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Rural sector faces hard road but future looks brighter Page 8
Free range life for these festive favourites
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CONTACT US Canterbury Farming 03 347 2314
November 2013
Merger ‘game changer’ but value needs to be protected by Hugh de Lacy
Merging the two big co-operatives would be a gamechanger for the meat industry, but only if farmers continued to supply the combined entity, according to Eion Garden, the retiring chairman of the larger of the two, Silver Fern Farms (SFF). A merger of SFF and Alliance would have to be seen in the context of the fall in the supply of lambs from 27 million a year when Garden was elected chairman seven years ago, to a projected 18.6 million this year. “In that time the two companies have built new facilities and farmers have welcomed that, but because of the huge decrease in lamb numbers we’re not getting really good usage out of them,” Garden, who farms at Millers Flat in Otago, told Canterbury Farming. “The third thing is that, yes, we do have 52% of the business owned by the two co-ops, but we’ve got 24 or 25 processorexporters, and until we get that down to a significantly smaller number, farmers are not going to see the value of scale.” Garden says he supports moves by the lobby group Meat Industry Excellence (MIE) to get elected to the co-ops’ boards, farmers who are committed to a merger. “I believe there’s an absolute need to get greater
scale so we can manage supply into the marketplace better, but I couldn’t support a merger if I knew it was going to destroy so much value,” Garden said. His remarks come as the MIE launches a three-to-fiveyears’ campaign at this year’s director elections to take over the co-ops’ boards. MIE has two of its associates standing in each of the co-operatives’ elections next month: former MIE chairman Richard Young of West Otago and Dan Jex-Blake of Gisborne for Silver Fern, and Donald Morrison of Gore and John Monaghan of Eketahuna for Alliance. Monaghan, who is a director of co-operative dairy giant Fonterra, had his nomination initially declined by Alliance because he didn’t meet the qualification criteria, but MIE is attempting to have him appointed as an independent director. The second stage in the MIE’s plan is, with government help, to establish a binding contract supply system with
farmers according to Richard Young who has stood aside from his chairmanship of MIE to seek an SFF directorship. This follows the failure of MIE’s ‘Tight Five’ initiative which brought leaders together to try to forge a common path for an industry whose prime farmland production base is rapidly being eroded by the dairy industry because of poor returns for meat. Young said MIE had a ‘clear strategy of trying to win positions on the boards both this year and in the next round of elections as well’. And this latest effort at reform wouldn’t simply run out of puff as previous ones had, he said. “It’s different now — the appetite [among farmers] for change is greater, we’re in a downward spiral and people are really starting to question whether they can put farm succession plans in place for their children. “Also, it’s pretty clear we’re on the cusp of a world-wide boom in protein demand, and if
we don’t sort ourselves out it’s going to pass us by,” Young told Canterbury Farming. MIE came into being earlier this year on the back of the biggest meetings of concerned meat and wool farmers since the wool acquisition debate of the 1970s. Returns to farmers from a seemingly insatiable overseas grass-fed meat market are repressed by what is in effect undercutting by the meat companies seeking market share. Conversions of former meat and wool farms to dairying has recently spiked through a combination of poor returns for meat last season, and Fonterra and the other dairy co-operatives signalling record milkfat payouts of over $8 a kilogram in the current season.
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The trend is most evident in Southland where in the past three months the regional council has received no fewer than 27 applications for conversions to dairying, compared to just seven in the 12 months to June this year. Garden, who will not be standing for re-election next month, said the economies of scale that would derive from a merger “can create value — and we’re not really seeing that. “People who invest in the industry have the absolute right to preserve, protect and get a return on their investment. “What farmers have to understand is that by supplying other than the co-ops they’re abdicating any rights whatsoever to capture margins for the value, the wealth that’s created,” Garden said.