KEY POINTS:
Craig Norgate has a blunt verdict on the struggling meat industry, where many sheep farmers who have endured years of poor returns are now jumping ship to convert to dairying.
"The whole thing's a bloody disaster, frankly, and it's no surprise why it gets the outcomes that it
does," he says.
A meat industry mega-merger proposed by Southland-based co-operative processor Alliance Group fell over in April, only two months after it was launched, due to failure to reach agreement with Dunedin-based rival co-operative PPCS.
Norgate sees it as an opportunity lost. "That needed to happen.
"It's not about taking sides, it's about recognising that, conceptually, it was the right thing ... and we've got to find another way of making it happen."
In March, PGG Wrightson sent a letter to its clients to try to get the quieter elements of the industry more engaged in the debate over the proposed merger.
In response, Norgate received more than 500 calls and letters. After the proposed merger imploded amid recrimination, people pleaded for him to get involved.
They might get their wish.
"It's got to change and it's got to change fast, and one way or the other we're going to help it to," Norgate says.
PGG Wrightson's livestock business is worth the thick end of $200 million and, because it receives commissions, it is highly dependent on the market price.
The company is not going to sit back and watch the industry go through another season like the previous one, Norgate says.
"We won't rest until we see the industry change and, if we do have to be prepared to get directly involved ourselves to facilitate that,we're probably at the point where we would."
The reason a farmer co-operative is formed, he points out, is to make sure farmers can get their animals processed and receive a fair price for them.
"But then the silly buggers go and set up another one to compete with it," Norgate says. "You've got to ask the question, why do farmers need two co-operatives?"
PGG Wrightson is spending a lot of time trying to get the key protagonists to move.
"At the moment, the key protagonists are the two co-ops because if you can't get them together you can't blame the other guys for not being interested."
Lamb should be positioned with an ethical marketing platform at the top end of the high-value protein market, he says. However Norgate sees a danger that rising meat prices could reduce the urgency for change.
Farmers may see an additional $15 a lamb this season. "Fifteen bucks doesn't save the industry and, if it just stops people changing, then actually it's the old slow death again."
There are reasons why meat has struggled, he says.
When Britain joined the European Union, the dairy industry was forced to find other markets but lamb retained a relatively high quota in Europe and there was not the same sort of pressure to change.
"So there's an overdependence on that and because there's a differential price that gets competed away, so the focus is on volume into that quota market because that's the easy way to maximise your share of the pie," he says. "That doesn't help increase the value that's generated out of the market."
Meanwhile, farmers taking their profits at the farm gate are trying to get the best price for their animals but are driving short-term behaviour which results in inadequate returns to processors and a focus on procurement rather than adding value.
"It's because they've been taking their profit at the farm gate that they've created a significant under-investment in the industry," Norgate says.
"You don't actually make a profit until somebody pays at the other end of the value chain."
Meat companies driven by the need to recover fixed costs need to fill plants and will take various shapes, sizes and breeds and try to create a homogenous product for the consumer.
"Well, that just simply doesn't work."
Norgate envisages a system which would supply a retailer with a specific breed and a guaranteed consistent quality.
Processor PPCS has made no bones about calling on farmers to look beyond the farm gate, to customers in the supermarkets, and to get farmers to agree on long-term supply volumes, which would help the co-operative plan its operations and marketing better.
Similarly, Norgate says the product cannot be fixed once it is in the factory, so the supply chain has to be integrated right back on to the farm.
"Frankly, you've got to be knowing where you're going to sell that lamb at the time the ram goes out."
