The Evolution of the Meat Industry

Annual General Meeting
New Zealand Meat Board
District Council Rooms
Gore

John Acland, Chairman of the New Zealand Meat Board, and members of the Board; CEO Neil Taylor and Meat Board staff; Fellow farmers.

I've entitled this address "The Evolution of the Meat Industry" because this is a time of change for the industry and the board. As someone who has been involved with the meat industry all my life, it is an honour to be part of that process as minister.

It's interesting to reflect on the economic conditions which led to the establishment of the board back in the 1920s. In New Zealand, the meat industry really began in 1882 when the ss Dunedin took the first shipment of frozen sheep and lamb carcasses to the UK. For 30 years after that, New Zealand was Britain's farm, and our farmers produced more and more mutton and lamb for the UK. In 1920, the price collapsed when for various reasons we sent the UK the equivalent of two years' production. Prime Minister Massey acted. He told a conference of farmers that the Government had come to the conclusion that "it was time to interfere to assist the meat producers to get a better price than they had been receiving". He passed an act establishing the board, giving it extraordinary powers. It could assume control over all export meat, prohibit or limit imports, impose a levy, negotiate all shipping contracts, lay down conditions on grading, handling, storage and insurance, arrange promotion, or make any arrangements it believed necessary for the sale or disposal of New Zealand meat.

The board quickly went to work and did some good things. In 1923, the first marketing effort began with the "rosette mark" introduced and featured in advertisements for New Zealand meat. In 1934, after Britain passed the Merchandise Marks Act which required all meats to be branded with the country of origin, the board introduced a crescent with the words "New Zealand". It remained in use until the 1950s. As far back as 1926, the board began the search for new markets, sending trial shipments of beef, mutton and lamb to Canada and the US.

The 1930s' Depression led to new challenges with the first quotas being applied by the British Government to New Zealand meat. But the Second World War changed all that with Britain buying all our meat exports. And it was during the war that schemes were established providing massive financial reserves for the board.

After the war, the search for new markets intensified. In 1954, the UK terminated its bulk purchasing contract. By the 1960s, the US was our main market for beef and Japan for mutton. Air-freighting of specialty meats began around the same time. In 1966, the board's legislation was amended to establish a Market Development Committee to promote lamb market diversification, away from the UK. Britain's joining of the EU in 1973 - with the introduction of quota allocations - made the need to find new markets even more acute.

But we didn't respond to that event all that well. In 1976, the Meat Export Prices Act was passed, supposedly setting up a self-funding minimum prices scheme. It didn't work. In 1978, SMPs were introduced. In 1982, after SMPs caused sheep numbers to increase above what the market and the environment could cope with, the board took over the marketing of all mutton and lamb exports. It was a spectacular disaster, with the Government having to meet nearly a billion dollars of the board's debts in 1987. With the passage of the new legislation last year, those powers have gone the same way as SMPs.

It is something of a difficult history for the industry. For historical reasons, we were set up almost as an arm of Government to provide frozen carcasses for the "mother country". Our evolution away from that model has not been as quick as it could have been. As I argued in my two previous speeches to your AGM, too much of our product is still stuck in commodity trade, and that is a road to nowhere. Diversification of markets has been made more difficult by trade restrictions. These are the two big issues for the industry and I'm pleased to report some progress on both.

The new legislation passed at the end of last year established for the first time a New Zealand Meat Board, as opposed to a meat producers' board. It will help to bring producers and exporters closer together. It also took the carcass classification system out of legislation in order to encourage the development of new, more consumer-orientated systems of food specification and related payments to farmers. Both of these things I've argued are essential if we are to see ourselves in the food business rather than the carcass trade. We've also seen the introduction of the Beef and Lamb Quality Mark and its associated promotional campaign, something I've been a strong supporter of. Offshore, efforts continue to increase volumes of chilled product and to extract higher value from those products. In Saudi Arabia two weeks ago, I saw a Meat Board programme where we were training Saudi butchers to get the maximum value from New Zealand chilled lamb carcasses - up to $35 more per carcass.

And, today, I would like to commend your new identity - and your new strategic direction and business plan - being released at this AGM. The new identity - "Meat New Zealand" - places us firmly in the global food business. It emphasises that we must no longer be in frozen commodity carcass trade but part of the lifestyle industry. As farmers, we're not producing animals for meat companies. We're part of a production chain producing food for consumers. The board's old look had not had a radical shake-up since the board was first formed. The new identity sums up the changes in the industry since then.

I also welcome the studies the board is part-funding to gain a clearer picture of our place in the global food industry, and the position of competing products and countries. The work looks at future development options and also at potential threats to our export business. Taken together, the studies show us both the problems we face now and possibilities for the future. The release of Towards 2006 was a good example of the work. It is important the work becomes more than just an interesting read. It should underpin future developments.

The release of the board's first ever business plan is also a positive step. It is being put forward in light of the strong emphasis on consultation built into the legislation passed last year. "Meat New Zealand" asks for farmers' views and I encourage you to give them. It'll come as no surprise to anyone in the industry that I'll be giving mine. In the past, policies and programmes were developed without the kind of broad input from the industry which is now demanded. The new focus on consultation is good for the board because you can only succeed if you are truly responsive to the needs of the industry.

I also believe that the continued development of the business plan should take into account planning for a change I believe is inevitable: the loss of the board's statutory powers. That is my main message today. It is the next step in the evolution of the industry I've spoken of today.

I am on no ideological crusade on the issue. I simply argue that it is inevitable, and to waste resources opposing it would do nothing for the industries concerned. And given that those industries are our largest and most important, boards have a responsibility to prepare for that inevitability. We need to ensure that when change happens, we are ready for it so that it does not cause undue disruption to our marketing operations and the management of our quota markets from which we receive significant economic rents. The Government has a responsibility to ensure you do begin that planning process, and complete it this year.

As I said, I am no ideologue on the issue. But there are two reasons why reform is inevitable - one international and one domestic - and I urge you to show leadership.

At the end of 1999, the World Trade Organisation will begin negotiations on further liberalisation of global trade in agriculture. They are potentially the most important trade negotiations New Zealand will ever have been involved in. New Zealand's goal will be to bring agricultural trade onto the same basis as trade in anything else - to reduce substantially the subsidisation and protectionism which cost jobs throughout the world.

Momentum towards a good outcome is on our side. At APEC in Vancouver at the end of last year, we reached agreement for trade liberalisation of forestry and fisheries - the first time a major international group has agreed to free trade in primary products. It was an important precedent. The final details of that deal will be concluded this year, after which it can go to the World Trade Organisation for possible global application. The precedent value of that would be even greater. And we also reached agreement in Vancouver for the liberalisation of trade in food to be on the agenda this year. No final deal will be concluded this year. But real progress could be made when New Zealand chairs APEC in 1999 in Auckland. It will be a key theme of our year in the chair. Coming just before the WTO negotiations in 1999, any progress on the food front would provide a substantial boost to our position.

But what is clear is that progress on liberalisation of trade in food will require give and take. The statutory powers of producer boards will be questioned, particularly, but not restricted to, those with trading powers. I can assure you that as Trade Minister I believe that they would easily be a price worth paying.

What's more, as Trade Minister of a country as small as New Zealand, I can assure you that I have no inherent geopolitical strength on the world stage. My negotiating advantage comes from the fact that I can demonstrate that New Zealand is squeaky-clean, free of the kinds of subsidisation and protectionism which other countries shamefully maintain. Progress on reforming producer boards would strengthen my position; strengthen my ability to get you better access.

But it is not just international considerations which are driving this process. Domestically, there are those who argue that the powers should go for economic reasons. At this very AGM, remits are being presented arguing that the compulsory levy should be abolished or cut in half. Amongst farmers, farming leaders, businesspeople and politicians, there are growing calls for the powers to go, with claims they are an anachronism in the modern, open economy. It is claimed they reduce innovation in the industries concerned. It is claimed they lead to decisions being made for political purposes rather than purely commercial reasons. It's claimed that every time the Meat Board does something positive internationally, it gives the meat companies an excuse not to. These arguments have various degrees of merit, but it seems to me that the argument, like the trade liberalisation argument, is heading in one direction, towards reform.

I say again: I am no ideologue on this issue. But I believe change is inevitable. And it is my responsibility as minister to ensure the industries concerned are planning for it. I am in the process of meeting with producer boards to brief them on my expectations for that planning process. I am satisfied that the dairy and wool boards are taking steps to plan for the future. Sir Dryden Spring has privately told dairy farmers that his board has begun planning work. The Wool Board has already separated its statutory functions from its research and marketing arm, and its work continues. The apple & pear and kiwifruit boards are making progress reforming their structures.

The Meat Board has an opportunity to use your business plan process to address the future in a way that works for you. It is for you to show leadership. It would be irresponsible for boards to merely wait until a Trade Minister returned from overseas with a trade liberalisation deal, or for a parliament to be elected containing a majority in favour of unilateral change. To do so could put at risk those marketing activities which are valuable, and the economic rents New Zealand receives from your administration of quota markets. You must prepare now for an environment where the Meat Board Act will not exist, and where a more robust Commodity Levies Act may provide the basis for your operations.

I look forward to working constructively with the board through the year on the issue. It will be the final stage of evolution away from Prime Minister Massey's model to being a modern food industry. The industry will be free from parliamentary control, and free forever of the risk of parliament acting unilaterally. It will not be an easy issue for any of us. But we must address it. You have an opportunity to work with a minister who believes there is still some time for us to address the issues calmly and rationally and who is prepared for change to occur over a timeframe that works for you, as long as that is reasonable.

I maintain that the New Zealand meat industry has a potentially positive future. We have the most efficient producers in the world. I believe we can produce the finest products which can match the values of a world market which is increasingly worried about health and environmental issues. I see signs of progress on the market positioning and market access fronts. I wish the board well as it tackles the difficult issue of the future of its powers and I look forward to working with you for the next two years and beyond.