Silver Fern boss urges meat companies to pull together

Rob Hewett, chairman of Silver Fern Farms.

Rationalisation of the New Zealand meat industry could take place through collaboration in processing and freight, rather than through mergers and acquisitions, says Silver Fern Farms chairman Rob Hewett.

This month, Meat Industry Excellence, a group formed to effect change in the industry, came out in favour of a single co-operative business model similar to Fonterra's to deal with decades-old issues of overcapacity and too much competition for dwindling supplies of stock.

Silver Fern, the country's biggest meat firm, has long acknowledged there is overcapacity in sheepmeat processing, but the industry's strategy of waiting for one of its number to fail had to change, Hewett said.

"The form that change takes has to be one of mutual development and benefit and working together or it can wait until somebody falls over - which has been the strategy to date.

"People have been talking about Silver Fern Farms falling over. We are not going to fall over. We have got a strategy and have got a plan and we are working towards it," he said.

"What's more we are in the middle of an equity raising process which will recapitalise our balance sheet even more than the work that we have been doing, which will allow us to reinvest in our value creation strategy which is where the real game should be."

Silver Fern is looking at its options to raise up to $100 million in new capital to repay debt, upgrade plant, and to accelerate its "value added" product strategy. The company expects to decide by the end of May as to how it goes about that.

Hewett said Silver Fern was broadly "in alignment" with MIE, but differed on detail. However, he said suggesting the sector adopt a Fonterra model was too simplistic.

In Fonterra's case, there existed a culture of common ownership, as co-operatives amalgamated over decades to form one entity.

In contrast, the meat sector comprised the full range of ownership models, from pure co-operatives to hybrid co-operatives such as Silver Fern, through to privately owned companies, joint ventures and foreign-owned companies.

"Getting these different ownership models to the starting point is significantly more challenging than Fonterra ever had, and that's part of the reason why we are in the situation we are in at the moment," Hewett said.

"Having said that, there are still opportunities for us to work together. There is plenty of opportunity for solid commercial outcomes to be gained through collaboration without any form of merger, around things like examining toll processing opportunities, around things like freighting opportunities," he said.

"The interests of the company are bound up with the interests of the industry and it's been quite frustrating to put your hand out there and say that you are willing to work with anybody on a sensible basis, only to have it stymied, when we all know that the industry is dysfunctional."

While it was the co-ops that have the sheepmeat capacity that has been talked about as being surplus to requirements, those single chain plants leveraged that capacity in times of drought, Hewett said.

"The suppliers to those single chain plants also have to supply others to get their processing done at peak drought periods and that falls to us.

"To say that the cost of closure and rationalisation should fall to the co-operatives is a nonsense in my view because it's an industry issue," he said.

Companies often used the rationalisation they were acting in the best interest of their shareholders as an excuse to do nothing.

"Acting in the best interest of the company is valid, but it might not be sufficient," he said. "We have just got to look bigger than that."