Supplier relationships and performance have become increasingly important in agri-food supply chains. This research aimed to investigate buyer-supplier relationships in the New Zealand red meat industry. Specifically, this meant examining how relationship quality, as well as supplier characteristics and relationship attributes affect supplier performance.
The analysis improved the conceptualisation of relationship quality by bringing together constructs from the relationship marketing and social capital literature. This established that relationship quality and social capital were closely related constructs.
By combining social capital and relationship quality this created a broader measure of the overall strength of the relationship. The findings show that improving supplier performance requires taking into account both supplier characteristics and relationship attributes. Furthermore, relationship quality played a significant mediating role between all the relationship factors and supplier performance.
The implications of this research are that there are specific ways buyers can improve supplier performance. This involves identifying and selecting suppliers who have superior ability, motivation and customer focus. They also need to avoid selecting suppliers with high levels of self-direction. Improving supplier performance also involves influencing relationship attributes and improving the quality of relationships with suppliers. In particular, processors need to ensure that suppliers experience positive value from the supply relationship. Furthermore, they need to manage the interaction between specific assets, dependence and use of coercive power.
Many overseas consumers are unaware their food originates in New Zealand, undermining attempts to promote our “clean and green” and premium brand image, a new study finds.
It shows there are significant opportunities for New Zealand premium consumer food and beverage products in overseas markets but we are missing out because we are not communicating to consumers.
“Maximising Export Returns; Communicating New Zealand’s credence attributes to international consumers”, by Lincoln University Agribusiness and Food Marketing Programme Director Nic Lees and Agribusiness and Economics Research Unit director Professor Caroline Saunders, finds having a visible label and a good relationship with industry buyers could improve the situation.
It explores the opportunities for New Zealand food and beverage exporters to increase returns through communication of the credence attributes of products to consumers and gatekeepers (or the buyers in the supply chain.
Credence attributes are those believed by a consumer to be present in a product even though they can’t see them: such as animal welfare, fair trade, provenance and environmental stewardship.
Mr Lees says respondents consistently identified the lack of a retail brand and absence of a long-term relationship with the partners in the market as the most significant constraints to communicating credence attributes to consumers.
The most important method of communicating credence attributes to the consumer is through product labelling but in overseas markets identification of New Zealand origin is frequently filtered out through the distribution channel where products get further processed, repackaged and rebranded, or became an ingredient in another food product.
He says the majority of New Zealand’s beef and dairy exports are unbranded commodities that enter the manufacturing sector as raw materials or ingredients for processed products.
Likewise, significant proportions of lamb and venison exports enter the food service sector and are delivered to hotels, restaurants and institutions where they are, frequently, not identified to the consumer as being of New Zealand origin.
“As a result, a large percentage of New Zealand food exports do not have New Zealand origin identification or branding at point of purchase. Consequently, New Zealand-specific credence attributes get lost.”
Quality and health attributes, said to be of the highest importance to the consumer, are often ‘wrapped up’ with other credence attributes, such as country of origin, organic, free range, pesticide free and local. These categories are often extrinsic quality attributes provided on the product label and advertising.
Where New Zealand-related brands, or logos occur significant additional information could be associated with them.
The research also indicates the most important method of communication for the wholesaler or retailer is personal communication, which is dependent on the quality of the relationships with the exporters, Mr Lees says.
When New Zealand exporters sell products to brokers or traders, there is often very little communication of credence attributes.
These gatekeepers often have short-term relationships with a number of New Zealand exporters and price is the most significant factor for them. These importers and distributors sometimes actively restrict communication with retail customers and consumers in order to prevent product differentiation and, therefore, their ability to substitute products and suppliers.
He says having the right supply chain partners at all levels of the supply chain is seen as critical to success in the market.
The quality of the partner relationship and the ability to brand products at retail were often inter-related. Some retail gatekeepers actively prevent exporters from promoting their own brands and restrict the amount of information about the products’ attributes communicated to consumers.
Mr Lees says research shows it is possible to effectively communicate the credence attributes of New Zealand’s food products to consumers. New Zealand kiwifruit, wine and some dairy brands were examples of this.
“These products demonstrate it is possible to capture a significant consumer premium for quality attributes that incorporate both the experience and credence attributes valued by consumers. These brands were able to become an effective quality cue or search quality attribute for consumers.”
The report is part of a wider three year project, ‘Maximising Export Returns (MER)’, undertaken by AERU at Lincoln University and funded by the Ministry of Business, Innovation and Employment’s Food and Beverage Information Project. The research will assist in developing premium New Zealand brands, and underpin the growing diversification of the New Zealand economy.
There are positives for New Zealand in low the current low milk prices. These low milk prices will benefit the New Zealand dairy industry in the long term as it will limit the size of European expansion.
There is a cost war is going on between New Zealand and Europe at the moment. Quotas have come off production in Europe so they are expanding milk production.
This is similar to what is happening in oil with expanding production due to shale gas. With oil, the low prices are benefiting the low cost producers such as Saudi Arabia can produce oils for $10-$20/barrel. Whereas shale gas oil costs $50 to $100/barrel.
Ireland, for example, is planning to increase milk production by 50 per cent.
New Zealand is the Saudi Arabia of milk and we can be the lowest cost producer, but dairy farmers need to focus on grass based production to weather the storm. Grass will always be the lowest cost source of feed and New Zealand has the most efficient grass- based dairy system in the world. “Ireland can grow grass too but currently they utilise less than half what they grow. The large housed dairy operations in Europe are also only profitable at high milk prices.
We need to focus on what we are good at, which is grass. The halcyon days may be gone for a while though and we are unlikely to see high prices again soon. It is going to be a slow recovery of price and dairy farmers need to be able to be profitable at $5/kgMS or they won’t survive. The average milk price over the last 10 years was around $5.50/kg MS.
It is likely that this will be similar over the next decade as well. What we are seeing though is greater volatility. This is going to continue so farmers need to have systems that are still profitable when the price is low. The most resilient system is the low input grass based system.
As an economy we also need to see the opportunities in other areas, he adds.For example there have been record high returns for beef in the first six months of this season, with the average per tonne value up 28 per cent. Beef is a great story with China needing to increase its beef imports by up to 20 per cent a year for the next five years to meet its surging demand for protein.
Lamb also has good prospects, and there are other opportunities, such as can be seen with the growing sheep dairy industry. We also need to continue to focus on growing the value of our dairy exports by moving away from exporting commodity whole milk powder.
How can we get more value from New Zealand beef and lamb exports?
The New Zealand Government’s has an ambitious goal of lifting total exports to 40 percent of GDP and doubling the value of primary exports by 2025. They have stated that this will involve developing stronger relationships with New Zealand exporters and supporting them to add and capture value from existing markets through supply chain integration, brand promotion and brand protection. New Zealand red meat exports play an important role in this as they represent 11% of total merchandise exports.
There is limited scope for increasing the volume of red meat production in New Zealand due to
land and environmental constraints. This means adding value to these exports is the only alternative. A significant proportion New Zealand’s red meat is still exported in commodity form and fails to achieve a premium for the attributes of its New Zealand origin. Changing this however will require a co-ordinated effort from government, exporters and producers.
Market access and promotion of the NZ Inc brand story can create opportunities for New Zealand exporters, however, capitalising on these initiatives requires companies to develop capabilities and strategies to market and deliver these products to demanding international consumers. These consumers are demanding greater variety and quality in the food they eat. They require a consistent year-round supply of high quality, safe food. They also want food that aligns with their own personal values, which includes credence attributes such as environmental sustainability, animal welfare and fair trade, as well as local and organic production.
To deliver this, it is necessary to have farmer suppliers who can produce the right quality of product when the market requires and who are committed to long-term supply relationships. Without this type of integrated value chain New Zealand will fail to break out of its reliance on agricultural commodities. This research has focused on several New Zealand exporters and their suppliers who have developed relationships with high-end retail customers and have a strategy in place to add value to their products.
Consistently meeting consumer demands is difficult within the constraints of New Zealand’s pasture-based agricultural production systems, as production volume and product specifications are highly dependent on climate.
Chinese investment New Zealand agriculture is a controversial topic. Should we be selling iconic New Zealand farms such as Lochinvar Station to Chinese investors? The recent announcement of the purchase of Lochinvar Station by Shanghai Pengxin Group Co Ltdhas brought the issue of Chinese investment to the surface again. The following article was written by Leanne Clemens as part of the Lincoln University course “Agribusiness Strategic Management” which I teach. This article provides a student perspective on Chinese investment New Zealand agriculture
Leanne has just completed a Bachelor of Commerce in Agribusiness and Marketing at Lincoln University.
Chinese investment in New Zealand agriculture is positive as it allows for growth of the industry. A controversial issue, land sales to foreign owners in particular gains much attention however, there are a number of aspects that benefit New Zealand and ultimately lead it toward it being a positive move. The following report details how Chinese investment in New Zealand agriculture takes advantage of the market opportunities and access within China, allows growth of New Zealand firms, furthers the relationship between the two countries and creates jobs and opportunities for New Zealanders. In contrast to those views, the report will examine why fears of Kiwis of losing land to foreigners is largely unwarranted.
The New Zealand government has a clear focus on international trade and the Prime Minster believes increased Chinese investment is inevitable. The NZ Inc. China Strategy has the goal to increase bilateral trade to levels that reflect the growing commercial relationship. This will see two way investment rise and more resources allocated to encourage focused investment from China. Similarly, New Zealand relies on overseas investment to achieve economies of scale and gain access to markets and consumers. Even historically New Zealand has been home to investment from foreign firms dating back to the 1800’s in industries such as sealing, flax and timber.
Deputy Prime Minister Bill English believes that foreign investment between China and New Zealand is critical, and that our economy and living standards depend on the prosperity of our trading partners. Without this foreign investment he warns that New Zealand would face an increase in the cost of capital leading to reduced employment options, restriction to business growths and a decline in household incomes as a nation that doesn’t save enough to meet the demands for growth, investment allows us to meet those needs. As China is one of the fastest growing economies and New Zealand’s future growth depends on access to capital, knowledge and skills it is only natural that China would be interested in investing in New Zealand.
New Zealand Trade and Enterprise [NZTE] are at the front of this movement toward foreign investment, and in particular China. Advocating that “safety, stability, ingenuity, and proximity to Asia’s booming economies are just a few of the reasons to invest in New Zealand. NZTE also believe that Chinese investors can inject well needed market knowledge, networks, expertise and capital to a New Zealand firm. NZTE’s mandate is helping potential investors take advantage of what New Zealand has to offer. For example, NZTE and the Taupo District Council are currently looking for Chinese investors for what is dubbed a ‘mega-mill’ in the central North Island. With China as the largest export destination for wood products a joint venture with a Chinese firm could help get more value out of the logs and give it the capital required to create the scale needed.
Foreign investment also provides a source of capital allowing expansion such as the case of Synlait Milk and Bright Dairy of China. In 2010 the two firms became partners, giving Synlait Milk the capital required to expand and build its infant formula plant and gain good market access in China through partnering with one of the leading dairy companies. Since then Synlait Milk have gained momentum and now employ over 150 staff, have recently listed on the New Zealand share market and picked up an award at the China Business awards. As an example, the partnership between China and New Zealand has had benefits for both parties and has created a number of job opportunities in the Selwyn district and given milk suppliers other options in supply.
Congruent with providing a source of capital to allow expansion Eion Garden, Chairman of Silver Fern Farms stated that one of the major challenges within the meat industry is the lack of capital. Silver Fern Farms have recently created a joint venture project with an American firm and will be constructing a $22m plant in Palmerston North. This demonstrates how foreign investment can provide the capital needed to grow an entire industry.
A further example of positive outcomes from Chinese investment in the New Zealand agriculture is Chines Dairy Company, Yashili’s plans to build a $210 million milk processing plant in Pokeno. Yashili is one of China’s largest infant formula and soymilk powder makers. Residents are happy with the plan as it will bring at least 100 jobs to the area. The town is looking forward to the growth opportunities for new businesses with a 7000 person population jump expected. Yashili will be using New Zealand suppliers, boosting employment and paying taxes here, all which will benefit the New Zealand economy.
Some might argue that the benefits of foreign investment by the Chinese does not outweigh the disadvantages and wish to keep New Zealand assets in New Zealand hands. A survey in 2011 showed that Kiwi’s wanted to benefit from exporters, rather than foreigners benefiting from exports. Farm ownership in particular is a sensitive issue, exacerbated by the attention of the Crafar Farms sale to Shanghai Pengxin. The sale saw significant opposition from within New Zealand and ultimately led to a review of the Overseas Investment Act. China is also aware of New Zealand’s concerns about land purchases to which the Chinese Ambassador stated that Kiwi’s ‘over thought’ the issue, signalling that further large land acquisitions were unlikely.
The Overseas Investment Act underpins the investment goals of NZ Inc. strategies. Since the Crafar Farms acquisition it is now a more difficult and timely process to gain consent to purchase in New Zealand. A spokesman for Bill English states that “we have tightened the rules on foreign so that foreign investors have to show there will be real and tangible benefits to New Zealand if they want their application approved”. Proving this is not simple and the Act regulates purchases of sensitive land, significant business assets and fishing quotas. John Key has also made it clear to China in recent talks that he would welcome investment, so long as it benefits New Zealanders and it not attempts at buying up farms. This Act is in place to ensure that New Zealander’s don’t lose one of its most precious resources; land, and part of what makes it unique as a country.
Not only are there specific regulations surrounding overseas investment one could argue that Chinese foreign investment has been exaggerated by the media. Currently foreign direct investment between the two countries is relatively small. A report by KPMG it showed that in the three year period ended 31 January 2012 Asia only accounted for 16% of gross foreign direct investment, with Australia far ahead. However, the report did state that investment from China was likely to rise with such investments as Yashili in the dairy sector. Looking specifically at land acquisitions KPMG show that China / Hong Kong are 14th while the UK and United States are major investors in land (for the three year period ended 31 March, 2012). While common conceptions are that China are dominating investment in New Zealand the statistics show a different story with Australia, North America and Europe accounting for around 70% of investment over that time period.
The relationship between China and New Zealand has also paved the way for New Zealand investment in China. Fonterra has plans for 15,000 cows in China with the goal to produce one billion litres every year by 2018. This allows a New Zealand company to export its technical prowess and skills in milk production while taking advantage of the opportunities of being so close to its market. Like Chinese firms investing in New Zealand, Fonterra will be hiring local staff which benefits those regions.
Ultimately foreign investment in New Zealand by the Chinese is a positive move as it creates scope for growth. Historically New Zealand has been tied to foreign investments as the country does not have the wealth of older countries. Foreign investment allows New Zealand better market access, such is the case with Synlait Milk and Bright Dairy, and it also provides well needed capital to fund expansion, such is the case with the proposed ‘mega-mill’. The investment also provides opportunities through jobs which creates a growth in wages, and contributes to improving New Zealand’s standard of living. Despite the concerns about land acquisition by the Chinese the Overseas Investment Act ensures that investment will benefit New Zealanders.
New Zealand needs to make more of opportunities to create an international food brand and image. Our small size an lack of capital can also be overcome with effective partnerships like the kiwi-Chinese partnership that created the Flat White Cafe in Beijing’s 798 ArtDistrict . Inspired by New Zealand cafe culture it claims to provide the best coffee in Beijing. Established five years ago by Wellington Fidel’s Cafe owner Roger Young and Chinese business partner Michael Hongfu. They now have five cafés in Beijing and also a coffee roasting business called Rickshaw Roasters.
Michael first came to New Zealand in 1989 to study English. Returning to Beijing and addicted to good coffee he started Flat white so he and his friends could get a great coffee. With support from Roger Young from Fidel’s and Geoff Marsland from Havana Coffee they originally used Havana coffee roasted in Wellington and shipped weekly before starting Rickshaw Roasters.
The roasters are small team of Chinese and New Zealanders based in Beijing. They source top quality Arabica beans from around the globe, then import and roast them.
While NZ grown coffee isn’t a New Zealand export the cafe and roasters clearly create a strong New Zealand inspired image in the midst of crowded Beijing. This includes images of cabbage trees, colour prints of Whangamata beaches, pohutakawa trees and white sands. The Flat White Cafe might be a small operation however it demonstrates the potential for different New Zealand sectors to leverage off each other in promoting a consistent New Zealand image and brand.
It also shows how we often miss opportunities where our tourism, food and wine as well as arts and cultural industries could better leverage our limited resources in promoting New Zealand to the world. While traveling in Europe recently I was reminded how little most Europeans know about New Zealand outside of the
United Kingdom. Zespri Kiwifruit and the Lord of the Rings Movies were the images that most easily came to mind. When asked about New Zealand food most could not get past the “Kiwi” (fruit) or mixed up New Zealand and Australian wines “yes I have had some New Zealand wine, thats the one with the yellow kangaroo on it!
While New Zealand food and beverage exports are valued at about NZ$50b little is spent on promoting New Zealand food and beverages internationally. While the New Zealand Tourism board (Tourism New Zealand) has a budget of NZ$113m there is no equivalent agency collectively promoting New Zealand food, wine and other beverages. It is left to individual companies and entrepreneurs like Roger Young and partner Michael Hongfu to create this image and the opportunity to collectively establish a New Zealand reputation for the world best coffee, wine, beef, lamb, venison , apples and kiwifruit is lost. Try entering “New Zealand Food” in google and see what you find.
Lincoln University is to receive NZ$107.5m for the redevelopment of its research facilities as part of the larger development of the Lincoln Hub. The Lincoln Hub is a partnership among Lincoln University, DairyNZ, and Crown Research Institutes. This will represent the highest concentration of agricultural and environmental scientists in the Southern Hemisphere. The Hub underpins New Zealand’s agribusiness sector by being an incubator for research and innovation and creating more value for our agrifood exports.
“Every 1 per cent increase in primary sector productivity generates an additional $4 billion in exports for New Zealand. The agricultural sector is a powerhouse of the New Zealand economy, and the Lincoln Hub will bring together some of the best minds working in the sector today to help lift innovation productivity in the sector,” Mr Joyce says.
“As New Zealand’s specialist land-based university, Lincoln University is a major player in tertiary education and research in the agricultural sector in its own right. Modern, safe, fit-for-purpose science facilities will be integral to its future success and to the success of the Lincoln Hub.”
This is great news for Lincoln and the agrifood sector which makes up nearly 20% of New Zealand’s GDP and over 60% of exports. Student numbers in the agricultural management, agribusiness and food marketing courses at Lincoln have been growing significantly even while numbers in generic commerce courses have been in decline. This supports Lincoln in its move to refocus on the specialist land based degrees such as the B.Com(Ag) the new Bachelor of agribusiness and food marketing and the B.Ag.Sc. What is needed now is investment in the specialist academic staff in the farm management and agribusiness areas that will can support the education of the farm managers, agribusiness managers and agrifood marketing specialists who will be the future of our land based sector.
For most of the last century New Zealand has led the world in efficient production of agricultural products. By the 1950s New Zealand had one of the highest standards of living in the world. This comfortable existence was shaken by the rise of agricultural protectionism and support mechanisms in the 1970s. New Zealand was shut out from traditional markets and needed to compete with subsidised exports that drove down international commodity prices. This began a long decline in New Zealand agriculture, highlighted by Prime Minister, David Lange’s, famous statement that “Agriculture in New Zealand is a sunset industry and manufacturing and tourism will take over.” Fortunately for New Zealand, the demand for our agricultural products is increasing. The rapid urbanisation and economic growth in Asia has seen unprecedented growth in a middle class that is driving demand for New Zealand’s meat and dairy products
While this is good news, it also presents a significant challenge. How can New Zealand turn this period of high agricultural commodity prices into sustainable long-term prosperity? New Zealand, potentially, risks becoming dependent on China in the same way it was dependent on Great Britain for most of the 20th century. Once again, New Zealand may become vulnerable to volatile international commodity prices and changes in foreign countries’ agricultural policies.
Staying in a 100 year old Bed and Breakfast in Brussels (Le Verger) with Sarah, Olivier and their 3 children gives me the opportunity for some informal research interviews. Interestingly Sarah runs a local food co-op, collecting food from a local farm and delivering it to other families in Brussels.
As I sit down to have my Belgian breakfast of croissants, coffee, cheese, prosciutto and yoghurt, my host Olivier asks me about what I am doing here. After explaining about the research project, he soon tells me that New Zealand has a problem because of the distance of transport. New Zealand is so far away how can sending our food to Europe be sustainable? I explain how the sea freight only makes up a small proportion of the carbon footprint and that the production and road transport make up the biggest share. He seems to understand and mentions the latest National Geographic article on food that comments that “local food” is not that sustainable because it can not be scaled to feed the world.
I ask him what New Zealand food products he is aware of in Belgium. He had to think hard for a while then says of course there is wine in the supermarket, white wine and also can be found in the wine specialty stores. He knows about Zespri kiwi’s because it happens the business he works for uses the same marketing and communications company as Zespri. Because of this he knew quite a lot about Zespri even about the problems with PSA disease.
Apart form that he can’t think of much though he then remembers lamb sold at Easter “Le Gigot d’Agneau Pascal”. All the supermarkets had it
for sale and it was so cheap. Everyone new it was New Zealand lamb though it wast specifically advertised as such. The Easter lamb is traditional so the supermarkets sell it below cost (loss leader) as a way to attract customer so they can make their money on the wine, vegetables and other food they buy. They had contacted a specialist butcher to see if they could get some lamb but he said he couldn’t compete because of the low price the supermarkets were offering.
Interesting start to the research, it seems NZ wine had the strongest brand presence followed by Zespri “Kiwi” fruit. This is further confirmed as I reach for the fruit bowl and selected Zespri branded “kiwi” to finish my breakfast. Notice the difference in quality between the New Zealand Zespri and the Italian KingKiwi fruit
Today I begin three weeks of research interviews in Europe on how to increase the value of New Zealand food exports by communicating the “credence attributes” to consumers (see current research for more information). “Credence” means things like our clean green image, animal welfare, food safety or anything else you can’t experience by consuming the product.
I will try to share some of the experiences that won’t be so easy to describe in a written research report, and also encourage readers to make comments, as many of you will have had your own experiences and thoughts that can add to this.