Changes afoot in red meat sector

The much maligned red meat sector may at last be about to undergo a structural change if a majority of processors and farmers can reach agreement on a proposed capacity moratorium. Past history suggests that is a big IF, but a document being circulated among processors, Meat Industry Association (MIA), Beef + Lamb NZ, Federated Farmers and the Meat Industry Excellence (MIE) group contains a realistic basis for agreement on a solution to the capacity problem which has dogged the industry for years.

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Meat trade unrecognisable from 40 years ago

It is sometimes tempting to think nothing much has changed with meat exports in recent years when you read all the publicity about the problems in the meat industry. Since the beginning of this century the contrast with the dairy industry has been particularly marked, but suddenly this season the positions have been reversed. Sheep and beef farmers can hold their heads high again and it seems likely this state of affairs may even persist for longer than just this season.

Owen Ferris – New Zealand lamb’s finest salesman

The recent death of Owen Ferris marked the passing of one of the major characters of the New Zealand meat industry, but one who was relatively little known in this country because he was an Irishman based in London. During his career he sold more than 30 million carcases of New Zealand lamb and this may be an underestimate.

 

Born in 1942 in Streatham but evacuated to Ireland during the war, Owen arrived in England at the age of 19, starting work at a slaughterhouse near London before working as a butcher in Piccadilly. His connection with the New Zealand sheepmeat trade began in 1971 and he soon joined AFFCO’s UK agents Michie and White and subsequently New Zealand Farmers for whom he worked until his retirement in 1999.

 

New Zealand Farmers, located just round the corner from Smithfield and founded in 1976, was owned by Alliance and AFFCO throughout Owen’s career, although it is now a wholly owned subsidiary of the Alliance Group. For nearly 40 years, NZF has been the biggest importer into the UK of New Zealand lamb and sheepmeat, moving during that period from predominantly frozen carcase trade to today’s mix of chilled and frozen cuts.

 

Owen played a major part in that success through to his retirement. He was a specialist in selling frozen carcases and cuts to the wholesale and manufacturing trade, although in his later years he had to adjust to the growing fashion for chilled cuts to the retail sector.

 

Everybody who came in contact with him speaks of his generosity, sense of humour and total commitment to the New Zealand sheepmeat industry. He often talked of trying to extract the price of a Cartier watch for New Zealand lamb legs, although he wasn’t always successful. However in contrast to the common idea of exporters undercutting each other and selling below the market, Owen always tried to sell for as high a price as possible.

 

The regard in which he was held is illustrated by his appointment as a Freeman of the City of London and a Liveryman of the Worshipful Company of Butchers.

 

Outside work his main interests were horse racing and rugby. As expected of an Irishman steeple chasing, especially at Cheltenham, was his passion and it was fitting that his memorial service was held in London on the same day as Cheltenham’s opening for the season. Also a poem ‘Arkle’s Battlefield’ was read at the service and, for those who don’t know, Arkle was an Irish jumper, the best steeplechaser of all time, and Cheltenham was the scene of his greatest successes.

 

None of this may mean very much to those people who are unaware of Owen Ferris’ contribution to the New Zealand meat industry (or English jumps racing!), but, without people like Owen, New Zealand lamb would not command the same level of consumer awareness it does.

 

This brief resume of his life and career put a human face to the efforts of our exporters and their representatives to sell New Zealand lamb overseas, one of our biggest exports since that first frozen shipment in 1888.

Changes at the top for both meat cooperatives and a return to profit for Ferns

The announcement by Silver Fern Farms which signalled a return to profit, albeit a small one, also heralded a changing of the guard. Keith Cooper will retire as Chief Executive at Christmas following Rob Hewett’s move into the chairman’s role earlier in the year.

 

There is a neat synergy about these developments which are mirrored by the changes at Alliance Group where Owen Poole handed over as chairman to Murray Taggart at the last AGM, while Grant Cuff has already announced his retirement as CEO. There will inevitably be speculation about whether either or both have been pushed or have gone in their own good time.

 

The word from the respective chairmen is that both Keith and Grant have gone entirely of their own accord after many years of loyal and competent service in one of the most competitive and bruising industries there is. It wouldn’t surprise me if both, especially Cooper, have decided there must be a less stressful way of spending their working life before they reach the age at which they want to put their feet up.

 

Running SFF during a period of substantial industry change involving seriously reducing sheep numbers, cut throat procurement competition and a perpetually weak balance sheet must have taken its toll. That said, Keith has always been unfailingly prepared to answer phone calls and questions while fronting a lot of the meat industry’s essential public relations issues.

 

Grant Cuff has taken a completely different approach, probably because he is by nature much more reticent than his counterpart; he was also content to take a backseat role and allow his chairman and predecessor as Chief Executive to front the industry restructuring issues. Alliance had had its worst period back in the late 80s after acquiring Waitaki’s South Island assets and under Poole’s management had never allowed itself to fall back into a similarly stressed financial position.

 

While not profitable every year, Alliance has successfully navigated its way through the last 20 years with its balance sheet intact as well as making the right investment and rationalisation decisions at most points along the route. The company remains a genuine cooperative based principally in the South Island. Cuff’s contribution as a manager and more recently as Chief Executive should not be underestimated.

 

SFF has had a much more colourful time over the same period. It entered the 90s as Primary Producers Cooperative Society (PPCS) with no assets outside the South Island, but had a reputation as a hard-nosed, tightly run business that did things its own way without showing any weakness to its competitors. Fortex which collapsed in the early 1990s learned the hardest way of all the rashness of baiting PPCS in its own back yard.

 

By the early 2000s PPCS, under CEO Stewart Barnett and chairman Robbie Burnside, fought a bitter campaign to take over Richmond based in Hawkes Bay. This takeover was eventually successful, although it weakened PPCS which became the country’s biggest, but possibly weakest, meat company. Supplier disaffection saw a steady loss of market share, while the asset base was in need of both rationalisation and reinvestment which has required substantial bank debt.

 

Keith Cooper took over from Barnett in 2006 since when he has led the company through a renaming exercise, the development of a high profile branded consumer meat business (although this is not yet necessarily profitable), sale and closure of a number of assets, establishment of FarmIQ and the conversion from cooperative to ordinary shares. This has been achieved in spite of heavy losses and a weakening balance sheet against a background of rumours about the company’s ability to survive.

 

At the present unlisted share price of just above 40 cents, members ordinary shares valued at $136.5 million in the 2013 annual report, have a market value of a little over $40 million funding assets of $833 million. This week’s announcement talks of debt being reduced by $100 million which will certainly bring down the $35 million interest bill as well as improve the debt to equity ratio, but the real need is for an urgent and significant improvement in equity.

 

According to the chairman Rob Hewett, equity options presented in the PriceWaterhouse Coopers report are still six months away from being able to be evaluated and presented to shareholders. It seems that a further move away from SFF’s previous cooperative status is inevitable.

 

The small $5-7 million unaudited pre and doubtless post tax profit is trumpeted as a $40 million improvement over the previous year’s result, but as a return on the massive asset base it is pretty minimal.

 

Cooper is getting out under better performance circumstances than would have been the case a year ago, but the jury is out on how successful his legacy will be. The new CEO Dean Williamson will need all his experience gained from running Riverlands as part of Brierley Investments meat business 20 years ago, as well as some new skills if he is to return SFF to fully profitable safety.

 

In retrospect and in spite of a much lower key tenure, Grant Cuff leaves the meat industry with a more substantial record of achievement.

Changes afoot in Japanese rice farming

I picked up quite by accident an article in today’s (20 October) The Star, a Malaysian English language newspaper, which described significant changes in Japan’s rice farming habits. Under the headline ‘Japan rice farmers rotting from inside’, the AFP article describes how many rice farmers are retiring with few interested in replacing them.

 

There is a photo of Shuichi Yokota, aged 38, checking growth conditions with a smartphone in his rice field 70 km from Tokyo. The article describes how he, at half the age of the average grower, flies on cutting edge technology to cultivate vast Padi fields which are many times larger than most of the country’s rice plots.

 

His farm in Ryugasaki is 112 ha, having expanded five fold in 15 years, simply, he says, because retiring farmers have asked him to cultivate their farms on their behalf, not wanting to sell the land, but having nobody who wants to buy it. While most rice farmers get along on centuries old methods, Yokota and his colleagues share information and data such as temperature and water levels, monitored by sensors installed in each paddy, on their smartphones.

 

People are now betting that farmers like Yokota are the best hope of fixing the inefficient Japanese farming system, cosseted by decades of protectionism. Prices for rice have tumbled by half in 50 years and there are fears the sector is rotting from the inside. It also appears Yokota and his like are relaxed about the prospect of opening the market up to foreign competition.

 

For years central government has stabilised prices by controlling supply and penalising over-production, as a means of protecting farmers, a key voter base, from the impact of world market volatility. This policy of small scale cultivation, known as  ‘gentian’, has effectively made rice farming a part-time job for the older generation while the younger family members get on with higher paid jobs in other sectors.

 

Unfortunately the age of farmers is 66 on average and many are retiring with few looking to replace them. There is now an area of 400,000 ha, almost twice the size of Tokyo, of unused farmland across Japan. Another complication is the entry of the country’s largest supermarket chain Aeon into the rice business which presumably means more competition and a drive for cheaper prices, not to mention production methods.

 

It occurs to me that, while Japan continues to obstruct the efforts of TPP signatories to eliminate agricultural tariffs, it may be faced with an inevitable drive from within to do away with historical levels of tariff protection. It may not happen this year or next, but change is afoot.

Silver Fern Farms heaves sigh of relief

This week’s announcement by Silver Fern Farms of an unaudited pre-tax profit of $5-7 million for the last financial year signals a massive improvement on the substantial losses of the two previous years. But in spite of the $100 million debt reduction, it does little more than provide some breathing space for the company to review its future capital structure options.