August 14th 2008
Lean Industry Fights Back
Jon Morgan, The Dominion Post, Thursday 7 August 2008
Sheep farmers are ready to adapt to make their industry viable.
Jeremy Absolom tells about his first meeting in London with Marks and Spencer executives to talk over a deal to buy meat from his Hawke's Bay farming company's sheep.
"This marketing guy came in and really thrashed the table. They had been able to make three roasts out of the lamb legs they had been getting, but then suddenly the leg sizes changed and they were getting only two and half. `This is crazy, what do I do with half a roast?' he wanted to know."
Mr Absolom told this story to more than 150 farmers at the annual conference of his company, Rissington Breedline, in Napier last week. It was a salutary lesson of the need to meet the demands of a highly competitive market.
The lesson was not lost on the farmers. Marks and Spencer's demand for a uniform size of lamb is the basis of the contract, which has just ended its second season.
It takes a narrow band of carcass-weights and wants to tighten that further. The pressure will be on the farmers to deliver "in full, on time, in spec", an oft-repeated mantra.
The deal with the top-end supermarket chain is based on the Highlander, a fertile composite bred for its good mothering characteristics and fast growth, and the Primera, a vigorous meaty breed, both developed by the company's founding families, the Ramsdens and the Absoloms.
Their farmer clients provided 100,000 lambs in the first year, and in the year just ended increased that to 145,443, despite the harsh dry conditions affecting much of New Zealand.
They were within Marks and Spencer's 16 to 21 kilogram weight range, with 96,449 coming in at the ideal of 18kg.
However, the hardest part of the contract was keeping the promise to deliver a steady 4800 carcasses each week. One week in January was under, costing the 91 farmers in the group 6c a kg, amounting to $100,000.
Now Marks and Spencer has signalled that it wants at least an extra 200,000 lambs, but none as light as 16kg. For that, it will pay above the schedule price set by the meat companies.
The new season's price has yet to be set but last year's began from a base of $3.55 a kg, with bonuses paid to farmers who met their contracted number of lambs, delivered them when they said they would and to "spec" - at the target weight and not too fat.
Extra payments were also made for those who farmed sustainably and who used best animal welfare practices, aspects highly regarded by Britain's shoppers.
The potential extra earnings from this was 42c and the average was 36c, with the best farmer making 41c. For an 18kg lamb, the average Rissington farmer was paid $70.38, well above the national average of about $61.
Before the farmers could feel too smug about it, it was pointed out that it cost them $68.58 to produce the ideal Marks and Spencer lamb.
These are some of the best farmers in New Zealand and the figures for other farmers are even worse.
Rissington general manager Alastair Nelson's estimate of national average lamb production costs was $6 a kilogram, adding up to $108 for an 18kg lamb - a $47 loss for those farmers who could produce one in the past dry season."That's pretty scary," he said."You can see why there's been a big exodus from the industry."
And though lamb prices are predicted to jump in the coming season - processor and exporter Silver Fern Farms chief executive Keith Cooper told them to expect the national average to be $75 to $80 - the farmers were urged to find ways to be more efficient.
Specialised farms, first proposed last year, seem to be the answer. This involves sharing out the jobs of breeding, growing on young sheep and finishing lambs. Three farmers shared their views. Wairarapa farmer Andy Pottinger has two farms, a finishing farm close to Masterton and a breeding farm in the Tinui hills.
The Tinui farm is used solely for breeding Highlander ewes. It has no cattle. The best female lambs are sold to a specialist hogget grower and are bought back by the farm as two-tooths. He told the conference the system was value for money. It cost $70 to buy the two-tooths but that equated to $1.20 a week for 58 weeks, compared with the $3 to $4 cost of buying hogget grazing. The sheep that returned were well-grown high-producing flock replacements.He bought the finishing block after losing $10 a head between drafts of store lambs in one week."We decided we would never be dependent on the store market again, so we borrowed a million dollars and bought a finishing farm."He said he had exceptional growth rates of 500 to 600 grams a day on the male lambs put on the block's "high octane" hybrid ryegrass.
Southland farmers Barry and Julie Crawford, who had been using Rissington genetics for five years, said they were gradually moving to being solely a finishing property.The drought earlier this year made it difficult to meet their contract to supply 17kg lambs, but they made sure the best lambs had the best feed. They also sheared the lambs to get them out of the shade and on to eating grass and managed to get 80 per cent of their 4000 lambs to the target weight. Despite the difficulties, the season had "given us a sniff of what can be achieved if we can do this well.We want to work smarter not harder, focusing on doing the simple things well", Mrs Crawford said. Sheep farming practice in New Zealand had to change to ensure its survival. "The hill country is where the sheep breeding operations should be and the flatter, more fertile land is where the finishing should happen. "In Southland, we have lost a lot of land to dairying. We don't want to go down that pathway."
Manawatu finisher Alastair Hogg proposed an ideal system where the breeder fed lines of lambs to the finisher, beginning in late November. They would weigh 28kg to 34kg and be able to grow at 300 grams a day till they reached 42kg, or 19kg carcassweight. They would be "fit, lean and hungry and, above all else, well-framed". "Both the breeder and the finisher must be completely clear at the outset what is expected of them. It is no use a cheerfully mixed line of lambs appearing to be finished, then when a cheerfully mixed outcome is achieved, expressing disappointment. "They must have a degree of confidence in each other and in the ultimate outcome for the product. They will know each other, be well informed and a part of a chain of information that travels both up and down. They will have a share in the rewards that is commensurate with their input into the product."
Mr Nelson said Mr Hogg's vision was achievable. "It's sitting down with a group of farmers and saying, `How do we make this thing work?'. There's synergies and efficiencies to be gained: `How does my lamb class fit with your lamb class and can we match them up?' - rather than letting the market sort it out, because it hasn't."
The aim was to end up with around six big finishers nationwide. This would lead to further savings in processing. Silver Fern was now a partner. "If we can turn up to them with 300 to 500 thousand lambs, those are lambs they don't have to worry about going to the market for. It underwrites a proportion of their kill every week. That's valuable to them." Most farmers weren't driving production hard enough.
Three areas stood out where improvements could be made - raise lambing percentages to around 165 per cent, lift weaning weights to as high as 36kg and drop wastage from culls and deaths to 22 per cent. "We really have to make substantial improvements in our value chain. As an industry we've got to sort our marketing, our processing sector and there's plans afoot to do that," he said, referring to the Silver Fern-PGG Wrightson merger. "I suggest we get in behind that by committing our supply to it. But let's focus on what we can control behind the farmgate. We have to improve productivity. With a small ruminant there's a quantum lift we can make - through maximising our output through genetics, better feeding, a streamlined system and by monitoring our costs." Mr Absolom urged the farmers to take home the message of "moving forward together" and pass it on.
"It's on-farm, in the hill country breeding factory that is in our power to fix. If we can't manage that, we may as well give up now. "It's not about trying to do down the next guy. To really take advantage of the better times that are coming, we have to cooperate across breeds, across stock classes, right across the whole industry. We have to learn to trust one another."
