The Big Issues: Red meat farmers lose heart

In this third of a six-part series,Paul Dykes reveals a national survey that finds many lamb and beef farmers have lost confidence in the red meat sector.

There has been much talk about red meat sector reform in the past 12 months, yet limited change, prompting many survey respondents to doubt the sector's viability.

The Meat Industry Excellence Group's (MIE) campaign for radical reform of the red meat sector has increased awareness of the sector's opportunities and challenges, and MIE representatives were elected to boards of major red meat co-operatives. At the same time, however, more land was converted to dairy and dairy support.

Professional services firm KPMG conducted 13 roundtable discussion sessions with rural leaders across the country in March and April while researching its two-part 2014 KPMG Agribusiness Agenda report.

In Part 1, Facilitating Growth in an Uncertain World, KPMG's global head of agribusiness Ian Proudfoot said the issue facing the red meat sector was summarised in a single, eloquent comment: the dairy boom is destroying sheep and beef farmers' self esteem.

The impact of low farm profitability on confidence in the industry was a recurring theme in many of the conversations, he said, and there was no quick fix to rebuild belief among red meat farmers.

Some progress has been made to facilitate cultural change, with initiatives such as FarmIQ and the Red Meat Profit Partnership being identified as important steps in the right direction.

It was important to avoid generalisations, Proudfoot said, because many industry participants are achieving strong returns. Successful farmers are improving their pasture, adopting analytical tools and nurturing long-term partnerships with the company they supply. Likewise, successful processors are committed to changing from a transactional relationship with farmers to increase transparency, reduce commoditisation, and grow the overall pie for all industry participants.

If change made commercial sense, KPMG got a clear message companies would be prepared to explore proposals. Although the concept of a "red meat Fonterra" met little support during KPMG's discussions, most leaders recognise that the industry needs to continue to evolve.

Many are fans of consolidating processing assets to create an open-access, toll-processing entity as a way of reducing overheads, estimated at $300-$500 million a year.

Well-capitalised offshore investors could also strengthen the balance sheet, as well as bring in market connections and new perspectives.

A number of leaders note that rebuilding sheep farmers' confidence heavily depends on recovering wool profitability.