Meat sector unity

Federated Farmers Meat and Wool chair Toby Williams points out that Silver Fern Farms' willingness to take a positive role in the Alliance Group's current capital crisis is "really positive".

Williams says both companies' shareholders needed to consider the ever-shrinking supply of sheep. The chance of sheep farming becoming more profitable is getting less and less.

"We're spending more and more on processing each individual animal, with the fixed overhead costs and finance costs and all those sorts of things. So there's some consolidation needed," Williams told Rural News.

In a note distributed to its suppliers, Silver Fern Farms chief executive Dan Boulton confirmed the company's intention to be constructively involved in the support and possible restructure of its rival.

Boulton said Silver Fern Farms' own past difficulties gave an appreciation for the fact that the success of the whole industry is greater than the sum of all its parts.

"That's why we want to be constructively involved in achieving the best outcome for the long-term success of all farmers and NZ Inc, and why we're supportive of an industry solution to Alliance Group's considerations.

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"While we are confirming our intention to be constructively involved, it would be premature to speculate on the potential specific outcomes of our involvement.

"That detail and those conversations will come in time."

Alliance revealed in April its need to raise $100-150 million to stay afloat. It had already undertaken some redundancies and other cost-cutting measures and recently confirmed that its oldest meat-processing site, Timaru's Smithfield, would close by the end of this year.

The company said it faced three main possibilities: raising the money from its shareholder farmers; a part-sale or hybrid model similar to Silver Fern's half-ownership by Shanghai Maling; or outright sale. It would also look at partial options such as preference shares.

However, Alliance is not commenting on the Silver Fern approach, or any other specifics, now that the process is underway.

"As we have outlined to our farmer shareholders, Alliance has appointed Craigs Investment Partners to explore further capital-raising options," said Alliance chair Mark Wynne.

"We know there will be speculation regarding our external capital-raising process. While we are at the very early stages of the process, we've seen encouraging interest from both international and domestic parties, but for reasons of commercial sensitivity, we will not comment on specific opportunities.

"It's important we respect the process and focus on maximising value for our farmer shareholders. We will be assessing each opportunity based on strategic fit, value, and expected benefits before making any decisions.

"Ultimately, the final decision will rest with our farmer-shareholders," said Wynne.

Williams says that it would be up to the respective shareholders but if there's not some partnership, the two companies would keep "mining" each other's stock supply until eventually one collapses.

"That's what we want to avoid."

Williams noted that there had been talk of partnership between the co-operatives more than a decade ago, but the shareholders then voted it down.

"But I think we've gone past that now.

"The fact that Silver Fern Farms have got a really strong balance sheet and are interested shows you that they believe that a more collaborative approach between the organisations will benefit all of New Zealand."

Acknowledging the potential complication of their different structures, with Silver Fern's Shanghai Maling part-ownership, Williams said it would not be easy but "it's time to have a big-boy conversation around this".

The companies competing against each other to sell the same product was very poor for sheep farming, said Williams. "In an ideal world we would have a Zespri or a Fonterra but neither of those is going to happen. Existing trade agreements preclude us being able to form something like that."

Williams said there were a couple of options for Alliance but hoping for the Alliance shareholders themselves to stump up with the cash was like "putting a Band Aid on an artery wound".

Federated Farmers as an organisation was agnostic as to what happens.

"But certainly we think it's a positive step forward for the industry if they can get it to work," he said.

Boulton said the decline in stock numbers had been the focus of much recent discussion.

"At Silver Fern Farms, we don't accept this trend as a given that will continue, but we also know that the industry is going to have to continue to evolve to remain competitive.

"For New Zealand's sheep, beef and venison farmers to thrive, they need a strong and viable processing and marketing sector that both operates efficiently and can commit the type of investment required to differentiate our products in market.

"With the challenges we face both domestically and globally, we believe Silver Fern Farms' support is the only way to create truly long-term value for both parties and the broader sector.

"What we do know for certain now is that in the long term, the only place our industry can win is in our global markets."