New Zealand company Ruminant BioTech, formed in 2021, is on track to launch its methane-reducing slow-release bolus in Australia next October. 

It successfully raised equity capital of $12.2 million last year in addition to government funding of $7.8m under the Climate Emergency Response Fund for investment in research and development. More recently, it has received $4m from AgriZeroNZ and an AU$3.5m ($3.8m) grant from the Australian government’s Methane Reduction in Livestock fund.

This last grant is particularly appropriate because the faster regulatory approval process in Australia permits the earlier introduction of the product there than in this country. Tom Breen, CEO of Ruminant BioTech, says there are many different regulatory frameworks around the world that require complying with, so the slower process in New Zealand must be respected. Under the present approval scenario here, he expects to release the bolus here in another three years, but says the earlier release in Australia will provide the opportunity to scale up and iron out any teething problems.

The company’s success in obtaining the capital needed to get started is based on the positive results from the thousands of small-scale trials performed before commercial production begins. Breen is quietly confident that the 12 months of further testing before the October 2025 launch in Australia will address any outstanding issues. 

To date Ruminant BioTech has produced thousands of boluses to prove the technology’s reliability, consistency and duration. It achieves at least 75% reduction in methane emissions on pasture over 100 days.

Now it is time to complete the commercial plant and work towards the product launch, which will address an initially narrow target of weaner beef cattle before moving on to older cattle, including dairy cows. 

This will be particularly important in New Zealand, given the fact there are nearly 5 million dairy cows compared with about 3.5 million beef cattle. Breen is unable to give any idea of the cost of the bolus, but believes it will be a low-cost, high-performance solution.

DairyNZ principal scientist Jane Kay welcomes the progress being made in developing methane mitigation technology and looks forward to seeing published data from Ruminant BioTech with details of the product’s impact on greenhouse gas emissions and herd performance over time. For technologies to work well in the NZ dairy system, they need to be effective in growing and lactating cows throughout the season, while maintaining or improving feed intake, animal health, and performance (for example, production and reproduction) in NZ farming conditions. 

She makes the point that “experience with research in this area indicates that cow physiology (growing heifers vs dry vs lactating cows), pasture seasonality and supplementary feed intake, product dose, and duration of the response all have an impact on the GHG mitigation potential”.

“These factors need to be considered and evaluated in conjunction with cost and adoptability of the product to determine their potential to mitigate emissions within the NZ dairy sector.”

Beef + Lamb NZ’s GM for excellence Dan Brier is really pleased to see Ruminant BioTech’s progress with an ingenious solution to a previously intractable problem – mitigating methane emissions in a pasture-based farming system. He is keen to see the product available to New Zealand farmers as soon as possible, but recognises the need to ensure a robust approval process is followed without compromising food safety. He is also eagerly anticipating when the product is available for use in sheep, although the company’s immediate focus is to ensure the bolus does a thorough job in cattle.

The active ingredient in the product is a synthetically produced, naturally occurring compound called tribromomethane, closely related to bromoform – which is the active ingredient in asparagopsis seaweed.

Research has found bromoform, although potentially carcinogenic, if administered in low doses is not bioavailable in meat, therefore there is minimal risk of residue transfer in livestock or humans. This would possibly be more of a factor in dairy cows and milk than beef cattle.

Ruminant BioTech is not the only company intending to introduce this technology using TBM. Perth-based Rumin8 already has provisional approval from New Zealand’s Animal Compounds and Veterinary Medicines to conduct commercial trials here. The main difference between the two companies’ technologies appears to be in the delivery method: in the case of Ruminant BioTech delivery is via a slow-release bolus that sits in the cow’s stomach (ideal for pasture-raised animals), while Rumin8’s solution is administered through solid feed and water formulations. 

Also, Sydney startup Number 8 Bio has just raised AU$7m to progress product development and build a new facility to produce a range of methane reducing feed additives based on the same ingredients. This company is not as far advanced as the others in its development, although trials are being conducted in collaboration with the Queensland Animal Science Precinct and the University of New England. It is confident of being able to cut methane emissions by 90% and improve rumen productivity.

Until very recently, methane emissions reduction in a pastoral farming environment was thought to be unachievable, Bovaer being the only obvious option and more suited to feedlots and indoor feeding. But there now appear to be several options potentially available for cattle in the relatively near future and at an affordable cost, all using a similar technology. 

If even one of them turns out to be applicable to sheep, the holy grail of solving farming’s methane emissions problem may no longer be just a pipedream but a reality.

In Focus Podcast | Methane busting in the Netherlands

Reporter Neal Wallace checks in from Amsterdam and tells Bryan about his visits to Wageningen University and to a Dutch dairy farm. He says the methane research going on there is promising and NZ farmers should be aware that emissions efficiencies are improving in the EU and other key food producing countries.

Although the rate of forestry conversions has slowed due to policy uncertainty and despite touted government plans to limit forestry on sheep and beef land, the livestock population, particularly sheep, appears to be heading irrevocably downwards. 

At 23 million there are now just one-third the number of sheep compared with the peak in the 1970s. 

The sector has worked wonders in increasing the value of the flock through better lambing rates, heavier lambs and higher product returns in spite of the collapsing wool price. But sluggish world markets and agriculture’s position as public enemy No 1 in generating greenhouse gases and harm to the environment risk putting New Zealand’s best-known export under existential threat. 

The reality is that sheep are now in danger of no longer being reared in sufficient numbers to retain a critical mass.

Four research programmes funded by the Our Land and Water (OLW) Science Challenge initiated under a previous government have all reached a common conclusion: the best and easiest way to meet our 2050 goals of reducing long-lived GHGs and improving water quality is to convert three-quarters of all sheep and beef farms progressively to pine forests. 

The summary report of the OLW programmes recognises this may not be acceptable to New Zealand as a whole because of the impact on rural communities, whether from loss of employment and rural services or on downstream and coastal settlements from forestry slash, in which case the authors say a conversation is needed to decide what alternatives are available. Unfortunately the only thing not in question appears to be the 2050 goal of net zero for CO2, which is obviously sacrosanct.

At this point I began to question my sanity. We, the taxpayers, have funded a scientific research programme whereby several different groups of scientists have been beavering away for several years to discover there is only one solution to the problem under current policy settings. In short, this entails destroying what has been the backbone of New Zealand’s economy for 150 years.

The phrase “under current policy settings” provides the one get-out clause to this impending disaster. The question is therefore what the current government intends to do to amend the policy settings. In reply to my question about progress on limits on forestry offsets, Trade Minister Todd McClay’s office said, “Policies are still being worked through. The government is seeking to incentivise a balance of land uses to achieve improved outcomes for agriculture, forestry and the climate while considering the impact across the rural economy.” 

It is looking at proposals to limit the types of farm conversions that can be entered into the Emissions Trading Scheme (ETS). It is considering a moratorium on farm conversions on land classes 1-5 entering the ETS, a limit of 15,000 hectares on Land Class 6 and no limits land classes 7 and 8. 

The limits on Land Class 6 are critical, as Beef + Lamb NZ analysis shows the majority of sheep and beef farms sold into forestry over the last couple of years are Land Class 6, which is the backbone of the sector, making up most of the grassland used for sheep and beef. If there are no limits on Land Class 6 conversions below 15,000ha, the government’s proposals would in effect mean no change.

Simon Upton, Parliamentary Commissioner for the Environment, has submitted his reaction to the government’s second emissions reduction plan, saying his greatest concern is “the plan’s reliance on the New Zealand ETS, which in its current form suppresses carbon prices, discourages gross emissions reductions and incentivises the planting of large areas of land in pine forests.” 

He points out when the ETS was established it was supposed to be an interim measure to allow new low emissions technologies to be developed, but these don’t yet exist, which means forestry carbon offsets have become the easiest way for fossil fuel polluters to offset their emissions. 

He cites several problems with this approach, including the loss of productive land to forestry and the effect on rural communities, the long-term removal of land for alternative purposes and the potential for unlimited carbon offsets to push the carbon price below the level needed to encourage gross emissions reduction and develop new technologies. Upton was unequivocal about the need to limit forestry offsets.

The present trend, driven by the need to meet net zero targets in pursuit of our climate change obligations, leads inevitably to the progressive decline of our rural communities and the industries that service them. 

Alliance Group chair Mark Wynne says land use change as a result of normal economic and climate factors has always occurred naturally, but it is important to distinguish between this and what he terms a macro trend that is irreversible. 

His issue with the present macro trend is that it is driven by the artificial nature of the carbon market, which is set by the ETS. This has resulted in 200,000ha of sheep and beef land sold for forestry conversion in recent years, equivalent to 1.4 million livestock units. 

He is not concerned by seasonal fluctuations or decisions by farmers to plant appropriate land with trees, especially steep hill country, as this will eventually qualify for carbon credits in the ETS, which will enable farmers to offset their emissions. 

But he warns of the long-term effect of wholesale conversions on rural communities and the industries, such as meat processors, that provide employment. The age of sheep and beef farmers means succession planning is a major issue with outright sale to the highest bidder often the only option.

He has three main problems with the present policy settings that he would like to see addressed: the ability to offset 100% of emissions, which no other country apart from Kazakhstan allows;  that overseas polluters can buy land here to offset their overseas pollution; and  the impact of exotic plantations on our biodiversity.

Wynne echoes BLNZ’s plea for the government to introduce changes that sensibly control the amount and class of land that can be sold for afforestation. The sector awaits the outcome of these deliberations with bated breath, but without any great expectation of serious change rather than tinkering round the edges.

A week on Thailand’s Koh Samui and Koh Phangan islands provided a great escape from a cold and sometimes wet winter without having to stress about the lawn getting out of control, as well as a complete break from New Zealand’s eternal debates in the media about everything that’s wrong in this country. I hadn’t realised just how depressing exposure to politicians indulging in puerile arguments and constant whingeing on radio, TV and in the papers can be. 

So it was good to have warm weather, sun, beach and pool, to be able to avoid TV and to be exposed to a country where the people genuinely appear to be happy.

I am not unrealistic enough to confuse a holiday in tropical conditions with the realities of everyday life in a temperate climate, but there were some signs the Thais have a few things over us. 

We were there to visit my wife’s son, who has been living there for over a year and intends to stay longer, because he likes it so much and, as a diabetic, finds the health system very easy to navigate with no problem receiving care and medication. 

As a more mundane example I was able to buy antibiotics for an insect bite from a pharmacy; in New Zealand, a doctor would have to have prescribed them.

In the towns the traffic speeds are moderated by simple strips across the road at regular intervals, probably costing no more than a few hundred dollars, compared with the monstrous humps and judder bars Auckland Transport finds it necessary to install. 

The sensible use of cones was also a relief compared with the horrendous waste of manpower, cones and traffic control whenever a minor repair is undertaken here.

The price of very palatable food is substantially lower than in New Zealand, no doubt because the overheads, wage costs and raw material are all cheaper. Although Thailand is certainly not an expensive destination compared to many others, eating out merely served to emphasise just how costly everything has become here. 

Any involvement with animals and livestock was minimal, although a dog adopted us at one hotel, insisting on coming into our poolside room when the door was open; we also visited an elephant sanctuary, having the chance to feed them watermelon and pumpkin slices (did you know an elephant’s trunk has 70,000 muscles in it?), and a snake farm where we watched a live show featuring pythons and cobras.

From an agricultural perspective, Thailand is the world’s second-largest rice exporter after India. The start of the rice-growing year is marked in May by the Royal Ploughing Ceremony, dating back to the 13th century. When the first monsoon rains appear, farmers plant seeds into seedbeds, traditionally plough their paddies with water buffaloes and transplant the seeds when they reach about 15cm. 

The whole community shares this back-breaking work, standing for hours with their “backs to the sky, faces to the earth”, generally in high spirits with much joking and singing. 

Harvest is in November or December, normally performed with a scythe through the stalks, before threshing to remove the chaff, usually done by hand, bagging and storing in the rice barn. Through the growing season farmers venerate the goddess of rice, Mae Phosup, who is invited to take up residence in the barn when harvesting is complete to protect the crop from disease or theft by rats. This last ritual is performed by women, since if men were left alone in the barn with the goddess, they would be unable to control their desire for her!

While Thailand is very different in some respects from New Zealand – land mass, population, climate and trade profile – both countries share several features: tourism is of major importance, but has fallen since before covid and is not forecast to return to pre-covid levels until 2025 at the earliest; goods exports have been adversely affected by a downturn in world trade, particularly with China; inequality is very high with over half of Thailand’s wealth held by 10% of the population; per capita productivity is poor and falling; an ageing population will consume an increasing proportion of the healthcare and welfare budgets; and the quality of education, poor literacy and numeracy threaten to result in a skills crisis.

The political environment in Thailand is very different from New Zealand’s. It remains a kingdom in which the king is compulsorily revered, although the present monarch enjoys far less love and respect than his father. In spite of significant economic growth since World War 2, there have been many devaluations, changes of government from military to democratically elected and back again, and major fluctuations in GDP. However, over the past 70 years, Thailand has progressed from a mainly agrarian economy through import substitution with light industry, textiles and food processing to an export-led economy, mainly based on heavy industry, energy and tourism. 

Thailand’s next phase is planned to be a high tech economy capable of producing value-added products and services, but sceptics point to the low internet uptake among Thais and a lack of specialist skills as obstacles to achieving this goal.

New Zealand and Thailand benefit from various free trade agreements, which result in approximately $4 billion of two-way trade of Thai exports of delivery trucks, cars and air conditioning units compared with New Zealand’s main exports of milk powder, butter, cheese, beef, crude petroleum, apples and pears. 

This confirms Thailand’s progress towards value-added, industrial products, whereas New Zealand’s economy is still firmly based on agricultural commodities, supplemented by tourism.

The red meat sector has with some justification been blamed over the years for taking a shortsighted approach to market development and competition. In recent years, though, exporter processors have worked constructively with their supplier base to improve understanding of the product standards and specifications the customer expects and is prepared to pay for. 

At the same time the companies have co-operated with each other to ensure farmers have the same farm assurance programme across different processors, replacing paper documents with electronic forms and common data entry requirements. 

The New Zealand Farm Assurance Programme (NZFAP) has been operating in one form or another for over 30 years, but has gained enormous momentum since the formation of the Red Meat Profit Partnership, which was a joint Primary Growth Partnership initiative between the red meat sector and the Ministry for Primary Industries, with Beef + Lamb NZ taking the lead in coordinating the programme on behalf of farmers. 

NZ Farm Assurance Incorporated (NZFAI) was formed in 2021 to own and operate NZFAP and NZFAP+ as voluntary programmes that have the stated purpose of providing customers worldwide with confidence in the authenticity and safety of NZ-grown meat and wool. Certain markets now require accreditation to NZFAP, while NZFAP+ remains an entirely voluntary programme.

Nearly 9000 farms are now accredited to NZFAP, which guarantees production to specified standards of origin, traceability, food safety and animal welfare. NZFAP+ began three years ago and is designed to build on those criteria with the introduction of a set of environmental, social and biosecurity standards that are especially relevant to larger properties with a focus on quality over quantity. 

While the majority of farms are now audited for compliance with the NZFAP standards, a much smaller percentage are participants in the more demanding, higher level NZFAP+ programme.

The establishment and governance of NZFAI has been a great example of co-operation in an industry that has traditionally not been noted for that particular quality. As Greg McSkimming, Silver Fern Farms’ strategic business manager, notes,  “processors leave their company brand at the door” when they come together to discuss how best to proceed. 

One very significant feature is that the cost of the programmes is borne proportionately by the participating members, not by the farmers who sign up to be part of the audit scheme. This single fact explains why uptake has been so impressive.  

A notable example of progress has been the decision to set up a membership structure that provides for a broad range of members, including not only meat processors, but also wool companies, software providers and catchment groups, all with the capacity to communicate with their farmer clients and members. 

Last year the management committee made the decision to engage QCONZ as the programme auditors because of its track record with the dairy industry and its ability to increase the speed and efficiency of the audit process. Its systems and data management expertise has made the whole compliance process for farmers quicker and easier. 

The QCONZ farm audits are in turn monitored and audited by JASANZ, which is a not-for-profit trans-Tasman accreditation body certified to international standards.

McSkimming and ANZCO’s Grant Bunting are at pains to point out that neither NZFAP nor NZFAP+ is designed to comply with the regulatory standards and non-tariff barriers that are applied in many markets, although they may on occasion provide proof of compliance. 

Compulsory regulations are a separate trade access issue that remains the responsibility of government agencies to negotiate on New Zealand’s behalf, although B+LNZ and the Meat Industry Association provide advice. 

ANZCO’s position is for NZFAP and NZFAP+ audits to be as relevant as possible to market requirements, citing a reluctance to progress beyond this in case an unnecessarily demanding standard becomes part of the access regulations. 

Bunting says it is preferable to evolve slowly instead of getting ahead of an acceptable pace of change on farm and makes the point that the assurance programme has a value to ensure market access, but does not yet carry a premium. 

However, in time the assurance programmes will enhance New Zealand’s country brand, which will provide the opportunity to achieve a higher value from which all farmers can benefit.

McSkimming emphasises the processors are not the regulators, but want to set meaningful standards that enable farmers to meet market requirements. This helps processors to procure livestock that achieves this goal with NZFAI providing a neutral environment for compliance with a designated set of standards.

Silver Fern Farms is looking to the farm assurance programmes to futureproof meat supply that keeps up with market trends and satisfies customer requirements in the first place. The longer term goal is to find ways to unlock greater value that can be shared with suppliers. 

As part of the company’s commitment to achieve this, SFF has five staff dedicated to working with farmers to comply with NZFAP standards. The ultimate objective is to target quality over quantity with a focus on larger properties.

There is no doubt NZFAP and NZFAP+ have already resulted in an improvement in livestock quality with the ability to meet market specifications, while providing assurance on such critical factors as traceability, food safety, animal welfare and, progressively, environmental management and biosecurity. 

It is particularly heartening that an initiative of increasing benefit to the reputation and value of our red meat and wool exports has been driven from within the sector instead of by external consultants. Sometimes the best ideas start with those who know their industry.

All the separate parts of the carcase are priced according to what is achievable in the market on the day or has already been locked in by a contract. Exchange rates – generally the value of the New Zealand dollar against the US dollar, euro or pound sterling – confirm the basket of prices obtained, which make up the value attributed to that week’s supply of livestock. 

Each processor has a different mix of customers and market destinations, both export and domestic, as well as its own cost structure, but the schedule prices are remarkably similar, although there are regional differences, particularly the variation between North and South Island. 

The South Island processors tend to offer lower prices, dictated by the sharper seasonal processing peak although this levels out when supply is short. In general schedules do not differ much because of the need to remain competitive for procurement purposes.

Yield of meat to total carcase weight is an important factor with the average having increased as processing technology has improved. 

Beef yield is consistently over 70% of the carcase weight, the balance consisting of bones, offal and other co-products, while lamb yield is lower with the dressed weight at about 63% and the meat component not much over 50%. 

For a long time, farmers have been pushing for yield-based payment for their livestock supplies, both beef and lamb, on the basis certain breeds provide larger areas of meat for which a premium can be gained. 

Apart from a few programmes, such as First Light wagyu, certified Angus or Silere Merino, meat processors have generally steered clear of offering a premium for specific breeds because of the difficulty of guaranteeing sufficient supply on a continuous basis to meet a particular market niche. 

If beef or lamb producers believe their product should command a premium, one way to achieve it is to set up their own fully integrated operation and develop their own customer base, either domestic or export. 

This is expensive to establish, but certainly ensures the ability to secure whatever premium exists without suffering from the averaging effect, although it imposes the responsibility on the producer to market the whole carcase. 

An alternative is to form a supplier group with neighbouring producers, thereby providing a critical mass of product of the same breed and specifications, which would be attractive to a processor.

There are more than 20 individual cuts from the prime beef carcase making up approximately half the carcase or two-thirds of the meat yield, while the remainder of the saleable meat yield is trim of variable fat content to be sold as manufacturing or grinding beef. 

The actual percentage of the carcase that can be sold at a significant premium above the average is less than 10% of the total meat yield, which explains why processors are generally reluctant to reward individual breed programmes to any great extent.

Silver Fern Farms (SFF) has led the way in offering specific programmes like Reserve, Angus, Net Carbon Zero, and Nature Positive, as well as those designed for lamb and venison. 

The purpose of these programmes, which offer a specified premium over normal operating schedule, is to reflect market signals and the company’s ability to extract a premium in the market, stating “Our strategy is to turn these signals into value layered above the weekly operating price by rewarding farmers who are aligned with them. Our programmes and contracts also support us to meet customer commitments by creating more certainty around supply.” 

SFF paid out $11 million in special beef programme premiums in 2023, a 14% increase on the previous year, while lamb programmes benefited from a 5% lift in premiums last year. This suggests there can be real value in the market available from product which offers specific benefits to the consumer and end user, like 100% grass-fed, antibiotic-free, no added hormones, GMO-free and doesn’t use feedlots.

One New Zealand exporter says the United States market is the main market where premiums are obtainable. These can range from $2 per kilo for organic 90CL for use in organic retail ground beef, to 45 cents per kilo for 100% grassfed or pure Angus trim. There is no premium available for prime beef secondary cuts and offal or any bull and cow cuts, although SFF offers a 100% standard bull programme.

Beef Central, the Australian online publication, recently published an article assessing the opportunities for exporters to gain a premium for trimmings, which were estimated to make up as much of 30% of the meat yield, exponentially more than any other cut. Whereas grinding beef is traditionally priced on the chemical lean meat to fat ratio, there now appear to be a long list of attributes that can have an impact on the price obtained, such as breed type, certified organic, HGP free, certified grassfed, frozen vs  chilled, halal and methane claims. 

Any premiums on trim cannot be expected all year round as there is a strong seasonal effect, which depends on volumes being shipped. At other times of the year trim with special claims may simply be sold with generic product, while when the market falls trim tends to be commoditised and sold at the generic price.

Lamb is more complicated with different markets being prepared to pay for different products. The British market has traditionally been prepared to pay well for legs, the US for frenched racks and the European Union for loins, while China has taken forequarters and flaps. 

After a sustained period of depressed demand and prices, the three of these main regions have started to buy again, albeit at a time of year when supply is short, and China purchases have fallen to the lowest share of New Zealand exports for several years.

During an extended period of low market prices, there is increasingly a benefit for farmers to have a strong relationship with their processor and to respond to the market signals that provide the opportunity to maximise earnings.

The recent announcement by Beef + Lamb NZ and the Meat Industry Association signalling the transfer of responsibility for the Taste Pure Nature programme to meat exporters suggests there are several reasons for the change. 

It is four years since the initiative was first introduced to farmers as a desirable way to promote the sustainability of New Zealand grass-fed beef and lamb to target groups of international consumers. BLNZ had to take leadership of what was a generic programme because meat exporters were unenthusiastic about putting money into generic promotion as distinct from their own company brands.

BLNZ says it is really pleased with the success of the programme in demonstrating the value of country of origin branding and now feels the time is right to hand over campaign leadership to the meat exporters. 

Although the farmer organisation will continue to invest money, this change of emphasis is consistent with its intention to concentrate its efforts behind the farmgate in line with the wishes of the levy payers. Meanwhile, Meat Industry Association (MIA) members want greater emphasis placed on enhancing New Zealand’s country of origin reputation.

Apart from the transfer of leadership to the MIA, the biggest change under the new structure is the funding arrangement whereby MIA and BLNZ will each inject $2 million over three years, while there are discussions with the Ministry for Primary Industries about obtaining matching government support. 

China, probably Shanghai, will be the main focus of the programme, which means work in the Californian market will effectively cease, at least for the time being. However, BLNZ chair Kate Acland believes the work undertaken there already has positioned exporters really well to continue building the profile for New Zealand’s sustainable grass-fed beef and lamb.

Silver Fern Farms’ chief customer officer, Dave Courtney, sees the value of a focused, well-resourced country of origin programme in a crowded marketplace, which other exporting countries such as the United States, Ireland and Australia have proved delivers cutthrough with both direct customers and consumers. 

“Silver Fern Farms sees merit in working and investing in collaboration with other New Zealand exporters to build a visible platform of country of origin recognition in China, sharing the unique story of our farming systems to generate consistent demand and stable returns for suppliers.” 

He sees it as a sensible way to achieve some critical scale that will help position New Zealand red meat as a premium brand in the market. 

MIA chair Nathan Guy cites the heavy promotional presence of competing countries’ red meat industries at major food fairs in China while New Zealand has had nothing comparable. 

He confirms all MIA Council members (that is, chief executives of meat exporters) voted overwhelmingly to take over responsibility for Taste Pure Nature as a country of origin programme over and above individual company brands.

The fact that the first three years will be funded out of existing funding streams, rather than by individual company contributions, probably made it an easier sell. An extension of the programme beyond the third year may be more difficult and will depend on several factors: the measured effectiveness of the campaign, continued support from the MPI and BLNZ, and the level of exporter profitability at the time.

Generic promotion of red meat has traditionally been taken on by BLNZ and its predecessors, notably in the form of the New Zealand lamb rosette in the United Kingdom, which dated from 1923. 

In the 1960s the Meat Board took responsibility for marketing and price-setting for lamb, established offices in several overseas countries and in 1982 took over buying and selling of all sheepmeat for a time. As the relationship with UK and European Union retail chains evolved and chilled lamb quota increased from a very low base through the 1990s, the residual awareness of the lamb rosette supported sales and value growth, but this has lessened over time. 

Beef marketing received much less attention over the years because, after Britain joined the EU, New Zealand no longer enjoyed guaranteed beef access to the UK and Europe and the majority of sales to North America were in the form of grinding beef for blending into hamburgers. 

Hot-boning, cheaper than the cold-boning essential for prime beef, became more prevalent and prime beef, which was viewed unfavourably in comparison with grain-fed product in many markets, declined. 

The country of origin partnership between BLNZ and meat exporters has been a long time in the making because of the farmer representative predecessor organisation’s long-held control of sales and marketing in addition to the processing companies’ lack of profitability. Until the 1990s meat plants were inefficient and heavily unionised, built to process large volumes of subsidised lamb, mutton and cull dairy cows. 

Prime cattle were a relatively small part of the throughput, while traditional processors continued to cold-bone prime for the domestic market, south and east Asia and Canada. ANZCO evolved out of the Meat Board’s Japanese and Korean offices and it is no surprise that company has emerged as the most successful New Zealand exporter to those markets, underpinned by its grain finishing 5 Star beef feedlot to produce the marbled beef much sought after in Japan. But until Taste Pure Nature there has been no concerted campaign to promote New Zealand grass-fed prime beef. 

It isn’t obvious to me how the successor to Taste Pure Nature under MIA leadership will be structured. Guy assures me it will have a very strong commercial focus under the leadership of the exporters’ marketing managers. This does not explain who will actually do the work, as the MIA is not a marketing operation with the requisite skills, nor will individual exporters have spare experts in social media and online promotion to handle a generic campaign.

Perhaps the domestic marketing operation Beef + Lamb New Zealand (Inc), not to be confused with the farmer organisation Beef + Lamb New Zealand, would be the logical place for this programme to be located, since its main responsibility is to develop programmes for the promotion of New Zealand beef and lamb. It has also done a very good job and has the right set of skills. Watch this space!

The outlook for agriculture and the economy in general appears pretty gloomy at the moment and positives are in short supply, although there are some green shoots starting to appear if one looks hard enough. Any improvement is unlikely to happen before next year at the earliest, but it will surely arrive at some point, when the cycle turns. 

Interestingly, the latest Rabobank quarterly farmer confidence survey reports farmers’ faith in their own business prospects has improved markedly, although confidence in the broader agricultural economy has fallen. 

Unsurprisingly, sheep and beef farmers were the least optimistic, but even their confidence level has improved significantly, possibly because of better beef returns. Dairy farmers and horticultural growers both showed positive results, although the drop in the latest GDT auction came after the survey, while anecdotal evidence suggests grower returns are insufficient to cover production costs.

The latest market update from ANZCO’s Rick Walker points to some positives in United Kingdom  and United States lamb and beef sales. Domestic lamb supplies in the UK have become very expensive, which has resulted in supermarket chain Morrisons backing away from its 100% British lamb stance, a situation that is likely to persist for quite some time. Lamb sales to European countries have also shown signs of improvements in price and volume, while the US market is holding up well, except for some resistance on French racks, traditionally the highest priced cut.

Beef + Lamb NZ underlines the continued support by the UK’s “big four” retailers for New Zealand lamb, which provides a competitive alternative to UK production at different times of the year, particularly the May/June period when the price differential is at its greatest. However, the UK takes only about 10% of our production, which is too small to influence returns to farmers very much.

Unfortunately, China and Japan are proving challenging, with little probability of an improvement until next year at the earliest. China, which has become both the largest market for New Zealand sheepmeat as well as the main destination for lower value cuts, remains depressed in both retail and foodservice. 

BLNZ cites competition from Australian sheepmeat and domestic Chinese pork production as additional negative factors. This means achieving a satisfactory return across the whole carcase is proving difficult as long as these headwinds persist.

The UK Free Trade Agreement has produced some promising signs for premium beef sales, while the US has a supply shortage of domestic cattle, which indicates strong demand for imported product, particularly lean cow and bull. 

Inquiries from US buyers for premium grassfed beef cuts are also at an unprecedented level in a market that has traditionally favoured domestic grain-fed product. The prices from these other markets, especially the US, have served to compensate for the downturn in demand from China, which suffers from competition from Brazilian beef as well as the depressed state of the economy.

The most encouraging signs for the future come from the progress being made with various trade negotiations. Trade Minister Todd McClay has made a commitment to concluding an FTA with India, which would appear to be overoptimistic, unless he is willing to accept a less ambitious agreement that recognises India’s refusal to include dairy and other off-limit items. 

The Australian FTA is an example of what is possible as distinct from ideal, but, encouragingly, it removed a 30% tariff on sheepmeat as well as making tariff reductions on horticultural products. It also contains provisions for technical assistance and greater access for study and work visas, which reflect India’s desire for agreement beyond trade purely in goods and commodities.

Another FTA under negotiation is with the United Arab Emirates, with which McClay has developed a very good relationship as a consequence of his time as vice-chair of the WTO ministerial conference in Abu Dhabi in February. 

While a broader aim is to revive an agreement with the Gulf Cooperation Council, the agreement with the UAE for which round one has been launched will be an important stepping stone.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) currently has 11 members, but the UK is going through the ratification process by all the members after it was accepted as the 12^th member in July last year; at this point only Japan and Singapore’s parliaments have formally ratified UK membership, but there are no obstacles to ratification by the other nine. 

China has applied for membership, although there appear to be several reasons for this to take quite some time to achieve. New Zealand’s FTA with China makes this less of a factor for NZ exporters.

Despite CPTPP provisions for tariff removal on 99% of goods between all member countries, New Zealand is currently in dispute with Canada, which has blocked dairy imports in spite of the obligation to provide limited duty-free quota access for most dairy products. The arbitration panel has found comprehensively in favour of New Zealand without any apparent movement by Canada.

The other high quality agreement concluded in the past year was the NZ/European Union FTA, which entered into force on  May 1 2024, providing for duties to be removed on 91% of New Zealand exports immediately, rising to 97% after seven years. This FTA famously failed to negotiate anything like the desired access for beef and dairy, but in other respects it achieved good outcomes for our exporters. 

New areas for negotiators to explore, rather than trying to expand geographically to countries like the US, which appears to be withdrawing from concluding new trade agreements, include digital trade across borders, which will reduce the business costs for exporters and importers. 

New Zealand has a comprehensive suite of trade agreements with many countries throughout the world that are critical to our economic performance, but on their own they cannot guarantee prosperity. This requires a great deal of initiative to ensure we provide what customers need and want, taking advantage of the hard work of our trade negotiators to be ready when the upturn comes.

Through most of the past 40 years, the dairy sector has been seen as the way to get rich, in stark contrast to the increasingly threatened red meat industry. Meat has been attacked from both ends, by forestry conversions on the higher country and by dairy and viticulture on the flats, not to mention urban sprawl and climate change policies.

As a result, sheep and beef farmers and processors have had to increase productivity and efficiency just to survive and, occasionally, prosper. The whole period has seen a tense juggling act between income and costs in which income only sometimes triumphs by a big margin before costs and reduced market returns reassert themselves. 

Farming and meat processing are almost unrecognisable from 40 years ago, driven by innovation and increased regulation on the one hand and changes to workforce availability, employment laws and plant utilisation on the other.

Dairy was regarded as more fortunate than meat because during the 1990s and the first part of the 21^st century, global demand for New Zealand’s dairy production grew strongly compared with the appetite for our grassfed lamb and beef. 

The United Kingdom’s accession to the European Union in 1973 and removal of tariffs and subsidies in the ’80s forced both dairy and meat processing industries to rationalise, not always willingly on the part of the owners or the unions who resisted proposed layoffs and closures. 

Changes to the dairy sector, which had gone through a whole series of plant closures and co-op mergers since the 1950s, ultimately led to the formation of Fonterra in 2001. At this point dairy benefited from what was effectively a legislated monopoly with 90% market control, although DIRA ensured some competition did exist.

Government-approved or -mandated producer boards had controlled the granting of export licences and at times product ownership for much of the 20th century. Farmer-owned co-operatives were one structure favoured as an effective way of preventing overseas ownership of production facilities, although British companies Vesteys and Borthwicks controlled a substantial part of the North Island meat industry. Dairy exports were exclusively controlled by the Dairy Board for nearly 80 years, until it became part of Fonterra.

The big difference between meat and dairy has always been the procurement function dictated by the need for milk to be collected daily, whereas the decision to sell livestock varies according to seasonal climate conditions. The co-operative structure is a logical outcome of the need for collection certainty, underpinned by the forecast milk price, which makes it essential for a dairy farmer to have a seasonal contract with only one processor. 

If a dairy company has a big involvement in both raw milk processing and consumer goods, there is an inevitable tension between the needs of the two. The processor must manage the milk price, sometimes to the detriment of one or the other, which underlines the basic conflict between maximising the farmer payout and making a profit out of value-added products and brands. 

Fonterra has concluded it cannot compete effectively with major corporates like Nestlé and Danone, and selling the consumer goods arm of the business will ensure Fonterra no longer has to balance them against each other. This conflict could have been avoided if shareholders had approved the split and partial sale of the consumer goods business when it was originally proposed.

Variations between processors’ milk prices may cause dissatisfaction, but this is nothing like the frustration of sheep and beef producers when they think they are being shafted by their processor. 

This can lead to an immediate decision to send stock elsewhere. It is probably the reason the co-operative structure has been less influential or successful in the meat industry, especially in the North Island, which is not as prone to seasonal peaks as the South Island.

Another difference used to be the relative size of meat and dairy processing facilities, with meat plants usually covering several hectares and employing large work forces on a single shift, while smaller local dairy factories served their local communities and were typically farmer owned. 

After the highpoint of 70 million sheep in 1982/3, the population has fallen to below 25 million today, which has forced a dramatic reduction of processing capacity. In contrast the national dairy herd has almost doubled in 30 years, although a fall of 500,000 cows since 2019 indicates the peak has passed.

This suggests the dairy industry’s latest rationalisation has started about 30 years later than the meat industry’s. Synlait’s debt problems and Fonterra’s decision to ask its shareholders to approve the divestment of all its consumer goods businesses are just the beginning of this process. 

Inevitably the decline in herd numbers will lead to a reduction of dryer capacity around the country, signalled by the underutilisation of Synlait’s plant at Pōkeno. Fonterra will not be immune to this changing landscape, with several older facilities needing to be upgraded or ultimately closed if the herd continues to decline.

Waikato now has too much processing capacity with Synlait and Olam both seeking suppliers, while Tatua and Open Country Dairy are apparently at their optimum level of supply. Presumably Fonterra is satisfied with its present supply base, but is unlikely to be looking to expand. 

An interesting development is OCD’s intention to build a butter plant, scheduled to be completed some time next year and, given Talley’s ownership, its output will be priced competitively.

Time will tell whether Fonterra’s shareholders have changed their desire to hold on to their branded assets, but the board’s clear intention to sell these signals Fonterra wants to focus on what it considers its core business of milk collection, processing and ingredient supply. 

The rest of the dairy industry concentrates on a narrow range of added-value products, mainly directed towards foodservice, nutritional and consumer end uses.

With the exception of Silver Fern Farms, which is stoic in its determination to market a whole range of branded consumer products domestically and in export markets, the meat industry largely restricts product development activities to specific products that meet retail customer needs and specialist end uses. 

Some of these carry the meat exporter’s brand to final point of sale, but they could not be described as a comprehensive consumer goods business development. 

Most of New Zealand’s two largest export sectors appear to have accepted the inevitability of achieving excellence as a processor and supplier of commodity products and ingredients, because they simply do not have enough scale and financial strength to be international consumer goods marketers. 

Time will tell if this is always the right strategy.

With annual results now published for the companies that are required to report, it is possible to draw conclusions about their relative performance, although the huge discrepancy between them makes it rather difficult to make an informed assessment.

The inescapable initial impression suggests Alliance, with a $97.9 million pretax loss, suffered by far the worst from a universally acknowledged difficult season, with Silver Fern Farms a poor third with ANZCO posting a satisfactory profit of $60.9m; the smaller South Island processor, Blue Sky Pastures, showed it is possible to make a profit, albeit reduced, from sheepmeat.

The first point to be made is the difference between the respective financial periods with Alliance still reporting at a September year end, aligned with the traditional meat industry season, and Blue Sky a June year, while the other two companies balanced at December 31 in accordance with the requirements of their major shareholders. Secondly, Alliance was particularly affected by the predominance of lamb and mutton through its plants, when by general consent beef processors were less badly hit by sudden market price drops. Other mitigating factors were the after-effects of covid and the decision to put on extra processing capacity to handle a forecast drought peak that never arrived. Apart from these points, there should be no excuses for what can only be considered a very poor result and a major disappointment after the previous year’s record surplus.

The main reason for the substantial loss was evident from the detailed financial statements – revenue declined year on year by 9% or $207m, whereas the cost of sales was only $6.7m lower. This indicates a disastrous failure to reflect market conditions in the procurement schedules, while the excess plant capacity and labour availability destroyed productivity and efficiency. In addition, finance charges were $11.1m higher because of increased debt.

SFF’s loss of $36.4m for the calendar year 2023 was almost as disappointing in that it was the first loss for several years and followed a $262.4m pre-tax profit in 2022. Analysis of the financials here shows a broader set of causes than at Alliance. Revenue was down by almost half a billion dollars, partly offset by a $309m reduction in direct costs, but employee benefits were $54.8m higher, interest costs were three times greater and other operating expenses (presumably overheads) rose by 15% or nearly $47m. The upshot of these swings and roundabouts was a decline in profit performance of $299m.

SFF Co-operative chair Rob Hewitt blamed Cyclone Gabrielle and the disruption to its North Island processing plants at Pacific in Hawke’s Bay and Dargaville, as well as the challenging market conditions for the result. But it is clear from the financial statements that intended moves to control ballooning costs were not implemented during the last financial year and it is now up to the recently appointed CEO, Dan Boulton, to apply the brakes to the overspend. 

While the company’s market-led approach remains the preferred strategy, the current year must show clear signs of improvement if the Chinese major shareholder is to continue its tolerance.

Both Alliance and SFF accounts indicate their suppliers, whether co-operative shareholders or not, enjoyed greater reward for their supply than they should have. This contrasts with the annual result for the year ended June 30 2023 by Blue Sky, which admittedly does not extend to the period when Alliance experienced the sudden drop in its inventory values. Blue Sky posted a solid pre-tax profit of $4.9m, down from the previous year’s $24.6m, but it obviously managed its cost base well on declining revenue from the highs of 2022, with total expenses $19.4m lower. Although a fraction of the size of its neighbours, Blue Sky demonstrated the benefit of focusing on its core business.

The year’s star performer of the quartet was ANZCO, with an excellent profit in challenging circumstances, which CEO Peter Conley attributes to having a very clear strategy around its core business and carefully chosen added-value products, boosted by the acquisition of Moregate Australia, which forms part of ANZCO Biosciences.

Profit was helped by $28m in compensation for the M bovis outbreak at the 5 Star beef feedlot, but this was offset by the six-month stand-down period and cost of livestock depopulation. 

The accounts show a $100m increase in interest-bearing loans, which was necessary to cover the substantial tax following the 2022 profit, 5 Star repopulation, and the growth of the biosciences business, which generates high margins requiring large initial investment.

Conley also attributes the strong performance to a different overseas office model,  which is focused on driving incremental returns with the minimum of overheads. The overseas office network plays a fundamental role in building key customer relationships and informing livestock procurement to meet customer expectations. Recent adjustments include opening a China office with one employee to start with and the closure of the Taiwan office. ANZCO’s future performance improvements are to be achieved by growing the value-added food and healthcare business, adding more value to the raw material, and careful investment in IT and infrastructure.

The current trading year is proving to be tough, a sentiment echoed by all the companies, with no bounce-back in China expected until next year, slow improvement in Europe and continuing volatility in the United States. 

One CEO confirmed profit last year was sound and anticipated a similar trend this year, while Greenlea’s Tony Egan felt the industry was moving into a transitional phase in which greater value would be extracted from innovation and product development, combined with partnerships to achieve greater scale. 

He cited specifically the investment in the Waitoa protein processing facility as an example that will produce greater returns, ultimately to the benefit of suppliers.

The year 2024 will be a challenging one for the meat industry, as companies attempt to repair or strengthen their balance sheets. Those that lost money last year will be determined to correct that under threat from banks or major shareholders, while profitable companies will be keen to maintain or improve performance.

In Focus Podcast: Sustainable farm loans fuel weather impact resilience

It’s been almost a year since Westpac introduced its Sustainable Farm Loan to the market, which gives farmers a discount on their interest rate in return for meeting certain standards.

Head of Agribusiness Tim Henshaw joins Bryan to discuss the types of work borrowers are undertaking. Flood protection, drought resilience and emissions reductions are the three prominent areas he’s seen.

Unless it was forced on the co-operative, it is hard to understand why Alliance felt it necessary to choose this moment in time to announce to shareholders they would immediately be docked $3 per livestock unit on stock supplied, as well as being required to lift their shareholding by 25%. 

The co-operative’s balance sheet obviously took a horrible battering last financial year and in February banking covenants were breached. Although rectified, this may indicate the banks’ patience is close to breaking point.

There aren’t many options and the solution has to be a combination of positive cashflow from operations, cost cutting, asset sales and new equity. Consequently, in the worst season for sheep farmers in decades, the directors have decided shareholders must pay up, when it is absolutely the last thing cash-strapped farmers would want. 

Last month’s press release announcing the capital raise makes much of the benefits to be gained from this unwelcome prescription, including preserving 100% farmer ownership and driving towards “our goal of being New Zealand’s most efficient processor”, as well as expanding product offerings and delivering more value to farmers, but at what a cost? 

Alliance’s past and present chairs, Murray Taggart and Mark Wynne, have both told me last year’s performance and the continuing depressed state of the market have affected the whole processing industry equally. The inventory value downgrade at the beginning of last financial year and Silver Fern Farms’ loss for 2023 provided some justification for this view, but ANZCO’s pre-tax profit of $60.9 million has shown this to be a delusion. 

The rumoured profitability of other meat companies in the difficult trading conditions has been confirmed by ANZCO’s encouraging performance. 

While farmers may be suspicious of meat company profits at any time, it should be possible for efficient companies to procure, process and sell product for a positive margin even when market conditions are poor. 

Farmers ought to be happy to see their processor making money at all times, provided they are paying a fair price for livestock; this does not mean the price paid will always be as much as desired, but it should reflect the state of the market. 

The reasons for Alliance’s capital raise underline the importance to farmers of their company being profitable.

Alliance has signalled its requirement for additional capital of $100-150 million over the next three years to meet the co-operative’s objective of restoring its balance sheet, but a rough estimate suggests the capital raise from farmer shareholders will achieve less than a third of this. 

However, the terms of the equity-raising exercise are somewhat unclear, to me at least. At what point will an individual shareholder be deemed to have contributed enough capital under the specified terms? How much are shareholders expected to contribute, and will there be a specified end point to the process? 

In the absence of a formal prospectus, shareholders will hopefully get a clear explanation of what they must contribute in “the individual letters with information on what these changes will mean for them”.

The implications of the present situation for Alliance’s future ownership structure and survival as a 100% farmer-owned co-operative are huge. Major questions the board should be asking are whether its stated goals are remotely realistic under the present constrained ability to raise new capital. 

While remaining wholly a co-operative may be a virtuous aim, it would be interesting to know how Silver Fern Farms’ shareholders feel eight years on from going through the divisive process of agreeing to sell half the company to an outside investor. That exercise resulted in a $267m investment including the repayment of all core debt, $57m paid to the co-operative and a special dividend to all shareholders.

I suspect a substantial proportion of Alliance’s shareholders may now feel sacrificing half their company in return for a dividend and financial security would be preferable to the imposition of $3 a lamb at a time when they are probably losing money. 

But it may be too late to negotiate a deal remotely as favourable as the Shanghai Maling investment in SFF in light of the changed economic environment globally and in China, even if Alliance shareholders were to give their board approval to seek an external investor.

Another big problem is the procurement of livestock from non-shareholder suppliers, which is always brushed under the carpet, but everybody knows forms an important component of supply outside the peak season. 

Wynne told me third parties and non-shareholders make up only a relatively small part of supply, but they would be penalised through lower schedule payments, which sounds idealistic if not downright impossible to achieve. It is difficult to see a mechanism for differentiating between schedule payments when one category of supplier will supposedly receive $3 less per livestock unit, let alone agree to supply on those terms.

Wynne emphasises Alliance’s progress towards best in the industry, pointing to more than $400m of capital expenditure in the past 10 years on plant upgrades, automation, and the lengthy ERP installation to replace an outdated computer system, supported by independent processing efficiency benchmarking. 

He also maintains confidence in the co-operative structure, which he says is just as capable as a corporate structure of building a high performing business, although profits over the same period total $166m, nearly quarter of a million dollars less than the capital expenditure. This indicates the banks have been funding the difference.

Although there are successful co-operatives in New Zealand, especially Foodstuffs, Mitre 10 and to a lesser extent Fonterra, the key ingredients of success are shareholder capital, profit retention, continuous investment in the right assets, and the ability to exert market control. 

The main concerns for Alliance are its inconsistent profitability, insufficient equity, and competition from companies with deeper pockets. 

Unless farmers are prepared to stump up three to four times as much as they are being asked for, the best hope must be a white knight that sees Alliance as a worthwhile investment in partnership with its suppliers. If not, it will be a tough challenge to generate the cash it needs to flourish. 

In Focus Podcast: Full Show | 10 May

We chat with Katrina Roberts, who is the new Dairy Woman of the Year. She’s a Waikato vet, working with dairy farmers to not only maintain cow health but also improve the efficiency of their farm systems.

Federated Farmers arable chair David Birkett also  joins us to talk about the arable industry awards, which are open to nominations now. 
And, senior reporter Hugh Stringleman wraps up the dairy commodity season for us, following the latest GDT auction.