Focus on costs sign of a business in decline – our cockeys need to get a grip
Among the first words of KPMG’s Agribusiness Agenda report are “opportunities and challenges”, as in the ones facing the world’s food producers.
Guess what Federated Farmers focus on? Yeah, okay it was the challenges and how, as a result of all the problems they face, farmers needed a hand to cut costs. So out came the old complaints about the Emissions Trading Scheme, ACC, the Resource Management Act…which look like excuses to not change and follow the opportunities.
Geoff Ross of 42Below, and now Ecoya, fame once wrote: “To only look at cost is a trait of a business whose products are in decline and they have no other option in getting a margin than to focus on cost. Surely this isn’t us!”
Ummm.
Farmers are probably not going to take much notice of a fragrant candle maker, but the knee jerk response to KPMG’s report does highlight a cost mindset among some farming leaders.
Dunno if this is what KPMG had in mind when it says that, following conversations with farm leaders, “we are concerned that there are critical issues in the sector that remain either unsatisfactorily addressed or need attention…”
To be fair to farmers, some of the rules and regulations they face are unnecessary and times are tough down on the farm. Many farms are losing money and owners only hang in there because they are treating the farm as some form of a retirement scheme they can cash up when they’ve had enough. Costs they can control, the other stuff is pie in the sky.
But really that’s not good enough. Remember farmers are also the owners of the co-ops that sell and market their produce.
Like BigCake, KPMG sees farming as our great hope for future prosperity.
What the KPMG report appears to be saying is that the farming sector knows what it should do, but needs to get its sh!t together. “There is universal belief that the global environment creates significant opportunities for the industry if there is a collective will to do some things differently.
“As a protein rich country with secure and reliable sources of fresh water and a history of agricultural innovation New Zealand has strategic advantages that, if managed appropriately, will assist the economy to grow, both directly and indirectly, and enhance the wealth of all New Zealanders.”
What the KPMG report makes clear is that we’ll be not able to do this by continuing to try to be the lowest cost place to grow food in the world.
South America, Africa, Asia and Eastern Europe, where land, labour and compliance costs are significantly lower than those in New Zealand, are going to kill us at that game.
KPMG says a common theme from its chats was that farmers know this and agreed New Zealand needed to adopt a universal focus on “efficient and sustainable production models which are resilient to market volatility and shocks”.
What we need to be in food is like Germany in the automotive industry, not Korea.
This will take investment and recent history there has not been all that great.
This focus on costs, understandable as it may be, is neglecting what Ross says is the more powerful part of doing business – “growing demand, growing sales and growing margin”.
Part of the problem is that farmers are price-takers, therefore they, as individual entities, have to focus on reducing costs in order to improve profitability. The dairy farmers probably aren’t too badly off at the moment but a drop in the price will hurt more than a few (because they overpaid for recent expansion).
Our sheep (meat and wool) famers just don’t be able to get their shit together and seem to be at the mercy of the meat processors, which are farmer owned in some cases. In a protein short world (so we are told) surely they could do better. But then again look at the US, the opening shots on a FTA include them wanting dairy to be left out. Tell them to get stuffed I say. Quotas on beef and sheep etc, the Americans really are the poster boys for Free Trade aren’t they!!!
Keith Mockett, April 20, 2010 at 9:27 pm
Asking accountants and farmers to understand the value of marketing is not ever going to easy. Yet this is exactly the missing element in our mix. We are exceedly poor marketers, barring a few exceptions. We do very little around BRAND. We sell from the farm gate with a store-keeper mentality. We’ll sell to anyone that wants to place an order, but do little, really to stimulate those orders… or even more, to generate demand that leads to orders. i’ve spoken to ‘export’ managers that hardly visit their target markets and rely simply on orders placed by their in-country agents. They now little about the channels down which the products are sold or for how much. They rely upon the agents to promote and sell and we miss out on the whole price premium that could be available. I could go on, but I won’t. We make good food, we are nice folk but we are bad at brand management and marketing and thats where we’re missing out on so much more benefit from our farming sector. We should take the marketing decisions away from the producers and the bean-counters.
Michael Holt, April 20, 2010 at 4:04 pm