There are two growth questions: firstly whether it is better for an industry to be larger in future and secondly whether individuals should grow their businesses?
In the context of the world market, it is no brainer that we should grow. Over the past decade we have been a dwindling part of a growing market. The Chinese FTA, and fast growth in other export markets give the Australian dairy industry an opportunity but not the free kick some expected. We must demonstrate our credentials, as a reliable and cost-competitive supplier to their growing dairy needs.
Is that market big enough for all big dairy players to grow? We’ve actually added up the expected supply and demand numbers and weighed the risks with both. More than likely, supply will struggle to keep up with demand.
If we don’t grow supply of those products, we’ll quickly be left out of the frame for customers selling into many rapidly expanding markets. If we’re not an integral part of these supply chains, we will not have the diversified options we could have.
The rewriting of Chinese import regulations should be an important signal – the rapidly rising numbers of affluent Asian consumers will want far greater assurance of the safety and integrity of the sources of milk behind brands, and Australia has won strong trust in this regard. Trust goes well beyond product integrity however, as it’s also about continuing to turn up as they grow.
The case for growth goes way beyond addressing needs of customers and consumers. Growing industries attract capital, skilled people, workers and if done right – the commitment of supportive communities. This in turn brings Governments to invest and provide policy settings – affecting infrastructure, trade deals and business regulation. Who doesn’t want to be part of that story?
Now it is well accepted that we have to be a bigger industry, and it’s not just CEOs of Murray Goulburn and Dairy Australia talking about it. Fonterra, Warrnambool Cheese (WCB), Bega, Burra Foods and others have publicly stated that volume growth is a primary driver of their strategies. Why would Saputo pay such a full price for WCB if it didn’t want it to grow in size and value in the future? Why did Bega decide to invest a portion of its profits on WCB shares in future growth of its farmers?
It doesn’t matter whether the total milk production target is 12 billion or 15 billion over the next decade or so, as long as the target is a credible stretch. It is stretch and vision that matters – to compel us to think differently about how we operate farms and processors, how we employ technology, how we connect with customers, and how we make best use of the available capital – all aimed at growing wealth. A stretch target like that will focus new capital and new players on this industry – owners, managers and workers. A large part of that growth will come from newcomers and new business models.
Having a target and a game plan tells others what we want and where we want to go, and it’s a powerful thing to be doing. Consider the alternative, is it better to have no vision and no direction?
If the industry decides – on a misguided belief that a domestic market will always return more – to focus only on the domestic market, output will certainly stall and shrink, and this will develop into a scrap for a slow-growing retail market. If anyone doubts this, visit the UK industry with your eyes and ears open.
The second growth question is for the individual business, which is down to the personal choices of owners and operators. It won’t be for everyone, but even if you don’t plan growth on your farm, being part of a growing industry can add to the value of your asset and your options.
No one expects growth to happen for growth’s sake. If an industry collectively strives for growth, it will only come about if there is greater wealth created – additional milk will be the outcome.
On farm, that comes down to how to manage farm business cashflows and capital over the medium to long-term in a more volatile world. The trend line in milk value over time rises, but probably at a rate slower than the cost of inputs, labour and overheads, so producing “more from less” is critical. That’s where industry programs should and are now being aimed.
We’re in a tough part of a market cycle, when many don’t want to think about growth. But if you keep your focus short and don’t get your business fit in tune with the world we’re in, you will never really come to terms with it, and you may miss the opportunity to be part of a really good story.
Source: FreshAgenda