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Moving to new value chain model
Jul 30, 2012
Cranleigh is at the forefront of several projects aimed at transforming traditional commodity based industries to value driven, vertically integrated food companies under a paddock to plate operating model.Cranleigh director David Clarke says a vertically integrated value chain model is desperately needed in the red meat industry to create economic value in the agriculture sector.
Cranleigh is working with Farm IQ to develop a model for the rad meat sector. Farm IQs objective is to grow the country's GDP by an additional $1.1 billion in seven years and an extra $8.8 billion by 2025.The value being added to the red meat industry is coming from a seven year investment programme set up in 2010 by Farm IQ, a partnership between Landcorp Farming, Silver Fern Farms, Tru-Test and the Primary industries Ministry.It resulted from concerns about falling meat prices and the increasing attractiveness of converting farm land for dairy and forestry.
By understanding the key drivers of the existing value chain, Cranleigh is creating a demand driven, integrated value chain model aimed at delivering sustainable value for farmers, processors and marketers.Collaboration and vertical integration of the supply chain creates value from finance and banking perspective,says David.
He says while New Zealand is still an agriculture-driven economy with export revenues reaching $31.5 billion for the year ending June 30, 2011, it must move away commodity based trading to consumer based marketing through collaboration across the supply chain.Continual volatility in international commodity markets means instability in New Zealand's agriculture sector and an inability to control the vagaries of fluctuating prices, says David. Farm IQs seven-year programme ranges across six distinct projects governance, market, database, genetics, processing and farm productivity each one adding value to the supply chain. If we can successfully integrate the supply chain the benefits come down to everyone involved, says David.
He says key observations from the continuing project have thrown up glaring inconsistencies. Market signals coming through the existing value chain are not making it down to farmers. There is a disconnect between the requirements of the market and the incentives of producers.
There is an urgency for the industry to understand and supply what the market wants through an integrated supply chain.
He says the value in the value chain begins before livestock are born. It is about having the right genetics matched with the right on-farm systems, capturing information through EID (electronic identification device) and using processing technology to feed this back to the producer. Finally and critically, it involves matching products to markets.
In a project for NIWA, Cranleigh looked at the commercialisation of marine farmed Hapuka to market it as a premium white fin fish product in the international fine dining sector.
Cranleigh undertook a detailed volume and market analysis, modelled the business case and tested the investor market. By providing a premium product to the fine dining market, our client wanted to develop the opportunity to service the growing global demand for premium quality food ingredients, says Andrew.
It is not easy process for any company and it proved that an integrated supply chain and brand is essential for launching a new premium product into the market and creating value.
David says equally as critical to any project is governance and this includes documenting strategic plans so the business will not stray from its objectives and growth strategy.
It is also important to know where a project or business makes its money; understanding the demands of the key market to justify sales/revenue forecasts; developing and protecting a unique brand and market position and developing a robust, solid financial model at the beginning that will help will any capital raising discussion.