from plate to pasture: pgp business plan – commercial in

From Plate to Pasture: PGP Business Plan – Commercial in confidence Page | 1

From Plate to Pasture: PGP Business Plan – Commercial in confidence Page | 4

From Plate to Pasture: PGP Business Plan Summary Page | 1

The FarmIQ Primary Growth

Partnership (PGP) Programme

The Financial Times Article in 2025 that you have just read reports on the transformation of the red

meat industry since 2010. It provides you with a window into the future, to help you understand

FarmIQ

‟s long-term vision for the industry and what the proposed “The Integrated Value Chain” for the

red meat industry will achieve.

Silver Fern Farms, Landcorp Farming and Tru-Test Group are investing, with the Government, in the

red meat industry. Each Partner understands the opportunities for the industry and the consequences

for all industry participants if nothing is done. In order to arrest the industry‟s overall decline in scale

and profitability, there has to be transformational change. The vision is:

“To create a demand driven integrated value chain for red meat that delivers sustainable benefits to all participants” Founding Charter

In order to realise the vision, a total of $151m is being invested over the seven years of the

Programme. The Partners are responsible for 61% of the investment, recognising the „size of the

prize‟ of an efficient and effective value chain. The opportunity posed by the current environment,

coupled with the cost of doing nothing, is so great that action is needed now.

Individually, the Partners do not have the resources or capability to deliver a programme of this

breadth and scale in the current operating environment. However, the collaborative action draws on

established strengths and expertise to deliver the customer-led value chain, with the benefits being

realised across the industry.

In the preparation of the PGP proposal, the Partners worked with the New Zealand Institute of

Economic Research (NZIER) to better understand the benefits and impacts of their collective

investment to develop an integrated value chain. Over the seven years of the Programme, it will grow

New Zealand‟s GDP by $1.1b – and $8.8b out to 2025 (over and above business as usual). The

value this will deliver to the industry participants is crucial to their survival. An integrated value chain

will deliver the transformational change the industry requires.

The benefits of the Programme will go beyond those directly involved. Farmers and associated parties

will benefit from significant industry spill-over benefits. This will be achieved through sharing

information, capabilities, research and equipment created by the Programme with associated parties

and other industry participants (service providers, researchers, rural professionals and farmers).

While the Partners seek to optimise their profitability and achieve a return on investment, they also

recognise that having a strong and successful New Zealand red meat industry is important to the

Programme‟s overall success.


Introducing the integrated red meat value chain

The Partners have developed a new business in parallel to their existing business operations. The

new business model is an integrated red meat value chain that is designed to sustainably deliver

innovative products to customers on time and to specification. All participants in the value chain

share this goal, and have the information and incentives to meet customers‟ requirements in a

disciplined manner. The model will be delivered through a contractual framework where all

participants understand their respective roles and responsibilities - the customers and consumers will

ultimately determine what the value chain collectively produces.

The value chain structure that has been developed considers all steps within the value chain, working

back from the market (“the plate”) to the farmer (“pasture”). The result is a value chain structure that

is simplified with minimal interventions and one that enables collaborative behaviour by all

participants.

The diagram below outlines this simplified value chain – with product delivered to, and information

flowing back from, the customer and the consumer to all participants, including the farmer.

Importantly, the model collects information from all participants in the value chain. Collection is via an

analytical software programme into an industry database, thereby enabling specialist staff to further

refine market signals and to develop innovative products that target specific consumer needs.

Diagram 1: Simplified value chain

Customer / consumer:

· Quality product to specification at the right time

· Satisfied customer whose needs are met every

time

· New Zealand recognised meat brands

Processor

· Plant utilisation

· Skills generation

· Inventory management

· Consistency of product

· Increased efficiency

Farmer (breeder/finisher)

· Farmer uptake

· Increased productive capacity

· Sustainability & skill gains

· Certainty of income

Value Chain innovation function

· Genetics

· Forage

· Animal health

· Farm management practices etc

Information from customer/consumer

Contract to produce

product on time and to

specification

Contract to sell

product on time and

to specification

Information from

processing

Information

from on farm

Commitment

to transfer IP

Product flow

For the first time in the red meat industry‟s history, customer and consumer information will be

captured in a structured manner within a common industry database, and their needs and

specifications will be communicated to the participants within the value chain to coordinate and

optimise the collective production base. To achieve this, the Programme will establish a virtual herd

across the supply base, allowing consolidated breeding programmes to manage and control farming

systems to produce product on time and to specification. This control will enable the participants to

respond to market changes and, where possible, develop market-leading premium products to create

greater added value for the participants in the value chain.

The progressive and transformational nature of the Programme will enable the development of

multiple value chains based around specific customer/consumer needs. The process of refining

products and the systems and processes developed for the Programme will create intellectual

property which will be further developed by the value chain participants.


The delivery model

To design, pilot and fully implement the integrated red meat value chain, the Programme will be

developed over seven years. It covers six projects and 22 sub projects. This business model will be

managed through FarmIQ

Systems Limited (FarmIQ

), a new corporate entity established by two of the

Partners – Silver Fern Farms and Landcorp – that will contract with MAF. FarmIQ

will be responsible

for delivering the Programme to achievable milestones. With MAF, the Partners will contribute

funding to FarmIQ

, based on their required commitments to the Programme. FarmIQ

will have a

constitution and a shareholders‟ agreement tailored to ensure the development and deployment of the

„Plate to Pasture‟ integrated red meat value chain extends beyond the life of this Programme in a

commercial environment.

Under the proposed structure, FarmIQ

becomes the operator of the Programme. The addition of Farm

IQ simplifies the operation of the Programme significantly through greater:

· Accountability for operation of the Programme;

· Clarity over additionality of investment;

· Clarity of where farmers can source information and support; and

· Clarity of the benefits of the Programme.

Introducing the Programme

The six projects and 22 sub projects have been developed following thorough assessment of the

current supply chain. The current supply chain is dysfunctional, inefficient and product driven, which

has led to market failure and an industry where the primary focus is to convert meat into cash as

quickly as possible. The sales push approach has resulted in an unsustainable production-based

supply chain built to maximise throughput to global customers with little focus on the value proposition

for the customer or the sustainability of the components in the existing supply chain.

This can be observed in the current supply model:

Diagram 3: Current supply chain

Consumer Retailer ProcessorLivestock

financeStore stock

Genetics /

stud stock

Farm

systems

forage

animal

production

Farm advisor Farmer

On-farm business decisionsMarketing

Add value,

sells, ships

Processes

finished

stock

Pro

cu

rem

en

tF

arm

Ga

te

Source: White Paper: SFF and PGW

The fundamental issues with this model are:

· There is minimal market information feeding back to the participants in the chain;

· There is a lack of coordination of activities or data to inform participants‟ activities;

· The means to manage collective input/production costs are limited – it is all managed behind

the farm gate; and

· The means to tailor products to customer specification is minimal.

These issues are reflected at all points within the existing supply chain in the form of capability gaps

and confirm that the supply chain is outdated (see the diagram below). Skill and competence levels


are moderate at best, there are no integrated information management systems to provide the

visibility of product (livestock) in the supply chain and there is little sharing of information between

participants. As a result, the farmer is distant from the customer and the supply chain has little agility

to respond to changing customer demands.

The following is a summary of the major gaps between the current and desired future state for the

integrated value chain:

Diagram 4: Results of our supply chain diagnostic

Rating

Dimension Excellent Advanced Common OutdatedFoundation

Organisation People Competence & Skills

Information

System

Degree of

Systems Integration

Enabler

Performance Objective Setting

Collaboration Farmer to Customer

Visibility Visibility

Execution Processes

Inventory

Management

Initial forecasting of livestock

requirements

Scope and Basis for Planning

Management of Expectations

Data

Management

Process and Organisation

Information Accuracy

Information Availability

Legend: : Range of Observations: Partner Positioning : Desired Positioning

There are examples of red meat value chains in operation in New Zealand but they are small scale

initiatives targeted at niche markets with limited information capture and flow. None operate at scale

or capture the full benefits at each part of the chain to dramatically improve farm profitability.

Many of the building blocks required for value chain development exist or are in development.

However, the efforts by many organisations involved are not coordinated and there is no large-scale

integrated research and development programme in place, with only isolated pockets of excellence.

The Partners have designed a value chain and Partnership that is able to transform the current

industry to improve the long-term sustainability of all participants.

Each project has been designed to:

· Build capability (systems and processes) that does not currently exist in the value chain (e.g.

information management analytical software and database systems);

· Enhance capabilities in areas where there is current infrastructure that needs to be modified or

realigned to support the new value chain (e.g. demonstration farms and market analysis); or

· Develop new technology that will be required in the future to meet customers‟ requirements

(e.g. the genomics programme).


A summary of the seven projects is provided below:

Project name Objective of the project

1 Programme management and

key indicators

To ensure that projects and sub projects all work toward achieving the

key performance indicators. These indicators will be a measure of the

successful implementation of the Programme as a whole.

2 Market analysis To develop capability to identify and understand markets which are

willing and able to pay a premium for quality products and develop

products to meet their individual specifications.

3 IT and database To be a catalyst for the establishment and operation of a date collection

and analysis mechanism able to support animal specific performance

analysis.

4 Genetics To develop new genetic and genomic capabilities to enable the

identification, isolation and selection of desired animal traits to improve

the ability to produce products to customer/consumer specification.

5 Processing To put in place the necessary traceability infrastructure and develop

new technologies and capabilities to enable meat yield and quality

information to be collected during processing.

6 Farm Productive Capacity To drive improved on-farm production and performance through best

practice production systems, capturing data (both farm and animal

centric) and aligning this with the integrated value chain

To provide confidence that the proposed interventions are valid, the Programme maps the 10

opportunities and challenges for the red meat sector as defined by MAF1:

1. Sheep and beef farm overall profitability;

2. Investment in industry research and development;

3. Red meat processing companies‟ overall profitability;

4. The importance to sales from using “New Zealand” in branding;

5. Reliance on generating and growing new markets to sustain the red meat industry;

6. New Zealand ownership and control of sheep meat distribution and marketing networks and

firms;

7. Level of co-operation between New Zealand companies to develop and sustain marketing

internationally;

1 MEAT: The Future, Opportunities and challenges for the New Zealand sheep and beef sectors over the next 10 to 15 Years, Ministry of

Agriculture and Forestry, 2009.


8. The reliance on producer and processor efficiency to sustain the red meat industry;

9. Use of forward supply contracts for supplying livestock to processors; and

10. Marketing expenditure as a proportion of total expenditure by the sheep and beef industry.

Each of the six projects addresses the concerns identified. The Programme has been fully scoped to

deliver a value chain business model and the areas of focus are by definition additional to the

Partners‟ current business activities. Thus the need to build a new business model in parallel to

existing business operations.

Monitoring progress

The Programme is designed to be self sustaining after the initial seven years of Government support.

There are three primary phases, each with milestones:

· Design and research (years 1 - 3) – developing the prototypes, research into key traits and

target markets, and designing protocols for systems and communications for the Programme;

· Pilot (years 4 - 5) – undertaking the practical prototype testing, testing systems on farm and

proving the genetic gain through animal performance; and

· Refinement (years 6 - 7) – capturing the lessons from the pilot phase, feeding this back into

the design and targeting further improvements for the Programme. Proactively going to

customers and offering an end to end solution.

The performance of the Programme will be monitored through the achievement of milestones. Each

phase represents a key milestone for the Programme. To support the regular monitoring of

performance, a further 42 milestones with performance measures will be monitored on a quarterly

basis. All the milestones have been mapped to the outputs and outcomes.

Benefits to participants

The Programme is structured to benefit all industry participants – not just the co-investing Partners.

These benefits are outlined at a high level in the table below:

Beneficiary Benefits accrue from

Government – Farmers

· Increased productive capacity

· Reduced input costs

· Additional quality based incentive payments (purely commercial)

· Improved conversion ratios (live weight to meat)

· Improved breeding genetics – improved birth rates

Government – Spillovers · Increased productive capacity for non-programme farmers


Beneficiary Benefits accrue from

· Improved access to services and infrastructure

· Increased employment both directly associated with the industry (e.g. vets, farm

advisors, farmer managers, agricultural researchers etc) and supporting services

(e.g. animal transport, farming supplies etc)

Silver Fern Farms · Increased volume of animals through plants


· Improved market prices for quality products delivered to specification

· Increased certainty of supply

Landcorp · Increased productive capacity

· Reduced input costs

· Additional quality based incentive payments (purely commercial)


· Improved breeding genetics – improved birth rates

Securing farmer participation

Capturing the value from the Programme is essential for the success of the Partners, farmers and the

broader industry. The key to the Programme is achieving animal up-take through proving the benefits

to farmers and securing long-term supply contracts that deliver innovative products to

customers/consumers. All of the Partners will work together to achieve farmer up-take.

The Programme is designed to support farmers through the transition process, from production led to

market led. Key aspects designed to encourage farmer uptake are:

· Initiatives to increase productive capacity on-farm;

· Initiatives to increase the quality of product grown on-farm;

· Assisting with the provision of farmer research and development tools over the first four years

by Government;

· Dedicated farmer support teams to aid on-farm set up;

· Provision of detailed animal specific performance information;

· Improved market information flows to farmers; and

· Partner owned animals adopting the Programme systems.

As these benefits grow and the messages get out through farming networks, other farmers will seek

to understand what the Programme has to offer and make informed decisions as to whether it will

benefit them. The process will not rely on viral communications solely. The Programme will have a

presence in the market – stating key messages, answering key questions and mapping a path to

entry. This presence will be supported by a network of specialist farming advisors who will assist

farmers and, based on their farming model, outline the individual benefits, opportunities and costs.


The ability to secure farmer support will depend on the value that can be added to their businesses

via the integrated value chain. The benefits to the industry will grow to be significant. The following

graphs show the additional value the Programme will deliver and the source of the increased value:

Figure 5: Programme value gained

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Without the Programme

Production growth

Capability growth

Value growth Carcass conversion

With the Programme

Source of value gain

Value gained from the Programme,

NZ$ in 2025

47 cents

As shown, the value gained to the industry is estimated to be 47 cents for every dollar earned by

2025. The key value drivers for this growth are:

· Production growth (45%) – this represents the additional amount of meat produced as a result

of improved animal breeding and trait selection;

· Value growth (31%) – this represents the increased value secured in markets and distributed

back to value chain participants. Programme farmers will receive additional incentive payments

(purely commercial);

· Carcass conversion (13%) – this represents the optimisation of products produced per animal;

and

· Capability growth (11%) – this represents the improvement in on-farm management through

improved farmer skills and farm inputs.

Much of the benefit to the industry is achieved through facilitating spillover of the Programme‟s

capabilities and infrastructure to other industry participants.

The following table illustrates the potential on-farm productive capacity gains to an existing perennial

pasture-based finishing system from Year Two. The table also shows the additional sources of

phased returns farmers could receive as a consequence of the Programme:

Farmer benefits Current State As a Programme farmer

On-farm productive capacity gains

Estimated pasture utilisation 65% 85%

Estimated pasture Growth rates (kgDM/yr) 10,283 15,325

Expected LWG (grams/hd/day) 120 180

Lambs Finished (ha) 27 45

Carcase produced (kg / ha) 129 368

Gross Margin (ha)* $410 $892

Plus phased processing efficiencies - $43


Plus phased returns from market - $103

Total $410 $1,038

* Assumes a store lamb value of $2.00 kg / LW and a return of $5.00 kg /Carcase

Source: PGW and Silver Fern Farms

Spreading the benefit to the industry

The nature of industry benefit relates to the skills,

resources, infrastructure and capabilities created

by the Programme and made available to industry

participants. The diagram (right) depicts the

nature of the benefits the Programme delivers to

the industry.

The Programme‟s key participants are within the

broken circle, from which many skills, resources,

infrastructure and capabilities will flow to industry

participants to exploit. The direct and indirect

areas of spillover are explained below.

Direct spillover benefits

Capability will be created through the Programme with Partners, associated parties and other service

providers doing new and different things over and above their business as usual. These people and

organisations will subsequently use their skills, lessons learnt and experience in the industry and

wider primary sector.

Jobs will be created across all aspects of the industry and supporting industries. The jobs are the

result of increased profitability of farmers – who in turn are able to increase their investment into their

on-farm activities. This will create jobs outside of the immediate Programme.

In-direct spillover benefits

The Programme will enhance the industry‟s reputation on three levels:

· Enhanced New Zealand reputation - The Programme will deliver to customers in existing and

new markets around the world consistent and quality products to specification and tailored to

market preferences (including water usage and animal welfare concerns, as well as eating

quality). This enhanced consumer experience, coupled with an association of the „New

Zealand‟ brand on products, is beneficial for all New Zealand primary sector products.

· Enhanced industry reputation - Through increased returns, farmer uptake initiatives,

innovation and creativity, the red meat industry will develop a reputation as a viable business

with the technology enablers to grow sustainably and profitably. Also farmer uptake of NAIT

will be enhanced because the individual tracking of animals will be for on-farm performance

management and not seen as a cost of production.

Capability creation

Job creation

New technology

Reputation

Community

Non Programme

farmers

Programme farmers

Silver Fern Farms

Service Providers

Associated PartiesPGW

Landcorp


· Enhanced participant reputation - Through increased industry collaboration, participants will

break the cycle of the industry‟s market failure situation. The Partners are leading by example

to help the industry recognise that its real competitor is not down the road – it is overseas.

· Communities will benefit from increased and sustainable returns to farmers. These returns from

the market will pass down through the value chain and enable improved productive capacity,

which will flow to the wider farming community. Demand for products and services outside the

scope of the Programme will increase as farmers‟ disposable incomes increase. Similar to

what has been seen in dairying communities as payouts increase, rural communities

dependent on farming incomes from the red meat industry will benefit as the reinvestment cycle

begins to increase productive capacity and profitable returns.

The Programme makes it possible for farmers who may not be directly participating initially, to

improve their own productive capacity through:

· Capitalising on lessons learnt from Programme farmers through word of mouth, exemplary

examples (such as Landcorp and access to the Programme‟s innovative demonstration farms);

· Access to the industry database to capture their own information to inform and enable their

farm management decisions; and

· Using new products and services (or new combinations of such) available from FarmIQ

, and

other associated parties and service providers. (For example, genetics and data collection

equipment.)

The ultimate reward from the Programme will be to realise industry transformation – seeing the

industry prosper and grow. For the Partners to achieve this goal, they must operate in an industry

that is sustainable and recognised as world class.

Concluding comments

The Partners are committed to leading a transformational change in the red meat industry. This is not

a simple task and would not be achievable without the support and commitment from Government in

the current operating environment.

The Programme is designed to challenge the status quo. Lessons will be learnt along the way, so

those involved in its implementation must remain agile, be prepared to self critique their performance

and make the necessary changes.

One of the keys to the success of the transformation will be the collaboration among participants that

share the vision – a coalition of the willing.

In conclusion, below is an example newsletter, envisaged as a weekly feature, and a key

communication vehicle to participants in the lamb value chain. It demonstrates many of the

characteristics and capabilities that will be developed as part of this Programme.

from plate to pasture: pgp business plan – commercial in

Documents