It is a privilege to welcome you here to my home province, Hawke's Bay in the Eastern North Island ward of Beef + Lamb New Zealand, for the ninth annual meeting of this ever changing organisation.
In welcoming you, I want to talk today about the transformation of your organisation over the past eight years from a producer board, under a statutory Act of Parliament in 2004, to the accountable, farmer-owned organisation that exists today. The changes have been significant, and we are continuing to evolve as circumstances change around us.
I also want to touch on the sheep and beef sector in this country, and the critical role it plays in balancing the environmental, social and economic values in this treasured place of earth called New Zealand.
Before both of those points I would like to cover off three issues that are topical subjects today.
- First, given the recent reductions in farmgate prices, what is the long-term outlook for you as farmers and our sector?
- Second, is there progress occurring in the Red Meat Sector Strategy, and what can you do to assist that?
- And, finally, what is the role and where is the boundary for industry organisations alongside that of the commercial processing and export sector?
So what are the long-term prospects for our sector?
For the past five years we have talked consistently about the golden opportunities for the sheep and beef sector in New Zealand. In a world that is growing both in numbers and in wealth, the key issue facing global leaders is food security and the availability of quality safe food. The financial crisis is dominating headlines in the short-term but the long-term issues are all about food.
Food price deflation has given consumers the impression they will continue to be able to buy cheap food as retailers battle for market share. It is astonishing to think that where consumers in developed markets used to spend about 50% of their disposable income on food, that figure is now less than 10%.
The message is clear. Quality safe food is becoming increasingly scarce, and those able to produce this in an ethical and environmentally sustainable manner need to be fairly compensated for doing so. Consumers are going to have to get used to paying more for food.
Alongside the message about the opportunity, we have also consistently warned about increased volatility as buyers adjust to the new reality of increased food pricing. Pricing for all food, including our sheep and beef products, has lifted rapidly in recent years as the food security issues play out. Importers and buyers have responded by moving to just-in-time delivery, which exacerbates the volatility - especially when climate events affect supply.
We are clearly in volatile times.
The past four years have seen farm profits move dramatically from their low in 2007-08, to this year, which is forecast to be the second highest on record. It is significant to point out that the value of the NZ dollar in the lowest profit year of 77 US cents compares very favourably with the 80 US cents forecast today. The exporting companies have captured real gains in pricing from offshore markets over a short space of time.
However the recent reduction in farmgate pricing has clearly knocked confidence among farmers. The most common complaint I get from farmers up and down the country is the volatility, and the inability to plan ahead with confidence. We have not seen a collapse in pricing, and the volatility is occurring at a much higher level, but it is clear that unless we get more consistent returns, land use change out of sheep and beef farming will continue.
Let me reiterate the views we have for the long-term future of the sheep and beef sector in New Zealand.
We produce the finest grass-fed sheep and beef products in the world. I say this unreservedly, without doubt, and with confidence. When you combine the leading edge farming systems, unparalleled service and professional sector and efficient processing with the integrity and reputation for safety that New Zealand has on the global stage, nothing else comes close.
The world does not need our food, and New Zealand cannot feed the world, but those who want our food can certainly afford to buy it. We often hear claims that our products are too expensive. I do not accept this for a minute when we look at a global population of 7 billion going to 9 billion by 2030.
If we have customers claiming our products are too expensive then let's go and talk to the 20 million people out there who value what we produce. In fact there would be more than that number who would not even ask the price.
If naturalness and grass fed are the new fashion, and I have said this many times before, then New Zealand has the opportunity to own the catwalk.
Let me now move to the second question I posed earlier, about progress in the Red Meat Sector Strategy, and how to accelerate the opportunities outlined in this report.
By way of background, you will recall that the strategy clearly identified that our sector, an $8 billion earner, is a critically important part of the New Zealand economy. The dairy sector's $10 billion industry is not too far ahead of where we sit today. Importantly, the strategy identified that we could quite easily move the value of the red meat sector from an $8 billion sector to a $14 billion sector by 2020 with some focus on three important themes. In real terms, the size of the prize is another $3.4 billion or $420 per ha for every hectare under sheep and beef farming today.
There were a number of other key messages in the strategy about responsibilities for each part of our sector. The key point for me was the reinforcement that only industry participants can capture the opportunities identified, and there must be a willingness to act in order to make this a reality.
In this respect the two sponsoring organisations, Beef + Lamb New Zealand and the Meat Industry Association, are pleased with progress to date, although we acknowledge there is still much more work to do.
For farmers the key area of interest may be the work that we are progressing on your behalf.
There is no doubt that the analysis initially compiled by the Beef + Lamb New Zealand Economic Service was a key piece of information in identifying the opportunities if more farmers operated at "best practice". Our successful application to the Primary Growth Partnership, for a concept to accelerate our work in this area, is an exciting initiative that is now being developed into a business case for final approval.
This Beef + Lamb New Zealand-led programme is an enabling programme, providing a number of building blocks for improved performance on farm, and to enable a more responsive and agile farming sector. The benefits will be available to all farmers, irrespective of who they supply, assuming they choose to participate. I would like to take this opportunity to thank the commercial partners and others who have come on board with our PGP application, who share in our vision for farmers, and are prepared to invest heavily alongside us.
We are also working closely with other approved programmes to ensure that this is complementary to and does not duplicate programmes already underway.
The business case is now being developed, but the timeframes are long. Our best estimate is the start of some projects early in 2013. Farmer participation will be critical if we are to achieve the desired outcomes.
As we move into an era of greater partnership with industry and others, it is important to reflect and reassess the future role of Beef + Lamb New Zealand as an investment vehicle for farmers.
We do this every day.
It is easy to forget how much Beef + Lamb New Zealand has changed over the past eight years. The move from a statutory body accountable to the minister only, and with wide-ranging powers that could be imposed on the sector, has been significant. Today Beef + Lamb New Zealand is an organisation that is owned by farmers, governed by farmers and guided by farmers every day, through a nationwide team of farmer councillors committed to the advancement of sheep and beef farming in New Zealand.
Beef + Lamb New Zealand is not an island.
This organisation exists solely because farmers choose to invest in a range of activities that they could not do as individuals alone. The regional events overseen by the Farmer Council for the benefit of all farmers are a graphic example of farmers working for farmers. It is the strength of the industry here in New Zealand and a critical part of the rural landscape that other others try to replicate.
When people question the relevance of Beef + Lamb New Zealand, they are actually questioning the right of farmers to choose whether they invest or not.
Farmers have been very clear in their views to me, and the messaging has been accentuated over the past few weeks. Farmers want to retain the right to guide their investments themselves, unfettered by commercial agendas. Commercial companies play a vital role in creating value from the products we produce. But much of the critical infrastructure and resource enabling this value creation is owned and funded by you, farmers, via your organisation - Beef + Lamb New Zealand.
We are now half way through the five-year programme of activities endorsed by farmers in the last referendum in 2009. We have already started planning for the evolution of farmer investments for the next referendum in 2014. There is a lot to discuss, but be assured that this organisation is not standing still while the world changes around us.
Finally I would like to consider the sheep and beef sector, and its footprint on this treasured piece of earth called New Zealand.
As we work diligently to produce the quality, safe food that the world is seeking, we are very mindful of our responsibilities to the environment. There is increasing scrutiny both here and offshore about the impact farming has on the environment and we ignore this at our peril.
Our involvement in and sponsorship of the Ballance Farm Environment Awards is an important part of celebrating environmental success and stewardship for our sector. There is not enough recognition for those farmers who are passionate about improving their environmental management, and there are many farmers that are very active in this area.
In fact I do not know of a sheep and beef farmer who does not want to try and improve the natural environment in which they farm.
The Parliamentary Commissioner for the Environment, Jan Wright, has this week released a report focused on water quality in New Zealand, and the factors contributing to this. It is excellent work and offers a plain language view of the science and priorities for all to understand.
There are a number of areas that our sector needs to work harder on to ensure we are playing our part in best practice environmental management.
The very successful Beef + Lamb New Zealand land and environment plans are a critical start. Understanding and mapping your resource is a key enabler to measure progress. We are currently reviewing the LEPs and making them modular to better suit a variety of farming systems. If you do not have a land and environment plan I would encourage you to start on the process.
Nutrient management plans are another important tool to assist in best practice environmental management. We have previously agreed with the fertiliser industry the need for more nutrient budgets on sheep and beef farms and we need to accelerate this further.
Finally for the environment, wherever practical, excluding animals from waterways is desirable and should be implemented as part of best practice environmental management. While this will not be a popular message, this is an issue that is front and centre for the dairy industry, and we need to ensure that on similar classes of land and where practical, our sector does the same.
The danger of not acting is that someone else will impose requirements that may be unrealistic, difficult to implement, have a negative impact on profitability. I am confident that greater attention in this area by our farmers will result in meaningful changes that improve our environmental footprint, and enhance productivity and profitability at the same time.
In concluding today I would again reiterate that the future for our sector remains incredibly bright. The long-term issues are all about food and New Zealand is at the heart of this opportunity.
Progress towards improving the performance of our sector is real, but we need to see more consistency in pricing and returns to ensure that progress can continue.
Beef + Lamb New Zealand exists only because farmers choose to invest in a range of activities to advance the sector. It is constantly evolving and adapting to the changing world of food production globally and here in New Zealand.
And finally, in diligently producing the finest naturally produced grass-fed sheep and beef products in the world, we need to continue to work hard on our environmental management.
We owe this to the future generations of farmers that will follow in our footsteps.