The red meat agricultural sector enters the new year at a
crossroads. Agribusiness reporter Sally Rae looks back on
2013, a tumultuous year for the sector and hopes for tangible
change this year to ensure a sustainable industry for all
involved - but she wonders exactly how that change can be
The red meat sector needs to change, but concern remains
about its viability. Photo by Stephen Jaquiery.
Over the fence and across the kitchen table, the state of
the red meat sector and calls for restructuring dominated
farmer discussions last year, as sheep numbers continued to
shrink and dairy conversions and moves to dairy grazing
Back in March, Beef and Lamb New Zealand chairman Mike
Petersen told farmers attending the organisation's annual
meeting in Wanaka that the sector was at a ''critical
While he spoke of how volatile returns were a threat to the
industry's future and farmers were questioning whether the
industry had a future, the organisation's economic service
estimated farm profit before tax for the 2012-13 season would
fall 54% on the previous season because of sharply lower lamb
prices and widespread drought.
That same month, there was standing room only in the Gore
Town and Country Club as about 1000 people attended a meeting
organised by a group of southern farmers.
The group sought - and gained - a mandate from farmers to
work with the meat companies to develop a plan for
consolidation in the industry.
It was described by one of the organisers, West Otago farmer
Allan Richardson, as a ''key day'' for the industry.
The Meat Industry Excellence Group (MIE) was subsequently
formed, agreeing on a vision and core objectives that it
believed needed to be achieved to get the beleaguered
industry ''back on its feet''.
Tapanui farmer Richard Young was elected chairman and the
group's initial focus was on gaining a national mandate from
farmers for industry change. Further meetings were held in
Christchurch and the North Island.
While there was a widespread mood for change, what that
change was to be, and how it was to be achieved, has remained
the sticking point, it being acknowledged there is no one
One of the major issues has been the make-up of the industry
- which is not simple. It is complicated by the disparate
ownership of companies, including those that are privately
Calls for the merger of the two co-operatives, Alliance Group
and Silver Fern Farms, have been made, but it must be
remembered that while the two co-operatives are large in
sheep meat, their combined market share is still only 52.7%.
In beef, they collectively hold 39% of market share.
So a merger is not going to solve all the industry's woes.
There are also the very different cultures - and balance
sheets - of the two co-operatives to be considered.
In April, Rabobank's quarterly rural confidence survey showed
half the country's sheep and beef farmers considered their
businesses to be ''just viable'' or unviable.
The following month, Silver Fern Farms chief executive Keith
Cooper said the problems were broad and the solutions very
Some of the ''moving parts'' included ownership models
(farmers, overseas ownership, private ownership or a
combination of those), reliance on bank debt funding and no
certainty of supply. The solution must be comprehensive, not
piecemeal, sustainable and, most importantly, must create
value, Mr Cooper said.
Not surprisingly, the red meat sector was a major topic of
discussion at Federated Farmers' national conference, in
Ashburton in July.
One of the guest speakers, former PPCS (now Silver Fern
Farms) chairman Reese Hart, believed a merger between Silver
Fern Farms and Alliance Group was not a priority.
A collaborative approach, involving the meat industry,
farmers and the government, was needed more than anything,
and the first stage was dealing with overcapacity.
With dairy cattle numbers almost double what they were in
1990, sheep numbers almost half and traditional cattle down
nearly 20%, the processing industry had ''huge''
overcapacity, which had to be dealt with, ANZCO Foods
chairman Sir Graeme Harrison said.
Alliance Group chairman Owen Poole said the meat industry was
trying to work on a new model and cautioned ''better right
tomorrow than wrong today''.
Southland-based Blue Sky Meats recorded a $3.8 million
after-tax loss for the year ending March, compared with a
$49,149 loss in 2012 and a $3.6 million profit in 2011.
Chairman Graham Cooney said the problems that led to the loss
were industry ones. The sheep meat industry reputedly lost
$200 million in the period from late 2011 to late 2012.
In August, agribusiness industry leader Malcolm Bailey was
appointed chairman of the Red Meat Profit Partnership - a
consortium of red meat sector participants completing a
Primary Growth Partnership agreement aimed at building
capability and making the red meat sector more profitable,
confident and productive.
Federated Farmers meat and fibre chairwoman Jeanette Maxwell
had earlier said the initiative could ''supercharge'' New
Zealand's red meat exports. Mr Poole - whose involvement in
the meat industry spans five decades - retired as chairman
and as an independent director of Alliance Group in
Challenges in the meat industry were nothing new and had
existed since its inception 130 years ago, he said.
There was no one silver bullet, rather there was a whole
suite of things that needed to happen, including farmers
supporting one company. He was disappointed an arrangement
had not been reached within the industry to support a better
In his inaugural report, Meat Industry Excellence Group
chairman Richard Young summed up the situation when he said
that finding the solutions to implement change in the
industry was still the major barrier in reaching MIE's goals.
The group had previously refined its six objectives -
including having up to 80% of red meat being processed and
marketed by one ''coalition of the willing'' and establishing
a farmer-controlled entity to acquire sufficient critical
mass to optimise market returns for its stakeholders. MIE
also developed a new mission statement - to ''reform the New
Zealand meat industry to become the world's premium supplier
of red meat through a united processing and marketing
structure controlled by suppliers''.
In October, a changing of the guard in the industry
continued. Silver Fern Farms chairman Eoin Garden announced
he would stand down from the board at the company's annual
meeting in December, and South Otago farmer Rob Hewett was
Mr Garden, from Avenel Station at Millers Flat, joined the
board of what was then PPCS in 1998 and was elected chairman
Although he had not achieved all that he would have liked to
achieve, he believed it was time to go. He regretted the
industry's focus - which had always been volume throughput -
had not changed to one of creating more value. As more value
was created, not only would the companies be better off but
suppliers would be more affluent, he said.
Richard Young and Dan Jex-Blake resigned from the MIE
executive in bids to seek election to the Silver Fern Farms
board, while Don Morrison also resigned in his attempt to
secure a place on the board of Alliance Group.
Mr Morrison, from Waikaka Valley, said the status quo clearly
was not working, given supply volumes, company and
co-operative profitability and farm profitability were all
shrinking and indebtedness was increasing.
Alliance Group came under fire from MIE, under the new
leadership of Ohakune farmer John McCarthy, for rejecting the
nomination of Fonterra director John Monaghan in its director
elections. Alliance Group said he failed to meet criteria set
out in the company's constitution as his interest in the
company was too small.
Efforts to get Mr Monaghan on the board continued, as
shareholder Mark Patterson put forward a resolution asking
the board to appoint him as an independent director to
replace Mr Poole.
Meanwhile, Alliance Group's new chairman, Murray Taggart,
said the company participated in a project with other major
industry participants to investigate whether a better
industry structure was achievable but the group had been
unable to develop a proposal that had universal support from
within the group and from the wider industry.
Both southern-based co-operatives reported in November for
the year ended September, their respective results at
variance. Alliance Group recorded an operating profit before
restructuring costs of $10.9 million, a turnaround on the
loss of more than $57 million for the previous corresponding
Mr Taggart described the return to profitability as a
positive result, albeit at an unsatisfactory level, after a
year with widespread drought conditions and lingering
economic weakness in key export markets.
Silver Fern Farms announced a net operating loss after tax of
$28.6 million. While an improvement on the previous year's
$31.1 million loss, it was described by Mr Garden as very
disappointing and unacceptable.
The company said a strategic review of its business, by
consultancy firm PricewaterhouseCoopers, would focus on
In December, the mood for change among farmers was clearly
evident in the results of the director elections.
Mr Morrison was elected to the board of Alliance Group, while
Jason Miller - ironically a founding member of the Meat
Industry Action group - was dumped, while Mr Young and Mr
Jex-Blake were elected to the Silver Fern Farms board,
David Shaw being unseated. Mr Hewett said the increase in
voter turnout reflected the understanding real reform was
needed across the industry.
At Alliance Group's annual meeting, the non-binding
shareholder resolution seeking Mr Monaghan's appointment as
an independent director was passed.
However, the board had earlier said he did not have the skill
set and experience being sought. An announcement on an
independent director appointment has yet to be made.
Alliance Group also revealed it had entered into negotiations
over a potential purchase of Blue Sky Meats' assets but no
agreement was reached.
Privately owned ANZCO Foods reported net profit after tax of
$12.2 million for the year to September, compared with a
$19.2 million loss the previous year.
Beef and Lamb New Zealand's lamb crop report showed the
number of lambs tailed nationally in 2013 was down 4.7% on
2012. A total of 25.5 million head were tailed - 1.3 million
fewer than in 2012 - making it the second-smallest crop in
nearly 60 years. Export lamb processing numbers were expected
to drop 6.8% to 19.5 million head in 2013-14, which would
make it the third-lowest export lamb total since 1960.
Federated Farmers started consulting its members on a series
of meat industry reform options.
The feedback would be used to craft the rural lobby
organisation's strategy for the industry going forward.
Surveys are due back by Monday.
Hopefully, 2014 will be looked back on as a year when the red
meat industry did indeed get back ''on its feet''.
A sustainable and profitable industry is needed for all
participants - from the farmers to the meat workers,
companies and communities - and for New Zealand's economy.
It can no longer be put in the too-hard basket. It requires