PPCS’s new forward supply agreements for lamb may be too little, too late for many farmers.
The co-operative claimed a first for the meat industry when it announced the introduction of a fixed forward supply agreement for lamb from June 2008 to May 2009.
Chief executive Keith Cooper said the forward supply agreements were designed to give certainty in advance to suppliers on the final value of their product. This would enable farmers to make commercial on-farm decisions to capture the opportunities the certainty of value created.
Meat Industry Action Group chairman and Southland farmer Keith Milne said that while farmers were pleased to see longer-term contracts being offered, the people he had spoken to were very disheartened by the price being offered.
Mr Cooper said the PPCS model required farmers to supply a small proportion of their lambs in the off season in return for receiving “a more robust” value in the peak season.
The fixed value agreements, which flatten out values across the seasons, will vary from $4.20/kg in winter 2008, to $4/kg for summer 2009.
“The positive impact on those peak season suppliers who could deliver lambs during the winter would see peak season returns improve by around $12 a lamb over the past season,” he said.
It is believed farmers who sign up will be required to supply 20% of their lambs in the June, July, August period.
Mr Cooper said that while the focus of the agreements was on encouraging the production of a supply of lambs to meet market requirements, it would also induce supply chain gains from breeders to finishers, and ensure the supply chain more equitably shared in the final market value of the product.
Mr Milne said the current price of lamb reflected farmers’ desperation to kill stock, but that was starting to turn and farmers were looking beyond that. “The farmers I’ve talked to would be very cautious of signing at those (PPCS forward agreement) price levels. Farmers are saying they are very disappointed at those price levels.”
He said that in Southland a lot of farmers would have to make major changes to their management to be able to supply lambs in winter. It’s very difficult to do down here, and the price is not big enough to do that.
“How can they supply 20% this year because they’ve already been killed, and is there enough financial incentive to change their management for next year?”
He said farmers had moved on during the last year and were now firmly backing a meat company mega-merger.
“They are saying let’s get the whole industry organised and co-operating, this is more tinkering.”
North Canterbury farmer and PPCS supplier Ken Tomlinson said he did not think the agreement would be good enough for him because he already aimed for higher early season payments.
Because of summer-dry conditions he aims to get 80% of his lambs away before Christmas, and 80% of those receive better money than peak season lambs.
“For us with so many months of dry it’s going to cost big money to target those areas they want.”
Mr Tomlinson said he did not think it would be easy to encourage farmers to supply lambs over the whole year. Many sheep farms were on dryland hill country properties producing store sheep.
The only way to spread the kill would be to take sheep off the hills and rear them down country.
“You’ve got to have a big carrot to do that. Finishers know they can get more from dairy grazers under the present conditions.”
Another Canterbury farmer who did not want to be named said farmers wanted to know how flexible PPCS would be if targets could not be met “because growing lambs is related to climate”.
He wondered if PPCS had released the pricing model now as a reaction the company pulling out of the meat company mega-merger proposal.
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