A word from ... Fonterra director John Monaghan
In 2008 the Otago Daily Times reported there was unanimous support from Alliance shareholders to form a mega co-op. At the same time Owen Poole, then chairman of Alliance, said: ''There are three non-negotiables with this concept.
''It needs to be farmer-controlled if not owned, farmer-driven, and there can't be less than 80% market share for sheep meats.''
These were wise words then and they remain as valid today as the day they were spoken. But now the need is more pressing.
You only have to look at Silver Fern Farms' search for capital to know that change in the red meat sector is inevitable. For sheep and beef farmers to do well they need to be on the front foot leading the change they want. If not, they are unlikely to be winners.
Australian farmers have gradually lost control of their processing plants and their returns have plummeted. In 1900 about 85% of the final price went back through the farm gate. By 1950 it was round about 50% and now it's only 10% to 15%.
We do not want the same for New Zealand sheep and beef farmers but there are foreign investors with cash and markets who cannot get enough protein. It would be surprising if these foreign investors were not interested in extending their position in New Zealand's red meat sector.
This would have ramifications for both Silver Fern Farms and Alliance. Imagine a debt-free, foreign-backed Silver Fern Farms breathing down Alliance's neck? To avoid this there is only one solution. It requires creating the scale and scope to be a serious player in the global market. I have heard some of the candidates in Alliance's and Silver Fern Farms' director elections set out a clear pathway to achieving this. Firstly, it requires Alliance and Silver Fern Farms leading the consolidation. Secondly, they need to encourage other parties to join them. Thirdly, shareholders will need to come together to form a new co-operative capable of attracting 70%-80% of supply. This would create the global scale needed to right-size the industry's processing assets and achieve the international leverage to improve shareholder returns.
Like any successful team, Alliance and Silver Fern Farms need the best people with the best strengths at any one time. If you have the same people, you are going to get the same results. Some people might call this stability but to my mind the industry is in danger of being stuck in a rut and forced into change instead of the farmers leading it.
Time is ticking. The co-ops need to get on with leading the change that will build a sustainable, profitable red meat industry that New Zealand can be proud of.