Giants of meat industry in deal

Two of the meat industry's heavyweights have proposed a $220 million deal that is likely to shake up the ailing sheepmeat industry.

Yesterday, New Zealand's largest rural services firm, PGG Wrightson (PGGW), announced a proposal to buy a 50 per cent stake in the Dunedin-based meat processor, Silver Fern Farms (SFF), for $220m.

However, the farmer owners of SFF, formerly PPCS, will need to be convinced it will be in their long-term interest to let the Christchurch-based corporate take part-control of their processing co-operative.

PGGW wants this first step in a long-anticipated red-meat processing industry consolidation to be completed by early October, to help drive up returns to farmers.

Whether other New Zealand meat processors join the plan remains to be seen.

PGGW and SFF are two of the farming sector's heavyweights. PGGW has more than $1 billion worth of sales a year, while SFF has nearly $2b.

Despite a worldwide boom in food prices _ reflected on supermarket shelves in New Zealand and overseas _ farmers are seeing relatively low prices for quality meat cuts and are poor cousins to their dairy equivalents.

The 9000 farmers who supply and own SFF will attend shareholder meetings ahead of a September vote, with 75% approval needed.

PGGW chairman Craig Norgate, a former chief executive of dairy giant Fonterra, is a driver behind the buy-in.

Recently, he said sheep and beef farmers were facing their biggest crisis in 50 years, with uncertain sustainability of an industry that had traditionally exported to North America and Europe.

Northern hemisphere supermarkets have been able to exploit the rivalry between the several New Zealand meat processors to keep prices low.

"(But) there is clear growth in the global protein market, so we need to build a structure to ensure that there is a stimulus to investment in the meat industry on a par at least with dairy," Norgate said.

The partners want to target the growing international ranks of consumers demanding high-quality and consistent meat products from traceable and sustainable sources.

SFF already exports to more than 60 countries but wants to reduce its dependence on traditional British, European and North American markets.

SFF chairman Eoin Garden said sheep farmers in their third season of low returns needed to match their dairy cousins in providing a steady supply to export markets.

There was a mood for change from farmers, particularly given low payouts, and forecasts that already low animal numbers were to keep falling.

The new board of SFF would decide on the use of the $220m, but a sizeable chunk would go on upgrading processing plants, including the use of robotic meat-cutting systems developed between SFF and Dunedin's Scott Technology.

Money would also go on researching customers and stronger branding of New Zealand meat.

It would not be used to reduce debt.

There will be no reprieve from the restructuring of SFF's meat plants. Two plants have already been earmarked for closure.

SFF chief executive Keith Cooper said Project Rightsize was about half complete and would not change.

Owen Poole, chairman of the rival Invercargill-based farmer co-operative Alliance, had suggested merging the biggest meat companies to control 80% of the nation's lamb and beef produce, but talks between Alliance and SFF failed.

Yesterday, Poole said the new partnership with PGG Wrightson "explained in some respect Silver Fern Farms' attitude" towards the 80% mega-merger concept.

Alliance planned to hold its own farmer meetings in August to see what stance they wanted to take regarding such consolidation.

Federated Farmers meat and fibre section chairman Bruce Wills said the proposal might be the catalyst the industry needed at a time when farmers had been demanding change.

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CJMcKenzie   #1   05:26 pm Jan 28 2009

4 (united) seats on the new board, vs three (disparate) farmer- elected seats + one other leads, in my view, to untrammelled control by PGGW.. they are welcome to it! No-one ever made a fortune from NZ meat!

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