KEY POINTS:
It was a big week in the meat sector with listed rural services company PGG Wrightson agreeing to buy 50 per cent of co-operative meat processor Silver Fern Farms for $220 million.
PGG Wrightson chairman Craig Norgate had signalled his determination to see change in the struggling sector
but admits the plans will have caught some people by surprise.
The deal is being promoted as a supply chain stretching from the pasture to the plate and as a platform for further rationalisation and integration.
But it comes amid fresh memories and raw nerves from a failed mega-merger proposed by Southland-based co-operative processor Alliance Group and the premature shutting down of a Meat & Wool New Zealand industry task force because of a lack of consent.
Norgate and Silver Fern Farms will be hoping any lurking industry grudges will be laid to rest.
The proposed Alliance mega-merger, which would have involved a number of companies, collapsed in April with an inability to reach agreement with Silver Fern Farms, while last year Alliance themselves turned down an opportunity to merge with Silver Fern Farms.
Last month the Meat & Wool New Zealand taskforce collapsed after it became clear that PricewaterhouseCoopers, who had been appointed to help complete a sector strategy, was unlikely to be given consent by all industry participants. One participant in particular advised that it did not support an industry strategy and rather wished to follow their own plans.
Silver Fern Farms chairman Eoin Garden says: "It certainly wasn't me because I said that I was prepared to be involved and had a discussion with the chairman of Meat & Wool New Zealand."
Still, grumbles persist in the sector.
In the end the power to progress the idea or send it back to the drawing board rests with farmers.
Firstly, Silver Fern Farms shareholders will have to approve a deal giving up half of their co-operative. Alliance chairman Owen Poole says he will ask his shareholders what they want.
A "yes" vote and the blue touch paper is lit.
Should the two big co-ops come together, the scale of the new entity would likely drive further consolidation.
New Federated Farmers president Don Nicolson's personal view is that other bids or plans may now appear.
So the latest vision may not be the only eventual option, but time is not a luxury for those farmers desperate for action after seasons of poor returns.
Norgate says the speed of consolidation is now up to the other players.
Alliance is likely to be the number one choice, but it would not be a surprise if he started picking off smaller players through acquisition and merger just to tickle the process along.
Ten farmer meetings were held last week, and after four of them Norgate said the feedback was possibly more positive than could have been hoped.
"They're glad to see something concrete rather than conceptual," he says. "They're pleased that it's fundamental change."
Analysts are keen to see more details on the prospective short- and long-term gains of more than $60 million and up to $110 million a year respectively.
A full report should be available in a couple of weeks time, Norgate says.
"They're not numbers that we hang out without knowing where they're coming from," he says.
Meanwhile, Alliance chairman Poole says the concept of product re-positioning, branding and paddock-to-plate integration is nothing new.
Norgate says although people say they are doing it, the reality is that generally farmers take their price at the farm gate, the product gets broken down without a customer name on it in the factory and it gets sold in a commodity fashion.
"The reality is it's an industry that's going out of business," he says.
"They're clearly not doing it. You've got a protein market that is booming. Being a pasture-based protein producer should be the best form of farming there is at the moment, and we've got an industry that's dying."
The vast majority of the $220 million investment in Silver Fern Farms will be used to reduce borrowings, he says.
"What it does is reduce the borrowings of the company initially and gives them the scope to invest in the things that they need to."
With four major players in the meat processing sector, including Alliance, Affco and ANZCO Foods, why pick Silver Fern Farms?
"If you want to start transforming an industry, the biggest player's always a fairly good place to start," Norgate says.
"They did tend to see the world the same way we did in terms of this integrated supply chain.
"We're hopeful we'll get the other players in, but unless you've got the big guys lined up then you're kidding yourself."
Norgate says they would not have embarked on the partnership unless it was robust on a stand alone basis.
"But what we're talking about clearly is far more powerful the more players that are in."
One step at a time, farmers first.
STOCK CARE
Reports of stock going down while being transported has prompted DairyNZ to issue recommendations to maintain standards of welfare.
Rob Gregory, from DairyNZ, says many farmers sent animals to graze during the drought or as part of their normal management routine.
"Thin animals, especially those with a body condition score below four, are particularly at risk, and special care needs to be taken when transporting them back to farms," Gregory says.
"Basic transport standards require that animals selected for transport must be fit enough to withstand the stresses of transport and also be able to bear weight on all four limbs."
Stock should be well fed for between five and seven days before being transported, receive adequate mineral supplements before a journey, have access to water until they leave, and a vet should be on hand at the end of the journey for inspection and treatment.
Drivers can help by resting and inspecting stock on longer trips.
"Finally, from an economic perspective, it makes sense for farmers to demand that their stock is properly treated off-farm," Gregory said.
"After all, if your cows aren't in peak condition when they're returned to you at calving, it's your bottom line that will suffer as a result."
