SFF joins the slaughter
Meat processor and exporter Silver Fern Farms Ltd has joined fellow South Island-based meat company Alliance Group in reporting a big loss for the past year.
Steve McCrone and Paul Sullivan from Cornwall Strategic suggested that many business plans are like bedtime stories: they have heroes, villains, interesting plots and happy endings. They went on to suggest that real life is different and traditional management interventions frequently fail when applied to reality.
They had evidence to support their concerns.
Despite this, farmers are expected to have business plans and to adjust them (and redo the budgets) at each change of, for instance, the milk price forecast, the schedule price or the weather. All of these changing factors operate within alterations in the exchange rate and official cash rate with consequences for interest rates.
The effect of re-planning this season was 100,000 more dairy cows to slaughter than usual before Christmas and destocking on drystock farms. Un-forecast rain means that many areas are now harvesting feed that would normally have been grazed.
Everything farmers do is within uncertainty. There is almost always a plan B and readjustments occur all the time. So maybe it is time business learnt something from farmers.
McCrone and Sullivan recommend businesses move to "complexity management because it is driving the business revolution of the future". This concept involves diverse factors acting in an interconnected way, and having the capacity to change and adapt. An example would be farm workers, stock, and Fonterra working within the soil-plant-climate system.
Unexpected results can occur and small changes can result in unexpected differences. The drop in the milk price at the beginning of the season, for instance, resulted in differing advice on calf rearing. Whereas some industry advisors suggested saving money by cutting costs on 'calf meal', veterinarians recommended maintaining full feeding. This was on the basis that calves represent the future productivity of the herd and so growth should not be compromised for short term gains.
The same philosophy has operated on AI and herd testing: without it money can be saved, but with it the genetic potential of the herd can be improved.
Some farmers locked in to supplementary feed; others decided to rely on strategic fertiliser application for boosting grass growth.
Whether the advisors turn out to be heroes or villains won't be known for some months and years – when the calves come into the herd, the accounts are done at the end of the year and the opportunity cost considered.
The casting of villains and heroes always depends upon point of view.
Fonterra has announced a record export volume: in December more than 300,000 MT of dairy products were shipped to the global market, beating the previous December record by 10%.
But farmers are not crowing because their income is not increasing and the current forecast is above what the milk price manual suggests. The Commerce Commission accepts a deviation from the milk price manual if adhering to the formula could result in jeopardy for the company. The concern is that a milk price even lower than is currently being forecast could result in more suppliers quitting. Farmer loyalty is being sought through promises of a good dividend – but a forecast is only a forecast and costs of production continue to escalate.
Silver Fern Farms could be seen as a hero because it has attracted foreign investment based on food safety and high value product. But if the relationships and strategy change to the detriment of the New Zealand farmer the hero tag will vanish.
In agribusiness, heroes and villains are always involved in the interesting plots that are innate in the biophysical production system – soils, plants, animals, climate... and policy all combining for challenges that, mostly, are overcome in one way or another. A happy ending is never guaranteed, but embracing uncertainty, with persistence and adaptability, are core to what happens on the land. Urban business has a lot to learn.
• Jacqueline Rowarth is professor of agribusiness, The University of Waikato.
