Newsletter No. 75 – Item 3
A blog published recently on the World Poultry web site suggested that there is a missing F Word in the frequently used phrase “from farm to fork”. He suggests that missing important F word is FINANCE, suggesting that if we want to cover the whole food chain in one sentence, we have to include the money part. The writer suggests that “from farm to fork to finance” makes much more sense, but then goes onto ask “which should come first – Farm or Finance?” He suggests that it is a little like the chicken and egg situation.
Figure 1 is a simplistic cycle of the money. Nothing can start without the required financing in place to build the infrastructure required to run the business and provide sufficient working capital to cover the production processes. This is true for any business. At the end of the cycle the sales to the Consumer provide the revenue.
Funding for the cycle maybe achieved with many different players adding value throughout the process operating as independent companies. It maybe a single vertically integrated company funding every step of the production chain.
What is important is that the final sales cover all the costs along the way with sufficient profits to support the next year’s working capital requirements.
Figure 2 illustrates the production cycle in a little more detail, to illustrate the many components that can operate as independent companies, each independently funded. The key issue is the dependence on every stage of the production chain to sell the end products to consumers at a price that enables all processes to operate at a profit and consumers will buy. If any activity throughout the production chain fails, then all in the chain fail as there is total interdependence on each other. Whilst farmers sell crops to feed mills (can be on farm mill or commercial feed mill), feed mills sell feed to farmers, farmers sell eggs to growers, growers sell birds to slaughter plants, only those products in RED (dark red our core product and pale red our by products) produce revenue that brings cash into the industry to support production costs.
There may be times when bank overdraft or similar finance may be required to cope with short term cash flows, but overall profitability is totally dependent on the end product sales.
When establishing a new business based on mainstream livestock, it is possible to purchase proven stock and enter established markets at competitive prices. Ostrich do not yet have this luxury. Over recent years many breeder birds have been slaughtered leaving a small pool of breeders remaining. The result of this is that it will require a greater investment to rebuild the breeder herd and develop the genetics capable of producing meat competitively priced.