Here’s how to get the agribusiness supply chain working for you

3 MIN

Despite the complex and challenging world we live in right now, the long-term outlook for the New Zealand agribusiness sector looks very bright. Not only does the world want what we produce, but if we get our story right and stick to the supporting framework, there’s an opportunity for farmers and growers to really benefit from high, sustainable earnings.

That’s why it’s more important than ever to have a great connection with your processor or marketer to ensure you’re delivering what they need, when they need it, and from a farm that’s exceptional in everything it does.

From basic beginnings to specialised supply

Over the past 25 years in banking, I’ve seen the large, primary sector processors evolve significantly – transforming from fragmented, often inefficient manufacturers that supply commodity products to ‘old world’ markets, into innovative, efficient, market-led organisations that have expanded their global channels. Along the way, they’ve reduced reliance on single markets, improved their resilience, and optimised the value of the product we export from our shores.

Their success is down to the fact they’ve responded to the ever-changing demands of their global customer base – not only with the product they offer, but with the way it’s produced and presented to market. On the back of this, every processor we work with now has a series of accredited supply programmes, aimed at helping farmers and growers achieve premiums for delivering what the market wants. It’s inevitable more accreditation schemes will be introduced to meet the unique cultural, demographic, and values-based requirements of different customer groups. These will give farmers and growers a chance to improve their supply chain value even further.

The relationship factor

But processors and their suppliers can’t operate in silos – working together and supporting each other along the way is crucial. Take shipping, for example. Current supply chain challenges mean shipping lines, businesses, and logistics providers must communicate, co-ordinate and be flexible and nimble to get products to market. Similarly, processors and their suppliers need to step up their levels of communication, co-ordination and responsiveness. It’s the only way they’ll stand a chance of meeting ever-increasing market requirements.

But what does this mean for you as an individual farmer or grower? Here’s what you need to do:

  • deliver what the processor really needs
  • do everything you can to ensure long-term supply; and
  • commit to a true partnership – hand on heart.

After all, successful processors will need strong loyalty from their supplier base. Without this level of commitment they can’t confidently invest in their asset base, or in the channels to market that will allow them to maximise value back to the farm gate.

Fonterra’s proposed capital structure changes are aimed at addressing this very issue – having confidence in supply so they can optimise the way their plants operate. This will help maximise milk prices to their suppliers – a co-dependent relationship, and one where loyalty and long-term commitment to one another is so critical.

Rising costs, escalating prices

But let’s not forget about inflation. ‘Transitory’ is a word that’s commonly used, suggesting this is all COVID-related and will revert in time as the world returns to normal. Talking to our customers, some of this may indeed prove true but, for the most part, these increased costs are more systemic. For example:

  • Labour costs are up 15-20% this year (on top of issues relating to availability and productivity).
  • Electricity and gas contracts have been re-set at 50-100% higher.

Farmers and growers are not immune, with labour shortages, compliance requirements, and increasing costs of critical on-farm expenses, like fertiliser, contributing to escalating prices.

While global commodity prices for our produce remain high, this rising cost environment can be absorbed. However, we have to expect that, at some stage, the market will soften and farm margins will be squeezed – another reason why strong relationships between suppliers and processors are so important.

A commitment that matters

All this means, right now, more than ever, it’s important that you commit to your processing and marketing partners with long-term, reliable supply of the highest-quality product from farms and orchards that are best-in-world from every perspective. Yes, it’s a high bar, but it’s the only way your processor can truly enhance its customer relationships, delivering what the consumer wants and, in doing so, extract the highest possible premium for that product in the market. From their pocket, to yours.

 


 

This article is solely for information purposes and is not intended to be financial advice. If you need help, please contact BNZ or your financial adviser. Neither BNZ nor any person involved in this article accepts any liability for any loss or damage whatsoever which may directly or indirectly result from any information, representation or omission, whether negligent or otherwise, contained in this publication. Where opinions are expressed by a specific author in this article, the opinions are the personal views of that author and do not necessarily reflect the views of BNZ.