- Global Trends Affecting the Industries
- The Current New Zealand Industries
- Current Structure
- Boards’ Views
- Key Challenges to the Boards
SECTION ONE: OVERVIEW
Global Trends Affecting the Industries
9. The industries the non-trading boards operate in are changing rapidly. Global trends affecting the wool, meat, game and pork industries include:
· long term declines in commodity prices;
· changing consumer preferences and practices;
· rising consumer concerns, particularly about food safety;
· demand for increasing levels of product traceability;
· vertical integration and the growing business emphasis on supply chains (as opposed to companies or countries);
· consolidation, particularly at retail level; and
· the challenges of developments such as biotechnology and e-commerce.
10. Some of these trends have been long term, others are more recent. Regardless, they all impact on the role, structure and profitability of New Zealand’s agricultural industries.
The Current New Zealand Industries
Wool Industry
11. There are currently about 16,800 commercial sheep and beef farms, most of which produce at least some wool. Farm aggregations and conversions to dairying and forestry have seen this number decline from about 22,000 in the mid 1980s. In addition there are many smaller operators with sheep (perhaps 6,000).
12. Total wool output (to farm gate) in 1998/99 was $656 million, down from $908 million (1998/99 dollars) in 1991/92.
13. New Zealand has two major wool trades:
· Fine wool used predominantly in the clothing industry (approximately 11 percent of output); and
· Coarse wool that is used in the carpet industry and for hand knitting (approximately 89 percent of output).
14. The producers are not the same, and price trends are not always parallel.
15. New Zealand’s wool exports comprise 19 percent greasy wool, 53 percent scoured and slipe wool, and 28 percent further processed products.
16. The main markets are currently China/Hong Kong, the UK, India, Germany and Belgium. China has in some years taken up to 40 percent of New Zealand’s wool exports, but in 1998/99 this was down to 16 percent of exports.
17. The New Zealand wool exporting industry is fragmented. There are about 100 wool exporters (although the sector is dominated by a few major players), most of which are subsidiaries of overseas wool trading companies.
18. The wool industry is depressed, and the outlook is not strong. Wool faces an ongoing challenge in competing with synthetic fibres, which are continually improving. The world wool processing industry currently has over-capacity and the resulting slowdown in demand has led to a depressed market and low prices. A slow increase in prices is projected over the next few years, but there are significant uncertainties around this.
19. The poor state of the wool industry has been reflected in producer calls for better performance from the Wool Board, culminating in a number of no confidence remits being presented (but either defeated or withdrawn) at the Board’s October AGM. In response, the Board has commissioned a study from McKinsey and Company into, among other things:
· the state of the wool industry and its prospects; and
· the role of the Wool Board.
20. The report is expected to be completed by May 2000.
Meat Industry
21. As noted above, the number of commercial sheep and beef farmers is now down to about 16,800. In the meat industry there are also many smaller operators (perhaps 13-14,000).
22. Total sheepmeat output (to farm gate) in 1998/99 was $1,209 million, up from $968 million (1998/99 dollars) in 1991/92. Total cattle output in 1998/99 was $1,379 million, down from $1,653 million (1998/99 dollars) in 1991/92.
23. The meat processing and exporting industry has been consolidating (although a number of small operators have emerged to service niche markets). Currently, four companies process and export over 70 percent of New Zealand’s meat. These are AFFCO and Richmond in the North Island, and Alliance and PPCS in the South Island.
24. Seventy five percent of lamb produced in New Zealand is exported, while 78 percent of beef is exported. New Zealand is heavily reliant on the US and EU markets: in 1998/99, 64 percent of beef and veal exports by volume went to the US, and 55 percent of lamb exports went to the EU. Because of trade restrictions, returns for sheepmeat in the EU are higher than returns in other markets. Beef prices have increased by 10-12 percent in the current season and sheepmeat prices are steady.
25. The meat industry has been steadily moving towards higher value products – in 1998/99 chilled product made up 21 percent of lamb exports by value (and 12 percent by volume). Carcasses represented only 15 percent of lamb exports, compared with frozen cuts at 64 percent.
Deer Industry
26. There are about 4,400 deer farmers, although many of their farms run mainly sheep and beef.
27. Total deer industry output (to farm gate) in 1998/99 was $168 million, up from $127 million (1998/99 dollars) in 1991/92.
28. The venison processing industry is now dominated by Richmond in the North Island and Alliance and PPCS in the South Island, although there are successful smaller operators in some areas.
29. More than 95 percent of venison and velvet produced in New Zealand is exported. In 1998/99:
· over 90 percent of venison exports were to European and Scandinavian countries, with Germany alone taking 56 percent by volume; and
· 41 percent of velvet exports by volume went to the Republic of Korea, and 55 percent went to Hong Kong.
30. New Zealand is the world’s largest exporter of deer products and farmer confidence in the industry is now growing. Herd increases are expected to continue. The effective drivers are relatively low beef and wool prices, the easy-care nature of deer, and its ability to convert dry matter to meat efficiently. Strong venison and velvet price increases in 1999 have greatly assisted deer farming profitability. Venison production increased rapidly over the past two seasons and is expected to continue growing.
Pork Industry
31. There are about 450 commercial pig farmers. The number of small operators has decreased significantly in recent years.
32. Total pig industry output (to farm gate) in 1998/99 was $127 million, compared with $144 million (1998/99 dollars) in 1991/92.
33. Virtually all of New Zealand’s pork is consumed domestically, with minor exports to the pacific islands. The pig industry in New Zealand has been in decline in recent years, reflecting low world pigmeat prices and rising imports from Canada and Australia (imports meet approximately 27 percent of domestic consumption).
Current Structure
34. Legislation for the non-trading board outlines their objectives, main activities (largely promotion and research), powers (principally related to the raising the spending of levy income) and accountability.
35. The Boards are unable to trade in product.
36. Farmers own the Boards, but there is no defined ownership interest or effective ownership control.
37. The Wool Board and Meat Board hold significant farmer reserves ($128 million and $133 million respectively in 1997/98).
38. The following table summarises the current position of the non-trading boards.
| Board | Act/Regulations | Main activities | Turnover ($million) 1998 |
Equity ($million) 1998 |
| NZ Wool Board | Wool Board Act 1997 | Promotion Research and Development |
54 | 128 |
| NZ Meat Board | Meat Board Act 1997 | Promotion Research and Development Quota allocation |
37 | 133 |
| NZ Game Industry Board | Game Industry Board Regulations 1985, under Primary Products Marketing Act 1953 | Promotion Research and Development |
8 | 3 |
| NZ Pork Industry Board | Pork Industry Board Act 1997 | Promotion Research and Development |
5 | 5 |
Boards’ Views
39. The Boards have focused their efforts on:
· increasing prices; and
· increasing demand.
40. Programmes undertaken by the Boards in recent years to increase net income for their producers include:
· technology development and transfer;
· product promotion in overseas markets;
· development of an integrated New Zealand-wide marketing strategy; and
· development of biotechnology and genetic databases.
Key Challenges to the Boards
41. The role of the Boards has been questioned on a number of fronts. In meat, pork and game the tensions between large exporters and the Boards are increasing. The larger exporters are developing the ability and desire to set their own strategy. In wool, the pressures farmers are under has led an increasing number to question whether they are getting value for money from the Board.
42. Promotion, in particular, has come in for considerable scrutiny. Many, both inside and outside the industries, consider promotion should be left to the exporters of the product rather than planned and funded centrally. In the event a need for ‘generic’ promotion4 is identified, it is argued this could in most cases be undertaken voluntarily by exporters.
43. More fundamentally, many also ask why boards (funded by a compulsory levy) are needed to market wool, meat, game and pork, yet not for other products like paper, timber, software, aluminium and coal?
44. Further, recent intellectual property developments in areas such as plant variety rights have made it possible to fund much research and development commercially, in preference to funding through a compulsory levy.
4 Whether this sort of promotion produces any value to farmers is hotly debated.
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