Arguments for a marketing change

Press, Volume CXI, Issue 32720, 24 September 1971, Page 12

Arguments for a marketing change

Two weeks ago in the general columns of “The Press” is was reported that a New Zealand-owned freezing company was proposing in the new meat export season, which begins next month,to go over to a system under which it would market lamb, and such other meat as might be brought into the scheme, on behalf of the farmer.

This would replace the system under the company has bought lamb from the producer on a schedule fixed many weeks ahead of the eventual sale of the product and then had to face the risks involved in trading on a notori, ously fluctuating mar. ket. The company hat since been identified as ths Canterbury Frozen Meat Company and it is understood to be determined to proceed with its proposition, which would involve the operation of a pooling system. There is no question that the market for lamb in the United Kingdom is a fluctuating one. And herein lies one of the main reasons why the Canterbury Frozen Meat Company would like to move to a system that would mean that it would not be subject to wide variations in its annual financial results. ; Once the shareholders of the company ware mainly farmers and then the interests of farmers and shareholders werqalike. The position today is very much different end it is important to a public company like Canterbury Frozen Meat that its share values should be reasonably stable. This requires a constant profit and a return, after tax, on shareholders' funds equal to the average of the top group of New Zealand companies listed on the Stock Exchange. This stability is essential to attract investors, and especially Institutional in-

vestors to provide new capital and loan moneys when they are required, and the calls on the meat industry to provide improved facilities, particularly to meet hygiene regulations, are well known today. The claim is that this desirable stability cannot be realised when a company has to trade in a commodity that sells on such a widely fluctuating market. It might be suggested from the Canterbury Frozen Meat Company proposition that meat trading over the years has been unprofitable but the position is rather that it is speculative and fluctuating and perhaps a type of operation that can really only be carried out by a private company that does not need to constantly report a good result and can withstand a bad period in anticipation that, a good one is Just around the comer. Such fluctuating fortunes have been a characteristic of meat companies. It is noted that such large overseas companies as Borthwicks and Vesteys are private companies. However, it is contended that trading in lamb, as such,, even over a long period of years has not been a rosy proposition by any means. It has been claimed that a farmer cooperative over a 15 years period showed an average surplus of 20c per sheep and lamb before tax. This surplus, including both meat and wool, would give a company 10c after tax and on a turnover of 2m sheep and lambs, which is more than most New Zealand compa-

nies own, a tax-paid profit of $200,000 on a turnover of between slom and sl3m, which on s!om is only 3 per cent. Many farmers and producers in the past have, however, had strong suspicions that companies were making big profits out of lamb trading at their expense and one attractive feature about the C.F.M. proposals from their point of view is that they would be receiving the full return for their product after deduction of costs and commissions, and it Is understood that there will be some farmer representatives on the marketing side of tiie company's operation to represent their interests and see that they get a fair dealThe company could conceivably surrender owner•hip of lamb and other meat brought into the pooling system and return to processing only. This would naturally mean a sealing down of its present organisation. it now markets some Im to 1.5 m lambs annually.

and in the event of tho company reverting to processing it is suggested that overseas interests, who at present control at least half of the New Zealand product, would be likely to increase their interest. Indeed, it has been the operation of the overseas companies with their international ramifications that have accentuated the financial problems of the New Zealand-owned companies. It has been possible for them at times to pay rates to acquire lambs that have sorely embarrassed the New Zealand companies in that these payments have not been justified in the light of cold market realisations for Now Zealand meat Hence it is asserted that the New Zealand companies can compete with the overseas companies in providing a service but not with their financial resources. For these reasons it is strongly denied that tho company is “opting out” of manceting. as has been suggested in some quarters. It has been claimed, too, that an organisation which

would bo selling meat for farmers without the possibility of incurring a lose on it might tend to become a weak seller, but in the Canterbury Frozen Meat Company scheme, as evidence of tho company's good faith, it is understood that any moat that for any reason the company had to acquire would be sold through the pools along with the farmers’ meat. One of the problems of introducing a system such as Canterbury Frozen Meat envisages is how it, with advance payments on a basic price, can operate and prosper alongside the old system with companies operating an attractive schedule with the full price being paid to the fanner immediately. Pool systems, too, are not without their problems, apart from the fact that part of the return to the farmers is delayed. Ono of these is the incidence of trading to meet diversification requirements and thia could mean that if pools were operated on a

short term basis—say two or three months at a time—that one pool might bo at some disadvantage compared with another because more meat had to be sold in one period as compared with another at a discount to meet diversification demands. However it is recognised that the proposal is an innovation and may be difficult to “sell” initially but could offer prospects of putting the industry on a sounder basis to service its clients and serve the interests its shareholders. It could conceivably, too, encourage those who are Interested in commission control of moat marketing to step up their demands for action, especially if more companies show an Interest in shedding the risks involved in marketing, and there Is evidence that Canterbury Froaen Meat Company la not the only firm which is exploring the possible alternatives to the present schedule system for simUar reasons.