Southland-based meat company Alliance Group held a
series of supplier roadshows throughout the country last week.
Agribusiness reporter Sally Rae attended a roadshow at Pleasant
Point, where the company outlined what had been a challenging
year, and previewed the coming season.
Photo from Beef and Lamb NZ
It is incumbent on the industry to address the "inherent
over-capacity" for sheep meat, Alliance Group chairman Owen
While decisions that had a heavy impact on people's
livelihoods and disrupted families and communities were not
taken easily, they were "sadly" necessary to reflect the
changing livestock supply situation, Mr Poole said.
He was referring to the company's recent announcement that it
proposed to cease sheep processing at its Mataura plant, and
also the closure of the Sockburn plant in Christchurch
between May and July this year, a move which was announced a
While 260 Mataura sheep meatworkers would be offered the
opportunity to shift to Lorneville, near Invercargill, fewer
alternative options for about 65 management, supervisory,
administrative and trades positions would likely result in
Sheep and lamb processing would be transferred mainly to
Lorneville, while some stock might go to Pukeuri, north of
Oamaru, depending on geographic location.
The company had reviewed its business operations and made
changes to reflect the evolving industry dynamics, both
within New Zealand and the market.
It had reconfigured its assets and focused on overheads and
efficiencies. The Sockburn and Mataura decisions would
significantly lower overheads and improve profitability and
competitiveness, Mr Poole said.
Both were "very, very difficult" decisions to make. "It's not
something we do lightly but it is necessary," chief executive
Grant Cuff said.
The 2011-12 year had been both challenging and difficult,
particularly for sheep meat, with the world economic
problems, consumers substituting lamb with lower value
protein and slower sales, Mr Poole said.
In New Zealand, exporter processors did not respond to the
rapidly changing world circumstances early enough and "paid
too much for too long".
Alliance Group, which had been "tested" this year, would
record a loss in the annual financial result to be announced
in mid-November, and there would be no farmer distributions
for the 2012 year.
Land use change had decreased the numbers of sheep and lambs
available for processing while increasing cattle numbers, he
The South Island lamb and sheep kill was 15 million "odd" a
decade ago, peaked with land use change at 18 million, and
was now about 12 million, Mr Cuff said.
Land use change was not helped by a couple of significant
droughts and some spring storms which all jointly affected
capital stock numbers.
The changes that Alliance Group was making would mean savings
of "tens of millions of dollars" a year, he said.
In a market outlook, Mr Cuff said the Christmas chilled lamb
leg price in the northern hemisphere was not at last year's
levels but was still encouraging.
Pressure remained on higher value cuts and, on balance, there
was increasing price stability.
The mutton market had suffered with the reduced lamb price
and there was less demand for high value boneless cuts for
food service, while Australia had increased export volumes of
mutton by 21% year-on-year.
Alliance Group was predicting $90 for "a good lamb" after
Christmas. While that was the same price farmers received in
2009, Mr Cuff said the exchange rate movement, from 2009 to
2013, had the effect of $50 a lamb.
Mutton was predicted to be $80 for a cull ewe, cattle would
be back, but not as much as sheep meat, and the drop in
venison was due to the exchange rate.
It had been a tough year for exporters but farmer returns had
held up. Next season was expected to be more settled, he
The company was reviewing its customer base and had refreshed
its Pure South brand. Asia, particularly China, had seen
"dramatic growth" and the company was very well positioned in
China with in-market partner Grand Farm, while new markets
like Brazil offered significant potential with early
shipments of high-value products, Mr Poole said.
Smithfield, with its new venison processing facility was the
first deer plant to recently achieve direct access from New
Zealand to China, Mr Cuff said.
Mr Poole, previously the company's chief executive, had
indicated to directors in June last year his intention to
retire in December this year.
With the "significant changes" being outlined during last
week's supplier meetings and with "more to come", he had
agreed to extend his tenure for a further year until 2013, he
During the question session, one farmer said any price for
lamb under $100 was "bargain basement" and was not going to
help the downward trend in sheep numbers.
"One day you'll be just sourcing them all from the Chatham
Islands and a few wild ones up the mountains," he said.
While the company understood $90 was not good enough, it
could "only do about it what we can do about it", Mr Poole
"I know everyone's aspirations will be higher than 90 bucks
but we'd be misleading you if we told you today that we think
we could do more than that next year."
Alliance Group had a tough year but it was not on its own.
"It's fair to say ... there's not a lot of happy campers in
our side of the business," he said.
Silver Fern Farms financial year ended last month. In an
update to suppliers, chief executive Keith Cooper said while
it had been a disappointing year financially, it reflected
the environment of an appreciating currency, falling sheep
meat market values, and sheep meat procurement pricing in
January-February this year not reflecting market revenues.