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The opportunity for Australian beef lies in genuine supply chains

James Nason, November 7, 2017

Jock Whittle addresses the audience at Smartbeef 2017 in Armidale.

The continued growth of large, relationship-based beef supply chains in recent years, linking producers able to consistently supply cattle within precise quality specifications to customers able to pay more for a premium article, was a dominant theme at ALFA’s 2017 SmartBeef conference in Armidale.

The models behind several large and growing beef supply chains were showcased at the conference including Stockyard Beef, Mort & Co and Paraway Pastoral Company.

All have different programs and approaches, but the same underpinning philosophy: capturing premium markets is about all links in a dedicated value chain working together, and sharing, and responding to, performance data and feedback to deliver what their customers want.

Paraway Pastoral Company’s Jock Whittle told the conference that the Australian beef industry has an “incredible opportunity” to move into genuine supply chains.

A key defining characteristic of the commodity red meat supply chain, compared to supply chains of many other types of product, is that in the red meat chain, supply is not controlled.

‘in the red meat chain, supply is not controlled’

This characteristic explains much of the high volatility and horizontally-shifting margins common in the red meat industry.

“Whether you’re in white meat, plastic cups or Apple iPhones, you control supply, you can control how much, you control how often, you control the quality,” Mr Whittle said

“That does not happen in red meat supply chains.

“We cannot easily match supply volumes or supply quality with current demand, let alone change the demand.

“This results in profit or margin moving horizontally along the supply chain, and we all have periods where we are strongly profitable, and periods where we are not.”

The current red meat supply chain in which the majority of producers operate has high volatility, low trust and transparency, weak price signals and little collaboration, which results in everyone being paid the average, he said.

“When everyone is paid the average, the good subsidise the bad,” Mr Whittle said.

No sharing of information between the different segments of a supply chain meant there was no opportunity to drive improvement.

So what is the future?

“Simply making a red meat supply chain that resembles a normal supply chain,” Mr Whittle told the conference.

“That is where there is predictable quality, predictable performance and predictable volumes.

“This allows for downstream operators to support their brands and to focus on client service, rather than worrying about supply or where it is going to come from.

“Because there are clear price signals relating to profitability and performance, the volatility is significantly reduced, so the profit moves vertically, not horizontally.

“All members of the chain rise and fall together, based on the strength of their offering, and their customer loyalty.”

Digital age supporting transition to supply chains

Mr Whittle acknowledged that producing an animal that may end up in 100 or more different products was not as simple as simple as making paper cups.

However, the digital age was now transforming the way data could be captured, managed and shared.

“What now moves horizontally is information. We are entering a digital age where this will be much simpler and easier to deliver on.”

Price signals must be there

For producers, moving into a value chain required a significant change in attitude, and also likely involved increases in operating costs, risk and management intensity. This was obviously an unappetising shift for farmers to make without an adequate price signal.

Mr Whittle said every feedlot operator he spoke to was concerned about the unpredictability of cattle performance.

Every lot feeder was trying to identify cattle that are known to perform, but that was not always reflected in the price they paid. Downstream players clearly wanted more farmers to take on the supply attitude, “but do not always appreciate the challenge of the transition and many are reluctant to reward the farmers that do make that shift”.

The question farmers had to consider was: are you a producer, or are you a supplier?, and the question lot feeders and processors had to consider was: what value do you place on supply?

Participating in dedicated supply chains meant repeat business with the same cattle sold to the same feedlot at the same weight at the same time of the year, and those cattle going to the same meatworks and the same retail outlet, where the same consumer buys the same meat because they are loyal to the brand and the eating experience it delivers.

‘This stalemate has to be overcome’

The challenge for Australia’s beef industry was whether it could transition to supply chain models faster and more efficiently than other beef exporting countries.

Mr Whittle’s view is that Australia can, because it has the brands, the genetics, the product, the traceability systems and distribution networks already in place.

“We’re in the best position to do this,” he said.

“But what must be overcome is 200 years of DNA that drives the transactional culture, where problems are passed on rather than dealt with, where weak information flow, and a production base that sees themselves as producers of beef rather than suppliers.

“We have a stalemate.

“The producer says the information is there, it is not being shared, we’re not being rewarded

“The downstream says the producer is not accountable for what they supply. Worst of all they don’t want to be, and the premium for the brand belongs to us.

“It needs to be shared.”

‘Not for everyone’

Mr Whittle said participating in dedicated supply chains was not for everyone, and suggested that 50 percent of the industry would continue to do business the traditional way.

“There are a lot of producers who don’t want to play in this game, there is plenty of demand for commodity beef, and that is fine, they can keep providing that channel.

“But progressive people have to work together, the stalemate has to be overcome.”

The growth of supply chains indicated that the stalemate is being overcome through relationships and improved commercial arrangements and was now occurring “probably more frequently than we all expect.”

His closing message to producers was that downstream players are “not your enemy, they are your customer”. For downstream sectors, the first thing to change was to increase transparency, provide more data and more sophisticated pricing systems.

 

 

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