Tuesday, December 8, 2009

Bovine bigotry and lost opportunity

It must be admitted that my knowledge of marketing is somewhat limited, I struggle to see it as a “deep” discipline – certainly in the sense of say physics or philosophy - but I have sufficient grip of the general outline to know that:

  • total exposure to one idea can be fatal,
  • differentiation is a good idea,
  • premium brands can generate premium margins, and,
  • a bit of thought before jumping to conclusions generally pays.

I am then a little surprised that in the “cows in a cube farm” debate no one seems to be seeing that the very fact of having some dairy exports produced on pasture – the so called premium product many, including the well known behemoth, believe we are famous for, and some produced by more intensive means offers a great opportunity – if we are smart enough.

There is the opportunity to broaden the offering, differentiate the premium product, diversify a bit of product risk, produce a lower cost segmented product while reducing environmental impacts – all while increasing output massively.

God’s rather than the devil’s work one would have thought.

Economists have spent several lifetimes trying (mostly without any degree of success – scalping aside) to figure out how to price discriminate so as to pick up more customers by appealing to as many tastes as possible through different price offerings for very similar goods.

Here it is on a plate – or rather in a cube. A clean cube that uses water more efficiently, allows easier less costly clean up, promotes animal welfare and lowers relative if not absolute cost. But oh no….

Ironically for the green fraternity cleaning up the environment raises their animal welfare hackles (demonstrably misguided in this instance). Fear of insufficient bovine hugging may threaten cleaner dairying.

Monopolists and near monopolists don’t need to care too much about price discrimination – which is why they are poor at scalping – brute force, especially statutory brute force is enough. Yet here is the chance to ramp up the premium pasture product while selling to hungry mouths wanting lower cost product.

Greater overall volumes and a segmented offering with a lower cost product underpinning a premium product suite has to offer some opportunities.

Using current policy development methods, the quickest road to implementation of this new form of production would of course, be a referendum with 90% voting against it.

4 comments:

  1. You assume that the NZ factory brand will not dilute the NZ Free Range brand. I'm not convinced consumers will be that discerning & it's likely to cause confusion.
    Now given how much Fontera produce is processed vs raw product ( milk powder ), will that make a difference, probably not.
    But that goes to the heart of the bigger question of whether Fontera will in the long term maximise returns for Dairy Farmers.

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  2. http://eye2thelongrun.blogspot.comDecember 9, 2009 at 9:58 PM

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  3. Agree... the long run issue is will Fonterra ??? For example I imagine three of the intensive farms would justify a standalone dairy factory (versus a bunch of tankers priced equally from your farm regardless of distance etc...

    I'm sure you know the argument!).

    As to consumers being discerning - you could well be right... but the current argument (consumers love free range) does depend on them being being discerning too, so... logic a bit weak at this point.

    I just find it odd that a bunch like Fonterra who have spent years trying to sell the farmer supplier "value add" get the chance to differentiate and they instantly jump to a conclusion... surely we should throw this around (especially given that the application represents 0.3% of current cows)before we all barf and pronounce (as I heard on a plane today - while I quietly listened) "absurd".

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  4. "produce a lower cost segmented product while reducing environmental impacts"

    The cheapest way to turn grass to milk is by letting the cows graze pasture.

    The cubicle system may be better for the environment by allowing control of effluent spread when conditions are best.

    But the financial and environmental costs of harvesting and transporting feed will be far greater than those for grazing.

    There's very few other places in the world with the climate and soils which allow stock to graze all year.

    That's our natural advantage.

    It's also enabled us to counter the food miles fallacies with facts - our free range produce has a smaller environmental footrpint, even when shipping is taken into account, than European produce which is transported much shorter distances.

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