WorkinWords Comments and occasional rants on agribusiness and other topics – mainly New Zealand

It never ceases to amaze me that there are so many people offering practical advice these days. I noticed this first in the writing, publishing editing field where there is any number of advisors, consultants and gurus offering to improve your abilities or productivity – at a price. I suppose if you have lost your muse setting up as a writing/editing consultant at least keeps the cash flowing in a positive direction. (I have tried it and it works.) The number of advisors suggests there is a ready market for such advice.

But the writing sector pales into insignificance when compared with the business sector. In recent years, along with the questionable reliance on the efficiency of the market ecnomy, there has been a surge in the ranks of ‘consultants’ providing all sorts of advice, and new ideas, mainly reflecting competitive market principles, to companies, industry sectors, and the government in all of its many and varied forms.

This latter increase probably bears some relation to the decline in numbers of public servants, resulting from the restructuring requirements that have been imposed, possibly as a result of advice from other consultants.

Consultants used to be independent “experts” flashing some form of business management degree like an MBA which somehow gave them incredible insights as to how to advise on the restructuring, rebalancing or reorganisation their client’s business to achieve greater efficiency; actual experience in running a company or managing an organisation was not necessarily a prerequisite.

Now, consulting advice has become one of the many services offered by the major accounting corporations. They acquire information as part of their accountancy and/or auditing roles, and simultaneously they position themselves to offer informed advice on the management of the business, if and when such advice is sought. So they gain revenue streams not only from telling enterprises where they have been, but also from advising where they think they ought to be going.

There used to be an adage that if you asked a consultant what the time was, he would borrow your watch, tell you the time (maybe with a power point presentation) and then keep your watch. In other words they would find out what you were thinking and present it to you in a persuasive manner to convince you that you were heading in the right direction.

More pragmatically there can also be a tendency to recycle ideas from companies in other industries or countries, or even regurgitate proposals from earlier studies of the same industry. All of which suggests that there is probably a significant volume of data and ideas already in existence, and readily available to those currently employed in the industry.

But there can be a yawning abyss between theory and reality; consultants’ recommendations may be very reasonable and acceptable, but their implementation can often be problematic due to lack of commitment, or lack of funds, or just plain bloodimindedness on the part of some of the players concerned.

When the report is written and the recommendations come out it is likely the parties will wrestle with the implications and how they might be affected. Then there are questions about implementation, so finally nothing much happens; so, many reports by consultants gather dust on the shelves of corporate libraries.

I suppose the growth in the numbers and activities of consultants demonstrates that there is still a belief that external “experts” (particularly those from overseas0 are more knowledgeable than those already on the ground, or at least they will not be pushing their own agendas, so their advice is more objective. The reliance on consultants also shows there are sufficient wide eyed pretenders who believe the hype and pay the fees, in the hope that the gurus will provide them with the silver bullet solution.

That has certainly been the case for the meat industry which has been inundated with reports from Commissions of Inquiry, Meat Industry Task Forces, study groups and various working parties, as well as myriad consultants investigating and reviewing all or part of the industry and its problems.

As a result there have been proposals for (and sometimes implementation of) company mergers or consolidation, Associated New Zealand Farmers, national pools, Tradeable Killing Rights, Meatmark, NZ Lamb Company, Meat Industry Trading Organisation, Trial Run Holdings, Lamb Promotion Council, Meat Industry Freight Council, Beef Council, and the Meat Research & Development Council, as well as Meat Board intervention and control of sheepmeats. It is not a case of lack of knowledge; it usually comes down to lack of commitment to implementation or dissatisfaction with the outcome among the various factions of agribusiness politics.

So it is of concern to learn that the Meat Industry Excellence Committee propose to use consultants (or architects) to advise them on an appropriate industry structure or business model for the future. On the basis of previous experience the idea of hiring yet another grooup of consultants to reiterate known options will be a futile waste of time, money and energy.

The industry does not need external advice to come up with another solution. It needs to have a commitment from the major companies (in consultation with the MIEC and other farmer bodies) to develop a common goal and strategy with an agreed time horizon, and a business plan to implement it.

It would really only require an industry task force to determine what is achievable, affordable, does not cause too much disruption, and meets at least some of the requirements being sought by MIEC. In the circumstances improvements in the marketing activities seems to be the most likely. The models are known and some of them are working or would work if they were implemented with serious commitment from the major players, including the producers.

Is the sheep and beef sector going around in circles?

After the extensive reporting on the meeting in Gore called by the Meat Industry Excellence Committee (MIEC), I was prompted to review the origins of the New Zealand Meat Producers Board (NZMPB) almost 100 years ago. The factors causing farmer concerns were different but the reactions in terms of farmer meetings and the various shades of support or opposition are incredibly similar to those being reported today.

The first few chapters of “Golden Jubilee – The story of the first fifty years of the New Zealand Meat Producers Board” by Dai Hayward, set out the factors (mainly an overhang of stocks in cold stores and rising costs of processing and shipping, exacerbated by the onset of the economic recession) which led to a serious decline in prices for lamb in 1920/21.

Farmers began agitating for changes to the existing business model in the meat industry to alleviate the plight of the producers. They had discussed a scheme for the co-operative handling and marketing of primary produce, but they went one step further than the MIEC and called for goverment assistance or intervention. Perhaps fortuitously, Prime Minister William Massey favoured setting up a Meat Pool Scheme and the establishment of marketing board involving farmers, businessmen and government representatives, with “any power they want”.

As could be expected stock and station agents, meat exporters and processing companies, as well as some farmers, were adamantly opposed to these ideas; some cynics would suggest they were just protecting their patch.

The issue came to a head with a meeting in Wellington on January 10, 1922, with a farmers’ conference in Wellington attended by selected delegates from around the country, with views either for or against the proposals.

There was some vigorous debate, with suggestions that the proposed scheme was socialistic. Massey countered that “there is nothing socialistic about what we are proposing. It is co-operation.” The main opposition concern was that the proposed board would take over all meat and market it, known brands of lamb would lose their identity, and/or that there were plans to wipe out all the meat operators. Some of these views had been promulgated by the meat companies.

In the end, after a day of debate, the vote was in favour of change, and subsequently a Board was established with extensive powers “to control the export meat trade”. But in its first 50 years the Board did not exercise its powers to assume complete control; that came later.

It would be disingenuous to suggest the MIEC are aiming to resurrect the NZMPB and all of its powers, let alone contemplate any government intervention, but the issues being discussed and proposals for change are remarkably similar to those of the 1920s; the economic and political climate is quite different. However the calls for a Fonterra style structure suggests that the farming community are seeking a complete rethink of the business model with an overhaul of the meat supply and marketing chain.

The proposals particularly for marketing reform may be a reaction to the PGP proposal to use farmer controlled reserve funds to encourage them, once again, to improve productivity, when they have been doing that almost continuously for the last fifty years. Experience has shown that farmers will respond to consistent price signals, so maybe the current agitation is a call for a better system to deliver those consistent price signals.

Even so, proposals to emulate the dairy industry could be a tad optimistic. Fonterra arose from a long established single desk marketing organisation (the Dairy Board) and mergers of a number of co-operative dairy processing companies, before they were pushed together, and the business model was cemented in place via legislation.

Setting up such a structure for the meat industry would require a significant change in thinking, not only among farmers who would have to adjust to the idea of long term supply contracts, but also among processing and exporting companies, especially if the idea went so far as one major marketing enterprise. It may even require some government intervention in the form of legislation.

An arrangement like that for the meat industry is likely to be a bridge too far for all the parties. Some form of incremental commercial arrangement with more modest goals may be possible, if there was a willingness to co-operate. The reported discusions between Alliance and Silver Fern Farms (and maybe others) would appear to be a good start.

If I had any say in the matter, which I don’t, I would tell the farmers calling for change in the meat industry to concentrate on consolidating the marketing activities rather than trying to force some sort of amalgamation of the whole supply chain.
And even getting a co-ordinated marketing system off the ground will be no mean feat; it has been tried several times in the past and obviously did not succeed. But it can be done.
Calls for more consolidation in the industry, to get greater efficiencies and overcome the capacity problem that leads to procurement wars have been a regular feature of the industry. As sheep numbers dropped from 70 odd million in the mid-1980s to the current levels, capacity problems have been a recurring issue.
While there has been consolidation in the industry over the years, it is a long term and expensive game, and unfortunately there tends to be more losers than winners; Weddels, Borthwicks, Co-operative Wholesale Society, Canterbury Frozen Meat, Waitaki, Dawn Meats, Hawkes Bay Farmers, Richmond, Fortex are some that come to mind. Freesia Investments was set up to bring about some consolidation, but that also proved to be a mission impossible.
Any student of the history of the industry will recognise that a move to consolidate the production sector of the industry brings some reduction in competition in the short term, but invariably results in farmers agitating to start up a competing company in the misguided view that they need to be able to ensure that the big companies are not ripping them off.
Unfortunately they are just contributing to the overcapacity problem that they complain about; the industry history is littered with farmer owned or inspired companies that start with a hiss and a roar and once the initial glamour has worn off they become just another player, and unless they have some significant point of difference they sink into oblivion trailing clouds of glory. See the list above.
So why not keep the present structure for procurement and processing, and concentrate on the marketing?
Very few commentators seeking change in the industry ever looks seriously at the selling side of the business (it is mostly still “selling”, not marketing) where there is costly duplication of activities in all the major markets, with the companies all competing to sell basically the same products to buyers who are lying in wait for them.
While companies may claim differentiation of their products through company branding, and some minor variations in services, to give themselves the warm fuzzies, the product they are selling is still “New Zealand Lamb”.
It is time for the New Zealand industry to look seriously at their marketing systems; they have a well-established and functioning model in North America now trading as “The Lamb Company”, where there is collaboration between three of the major lamb companies, with ownership and returns being based on a co-operative model.
The idea would be to get the NZ exporters together in other major markets pushing their market advantages in a concerted manner via a co-operative marketing entity, rather than relying on the old fragmented approach. A co-operative marketing approach should be easily recognised in many of the EU countries, where large co-operative marketing organisations thrive, as well as in those countries that rely on centralised buying and distribution.
This suggestion is likely to bring a deluge of the time honoured arguments from the established companies about the difficulties in co-ordinating supplies, but the Lamb Company manages to resolve such difficulties. Companies may also claim there would be problems with maintaining relations with established customers, but it seems the customers have no problems in switching suppliers when it suits them; the recent switch by M&S from Silver Fern Farms to Alliance is a case in point.
The prospect of a centralised marketing body, similar to the Fonterra model may be asking too much. That only came to fruition after years of centralised control by the NZ Dairy Board via marketing acts and regulations, which may be anathema to the authorities and some neo liberal farmers these days.
There have been numerous attempts in the past to bring the industry together, including several Meat Industry commissions and task forces a well as the Secret Seven that tried in the 1990s, but the diffences in cultures and pesonalities as well as the complexities of the process proved virtually insurmountable. A move to establish co-ordinated co-operatively owned marketing companies may be a daunting task but it can be done.