Value Chain Development Strategy

Transcription

1 Value Chain Development Strategy Prepared for the Manitoba Sheep Association Inc. by Kelwin Management Consulting In collaboration with the MSA Value Chain Initiative Steering Committee March 31, 2006

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3 Preface The work described in this document represents the results of several years study coming to fruition in two industry workshops one held in June 2005 and the second in January It also represents the conclusion of the second stage of strategic planning undertaken by the Manitoba Sheep Association on behalf of the sheep industry in Manitoba. The first stage included cost of production studies, a comparative advantage study, and finally a strategic vision for the industry outlined in the document entitled Expanding the Flock- A Strategic Plan For The Manitoba Sheep Industry published in February This plan outlined initiatives which the industry needed to take in order to positions itself for continued development. Included in this plan were a number of recommendations among which was the need for a strong industry association with adequate resources to carry out its functions, and suggesting that check-off was the only way in which this could be achieved. Following a successful referendum in March 2003, mandatory but refundable check-off came into being in October 2003, with the MSA being designated the provincial organization representing sheep producers in the Province of Manitoba. A part-time general manager for the Association was hired in April, The second phase of the industry development was funded partly by the Manitoba Rural Adaptation Council in 2003 to address three important areas, flock health, food safety, and market development. As part of these initiatives Manitoba producers now have access to the Western Canadian Flock Health Program, the Canadian Food Safe Farm Practices Program. During 2004 the MSA published the results of a research study carried out by Lindsay McDonald and Judy Story entitled Expanding our Markets Phase 1- Market Research Literature Review in an attempt to define the markets open to Manitoba lamb. Following this the Steering Committee undertook numerous consultations with producers, feedlot operators, processors, retailers and consumers, in a further effort to define Manitoba markets. In the Spring of 2005 Brian Kelly of Kelwin Management Consultants was contracted to assist the steering committee in developing the current document, and to facilitate the two industry workshops held in June 2005 and January We hope that this will assist the industry in its further development, and direct the MSA in actions that need to be taken. We also hope that it may stimulate producers, processors and others in considering the development of a value chain or chains for the improved marketing of Manitoba lamb. In conclusion I would like to acknowledge financial and in-kind support from the Manitoba Rural Adaptation Council, the Manitoba Forage Council, Manitoba Agriculture, Food and Rural Initiatives and the Manitoba Sheep Association. We also acknowledge the assistance that we have received from Kelwin Management Consultants, and Lindsay McDonald. Finally the support and dedication of members of the Steering Committee is acknowledged. Over the past six years this committee has met approximately every six weeks and has ensured that the Sheep Initiative I and II have remained on track and accountable to the MSA and the funding agencies. John L. Hamerton Vice-Chair, Manitoba Sheep Association Chair, Steering Committee

4 Steering Committee Producers: Randy Eros (Co-Chair) John Hamerton (Chair) Sarah Lewis Eric Thornhill Manitoba Sheep Association: Rob Smith Lindsay McDonald Manitoba Agriculture Food and Rural Initiatives: Judy Storey Rob Berry Stephanie Cruikshanks Henry Nelson Diane Roberts Wray Whitmore Manitoba Forage Council: Fraser Stewart Consultants: Brian Kelly - Kelwin Management Consultants

5 Table of Contents EXECUTIVE SUMMARY INTRODUCTION Terms of Reference Value Chain Definitions Information on Value Chains Factors Driving Value Chain Formation MANITOBA LAMB PRODUCTION & MARKETING MANITOBA LAMB CONSUMPTION & SOURCES Lamb Consumption in Manitoba Sources of Supply for the Lamb Consumption in Manitoba MARKET SEGMENTS Provincially Inspected Lamb Provincial Un-Inspected Lamb Federally Inspected Lamb Offshore Imported Lamb MANITOBA LAMB SLAUGHTER CAPACITY LAMB SUPPLY CHAINS IN MANITOBA CHALLENGES VALUE CHAIN DEVELOPMENT OPPORTUNITIES Basic Steps for Creating a Value Chain Discussion of Value Chain Opportunities Provincially Inspected Lamb Category: Provincial Un-inspected Lamb Category Federally Inspected Lamb Category Offshore Imported Lamb Category RECOMMENDATIONS Industry Development Strategy (Improved Coordination and Efficiency of Existing Supply Chains) Value Chain Development Strategy Summary...28 APPENDIX 1 CANADIAN PRAIRIE LAMB VALUE CHAIN...29 APPENDIX 2 BRANDED LAMB...29 APPENDIX 2 BRANDED LAMB...30 APPENDIX 3 - COMPETITIVE FACTORS DRIVING VALUE CHAINS Traditional Competitive Trends More Recent Trends...31 APPENDIX 4 MANITOBA PRODUCED LAMB - SUPPLY CHAINS...34 APPENDIX 5 COMPETITIVE COSTING ANALYSIS METHODOLOGY...35 Kelwin Management Consulting 1

6 Executive Summary This document is dedicated to the memory of Dr. John Hamerton, Chair of the Steering Committee for this project and Vice Chair of the Manitoba Sheep Association (MSA). MSA has undertaken a number of initiatives to develop the Manitoba sheep industry. The strategic development plan has been aggressively pursued over the past five years. This project is one more in the series of developments to improve the sheep industry for Manitoba producers. Many definitions of Value Chains exist. All have similar key points and concepts. The Agriculture and Food Council, Alberta describes Value Chains as vertical, strategic alliances, involving at least three independent/separate business units between the consumer and the producer. The main purpose of value chains is meeting a specific market opportunity for the long-term benefit of all parties. Unlike vertical integration, most participants in value chains are independently owned. Once established, Value Chains become a for-profit entity that is in competition with all other supply chains serving the same specific target market segment(s) 1. Thus, MSA (which must serve all sheep producers) cannot operate a Value Chain. It can facilitate and encourage producers and others, but not operate one itself. Many factors are driving the increasing use of Value Chains in many industries, not just in the food and agriculture industry. Manitoba lamb production is estimated to be 48,000/year. About 3,400 are finished and slaughtered in provincially inspected abattoirs and approximately 7,000 are slaughtered illegally within the province in un-inspected businesses. The balance is shipped to other provinces, mainly Ontario (+/- 60%) and Alberta. Manitoba lamb consumption is estimated at the equivalent of 55,200 lambs/year. As noted above, about 10,400 are sourced from Manitoba slaughter. The balance is sourced from Canadian federally inspected slaughter in other provinces (perhaps 5,520 to 17,200 lambs) and from offshore imports, mostly from New Zealand (perhaps 39,280 to 27,600 lambs). No federally inspected slaughter abattoirs currently kill lamb in Manitoba. Approximately 12 provincially inspected slaughter abattoirs, all located in the western half of the province, kill lambs with the bulk of lambs being slaughtered at three of these plants, with Carman Meats being the largest. Supply Chains Supply chain is the term used to describe all the steps that a product takes to get from its origination to the end consumer. For example, the typical lamb meat product in a retail store has a supply chain that includes: sheep breeding stock producer, commercial lamb producer, auction mart, feedlot operator, abattoir and processor, wholesaler, retailer and trucking companies moving product at all the stages, and finally the consumer. 1 The term market segment, as used in this report, is defined to mean a particular type/segment of consumer that have a common set of characteristics that in some way make them identifiably different from other categories/segments of consumers. Retailers or food service businesses will target specific segments, e.g. a segment oriented to quality, and not so price sensitive, may be served by the specialty butcher shop, whereas a more price oriented market segment may be served by a national grocery chain, etc. Kelwin Management Consulting 2

7 A variety of supply chains exist for lambs produced in Manitoba. The diagram in Appendix 4 displays the large number of possible routes that a lamb can take to move to the end consumer. Every lamb that is produced follows an existing supply chain to move through a number of players, each performing their own role, to get to the end consumer. And, every market segment has its own distinctive supply chain to serve the specific needs of that market segment. It is important to note that each market segment (whether it be a high end restaurant, a specialty meat retail outlet, or a national grocery chain) desires a specific set of product and service characteristics. Each market segment wants that particular set of product and service characteristics to be supplied consistently, with every order, and they want the volume of lamb products they need to always be available, never short. So, each market segment wants consistency of supply both volume and characteristics. However, every market segment wants a different set of characteristics from every other market segment. For instance, the specialty meat retail outlets may want much larger volumes for specific ethnic holiday periods and much less at other times, while a national retail chain may require a relatively consistent volume. Also, the specialty outlet may prefer a local Manitoba supplier even though that means it is from a provincially inspected abattoir, while the national retail chains typically cannot sell lamb unless it is from a federally inspected slaughter plant. The source of competitive advantage for most successful businesses in the food industry is based on two characteristics: 1. Participants knowledge of the exact specifications that their individual customers want, and 2. Sufficient volumes to create economies of scale to reduce costs. With this type of information and economies of scale, the supply chain can be coordinated and efficient. Many current lamb product supply chains in Manitoba are not coordinated. They do not now serve the customer with a product with the highest possible value and/or at the lowest cost. For all of these existing supply chains that have a problem/inefficiency there is both an opportunity for improvement, and an opportunity to create a Value Chain. The well designed Value Chain can better serve the customer, more efficiently, than the existing supply chain. By serving the customer better and doing it more efficiently, there should be an increased profit for the players in the Value Chain. If the producer participates, and especially if the producer initiates the Value Chain, a portion of the increased returns can come to them. Challenges can be described under the following headings: 1. Lack of coordination along the existing supply chains 2. Information disconnect, and 3. Diversity of products not focussed on specific markets. Kelwin Management Consulting 3

8 Recommendations for the Manitoba Sheep Association A number of actions were identified as needed to develop the industry and improve the infrastructure for the Manitoba lamb industry that are more general and not specific to Value Chain development, as follows: 1. Industry Development (Improved Coordination and Efficiency of Existing Supply Chains) 1. a. Assist in reducing lamb producers transportation costs by offering a shared transportation referral service b. Coordination of delivery to auction marts (exchange of information) 2. Research what lamb characteristics are desired by feedlots, abattoirs, retailers, restaurants, for each different market segment, (e.g. for feedlot breed, weight, age, degree of finish) (e.g. for retailers - size of cut, degree of marbling, etc), and provide this information to lamb producers (MSA members) with the message to produce lambs for their chosen target market segment. 3. Create a level playing field for inspected slaughter plants versus un-inspected illegal slaughter businesses 4. Combined with the recommendation above and below, undertake formal discussions with abattoirs about approaching government for support to increase the slaughter capacity for lambs in Manitoba, particularly for zabihah Halal and ethnic markets slaughter, including the potential for a federally inspected slaughter plant 5. Once the two items above are acted upon, further increase the pressure for enforcement of the regulations against the un-inspected illegal slaughter plants 6. Increase consumer awareness of Manitoba/Canadian lamb through a well researched promotion program that is supported by the supply chain participants for the targeted market segments. I.e. is designed with the input from and has the support of retailers and/or food service for the target market segment(s). Because Manitoba producers face severe competition on price from imported New Zealand lamb these promotions should focus on the consumer perceptions of Manitoba lamb having unique characteristics such as freshness and being a locally raised product. Promotions which build on these characteristics may grow the local demand from higher end retailers. 2. Value Chain Development Strategy (MSA cannot undertake operating a Value Chain. It has to be producers, processors and marketers that do that. MSA can promote the benefits of Value Chains and can facilitate and act as a catalyst to motivate others in the industry to establish Value Chains.) 7. Create awareness of Value Chains 8. Provide access to information and resources 9. Undertake meetings with production, slaughter, processing and marketing players to identify specific actions that will assist to facilitate the creation of new Value Chains 10. Explore working jointly with others (e.g. Saskatchewan Sheep Development Board or Sunterra Meats and others) for mutual benefit of Manitoba lamb producers. xxxxx Kelwin Management Consulting 4

9 1.0 Introduction Manitoba Sheep Association (MSA) has undertaken a number of initiatives to develop the Manitoba sheep industry. The strategic development plan has been aggressively pursued over the past five years. The activities undertaken and initiatives successfully achieved include: Cost of Production study and the Comparative Advantage Study Generic business plan Strategic Plan Expanding the Flock- A strategic plan for the Development of the Manitoba Sheep Industry Expanding Our Markets - Phase I, Market Research Literature Review, by Lindsay E. McDonald, B.Sc. Ag. & Judy Storey, Food Marketing Officer MAFRI Putting the information on the website Lobbying and getting a sheep specialist with Manitoba Agriculture, Food and Rural Initiatives (MAFRI) Facilitating the development of the National On Farm Food Safety (OFFS) program for Manitoba Producers Facilitating the implementation of the Western Canadian Flock Health program for Manitoba producers Successfully launching the check-off program Hiring a general manager, and Funding from MRAC for a Value Chain initiative Funding from Greencover Manitoba 1.1 Terms of Reference Kelwin Management Consulting was contracted to provide a limited scope of facilitation services to the MSA Steering managing the Value Chain Initiative. These services included: Preparation of materials and facilitation of the June 9 Value Chain seminar in Portage la Prairie Facilitate up to three meetings of the steering committee, lead the strategy development for, and assist in drafting, the outline of a Value Chain Strategy document that will be appropriate to use for the January 2006 Value Chain session Make a presentation at the AGM December 2, 2005 Assist the Steering Committee in preparing for the January 2006 Value Chain session Preparation of materials and facilitate the January 2006 session Kelwin Management Consulting 5

10 Debrief after the January 2006 session and prepare a report summarizing what was learned from the two Value Chain sessions and provide recommendations to the MSA for implementing Value Chains in the Manitoba sheep industry. This document has been requested by the Steering Committee as a draft which will be finalized following the January 2006 session. It is designed to assist in planning for that session. It is also organized to act as an on-going reference. It is based on the research by the Steering Committee members and the meetings with retailers, restaurateurs, wholesalers, farmer direct marketers serving retail and restaurant customers, abattoirs (both those currently slaughtering lambs and some of those not doing so), MAFRI representatives, and others. 1.2 Value Chain Definitions Many different definitions of Value Chains exist. All have similar key points and concepts. A selection of relevant definitions is provided below: By working as interdependent, rather than independent, organizations, members of a value chain alliance can ensure that the end product satisfies the demand of consumers more than the competition. (Roberts, R., Gregory, D., Cornwell, F., O Keefe, M., (2002); Value Chains: A Project Management and Mentoring Guide; Agri Chain Solutions Limited; Canberra, Australia) Value Chains are vertical, strategic alliances, involving at least three independent/separate business units between the consumer and the producer. The main purpose of chains is meeting a specific market opportunity for the long-term benefit of all parties. Unlike vertical integration, most participants in value chains are independently owned. (Agriculture and Food Council, Alberta) Value Chains are consumer or market driven, rather than commodity or supply driven. Value Chains seek collaborative optimization of the whole chain system, not maximization of the individual profits of chain members. (Agriculture and Food Council, Alberta) Value Chains are a tool for more effective response to the marketplace not an end in itself (Agriculture and Food Council, Alberta) A Value Chain is an alliance of enterprises collaborating vertically to achieve a more rewarding position in the market. (Agriculture and Food Council, Alberta) 1.3 Information on Value Chains The key difference between a regular supply chain and a Value Chain (which is a form of a supply chain) is that a Value Chain has relationships between the participants in the supply chain that allows an exchange of a large volume of strategic information to allow each participant in the Value Chain to coordinate all their activities with the activities of all other participants, thus being able to create a higher value end product (as seen in the eyes of the consumer), or lower costs, or both. An example of such information would be Niman Ranch in the USA that runs taste panels with consumers, on each farm s pork cuts, and provides that information back to the processor, slaughter plant and hog farmer. Based on this information the breeding and nutrition program can be adapted to match the farms that have the best results in the consumer tests, and Kelwin Management Consulting 6

11 the animal can be slaughtered and processed in the way that achieved the best test results. This amount and exchange of information is one of the reasons why Value Chains can create competitive advantages that cannot be achieved any other way. Typically close long lasting relationships are required to achieve the degree of trust needed to share this much information and to respond constructively to the information. The difference between a very well managed supply chain and a Value Chain can be quite small. The term Value Chain typically applies where the exchange of information between players in the chain is very high, and the relationships between the players is very strong and on-going, such that the players think and act as if the whole Value Chain was a single entity, rather than a number of independent businesses negotiating one-off buy-sell transactions, as typically happens in a poorly managed supply chain. E.g. the traditional supply chain for a commodity, such as farmers selling grain or cattle. Typically the term Value Chain would only be applied when the vertical alliance includes three or more companies in the supply chain. If only two companies are involved, it would typically be referred to as a strategic alliance. Once established, Value Chains become a for-profit entity that is in competition with all other supply chains serving the same target market(s). Thus, all of the Value Chain s information must be treated as confidential. Also, this means the Value Chain is closed to new players. I.e. once established the VC does not allow new partners to enter unless they are invited after the Value Chain players have identified a need that can be best served by a new player. Considerable information is available to assist those wishing to explore Value Chains further at the Alberta Agriculture and Food Council website portion that focuses on Value Chains. The web address is It has information titled Value Chain Guidebook: A Process for Value Chain Development, Value Chain Handbook, Value Chains as a Strategy, Strategic Partnership Checklist, a series of success stories, Industry Links, links to a variety of Value Chain Research and other relevant sources of information. The Industry Links icon includes a link to a Value Chain called Niman Ranch. It markets a variety of farm products (including lamb) with a very successful branding strategy. The Niman Ranch website includes detailed descriptions and offers 12 lamb recipes to assist buyers in knowing how to cook their purchase. Additional Value Chain information is available at the George Morris Centre website at It has articles titled Drivers, Benefits and Critical Success Factors of Developing Closely-Aligned Agri-Food Value Chains, Drivers and Issues in VCM 2 ; and Price and Product Pooling: Impact on Development and Operation of Differentiated Value Chains. 2 VCM is Value Chain Management Kelwin Management Consulting 7

12 1.4 Factors Driving Value Chain Formation Within Agri-Food Systems: Value Chain formation within agri-food systems is developing in response to several key market drivers. These include: 1.0 Food safety issues - a foremost public concern as a result of such 'breaks' as E. coli in ground beef and BSE in cattle 2.0 Product quality - retailers are demanding increasingly higher standards both in the areas of product specifications - size, colour, texture, and composition 3.0 New product innovation and differentiation - the competitive marketplace places a premium on new product development. Experience illustrates that long term supplier relationships can effectively enhance innovation and new product development, and 4.0 Lowering 'system' costs - the drive to reduce logistic costs such as shipping, warehousing, transfer and non-conforming product is a powerful motivator to organizing more effective systems. Further it is observed that Value Chain formation is taking place in response to different industry drivers in different regions. Regional Major Organizational Drivers 1.0 Netherlands: Public-Private Strategic Approach involving industry, government and research institutions 2.0 United Kingdom: Major Retailers with some government support 3.0 Japan: Retailers and Trading Companies 4.0 Australia: Japanese market requirements; industry associations 5.0 U.S.A.: Niche Players; some movement at the large company level 6.0 Canada: Fragmented but beginning to emerge in several sectors. Perhaps the most illustrative example of strategic Value Chain formation can be found in the Netherlands. With the formation of the Agro Chain Competence Foundation in 1995 and an overall budget of 90 million guilders (approximately $ 75 million CAD), over 60 value chain pilot projects have been initiated. Within All Industries: Value Chains are developing within all industries, not just agriculture and food. This is because there are continually increasing pressures to create a new source of competitive advantage. The effort focused on improving supply chain 3 management to gain a competitive advantage has become so significant a factor for business managers that the Harvard Business Review not only runs regular articles on the topic, but it started a new publication focused solely on supply chain 3 Supply chain is the term used to describe all the steps that a product takes to get from its origination to the end consumer. For example, the typical loaf of bread has a supply chain that includes: plant breeder, seed grower/marketer, farmer, grain handling company, railway and trucking companies, flour mill, trucking company, bakery, wholesaler/distributor, retailer, consumer. Kelwin Management Consulting 8

13 management. Also, as another example of the prevalence and permanence of supply chain management as a focus for business managers, the University of Manitoba s Asper School of Business has a Department of Supply Chain Management, awarding B.Comm. degree s with a major in Supply Chain Management. Appendix 3 provides the explanation of why companies in the food industry, world wide, are increasingly focusing on improving supply chains for their products. In addition to these competitive business pressures described in Appendix 3, there are the issues of food safety/traceability, pressures on farm incomes, concerns with environmental sustainability, consumers desire to feel good when they buy food (e.g. product categories such as natural, organic, humanely produced, etc.), risk management by food retailers, and other factors that can be best addressed by an increased use of Value Chains. 2.0 Manitoba Lamb Production & Marketing According to Statistics Canada 48,100 lambs were born in Manitoba between January 1, 2004 and December 31, Of these lambs that were produced in Manitoba, 3,400 were finished and slaughtered in Manitoba at a few Provincially Inspected abattoirs. It has been estimated that approximately 7,000 lambs born and finished in Manitoba are slaughtered illegally within the province. Illegal slaughter occurs mainly in two forms: 1) A producer sells an animal directly to a consumer and the animal is then slaughtered on farm either by the producer or consumer 2) An un-inspected abattoir purchases animals and slaughters them in an un-inspected facility for resale. The Manitoba Sheep Association Inc. does not support the illegal slaughter of sheep and lambs. The remainder of the lambs produced in Manitoba are shipped to other provinces, mainly Ontario (~60%) and Alberta. Kelwin Management Consulting 9

14 3.0 Manitoba Lamb Consumption & Sources 3.1 Lamb Consumption in Manitoba It is difficult to know exactly how much lamb is consumed in Manitoba. This is because lamb consumption is tracked by Statistics Canada only on a national level. The parties that would have the most complete knowledge of provincial lamb consumption are major retail grocery chains. However, this information is proprietary. Therefore provincial lamb consumption must be estimated by using the national average consumption and the population of Manitoba. Calculation: Population of Manitoba 1,160,000 Average Consumption (rounded off) x 1.02 kg./person/yr Lamb disappearance in Manitoba = 1,187,418 kg Average carcass weight 21.5 kg. Lambs (equivalent) consumed in Manitoba 55,200 lambs In order to do these calculations certain assumptions were made: 1) Manitobans do not consume more lamb than the national average. 2) Total kilograms of lamb consumed would be viewed as whole lambs, rather than particular cuts. Although it is unlikely that Manitobans are consuming whole carcasses, viewing lamb consumed this way allows for easier comparison to number of lambs produced in Manitoba. 3.2 Sources of Supply for the Lamb Consumption in Manitoba On average across Canada about 50% of consumption is supplied by imported lamb. The estimates below are described in lamb equivalents. I.e. for some estimates there may be more of some cuts and less of others than the ratio in a carcass. Estimated Estimated # of Lambs # of Lambs 1. Manitoba Slaughtered Provincially Inspected 3,400 3, Manitoba Slaughtered Illegal Un-Inspected 7,000 7, Canadian Slaughtered Federally Inspected 5,520 to 17, Offshore Imports 39,280 to 27,600 TOTAL 55,200 55,200 In Canada about ½ of the lamb consumed is imported, mostly (⅔) from New Zealand. Kelwin Management Consulting 10

15 The four basic categories of supply noted above can be characterized by the following descriptions: 1. The provincially inspected Manitoba slaughter tends to be viewed by local retailers as a higher priced, better quality, fresh product. Some of that volume moves into the high-end restaurants and specialty retail outlets. As well, a significant portion of this supply chain is for direct-to-consumer custom sales. 2. The illegal, un-inspected Manitoba slaughter tends to move into the ethnic, religious, and other specialty markets that seek specialized services or products. These markets may require religious slaughter such as Zabihah Halal, or seek specialty forms of the product. Some ethnic consumers desire traditional lamb products such as heads and stomachs, which require specialized equipment to be processed to inspected standards. However, at this time none of the inspected provincial abattoirs, which are slaughtering lamb, possess this equipment. 3. The Canadian-slaughtered federally inspected product from Sunterra Meats of Innisfail, Alberta tends to move into the retail grocery chains, as a high quality product. But, in some Manitoba market segments, it is not perceived to be local or as having the same quality characteristics as the Manitoba product. Provincially inspected Manitoba lamb cannot be sold in these outlets due to their requirement for a federally inspected product and the lack of a federally inspected lamb slaughter plant in Manitoba. Some Manitoba lamb does become part of this supply chain when it is shipped to Alberta, however it is not differentiated from other Western Canadian lamb. 4. Of the Offshore imported lamb in Canada, approximately ⅔ is produced by New Zealand with the remaining ⅓ produced in Australia. The imported product tends to be seen as a good quality product that is very price competitive and is available consistently year round, in whatever variety of cuts are ordered. The New Zealand lamb is slaughtered in high volume specialized plants, to export standards for the Canadian market, shipped by container to our market here in Manitoba. It is of a different quality than Canadian lamb since it is grass-finished rather than grain finished, like most domestic lambs. Some Canadian consumers prefer the milder flavour of Canadian lamb and therefore may view New Zealand lamb as a different quality than the locally produced Manitoba lamb or Canadian lamb. However, due to the significant price difference, many customers and market niches would sooner buy the lower priced imported product, even if it lacks some of the quality features associated with Canadian lamb. Kelwin Management Consulting 11

16 4.0 Market Segments The main market segments for lamb in Canada are producer direct sales, specialty service (ethnic, religious, etc.), and national grocery chains, tend to be supplied by only one of the four sources of lamb supply: provincially inspected lamb, un-inspected lamb, federally inspected lamb, and offshore imported lamb, so it is easiest to examine them according to there source of supply. 4.1 Provincially Inspected Lamb Provincially inspected lamb is the smallest supply chain market segment for lamb in Manitoba; however it has the most potential for growth. Provincially inspected lamb currently supplies the market for producer direct lamb sales and some independent retailers and restaurants. This type of selling requires and can offer a high level of service by sellers, and has potential for consumers and buyers to provide direct feedback to producers. 4.2 Provincial Un-Inspected Lamb Un-inspected illegally slaughtered lamb supply chain is characterized by a market to consume about 7,000 locally raised and finished lambs within the province, the catch is that they need to be diverted into the inspected slaughter supply chain. This hasn t happened so far for a number of reasons, mainly due to the difficulty of providing the required service in the inspected slaughter supply chain. 4.3 Federally Inspected Lamb Federally inspected Canadian Lamb contributes a portion of the lamb supply for national grocery chains such as Safeway and Sobeys. This is due to their requirement for federally inspected lamb, which can be supplied by federally inspected Canadian lamb or offshore imported lamb. At this time differentiated Manitoba Lamb could not supply this market due to the lack of a federally inspected lamb facility in Manitoba. 4.4 Offshore Imported Lamb Offshore imported lamb offers three main features which would be extremely difficult, if not impossible, for Manitoba lamb producers to duplicate these are: lowest pricing, year-round supply, and no need to market trim or lower value cuts in Canada. Kelwin Management Consulting 12

17 5.0 Manitoba Lamb Slaughter Capacity No federally inspected slaughter abattoirs currently kill lamb in Manitoba. Approximately 12 provincially inspected slaughter abattoirs, all located in the western half of the province, kill lambs with the bulk of lambs being slaughtered at three of these plants. The largest volume of lamb killed in inspected plants is at Carman Meats. They kill and process (cut and wrap) as do many of the abattoirs. Many of these abattoirs are willing to do custom slaughter of lamb, but do not want to market lamb themselves. This creates an opportunity for producers that wish to market their (and others that may join them in a Value Chain) own lamb under their own brand. A number of abattoirs have unused capacity available, but they tend to be distant from many producers and the Winnipeg market. Coordination of shipments from small producers could reduce freight costs to abattoirs and utilize abattoir facilities better. When more lambs are processed at a time the abattoir does not need to do line changes as frequently, making the processing of lamb more efficient. Summary: No federally inspected plant kills lambs in Manitoba. Provincially inspected slaughter capacity is limited, especially in the Winnipeg area and especially for serving the market niches for religious product, ethnic requests for head-on, stomachs, etc. Kelwin Management Consulting 13

18 6.0 Lamb Supply Chains in Manitoba Supply chain is the term used to describe all the steps that a product takes to get from its origination to the end consumer. For example, the typical lamb meat product in a retail store has a supply chain that includes: sheep breeding stock producer, commercial lamb producer, auction mart, feedlot operator, abattoir and processor, wholesaler, retailer and trucking companies moving product at all the stages and finally the consumer. A variety of supply chains exist for lambs produced in Manitoba. The diagram in Appendix 4 displays the large number of possible routes that a lamb can take to move to the end consumer. Every lamb that is produced follows an existing supply chain to move through a number of players, each performing their own role, to get to the end consumer. And, every market segment has its own supply chain to serve the specific needs of that market segment. Even the supply chain that includes illegal, un-inspected slaughter, serves the needs of a particular market segment of customers better than any other existing supply chain. It is important to note that each market segment (whether it be a high end restaurant, a specialty meat retail outlet, or a national grocery chain) has a specific set of product and service characteristics that it wants. Each market segment wants that particular set of product and service characteristics to be supplied consistently, with every order, and they want the volume of lamb products they need to always be available, never short. So, each market segment wants consistency of supply both volume and characteristics. However, every market segment wants a different set of characteristics from every other market segment. For instance, the specialty meat retail outlets may want much larger volumes for specific ethnic holiday periods and much less at other times, while a national retail chain may require a relatively consistent volume. Also, the specialty outlet may prefer a local Manitoba supplier even though that means it is from a provincially inspected abattoir, while the national retail chains typically cannot sell lamb unless it is from a federally inspected slaughter plant. For everyone that looks at the market opportunities for lamb in Manitoba, these two characteristics, consistency and diversity, are both important. The role played by the Roy Leitch Livestock Company Limited feedlot near Brandon, Manitoba in many of the supply chains for Manitoba lamb is noteworthy. It is the largest lamb feedlot in Canada. It has economies of scale, i.e. large numbers of lambs, that allows for sorting of animals according to weight, degree of finish, breed, etc., for more efficient feeding programs, and to be able to put full truckloads of consistent lambs together that are specifically suited to the demands of the specific customer that they are going to. Without this feedlot to perform this function in the supply chain, the value of the average Manitoba lamb would be lower as no other player in the industry in Manitoba is feeding anywhere near a sufficient number of lambs to perform this sorting, efficient feeding of consistent animals, and sort for finished animals that specifically meet the demands of each customer. The role played by order buyers from companies such as Heartland Livestock Services has some similarities to the description of the feedlot above. They identify which lambs, based on many characteristics that their customers have identified, are appropriate for which customers, and put loads together that allow for efficient transportation costs of consistent type/quality of animal for a customer. This sorting to create loads of consistent animals and having sufficient volume to obtain the lowest transportation costs both add considerable value (consistent animal type) and Kelwin Management Consulting 14

19 decrease costs. They can only create this added value by knowing what their customers want (all relevant animal specifications, including timing of shipments) and by consistently providing loads of lambs that meet those particular customer specifications. The above description of the role played by the feedlot and order buyers highlights the source of competitive advantage for most successful businesses in the food industry. These two characteristics are: 1. Participants knowledge of the exact specifications that their individual customers want, and 2. Sufficient volumes to create economies of scale to reduce costs. With this type of information and economies of scale, the supply chain can be coordinated and efficient. For example, the Roy Leitch Livestock Company Limited feedlot will typically know when buying lambs, which end customer they will be going to, and approximately when that customer will want them. The feeding program will be designed to coordinate with those customer requirements. Many lamb product supply chains in Manitoba are not coordinated. They do not now serve the customer with a product with the highest possible value and/or at the lowest cost. There are many complex examples of this, but a very simple one is the inefficiencies that exist when too many, or not enough, lambs show up at an auction. Or, when a lamb is not fed to create the right degree of finish for its age and breed to go into a feedlot and come out with the degree of finish and weight that the customers want. Or, when a retailer cannot get enough lambs at some seasons, e.g. Christmas. Or, even the use of the auction mart instead of direct marketing by the producer to the next participant in the supply chain that adds value to the lamb. (Small producers may have to use the auction mart due to having too few lambs for any one market at any one time to be efficient to move.) For all of these existing supply chains that have a problem/inefficiency there is both an opportunity for improvement, and an opportunity to create a Value Chain. The well designed Value Chain can better serve the customer, more efficiently, than the existing supply chain. By serving the customer better and doing it more efficiently, there should be an increased profit for the players in the Value Chain. Kelwin Management Consulting 15

20 7.0 Challenges A number of challenges have been identified that impede the further development of the marketing systems and supply chains for Manitoba lambs. These challenges are summarized as: Most lamb producers raise a small number of lambs, making it difficult for the producer to justify spending much time studying and understanding the needs of the supply chain and the customer that they sell to. For example, it appears many producers are not familiar with the lamb characteristics needed by the single largest volume customer for Manitoba lambs, the Roy Leitch Livestock Company Limited feedlot. A wide variety of lamb breeds are produced, under a wide variety of management systems. While a number of different breeds and management systems are needed to serve the diverse market segments, the current diversity of production makes it more challenging to coordinate production with other players in the supply chain. Slaughter capacity for lambs is limited. A number of abattoirs that are designed for larger animals have a challenge and must invest in equipment and in training of their workers to be able to slaughter lambs. A number of abattoirs have excess capacity, but are not located near to the major local market in Winnipeg. No federally inspected plant in Manitoba currently kills lambs. Combined with the fact that a number of the grocery retail chains will sell only federally inspected meat, this means that Manitoba lamb cannot access these retail outlets unless it is shipped to Alberta to be slaughtered, and then the meat is shipped back to the retail stores. The federally inspected slaughter plants (not killing lambs now) seek a consistent volume of lambs, with a secured market, before they wish to invest in creating the capacity to slaughter lambs. And, the charges for slaughter will have to be sufficient to provide a greater profit, after investing in the new equipment and training, to offset the lost profit margin on the animals currently being killed that would be displaced by lambs. Support from the Province of Manitoba and/or the Federal Government, for the cost of the equipment and training, may make it easier to convince a federally inspected plant to add capacity to kill lambs. The un-inspected illegal kill that occurs creates an unfair competition for the inspected slaughter plants. With approximately 7,000 lambs/year being slaughtered illegally, and only 3,400 being killed in inspected plants, the situation is very undesirable. Without action to create similar regulatory costs, the inspected slaughter plants face a higher cost and are not able to expand as easily, making it more difficult for direct marketing by producers, or for a value chain to be formed. In addition to the regulatory costs, the unfair competitive position is also caused by the economic inability of inspected slaughter plants to provide the product that a significant number of Manitoba customers want e.g. religious slaughter, head-on, stomachs, etc. The costs are higher to provide these products in an inspected slaughter plant than in an un-inspected plant; frequently to a level that the inspected slaughter plants have not been able to economically justify providing the product. For example, providing stomachs requires scalding equipment to be installed and approved procedures to be used and documented. Kelwin Management Consulting 16

21 A number of consumer challenges exist. These include many people that do not know how to cook cuts of lamb, and a general lack of experience with lamb. The report titled, Expanding Our Markets - Phase I, Market Research Literature Review, by Lindsay E. McDonald, B. Sc. Ag. & Judy Storey, Food Marketing Officer, MAFRI, noted on the first page of this document provides insights into a number of consumer challenges and ways to deal with those challenges. Producer attitudes to marketing and change. Too large a portion of the lamb producers in Manitoba are not willing to change their production and management programs in response to market information AND too little market information is available to producers. Smaller producers have difficulty justifying taking a significant portion of their time to focus on the market/customer needs for the lamb food product that they produce. Furthermore, this information is difficult to access. An increased understanding of supply chains, into which they currently sell, will help in this regard. Related to the above challenge, but more specific for those establishing a Value Chain, is producer s willingness to fulfill contractual commitments for price and supply. It is unfortunately widely recognized in the production sector of agriculture that far too many producers have the view that a contract to supply a specific product at a specific price can be defaulted on if the price goes higher in another market at the time they are to deliver. For those establishing a Value Chain, this is not acceptable, as it will cause the Value Chain to fail and create losses for all participants. A producer that has such a view should not be allowed to become a participant in a Value Chain. This will be one of the characteristics to be investigated when selecting initial participants for the Value Chain. Th e above challenges can be described in different terms as follows: 4. Lack Of Coordination Along The Existing Supply Chains: Because of the small lamb numbers from each of many producers, there are extra costs incurred that do not create value for the end customer, e.g. auction marts. Larger producers tend to market direct to their customer. 5. Information Disconnect: The point above leads to a disconnect between the producer and their customer so that there is a lack of market information flowing back to the producer, leading to a lack of producer adaptation of their product (the lamb) to suit their individual customer. 6. Diversity of Products Not Focussed on Specific Markets: The points above lead to there being many diverse breeds, management practises and production methods. While different lamb specifications are needed for each of the many different market segments, too often producers are not adjusting their practises to focus on a specific target market segment and are not producing the specific product (i.e. a lamb) that the customer wants. To obtain the flow of information that is needed (customer knowing what lamb will be available, in what condition, at what time, etc.) to coordinate the supply chain producers and their customers must exchange more information, and likely utilizing marketing or supply agreements. Kelwin Management Consulting 17

22 A number of larger producers, and some smaller producers, have successfully adapted their breed, production system and marketing method to target a particular customer or market segment. More Manitoba lamb producers need to do this. Each of these challenges creates an opportunity to expand the sales of Manitoba lamb by overcoming the challenge. Kelwin Management Consulting 18

23 8.0 Value Chain Development Opportunities 8.1 Basic Steps for Creating a Value Chain The creation of a Value Chain is complex. It requires the exchange of a large volume of strategic information so that each participant can have a good understanding of the challenges faced by each other participant. I.e. Producers must understand the slaughter plant and retailer issues and the slaughter plants and marketers (retailers) must understand the producer s issues. This exchange of information requires trust. Trust can only be developed if there is a good relationship between the participants. Also, the decision processes for the Value Chain must be very transparent and sound. Section 1.3 of this document provides referrals to a number of sources of information that must be reviewed by anyone contemplating forming a Value Chain. The following is a very brief description one of the perspectives on identifying Value Chain opportunities and deciding the basis on which to select other participants for the Value Chain. There are a number of ways to look for Value Chain opportunities. One of the best is to start with a Step One of looking at the existing supply chains and identify which are: 1. Not giving end consumers what they want, and/or 2. Not efficient in serving the needs of end consumers Then, Step Two is for the participant (producer, abattoir, processor, retailer) to look at their own competitive position, the position of other players that they could work with in a Value Chain, and look at the competitive position that could be created by cooperating together in a Value Chain. Then the opportunity that holds the most merit, from both Step One and Step Two combined, should be identified and pursued. The Value Chain formation will be designed to bring together the participants that can create the greatest competitive advantage for the selected opportunity. The participant/personal relationships must be strong, or the Value Chain will not succeed. 8.2 Discussion of Value Chain Opportunities The existing supply chains serve different markets with different characteristics, as described in section 3.2 and 4.0 of this report. The four basic categories of supply identified in section 3.2 are one of the basic ways to look at the categories of the existing supply chains for lamb to Manitoba consumers. These four categories are: 1. Provincially Inspected Lamb 2. Provincial Un-inspected Lamb 3. Federally Inspected Lamb 4. Offshore Imported Lamb The following discussion of these four categories provides some insights into which hold the greatest opportunities for Value Chains, for each person considering establishing a Value Chain. Each person looking at forming a Value Chain will have very different competitive characteristics. Kelwin Management Consulting 19

24 8.2.1 Provincially Inspected Lamb Category: Lamb in this category is typically not sold on the basis of price, because it can offer other characteristics such as being locally raised, and fresher, than lamb in the price-based market (i.e. imported). The inspected Manitoba slaughter serves many of the specific market niches discussed in section 4.0. The Value Chain opportunities in this category appear to be to better serve the needs of the various niche market segments. For most of those matching supply to the seasonal demand will be a major requirement, as well as consistent quality. The definition of quality will depend upon the specific customer. For instance, DeLuca s Specialty Foods has a number of specifications for weight, finish, feeding program to create the appropriate taste, and other details that are proprietary to their business. Only lamb producers that are willing to commit to produce exactly those specifications can expect to sell to this market. However to other customers quality may be more subjective characteristics such as locally produced meat. Examples of opportunities include the above mentioned DeLuca s Specialty Foods and others. The critical success factors for most of the opportunities in this category will not include matching the imported product price. The price will have to be competitive and will not be able to have as large a premium as would be desired. The highest priority critical success factors will be: 1. Delivery of fresh (not frozen) lamb with consistent specifications that match what the customer wants, and 2. Supply of volumes to match customer needs (including seasonality). Given that this category has an existing total volume of only 3,400 lambs/year the volume will not be large in any of these market segments in this category. This creates an opportunity for those players that cannot supply large volume customers/markets but may already be producing a product with unique features. For the markets that do exist provincially such as independent retailers and restaurants, rather than trying to supply them with fresh lamb year-round, which is unrealistic at this point for most producers, being able to supply them during periods of peak demand such as holidays or knowing what supply can be delivered during a particular season will help buyers plan their activities such as specialing by restaurants or butchers. Retailers and restaurants that have based their business on offering high quality, locally produced food may be able to work with a seasonal supply of lambs which best meet their specifications. (Note: the seasonality issue can be overcome, even in Manitoba, by fall lambing, holding over or storing as is done in the UK, to provide lambs in times of short supply. To make this worthwhile, and cover the extra costs involved, premiums are needed. Marketing work is required to determine what volume can be sold at these premiums prices.) There are other markets that are likely small, but are currently undersupplied and could be developed further, such as the Organic or Natural food market. Currently the organic and natural markets are niches, however they are growing significantly, estimates of 20% annual growth compared to 2% in the regular food market, and they are undersupplied in the meat category. National retail chain Safeway has been monitoring the increased consumer desire for organic meats and is now developing their own private label brand of organic products, including meat. Kelwin Management Consulting 20

25 To produce organic lamb you need to work with a certifying body such as OPAM (Organic Producers Association of Manitoba) or another certifying body as recommended by your buyer. Although, this type of meat would likely be for a retail store it may not need to be supplied year round, rather it could be specialed when available and advertised before arrival. For example a store may want to advertise Local Organic Lamb Available Now to draw new customers to the store. Some stores may be pleased to be supplied with natural lamb if organic is not possible, but of course you need to discuss with the buyer what criteria makes lamb natural. Organic retail chain Whole Foods Market sells natural lamb, beef, bison, veal, pork, and poultry, and has criteria for each meat to be considered natural. For example, for lamb to be sold as natural at a Whole Foods Market it must have been pasture raised and never received antibiotics, supplemental growth hormones, or feed containing animal byproducts. Other lamb characteristics such as local, family farm produced, or grass finished are desired by consumers. These quality characteristics provide an opportunity to use production features as selling points. Production attributes producers may have thought were insignificant may be appealing to consumers or buyers. For a producer there is an opportunity to sell the story of their lamb, for example born and raised in their area of Manitoba, grazed on pastures, supplemented with a grain ration. There is an opportunity to connect the consumer with appealing parts of the process to increase the end products value to them. One of the greatest, but most difficult to capture, opportunities for provincially inspected lambs is in supplying the ethnic/religious (Halal)/specialty market currently being served in a large part by the illegal, un-inspected supply chain. Anyone wishing to pursue the Halal market should work with the Muslim community and a certifying body such as IFANCA (Islamic Food And Nutrition Council of America) in order to insure that what is being produced is exactly what that market requires with respect to type of animal or cut and timing of supply Provincial Un-inspected Lamb Category It is unwise and a risky business to conduct illegal slaughter. It will not continue for long. The Manitoba Sheep Association does not support illegal slaughter. The definition of illegal slaughter from the Food and Food Handling Establishment Regulations is: 20(1) No person shall sell, attempt to sell, advertise for sale, or display for sale any meat or meat products unless the meat has been inspected and approved in a slaughterhouse registered pursuant to the Meat Inspection Act (Canada) or the Canada/Manitoba Meat Inspection Agreement. According to this definition, un-inspected illegal slaughter occurs when a producer participates in or allows animal slaughter on their property for consumption by the customer, or animals are slaughtered in an un-inspected slaughter facility and are sold to consumers. To compete, using inspected slaughter plants, in serving the market segments/customers now served by this supply chain, changes must occur. These changes must create a level cost and regulatory environment for the inspected slaughter plants. These changes must both create a level playing field for costs, and for the ability of inspected plants to serve the customer demands for religious, head-on, stomach, and other products. Likely, the changes will require both cessation of the un-inspected slaughter and changes to allow increased flexibility as well as financial Kelwin Management Consulting 21

26 support for the inspected plants to meet the customer demands. (See the recommendations section related to this.) Until these changes occur, it will be difficult for players to establish a Value Chain that can compete against the lower cost, more flexible, un-inspected slaughter. Once these changes occur, the volume through the inspected slaughter category will likely roughly triple. I.e. go from 3,400 to 10,400 lambs/year. Then the comments for the category above will apply Federally Inspected Lamb Category Customers in this category require their lamb to come from a federally inspected slaughter plant. The only currently existing options for Manitoba lamb producers are to ship to Sunterra, which is currently the only Western Canadian federally inspected slaughter plants that is processing lamb and marketing it to National grocery chains. The market segments in this category require larger volumes. This is especially the case if a large retail grocery chain such as Sobey s is the customer, but smaller volume customers also exist in this category e.g. regional grocery retailers. The critical success factors in this category include: 1. Delivery of fresh (not frozen) federally inspected lamb with consistent specifications that match what the customer wants 2. Supply of volumes that match the customer needs (including seasonality), and 3. Competitive pricing Pricing is a much more important factor in this category than in the first category described above (8.2.1). The order of priority is not necessarily as shown above, but varies with each customer. The volumes are larger so economies of scale in transportation, slaughter, marketing and all other activities in the supply chain allow for lower costs/lamb, but the price pressure from the imported product is very significant. The competitive challenge for Manitoba lamb producers is the transportation costs. Alberta and Saskatchewan lamb producers have lower freight costs to get to the Alberta slaughter plant. This means that the Manitoba producer will receive a farm gate price that is directly lower than other producers located to the west of him/her, by the amount of the freight for the added distance. Thus, while this category holds potential for those that can assemble significant volumes of lambs, the competitive position is not strong for getting a price as high as others in Alberta or Saskatchewan. A federal slaughter plant in Manitoba will face a very challenging competitive position if it tries to compete directly with Sunterra Meats. A better competitive position could be achieved by producing a differentiated product (e.g. Halal lamb). Another option would be to work with Sunterra Meats on a specific product, perhaps such as a product to be marketed under a Canadian Lamb label. The competitive position, versus Sunterra Meats, will include key considerations on freight and slaughter/processing costs. The freight costs that Sunterra Meats faces for shipping their lamb into Manitoba will be a competitive advantage for a Manitoba based Value Chain (that does not have these freight costs). However, sufficient volumes will be required to generate sufficient Kelwin Management Consulting 22

27 economies of scale to compete with Sunterra Meats on slaughter, processing and marketing costs. A methodology for examining the cost structure, versus a competitor, for a Manitoba Value Chain, is provided in Appendix 5. In addition to specific efforts to promote Value Chains, there are actions that can be taken that will generally assist the Manitoba lamb industry to develop. For category 1 above, as well as this category (3), several lamb promotion actions may be warranted. Based on the market research shown in the report titled, Expanding Our Markets - Phase I, Market Research Literature Review, by Lindsay E. McDonald, B.Sc. Ag. & Judy Storey, Manitoba lamb still needs to have significant market promotion to: 1. Further improve the image of Manitoba/Canadian lamb as a high quality product. This image may need to be supplemented with the story of family owned small farms, natural open pastures, small flocks, etc. together with a high quality image. If a stringent quality assurance program was also implemented, it might be possible to develop a successful brand image in some markets. High-end restaurants hold potential to help build and convey that image, but they are a relatively small volume market and additional market segments would be required to gain sufficient volume to justify the investment in a branding program. 2. Expand the number of Manitoba consumers that are aware that Manitoba/Canadian lamb has a taste that they like. The report mentioned above noted that many consumers have not tried lamb. It also noted that many found lamb tasted very good when they tried it in a restaurant. This information would indicate that a focussed in-store sampling program might be needed to assist the establishment of a Value Chain that wished to gain increased number of consumers as customers. Such a program could also be successful for the general promotion of Manitoba/Canadian lamb, as long as the development work had been done on a Manitoba lamb supply chain for this market segment. Otherwise, a lack of supply of Manitoba lamb may just increase purchases of lamb supplied by Alberta and by other imports Offshore Imported Lamb Category As noted previously, imported lamb products, mostly from New Zealand, supply approximately 50% of the Canadian consumption. In the past, typically the product was available almost entirely as frozen, not fresh. These products move into the large grocery retail chains as well as many other price conscious market segments. Consistency of year round supply and consistency of product specifications are noted for the New Zealand product. A rapidly growing portion (still modest at perhaps 10% to 15%) is now fresh, not frozen. The critical success factors in this category include: 1. Competitive pricing 2. Supply of volumes that match the customer needs (including seasonality), and 3. Delivery of product with consistent specifications Kelwin Management Consulting 23

28 Given that low prices and consistent year round supply are key factors for these customers, it will require Manitoba to develop of economies of scale, and year round supply, to be able to gain a competitive advantage versus the offshore competitors. However, there are always customers that are at the edges of this category, and if Manitoba lamb, with its competitive advantages of being local, high quality, etc. are presented to these customers, they may switch from the imported product. Kelwin Management Consulting 24

29 9.0 Recommendations In light of all of the above information it is recommended that the Manitoba Sheep Association (MSA) implement the following action plans and strategies: 9.1 Industry Development Strategy (Improved Coordination and Efficiency of Existing Supply Chains) 1. Identify the specific actions to assist in coordination (and thus improved efficiency) of existing supply chains. This can include initial steps such as: a. Assist in reducing transportation costs for lamb producers to feed lots, abattoirs, auction marts and other locations by offering a shared transportation referral service, perhaps even just as a bulletin board arrangement. Thus, producers could share the transportation costs and reduce them significantly. b. Coordination amongst producers of lamb deliveries to auction marts by exchange of information on individual producer marketing plans. (To avoid past problems such as when there are more deliveries on one day than can be efficiently handled, or where the auction mart has so few for a sale that the auction is hesitant to have more sales) 2. Undertake discussions/research with key feedlots, abattoirs, retailers and restaurants; specifically to identify the lamb characteristics that they want, in each different market segment/niche. These characteristics (e.g. for feedlot breed, weight, age, degree of finish) (e.g. for retailers - size of cut, degree of marbling, etc) will need to be interpreted and summarized so they can be communicated to producers. The message to producers should be to choose their breed and management practises to deliver the product that their chosen target market (e.g. a particular feedlot) wants. I.e. the standards for each different market segment. (Note that each market segment will want different characteristics.) 3. Create a level playing field (comparable costs and competitive environment) for the inspected slaughter versus the current un-inspected, illegal slaughter businesses. This may include Provincial government funding to inspected abattoirs for the costs for equipment and training to meet the demands for some of the specialty products. (E.g. funding for equipment and training needed to provide head-on, stomachs, etc.) This will make it easier to expand the capacity of the inspected slaughter. 4. Combined with the recommendation above and below, undertake formal discussions with abattoirs indicating that the Manitoba Sheep Association is going to approach the Provincial Government seeking support to increase the slaughter capacity for lambs in Manitoba, particularly for zabihah Halal slaughter. The discussions could call for formal expressions of interest by a specified date from interested parties stating what they would need to undertake new or expanded slaughter capacity for lambs in Manitoba, especially for the Halal and ethnic markets. Mr. Jim Holmes has already indicated a strong interest and has assisted the Manitoba Sheep Association with this Value Chain project. 5. Once the item above has been undertaken, then it will require the enforcement of the regulations on the currently un-inspected illegally operating slaughter plants. Kelwin Management Consulting 25

30 Discussions should be undertaken with federally inspected Manitoba slaughter plants (e.g. Winkler Meats) to see if it possible to have the federally inspected plant make the investments in equipment and training to begin slaughtering Manitoba lambs, to the specifications of the target customers. The discussion will identify what would need to change for a federally inspected slaughter plant to be able to slaughter lambs. E.g. what future volumes, what commitments of market, etc. While it may not be possible to create federally inspected slaughter capacity in the short run, it is worth identifying what will be needed for this to occur. Construction of a new plant to slaughter lambs is not a realistic alternative, but the addition of lamb to the product line of a plant is already federally inspected is a more achievable goal for the future. Support from the Manitoba government s program for expanding slaughter capacity should be investigated for this opportunity. If feasible a champion may be found to start a Manitoba based Value Chain that could identify specific target markets (e.g. perhaps working with Sunterra Meats to develop and supply a specific product) and seize this opportunity, if a federally inspected slaughter capacity can be identified as having potential. 6. To increase the number of consumers aware of Manitoba/Canadian lamb, a promotion program may be warranted, after the supply chain improvements noted above have been implemented. These improvements will need to provide each different market segment that is to be targeted with the consistent lamb characteristics desired by that specific segment, with supply matched to the market/customer demand. The promotion program should be initiated on a limited test market basis, in one target region of Winnipeg. The promotion program could include in-store sampling, recipe cards, promotion of the MSA and/or foodmanitoba.ca website with its information and recipes. The promotion of a brand may be appropriate for some market segments, and will need to be decided upon in coordination with target market segment retailers. The brand may need to be a new one or may be utilizing an existing brand, such as Canadian Prairie Lamb. Because Manitoba producers face severe competition on price from imported New Zealand lamb these promotions should focus on the consumer perceptions of Manitoba lamb having unique characteristics such as freshness and being a locally raised product. Promotions which build on these characteristics may grow the local demand from higher end retailers. 9.2 Value Chain Development Strategy MSA cannot undertake Value Chains, it has to be participants in the supply chains (producers, processors and marketers) that undertake the business of starting and managing a Value Chain. Note that there may be a few, or a number, each serving a specific market segment. MSA must represent all of the sheep industry, while a Value Chain will only act in the best interests of those that start and operate it. The creation of a Value Chain will occur when an individual (whether it be a producer, abattoir, or marketer) decide to become the Champion and take action. The Manitoba Sheep Association recommended activities, in the section above, are designed to improve the industry, thus making it easier for individuals to commence Value Chains, by working together with other participants (e.g. producer, abattoir and marketer). The recommended activities below are designed to facilitate and act as a catalyst to get someone to act as the Champion in the creation of a Value Chain. These activities fall under the general Kelwin Management Consulting 26

31 headings of creating awareness of Value Chains, generating understanding of Value Chains, and getting others to take action to start each of the Value Chains. Through the actions noted in the section above, MSA can create a favourable environment to start Value Chains, and through the actions below, specifically encourage the creation of Value Chains. 7. Create awareness of Value Chains: On the MSA website, in the newsletters, and through other communication methods make Manitoba sheep producers aware of Value Chains and their benefits. 8. Provide access to information and resources to assist individuals that might consider establishing a Value Chain with easy access to the right information: Utilize information and resources from Value Chain Initiatives (Manitoba s potential future one, Alberta, Saskatchewan and Ontario) to provide Manitoba lamb producers, abattoirs and others, with information on Value Chains. This information will expand the understanding of existing supply chains, and through this allow producers to conduct improved marketing to their existing customers in their existing supply chains, even if they do not establish their own Value Chain. A broad range of information on Value Chains is available at 9. Undertake further meetings with lamb production, slaughter, processing and marketing players to identify specific actions to facilitate the creation of new Value Chains. A focus on the retailers/marketers may hold the most potential, as they can best identify problems with existing supply chains that may be an opportunity for a Value Chain to overcome those problems. For example, it may be possible for a Value Chain champion to work with DeLuca s Specialty Foods, as the marketing (retail and wholesale) player in a Value Chain. For this example, the MSA could be the facilitator and catalyst to encourage producer and slaughter plant operators to meet with DeLuca s and make changes that would supply lamb in volumes more consistent with the identified seasonal volumes and specifications that DeLuca s needs. The MSA could act as a facilitator and match maker to assist potential Value Chain champions to find others of a like mind that are interested in exploring the potential for a Value Chain. MSA might be able to hold an event that: 1. Provides information about the Value Chain concept 2. Provides information about some market segments that had been identified as not being as well served as some marketers would like 3. Provides an opportunity for networking so that those who were Champions commencing work on a Value Chain (could be a producer, abattoir or marketer) would have the opportunity to meet others (producers, processors and marketers to all meet each other). In this setting there could be conversations, without releasing confidential information, and without any commitments, that would allow people to identify others that they might be able to work with in establishing a Value Chain. One way to describe this would be for MSA to rent the room, supply the coffee, set the stage, and then let people meet each other. Kelwin Management Consulting 27

32 The format for such a match making event would need considerable further thought to make it work effectively, but it does hold potential. It would not target a large number of people. Identifying other retailers/marketers that could be a player in developing other Value Chains for other market segments may also be possible. MSA cannot be a player in a Value Chain, and cannot start a Value Chain, but it may be effective as a facilitator and a catalyst. MSA may be able to receive financial support from MRAC for performing such a facilitator and catalyst role. MSA may be able to assist a Value Chain Champion to access financial support from MRAC. 10. Explore working jointly with Saskatchewan Sheep Development Board on their Value Chain Canadian Prairie Lamb, explore the opportunities with Sunterra Meats and explore opportunities for Manitoba producers in Ontario. Many of the supply chain and infrastructure enhancements identified in these recommendations may need to be implemented to be able to participate. 9.3 Summary The MSA cannot undertake the Value Chain. It can facilitate and be a catalyst to do the research, do the preparatory work and to find others (one or more of producers, slaughter plant, processor, retailer) that will become the champion to proceed in creating the Value Chain. There may be financial support available from MRAC for performing such an undertaking. It should also be noted that the commitment from the participants (especially the producers) that will become involved in such a Value Chain will have to be carefully confirmed, to avoid defaults on the obligations damaging the Value Chain. These commitments will typically include production practises as well as lamb carcass characteristics, as well the volumes to be available at specified times. The most successful Value Chains typically start by focussing on one specific target market segment and becoming successful with that before they expand and move on to other market segments. As explained in this document, there are many market segments in Manitoba that have supply chains with inefficiencies or that do not serve all the wants of their market segment. Each of these creates an opportunity for a Value Chain to improve the value received by the end customer, and many hold the potential for energetic lamb producers to be the Champion in seizing the opportunity. The above recommendations for the Manitoba Sheep Association will assist all participants in the lamb industry existing supply chains to improve, and will facilitate and be a catalyst for the creation of Manitoba Lamb Value Chains. xxxxx Kelwin Management Consulting 28

33 Appendix 1 Canadian Prairie Lamb Value Chain Kelwin Management Consulting 29

34 Appendix 2 Branded Lamb Kelwin Management Consulting 30