Greenlea turns 20

Waikato based Greenlea Premier Meats turns twenty this month and considering that they have just spent twenty years in the meat industry they seem to be in remarkably good shape.

 

They are currently the Westpac Waikato business of the Year taking out both the large business and supreme winner categories and their two plants are basically full on both shifts all year round. This year they will process more than 200,000 cattle and in the past five years they have invested more than $45 million in their plants.

 

Owned by the Egan family, Greenlea is not one of the big four meat companies, but belongs instead to a group of smaller players who do not seem to share the view that the meat industry is ‘broken and dysfunctional’. Neither do they regard collaboration with farmers as an issue; in fact they get plenty of support and Greenlea’s Managing Director Tony Egan reckons this is due to mutual respect. “They see us doing our job well and give us their support. It’s as simple as that”.

 

Greenlea celebrated its twenty year anniversary with a function in Hamilton, at which the company announced a $50,000 donation to Kidscan, one of the many charities supported by the Greenlea Foundation Trust. A coffee table book has been published to capture the memories and spirit of the organisation over the past twenty years.

 

Fred Hellaby, Managing Director of Auckland Meat Processors, confirms the smaller companies remain upbeat and he points to a successful collaboration with Greenlea over the past two seasons to utilise capacity efficiently. “We had some surplus capacity at the peak cow run and so collaborated with Greenlea to take their overflow.” This approach seems to make more sense than adding more capacity and is definitely in line with the goals of the Red Meat Sector strategy.

 

Greenlea also has an agreement with Firstlight Foods to process their Wagyu cattle. This collaboration is a win/win, as it enables Firstlight to focus on adding value in the market, while both companies have been able to learn from each other over the past few years.

 

So perhaps some of the answers for the industry can be found with the smaller players, who seem to be getting on with the job quite well.

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Not sure it’s realistic for farmers to own the meat industry

There is a lot of noise about the dysfunctional or broken meat industry accompanied by the suggestion it would be solved if farmers owned a bigger slice of it.

 

The Meat Industry Excellence group has been touring the country since earlier this year, holding farmer meetings and trying to drum up support for fixing the industry’s problems. In total some 3,000 farmers attended meetings from Gore to Gisborne which, even if every attendee was firmly in support, only represents a maximum of 20% of sheep and beef farmers.

Plenty of hope, but no solutions yet

The Red Meat Sector Conference, held in Auckland on Monday, was very well attended by 320 people from all parts of the industry.

 

There were interesting presentations from overseas and local speakers. The former spoke eloquently about the outstanding global prospects for the red meat sector, while the latter had plenty of statistics to illustrate their concerns about sheep and beef farming debt and shrinking livestock numbers.

Synlait well structured for a successful future

Synlait Milk’s $120 million capital raising will enable the company to restructure debt and invest in several new initiatives, including a lactoferrin plant, a third dryer, a butter plant, testing laboratory and dry store. The share offer is made up of $75 million of new capital and $45 million sell down by some of the exiting shareholders.

 

All the signs point to this capital raising being a success, unlike the attempt to raise $150 million in 2009 which was shunned by New Zealand investors.

 

Much has changed in four years. The New Zealand economy is now on a substantially stronger footing, Synlait has put runs on the board and a Chinese company, Bright Dairy, was willing to invest $82 million in the business. Synlait is well structured to avoid the angst about overseas investment because majority locally owned Synlait Ltd owns the farms separately from the milk business, with Japanese company Mitsui the minority shareholder.

 

This structure ensures there is no argument about the sale of New Zealand land to foreign investors which was such a large feature of the Crafar farms purchase by Peng Xin. It has ensured that Synlait is well placed to take advantage of the fast growing Chinese demand for infant milk formula as well as being exposed to other growth markets. The new capital investment programme will enable Synlait to move swiftly into higher growth products than its present bias towards whole and skimmed milk powder.

 

Synlait is obviously much smaller than Fonterra, but it is now in a position to offer public investors, both New Zealand and overseas, the chance to invest in our agricultural sector. There haven’t been too many opportunities to do this, let alone in the added value end of the market.

 

There seems to be a pattern here. Local entrepreneurs start up a new business which fails to attract New Zealand investment and, consequently, overseas capital is the default option. Alternatively a New Zealand company, for instance PGG Wrightson and F&P Appliances, needs external capital to ride out tough conditions and has to find it overseas.

 

In the case of companies that have got into trouble, the overseas investor soon takes control. But in Synlait’s case a good business model has made it possible to retain a strong New Zealand involvement. We might have preferred 100% ownership, but the events of 2009 made that impossible, and what we have now got is committed shareholding by a Chinese company which will assist expansion ambitions.

 

In my view Synlait meets all the criteria for overseas investment.