Friday, March 29, 2024

Sheep, beef farms must focus on costs

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Sheep and beef farmers need to focus on onfarm costs in the same way as dairy farmers, Beef + Lamb New Zealand chairman James Parsons says.
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The key focus for his organisation was to help farmers get the average onfarm cost structure down below $3 a kilogram of product, both meat and wool.

When opening the Red Meat Sector conference in Auckland, Parsons said everyone in the sector needed to tell their story better to get product value growth from export markets.

The Red Meat Sector Strategy aimed to increase export earnings from all products – meat, wool and co-products – from $8 billion to $12b.

Since the strategy was agreed and published in 2011 the sector had grown to $9b in export earnings.

For example, the meat industry had steadily increased the value captured from export lamb, Parsons said.

The average free-on-board price had risen from $5.76/kg to $7.90/kg over the decade between 2005-06 and 2014-15.

Farmgate payments had increased from $3.35/kg to $5.30 over that time but the processor share had fallen slightly.

“As farmers we remember the very good years around 2010 and 2011 when we were getting very good lamb prices but, unfortunately, processors didn’t fare as well,” he said.

To achieve the goals of the Red Meat Sector Strategy different methods could be employed.

It could be done through volume growth.

The average sheep and beef farm produced just over 100,000kg of meat and wool a year and that could be increased by 25% if prices remained steady.

Such volume growth would entail moving from 170kg/ha of saleable production to 220kg.

“But despite the increasing export returns farmers and the meat processors aren’t feeling any wealthier and that is because costs have been rising also.”

James Parsons

B+LNZ

“That’s very doable; plenty of farmers are operating at that upper level or exceeding it already.

“The second option is for production to remain static and we improve the fob value by 25%.

“But despite the increasing export returns farmers and the meat processors aren’t feeling any wealthier and that is because costs have been rising also.

“The strategy requires a balanced approach to improving volume and value while keeping hold of our costs.”

The average costs of the sheep and beef farm, including debt servicing, were now at $3.50/kg and farmgate receipts, across all saleable products, were equivalent to $4.50/kg.

Farmers were being paid 65% of the fob value, which was an average of $6900/tonne or $6.90/kg.

Their margin over farm costs was $1.10/kg, or 16% of the fob value.

The processing industry was capturing 30% of the fob value, figures from the B+LNZ Economic Service showed.

Transport, drafting fees or brokerage, inspection costs and levies accounted for the remaining 5%.

Economic Service director Rob Davison said the balanced approach to gains across the sector would include 10% more efficiency onfarm, reduction in the post-farm fees and charges, product development in processing, reduction then elimination of the $300m paid annually in tariffs and further in-market premiums.

They could add a further $2.5b to the sector’s annual earnings.

Davison devised the new way of looking at sheep and beef farm costs by aggregating all sector export income and tonnages and applying the onfarm expenses attributable to each product according to their share of average farm income.

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