An Awesome Story is the Road to Earning More
If you are in the traditional farming game right now you will understand what being held hostage to commodity cycles is all about. It’s up, it’s down, and it’s up again. What’s coming up next? Will it be it good news or bad news? The answer is, nobody really knows. Even those who are supposed to know, don’t really know. If you don’t believe me, try pinning an economist down to precise projections and timing…and good luck with that. To be fair, they don’t have a crystal ball, no one does. Playing the part of a price taker isn’t much fun either. It can be stressful, especially when the chosen path to market isn’t achieving the returns you need for farming to be enjoyable, rewarding and future-proof. With that said, there is an inescapable truth to be dealt with here, and that is…the business models being deployed across the country are the models most farmers have signed up too. And it’s the failure of these models to deliver, which has become the elephant in the room.
The industrialization and corporatization of New Zealand’s agricultural sector hasn’t made adding value any easier. In the ‘premium’ world, there is a strong argument for less is more. Many, particularly those with vested interests, will argue vehemently and differently. Still, it’s hard to ignore the impact billions of dollars borrowed from international markets is having on our physical, psychological, financial and political environment. For example, the huge expansion in the dairy industry has brought with it a shopping list of highly politicised issues. At the top of that list is what to do about the significant and looming environmental consequences (some say disaster) of operating a business model geared to the outer limits of industry intensification. There is a lot of noise, but not much action. In Selwyn, a river royalty use to catch world class trout from, now looks and smells like a sewer. The 100% Pure branding strategy looks a little out of place there. Back in 2012, Prime Minister John Key was confronted with solid research from Dr Mike Joy on the environment issue. Key’s response was, “He’s one academic, and like lawyers, I can provide you with another one that will give you a counterview”. I’ll leave that comment swinging in the air. It says a lot.
Low prices are a problem for other industries too. The seafood industry has issues. Westpac economist David Norman reported, “To overcome the modest growth in seafood export value, volumes and prices had to rise”. That seems incredible with such low world fish stocks. New Zealand’s seafood is up there with the best in the world. Why aren’t our fisherman earning top dollar? The red meat sector is grappling with plenty of challenges too. Even when the clouds occasionally recede to reveal sunshine, the red meat business model still looks vulnerable. Ten meat processors are about to be given the opportunity to sell chilled meat into China, which on the face of it looks promising. Of course, the big question with this opportunity is still unanswered. How much of a premium will the Chinese actually pay? And why? And what happens, heaven forbid, if anything goes wrong with China? What’s different about New Zealand meat? Many say it’s grass fed. It’s packed with omega three. It’s really good stuff from the Godzone. That isn’t going to be enough, sorry. Other countries can grow grass too, even Australia. What will stop processors from eating each other’s lunch? That’s normal operating procedure for the red meat industry? Will Nathan Guy and Todd McClay’s Memorandum of Cooperation do the trick? How will Australian farmers who sold 94,000 tonnes of beef into China last year respond? Rabobank suggests New Zealand meat producers must differentiate their offering in the Chinese market to capture greater value, but it must not neglect growth in volume. That matches Norman’s comments above, but increased prices and volumes are not close friends, and they rarely work well together. So why will Chinese consumers or any consumers pay more for New Zealand beef and lamb? How is New Zealand different and more importantly, how is it better?
Exploring ways to help farmers earn more would appear to make compelling sense, particularly here in New Zealand, where the health of the country’s balance sheet relies heavily on their success. Of course, there are plenty of active discussions going on, but for some reason the hard calls are never made. Indecision lurches around government departments, agri-business boardrooms and kitchen tables all over the country. It’s the elephant in the room and it’s taken a master class in out-manoeuvring common sense. Let’s be honest here. Every business on the planet, no matter what it produces is ultimately responsible for the successful sales and marketing of its own output, no matter what form that takes. You don’t see successful FMCG companies over-investing in commodity reactive groups or initiatives. They take full responsibility for their own success, and they ‘own’ the entrepreneurial challenge for making every one of their brands successful. They compete hard and they earn every win. Their money goes into listening to the voices of their customers and developing insight. What they learn allows them to respond with well researched and developed products customers are willing to pay a premium for. As Drucker famously stated, “A business has only two functions, marketing and innovation”, and both should be focused on the customer.
Perhaps step one to earning a premium is learning to think differently.
Nothing will change until the individuals at the heart of this problem change the way they think. They’ll need to be prepared to rock the boat too. It’s a disruptive, dog-eat-dog world and it isn’t stopping anytime soon. Surviving and thriving means New Zealand producers will need to get disruptive back. Here in New Zealand, the primary sector could also choose to follow innovative approaches like the current Origin Green program being implemented in Ireland. It is being funded by Bord Bia (The Irish food Board) and is underpinned by Harvard agri-business intellect. The program is laser focused on creating premium Pathways to Growth. The Irish are fighting commodification by doing what they do exceptionally well…telling a bloody great story. Maybe, New Zealand should do the same. It has a story every bit as good. Effectively differentiating New Zealand should be, could be, and would be the dream of every genuine advertising man, women and creative in the land. Alas, they haven’t been given the brief. The story may well end up being titled, Shoulda, Coulda, Woulda!
By Jim Wilkes