Agribusiness Report: Silver Fern plants find new production horsepower

Silver Fern Farms meat processing observing Covid-19 distancing April 2020

Silver Fern Farms reconfigured its plants and kept production at 90 per cent during the Covid-19 restrictions.

Productivity gains secured during the Covid-19 restrictions will stand New Zealand's biggest meat processor Silver Fern Farms in good stead for the remainder of the year and into the future.

Silver Fern worked public holidays, at night and staggered shifts during level 4 and 3 to maintain near-to-full production and reduce the backlog of livestock created by the drought.

"A lot of new best practice emerged out of Covid," said Silver Fern chief executive, Simon Limmer.

"We built a strong rapport with staff, our relationship with the unions is enhanced, and operationally, we are really pleased with the outcome. It has generated food for thought about how things are done going forward."

Silver Fern, like the other meat processors in the country was at the peak of the production season when the lockdown occurred.

"It was an intense time," said Limmer. "We were under a lot of pressure because of the drought — there was no feed on [some] farms — and we had to build confidence among our staff of 7000 that it was essential they come to work and we would look after them."

At level 4 Silver Fern introduced social distancing and safety protocols such as track and tracing, and providing additional personal protective equipment and plastic screens.

"The two-metre spacing was not just about keeping our staff safe but convincing them they were safe," said Limmer. "We changed shifts around, staggered smoko and created cohorts of teams so if we had a (Covid) incursion we could isolate groups of people. For the first time, we worked Easter and Anzac Day, and we also ran some night shifts."

New Zealand's reputation coming out of Covid has been enhanced and the markets will be more focused on the integrity of our sustainable, grass-fed production system.

Simon Limmer

After two weeks of lockdown, Silver Fern's productivity increased from 50 per cent to 90 per cent. It meant the co-op had to repay its government wage subsidy of $43 million. "It is a real testament to the plants for finding better ways of working. We have been able to meet our opportunities."

Under level 1 work is back to normal but Silver Fern is determined to maintain the productivity gains.

Limmer said the meat industry had traditionally operated in an hierarchical environment. Silver Fern was implementing a new culture of empowerment — staff in the 14 processing plants around the country are now empowered to find solutions to bottlenecks [in production] and other issues. This information is shared quickly in the co-operative.

Before, troubleshooting teams would travel around the plants, using up manpower resources. "There is greater openness to new ideas, and we have found better ways of doing things by giving autonomy to each plant," said Limmer.

Silver Fern, equally owned by a co-op of 16,000 New Zealand sheep, cattle and deer farmers and Shanghai Maling Aquarius, was able to supply more red meat to the United States during the Covid crisis and demand from the Chinese market was also returning.

"We have the agility and ability to chop and change between markets and [sales] channels. I think New Zealand's reputation coming out of Covid has been enhanced and the markets will be more focused on the integrity of our sustainable, grass-fed production system," said Limmer.

"Uncertainty is a word we have to acknowledge — what the global economy does is outside our control. But I'm optimistic that the quality of our red meat will continue to resonate with consumers. They still want to eat good quality, safe food."

Last year Silver Fern achieved sales of $2.6 billion representing 295,000 tonnes of meat — 200,000 tonnes was beef, 90,000 tonnes lamb and mutton, and 5000 tonnes venison. Nearly 90 per cent is exported; Silver Fern accounts for 30 per cent of all New Zealand red meat exports.

Over the past eight years China has grown from a very small market to representing between a quarter to a third of Silver Fern's sales. North America takes about a quarter of the volume, Europe and the Middle East 20 per cent and there is increasing demand from Japan and South Korea.

For the 2019 financial year Silver Fern reported net profit of $70.7 million, up from $5.8m in 2018 and a 13.2 per cent return on equity compared with the previous 1.2 per cent. Earnings before interest, tax, depreciation and amortisation was $124.3m, and it has no debt.

At this stage Limmer was reluctant to forecast another year of $2.6b sales. "It's too early to say but I will be pleased if we achieved that level of revenue in 2020, given the current volatility. Livestock volumes are similar, but the seasonal timing has been disrupted given the Covid impact on processing and the weather impacts of drought.

"Market returns are not as consistently positive as we saw last year and there is a high degree of uncertainty given the economic ramifications of Covid around the world."

In the first quarter of this year, Silver Fern's Chinese beef shipments dropped by 75 per cent compared with the previous two months — though the market had risen strongly last year because of a shortage of pork products due to African swine fever.

Product was diverted to the United States where plants had closed because of Covid and in the first quarter sales were up more than 50 per cent on the previous period.

Smaller markets, such as Japan, doubled their beef orders.

Lamb and venison markets were disrupted because of the Covid impact on food service channels and the restaurant trade. But the retail and online sales grew.

"The story of the last 12 months is that the Chinese and North American markets have competed strongly for our product," said Limmer.

"We found that if one market softens, then the other steps in.

"The China demand for beef was phenomenal in 2019 — it surpassed North America — but it stalled at the start of the year because of the Covid outbreak.

"Supply is now back to 90 per cent, but it is compromised by distributors still sitting on inventory. We expect supply will start flowing more freely within the next two months.

"There is some nervousness about the North American markets as their processing plants come back into production."

Limmer said that out of the Covid crisis the primary sector had been reconfirmed as the backbone of the New Zealand economy.

"We recognised our responsibility of successfully navigating our way through Covid and playing our part in the economic recovery.

"During this period we have strengthened our relationship with farmers and staff, we have made productivity gains through innovation, and we have built a good platform to make strong progress."