Marketing Consultant Sydney, NSW
It is a great privilege to be here although as the morning went on I became somewhat confused.
There is agreement on the need to upgrade the policy decision-makers in the Statutory Authorities and similarly for an upgrading in management.
Where there was confusion was in deciding what are the objectives in marketing the production. It seems to me that there is a subtle difference between maximising the nett returns to an Industry as compared to maximising the nett returns to growers.
Most growers would obviously put themselves first before the Industry per se. On the other hand the marketing practitioners in an Industry would argue that if you maximise the returns to an Industry it follows that growers will be better off.
Well, to show some leadership in this area I suggest that the latter course is probably right. That is because the Industry is in a better position to consider the changing nature of markets and to channel the price signals more efficiently.
An old axiom in marketing is that you do not start with a product and then try to sell it. You start with a consumer need and fit the product to tile need. You do not produce goods that have no consumer need. This implies a market intelligence network that can closely read the market signals and transfer them to the producers.
However, the problem is made difficult due to the long lead times to change our extensive grazing and cropping industries.
Let us start with an overall objective of saying that we are in the food and fibre business and from that develop specific objectives about products within that and compare that to now.
In the case of the Australian Wheat Board, one could construe that it is in the business of selling wheat (and, in the past, a fair average quality wheat due to the limitations of variety, etc, that has been spoken about previously).
If we are to set the objective of the AWB as being in the food business with specific emphasis on the wheat grain, we would have an objective of determining what our customers wanted and producing to that need. This would mean a totally new direction in our marketing and distribution. Therefore the dilemma we face first up is this.
What business are we in? Having decided that, we then set specific objectives to maximise the return of investments within the mission we have set ourselves.
What we need is not a marketing plan but a corporate plan. Perhaps where the various Boards have failed is in considering that they are there to serve the producers instead of starting from the right end of the marketing chain, i.e. to serve the consumer.
Consumer sovereignty is paramount and production must be subservient to that.
Surpluses in such vast quantities in the world markets as they are today are there because the demand signals were not adequately interpreted.
The really great trading companies in the world are successful because their information or market intelligence systems are superb. They have integrated throughout the chain or distribution pipeline, taking profits and losses along each stage but with the full knowledge of the end result.
We in Australia really only have one decent sized trading company we can call Australian and that is Elders.
Much of our wheat, wool and meat is sold by the overseas trading companies who are virtually integrated throughout the distribution channel.
My plea to you as farmers is to understand and communicate to your Boards exactly what business they are in.
A typical corporate planning process would follow 10 basic steps.
1. First, select the team.
2. Select the Objectives and Targets, i.e. define the aims and ambitions.
3. Forecasts and Gaps. Calculate the size of the strategic task.
4. Identify Strengths and Weaknesses, i.e. what the industry is especially good and bad at.
5. Threats and Opportunities. Identify what major changes the future may hold for the Industry and the organisation.
6. Alternatives and Strategies, simply listing all the alternative strategies available to the organisation.
7. Selecting the Strategy - decide which one looks the best.
8. Evaluation - to decide whether the strategy is really good enough.
9. Action Plans and Budgets. Who will carry out the tasks, and how much will it cost in comparison to the benefits?
10. Evaluation and Feedback. Check the results on an ongoing basis and follow up where necessary.
Having carried out this exercise I believe that many of the problems would disappear overnight.
There is one important element left though and that is communication. The communication of the objectives must be telegraphed to all producers and, in the main, they must agree with them.
Where this is not done you can bet that the two parts to the organisation will wind up in conflict.
Changing Boards, upgrading management are helpful but they will only be effective so long as we know what we want them to do.
That is one thing about the Australian Wool Corporation - it knows that it is not in the wool selling business but in producing a raw textile fibre for the fashion end of the apparel trade in the world markets.
It is from this basic understanding of what business they are in that they are moving to more fully describe the producer on an objective basis, and can make distinctions between types of wool for select markets.
Compare that to our wheat and meat Industries.
Much of the conflict in these Industries is brought about by the problems of not having a well-stated and understood mission or corporate objective.
The AMLC is in the red meat business but where it goes from that certainly is not clear to me.
However, let us leave the corporate planning area and move onto the marketing planning stages.
The criteria for analysing and evaluating both the information and the commercial performance of our marketing arms is summed up by two words - Effectiveness and Efficiency.
It will be obvious that organisations can be effective in some things but not efficient in doing it. Equally, organisations can be extremely efficient but not necessarily effective. When considering the question of where to now it seemed that these two words were keys to that consideration.
To fully understand the question of marketing agricultural products, there is a need to gather information that is timely and relevant to the commercial aspects of marketing’ the specific agricultural product.
From a marketing viewpoint it is very simple to begin the process of marketing evaluation by asking three basic questions. Namely:
1. Where are we at?
2. Where do we want to be?
3. What can we do about the difference?
The English language is full of sayings to the effect that:
“Actions speak louder than words” or that “What you are speaks so loudly that I can’t hear what you say”.
Their popularity tends to indicate that we are somewhat suspicious of rhetoric and more impressed by deeds. For these reasons a marketing man is more likely to think in terms of what can we do rather than what can we say. Action is an essential ingredient to marketing.
However, it has been my experience in the rural industry that we are often guilty of talking rather than acting. In lots of ways we act like the governments when they threaten to deregister the BLF; they, like us, never quite get around to taking action.
More than a generation ago when hardly any of today’s high powered marketing existed there was a great gulf between city people and their rural neighbours.
Farmers were isolated by mud roads, lack of communication, long hard work and a necessary absorption in their own interests.
Since the end of the war, this division largely disappeared s roads were improved, radio and television became general, schools were consolidated and improved, and a revolution occurred in farming practices through the introduction of new machinery, new crops, fertilisers and better agricultural methods. Today the farmers who produce the bulk of the nation’s exports in food and fibres are in big business for themselves, often with capital investments worth hundreds of thousands of dollars, and with bookkeeping, tax and farm science problems far beyond the comprehension of the average city worker.
Farming is usually a big personal business today, involving much careful calculation. It depends upon the weather, general prices and political actions far beyond anyone’s individual control.
Farmers are classic capitalists who yet find it necessary to use government to unite and control their prices, the distribution and in some sense their marketing.
Statutory authorities grew out of the need to harness the marketing resources into a corporate unit, to facilitate the distribution and marketing beyond the farm gate in an effective and efficient manner.
That being the case, let us look at where we are at.
Grain handling in NSW is neither efficient nor effective and it probably rates only as being effective in other States but perhaps not every efficient.
Other examples are the meat industry where 70c of the consumer dollar spent on meat is lost in the distribution and marketing chain. The Australian Wool Corporation has spent a great deal of time and effort to reign in the on-shore costs in Australia. We have heard other examples by different speakers today. As a basic generalisation, there are very few agricultural marketing schemes that are efficient and effective.
To have any credibility when talking to governments about levels of protection afforded to the manufacturing industries or when seeking to mobilise public opinion about the plight of farmers, there is a need to have our own house in order.
We must ensure that all of our marketing is both effective and efficient and it is not only for credibility’s sake. There is an old saying that if we look after the pennies, the pounds will look after themselves.
If we are faced with the situation that we can do little about the weather and general prices, then we are faced with the options of either improving productivity per unit of input and/or reducing or containing our marketing costs so that we can meet the real objective of the exercise, i.e. to increase the nett marketing returns to growers for any given product.
In summary then, we want to be in a situation where the various marketing schemes we have in place meet our stated criteria, namely, they are effective in marketing the product and what is more they are efficient in doing so.
This represents potentially the most difficult and the one that requires the most action. We should put into place various courses of action that generally review the marketing of each individual agricultural product.
To use the jargon of Marketing, there should be a permanent and on-going marketing audit.
This entails a full and frank series of checking procedures on the efficacy of the marketing systems employed in each Industry.
Every product or service may be viewed as both a problem in distribution and a problem in promotion, i.e. for every kind of product or service there is some logical plan of distribution and some logical plan in promotion.
In a sense then, given a particular agricultural product, the challenge in marketing is often to identify the most logical plans of distribution and promotion. Each alternative plan of distribution and promotion involves some cost of implementation. And in so far as illogical plans are utilised, economic waste results.
A responsible marketing system is both aware and dedicated to the fulfilment of the obligation to achieve distribution and promotion at the lowest cost consistent with market preferences.
An audit programme then would look at the marketing system for any given agricultural product to see if it was achieving the lowest cost distribution and promotion. I ask the question: can we honestly say that the distribution of grain in Australia is efficient?
Do we know that the $80 million dollars being spent on wool promotion is also efficiently spent?
Just as the Commonwealth auditor, through the Auditor General’s Department, runs a check over the financial affairs of our Government Departments and statutory authorities, so the “Marketing Audit, through a select panel of agricultural marketing experts, would investigate the distribution and promotion of any given agricultural product.
It would then report to the producers of that product: without fear or favour. Like the Auditor General, it would have to be seen as independent and not subject to the whims and fancies of the Board or Authority that it is auditing.
It would begin an audit programme by, say, looking at the distribution channels. Let me define a distribution’ channel. Firstly, it is not a truck nor a train that carries the goods. They are a set of specialised marketing institutions through which products or services are distributed to consumers.
The channel of distribution acts as a pipeline through which the goods pass.
Take wool for example. The distribution channel is made up of at least three different paths, namely conventional broking, private treaty and, say, computer- based broking. Within each of these there are a number of options, e.g. private treaty can be broken down further into the town wool store for butts and bags, etc, sale to a speculative wool dealer, sale to an exporter or sale directly to a mill.
A marketing auditor would investigate the total distribution system and reach conclusions and make recommendations about distribution efficacy.
If we continue with the example of the Wool Industry which, incidentally I believe is relatively efficient and effective especially when compared with some other industries, we can see to what extent a marketing review is carried out today.
As woolgrowers contribute substantial funds to the Australian Wool Corporation, they expect and receive some detailed information from the AWC. This is channelled by way of the Wool Council of Australia. However, to a large extent the Wool Council must rely on the AWC to provide information on the efficacy of the operations. The Wool Council has a small but dedicated staff and an extremely talented grower committee, but I think they would agree with me that they do not have the type of marketing expertise I am talking about.
I am suggesting a group of experts in several areas of marketing who carry out this audit on a project by project basis so that they bring experience and knowledge of a wide cross-section of the marketing of various agricultural products, and they can see the interactions between industries and systems.
This group would provide an independent assessment for both the Wool Council of Australia and the AWC.
Similarly, it would investigate the operations of the Australian Wheat Board, the Australian Meat and Livestock Corporation and other such bodies from time to time.
In all cases, it would be investigating the efficiency and effectiveness of the marketing distribution and promotion.
If our options for increasing the nett returns to producers does not include higher international prices, then all that is left is the question of ensuring that we have the optimal distribution and promotion systems.
The Grain industry in Australia is facing a severe threat in the price of wheat, especially when the United States dollar falls. I was nearly going to say if, but of course it is only a question of time.
Speaking with a colleague just recently after lie ‘had travelled extensively through the Mid-West of the USA meeting many farmers, he stated that they are in dire trouble and would simply love a fall in the US dollar by 20 to 30%.
When it does fall, it means that Australian grain growers face an enormous threat from the increased competition of United States wheat.
What farmer in Australia would like to see a $30 to $40 fall in the price of Australian wheat? Yet it is possible that such a result can occur. We can only offset that by a serious attack on the costs of moving wheat in Australia. Equally it is foolhardy to only move on the problem when faced with it. If we know that there is even the slightest suggestion that we could improve a distribution system, then we should act.
One of the problems of many agricultural marketing systems is that the operations are cast in cement, with those involved refusing to even countenance the suggestion that there may well be improvements that could be made.
When a lot of these systems were put in place it is highly likely that growers at that time could see the consumer a lot more clearly than he can now.
If you are a wheat grower you are not directly producing biscuits for the housewives in Japan. The marketing system today is not like the relatively uncomplicated systems of 30 to 40 years ago. It is more complex and greater in size.
The system usually has two functions to fill, namely, transformation to meet the needs of the final consumer at the appropriate time and place and in the appropriate form. That is, it must go through several value adding stages before it can be consumed.
Secondly, it must determine a price for the farmers’ product.
This is relevant to the farmer not just because of the effect on his income but because it tells him what and how much he should produce.
However, this implies that the market is efficient in transferring market signals to the producer. We have had a tendency to adopt systems that have a masking effect. We average prices and we average costs in many industries, e.g. grain and wool. In grain, the wheat movement costs are averaged so that the grower does not necessarily see what the actual costs are in any one State or region. Warehousing and commission rates have a large element of the averaging principle in them. How do we know what is efficient and effective in such a system?
It is important for all growers to insist on the principle of letting costs lie where they fall. We can be criticised to some extent for hypocrisy when we argue that in the macro sense protection through tariffs and subsidies has a detrimental effect upon farmers because of their masking effect. Yet we tolerate such systems in our pricing and costing. It was said this morning that an efficient marketing system is one that is both technically and economically efficient at providing market information. A recent development in livestock marketing, such as the Computer Aided Livestock Marketing System, known as CALM, is a very welcome step in this regard.
It has to be recognised that a relatively small variation in domestic agricultural production in a major producing and consuming nation can often have a very significant impact on demand for Australia’s agricultural products since only a small proportion of total world agricultural production enters world trade. Figures produced in the 1970s for the Federal Government in the paper entitled Rural Policy in Australia indicated that only 5% of world rice production enters international trade, similarly for meat it is about 10%, and wheat about 15%. Consequently when we add the fluctuations in economic activity and the volatility of the exchange rate regimes, it is most likely that the demand for our products will be subject to increasing volatility.
Given all this, we must strive for distribution channels that are not just’ effective but very efficient if we are to maximise the nett returns to the producers.
A marketing audit, carried out by professionals on a fairly regular basis then becomes not a luxury but a necessity if we are to ride the peaks and troughs of this volatile market we call agricultural trading.
I now wish to turn to promotion efficiency and effectiveness.
Let me say at the outset that there appear to be a lot of producers who seem to think that all their problems could be solved by a slick television advertising campaign.
This view seems to be held in the meat industry and in response I pose the question: If pork, chicken, lamb and beef spend equal amounts on advertising would it not be the case there would be a tendency for each to cancel the other out and the only people to get fat would be the media and the advertising agents?
I you like to look at meat consumption, whether it be white or red, the consumption levels per head have not really altered much over the last 30 years, but there have been significant shifts within it.
For example, chicken and pork have increased their relative share at the expense of mainly mutton. Usually you will find that the people who say red meat consumption has fallen, particularly beef, are using the figures somewhat selectively. In the early to middle 70s, beef cattle prices fell to an average of about $60 per head. The consumption of beef at that time rose because it was relatively cheap and there is a strong correlation between the consumption patterns of meat and the relative prices. I repeat an earlier statement about the fact that in red meats 70% of the consumer dollar goes in the marketing and distribution chain and only 30% goes to the producer.
Running red meat advertising campaigns or in fact running any advert campaign with respect to agricultural products should only be undertaken when it is clearly apparent that that is the right course and it has reached the top of the list in terms of priority. Where you have a system where most of the consumer dollar leaks away in the distribution system, it would seem to me the advertising should have a lower priority. Money should be spent on measuring and describing our products objectively and ensuring costs lie where they fall.
In our major commodities of wheat, wool and meat, in the final analysis the prices are set internationally and there is very little that we can do to influence them.
The one tangible element in the marketing process that is completely within our domain is the distribution and promotional channels. If it costs nearly $40 per tonne to move and store wheat in Australia, which is nearly 25% of the gross returns, there are likely to be a lot more dollars coming back to the farmer by tackling that issue than there are in most other courses of action.
It is fact that as marketing becomes more complex, there will be an increasing amount of the consumer dollar going into marketing services rather than the price of the product to the producer.
A steadily increasing standard of living in our major consuming countries will not necessarily lead to higher prices. It will lead to an ever increasing desire for quality rather than quantity. Indeed, with that comes a need to market the product in a much more complex manner.
Under these circumstances Marketing Boards and Statutory Authorities will have to pay attention to more effective and efficient distribution and less to price increases.
Trevor Johnston rightly pointed out that hitting the EEC around the head is a bit of a wet blanket especially if we ignore the high costs associated with handling and distribution within Australia.
Marketing is a very complex area of concern and it is not an area that the unskilled people should operate in.
The Alan Bond’s, Holmes a Court, and Murdoch’s of this world would not hire production people to handle their financial affairs; they hire, and pay accordingly, experts in their field.
Yet farmer organisations have had a desire to place farmers in complex areas of management.
Trevor Flugge is to be congratulated on his stand to highlight the need for greater expertise on the Wheat Board, a stand that did not endear himself to his NSW colleagues for doing so.
But in the final analysis these are political decisions that will be changed over time. In the meantime we are faced with increasing costs beyond the farm gate. We may not be able to wait for these political processes to work through.
Whilst it may be true that governments have interfered so badly that we are now in the trouble we are in, we would be foolhardy to think they can get us out. They have not the expertise.
If we turn to NFF or the LGPA again they cannot do anything except highlight the problem. They have not the expertise, indeed if one looks at the NFF they have a staff of 12, 7 of whom are clerical assistants. Yet they must represent 24 commodity councils, some of which conflict with one another.
The end result of this argument is that we do not have any structure in place, nor experience in areas that might be construed as possible structures.
We are left with only ourselves to overcome the problem, we should not rely on anyone else. It is the farmers who must take action to ensure each distribution chain of our major commodities is subject to an audit programme. There is a need to continually look at the systems and be flexible enough to change them if they are found wanting.
However, whilst the process can be initiated by farmers, it cannot be undertaken by them. It must be conducted by qualified marketing experts who are independent and only answerable to the growers and not the Boards they are researching.
Governments have to be involved in the process; they should provide the finance for such audit programmes because there is little doubt that it will be in Australia’s social, political and economic best interests to have an efficient and effective agricultural industry. In the end they are the backbone to our current standard of living and if we need any reminding about that, think of the trouble Australia was in during the last drought.
In summary .then, it is my view that we should take the following actions:
1. decide the business our marketing boards are in through a proper corporate planning process;
2. audit on a regular basis the efficiency and effectiveness of those marketing organisations.