Meat Processors Push for Slice and Dice
By WOOD, Alan
An equivalent of dairy-based Fonterra seen as crucial to export expansion. Alan Wood reports.
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IN A harsh economic winter Silver Fern Farms has completed the hard cuts of nearly 1000 meat-processing jobs and now faces an intense graft for farmer votes into the spring.
SFF is battling traditional conservatism in trying to sell its partnership plan to farmers and bring in much needed capital via NZX- listed PGG Wrightson.
It faces two other real obstacles.
Firstly, the failure of an industry “mega-merger” plan sees discord reverberating between separately owned meat-processors.
Secondly, there is an even larger threat to the red-meat farmers – - dairy and cropping snapping at their heels and gobbling up precious land.
Dunedin-based SFF — a cooperative owned by farmers and previously known as PPCS — estimates lamb and sheep numbers in the South Island alone will drop by up to 2.2 million in the coming season, if not more.
Sheep numbers dropped from 70.3 million in 1982 to 38.5 million by June 30, 2007. In recent months, SFF has been rapidly downsizing, echoing a period of job losses last in the headlines when South Island processor Fortex collapsed in March 1994.
SFF chief executive Keith Cooper estimates there are still five extraneous meat-processing plants held by the South Island industry, after SFF itself has cut six sites north and south.
The Belfast slaughter chains near Christchurch were the last to be axed, with workers called in early Tuesday to be told the grim news.
SFF and PGGW now want to organise “fat of the land” farmers that convert grass into red meat protein into a consolidated force. The meat should be nurtured and eventually be sliced and diced into easy- to-cook cuts, thus more marketable bringing in better export prices.
Farmers have been told they sit on the watershed of potentially better prices, as the commodity prices for red meat increase and the New Zealand dollar falls in response to a Reserve Bank interest rate cut on Thursday.
Even before that cut the Kiwi dollar had fallen substantially against the euro in a period of months.
Essentially most in the meat-processing industry agree consolidation or merging of processors into a meat equivalent of the dairy-based Fonterra will produce a platform that allows stronger marketing of product into key markets like Europe and North America. Industry analysts think New Zealand has to place more emphasis on developing markets in China, India and wider Asia and the oil- driven economies of the Middle East.
SFF’s Mr Cooper, chairman Eoin Garden and PGGW chairman Craig Norgate are not shy about wanting to draw the rival firms into their fold to improve the industry’s bargaining power on the world export stage.
“Hopefully we can can now work together on formulating an industry structure to the benefit of our supplier- shareholders,” Mr Cooper says.
So far other processors including Alliance Group have not responded in kind. An industry player asks why would anyone want to come to the party and talk to SFF, when SFF has not engaged in Alliance’s mega-merger concept, which failed earlier this year. Alliance chairman Owen Poole, Anzco Foods founder and chairman Graeme Harrison and Affco chairman Sam Lewis are at best lukewarm to any entreaties from SFF-PGGW.
However, Lincoln University agribusiness professor Keith Woodford says the SFF-PGGW plan still remains “a potential circuit-breaker”.
THE plan includes PGGW injecting $220 million for a 50 per cent stake, though that stake could be diluted much more if other meat processors join that core partnership.
SFF farmers who need to vote 75 per cent in favour of the proposal at a meeting in September have been cautious. SFF won’t say how many farmers will be able to vote. Some estimate it could be as few as 5000 although the cooperative has more than 20,000 suppliers.
“The big decision for farmers who are members of PPCS is that if they vote against this option, then they’ve got to think what is the alternative commercially driven option that is still on the table or can be put on the table,” Professor Woodford says. “To me that’s not terribly clear at the moment.” The balance of power had also shifted from Alliance towards SFF after “Project Rightsize”, he says.
“What PPCS are saying is we’ve taken our hard medicine, we’re closing down the plants we need to close and we have new capital lined up here. So it starts to put the attention back on Alliance, and what do they now plan to do.”
Change in meat-processing consolidation has been a long time coming.
Alliance chairman Owen Poole says a window of opportunity to create an 80 per cent processing alliance has been lost, especially now with PGGW’s involvement.
“PPCS determined not to join the process, and that opportunity was lost. It can’t be rekindled — other parties are not interested in rejoining it,” Mr Poole says.
Others cite Alliance’s stance as the end of the matter.
Affco’s Mr Lewis says the company is focused elsewhere during challenging times when livestock numbers are lower. It is not involved in any discussions with rivals. While the processor is always open to suggestions, Mr Lewis agrees the time for a merger appears to have passed.
“It’s going to be difficult because the two major players are at arm’s length. They’re the only ones with the muscle to buy everyone else out, and it would require a lot of muscle.”
Anzco Foods chairman Graeme Harrison says the main threat to the competitive sheep and lamb processing business is the encroachment of dairying and cropping farms.
“That is all the reason (meat processors) are suffering, it has nothing to do with anything else.” While PPCS has at “long last” started to deal with rationalising its business, Anzco is not even in that territory, Mr Harrison says.
“We don’t have to (rationalise), we’re an expanding business, and we have a low position in terms of sheepmeat, we’re only actually No 5.”
Anzco’s turnover had grown from $1.04 billion last year, to more than $1.1 billion in the year to September 2008.
Anzco, 73 per cent owned by Japanese investors, was New Zealand’s No 2 beef exporter after SFF. All of the biggest four processors, including SFF, Alliance, Anzco and Affco, are of the similar financial backing, driving competition within the sector, Mr Harrison says.
Professor Woodford says though there is a lot to be said for a stronger platform the buyers for European Union and British supermarkets such as Waitrose or Marks and Spencer have incredible power that will not necessarily be diminished by a single New Zealand export body.
“The European supermarkets have power in relation to all food products, not just lamb. From any producer’s point of view yes they have too much,” Professor Woodford says.
“But in terms of being able to do something about that, it’s not particularly easy. They’re important to us, but we’re not important to them.”
On the positive side there were potential price increases within both the EU and potentially the United States for chicken, pork and grainfed beef.
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INDUSTRY FACTS
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* New Zealand accounts for 6 per cent of world sheepmeat production
* NZ provides 49 per cent of world cross border export sheep meat trade
* NZ supplies 70 per cent of world lamb exports
* NZ provides 7 per cent of world cross-border beef trade
* The industry is competitive in sheepmeat market share from 2005-07: SFF 28.9 per cent, Alliance 27.3 per cent, Affco 12.2 per cent, Anzco 6 per cent, Bernard Mathews 5.6 per cent and others 20 per cent. Source Anzco Foods, June 2008
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SFF JOB CUTS
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* 25 Windward tannery staff at the Finegard works close to Balclutha (November 2007)
* 35 Te Kauwhata staff in Waikato (November 2007)
* 466 jobs at Oringi plant near Dannevirke (May 2008)
* 138 jobs at the Burnside plant, south Dunedin (May 2008)
* Up to 100 jobs at Silverstream plant near Mosgiel (July 2008)
* 250 jobs at the Canterbury lamb and mutton plant at Belfast (July 2008)
* In some cases these workers have been offered other jobs
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