Allan Barber: Time for hard look at market

The two main markets for New Zealand beef are as different as chalk and cheese and demand a completely different type of product. For years the country's prime beef producers have been shortchanged for a number of reasons.

The biggest influence has been the enormous growth of the US fast food industry with its demand for hamburger beef for which lean grass-fed beef from this country has been blended with higher-fat-content, grain-fed beef of American origin. At the same time the expansion and growing profitability of the dairy sector has resulted in a ready supply of lean beef.

The other big advantage of supplying the North American beef grinders has been the relative ease of producing and selling a product of uniform specification to a small number of brokers in touch with the end users. Sophisticated marketing strategies weren't needed when the brokers were the sales force.

Last but by no means least, New Zealand holds a US beef quota, which entitles it to sell more than half its export beef production to this large, undifferentiated consumer, and for many years at an exchange rate which favoured exporters.

It's only the last few years of the previous 30 that the US dollar has been as weak as this, and this has coincided with high demand and reduced cattle numbers in the US.

The strong demand for lean beef has resulted in a substantial price premium for bulls, normally white-faced Hereford-Angus which have proved popular to buy and finish at between 18 and 24 months of age.

In contrast, the other big market is North Asia, which has a strong preference for black cattle which produce prime beef with a substantial fat content, known as marbling.

The Japanese consumer seeks, and is prepared to pay for, small cuts of prime, marbled beef.

This comes in order of preference from Japanese and Korean domestically raised cattle, most famously Wagyu, American and Australian grain-fed cattle, but there is still a demand for prime grass-fed beef.

This type of beef comes from Australia and New Zealand. However over the last 20 years New Zealand processors have tended to reward suppliers for producing bull beef rather than recognising the extra production cost of good quality prime beef.

At the same time the focus on reducing processing costs has seen many of the North Island plants change from cold boning to the cheaper hot boning method because of the savings of time and blast freezer capacity.

Hot boning is fine for grinding beef, but it doesn't meet the demanding specifications of quality prime beef production.

The other main factor in gaining a profitable market niche is the marketing investment in product development, personal relationships, understanding customer needs - in short spending the necessary time, money and resources.

Unfortunately the financial pressures from banks and suppliers have produced a short-term focus on cost reduction, not on the market.

I am not suggesting that meat processors or beef farmers should have ignored the profitable US market. After all it makes no sense to look a gift horse or, in this case, cash cow in the face. But nor does it make sense to grow a one-legged beast.

One company has kept its eyes on serving the potentially profitable Asian market - Anzco, which has Japanese shareholders on its register and is vertically integrated from feedlot to retailer. But this is only one example.

The effect of this chain of events has been a continuing reduction in the beef cattle herd, because the rewards have just not been there. In time we won't have enough cattle of beef origin to satisfy the market.

* Allan Barber is a freelance writer, business consultant and former chief operating officer at Affco.