Sam_Grains

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The cost of Quality?

March 26th, 2012 · 5 Comments

So a few days ago I gate crashed a conversation between Richard Gunner (@Richard_Gunner) and Jamie Ramage (@ramagerural) were having about the Lamb Industry and the push from it to reduce the cost of production (COP) while keeping a high quality product. Since then a whole range of people (Some of who I mention here) have weighed in online including Darryn (@kelpiestockdogs) Corey (@coreyblacksell) Dariy Park (@DairyPark) and also Rob (@korellup) have had their say (as well as a few more that arent mentioned here).

Its a really interesting topic and one that general consumers dont worry about much, except for demanding Cheap product of a high quality! It is an issue that is rampant through out the whole Australian Agricultural Industry but the original topic started on lamb and thats where I will stay.

So here is my view: Lamb should be looked apon as a high quality premium meat. There is room for it in the market.

Now I know that there are many other high quality meats too, but for me, Lamb is a cut above. Lamb is still the selected Meat for special occasions for my extended family.

Quality is also something the Lamb industry hangs it hat on (and so it should!) but the issue that caused a stir was the Cost of Production. Let me be very clear, Im happy for the reducion on Lamb costs, BUT I will not stand a reduction on the quality! Quite basicly if the cost of Lamb was reduced but the quality also dropped, it wouldnt make me want to eat more Lamb, infact quite the opposite because I would feel like I was getting ripped off. Just because something is cheaper doesnt mean its better nor does it mean more people will buy more of it. People have beliefs (generally) that a higher price will mean a better higher quality product and a lot of the time its true.

Lets compare with another industry, Car Manufacturing.

Lets take Holden as an example, a base model Commodore Omega costs around $43 000* while a V-Series Calais Redline could cost over $65 000*, So whats the difference?

The cars come from the same plant and actually the same line so what would make me pay the extra $20 000? The perceived quality of what you get with a Calais, From the leather seats, parking assist, power window, bigger wheels and more, because you get what you pay for. I wanted those extras so I paid the higher price to secure them, the same goes for meat!

I want a quality tender Lamb so I will pay the price it costs, If it were cheaper I would place less value in it as something has to fall to produce the cheaper price, too often that is quality.

I can afford to buy Lamb now, I factor Lamb in to my budget, so really cost isnt an issue for me but quality is, if the quality fell as I said above, so would me buying Lamb.

Another question is where the price cut comes from? Will the farmers get shafted again because people demand cheap but good quality Lamb? You bet they will! If the Supermarkets know that the COP has lowered, do you think that they will continue paying the current prices or will they lower them?

The biggest question for me is this:

Does Australian Lamb need to compete on price with other meats like Chicken, Beef or Pork? I dont think it does, I think it can stand alone at the higher end of the price bracket and stay there.

People have shown that they are willing to buy produce if they know there is quality there,

Look to the Bananna industry that sold Banannas at $16/KG at their peak after Yasi, I know that my Mum kept buying them because she knew they were a quality product,

Look to the Beef industry, where a 1KG Wagyu Beef Sirloin could cost up to $110*

Look to the Seafood Industry, where 12 Oysters costs over $40* (going on price of $3.5* each)

 

Premium products can ask a higher price than other products, So why does the Lamb industry think it needs to drop?

I dont think it does

 

*Costs correct at time of upload

Tags: Agriculture

5 responses so far ↓

  • 1 Stuart Warner // Mar 27, 2012 at 10:05 am

    Wow – sitting in on a conversation between Rammo and Tom may have done your head in…I hope you have recovered!

    My view on this is that quality must be affordable and that quality is best defined by fit for purpose.

    Lets take three cuts of lamb as an example:
    Lamb cutlets – taken from a rack of lamb. Expensive, premium meat, easy for children to eat (they can hold the bone with their fingers), very tasty, relatively easy to prepare. To me this is almost the ultimate in premium product. I’m currently using cutlets to encourage my 2.5yrold to eat more red meat. BUT they are too expensive for me to buy for myself that often.

    Rolled shoulders: Bonless, value adding, good for feeding a larger number of people lamb, can be a bit fatty so not great for eating too often and needs some more attention when cooking. My roast of choice in most circumstances. Affordable, tastey and good value as no bone.

    Bone-in-leg. My wife loves the bone. She says the meat tastes better on the bone. More expensive than a shoulder, and more expensive per kg of meat than boneless. But traditional big feast for extended family. There’s a couple of diff muscles so a bit harder to cook evenly, but its nice and tasty and very tender normally. From a value perspective bonless legs are better but they are not as fit for purpose if she wants bone!

    Now to look at the value chain of lamb and some easy areas where these quality products can be produced for less cost.

    In the Aus lamb industry there are some serious wastages that currently exist that if addressed will reduce CoP and/or increase the quality of the finished product.

    2 quick examples.
    1. Loss of lambs during the first week of life. Currently losses during this period are unacceptably high. Increasing nutrition of ewes, providing more shelter, adressing genetics and generally increasing the standard of sheep husbandry will all go a long way to reducing these losses. Projects such as Lifetime Ewe have shown this. Reducing the lossses during this period will directly reduce the cost of production of lambs.

    2. Reducing the use of saleyards for the sale of finished lambs. This is a direct cost to the value chain that offers little value. Slaughter lambs sold directly to processors will have a shorter time off feed prior to slaughter, will have reduced handling, will have reduced transport, will have increased eating quality, increased LMY, and increased Dressing percentage. Obviously this is a no brainer – but it seems that many participants in the chain still don’t get it.

    So lets start with these issues and deliver a premium product and an affordable cost and we will be all happy. Give my regards to Rammo and Tom.

  • 2 samgrains // Mar 27, 2012 at 11:10 pm

    Hi Stuart

    Thanks for your comments, I think there are some good points you make especially in the reduction in COP prices and I am all for them as I said above IF the quality doesnt go down. I think there is a benefit in every Farmer trying to lower the COP be it Money, Time etc, but if it gets to the point that things are sacrificed, and Quality is one of those things then I think they have gone too far. As we see, people will pay for quality

    But I need to ask, is there a massive glut of Lamb in Australia? I havent heard that there was, people are still buying Lamb and they seem happy to be paying the price for it(If they werent they would buy other meats), so why does it need to come down and compete? It shouldnt

    Sam

  • 3 Stuart Warner // Mar 27, 2012 at 10:19 am

    oops sorry the conversation was between Richard and Rammo not Tom Bull and Rammo. Sorry Tom and Richard…I don’t know why my brain thought Tom and not Richard. Still it would have been no less a vigorous conversation! 🙂

  • 4 Hunter White // Mar 27, 2012 at 10:43 am

    Sam,
    price depends on value proposition and competitors. COP is not really relevant. competitors also include supermarket customers such as export customers. meat prices here are significantly underpinned by export markets and have a greater influence on price than seasonal conditions in my view.

    COP is important for producers as average cop at average prices is not a good profit result

    great story, your points are important

  • 5 samgrains // Mar 27, 2012 at 11:15 pm

    Thanks for commenting Hunter

    With your comment regarding export markets, do you mean things like the FMD Crisis in Egypt will effect the price of Lamb? You think that even if we have a bad season Lambing if the export market is there then prices will remain high? Is that what you mean? (I may have it the wrong way around)

    I agree that COP is important, however it doesnt matter how low your COP is if you havent got a quality product to sell to the market, as no one will be buying

    Sam

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