‘Let’s Get Behind What We’re Really Good At’

By MORGAN, Jon

Agriculture is where it’s at. Meat company chairman Graeme Harrison talks to Jon Morgan.

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IN THE convoluted lingo of business- speak it’s called backward vertical integration. And in New Zealand, the billion-dollar meat company Anzco is the prime example. After beginning life as a meat marketer in Asia it has battled its way through the constant turmoil that surrounds the meat industry to set up processing works and to secure its own meat supply.

Anzco was formed by its chairman, Graeme Harrison, in 1984 as a sheepmeat marketing company for the farmer-owned Meat Producers Board. It was successful, opening the door to a potentially lucrative Asian market.

But the concept of farmers taking a hand in marketing became politically unsound in the 1990s and the board sold down its ownership. By the time it sold the last shares in 1995, the board had received $40 million for its $350,000 investment.

When the dust settled, Mr Harrison and his staff held a cornerstone shareholding but the corporate muscle was provided by two of Japan’s biggest publicly listed food companies, Itoham Foods, with 48 per cent, and Nippon Suisan Kaisha, with 25 per cent.

The Japanese have invested heavily in New Zealand and today Anzco employs more than 2500 people, has assets of $500 million and revenues exceeding $1 billion.

In New Zealand it operates farms, sheepmeat and beef processing plants, a cattle feedlot and manufactured food plants and has market representation in North America, Britain, Belgium, Taiwan and Japan. Investments include the purchase of half of fisheries giant Sealord by Nippon Suisan Kaisha.

Mr Harrison, 58, was chief executive of Anzco for 20 years before passing the baton to Mark Clarkson and now, as chairman, he is still passionately involved in the meat industry. But he shies away from publicity.

“The old clobbering machine is alive and well. I learnt that when Anzco was owned by the Meat Board and I still see it in a highly competitive industry.” His voice takes on a harder edge: “This is the toughest game in town.”

So, though he mentions with pride his company’s contribution to regional economies in Taranaki and Mid Canterbury, he is not prepared to talk in detail about how it has handled a particularly demanding year. However, with its emphasis more on beef than lamb the assumption is that Anzco has not suffered as badly as others.

What he does talk about — more in keeping with his new role as chairman of the International Business Forum — is the future of agriculture.

“More than ever in the next decade, agriculture is going to be New Zealand’s Silicon Valley, but we spend so much time as a country trying to find other ways not to enhance that,” he says. “We go about trying to encourage this or that little industry instead of saying, ‘This is what we’re really good at, let’s get right behind it’.”

The auguries for agriculture’s resurgence have never been more clear, he says. In Europe, domestic meat and dairy production is falling as export subsidies disappear and in Asia and oil-producing countries, economic growth is changing diets to include dairy products and high- value meat cuts.

This means demand is increasing and driving up prices, but an even bigger factor is the increasing cost of producing grain, the staple feed for farm animals in Europe and North America, driven by a swing to corn and rapeseed for biofuels.

A lack of water will inhibit agricultural growth in China and is causing problems in Australia.

It is the increasing cost of animal feed that is behind the escalating dairy commodity prices that are bringing boom times to New Zealand dairy farmers, and driving up land prices.

MR HARRISON’S message to sheep and beef farmers lamenting low meat returns is to hang in there because the high cost of feed that is lifting prices for grain-fed pork, poultry and beef around the world will also lift prices for their grass-fed produce that is being sold in the same markets.

Like the farmers, Anzco has to absorb periodic shocks and remain focused on the path ahead. “Clearly, at the moment the exchange rate is one we never planned for.” The high Kiwi dollar’s greatest damage has been inflicted on beef exporters, whose biggest markets are the United States and Japan. For Anzco, with its high exposure to Asia, the biggest hurt has come from the falling yen, which is now traded at about 50 per cent above its 10-year average.

Despite this, beef returns have stayed firm — “That’s a story we ought to be celebrating,” he says, decrying industry commentators’ obsession with lamb.

He dismisses the recent excitement stemming from British supermarket retailer Waitrose’s decision to remove New Zealand lamb from its shelves as “twaddle”, saying it happens at this time every year as fresh domestic product becomes available.

Much of beef’s success is due to the United States’ enforced absence from Japan, Korea and Taiwan because of the discovery of BSE in its cattle. The US is tentatively re-entering the markets it had dominated with its grain-fed beef but Mr Harrison sees New Zealand’s grass- fed product continuing to hold its market gains.

Anzco has a foot in both camps. The 36,000 grain-fed steers that pass through its Ashburton feedlot, Five Star Beef, each year provide 6000 tonnes of chilled beef to North Asia. At the same time, Anzco’s meat plants in both islands are processing grass-fed beef.

On lamb, he won’t be drawn into discussing the future prospects of the industry’s hotpoint — the lower North Island — where Anzco has added to the pressure by building a new plant. “It’s inevitable there will be some rationalisation in the industry. What form it will take I don’t know,” he says.

He predicts more conversions to dairying and changes in growing crops to support them, but says this will encourage sheep and beef farmers to lift their game too. “We have smart people out there who know how to adapt.”

Science will also provide opportunities, through identifying the gene markers that improve animal performance and meat quality and in improved pasture feeds and supplements.

Anzco is working with others to develop an X-ray machine for use in processing plants to trace foreign objects and measure fat, and on other technology that will value carcasses cut by cut.

From an industry standpoint, the biggest issue is removing the supply risk. Anzco looks to guarantee supply of sheep and cattle from its “producer clubs”, two lamb and two beef groups, which are briefed by Anzco’s overseas customers about their needs. Performance criteria are set, with flavour and tenderness being uppermost. However, the company is still forced to go to the spot market and compete for supply. He sees supply contracts as being crucial to the survival of a strong industry. The aim is to structure exports to better match the demand of overseas markets.

“If we can do that then we’ll be able to do better at holding our prices. And that comes back to the relative cost of production.”

The biggest constraint is feeding, he says. “We can breed enough animals, it’s how well we feed them that counts. And that comes back to the science story. We have got to keep up our efforts in that regard.

“This is our Silicon Valley — we’ve tried to pretend other parts of the economy can supplant farm-based industries, but they can’t. . . . We are going to see the agricultural economy take off in a way that we have not seen since the 1950s.”

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ANZCO FOODS

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* Operates four beef-processing plants and two lamb plants, a beef feedlot, manufacturing plants and international meat marketing offices.

* Ownership: Itoham Foods 48 per cent, Nippon Suisan Kaisha 25 per cent, staff and directors 27 per cent.

* Year ended September 30, 2006. Revenue $1.01 billion. Operating surplus after tax $7.6 million. Assets $500 million.

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(c) 2007 Dominion Post. Provided by ProQuest Information and Learning. All rights Reserved.