‘Supply chain value transfer’ might seem a vague phrase, but not to new Nuffield scholar Michael Craig.
As a marketer of thousands of lambs and sheep annually, he knows ‘supply chain value transfer’ and ‘price discovery’ are crucial concepts to the profitability of lamb and mutton producers.
And especially to the majority of producers forced to take whatever saleyard or abattoir grid price is offered when their live product is prime or the season dictates.
Hence some of the reasons the Victorian sheep and beef farmer wants to foster new supply chain methods by which primary producers can add value for themselves and consumers, in changing environmental, economic and social conditions.
Looking for new ways to sell sheep meat products
Michael is general manager of Tuloona Pastoral, a mixed broadacre livestock and cropping operation running 18,000 sheep, 500 cows and a 1400-hectare cropping program at Harrow, in south-west Victoria. His role includes strategic direction, managing fulltime and seasonal employees, pasture and cropping management, as well as overseeing wool production and sheep breeding.
But the husband and father wonders if, in 20 year’s time, Australian sheep meat producers will still be “transacting” their products the way they are now – mostly price takers rather than setters with ‘price discovery’ based on the auction system.
“I’ll be looking at can objective measurement within the supply chain help us basically align everyone’s goals?
“To where we are not constantly playing this game of ‘the guy above me is out to do me over’ and at the same time potentially eroding what should be our market advantage, being that we’ve got a quality premium product that has to provide the consumer what they want,” he said.
“If we miss that goal we are going on the wrong path.”
USA, NZ and UK supply chains are on agenda
Michael will inspect supply chain models in USA, New Zealand, Europe and the UK, including looking at industries that might not normally be seen as related to the sheep meat sector.
“Right now over 60 percent of our (sheep meat) product that is processed here, comes through the saleyards.
“I might not sell anything in the saleyards, but still my price discovery comes from that point,” he said.
“I know why we use them and it is a very good market having suppliers and demand, and buyers on either side, but at the end of the day when you send an animal in there you rarely bring them back.
“So we are creating this constant kind of potential commodity mentality around our product,” he said.
“It’s all about saying how can we focus on what everyone wants in the chain.
“I have a belief it is all about measurement and getting objective measurements that can drive actual premiums, rather than how we often associate our market dynamics around discounts.”
Can producers leave behind traditional selling methods?
One finding of Michael’s study might be that producers have to “wean” themselves off what they traditionally thought were good methods of supply chain value transfer.
“It might be my own bugbear, but I think of saleyards and I say to myself what value do they create to the consumer?
“They create price, but all we are doing is putting all our diseases together and all our potential welfare concerns together, stretching the product and it’s potentially losing value for us,” he said.
“But because we don’t trust anyone in the chain, we do it that way.”
Michael said saleyards provide liquidity for smaller lots of lambs and sheep.
“That all makes sense, but there must be other ways we can do it.
“If I told my kids, look the way we do it, that’s the way we are set for life, then we are not trying hard enough.”
Sheep meat producers are price-takers through saleyards
Sheep meat producers control supply, yet by putting stock in saleyards they become “the ultimate price-takers,” Michael said.
“In terms of price volatility we create that by this constant flow of supply and demand.”
“I know Australia has issues around climatic variability and the method of being able to deal with over-supply and under-supply does work,” Michael said.
“But what value do saleyards create for that experience of someone eating our product and that kind of is the key.”
Michael said more than a third of the lambs produced by UK farmers are marketed by producer groups and there is a trend in New Zealand away from saleyard use.
Can Australian producers be profitable and give consumers value?
With high production costs, a tough environment and small population, Australian sheep producers have a challenge to be profitable while creating consumer value, he said.
“If the forecasts around climate change and global development trends are right, then Australian sheep meat products will increasingly become a semi-luxury protein source, requiring new ways of thinking about our supply chains.
“I’ll be looking at whether additional value creation can be distributed equitably through the supply chain to improve returns and vertical linkages, particularly in the context of Australia’s climate variability, production scale and ability to adapt.”
Mr Craig’s Nuffield scholarship award was supported by Meat and Livestock Australia.
Nuffield Australia is an organisation which provides an opportunity to Australian farmers to travel overseas on an agricultural research scholarship. It is a 16-week program consisting of both group and individual travel. The next groups will be travelling through New Zealand, Brazil, USA, Mexico, the UK, South Africa, Kenya and Europe in March-April 2015.