A ‘Brighter’ future?

Fonterra is often held up as the Holy Grail – although many dairy farmers may dispute this given the current season’s low payout. 

Of course, Westland Dairy and Tatua, and both the major fertiliser companies, are co-ops, as are many others such as rural supplier Farmlands and insurance company FMG. All these companies are viewed as successful and sustainable operations. But is that because of their co-operative structure or their business models?

An area of the agriculture sector where the co-operative model has not been a huge success is the meat industry. Two major players in this industry – the Alliance Group and Silver Fern Farms – are cooperatives, and even in ‘good’ years their profits are meagre in respect of the investment tied up in the businesses.

However, these meat co-ops are not alone in suffering poor returns on capital: most of the privately owned entities in the sector also struggle for profitability.

For months now, Silver Fern Farms has been looking for a capital injection – thought to be around $100 million – to shore up its balance sheet and appease its bankers. This has raised the prospect of an outside shareholder – possibly foreign – taking a stake in the company. This idea horrifies some in the agriculture sector – as well as opportunistic politicians.

Surely an outside shareholder in SFF would be a far saner option than that suggested by NZ First – that the Government “bail out” the meat exporting company. 

Why on earth should taxpayers invest money in a co-operative when its own farmer shareholders won’t? 

Rumour has it (at time of writing) that China-based Bright Foods is in the offing to inject much-needed major new capital into SFF. The Chinese firm already has investment in NZ agriculture via its tie-up with Synlait Milk. The Bright connection is credited with helping Synlait to penetrate not just the Chinese market, but others in Asia.

Such a tie-up could be a big help to SFF, given that China is the company’s largest market. In the year ended September 30, 2014, SFF’s exports to China earned it $385.6 million – up from $332.4m the previous year

Some shareholders stoutly oppose any outside investment; so how about they put their money where their mouths are and stump up the necessary capital. If they can’t or won’t then their opposition is pointless.