Where to now for the Meat industry??

Red meat industry reform continues to be elusive, what with Silver Fern Farms and Alliance still not talking and PGG Wrightson licking its wounds reports Rural News. Mergers are justified based on perceived synergies available to the amalgamated business but the reality is that they are usually driven by the desire to create short-term value for stakeholders and the creation of personal wealth for key players involved. The misnomer of supplier-owned cooperatives is that the underlying share value is immaterial. A farmer wishing to sell his shares in either SFF or Alliance will receive their original subscription value, well below any true net asset value (it remains to be seen what SFF proposes to its shareholders next month in terms of a different share structure). Therefore value is in the supply contracts and the farmgate prices paid for stock through the rebate systems. The real driver for merging cooperatives is not share value but the synergies, improved market power and cost savings that could in turn improve supplier returns. While management at SFF and Alliance may have disagreed on relative business values in 2007-08, supplier shareholders should have been less concerned with share value. For it is only through efficient processing, procurement and well managed branded sales that farmers will ever see any sustained improvement in prices. The key players might actually agree on what needs to be achieved but their reluctance to forget past rivalries and look to the future holds them back. It is all too easy for purchasers (often supermarkets or wholesalers) to play one off against the other and drive down prices. NZ has an excellent international brand in itself. Some of our companies have managed to exploit this, placing themselves at the premium end of the price range. The meat industry has so far failed to capitalise on "˜brand NZ', resulting in lower returns for all stakeholders involved. Both cooperatives will fail their supplier shareholders unless they recognise where their synergies lie and where they can collectively improve their returns.