KEY POINTS:
Last week's announcement that the two biggest meat co-operatives, Alliance and PPCS, are tip-toeing around the idea of a mega-meat company is a step towards a meat industry equivalent of Fonterra.
Though the announcement of accountant PricewaterhouseCooper's appointment "to evaluate potential options to improve livestock returns paid to
the farmer suppliers of each company" made no mention of a merger, farmer directors on both companies have been facing pressure for such a move.
Much of the pressure has come from sheep farmers sick of seeing their earnings plunge faster than the NZ dollar's exchange rate is rising.
And the pressure has been building since Alliance and PPCS failed to forecast the collapse of the market for heavyweight lambs late in 2005.
The continuing slide in lamb prices is seen as a main reason for the rising interest in converting drystock farms to dairying.
Dairy farmers have been promised record prices this season.
Members of two ginger groups have threatened to dump directors from the boards of PPCS and Alliance in a bid to get the changes they want.
Southland's Meat Industry Action Group said last month that it required tangible signs the companies would work more closely together for the benefit of shareholders.
In the new meat season starting in October, it wanted:
* "Fair and transparent" procurement plans for all suppliers with payments recognising quality and timing of supply.
* Contracts binding farmers to companies.
* Co-operation by PPCS and Alliance in marketing.
PPCS has already said it is axing its stand-alone lamb marketing organisation in North America and will now market through the New Zealand Lamb group of companies, in which it has inherited Richmond's 30 per cent share with rivals Alliance and Anzco.
The South Canterbury-led Meat Industry Reform Group appears to prefer a full merger of Alliance and PPCS, which would give it a combined share of about 43 per cent of world lamb exports.
The reform group includes shareholders of both companies, which together control nearly 60 per cent of New Zealand's lamb processing.
Overall, New Zealand lamb exporters supply about 75 per cent of the international lamb trade, and some farmers believe a single large marketer could influence international lamb prices, as Fonterra does with dairy commodities.
Dunedin-based PPCS has a turnover of $2 billion, and operates 24 plants - including the Richmond group's plants - throughout New Zealand, processing sheepmeat, beef, venison and goat meat.
Invercargill-based Alliance has a turnover of $1.1 billion, and operates eight plants in the South Island and one at Dannevirke, processing sheepmeat, beef and venison.
A merger would require "yes" votes from 75 per cent of the farmer shareholders in both co-operatives.
A merged co-operative could process about 60 per cent of New Zealand's sheepmeat and 40 per cent of its beef.
But for the same reasons farmers believe a merged co-operative could do them good, the European wholesalers and supermarkets, which have been benefiting from falling lamb prices - partly through playing off some of the 17 NZ exporters against others - would be less enthusiastic.
Commerce Commission scrutiny does not extend to price-setting in export markets, such as European Union sheepmeat, where New Zealand has a quota of 208,000 tonnes.
Some farmers have said that having one big company might encourage farmers to invest more in the processing infrastructure and technology and even lift the present $8 million of investment in the value chain for each $100 million worth of lamb to closer to dairying's $33 million for every $100 million of product.
Asked what had prompted last week's announcement by the two traditional rivals, PPCS chief executive Keith Cooper said: "It's self-evident when you hear what's going on out in the rural sector.
"It's the plight of farmers. It's the dollar".
One sceptic of merger talk is former Alliance chief executive Rick Beetle, who has said that within three years of a merger farmers would want to start another co-operative to keep the big one honest.
And he has said the best way farmers can add value is to improve productivity.
- NZPA
