Another locally-owned livestock processor is sold to overseas ownership, and from a position of strength, as the meat industry consolidates further in 'good times'

Just when I thought we had reached the time of year when on-farm and processing activity takes a bit of a breather before the new season’s calves and lambs start to arrive, news has come through about an agreement for Japanese owned ANZCO Foods to buy the privately owned Hamilton based Greenlea Group for $800 million.

The acquisition will be subject to Commerce Commission and Overseas Investment Office approval. Assuming the deal is completed ANZCO will acquire 100% of Greenlea’s shares but will leave it to operate as a standalone entity while investigating future opportunities for the growth of the combined business. This will provide certainty and continuity for Greenlea’s staff, suppliers and customers.

This transaction will provide further rationalisation of ownership of the meat processing and exporting sector, although the two companies have relatively little overlap. Greenlea is solely a cattle processor with plants in the Waikato, whereas ANZCO’s beef plants are in the Lower North and South Islands.

The deal significantly strengthens ANZCO’s cattle footprint and complements its sizeable ovine business. At a time of declining livestock numbers this appears to be very smart strategically, although the purchase price seems eye wateringly high, as much as twice as much as some industry players expected. The likelihood is Itoham has paid a substantial premium to buy the last available high volume beef processor in New Zealand.

The plain fact is virtually all beef processing will now be locked up in stable ownership, predominantly overseas owned or controlled. AFFCO, Wilson Hellaby, Taylor Preston and Universal Beef Packers are the only remaining New Zealand owned companies, and none is believed to be for sale.

ANZCO’s owner Itoham Konyeku Holdings is a very large and highly profitable integrated food business with the stated ambition of accelerating growth in overseas operations with a focus on animal protein. Itoham aims to expand its global supply chain centred on the meat business, of which ANZCO is an important component.  

It remains to be seen how ANZCO eventually decides to bring Greenlea under more direct operational control to pursue greater efficiencies. Greenlea is more profitable on lower turnover than its new owner which suggests longer term separation may be more beneficial than any attempt at rationalisation.

Quite possibly ANZCO is surprised by the extent of Greenlea’s profitability, hence the high price Itoham is prepared to pay. Although ANZCO’s profits have improved in recent years it is certain Greenlea has made substantially more, reflecting the highly profitable performance of the privately owned companies.

The cooperatives particularly have suffered from the need to reward their suppliers in direct contrast to private companies that reinvest profits in improving business efficiencies. The cooperative model just doesn’t work in the meat industry which is why Silver Fern Farms had to sell half the company and overall control to Bright Foods and Alliance was forced to sell 65% to Irish meat company Dawn Meats.

The meat companies that perform well are those that keep a tight control of overheads, notably staff numbers, reinvest in their operations instead of paying dividends, and keep things simple. Years of studying the industry have convinced me expensive brand building campaigns and large marketing departments do not pay for themselves. I will have to eat my words if SFF and Alliance start producing annual profits above $100 million. Following the acquisition ANZCO must also be targeting a profit well in excess of this.

The current season will prove to be the best for a long time for sheep and beef farmers and possibly for meat processors and exporters as well. Global industry dynamics suggest next season will be quite a bit harder which places pressure on all industry participants to control expenditure.

Consumers in overseas markets are already balking at the high prices for beef and sheep meat which means there may have to be a readjustment of price expectations in the next few months. The American beef market which has seemingly been willing to keep on paying more has slowed perceptibly, while competition from Brazil and Australia is affecting New Zealand sales. Australia’s position is complicated by hitting its annual quota into China before the end of June, so it must find alternative destinations for its product or pay a tariff of 55%.

The success of Fieldays this year, having enjoyed great weather and a near record attendance underlines the success of New Zealand agriculture over the last 12 months. It is ironical to compare the huge advances in technology that continue to occur in our agricultural sector, resulting in ever greater on farm productivity, with the apparent lack of productivity in the economy in general.

We are constantly told we invest too little in R&D which is why productivity is so low and yet the agricultural sector consistently produces more from less every year. Sheep, beef and milk production all increase consistently despite declining or static flock and herd size because of greater productivity.

This past year has seen Dawn Meats invest $270 million in Alliance and Itoham prepared to spend $800 million for Greenlea which suggests international companies see greater value in New Zealand assets than local investors can see. We should be grateful for New Zealand owners, like Talleys and Wilson Hellaby, who are prepared to put their money into preserving at least a proportion of home-grown assets.