Posts Tagged ‘OIO’

Blue Sky left searching for positives after Binxi offer lapses

April 13, 2017

Invercargill based meat processor Blue Sky Meats is trying to put a positive spin on its prospects after being advised by Chinese cattle and meat company subsidiary NZ Binxi Oamaru that its takeover offer would not proceed. The main reason for the decision was failure to receive OIO approval by the 20th March deadline, but Binxi also cited a material adverse change in this season’s performance. As a result Blue Sky has advised shareholders they will continue to own their shares, 96% having already accepted the offer. (more…)

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It isn’t all the meat companies’ fault

October 26, 2016

I’m not a frustrated farmer who has to worry about the prospects for the new season or put up with receiving less money than expected for my stock, but for the sake of sanity and balance I believe it to be necessary to examine the factors affecting market returns. After a very relaxing holiday blessed by good food, wine and weather, I returned to find the north had been hit by almost incessant rain, meaning a late spring, and the meat industry beset by rumours of procurement wars combined with dire livestock predictions. (more…)

Silver Fern Farms shareholders vote conclusively in favour

August 17, 2016

The long awaited special meeting finally took place this afternoon with the company’s desired outcome. 80.4% of shareholders voting voted in favour of the Shanghai Maling deal, a small reduction from the 82% that voted in favour last October. (more…)

Profit warning makes Silver Fern Farms’ deal more critical

July 24, 2016

Last week’s profit warning from SFF chairman Rob Hewitt confirmed what industry observers suspected – this season has been affected by a combination of factors which has made achievement of the budgeted profit more remote than ever. At the half year Hewett had already warned the year end result would be materially different from budget without specifying numbers. The latest warning indicates break even at best. (more…)

Silver Fern Farms announces contract extension and new special meeting date

July 2, 2016

Silver Fern Farms have issued two new media releases announcing a revised completion date for the contract with Shanghai Maling and a new date for the shareholder requisitioned meeting. (more…)

Quota allocations suggest change in balance of industry power

February 3, 2016

The release of the 2016 quota allocation which Alan Williams analysed in detail (Farmers Weekly 11th January) show some considerable shifts in tonnage entitlements between the major meat exporters. The quota is allocated as a percentage of the total allowable quota for shipment to the EU for sheepmeat and USA for beef during a calendar year; in the last two years New Zealand has only filled around 75% of the EU quota and 90% and 98% of the USA beef quota. (more…)

Silver Fern receives an offer it can’t refuse

September 30, 2015

No wonder the deal between Silver Fern farms and Shanghai Mailing took so long to conclude, but from all appearances it was worth waiting for. Not that you would necessarily think so, if you read about the disappointment of some shareholders and the MIE group about the board’s unwillingness to give serious consideration to an alternative farmer offer of $40 million or some of the business commentary. (more…)

Moratorium would solve meat industry’s capacity problem

December 6, 2014

Word has got out suggesting some processors are in favour of a moratorium on new capacity as the only means of sorting out the meat industry’s excess capacity problem. It also appears MIE is initially supportive of the proposal, although it would need to be sure it was in farmers’ best interests before endorsing it completely.

 

My understanding is the moratorium would specifically prevent any new plants or chains operating on beef and sheepmeat around the country. This is where the plan is different from the previously floated concept of tradable slaughter rights (TSR) which proposed to set maximum permitted slaughter volumes for each processor. TSRs were supposed to enable whole plants or even companies to be closed with the costs of closure being financed by the sum paid to the owner.

 

But using slaughter volumes based on a historical average as the determining factor presents two large problems. First there was disagreement between processors on how to calculate individual company slaughter rights and second the scheme would have reduced farm gate competition at farmers’ expense.

 

The proposed moratorium would have several benefits: it would facilitate meat industry reform by providing a starting point for rationalisation, it would protect existing ownership rights, involving a willing buyer and willing seller, and it would preserve farm gate competition. A further benefit of this solution would be to encourage innovation because it quite deliberately puts no restriction on the number of shifts, chain speed or productivity gains on each chain. It would issue a licence for every beef and mutton chain with no new plants or chains permitted during the life of the scheme.

 

So a casual observer might ask what a moratorium would actually achieve, but on closer analysis there is an element of subtlety about such a scheme which would not necessarily produce immediate results. However over time the outcome would be beneficial for the overall efficiency of the industry without the pain of a more radical approach. It is important to recognise the reality that any restructure has a human cost, as chain closures inevitably imply job losses.

 

The government would have to introduce regulation to allow the moratorium to occur in the first place. This gets back to the government’s stated position which is ‘bring us a solution which is supported by the majority of the sector and we will be prepared to intervene.’ The key question therefore is whether or not the moratorium proposal would gain support from the majority, both farmers and processors.

 

If MIE gets behind the concept which I understand it is seriously considering, this would mobilise the farmer side of the equation. It would also be helpful if Beef + Lamb NZ and Federated Farmers also supported it. That leaves the processors who have traditionally found it hard to agree about anything. Therefore it is highly likely the scheme could fail to gain a sufficient level of processor support.

 

This is where MIE’s role will be extremely important, assuming it does a thorough analysis of the concept and decides to throw its full weight behind it. It may then be able to exert influence on the cooperatives through those board members who are sympathetic to MIE’s goals which may be a tipping point in helping to get this scheme adopted.

 

Therefore the most important part of this exercise is to ensure a thorough and robust assessment of the potential benefits and negatives of the introduction of a moratorium. This I suspect is what the government would insist on seeing, before it would take the risk of regulating the meat industry.

 

The proponents of this capacity moratorium appear to have thought through the potential fishhooks associated with the scheme. Chain licenses are site specific and cannot be transferred between sites because it is essential to prevent a new plant or chain opening up where a chain has been closed. It is critical to prevent freeloaders taking advantage of another company’s investment in rationalising capacity. The Commerce Commission would have oversight of the licensing scheme through an annual review similar to the Fonterra milk price regime. Existing foreign ownership of meat companies would be protected, but new investment would be subject to OIO restrictions.

 

I understand the suggestion is the moratorium should last for 12 years, unless an agreed trigger point of capacity reduction were reached sooner than that. This will be a point of contention, but clearly there must be a period of certainty to encourage investment.

 

The experience of the 1990s with Trial Run Holdings is relevant here. This involved the industry contributing jointly to the closure of Weddel’s plants, ensuring the equipment was sold overseas to prevent it being used again in New Zealand,. Rationalisation could equally be achieved by a group of companies funding the closure and disposal of identified excess capacity.

 

But after the Weddel’s closure there was no mechanism in place to prevent the entry of new capacity, either plants or chains. The net result was barely two years of relative peace with enough livestock for all companies, after which the industry descended once again into a state of procurement competition caused by new capacity coming on stream.

 

This is the best plan I have seen for addressing the excess capacity issue, because there is no compulsion and no automatic lessening of competition which could attract the attention of the Commerce Commission. I am hopeful, if not optimistic, this will be the solution MIE will support and could herald a new era for the meat industry.

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…)

Crafar farms saga appears to be over at last

April 24, 2012

The sale of 16 assorted, somewhat rundown dairy farms to the Chinese buyer, Shanghai Pengxin, looks as though it can finally go ahead, although there is still talk of an appeal by the group headed by Sir Michael Fay. (more…)