Adding Value -- April 2017

One of the advantages of being a dairy farmer on a social media platform like twitter is getting the benefit of everyone’s expertise, and by expertise of course I mean hearsay and half-baked opinions.
By far the nugget most commonly shared with me is “Fonterra should value add” or “Why don’t you guys add value to your product?”

When I press for detail they lecture about the dangers of relying on commodities and the advantages of high value, low volume production.
I tell them that New Zealand is unique as our industry is predominantly pasture based, unlike the rest of the world our dairy products are yellow because of the carotenoids in the grass; anyone who has been to North America will have seen the sickly pale butter found there. Our milk powder is yellow, pungent and sought after enough that it can command a premium on the world market. No they reply, that is not value added but merely a premium commodity.

Fonterra do of course develop markets and make value added products, from mozzarella for pizzas to sheets of butter exactly matching the size of a sheet of pastry for a French baker, a full 20% of liquid production is diverted to consumer food production.

Commodities are an essential part of the mix for dairy farmers; they allow our co-op to process a lot of milk very quickly which is essential when production is linked to grass growth. We have huge market share in whole milk powder, and moving away from that only opens the door for somebody else to take our place.
Many years ago my third form economics teacher, an Englishman by the name of Mr Maynard who was deadly accurate with a piece of chalk from any range, promised to reveal to us the secrets of prosperity. We sat in rapt attention, those who had been chatting displaying a smudge of chalk on our foreheads  as Mr Maynard laid bare the path to wealth for our country.
“It makes no sense” he opined “for New Zealand to be exporting raw logs overseas, for those logs to be milled overseas, turned into chairs overseas and imported back into New Zealand. We should be exporting chairs; the secret is to add value!”

At the time I thought Mr Maynard was a visionary, but now I realise every third former in 1983 heard the same thing and continues to repeat it to this day. I even saw a press release from a political party promising they would “shift the focus from volume to value”, a bold statement with not a single indication of how they would achieve it.

I was in the market for a new dining suite and I went to a local manufacturer to see what they could offer. After choosing a large square table in knotty pine with eight matching chairs I struck up a conversation with the owner. I admired the table and chairs and said how great it was that if a chair broke they’d be able to make me a new one. “Oh no” she replied, “They only made the tables. Chairs were too intricate and time consuming and therefore expensive to manufacture, so they imported them from Malaysia and made the tables to match the chairs.”

While value add makes sense as part of our business model  it’s never going to be the whole package, and it worries me that politicians still trot out lines I learned in the third form seemingly without any appreciation of the nuance and realities behind their statements.
Every time I hear the words “value add”, my hand twitches and involuntarily reaches for a piece of chalk…