Posts Tagged ‘Nathan Guy’

Doubtful Landcorp will ever deliver acceptable return

March 22, 2018

The latest half year result to 31 December gives rise to serious doubt whether Landcorp, or Pamu Farms as it now likes to be known, will ever justify the taxpayer investment in a national farming enterprise. Published after tax profit was $21.9 million compared to $37.9 million in 2016 on revenue which was 3% lower at $106.4 million, but the EBITDAR was actually a loss of $6.0 million against a $6.9 million profit the previous year. The main difference accounting for the apparent contrast was a livestock revaluation of $39 million. (more…)


AFFCO’s first chilled shipment unloaded in China

September 15, 2017

AFFCO chairman Sam Lewis visited China last weekend to greet the first container of AFFCO chilled meat to arrive for distribution to eager food service and retail customers throughout Henan Province in east-central China. The arrival was marked by an official reception at Zhengzhou attended by the NZ Trade Commissioner Liam Corkery, MPI representatives Dave Samuels and Steve Sutton, and a Kangyuan executive. According to Lewis the speed of customs clearance for the consignment was a record for meat shipments, taking no more than three hours for the whole process. (more…)

Upbeat conference attracts 200+ delegates

July 28, 2016

The delegates at the 2016 Red Meat Sector Conference were challenged and entertained by a stimulating range of guest speakers and New Zealand icons the Topp Twins. (more…)

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. (more…)

Changes afoot in red meat sector

November 27, 2014

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. (more…)

Election result should be good for agriculture

October 1, 2014

Beef+Lamb NZ’s Manifesto which was issued before the Election contains a very concise summary of the red meat sector’s wish list for the next three years, although it doesn’t necessarily include the big elephant in the room of meat industry restructure. But the National government’s attitude on that one is well known and unlikely to change until the industry can present an agreed solution favoured by a majority of industry participants.


I contacted Nathan Guy, at present acting Minister of Agriculture, to find out the government’s priorities for the next term and how they dovetailed with the B+LNZ and Federated Farmers manifestos. He responded in some detail, stating satisfaction with the strong support received from rural New Zealand which gave confidence the last government was very much on the right track.


Major initiatives would be RMA reform, a strong policy requirement of the Prime Minister, continuing focus on strengthening biosecurity protection, investment in science and innovation which has increased 70% since 2007/8, attracting more young people into careers in agriculture, more free trade deals, an increase in water storage and developing the potential of Maori agriculture.


This all seems pretty consistent with the two manifestos, although there will never be enough money to go round all the priorities listed. Feds’ push for $600 million additional investment in science over the next three years with specific reference to the three Centres of Research Excellence which missed out on the last funding round may be a leap too far. $1.5 billion is already committed for next year with a large proportion going towards the primary industries through universities, the Callaghan Institute, the Sustainable Farming Fund, AgResearch and Scion.


PGP funding of $708 million has been allocated across 18 different projects with matching industry investment with an assessed potential to generate returns of up to $11 billion by 2025. My impression from Guy was very much the intention to proceed with present policies which all appear to be on track to deliver the desired outcomes.


My first question to B+LNZ’s chairman James Parsons was whether he saw any change to current policy settings following National’s re-election as well as whether there were any specific areas where more action and investment were needed.


He is very committed to the success of the PGP programme, citing the Red Meat Profit Partnership as a prime example of the benefits from providing a platform from which nine partners – six processors, two banks and B+LNZ – could combine forces; there was no way this would have happened without government funding.


One of Parsons’ main concerns is to achieve the goal of the People Powered report produced in July to attract an average of 5000 people a year into the industry. However as the report shows over the next 10 years, the most important factor will not be the absolute number of entrants, but the change in the make up of the workforce. In 2012 44% of the workforce had a tertiary qualification, but this will rise to 62% by 2025.


Government response has been to raise subsidies for agricultural degrees at tertiary level or higher, as well as looking to improve information and material available to careers advisers. I suspect this will not be nearly enough on its own to achieve the required rate of increase. It remains a mystery why a career in agriculture, New Zealand’s largest export sector by a country mile, continues to be less attractive than a whole range of other less exciting and productive choices.


Other priorities for B+LNZ include environmental policy with a sensible discussion about nutrient allocation, reduced regulation where appropriate, and negotiation of improved trade access agreements with important trading partners where New Zealand is at a disadvantage. Specific examples of priority agreements on tariffs which must be pursued vigorously are Korea and Japan, particularly on beef access, where progress has been slow.

Japan’s commitment to the TPP has stalled over dairy access, while Australia has a sub optimal FTA which provides for reducing beef tariffs, while New Zealand beef tariffs into Korea will be higher than those enjoyed by Canada and Australia from 2015. Non tariff barriers on Chinese imports of beef and green runners and beef to Indonesia are also an issue in need of urgent resolution.


Parsons corrected me when I raised the necessity of introducing NAIT for sheep if we are serious about controlling disease outbreaks such as Foot and Mouth. This would impose a conservatively estimated cost of $80 million on sheep farmers to track stock in the event of an incursion of what is a wind borne disease. NAIT is more relevant to food safety than biosecurity problems. An infinitely preferable mechanism for tracking livestock would be the mandated introduction of electronic Animal Status Declarations to avoid the use of paper records, impossible to trace quickly and comprehensively.


One topic notable by its absence from the manifesto is a Government Industry Agreement with the meat industry, already signed with the kiwifruit and bee industries. B+LNZ suggests road testing a GIA document for an outbreak of FMD before the industry would be willing to make a commitment.


On balance the new government’s agricultural policies appear to correspond to the wishes of the red meat sector which is a good start, built on the solid foundation of the last three years’. At a time when global demand for beef and sheepmeat is robust, this is a good time to emphasise the sector’s importance to our economy.

Just what the doctor ordered, no way or only a matter of time?

August 20, 2014

There are three possible responses to the prospect of an overseas, probably Chinese, investor buying seriously into the New Zealand meat industry: bring it on, not on your life or it’s inevitable.


So far Chinese interests have recently bought a minority stake in Blue Sky Meats and an application to buy Prime Range Meats is with the Overseas Investment Office; ANZCO is just under 75% Japanese owned with New Zealand management and staff holding the balance. ANZCO’s ownership structure has remained like this for over 25 years bringing positive benefits to the company, its suppliers and New Zealand as a whole.


This year rumours have been rife of Chinese interests looking seriously at buying one of the remaining large meat companies. There aren’t too many likely candidates for sale, although Keith Cooper, CEO of the rumoured target, Silver Fern Farms, laughed when I asked him the question and said he had heard the rumours too. However he denied there was any truth in them.


If we apply the old adage ‘where there’s smoke, there’s fire,’ there are at least three compellingly relevant issues here: first whether the farmer shareholders would be willing to sell, second how much a buyer would be prepared to pay for the assets which are substantially funded by bank debt and third the OIO’s criteria at the time.


In light of Shanghai Pengxin’s $70 million deal to buy Lochinver Station, currently subject to OIO approval, and the political uproar it has created, it seems like a good time to assess the merits of selling all or part of a meat processor and exporter to overseas interests. The ownership structure of ANZCO clearly establishes a precedent, but my instincts suggest it could attract a different response today, especially if there is a change of government in September.


I asked Minister of Agriculture, Nathan Guy, for his comments, but his one line reply indicated unwillingness to speculate or comment on a private sale matter. However Damien O’Connor, Labour’s spokesperson, was happy to give me his thoughts on the issue. He agreed any application would almost inevitably meet the OIO’s present criteria for approving an acquisition. However he was very concerned at the potential loss of control of the whole value chain which would condemn New Zealand farmers to taking the price at the farm gate without the potential to benefit from adding value. He would support a change in the Overseas Investment Act, although it isn’t clear what form this would take.


O’Connor’s concern at losing the value chain was echoed by Rick Powdrell, Federated Farmers’ Meat and Fibre Chair, and MIE’s John McCarthy, but as McCarthy said, it will be up to farmers to determine the ownership stake in the industry they desire.


Overseas investment does not necessarily imply total ownership, as ANZCO’s shareholding shows. But the debate about foreign ownership is in danger of becoming polarised; broader, more relevant questions would be about sources of capital, whether local or overseas, the degree of ownership and the structure of any partnership. More important than any of these is the alignment of an investor’s values and objectives with those of the company.


The sale of productive agricultural land seems to be an especially emotive issue. The concern about overseas, specifically Chinese, ownership of farmland is driven by fear of one country becoming too dominant. The fast rise of China to be the biggest buyer of sheepmeat by volume and whole milk powder makes us nervous. However it’s worth remembering the hundreds of thousands of hectares of forest that were sold earlier this century in the central North Island without much objection.


Although overseas ownership of our meat industry is not a new development (remember the Vesteys), it is appropriate to reassess how we should react to the prospect of one of our meat companies being the subject of a takeover offer from a Chinese investor, most particularly what sort of criteria we would expect the OIO to impose on a prospective buyer to retain some control of the value chain.


In the event the target actually happens to be Silver Fern Farms, its status as a modified farmer owned cooperative and the amount of bank debt on its balance sheet are two relevant factors. If any investor tried to buy 100% of the company, it would be a complicated exercise, but more significantly it would risk alienating a large number of suppliers. They might take the money and run, no doubt many of them to the south.


Therefore a wise investor, Chinese or otherwise, would attempt to find an investment structure which preserves the loyalty of the existing shareholder suppliers and delivers value to all parties. An investment also needs to offer a return which has not always been easy to achieve in New Zealand’s meat industry.


One thing is certain. The election has already provided a platform for some political parties to play the foreign ownership card as a means of attracting votes. If there is a change, the motley collection of parties forming the next government will have the challenge of agreeing their position on foreign investment. To see how they honour their various election promises while maintaining New Zealand’s international trade commitments will be interesting to say the least.

Red Meat Sector in good heart at Conference

August 6, 2014

It’s wonderful what a bit of buoyancy in the market for beef and sheepmeat will do for morale, especially when it coincides with a solid drop in the predicted dairy payout. It isn’t just about absolute price returns, but also a reduction in the gap which has opened up this year between red meat and dairy prices. (more…)

Wishing won’t make it happen

May 24, 2014

Southland Regional Council chair, Ali Timms, hopes the government will take on board her warning about the effect of the red meat sector’s continued decline on water quality and increased nitrogen levels. (more…)

Guy prepared to help, but unwilling to interfere

March 26, 2014

Nathan Guy gave a very positive speech to Beef + Lamb NZ’s AGM on Saturday which covered three major points: what the government is doing for farmers, his vision for the red meat sector and thoughts on the discussions about industry structure.


Obviously, given MPI’s bullish view of agricultural exports, the Minister was extremely positive about economic performance. However he was at pains to point out the government’s role as an enabler, citing his focus on biosecurity resources, trade negotiations for market access, and investment in research.


He began by referring to his intention to strengthen resources at the border and to establish Government Industry Agreements (GIA) with various sectors which will ultimately involve the private sector in sharing the costs of biosecurity; different sectors are at various stages of negotiation on this issue.


Presumably the problem lies in negotiating just how much responsibility an individual sector is willing to accept when the border is the entry point for disease incursions. If the government agency fails to control this adequately, the result could be catastrophic. Foot and Mouth is an obvious example.


The PGPs are a major investment focus for this government with up to $700 million being invested in 17 new projects, while $400 million will be directed at irrigation infrastructure for water storage. Guy also drew attention to MPI’s work to improve the productivity of Maori land of which only 20% is in full production; this could lift exports by $8 billion.


He then moved to a positive assessment of the red meat sector, gilding the lily somewhat by claiming the same amount of sheepmeat now came from less than half the flock size. My own rough calculations indicate the flock has reduced from 72 million to 31 million (132%) in 30 years while the average lamb weight has increased by no more than 45%. To be fair I haven’t compared export volumes from 30 years ago.


He also gave the example of China as an emerging, fast growing market for New Zealand red meat which has dramatically altered the landscape over the last two years.


The Minister acknowledged that all isn’t rosy in the red meat sector, but change would be achieved through innovation, collaboration and new market opportunities, not by doing more of the same. He cited innovative PGP projects into which government and industry have committed $326 million which is expected to generate $2 billion benefits from a wide range of activities, including farm management systems and new products.


It’s not entirely clear how these benefits are calculated or defined, but presumably MPI as PGP gatekeeper and monitor can provide the basis of calculation.


Guy was adamant about the potential for the meat industry to be successful, as opposed to the view we often hear from MIE and others that the industry is doomed. However he also made it very clear it is not government’s role to take a heavy hand and legislate an industry restructure. Instead it is up to the various parties to agree on a solution which represents the views of a substantial proportion of the meat industry across the whole sector.


In conclusion he cast doubt on the value of the summit proposed by MIE unless the participants were prepared to engage and collaborate. The last thing anybody would want is another talkfest.


Therefore to summarise the Minister’s address to the AGM, agriculture is doing exceptionally well, the red meat sector has its challenges, but is performing well, future potential is good, and the government will be supportive, if a majority of the sector can agree on the change it wants. So in the short term nothing much will change and the participants will continue to operate from their own entrenched positions.

Let’s hope export prices can withstand the strength of our dollar and continue to provide sheep and beef farmers in the meantime with rewards which will avoid the transitional exit to dairy support or a terminal exodus to dairy conversions until the PGP projects come to fruition.