Cartage confuses price comparison

Silver Fern Farms (SFF) announced without any warning on 1 December a new South Island cartage policy which, according to the half page advertisement, will level the playing field for all suppliers, creating ‘transparency and equality’ for suppliers across New Zealand. So if suppliers want to be part of ‘an open, transparent farmer owned co-operative’ they should send their livestock to SFF.

Considering the other large processors, apart from Alliance, include livestock cartage in their procurement price, I assume the message is primarily directed at suppliers to SFF’s main competitor. The situation has been untidy, especially between both islands, ever since Lowe Walker introduced paid cartage to its North Island plants. Then other processors were reluctantly dragged into matching these terms, so years later SFF has inherited the Lowe Walker legacy by acquisition.

The cartage issue is one which has festered for several years, while SFF tried to integrate Richmond’s business into its traditional South Island co-operative structure. The inconsistency between livestock prices and shareholder entitlements reached a climax with the different voting rights between North and South Island shareholders in what was meant to be a defining moment for shareholders to approve the investment by PGG Wrightson.

The policy change raises questions about whether Alliance will move to paying South Island cartage and the end result will be a national schedule by default. Initial reaction from Grant Cuff, Alliance’s CEO, suggests not – Alliance has advised its livestock buyers it intends to continue its present practice because of its commitment to retaining farmer choice. It argues paid cartage penalises suppliers closest to the plant because they pay the average, not the actual cost.

Cuff is also sceptical about SFF’s claims of transparency and highlights the sudden divergence of each company’s base schedule which coincided with the announcement date. Until that point recent schedules were the same or similar, coming down by 10 cpk per week. But two related suppliers, one sending lambs to Alliance, the other to SFF, found a 15 cpk difference between the companies in the first week of December, equivalent to the average cost of cartage.

In the North Island Alliance accepts normal North Island custom for stock supplied to its Dannevirke plant, having decided it was too small to change a system suppliers had got used to. Another factor Alliance must consider is the independent status of its North Island suppliers who supply on the spot market, rather than receiving an end of season pool payment as shareholders in the co-operative. Cuff told me Alliance next year intends to conduct a review of the terms under which suppliers may be offered the opportunity to become shareholders. This will need to take several issues into account, not least the basis of entitlement to pool payments and the impact on the weekly schedule.

Livestock schedules are likely to vary across the country for some time yet, not just because the two co-operatives are taking different approaches to livestock transport, but there is also a variation between North and South in the amount charged for meat inspection fees, which can vary by as much as $1 per head. Then there’s the small matter of yield grading which only works fully when suppliers are prepared to accept penalties as well as incentives for quality, beyond the normal price differential between the traditional grades.

The livestock pricing system would work perfectly with supply matching demand at all times; but changes in competitive relativity, brought about by land use change, climatic factors and market demand, mean there won’t be a national schedule any time soon.

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