MIE plan stimulates debate but won’t fix the problem

April 1, 2015

The Pathways to Long-Term Sustainability document launched earlier this month makes some very valid points about the red meat industry’s shortcomings, but its recommendations are almost certainly impossible to implement. Read the rest of this entry »

Fonterra’s disappointing performance

March 31, 2015

Fonterra’s interim result announcement contains confirmation of the farmgate milk price forecast of $4.70, but a reduction in the added value dividend. Read the rest of this entry »

Landcorp’s Carden optimistic despite low half year profit

March 28, 2015

The state owned farmer Landcorp last month reported a substantial drop in both revenue and profit for the six months ended 31 December last year, but CEO Steve Carden is still very positive about future prospects and the importance of Landcorp as a farming business. Read the rest of this entry »

MIE launches red meat sector plan

March 18, 2015

Tuesday saw the launch of Meat Industry Excellence’s report Red Meat Sector – Pathways to Long Term Sustainability to a relatively small group of invited attendees in Wellington. Read the rest of this entry »

MIE red meat sector report to be launched

March 16, 2015

Tuesday sees the public release of the Meat Industry Excellence industry study ‘Red Meat Sector – Pathways to Long-Term Sustainability’ at a launch function in Wellington. The study, funded with the assistance of a grant from Beef + Lamb New Zealand, was commissioned in the middle of last year; it was initially due for release by the end of October, but concerns about the robustness of the findings delayed the process. Read the rest of this entry »

ANZCO’s profit disclosed in Itoham’s statement

March 5, 2015

Japanese food company Itoham Foods announced last week an increase in its shareholding in New Zealand meat processor and exporter ANZCO Foods from 48.28% to 65%. As a result of the transaction it will be able to consolidate ANZCO’s revenues and earnings into its annual accounts.

 

$40 million worth of shares are being bought from three entities: another leading Japanese food manufacturer Nippon Suisan Kaisha, chairman Graeme Harrison, and JANZ Investments, owned by Graeme Harrison and ANZCO staff members. The sale will see the minority shareholders reducing their shareholdings on a pro rata basis with Harrison’s effective holding falling from approximately 20% to 14%.

 

A side effect of the announcement to the Tokyo Stock Exchange was the disclosure of ANZCO’s annual result for the 2014 year which would not normally be announced to the Companies Office until late March. This demonstrates a small drop of $25.6 million (1.92%) in sales, but a two thirds reduction in operating income and a $6.2 million or 50.8% fall in net profit. This fell from $12.22 million to just over $6 million.

 

The figures do not give any details of the reasons for the profit reduction, although a 9.4% increase in total assets suggest an increase in inventories may be a factor. The profit represents a 0.48% return on sales and 2.7% on net assets which is less than ideal, albeit a continuation of ANZCO’s track record of posting a profit, apart from 2012 when the whole meat industry lost money.

 

The main question is why Itoham has decided to increase its ownership percentage in a New Zealand meat exporter now when it has been content to remain a fairly passive shareholder since 1995 when Harrison put together a consortium of investors to buy ANZCO from the Meat Board and Huttons Kiwi.

 

The answer appears to be a combination of factors, notably Harrison’s stated intention to retire at an appropriate time presumably in the relatively near term. In 2009 Mitsubishi Corporation became Itoham’s largest shareholder which can now access 28,000 staff in Mitsubishi’s Living Essentials Group involved in all stages of the distribution chain throughout the world with a focus on emerging markets.

 

Itoham’s announcement to the Tokyo Stock Exchange signals its intention to grow its business outside Japan by becoming “the most trusted manufacturer of processed meat in Asia”. Itoham’s investment with ANZCO is seen as an integral step to achieving this goal. ANZCO is seen as an ideal platform for expanding red meat sales to the world’s growth markets which contrasts with Itoham’s previous focus on the Japanese domestic market for sausage and processed meats.

 

Correspondingly the main business focus of Nissui which also bought its shares in 1995 is on marine products including a 50% shareholding in Sealord, processed foods and chemicals. Therefore its holding in ANZCO is less aligned with its core businesses.

 

At this point there will be no change to ANZCO’s board of directors or management with Graeme Harrison and Mark Clarkson remaining as Chairman and Managing Director respectively. In time it seems inevitable that consolidation of ownership and retirements will result in further changes.

A rare breed in the meat industry

March 4, 2015

AFFCO is establishing an encouraging trend among its management ranks with three women in senior roles as plant and technical managers. Ann Nuku and Rebecca Ogg are plant managers of AFFCO Manawatu and Horotiu respectively, while Emma Fitzgerald is the company’s Technical Manager. Read the rest of this entry »

Come on John, give them a break!

February 18, 2015

The last time I dared to question MIE’s desired reform of the meat industry, John McCarthy accused me of bias and warned me to watch out, if we are unlucky enough to run into each other. So this column will almost certainly result in another attack on my character and more threats to my personal safety! Read the rest of this entry »

Conditions not structures cause of red meat price drop

February 12, 2015

The pre Christmas surge of optimism, boosted by high beef and sheepmeat prices when export volumes were low, has largely disappeared. The impact of the drought in the lower North and South Islands has seen slaughter numbers increase dramatically at the same time as a series of negative events have reared their head in world markets. Read the rest of this entry »

Wool trade still at crossroads

February 8, 2015

Ever since the Korean War over sixty years ago the price of wool has been in decline with a few upturns along the way. Over the period the fortunes of wool growers have suffered from massive lifestyle changes leading to reduced demand for woollen textiles and fibres and the rise of synthetics with properties capable of imitating, if not matching, those of wool at a lower price. Wool is not the only natural fibre to be affected, with cotton being hit even harder.

 

There are a remarkable number of parallels between the red meat and wool industries in the reactions to the situation which is not surprising given the respective price trends and the fact many of the farmers are the same individuals. Sheep and beef farmers’ opinions of the deficiencies of the meat industry are virtually identical to those of the wool trade, while proposed solutions are also remarkably similar.

 

The culprits in both cases are the traditional pantomime villains: privately owned meat companies and wool merchants, brokers and exporters, neither of whom, so the argument goes, have much skin in the game apart from shareholder capital, in many cases held by overseas shareholders. The suggested solution to both problems is farmer ownership of the whole value chain which will supposedly retain financial control and ownership while at the same time ensuring sustainably better returns to farmers.

 

So far evidence paradise will result from farmer control appears to be something of a mirage, although it may be too soon to write off the prospect of success completely. One private wool buyer whose family has been in the business since the 19th century told me he doubted the vertical integration model, saying he wouldn’t think of telling farmers how to farm, but equally wouldn’t expect a farmer to know how to run his business.

 

Wools of New Zealand, established in 2013 with grower capital despite failing to reach its initial equity raising target, is too early in its life to be called a failure. But the signs are not all positive although the PR remains very upbeat. There are plenty of rumours of growers who are unhappy with the contract prices they receive with substantial penalties deducted for colour and vegetable matter, up to 45 cents a kilo compared with 10 cents at auction.

 

A second issue is payment; WNZ’s Camira lambs wool contract payment is in three instalments over 15 months compared with 14 days after sale to a private merchant or at auction. Further the contract price of $6.25 per kilo applies to wool up to 30 micron which ignores the variation of up to 60 cents for wool between 27.5 and 30 micron. At the time of writing the only wool type with a lower spot price than the Camira contract is 30 micron, so growers supplying lower micron wool would lose on the transaction, even before allowance for colour and VM discounts and interest costs as a result of the payment schedule.

 

A third factor is the 15 cents a kilo Wool Market Development Commitment levied by WNZ on a shareholder’s assessed annual wool production which applies whether or not growers supply all or part of their clip to WNZ. At up to $30 a bale this can amount to several thousand dollars a year with little evidence of sizeable new premium markets being reflected in higher prices than can be achieved through the traditional systems.

 

Open criticism of WNZ is not yet frequently heard or expressed, either because shareholders are still prepared to keep an open mind or are unwilling to admit they might have made an expensive mistake or possibly they haven’t yet analysed the comparative returns. But there are definitely instances of growers who have reverted to supplying private merchants, after signing up as shareholders of WNZ. However they will continue to receive six monthly accounts for the 15 cent WMDC which they are contracted to pay. It seems the only exit possibility for disaffected shareholders is to find a buyer for their shares, although these are infrequently traded.

 

The other cooperative option for wool growers is Primary Wool Cooperative which has been in existence for more than 40 years and has a 50% share of Elders Primary Wool, responsible for the Just Shorn brand sold into the United States for high end carpets. PWC has over 1000 members indicating a certain degree of satisfaction with the dividends and rebates paid, as well as the wool prices received. However there is limited evidence the Just Shorn initiative has added substantially to growers’ incomes, but as with Camira this may be a matter of time.

 

The wool merchants and private buyers admit they will be accused of bias, but they say there are no new markets for wool driving any real increase in the wool price, while the rise in the past two seasons is due to demand exceeding supply, as sheep numbers fall.

 

Like the meat industry, the big question for wool growers is what sort of industry they really want. For all the talk of the need for cooperative farmer ownership of the value chain, it still appears a majority of farmers are actually satisfied with their merchant or broker relationship. Otherwise surely they would all vote with their feet and send their clip exclusively to a farmer owned cooperative.

 

But this just doesn’t seem to be happening in sufficiently large numbers to create the desired change claimed by supporters of the new model. The collapse of the milk price may well have taken the wind out of the sails of proponents of a Fonterra like system for meat and wool.


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