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Who is the report targeted at?
The industries covered are dairy goats, emus, rabbits, turkeys, sheep milk and silkworm, with dairy cattle and pigs included as comparative benchmarks from traditional industries.

Background
The importance of supply-chain collaboration has been highlighted before, but it has now entered a new phase of pre-eminence. Four developments are set to change the structure, sustainability and outlook for NAP industries, especially those involved with food, though even the silk fibre, textile and garment market is likely to be affected by at least two of the factors:

• Growing consumer demand for nutritious, low-fat food which is likely to result in declining market share for foods that fail to meet consumer expectations. At the same time there will be growing opportunities to capture market share and, maybe, realise price premiums for those foods and industries that can meet the higher expectations of consumers.
• Increased feed-grain prices as a result of both unfavourable climatic conditions and growing demand for use of grains for industrial products like ethanol. This environment is likely to most adversely affect those animal industries with poor feed-to-saleable-meat conversion ratios and those facing competition in both export and domestic markets from imports, especially imports from countries with reliable access to low-cost feed supplies.
• Growing regulations in support of improved labelling and traceability systems that enable food to be traced from the food product to the feed used by the animal. Traceability systems are being called on to enhance both food safety, and security and animal welfare. Regulations are also growing as a measure to counter obesity with more stringent requirements for labels that better indicate fat, salt and sugar levels.
• Growing cost of labour and limited access to labour in some regions. This will mostly affect labour-intensive industries and labour-intensive activities in all industries, with increasing rewards for the adoption of labour-saving technology and measures that improve the productivity of labour. Improved flexibility in labour markets, including access to low-cost immigrant labour takes on added importance for animal processing industries.

These four factors are set to become permanent features of the industry environment and to result in more complex supply chains for NAP industries. The increasingly complex supply chains will feature numerous product differentiation possibilities, growing regulations that are likely to be subject to frequent changes, potential for sharp shifts in demand for products, and competition from new entrants capable of meeting consumer expectations.

Aims/Objectives
The objective of the research was to increase the knowledge of industry stakeholders on how value is added along the supply chain, to improve awareness of relative strengths and weaknesses along the NAP supply chains, to improve information for negotiation of agreements between participants along the supply chain, and to improve information for quality management by operators along the supply chains.

Methods used
Data were collected from mainly secondary sources as well as some existing own data and informed industry stakeholders.

Key findings
Effective supply-chain collaboration is likely to enable participants to deal with complexity and the four threats outlined above. Creation of an effective supply chain will, however, present new challenges for traditional operators. The first challenge will be the alignment of goals and strategies along the supply chain in a business model based on always meeting consumer expectations (quality, cost, time etc.) in the delivery of products and services and less on rivalry between buyers and suppliers. This may also mean developing improved employment conditions for those who require a reliable supply of labour.

These factors also offer significant growth potential for some NAP industries. The turkey industry is highlighted in the study as having great potential because it has one of the best feed-to-saleable-meat conversion ratios and is rated highly for the nutritious, low fat content of its meat. Moreover, it can compete against the traditional meats on cost as well as quality. But nearly all the NAP industries have potential providing they take their technical, marketing and financial efficiency performance to the highest possible level.

For NAP industries there is the constant challenge of overcoming the disadvantage of small size and being an attractive partner for a larger distributor or retailer. There are several ways of dealing with the size problem. One option is to form collaborative supply-chain networks that create sufficient volume and reliable supply to attract the interest of larger retailers with dominant supply-chain positions (the dairy cattle industry has used this approach to advantage). The second option is to simply focus on supply to one or more smaller, speciality stores. Third option is to market direct to the consumer through the Internet or through an Internet intermediary (everything from goat’s cheese to silk scarves and silk noils are being sold direct over the Internet), but the demands for effective collaboration over the Internet are just as important if consumer expectations are to be met. Final option is to focus on product differentiation and persuade consumers to increase their willingness to pay for the improved attributes.

The allocation of resources for product development and marketing is one of the most neglected areas for many NAP industries, but not all enterprises. An increasing share of the food market is being used for food services including restaurants, hotels, caterers and take-away food stores. The requirements for these markets are typically more precise in terms of quality, traceability, meat cuts and portion sizes and composition of the product (they often don’t want select cuts). Some enterprises are allocating up to 60% of their revenue to marketing and for those who have retail supermarket access they can expect at least 30%, sometimes 40% or more of end-consumer revenue to be absorbed by the retailer. The reward is market access. There is a temptation, and sometimes it’s unavoidable, to market to multiple marketing channels, instead of concentrating on a couple of good supply-chain channels.

The problem with multiple channels is that they all require servicing, and with limited resources there is the danger that effective collaboration will be compromised, and soon after that the commitment of other partners to the supplier will also be doubtful.

A further area of neglect among the NAP industries is in the development of co-products. In the total supply chain the percentage of revenue from co-product sales may be typically small (less than 1%), but for a particular stage in the supply chain it can be the difference between viability and bankruptcy.

Co-product revenue in some abattoir operations can actually meet the whole processing cost (e.g.

waste from silk reeling). In the US, the company Pel-freez Biologicals has taken their rabbit-producing enterprise into new co-product areas and a different focus with, for example, the sale of rabbit brain powders for $10,000/kg and rabbit testicles for $25/item. For many NAP industries, however, the value of co-products has been unexplored, especially the biologically active compounds in the coproducts.

There is also a twofold impact of the co-product revenue stream in that there is often a saving in direct effluent cash costs when co-products are fully captured and sold as value-adding items instead of simply being discharged into a nearby stream. In the US a turkey plant with waste of 210t/day is converting it into 70t/day of oil, 7.5t/day of fuel gas and 34t/day of liquid fertiliser (Section 3.4).

Tables ES1, ES2 and ES3 contain the estimated resource costs for the different meats, dairy products and fibres. Fine wool has been added as a comparative enterprise for silk. Tables ES4, ES5 and ES6 show the costs for each activity along the supply chains for the different meats, dairy products and fibres.

Table ES1: Supply chains’ costs, by resources used in competing meat producing industries ($/kg carcass weight)

Implications
There are a number of important messages from the analysis:

• Five factors are set to shake the foundations of supply-chain competitiveness: the growing demand for nutritious, low-fat food; increased feed-grain prices; regulations in support of traceability systems; and the growing cost of labour. Operators may get away with ignoring one or two of these factors, but those that ignore all five are unlikely to survive the next five years.
• Close collaboration along the supply chain is likely to become a central part of effective supply chains with partners paying more attention to meeting end-consumer expectations than grabbing a quick one-off dollar from a nearby supplier or buyer.
• For some NAP industries existing production is dominated by developing country suppliers that have labour costs of less than 10% of those in Australia. Labour-saving and productivityimproving technologies offer a way forward for these industries and they should also think strategically about collaboration with low-cost countries to have labour-intensive tasks undertaken in them.
• Some NAP industries have significant potential to take market share away from traditional meat industries due to their superior feed-to-saleable-meat conversion ratios and high health ratings for the end food products, the most prominent of which is turkey.
• The food service sector is accounting for a growing share of all the main food products. Its requirements are different to that of end consumers in terms of quality and type of cuts. In addition, end consumers’ preferences are shifting towards ready-made meals and portions suitable for immediate use.
• While the competitiveness of NAP supply chains is constrained by their typically small size, which leads to high delivery costs and limited ability to reliably supply service retailers who need continuous supplies of high-quality products, there are a number of ways of overcoming or diluting the impact of this. Better collaboration along the supply chain or vertical integration and development of differentiated products for niche markets can offset the cost disadvantage. In addition, the capture of revenue from co-products has not been fully exploited by many, if any, NAP industries. More research could be undertaken into identifying bioactive compounds from NAP animals – particularly those with an existing market.
• As found with Part 1 of this report (Adding Value to New Animal Product Supply Chains: Part 1of December 2004), small things can have a big impact on supply chains. The two most prominent examples are genetic improvement, through an elite-grandparent stock selection system, and a livestock identification and traceability system. Improved genetics can deliver growth in productivity and livestock identification, and traceability systems can be introduced with a small direct impact on overall supply-chain costs, but a major impact on productivity and end-market product values and security. In a similar vein improved reproductive performance can reduce production costs.
• Identifying, designing and preparing the best supply-chain business model for each of the NAP industries is a key factor in supply-chain competitiveness. Supply-chain leaders should be encouraged to set up efficient structures and develop distinctive brands.
• Feed conversion ratios have become an increasingly important driver of competitiveness.
• Improved feed rations, better feeding practices and selling animals at the right time can all contribute to improved feed conversion ratios. And use of low-cost feed, including forage, can improve the impact on profits even when feed conversion ratios are unsatisfactory.
• While supermarket and restaurant returns account for a relatively high, though often variable, share (30–50%, sometimes more) of the value-chain costs, these returns may not be excessive in the context of gaining market access, and reaching and meeting consumer needs in a low-cost way. Furthermore, direct sale to gourmet delicatessens and restaurants offers an alternative outlet when supermarket costs are too high.

Recommendations

1. Further research could be undertaken into identifying skills, systems and practices to enhance collaboration between NAP supply-chain partners. The cluster concept for industry development could be examined in detail.

 2. Further research could be undertaken into measures to resolve the labour shortage and cost problems, including identification of labour-saving technologies, and improved work practices and measures to improve access to immigrant and itinerant labour.

 3. Research shows many processors could reduce their consumption of water and power without compromising on quality management and food safety. Further research could examine utility management and procurement practices and identify case studies in this area for NAP industries.

 4. NAP industries could be encouraged to adopt effective identification and traceability systems to enhance market access and to meet consumer expectations in this area. Further research could be undertaken to monitor changes in traceability regulations in key international markets. Further research could also be undertaken into examining consumer willingness to pay price premiums for products that come from supply chains with traceability systems.

 5. Due to the scarcity of research on the subject it would be useful to undertake research into measuring the price elasticity of demand for a range of NAP industry products. This data is important for making strategic decisions about product and market development.

 6. Further research could be undertaken into identifying bioactive compounds in NAP coproducts, the markets for these products and the yields and product conversion ratios from coproducts.

In addition, there is a need to also examine commodity co-product possibilities including conversion of waste into energy.

 7. Co-product processing cost and marketing possibilities need further investigation. In some cases there are potential high returns, but sometimes there are very high costs associated with the specialised extraction, storage and processing routines. Another aspect of marketing is that there are significant cultural differences in preferences for some co-products. With pigs, for example, Asians have a high preference and willingness to pay for lard, lungs and kidneys, which could sell for $2.00/kg, but they may have less interest in the traditional cuts like spare ribs and roast which western consumers are more interested in. It would be useful to identify and examine the cultural preferences for different NAP co-products and how this could be integrated with demand for traditional cuts.

 8. Further research could be undertaken into practices that improve feed conversion efficiency.

There is evidence of a positive correlation between turkey meat consumption and carcass size, but at the same time research shows that feed conversion ratios decline with carcass size. More research could examine these relationships in detail to enhance understanding of consumer requirements and the cost trade-offs.

 9. Feeding systems based on forage materials instead of concentrates could enable lower feed costs, so long as energy and protein requirement for the animal is not compromised. The forage feeding systems could be examined in more detail with a multi-disciplinary approach considering biological, technological and economic conditions for each animal species.

 10. Retail margins are subject to significant variation, even during periods of seemingly stable prices for the underlying meat and dairy products. It would be useful to understand the reasons for this variation as it may enable suppliers to better meet the needs of retailers and end consumers.

 11. The underlying nutritional value and low fat content of many NAP industry products has not been fully exploited and further research could be undertaken into identifying advertising and promotional methods to improve awareness at the consumer, wholesale and retail levels.

 12. Technical efficiency ratios like feed-consumption-to-liveweight-or-product gain (e.g. silk or milk) need to be interpreted with caution as stand-alone indicators because they do not include costs and prices or the moving marginal productivity of inputs. More research could be undertaken to explain the role of technical efficiency ratios in whole-farm planning and profit maximisation.

 13. Nanotechnology is likely to influence all agricultural supply chains over the next decade through technological breakthroughs in the method and cost of making ingredients and in packaging. A scoping study could be commissioned to explore the impact of nanotechnology on NAP industries and identify priorities for research in this area.
 
 

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