Silver Fern has bullets for critical farmers

By Nigel Stirling

An even flow of livestock for processing is necessary to avoid 'meat wars' and please consumers, reports Nigel Stirling

Silver Fern Farms meatworks at Dargaville. Photo / John Stone
Silver Fern Farms meatworks at Dargaville. Photo / John Stone

Silver Fern Farms chief executive Keith Cooper has some bullets of his own for farmers taking pot shots at the big meat companies.

The companies, of which Dunedin-based farmer-controlled Silver Fern is the biggest, are in the gun again after paying farmers a third less for their lamb this season.

This followed a financial bloodbath for the companies in the preceding season in which they overpaid for livestock and collectively lost $200 million. Thousands of farmers packed meetings across the country demanding an end to volatile prices and see-sawing company results.

Cooper, however, believes a big part of the answer lies with farmers themselves, and the loyalty they display when it comes to supplying livestock and investing in the capital-starved industry.

"They can vote on meetings in halls about something needs to change. Their ultimate vote is with their livestock" he says.

Faced with falling sheep numbers in recent years meat companies have engaged in "procurement wars" paying high prices to secure livestock to keep their plants running at full capacity and to fill customers' orders on time.

Predictably enough, consumers choked, ditching lamb in favour of cheaper pork and chicken, leaving cool stores stuffed with unsold meat and exporters nursing large losses, in the case of Silver Fern, $42 million in the last financial year.

The company's debt trebled to $316 million as it was forced to borrow more to finance its bulging inventories.

Silver Fern and its peers stand a better chance of making a profit this year after drought forced farmers to kill stock early and at lower prices while market returns recovered somewhat.

But Cooper says the Holy Grail for Silver Fern is a more even flow of livestock for processing which it can guarantee to customers well in advance of delivery and at prices that won't scare off consumers.

At the moment just 10 per cent of the livestock through its plants is from contracted supply agreements with farmers.

He concedes convincing farmers to second-guess the market, the exchange rate and the weather to supply stock at a certain date for a fixed price all months in advance of actual delivery has been a tall order.

"Where we are heading is an obligation to supply and it leaves the dynamic of the price to be decided subsequently."

Cooper believes more widespread use of contracts could pave the way for the consolidation of meat companies that many farmers are pinning their hopes on to deliver stability to the industry. "We would be able to look at that company and see it has a million lambs committed from its suppliers this year... we could put an offer in to buy that company based on that throughput. Today you couldn't do that. Half the lambs would go off to someone else."

Allied to Silver Fern's contracting strategy is its Farm IQ project, a $151 million joint venture with Landcorp and PGG Wrightson, 39 per cent bankrolled by the Ministry of Primary Industries through its Primary Growth Partnership funding pot.

The seven-year project aims to lift the quality of livestock supplied to the company's plants through cutting-edge breeding and farm management practises, all co-ordinated through a central database.

It doesn't look a million miles away from the pan-industry Collaboration for Sustainable Growth scheme which also aims to lift farmer performance and earlier this year tapped into the same rich vein of taxpayer dollars.

Both have copped criticism for concentrating too much on teaching farmers how to farm when the more urgent need is to lift market returns.

The behind-the-farm-gate nature of both schemes contrasts with Anzco's $87 million co-investment project with MPI which has been funded to come up with new uses for lower-value parts of the beef carcase.

Cooper bats away the criticism. He says Farmer IQ is all about farmers being able to produce animals which meet customer specifications and which they will be willing to pay more for.

"To do that we have to be able to understand the impact of genetics, what they are fed and the whole farming practice," he says.

Silver Fern's joint venture with Dunedin-based listed engineering firm Scott Technology compliments that strategy.

Its computer and robotics systems feed back information on carcase confirmation from the processing plants to its farmers via Farm IQ's database.

Leveraging the capital of others through joint ventures looks like a pretty handy strategy right at the moment for Silver Fern.

Fluctuating profitability, an expensive takeover of North Island rival Richmond in the mid 2000s, and a mediocre capital-raising from farmer shareholders in 2009 has left it short of dollars to develop its "plate to pasture" strategy.

Cooper says $12 million dollars is all the $2 billion turnover company will spend this year on its marketing strategy and Farm IQ combined.

"We are reliant on banks. Banks love cashflows. Therefore we don't reinvest enough because we don't have enough capital. It doesn't matter whether you are Talleys or whoever, we all have the same pressures."

Cooper says sheep and beef farmers should treat investment in meat companies "like another paddock on their farm".

"If you do not want to own it Mr Farmer then over time you are going to see overseas ownership come back to NZ."

Meanwhile, Cooper will work with what he has got.

- NZ Herald

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