Thirteen pig farmers from the KwaZulu-Natal province in South Africa have successfully shaken off the stranglehold of rising costs and a stagnating income for the last 13 years by marketing their produce jointly and reducing their risks.
Even although South African pig farmers have been able to improve their productivity and income over the last 13 years, they are still struggling to keep their heads above water. Since 2003, when 13 pig farmers from KwaZulu-Natal formed the Unipork marketing company, South African pig farmers’ yield has increased by 54% – and that with 5% fewer sows than in 2003. Over the same period, the earnings per kilogram increased by 46%, according to the South African Department of Agriculture, Forestry, and Fishing’s website.
Other statistics from the department indicate that since 2003, fuel costs have increased by 112%, the price of animal feed by about 170% and the cost of animal health by 113%. These figures show that the growth of nearly 50% in productivity and income achieved by the farmers over the last 13 years was against all odds.
Little wonder then that political commentators such as Dr. Piet Croucamp are of the opinion that smaller farmers who don’t have the economies of scale won’t be able to survive. This group of ingenious farmers from Unipork in KwaZulu-Natal were, however, a step ahead of Croucamp by 13 years.
FARMER CAN WORK TOGETHER
In 1996, South African pork farmers lost all their government protection with the dissolution of the Meat Board. The board controlled the supply chain, marketing and price of meat. Suddenly they were at the mercy of the abattoirs and processors in negotiating and marketing their produce.
“Initially a few farmers around here tried to get a slice of the consumer market share on their own by establishing abattoirs or processing plants. Not all of them were successful, as marketing is a specialist skill. By the early 2000’s a few like-minded pig farmers decided that they would approach marketing as a unit,” says Craig McCord, whose father was a founder member of Unipork.
Craig, who farms at Ashburton near Pietermaritzburg in KwaZulu-Natal, is currently the chief executive officer of Unipork. He attributes their success to the many different personalities that initially established the ethos of Unipork.
“One of the founder members had corporate management experience, there was a strong spiritual leader in the group, a couple of the members had good financial acumen, there was a marketer on board and there was excellent pig farming expertise in the group. So it was a group of people that could naturally work together well and harness their skills in the business to develop Unipork into a valuable asset.”
Every farmer has a 7,69% share in the co-op, together they have 5 000 sows in production and Unipork markets 2500 pigs per week.
ALL FOR ONE AND ONE FOR ALL
In 2003 the founders of Unipork agreed that each member must market 100% of their produce through Unipork. Craig believes that this agreement is one of the biggest reasons why Unipork is still a success after 13 years. “The quickest way to signal the death knell for this type of co-operation agreement is to have members who are not fully committed and are still trying to assure the best possible transactions for their own benefit as and when it suits them.
“The purpose of Unipork is to reduce the risks of the members, to ensure good trade agreements and an ongoing market, to improve the cash flow of each members’ farming enterprise. If you think you can negotiate a better price just because you’re a group of farmers, you’re making a big mistake. The benefit of a co-operative model lies in the ability of negotiating better agreements with your clients, the abattoirs.
“No single farmer is able to sign a contract for a fixed quantity for 52 weeks of the year. Together as a group we smooth out the peaks and drops in weekly production. In this fashion, we can meet fixed delivery contracts easily.”
Craig says that the risk that the members are exposed to is much less within the co-operative model than that of individual farmers. “If an individual farmer delivers produce to the abattoir that doesn’t cover his debt, then that could mean the end of the road for that farmer. Within Unipork this risk is covered by all the members. We deliver to a number of abattoirs as a marketing company. In this way we run a smaller risk of encountering cash flow problems due to debtors not being able to pay. At a critical time of the year this benefit is worth much more than a cent or two more per kilogram for a couple of hundred pigs.”
‘No single farmer is able to sign a contract for a fixed quantity for 52 weeks of the year. Together as a group we smooth out the peaks and drops in weekly production. In this fashion, we can meet fixed delivery contracts easily.’
FARMERS MUSQT MAINTAIN THEIR IDENTITY
For the farmers of Unipork, Aristotle’s definition of synergy, where the whole is greater than the sum of the parts, doesn’t come without sweat and tears.
Barry Gibbs, the current chairman and one of the Unipork founder members, believes that sentiment and personality differences are sometimes a delicate obstacle to overcome. He is also a partner in Pro Pork Development and the chairman of the KwaZulu-Natal Pork Producers Association.
“A farmer is a stubborn creature. Sometimes something, like a specific feed supplier offering the company a special offer, can upset farmers because they would prefer to do business with a competitor. In cases like this it is important to keep the goal of the co-operative agreement in mind and to act accordingly,” says Barry.
Craig adds that prescriptiveness in an organisation such as this cannot be self-serving. “There was an attempt to standardise feed quality and breeding material within Unipork, and that didn’t go well. Each farmer wants to maintain his own identity and farm on his own farm without interference. This is understandable to a large degree, as that which works on my farm, may not work for my neighbour. It was a valuable lesson that we in Unipork had to learn,” says Craig.
PROTECTING CASH FLOW
Predictable cash flow is one of the most valuable benefits of Unipork. “From the outset, the members were insistent that there should be a degree of cash flow protection built in. Initially much of the profit that we made was ploughed back into the company as loan accounts. This asset that was built up in Unipork now enables us to pay farmers for delivered pigs within seven to 14 days, even if the abattoir only pays after 21 days,” says Craig.
In the first week of 2013, one of Unipork’s largest customers informed them that there was a strike at the abattoir. This abattoir slaughtered 1 000 pigs per week from Unipork. Suddenly this market outlet was closed to almost half of the Unipork farmers’ produce.
“Since we had more than 10 years’ experience, Unipork could make a plan to move and sell pigs all across South Africa so that we could still earn an income. Because we had also built up this strong asset within Unipork, we could offer 21-day payment conditions to new clients, without holding back the payments to the farmers.
“It is events such as this which make it easy to gain loyalty among the shareholders, because they know that it would have been very trying in those weeks of December 2013 if it wasn’t for Unipork,” says Craig.
Unipork also manages all the administration of each farmer’s pigs that are sent to the abattoir from the time that they leave the farm. If a payment problem arises, then Unipork will pay the farmer according to the agreement and then deal with the abattoir behind the scenes to get the money, while the farmer is free to continue with his farming.
INCREASED PRODUCTIVITY IS BETTER THAN GROWTH
Even with all these protections and benefits, the farmers of Unipork are still not free from the eternal increase in costs and stagnating pork prices. According to Barry, Unipork and the shareholders must continue to grow to survive, but Craig believes that this growth can take place in different ways.
“We considered bringing in other shareholders to Unipork, but to balance loan accounts would be an obstacle to joining. We decided to unite the loan accounts of the shareholders in a company and establish a co-op. Here we will levy a minimal membership tariff, payable annually and bind each member of the co-op to market 100% of their produce through the Unipork co-op.
“In this way we increase the number of pigs that Unipork can market, without placing the large capital expense on the members to become shareholders of a company. This creates a good marketing platform for smaller farmers that don’t have much negotiating influence in the market.
“The Unipork co-op will not ensure a sustainable farm. Large or small, the productivity of your farm is more important than simple expansion. It doesn’t help to double the number of pigs on your farm while your feeding or weaning yield is way under the industry standard. For Unipork it is important that there is an increase in numbers, but the farmer must improve the productivity of all his resources, and thus ensure advancement.”
THREE QUESTIONS FOR CRAIG MCCORD
How did you manage to keep such a large group of farmers united for such a long time?
Unipork was not founded over two meetings and a couple of beers. The original members kept detailed records of early meetings for the first six months and worked out their concept of the co-op down to the finest detail. Every part of the agreement was made absolutely clear to each member. That basic agreement has stayed the same for 13 years, ensuring that we stay a unified farmer marketing group.
How do you deal with conflict resolution?
Conflict comes with change and since our model has not really changed, we haven’t had any conflict. The rules, regulations and conditions of becoming a member of Unipork were clearly set out in the founding document. This clarity brought with it a simplicity which has been fundamental to the success of Unipork. The basic premise is that all pigs bred by Unipork members have to be marketed by Unipork. That’s it.
Any advice for other farmers?
We once tried to prescribe production conditions for Unipork farmers. It did not work. This is because every farmer has his own production and efficiency methods which work for his operation. Avoid being prescriptive and respect every farmer’s individuality. The purpose of such a co-operative is to reach economy of scale, and that should remain the purpose.