1. 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

4. Principle: The system determines the culture

5. 1984-85: Liberalised Economy Result: Farmer focus on efficiency & minimising costs Culture of innovation

6. 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

7. Farm No’s and Size Source: Beef + Lamb New Zealand Economic Service Livestock Improvement Corporation, Horticulture NZ 1984-85 2013-14e 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 144402+179%

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

9. Pastoral land Area 2013-14e 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

10. NZ Sheep and Cattle Numbers 1990-91 to 2013-14e

11. Productivity Comparison 1990-912013-14e Lambing Percentage (ewe)100.4 121.7 +21 lambs Hogget lambs as % all lambs-4.4% Average Lamb Wt (kg)14.3518.38+28% Lamb sold kg/ewe9.7616.68+71% Average Steer Wt (kg)297310+4% Milksolids per cow (kg)260346+33%

12. NZ Total Production 1990-91 to 2013-14e More Dairy+177% More Beef and Veal+18% Less Lamb-9% but from 47% fewer sheep!

13. Moving from a traditional supply chain

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

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

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

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

18. Why do Value Chains fail?

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

20. 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

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

22. Source: Capgemini Market Power

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

24. Source: Capgemini Market Power

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

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

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

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

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

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

31. 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