sheep & beef sector where have we been, where are we at now; possible pathways for the future....

Sheep & Beef SectorWhere have we been, where are we at now;Possible pathways for the future.

24 April 2013

Ag and Hort Sciences Teachers Conference 2013

Mike Petersen, Chairman Beef + Lamb New Zealand

Outline

• Overview

• Beef + Lamb New Zealand

• Sheep & beef sector

• Exchange Rates

• Sheepmeat and beef export markets

• Farm profitability

• Red Meat Sector Strategy

• Challenges for the future

• Conclusion and Discussion

A few years of crisis…

• 2009 - GFC and liquidity crisis!!

• 2010 - Liquidity crisis now a solvency crisis

• 2011 - Solvency crisis now a sovereign debt crisis

• 2012 - Sovereign debt crisis now a low growth crisis

• 2013 – Economic recovery???

Inflation…

Yeah Right

2013… ???

Global Trends

• Economic turmoil in mature markets– Some flow on expected in emerging markets – Emerging market growth so far maintaining

momentum and disruption yet to be realised

• Through all this the key fundamentals remain

• Availability of safe food continues to be the dominant theme for the foreseeable future

Global trends…

• … the world is a changing place– Volatility will be the norm– Low stocks, high demand and weather extremes

fuelling volatility– Food deflation is now being reversed

.

• Food production has to increase 70% by 2050– NZ can only feed 20 million people– (or 100 million western diets)

Outline

• Overview



• Exchange Rates






Beef + Lamb New Zealand

–Industry good organisation, farmer-owned

–Funded by levies mandated under the Commodity Levies Act(5 yearly referendum,last September 2009)

–13 Regional staff

– Overseas offices

B+LNZ Programmes

Outline

• Overview



• Exchange Rates






Main features

•Pasture based system year round

•Export focus i.e., sheep 90%+; beef 80%

•Stabilising flock numbers after a period of decline

•Unparalleled productivity gains

•Historical issue of sheep & beef farm profitability and land use change

NZ Sheep & Beef Industry

NZ Wool Lamb, Beef and MilksolidsNominal Farm price trend, ¢ per kg

Export Dominance 2011-12

% Exported Exports $m

• Wool 91% $776

• Lamb* 92% $2,670

• Mutton* 94% $454

• Beef and Veal* 80% $2,470

• Dairy 96% $12,478

• Deer [$265m] + Other 96% $917

Pastoral Sector $19,765

*Includes co-productsJune YearSource: Beef + Lamb New Zealand Economic Service, SNZ

Pastoral Land Area

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

19

90

-91

19

92

-93

19

94

-95

19

96

-97

19

98

-99

20

00

-01

20

02

-03

20

04

-05

20

06

-07

20

08

-09

20

10

-11

20

12

-13

e

Ha

(000

)

Sheep Beef Deer Goat Dairy

Source: Beef + Lamb New Zealand Economic Service Statistics New Zealand

-27%-3.4m ha

+66%+0.9m ha

Overall -18%-2.5 m Ha

1990 to 2012

Land Use Trend

Pastoral land Area 2012-13e

Dairy Farms 1.77 million haDairy Support 0.47 million ha

• Dairy Total 2.23 million ha 20%

• Sheep, Beef, Deer 9.05 million ha 80%

• Total pastoral area 11.29 million ha 100%

Source: Beef + Lamb New Zealand Economic Service

Farm No’s and Size

Source: Beef + Lamb New Zealand Economic Service Livestock Improvement Corporation, Horticulture NZ

1984-85 2011-12e

Commercial S&B Farms 22,000

12,490 -43%

Av Stock Units 3,424 4,000 +17%

No of Dairy Herds 15,881 11,798 -26%

Av Cows at peak

Commercial Horticulture

144 393

7,000

+173%

NZ Sheep and Cattle Numbers1990-91 to 2012-13

25,000

35,000

45,000

55,000

65,000

75,000

1990

-91

1992

-93

1994

-95

1996

-97

1998

-99

2000

-01

2002

-03

2004

-05

2006

-07

2008

-09

2010

-11

2012

-13

Sh

eep

(0

00)

2,000

3,000

4,000

5,000

6,000

Cat

tle

(000

)

Source: Beef + Lamb New Zealand Economic Service Statistics New Zealand

Dairy +88%

Beef -19%

Sheep -46%

2011 -4.4%2012 +0.2%

% Change 1990-91 to 2012-13

Productivity Comparison

1990-91 2012-13e

Lambing Percentage (ewe) 100.4% 123.3%+23 lambs

Hogget lambs as % all lambs-

5.4%

Average Lamb Wt (kg) 14.35 18.14 +26%

Lamb sold (kg/ewe) 9.76 18.12 +86%

Wool Prodn (kg/head greasy) 5.28 5.41 +3%

Average Steer Wt (kg) 297 309 +4%

Milksolids per cow (kg) 260 340 +31%

NZ Total Production

1990-91 to 2012-13e

More Dairy +175%

More Beef and Veal +20%

Less Lamb -7%

but from 46% fewer sheep!

Outline

• Overview



• Exchange Rates






NZ Exchange Rate Trend(2000 Jan = 1000)

2012-13f

USD +1.9%

GBP -0.8%

EUR +1.4%

Some things never change…

Outline

• Overview



• Exchange Rates






2011 World Beef ExportsChilled & Frozen- December Year

NZ Beef & Veal Export Markets(000 Tonnes Shipped, Sep Year)

0 50 100 150 200

North America

North Asia

South Asia

EU

Pacific

Other

2011-12 2010-11

51% Volume; 47% Value

26% Vol; 26% Value


2011-12 exports to North America

178,875 tonnes (51%)

US$980 million

Export Beef & Veal ReceiptsTop 15 Countries, September Year

2011-12 2011-12

2005-06 2010-11 2011-12 $ 000 $ per tonne

USA USA USA 871,212 5,504

Japan Japan Japan 212,433 6,586

South Korea South Korea Taiwan 137,395 6,825

Taiwan Taiwan South Korea 120,684 4,442

Canada Canada Canada 105,719 5,275

Indonesia Indonesia Indonesia 61,155 5,175

French Polynesia Singapore Singapore 51,892 6,503

Hong Kong Philippines Hong Kong 43,678 7,603

Australia Hong Kong Philippines 42,359 3,809

Singapore French Polynesia French Polynesia 38,395 9,533

Mexico Netherlands Netherlands 32,673 15,676

Great Britain (uk) Great Britain (uk) China (peoples Republic) 29,135 4,592

United Arab Emirates Germany Great Britain (uk) 28,770 8,921

New Caledonia Italy Malaysia 25,736 4,597

Other 275,866 7,846

2,077,102 5,925


Export Beef & Veal Exports 2011-12Tonnes Shipped, September Year

0 25,000 50,000 75,000 100,000 125,000 150,000 175,000 200,000

North America

North Asia

South Asia

European Union

Pacific

Other


2011 World Sheepmeat ExportsChilled & Frozen- December Year

0

50

100

150

200

250

300

350

400N

ew Z

eala

nd

Aus

tral

ia

Uni

ted

Kin

gdom

Irel

and

Spa

in

Net

herla

nds

Bel

gium

Oth

er

000

Ton

nes

Source: Global Trade Atlas

38%

30%

11%

5%3% 3% 2%

8%

Export Lamb September year, 000 tonnes shipped weight)

0 50 100 150 200

European Union

North America

Middle East

North Asia

Pacific

Other

2011-12 2010-11


128,800 tonnes

111,100 tonnes (-14%)

Export Lamb ReceiptsExport Lamb Receipts - Top 15 Countries, September Year

2011-12 2011-122005-06 2010-11 2011-12 $ 000 $ per tonneGreat Britain Great Britain Great Britain 484,441 9,136Germany USA USA 240,306 16,138USA Germany China 237,688 4,644France France Germany 228,553 15,768Belgium Belgium France 153,608 10,804Japan China Netherlands 144,701 15,129Canada Netherlands Belgium 99,756 18,627Netherlands Canada Saudi Arabia 94,220 5,309Italy Saudi Arabia Canada 82,996 10,238Saudi Arabia Japan Jordan 63,497 5,622China Switzerland Japan 45,511 8,904Switzerland Jordan Switzerland 41,278 24,184Mexico Spain Italy 37,234 12,186Greece Italy Hong Kong 32,482 6,320Spain Greece Taiwan 27,543 9,112

Other 313,483 6,707$2,327,297 8,794


Outline

• Overview



• Exchange Rates





• Discussion

Sheep & Beef Farm Profit before Taxper Farm, Constant 2004-05 $s

0

20,000

40,000

60,000

80,000

100,000

120,000

140,0001

99

0-9

1

19

92

-93

19

94

-95

19

96

-97

19

98

-99

20

00

-01

20

02

-03

20

04

-05

20

06

-07

20

08

-09

20

10

-11

20

12

-13

e

1990s decade av. $44,800

2000s decade av. $65,100

Source: Beef + Lamb New Zealand Economic Service Sheep and Beef Farm Survey, All Classes Farm

Improved in-marketprices NZ:US$ 81¢

2007-08 Lowest in 50 yrs NZ:US$ 77¢

NZ:US$ 43¢

Sheep & Beef FarmsFarm Profit per ha distribution

0%

5%

10%

15%

20%

25%Le

ss th

an -

500.

00

to -

450.

00

to -

400.

00

to -

350.

00

to -

300.

00

to -

250.

00

to -

200.

00

to -

150.

00

to -

100.

00

to -

50.0

0

to 0

.00

to 5

0.00

to 1

00.0

0

to 1

50.0

0

to 2

00.0

0

to 2

50.0

0

to 3

00.0

0

to 3

50.0

0

to 4

00.0

0

to 4

50.0

0

to 5

00.0

0

to 5

50.0

0

to 6

00.0

0

to 6

50.0

0

Abo

ve 6

50.0

0

% o

f F

arm

s

1990-91 2008-09

Source: Beef + Land New Zealand Economic Service

1990-91 19,600 Farms, 38% Hill Country

2008-09 12,880 Farms, 48% Hill Country

One factor in the distribution changeFarms with losses

1990-91 17%

2008-09 23%

Pastoral Sector DebtJune Year

9 yearsSector +153%

Dairy +173%

+$19.4 b

Sheep & Beef

+112%+$5.4 b

Sheep & Beef Farm Equitytotal sector

0

10

20

30

40

50

60

70

801

99

9-0

0

20

00

-01

20

01

-02

20

02

-03

20

03

-04

20

04

-05

20

05

-06

20

06

-07

20

07

-08

20

08

-09

20

09

-10

p

20

10

-11

f

Do

llars

($

bill

ion

)

20%

30%

40%

50%

60%

70%

80%

90%

Eq

uit

y %

Net Worth Liabilities Equity %

Source: Beef + Land New Zealand Economic Service Sheep and Beef Farm Survey

Outline

• Overview



• Exchange Rates






Sector strategy – current state

Inability to dif ferentiate

No clear direction for change

Competing in two markets

Mixed information

High operating costs

Lack ofmarket power

Excessive competition

High costs

Inability to differentiate Inefficient

procurement

Unclear market signals

No clear direction

for change

Lack of confidence to

invest

Masked by procurement

signals

Processors (looking for certainty)

Farmers (looking for leadership)

Red Meat Sector Strategy

Core strategy themes High level activities

Coordinated in-market behaviour

Creating a strong brand position in premium markets

Acting with scale through greater coordination of exports in target

markets

Efficient & aligned procurement

Shifting the focus of competition from the ‘farm gate’ to offshore

competitors

Ensuring suppliers are receiving a fair and sustainable reward for their

performance

Increasing transparency of information

Sector best practice

Improving productivity at all stages in the supply/value chain

Enabling a ‘single voice’ to provide clear leadership

Creating a strategy coordination group able to support sector initiatives

Developing New Zealand’s farming systems

Selling the New Zealand story

Sector strategy framework

Informedaligned

behaviour change

Coordinated in market behaviour

Sector best practice

Efficient procurement

Grow share of market value

Improve business

skills

Improve on-farm

productivity

Increase certainty of supply

Get better access to markets

Make better use of scale

Select what to sell

Develop farming systems

The common target

• The structure of the meat industry is questioned. Yes there is work to do and improvements to be made as in any industry…

• But…• The structure of the industry today is the way

it is because farmers have built it that way.• Farmers and shareholders have to come to a

common view if they want to change it.• Meat sector rapidly moving to a specialised,

diversified, differentiated model

On Farm - The size of the prize…

• Take this $8 billion sector to $14 billion

• In real terms adding another $3.4 billion

• … by 2025 or

• Another $420 (in real terms) per hectare of additional value for the sector!!

Farm Profit before Tax per ha

-800

-600

-400

-200

0

200

400

600

800

1,000

1,200<

= -

500

<=

-40

0

<=

-30

0

<=

-20

0

<=

-10

0

<=

0

<=

100

<=

200

<=

300

<=

400

<=

500

<=

600

<=

700

<=

800

>80

0

$ p

er

ha

Profit per ha


2009-10 Sheep & Beef Farm Survey, All Farms excluding Class 8 mixed (crop) intensive

75 % of Farms

Profitability Prize - Sector

-50,000

20,000

90,000

160,000

230,000

300,000

370,000

<=

-50

0

<=

-40

0

<=

-30

0

<=

-20

0

<=

-10

0

<=

0

<=

100

<=

200

<=

300

<=

400

<=

500

<=

600

<=

700

<=

800

>80

0

$0

00

Profit per ha Gain per ha


23% of farms

Benchmarking0.

0000

0.00

050.

0010

0.00

150.

0020

0.00

25

Class 6 South Island Finishing-Breeding Farms EBITR per Ha Distribution (Empirical) for Financial Year 2008/2009

EBITR $ per Ha

Den

sity

-450 -350 -250 -150 -50 50 150 250 350 450 550 650 750 850 950 1050 1150 1250 1350

Example Farm 6:Quintile 5 - EBITR/Ha:

$ 1002.5

Example Farm 3:Quintile 3 - EBITR/Ha: $ 260.8

If Farm 3 had EBITR/ha of Farm 6 thenit would have achieved an additional $341,194 profit in this year.

Example Farm 4:Quintile 4 - EBITR/Ha: $ 398.9

If Farm 4 had EBITR/ha of Farm 6 thenit would have achieved an additional $103,813 profit in this year.

Examples of gaps in earnings between different farms

• Long tail implies huge potential for profitability increase• Multiple peaks imply mixed sources of variations

Outline

• Global Trends



• Exchange Rates


• Farm profitability• Red Meat Sector Strategy• Challenges for the future


Challenges for the future

• Market Access and opening up new markets

• Land use change

• Acceptance of farm practices and farming in NZ

• Food safety and traceability - NAIT

• Water quality and availability / environment

• Biosecurity

• Ongoing productivity gains and profitability

• Consequences of addressing climate change

Outline

• Global Trends



• Exchange Rates


• Farm profitability• Red Meat Sector Strategy• Challenges for the future


Conclusion

• Food is the still the big issue• NZ grass fed products perfectly poised to profit

from this• Considerable change in land use and stock

numbers in NZ– Improved long term profits needed for sheep

and beef for reinvestment• Global focus for lamb and beef

– Continuing to diversify into emerging and more valuable markets

– …however a real need to continue to service traditional markets

• Challenges real but so are the opportunities

Sheep & Beef SectorWhere have we been, where are we at now;Possible pathways for the future.

24 April 2013

Ag and Hort Sciences Teachers Conference 2013

Mike Petersen, Chairman Beef + Lamb New Zealand

Material Supplied for Public use only by agreement from

© 2012 Beef + Lamb New Zealand Limited previously operating as Meat & Wool New Zealand Limited.

All rights reserved. This work is covered by copyright and may not be stored, reproduced or copied without the prior written permission of Beef + Lamb New Zealand Limited, Box 121, Wellington.

Phone: 64 (0) 4 473 9150, Fax: 64 (0) 4 474 0801

e-mail: [email protected]

Beef + Lamb New Zealand Limited, its employees and directors shall not be liable for any loss or damage sustained by any person relying on the forecasts or other information contained in this document, whatever the cause of such loss or damage.

sheep & beef sector where have we been, where are we at now; possible pathways for the future....

Documents

sheep beef sectorwhere

future conclusion

liquidity crisis

food production

global trendseconomic

commodity levies act

mike petersen

mature marketssome flow