Red meat: Alliance farmers say capital request comes at ‘tough time’ for sector

It's the first time Alliance has asked farmers for capital in 32 years. Photo / 123rf

By Monique Steele of RNZ

Farmers are feeling disappointed their red meat co-operative Alliance is asking its shareholders to raise capital as they are already struggling with poor prices and high input costs.

Alliance, the country’s only entirely farmer-owned red meat co-operative, announced last week it needed shareholders to make cash contributions so it could remain farmer-owned, without having to rely on debt funding.

Market volatility, inflationary pressures and weakening global markets were behind the recent drop.

Last Friday, it started holding back an extra $3 from every livestock unit processed at its seven plants, and announced the number of standard shares required from its farmer-shareholders would increase, too.

It was the first time in 32 years Alliance had asked farmers for capital - which was when, back in 1992, Fairlie sheep and beef farmer Greg Anderson joined the co-op.

Anderson said the timing of this announcement could not have been worse.

“Disappointing, because it’s coming at a really tough time for farmers, especially the sheep and beef industry, because we’ve got low product prices, high interest rates and high inputs at the moment, so it’s a terrible time for it to come,” he said.

Anderson said the co-op was obviously under pressure from the banks in terms of its working capital.

“They’ve had a bad year, which has put their equity in a bad position.

“And there’s only so many ways you can raise finance and one of the ways is to go to your shareholders.

“There will be a bit of hard questions of the directors and the management on how we’ve gone from a record profit two years ago to having to raise capital, that’s a real concern.”

Anderson said unfortunately there was not a lot shareholders could do about it - unless they chose to leave the co-op.

However, he believed it would be best for the industry if Alliance remained backed by its farmers.

“If the farmers aren’t prepared to back it, and let it tip over, well, it will end up in private hands or end up in offshore hands and they don’t owe us any favours, so I’m a great believer in the co-operative system.

“I hope we can work our way through this.”

Anderson said leadership will have to work hard to get face-to-face with its shareholders to regain their trust, as many were taken aback by Friday’s unexpected announcement.

Federated Farmers meat and wool chairman Toby Williams said it was a “really tough ask for farmers in this current environment”.

“Also, [it’s] really tough for them because they will want to protect their investment in the co-op,” Williams said.

“[It] shows that the leadership in our industry, this is across the board, have let their shareholders down with decisions in the past.”

Alliance chairman Mark Wynne said it needed between $100 million to $150m over the next two to three years to restore its balance sheet.

Wynne said while it was not an ideal time to implement such changes - after first announcing it to farmers last year - it had explored all other viable opportunities to reduce working capital.

Alliance Group was profitable for nine out of the last 10 years - last year, it reported a $70m loss after tax in the year to September.

- RNZ