Editorial: Silver Fern deal an inevitability

Silver Fern Farms. Photo / NZPA

Editorial

This week's announcement of the proposed $261 million investment by a subsidiary of China's state-backed Bright Food in Silver Fern Farms was described by the latter's chairman, Rob Hewett, as a game-changer for both the co-operative and the New Zealand red meat sector. That much is beyond doubt. What is more open to question is to what extent it will work for Silver Fern's 16,000 shareholder farmers and the industry. On that issue, and especially the long-term implications, there is no shortage of disagreement.

Those opposed to the deal see major shortcomings in a 50-50 joint venture that in all but name will hand a large degree of control of Dunedin-based Silver Fern to the Chinese investors. This view has been outlined by John McCarthy, a former chairman of Meat Industry Excellence, which was set up to promote change in the industry. "This is a watershed for New Zealand, it is a crossroads for NZ Inc and has the potential to change the face of our rural communities and to blur that unique point of difference and global opportunity," he says.

Compare that with the enthusiasm of Mr Hewett. The Chinese investment will, he says, "turbo-charge" the value-added retailing strategy of the country's biggest meat processor. Most obviously, new distribution channels would be tapped in China, the world's fastest-growing red meat market, where Silver Fern would enjoy a competitive advantage. Its new-found financial strength would also allow it to update its plants, and place it in a better position to talk about partnerships to solve over-capacity and other industry issues.

Ideally, Silver Fern's farmer shareholders would undoubtedly have liked to retain control of their own destiny rather than take on foreign investment. There will be qualms that their new partner's identity and focus risks too many eggs being placed in the China basket. Yet in the end, wounds that were partly self-inflicted meant the ideal outcome was not forthcoming.

It has been obvious for a long time that the industry required rationalisation. The need was even more apparent than in dairying, yet it never materialised. Farmers had to settle for second-best as repeated efforts to achieve a mega-merger with the country's other major processor, Southland-based Alliance, foundered. With this went the chance for greater market cohesion, reduced overheads, and the removal of excess capacity.

Silver Fern's debt profile demanded a capital injection. However, no New Zealand-based consortium was willing or able to come up with a deal that fulfilled the short-term financial needs of either the co-operative's board or its bankers as emphatically as that of the Chinese. That says something about how the meat processing industry is viewed and perhaps, more generally, local investors' desire to invest in agribusiness.

It is not difficult, therefore, to see why the investment by Shanghai Maling Aquarius is so attractive to Silver Fern. And for what may be lost in the long term, there is also much for a troubled co-operative and its industry to gain. This may just be the catalyst for a brighter outlook.