Meat co-op dilemma
Meat processor Alliance Group's cash-strapped farmer shareholders face a dilemma - either pour more money into the co-operative or risk losing 100% ownership and control.
The co-op will also be charging farmers an extra $3 per livestock unit processed immediately to bolster its balance sheet.
The Alliance board has also approved an increase in the number of shares required to be held per livestock unit processed (standard shareholding) from 12 shares to 16 shares per livestock unit processed.
Alliance Group’s new chair Mark Wynne says New Zealand’s red meat sector has been impacted by weaker global market prices.
“Farmers, processing companies and the agribusiness industry in general are facing significant financial pressure. Alliance Group is no exception.
“Our current trading position and forecast indicates we will make a modest profit this fiscal year, which will be a significant turnaround from our loss last year. This is in line with our financial performance over the last decade where Alliance has been profitable for nine of the last ten years.
“Over the last 12 months, in particular, we have had a relentless focus on cost reduction, optimising market pricing and inventory in order to reduce our working capital requirements. We’ve made good progress on all fronts.”
However, Wynne notes that as signalled at the co-operative's annual meeting last year, it needs to raise capital from farmer-shareholders.
“That’s because even with the lower prices experienced this year, product prices over the past few decades, and with them, working capital demand, have lifted at a faster rate than shareholder equity growth.
“We acknowledge that times are extremely tough on-farm, and this is not an ideal time to implement such changes. We have explored all other viable opportunities to reduce working capital before seeking capital from farmers.
“However, in order to remain a 100% farmer-owned co-operative and continue to drive towards our goal of being New Zealand’s most efficient processor, an increase in shareholder equity is required.”
Wynne says the $3 extra deduction per livestock will commence immediately, although the majority of the inflows will occur in the next financial year, “when hopefully we will see some lift in the market pricing as we exit the downturn”.
Alliance announced improvements to the co-operative's loyalty payments programme at its roadshow meetings last year. Farmers who supply 100% of qualifying lambs now receive $0.15 cents per kilogram (cpk), an increase of $0.05cpk. For the 2024/25 season, the loyalty payment for qualifying lambs will increase to $0.20cpk. Cattle and deer will be at $0.10cpk.
“To ensure Alliance is a strong co-operative, the company intends to materially reduce its reliance upon debt funding for its working capital and other business needs,” says Wynne.
“Lender funding is required for seasonal working capital needs only.
“Over the next few weeks, farmer-shareholders will receive individual letters with information on what these changes will mean for them. Alliance will also provide opportunities in upcoming weeks for farmers to engage with directors.
“With shareholder investment, we can reduce our reliance on lenders to fund our working capital debt, expand our product offerings and explore new opportunities to support the transformation of the co-operative to deliver more value to our farmers. We will also continue to pursue other options to reduce working capital requirements.
“The co-operative remains committed to our strategy of maximising shareholder/supplier value, maximising enterprise performance and creating more market value.
“This includes a focus on enhancing farmer/shareholder value at the farm-gate, capturing more value from every part of the animal, investing further down the value chain and growing our in-market presence with enhanced branding.”
