Do producers make more money from value chains? Not always! A New Zealanders Perspective Lamb Supply Chain Conference Edinburgh B+LNZ Chairman James Parsons 5 th October, 2016

Principle: The system determines the culture

: Liberalised Economy Result: Farmer focus on efficiency & minimising costs Culture of innovation

Main features Pasture based system year round Export focus i.e. sheep 90%+; beef 80% Reduced flock numbers after a period of decline Unparalleled productivity gains Historical issue of sheep & beef farm profitability and land use change NZ Sheep & Beef Industry

Farm No’s and Size Source: Beef + Lamb New Zealand Economic Service Livestock Improvement Corporation, Horticulture NZ e Commercial S&B Farms 22,00012,300-44% Av Stock Units per farm 3,4004,200+21% No of Dairy Herds 15,88111,891-25% Av Cows at peak %

Pastoral Land Use Trend New Zealand -28% -3.5m ha +71% +1.0m ha Overall -18% -2.5 m Ha 1990 to 2013

Pastoral land Area e Dairy Farms1.68 million ha Dairy Support0.62 million ha Dairy Total2.30 million ha20% Sheep, Beef, Deer8.99 million ha80% Total pastoral area11.29 million ha100% Source: Beef + Lamb New Zealand Economic Service

NZ Sheep and Cattle Numbers to e

Productivity Comparison e Lambing Percentage (ewe) lambs Hogget lambs as % all lambs-4.4% Average Lamb Wt (kg) % Lamb sold kg/ewe % Average Steer Wt (kg) % Milksolids per cow (kg) %

NZ Total Production to e More Dairy+177% More Beef and Veal+18% Less Lamb-9% but from 47% fewer sheep!

Moving from a traditional supply chain

Complex Commodity Supply Chain Breeder Consumer AgentFinisherAgent ProcessorImporter Secondary Processor & category manager Retailer Adapted from Ray Collins University of Queensland

Breeder Consumer Auction FinisherAgent ProcessorImporter Secondary Processor & category manager Retailer Supply Chain One-Night Stands Adapted from Ray Collins University of Queensland

Cooperative Value Chain RetailerGrowerConsumer Processor/ category manager Adapted from Ray Collins University of Queensland

Collaborative Value Chain Retailer Processor Producer group Adapted from Ray Collins University of Queensland

Why do Value Chains fail?

Every successful company sits somewhere on this triangle Source: H. Gow, Massey University Product Leadership Cost Efficiency Customer Intimacy Black Hole

Why do Value Chains fail? Value chain partners have different philosophy and/or values Incentives are in the wrong places Loss of processing capacity or retail shelf space Leadership – especially within a producer group Undercapitalised No real point of difference Spike in commodity prices, undermining premium

Principle: Market power is achieved through either consolidation or developing something niche

Source: Capgemini Market Power

Principle: Consolidation results in a power-shift within the chain

Source: Capgemini Market Power

Principle: A low cost of production is not a competitive advantage unless you can bank it

Irresponsible Innovation Price Cost $70 $50$52 $75 Commodity Niche Product

Price $70 $50$52 $75 Commodity Niche Product Costs $54$56 Cost Irresponsible Innovation

Principle: The more fragmented an industry the faster innovations are commoditised

Principle: Value chains deliver no greater profits for producers, unless producers can protect their point of difference

Control the information – control the chain Intellectual Property ProducerProcessor Retailer Consumer Interface Secondary Processor/di stributor Architectural Knowledge Component Knowledge Source: H. Gow, Massey

Opportunities Build a strong efficient base Align with chain partners with same values and philosophy Understand partners challenges and how you can add value (Co-innovate) Incentivise the right behaviors via the system design Small but regular steps - business rhythm Maintain your point of difference – protect it