Fairton closure inevitable

Wednesday’s announcement by Silver Fern Farms of the proposal to close the company’s Fairton plant was in many ways inevitable. Even the workforce appears to have been resigned to the probability for several years. Sad as it is for workers and the Ashburton community, it is better to front up to the certainty than to have to wait for the axe to fall.

 

The upgrading of Pareora an hour to the south as a modern multi-species meat works, combined with the loss of sheep in the catchment area had effectively sealed Fairton’s fate. The agonised shrieks from politicians of all the opposition parties railing against last year’s approval of the Shanghai Maling investment in SFF were equally inevitable, but completely missed the mark – I am certain the company’s board would have made exactly the same decision without the new shareholding structure, provided the undercapitalised business could have afforded the costs of closure.

 

If Shanghai Maling had any influence on the decision, other than that of a shareholder concerned to earn an adequate return on its investment, it would be the improved state of the balance sheet as a result of its investment which make it possible to bear the closure costs.

 

For thirty years from the mid-1980s the meat industry suffered from insufficient capital to make logical investment and restructuring decisions, because falling livestock numbers made older plants progressively less competitive. At the same time the change in customer requirements meant increased demand for sophisticated products with all the accompanying costs of new processing and packaging technology, hygiene, health and safety, and meat inspection obligations.

 

The whingeing about Chinese investment destroying New Zealand jobs from Winston Peters and Greens’ spokesperson Eugenie Sage demonstrates a total lack of awareness of the revolution that has occurred in the meat industry over the last decade. For the first time in my experience of the industry, virtually all the companies are now profitable and well capitalised with modern or completely upgraded facilities and good distribution channels to market. Surely this is an infinitely preferable situation to what previously characterised the industry when undercapitalised companies struggled to keep staff in work and plants open.

 

While the closure of Fairton, assuming the two week consultation period doesn’t result in a decision reversal, won’t be the last rationalisation event in a dynamic industry, there are no more obviously imminent prospects. SFF is the last of the big four to address its outstanding capacity issues in the South Island, which are not only a consequence of land use change but also loss of market share. Although the decision to buy Richmond brought a large beef business and North Island presence, it spread financial and human resources across too broad a base. I believe SFF spent 10 years trying vainly to recover from the Richmond acquisition, losing huge lamb market share in both islands while constantly having to keep its bankers at bay.

 

The recapitalisation opportunity offered by Shanghai Maling’s wish to acquire a significant stake in the New Zealand meat industry has completely changed the landscape for SFF and the industry as a whole. Finally SFF can get on with making good business decisions for the benefit of its shareholder suppliers who will receive an appropriate reward for what they produce. It would be good if the politicians could see the positives as well, but I won’t hold my breath.

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One Response to “Fairton closure inevitable”

  1. Rural round-up | Homepaddock Says:

    […] Fairton closure inevitable – Allan Barber: […]

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