Allan Barber lists the issues farmer-controlled boards failed to overcome with their meat processing 'investments'. It's a tough business and conflicting interests were never far from top of the list

The ownership of New Zealand meat companies has changed dramatically over the last quarter century. The previous 25 years also experienced substantial change, but that period was characterised more by a series of company collapses due to the massive change in farming, trade patterns and government subsidies.  

Over half a century the shape of the agricultural sector has become unrecognisable. The first and at the time catastrophic event was Britain’s decision to join the European Common Market which meant we could no longer operate as the colonial farm for British consumers. This led to unsustainable support to encourage farmers to keep on raising a product with no guaranteed market.

The consequences of this were variously the Meat Board’s failed attempt to manage the market through compulsory acquisition, the closure of freezing works like Whakatu and Tomoana with thousands of jobs lost, the decision to split Waitaki International’s assets and liabilities between AFFCO and Alliance, and the closure of Fortex and Weddel.

Most of these decisions were driven by the banks whose exposure to the meat industry far exceeded the value of the assets they were euphemistically secured against. At the same time free market forces, introduced by the Lange/Douglas Labour government, saw the rise of efficient processors like Lowe Walker and Greenlea focusing on the fast-growing dairy herd.

Hot boning was much more efficient than cold for processing manufacturing beef which was fast overtaking lamb and prime beef as the industry’s most profitable product.

During this traumatic restructuring period the companies that suffered were both cooperatives and either locally or overseas owned corporates. Watties, Fletcher Challenge, Fortex and overseas meat companies, Vestey Group and Borthwicks, were all heavily involved in the sector before getting out or going into receivership.

Cooperatives AFFCO and Alliance went through difficult times absorbing Waitaki’s plants while struggling to make enough profits to reinvest in upgrading their assets.  AFFCO’s cooperative shares were worth virtually nothing by 1993 and the bank syndicate agreed to continue funding the business provided the company raised $50 million through a public listing. The collapse of Weddel the year before made this a logical choice.

AFFCO was publicly listed for 15 years until the family-owned Talley’s Group reached the threshold for compulsory acquisition and finally bought 100% of the company.

Alliance succeeded in retaining its cooperative status with the support of its bankers because the shareholders, predominantly sheep farmers, were still keen to invest in their cooperative. Alliance continued to make small profits for the next 25 years, but never enough to offset the occasional loss- making year before the disastrous losses in 2023 and 2024.

The age of the facilities and declining livestock volumes demanded serious plant upgrades and closures that the anaemic profit performance could not cover. This finally made it impossible for Alliance to survive without an injection of outside capital which was provided last year by Irish family-owned company Dawn Meats.

Fellow South Island cooperative PPCS remained reasonably unaffected until launching a hostile takeover of Hawkes Bay’s Richmond Meats. Although this provided a North Island platform for expanding into a national business, it stretched the balance sheet and increased the amount of debt required to upgrade the enlarged plant network. This resulted finally in the sale of half the business and loss of board control to Shanghai Maling, now Bright Foods.

Japanese-owned ANZCO’s purchase of Greenlea is just the latest episode in the rationalisation saga of the New Zealand meat processing industry, but it may well be the last for some time. The cooperatives no longer control the companies they used to own: AFFCO’s farmer shareholders owned 5% of the company by the time of the public listing in 1995, Silver Fern Farms Cooperative now owns 50 % of the business, and Alliance Cooperative owns 33%.

So the question is why they failed so badly when the cooperative model has survived in dairy and retail.

The obvious answer is a combination of vicious competition for livestock, declining throughput, the emergence of newer, more nimble competitors, and the failure to rationalise and upgrade ageing plants.

But another explanation lies behind this answer which a correspondent, previously a director of a meat company, tells me I have failed to recognise: the issue of inadequate board expertise. In his words “Too often Co-ops end up with directors who are good at popularity contests but are short on experience in tough dynamic businesses. They often lack meat industry knowledge as well as enough engineering knowledge to be able to hold the engineers to account.”

He also maintains this lack of expertise enables management to control the board without any skin in the game, except for that of self-preservation, in contrast to hard grafting owner operators. I would also make the point cooperative directors’ main commitment and expertise is to run their own farming business successfully.

Lastly it is important to see the massive changes the meat industry has gone through during this period. Livestock numbers, labour laws, union influence, processing technology, product presentation, hygiene requirements and health and safety laws are all unrecognisable compared with 25 let alone 50 years ago.

Cooperative board members took on an impossible task for which they were generally ill-equipped. Maybe it’s a miracle meat cooperatives lasted as long as they did.