Changes needed to be the best
Farmlands chief executive Tanya Houghton admits that the rural retailer is making a number of changes to its business model.
Long-time Farmlands shareholder and retail supplier, Banks Peninsula sheep and beef farmer Roger Beattie, believes the rural supplies company is lessening choice and increasing prices that farmer shareholders pay it for goods, due to the co-op's current business model.
Beattie told Rural News that Farmlands has told him it is making changes to the number of items stocked in its stores - downsizing from 45,000 to 9,500.
"Cutting down from 45,000 items to 9,500 lessons choice for farmers," he claim. "Having less choice means there's less competition, less competition means there is less pressure on keeping prices from rising."
As well as farming and being a Farmlands shareholder for 30 years, Beattie and his brother Ivan own Beattie Insulators, which manufactures and supplies wholesale electric fence products to farm stores in New Zealand.
"Farmlands is Beattie Insulators' largest customer, but in the last six months our sales have dropped by half to Farmlands."
He questions if this is because it is the only electric fence company that doesn't pay 'rebates' back to Farmlands.
Beattie claims the 'rebates' paid by suppliers to Farmlands (not to be confused with rebates paid by Farmlands to shareholders in the co-op) gives the company an incentive to reduce competition and push prices up for farmers.
"The bigger the rebate paid by a supplier, the higher the price charged to Farmlands in the first place. This only works if you lessen competition," he says. "The chosen suppliers not only don't have as much competition, they sell more and are in a position to pay a higher rebate because they are selling more at a higher price."
Beattie believes this means the customer pays more and there's more profit for Farmlands.
"I call 'rebates' from suppliers to Farmlands a backhander/kickback because it's below the surface. It's hidden from the shareholders and customers of Farmlands."
Beattie claims that the supplier rebate system run by Farmlands is "secret and insidious". He believes that Farmlands has a "principal/agent" problem, which he reckons is often an issue with co-operatives.
"The 'principals' are the shareholders and the 'agents' are the executive," Beattie explains. "If the incentives for the executive are not aligned with the shareholders' rights and wants, then the executive becomes inwardly focused. This is what has happened with Farmlands."
He is calling for a 'truly independent' report commissioned by the chairman to look at the size and cost of head office, cutting down on the number of businesses that Farmlands operates and having a "sensible range and choice" of products.
