KEY POINTS:
Meat industry players remain guarded over whether farmers will support PGG Wrightson and Silver Fern Farms' partnership proposal - but its success could finally lead to a consolidation and strengthening of the ailing sector.
The proposal, announced yesterday, would see PGG take up a 50 per cent stake
in the Dunedin-based cooperative of 9000 farmer suppliers.
But the scheme still needs 75 per cent shareholder approval - something that remains far from a certainty.
One industry insider, however, believes the proposal stands a good chance of succeeding, with farmer sentiment - particularly in the South Island - tilting towards a change.
He said its success could see PGG chairman Craig Norgate capitalise on farmer disaffection in the other industry cooperative, Alliance Group, for another merger.
"We all agree that there needs to be more collaboration. And a step towards a merger of the co-operatives probably isn't a bad thing."
Alliance chairman Owen Poole said the proposal could possibly lead to industry "aggregation", but appears to compromise farmer ownership and control if successful.
"It's a question for farmers.
"Farmers will have to reconcile their desire to own or control the industry against the potential for aggregation, but with hybrid or corporate ownership."
Affco chief executive Stuart Weston echoed the sentiment.
"It's really up to the Silver Fern shareholders to determine whether they believe this has substance and merit.
He expressed frustration that past moves for a more collaborative industry approach had faltered.
A Meat & Wool New Zealand-headed taskforce was shut down last week, while Alliance turned down an opportunity to merge with Silver Fern Farms last year. A meat industry mega-merger proposed in February by Alliance fell over in April because of an inability to reach agreement with Silver Fern.
Meat & Wool chairman Mike Petersen said the success of this latest proposal lay with Silver Fern shareholders.
"This in itself won't consolidate the industry - it will depend upon the participation of other parties.
"The real strength of this is there's a lot of strategic ability within PGG Wrightson, and Craig Norgate's vision about the future of agriculture and its place in the world is really positive. The big question in my mind, and this is a decision that can only be made by the Silver Fern Farms shareholders, is whether they want to dilute their ownership in the company, and have a corporate owning a portion of it."
Bruce Wills, chairman of Federated Farmers' meat & fibre section, said: "This may be the catalyst the industry needs to move forward. For some time now meat and fibre farmers have been demanding change."
PGG will provide access to advisory and other services inside the farm gate, and procurement for prime and store stock, while Silver Fern provides its processing capacity, technology and logistics, marketing and branding expertise.
PGG Wrightson shares closed at $2.50, down 10c. Hamilton Hindin Greene broker James Smalley said there may have been some concerns over funding, but the movement was on light volume in a down market.
THE DEAL
* Rural services company PGG Wrightson has agreed to buy 50 per cent of the country's biggest meat processor Silver Fern Farms for $220 million.
* Prospective short-term gains of more than $60 million a year, long term gains of up to $110 million, plus further benefit from an integrated supply chain stretching from the paddock to the plate.
WHAT NEXT
* The deal needs 75 per cent approval from shareholders in co-operative Silver Fern Farms at a vote expected in September.
* New company would be in place by October 1 with a structure aimed at retaining the benefits of a co-operative.
* PGG Wrightson and the co-operative owners of Silver Fern Farms will have an equal stake and four directors each on the board.
AFTER THAT
* Integrated company is being promoted as a platform for more rationalisation and integration within the industry.
* Goal is to reposition New Zealand meat as the ethical protein source, targeting demand for produce of consistent, high quality from sustainable sources.
