NEW ZEALAND-THE MEAT TRADE.
Commodity levy consultation with farmers by Meat & Wool New Zealand will begin with a personal statement from director Ron Frew at the first meeting, at Ohakune on Monday, May 4.
And he is likely to be disagreeing with the 50% to 100% levy increases put forward in the Consultation 09 paper circulated to all sheep and beef farmers.
"My position is rather different from that implied in the consultation document," Frew said, while declining to make public further details of his stance.
"My comments will be from the perspective of a levy payer and they won’t be extreme."
Frew called the current proposal from MWNZ the "edge of expectation" for farmers, which he hoped would arouse more of them to be active in the consultation process.
"This is an organisation which at the best of times attracts 30% of eligible voters, and the rest are still funding its activities.
"I urge them to seriously participate in the consultation round which will determine their levies for the next six years," Frew said.
Board chairman Mike Petersen said the view of one director would not be the final Commodity Levies Act (CLA) proposition. Frew holds the view that statutory board activities should be smaller, not larger.
"There are slightly different views around the board table, and the consensus has been put forward in the consultation document," Petersen said.
He did not regret putting up anything in that consultation document, including the 50% to 100% levy increase indicators.
"We need to be bold in putting up options to farmers," he said.
Yet Petersen acknowledges the need to arrive at a proposal (on which farmers vote in August) that will gain majority support. Thus it is likely to be more conservative than the numbers the board has proposed initially.
The possibility of a no vote is unacceptable, because the sector would lose all of its programmes in research and development, market access, wool training and monitor farms, to cite some examples.
So why was MWNZ so bold as to suggest 50% to 100% levy increases, knowing that many farmers would choke on those numbers in recessionary times? And that it was almost guaranteed to result in organised opposition and a split in the ranks?
"The reality is that if we put the current level of spending forward in the future, with reduced livestock numbers and a lower contribution from Meat Board reserves, then that range of increases in levies (50% to 100%) would be required," Petersen said.
Clearly also MWNZ believes its current range of activities is appropriate and that major changes are not required.
Petersen said the farmer feedback he had received since the consultation document was first previewed at the annual meeting in Gore in March has been along the lines of "gee, that’s a big increase, let’s see your reasons".
MWNZ has been channelling between $7 million and $10 million annually of interest and some capital from the Meat Board reserves, which now stand at $88 million.
"Interest rates on deposits are significantly lower, which will reduce Meat Board income," Petersen said.
"So the question then becomes, what level of reserves do farmers want the Meat Board to retain?"
In 2007-08 the Meat Board earned $6 million from interest, $2.7 million from quota management fees and $2.3 million from unrealised foreign exchange gains on investments.
That enabled the Meat Board to spend $5.8 million on special projects, which were Ovita’s gene technology work, Johnes Disease research, Pastoral Genomics and Paraco’s work on internal parasites and make $2.3 million contribution to MWNZ programmes.
Among the specific MWNZ programmes were Asia beef marketing, NAIT, the Beef Co-operative Research Centre, the Central Progeny Test and the Pastoral Greenhouse Gas Consortium.
In 2007-08 the Meat Board incurred a small deficit, but the previous year it dipped $3 million into reserves.
Some $50 million of reserves are "parked" indefinitely, to be used for recovery in the event of a major exotic disease outbreak, like foot-and-mouth.
Last financial year MWNZ income was $38 million (of which $32 million came from levies) and expenditure was $37 million.
It also made $8.6 million from the sale on an associate company, which now sits in current cash assets, which means that the net asset position at September 30, 2008 at $29 million was considerably better than $17.2 million the year before.
Meat Board reserves and MWNZ net assets are likely to be used by dissenters for reasons why levies should not go up by 50% to 100%.
MWNZ has provided independent economic analysis of the total benefits returning to farmers from their levies over the past five years, project by project, done by Nimmo-Bell & Co.
They include the North Asia beef market promotion of $7.16 million of levy funding over three years, which returned $1.73 for every dollar invested and the UK and Germany lamb market expenditure of $14 million which returned $11.26 (UK) and $3.70 (Germany) for every dollar.
Nimmo-Bell concluded that the North Asian beef programme had returned some increased value of trade into South Korea and Japan while US beef was absent because of BSE.
But the increased trade value was not enough to outweigh the brand development and promotion costs in the short-term. So a large amount of the programme benefits are yet to be realised.
The outcome depends on commercial opportunities elsewhere and meat company strategies.
In discussion over the lamb promotion, Nimmo-Bell pointed out the insurance value from maintaining market position that would be eroded without expenditure.
The high lamb prices in those markets reflect characteristics demand by consumers such as quality, natural, safe, healthy, which require ongoing investment in NZ’s reputation.
Therefore the high returns from promotional spending now are due to years of investment which have gone before, Nimmo-Bell commented.
It is that sort of accumulated value which MWNZ chairman Petersen warns could be lost if farmers vote down the CLA, and why he has no intention of being the captain whose ship goes down.
Fifty consultation meetings will be held throughout the country over May and June.