape the commodity trap for its farmer group. What we now know from recent research is the golden age of commodity trading has most likely come and gone. There may be some argument over timing, but many of the world’s commoditised products are now headed for de-commoditising. Look at energy, look at transport and look at retail, particularly supermarkets. The consumer landscape is changing in front of our eyes.

The reason for this is the dominant technology of the last century has changed. Since the industrial revolution advances in manufacturing and production have driven the rise and rise of commodities to the point where consumers have been completely disconnected from where things are made, how things are made and where they come from, including their food. Up until now, most consumers thought processes about what meat to buy began and ended at the supermarket. And that is because there is a massive lack of transparency in the supply chain, much of it deliberate. When I ask supermarkets to tell me about their beef they can’t tell me very much. It would be an interesting exercise to track some of the meat offered back to its origin. I think there would be some surprises for consumers…but what happens when all this changes? And it will, it’s changing as I write this update. Could de-commoditisation be the beginning of an entirely new ball game, a completely new era? I believe a new age is already here and it will change the way meat goes to market as much as the jet-age changed travel. Craft Beef is coming and New Zealand may well be the most perfectly positioned county on the planet to succeed at it. It is a marketer’s differentiation dream just waiting to happen. The value-added opportunities and niche lifestyle accoutrements connected with this transition will play right into the boutique hands of progressive New Zealand beef farmers.

New technologies of this century are being underpinned by the Internet of Things and a key ingredient of this technology is knowledge sharing and transparency. These two elements are creating a seismic shift in consumer behaviour and as consumers finally discover the real story and truths behind the products they are buying things will get interesting. For example, the externalities of products are now being highlighted. Using cheap labour is not cool, damaging the environment is not acceptable and how an animal is raised, where it was raised and who raised it will become more and more important to consumers, particularly those with the means to buy premium food and beverage. The momentum behind this movement is already making itself felt. The way consumers are choosing to purchase products is changing rapidly. Red meat is unlikely to be impervious to these changes. Many products and I believe red meat is one of them, are now primed to enter a de-commoditisation cycle, which means differentiation will become incredibly important. To be successful in a world where transparency rules, organisations will need to invest some serious capital into marketing and finally recognize that marketing is actually a primary income centre, not a primary cost centre.

Differentiation is back on the agenda and learning how to fully leverage this opportunity for beef is what my Doctorate is focused on. The University has provided me with a full scholarship to undertake this research and I have also been supported by two progressive farmers (Willie Falloon and Sean Brosnahan) who believe it is time things changed. I’m am fully committed to helping my colleagues in the red meat industry make proactive and positive change happen and I’m committed to developing and commercialising the 999 Farmer-to-Consumer business model. As the famous marketer Wroe Alderson noted in a PhD class at Wharton,