KEY POINTS:
Farmer control is vital to the creation of a mega meat company, says Alliance Group chief executive Grant Cuff.
The Southland-based co-operative processor this month proposed creating a new entity, with turnover of about $5 billion and post-rationalisation assets of about $1.7 billion, to manage 80 per cent of New Zealand's livestock supply from farm to market.
Alliance began holding a series of meetings with its farmer shareholders yesterday to discuss the concept.
"We believe the entity must be farmer-controlled and it must be controlled to the extent that it is not plausible for a private owner to take control.
"Because for government involvement with legislative change, or their backing as one of the stakeholders, would be far less tenable if this entity was just being prepared for private ownership," Cuff said.
The concept aims to lift farm returns by about $400 million a year and deliver short-term gains of about $15 a lamb from market cohesion, reduced overheads and by removing excess processing capacity.
A straw poll after the first meeting in Invercargill showed full support for Alliance to pursue the concept, Cuff said.
"The discussion afterwards ... was positive, supportive, good questions and people were looking at it from the benefit to the industry rather than detailed day-to-day operational issues."
Companies would have to decide whether they wanted to be part of the entity and retain some equity or sell up, Cuff said.
"There's a range of options there," he said. "Depending on how much they wish to sell down that will determine the amount of equity required from others, in particular farmers."
The amount of additional farmer equity would depend on the structure and how much ownership they wanted, but was estimated at between $10,000 and $40,000 each.
Discussions with Alliance shareholders during the next two weeks would determine a mandate to start wider industry consultation, Cuff said.
Dunedin-based co-operative processor PPCS gave the idea early backing, while NZX-listed Affco reserved judgment but was open to discussion when more detail was available.
AgResearch chief executive Andrew West said merging the four largest meat companies was essential.
"Lamb has not failed as a product," West said. "It is our industry structure that has failed and the good news is that it is in this country's power to fix the problem."
Farmers had to stop selling on the spot market and enter into mutually binding contracts with the proposed new meat company, he added.
"If we as a nation don't give sheep farmers the same chance we conferred by legal means on dairy farmers then we will consign the meat industry to a cottage status," West said.
