Sombre time ahead - Alliance

That was the strong message from both the Alliance chairman Murray Taggart and chief executive Willie Wiese at the first of the co-op’s farmer roadshow meetings held in Feilding, last week.

Taggart says the meat company will make a loss this year and that farmgate prices reflect what’s happening in one of its major markets – China. He says the economy in China is in bad shape with unemployment up, the real estate industry in chaos – all of which has led to a lack of consumer confidence.

Wiese later told Rural News that it could be a year or two before things come right and farmers need to understand that. He adds that there are some opportunities to pull things back and is cautiously optimistic.

However, Wiese points out that there are other factors in play, such as the geopolitical situation with the war in Ukraine, and Australia dumping low-priced lamb on the world market.

It’s fair to say the mood of the 60 or so people who attended the meeting was pretty somber with questions confined to detailed matters such as loyalty payments and other price points.

He told the meeting that trading conditions for Alliance in the past year had been tough and the main reason for this is China – the home to 40% of NZ’s meat and dairy exports. He says post Covid, the draconian lockdowns the Chinese government imposed forced people to consume local products.

“Historically, the Chinese wanted good quality products so they would come to NZ or Australia, but that’s changed,” Wiese explained.

“At the same time, they have become more efficient sheepmeat producers – as well as in beef and dairy – and this has led to them becoming more self-sufficient. There has been a big change in consumer behaviour brought on also because of the high level of unemployment and less disposable income.”

He added that with China out of the market, other primary exporting countries are targeting the same markets as NZ and the pressure is now in all global markets. Wiese says, to some degree, the rest of Southeast Asia is also suffering from the same problems as China. But he says Alliance has found some great new opportunities – especially in Malaysia and Singapore.

Meanwhile, Wiese says Australia is unloading large quantities of what could best be described as commodity lamb on the market and undercutting similar product from NZ.

However, he points out that while NZ competes with Australia at what he calls the auction market, Alliance sells 60% of its product to higher value outlets where there is no Australian competition.

Solutions and The Future

Wiese and Taggart made it clear during the meeting that farmgate prices for lamb in the coming season will be down on last year.

They were talking in the range of $6.80 to $7.30 compared with $8.00 last season. This is on top of high farm-input costs, while some farmers are still dealing with the effects of the cyclones and the impending cost of meeting government regulations.

Wiese says the co-op’s aim in the next year is to do everything it can to get better returns to farmers. To that end, he says the company has restructured in a bid to cut operating costs and will focus on increasing enhanced products that provide better returns to farmers. He believes there are excellent opportunities in this area.

Wiese says Alliance is already a leader in applying technology wherever possible in its plants and it will continue down this track. But he adds that there are some areas – such as in the slaughter process – where it is not possible to apply automation.

“There are obviously automation opportunities from the warehouse management point of view, like we have done at our Lorneville plant. We can do more but often this comes down to competing priorities for capital,” he told Rural News.

As to the future, he says there is chance that China may emerge faster than expected from its downturn. Wiese says the first sign of that will come if Chinese consumers start spending in some of the upcoming festivals in that country – such as the Chinese New Year. But he says Alliance has not factored that into its forecasts and it remains but a hope.

At home, Wiese says there is the prospect of what El Nino may bring – namely a drought – and the company has plans to cope with this.

“The most important message I have to farmers is to provide your livestock representative with clear and the most accurate forecast because of what is happening on your farm,” he told Rural News. “Then we can bring on the capacity to process the volume that is needed.”