The meat company Alliance Group is asking its farmers for more money to reduce its need to borrow for working capital.
It is also signalling a return to profitability after last year’s loss.
Alliance is a fully owned farmer co-operative, but has suffered from weaker world trade.
“New Zealand’s red meat sector has been impacted by weaker global market prices,” says its chairman, Mark Wynne.
“Farmers, processing companies and the agribusiness industry in general are facing significant financial pressure. Alliance Group is no exception.”
Last year, Alliance made a loss of $97.9 million before tax due to geopolitical tensions, labour shortages, inflation and weakening global markets. But Wynne is signalling a “modest profit” for this financial year, which ends in September.
“This is in line with our financial performance over the last decade where Alliance has been profitable for nine of the last 10 years.”
Wynne says getting back to profitability has pushed the need for working capital to rise faster than shareholder equity.
“We acknowledge that times are extremely tough on-farm, and this is not an ideal time to implement such changes. We have explored all other viable opportunities to reduce working capital before seeking capital from farmers."
“However, in order to remain a 100% farmer-owned co-operative and continue to drive towards being New Zealand’s most efficient processor, an increase in shareholder equity is required,” says Wynne.
The money will be raised by returning $3 less to farmers per head of livestock processed. Farmers will also have to increase the number of shares required to be held in the company per head of stock from 12 to 16.
As an offset, the board is improving the loyalty programme it offers to farmers who send all their sheep to an Alliance works for processing.
“With shareholder investment, we can reduce our reliance on lenders to fund our working capital debt, expand our product offerings and explore new opportunities to support the transformation of the co-operative to deliver more value to our farmers,” Wynne says.
The financial pressure on the Alliance Group is shared by its big rival Silver Fern Farms, which reported a loss this month of $24.4 million after tax.
Earlier this year, the Meat Industry Association warned of hard times generally.
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