The recipe for future success

Blue Sky Meats and its suppliers will be relieved the company is back in black after two challenging years.

The return to profitability - a $1.946 million after-tax profit for the year to March - came on the back of the only two losses in the Southland-based company's 28-year history.

It has been a much better year for meat companies. Along with Blue Sky - and Lean Meats - the two big co-operatives, Alliance Group and Silver Fern Farms, who both report late in the year, have signalled profitable years.

In the case of Silver Fern Farms, suppliers will be breathing a sigh of relief after two years of substantial losses.

But despite the improved balance sheets, Blue Sky Meats chairman Graham Cooney has reiterated the same comments he made last year - industry challenges have not changed, and status quo is not an option.

Despite much rhetoric, it has become patently obvious that there is no Fairy Godmother when it comes to sorting out the red meat industry.

Industry discussions have stalled, Meat Industry Excellence - set up to drive industry change - can't get support from stakeholders for a summit, and Primary Industries Minister Nathan Guy has made it clear the Government will not step in.

Concerns about the future of the industry are not limited to within the sector itself. Last month, Environment Southland chairwoman Ali Timms raised concerns with Mr Guy over what she described as widespread and growing concern in the community about the state of the sector.

She believed there were real risks to the country's environmental and economic future if the issues were not resolved, saying the Government would face barriers in meeting its economic growth agenda, and regional councils would struggle to meet water-quality goals of the national policy statement on freshwater.

Dairying has been an export success story for New Zealand, but the huge increase in dairy conversions has brought environmental concerns into the public spotlight - and those will only continue.

Dairy cattle numbers in the South Island have increased by 1.3 million in the decade from 2003, which translates to enough milk to fill about 415 milk tankers each day. In contrast, sheep numbers have plummeted by more than 5.3 million in the South Island in the same period.

While the corporate situation might be under control, even if only temporarily, sheep and beef farmers need sustainable profitability to stem the tide of conversions.

But it is not all doom and gloom in the red meat industry and there are real opportunities for the sector.

The annual Situation and Outlook for Primary Industries, released this month by the Ministry for Primary Industries, shows the value of New Zealand's meat and wool exports is expected to increase by about 22% during the next five years, driven by high prices from a globally constrained supply of beef and lamb, and steadily growing demand in Asia.

There has been exceptional growth in exports to China. Exports of lamb and mutton increased 76% in the year ended June 2013.

The Red Meat Profit Partnership is also under way - a red meat sector and government collaboration designed to boost sheep and beef farmer productivity and profitability.

It is the first time in the history of the industry the various players have worked together on such an initiative, along with the Crown.

So when it comes to industry rationalisation, why would the likes of Blue Sky Meats, admittedly a small player, or the much larger Affco, owned by the Motueka-based Talley family - whose wealth was estimated at $300 million in National Business Review's 2013 Rich List - entertain the notion when they are all doing quite nicely?

Blue Sky Meats' board has already spurned a takeover bid from Alliance Group.

Looking ahead, it will be companies that are innovative, smart and which provide exactly what customers want, when they want it - and also have transparency and the trust of their suppliers - that will not only survive but prosper.

Their future lies in the their own hands - and not in the wand of the Fairy Godmother.

 

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