Talk has it that Silver Fern Farms and Alliance Group - the
two companies responsible for more than half the New Zealand
meat industry - feud like the Hatfields and McCoys.
Not so, according to Dunedin-based Silver Fern its southern
Sure, there is competition between them for stock at the farm
gate but contrary to popular belief, it's not an antagonistic
"That's a misnomer," Silver Fern Farms chief executive Keith
Cooper says. "We have our joint ventures with them and we are
on various industry groups together," he says.
"There is no animosity, but there is a perception of
animosity because we are two competing co-operatives.
"We have a lot in common and we collaborate from time to time
on opportunities as they arise," Cooper says.
Alliance chairman Murray Taggart feels the same way.
"Clearly, we compete pretty intensely at the farm gate with
all the other players, but there are a whole lot of other
issues where the companies have to cooperate - otherwise you
just can't function," he says.
"To suggest that we don't talk to each other or walk to the
other side of the street when we see each other coming is
absolute nonsense," Taggart says.
"I guess it might sell some farming newspapers but it's not
actually the truth."
Cooper, Taggart and their farmer-member suppliers throughout
the country have reason to smile these days.
After a grim 2012 and 2013, sheep and beef prices are up and
are forecast to stay firm, thanks in no small part to the
emergence of China as a major customer.
Meat company profitability is also looking much better.
Silver Fern - the country's biggest meat processor - last
year suffered a $28.6 million loss and a $31.1m loss the year
earlier due mostly to a collapse in the price of sheepmeat.
Now that prices have turned around, Cooper expects Silver
Fern to return to profitability in the current financial
year, which ends in September.
Alliance's Taggart also expects a good year. Alliance
reported an operating profit of $10.9 million for the
September year, after suffering a $57 million loss the
At the smaller end, Invercargill-based Blue Sky Meats has
returned to profit - $1.94m in the March year - compared with
a loss of $3.88 million in the previous financial year.
There are 16 companies with 36 plants processing lamb and
adult sheep and the standard argument holds that there are
too many companies and too many plants competing for
declining levels of stock.
Overcapitalisation, stock procurement wars, land use
competition from dairying and often fragmented marketing
attempts abroad still hamper the sector.
It's an industry with many moving parts and one that does not
compare easily with dairy, but two sectors are nevertheless
held side-by-side when it comes to performance, particularly
when Fonterra does well.
Calls for reform are often at their loudest when dairy and
meat lose their historical price relativity and the gap
between them widens, as happened last year with Fonterra's
record farmgate milk price. Now that dairy prices have fallen
sharply and meat prices have risen, the sectors are more in
sync and the debate has gone quiet.
Meat processors face a high level of investment in fixed
assets and have a lot of people working in their plants. That
means it can cost a company more to close a plant than it to
keep in running, so companies, particularly if they are
strapped for cash, will opt for the latter course of action.
Meat Industry Excellence (MIE), a group formed to improve the
performance of the meat industry, was successful it getting
representation on the Alliance and Silver Fern boards last
Beef and Lamb New Zealand is working with MIE on a project
plan and early this year, farmers supported a remit from MIE
seeking funding from Beef and Lamb its work.
But Federated Farmers meat and fibre chairman Rick Powdrell
says that, in the public domain at least, it would appear
that calls for industry reform have fallen quiet.
"Farmers are more optimistic but it's not a reason to stand
back and do nothing with the structure of the industry," he
The emergence of China as New Zealand's biggest market for
meat has brought profound change but industry participants
fear the good prices and strong demand from the PRC could
serve to paper over the cracks over what has long been a
"The positivity and the price increases that we have seen
have not been of our doing," says Cooper.
"They have been market forces' doing, so I think that it
still exposes the soft underbelly of the industry that we
have not addressed," he says.
The fundamental issue is that there are a large number of
players competing for livestock and who merely take product
to market as opposed to creating value in that market.
"We still have the same meat industry conundrum. We are doing
the same old thing. This year we had a good outcome but
equally, in another year we could have a negative outcome
because we are doing it the same way under the same
structure," he says.
Over the last five years, there has been a huge swing in the
global meat trade from west to east.
Taggart, who is just back from a Meat Industry Association
trip to China, says the impact Chinese have made has been
enormous. "And it hasn't finished yet," he says.
"Those traditional markets have not been carrying the day
like they used to, and we have seen this huge swing from the
west to the east in terms of where the focus is and where the
opportunities lie," Taggart says.
With China also lies a problem that all other Nee Zealand
food exporters face: How much is too much?
"As company, we are putting lot of emphasis on trying to
develop other emerging markets, particularly in Brazil, India
and Russia," Taggart says.
"The Middle East is still very strong for us and we need to
nurture those markets to ensure that we are not hung out to
dry by a glitch in China.
"You only have to have a food safety type issue and you could
be very vulnerable if too much production goes to one
market," he says.
More broadly, Cooper says higher prices given confidence in
the whole sector a big boost but that the shine has been
taken off it by a still strong New Zealand dollar.
But he says an unfortunate byproduct of the latest upsurge
has been been the will for industry reform has dimmed
In the big picture, the issues of overcapacity and
competition for stock still overhang the industry and nobody
has yet to come up with a solution.
"There is no pan-industry thinking and there does not seem to
be any pan-industry resolve that there is a problem to be
fixed," Cooper says.
"Nothing has changed - strategically or structurally - in the
last 12 months.
"We've got better prices, and that's the function of market
demand forcing prices up, not because New Zealand has done
anything value-creating," Cooper says.
"Notwithstanding the currency, we have seen significant
improvements in the market value for lamb and beef product
values which has flowed through to farmers, particularly for
sheepmeat," Cooper says.
"It's a China-centric story. It does raise the issue of what
happens in China if China doesn't buy - well then we are back
to those traditional commodity-style priced markets," Cooper
"As an industry, we still haven't done anything about
creating stability of value in the market for our products."
- By Jamie Gray, APNZ business reporter