AgDialogue member Mike Barton farms sheep and beef on the shores of Lake Taupō. In July this year legislation was passed that caps total nitrogen discharges into Lake Taupō, limiting farmers’ ability to intensify production. In response to this, and in an attempt to increase the returns for meat production, Mike decided to set up Taupō Beef to sell premium, sustainably-produced beef. Mike’s experience offers an insight into the potential for New Zealand farmers to receive a premium price by appealing to sustainability-conscious consumers. Below, we outline the Taupō Beef project, and discuss the challenges and opportunities for farmers looking to increase the value of their output through “green” production.
As a result of increasing nutrient runoff from farms (and other sources), in 2011 the Waikato Regional Council (WRC) introduced new regulation to cap and decrease agricultural runoff in the Lake Taupō catchment. Under the new regulation, farmers’ nutrient runoff is capped, and can only increase if farmers purchase allowances from others who decrease their runoff. Consequently, Taupō farmers cannot increase profits by boosting production, as this would require farmers to purchase nutrient discharge allowances. Facing these limits, Mike established Taupō Beef in an attempt to increase profits by improving the prices he receives for his output.
Taupō Beef sells sustainably produced meat to consumers at a premium price. For the recently completed initial trail period, two Taupō farms supplied the beef to four local restaurants and a retail butcher. Both farms were verified by WRC as sustainable producers meeting the conditions of the new regulation. The restaurants involved included the Huka Lodge and the Bistro Lago Restaurant at the Hilton Taupō. Taupō Beef provided the restaurants with training, and brochures and table cards to communicate the Taupō Beef story to consumers. In return, the restaurants and butcher were asked to charge a premium for Taupō Beef meat. For example, Bistro Lago charged up to $46 for a Taupō Beef eye fillet dish, $7.50 more than a similar, conventionally-sourced dish. This premium was charged to test how willing consumers were to pay extra for sustainably produced meat.
The feedback from the restaurants, butcher, and consumers involved in the trial period was overwhelmingly positive. All restaurants reported that the sustainable local production story resonated with customers. Indeed, three out of the four restaurants reported significant increases in beef meal sales, despite the premium price charged. All restaurants and the butcher wanted to continue with Taupō Beef beyond the trial period. The regional council, the local tourism board, and Lake Water Quality Action Group (a local environmental trust) also vigorously supported the initiative.
While the feedback has been uniformly positive for the Taupō Beef trial, challenges exist. A key issue is Taupō Beef’s small scale. Mike outlines this in a recent report that assesses the Taupō trial period:
"We will struggle to develop a viable business model until we have achieved greater scale and volume. In order to achieve greater scale and volume, we need to prove to farmers and the (meat) processor that we have a viable business model."
The Taupō Beef trial has been extended for a further 12 months. The hope is to increase the scale of the project, to improve the long-term viability of the business model. Taupō Beef is seeking a single large customer or distributor to assist with this.
Lessons for greenhouse gas emissions
The key conclusion from the Taupō Beef trial was that consumers are willing to spend more on meat that is produced in a way that protects Lake Taupo. It is difficult to tease out whether this is due to the water quality story or the quality of the beef, and whether the same result would apply outside of the local area. However, the fact that consumers are willing to spend extra to support the sustainable production of food is a promising result. The project also highlighted a number of other lessons for New Zealand farmers looking to increase the value of their output through sustainable production:
- Purchasers all along the supply chain were willing to pay extra for ‘green’ production: restaurants and consumers.
- Consumers who are able to pay a premium for sustainable production often have a good understanding of the environmental issues.
- Close relationships between farmers, processors, and purchasers are critical to success.
- Having trustworthy verification of environmental claims is important to consumers.
The trial also demonstrated a number of issues that Mike argues are illustrative of wider problems plaguing the red meat industry. There is a widespread lack of trust between farmers and meat processors: farmers are doubtful that sustained increases in returns can be attained by processors, and in turn, processors are deeply suspicious of farmers, believing that they will change contracts as soon as another player offers them an increased premium. As a result, Mike observes that “the red meat industry is not currently providing returns to beef farmers that can compete with dairying and forestry because of this prevailing short-term ‘cannibalistic’ business model”. This was illustrated during the trial, when a major meat company attempted to sell meat cuts back into the trial restaurants at a substantial discount to the prices Taupō Beef was charging, rather than wait and see if the TaupōBeef approach had the potential to build value for all. Mike concludes that it is this lack of will to work collaboratively, from all players in the meat industry, that is limiting farmer returns.
The Taupō Beef project shows that at a local scale consumers are willing to pay for sustainably produced food. Whether the same result would apply to an emissions story is not certain, but Taupō Beef certainly demonstrates the potential. The challenges Taupō Beef faced are also illustrative of the challenges that might be faced by farmers looking to sell low-emissions beef. It seems clear that to succeed at growing returns for New Zealand farmers, the whole industry will need to get past its current state of mutual distrust and work together to take advantage of the opportunities.