Alliance Group was profitable for nine out of the past 10 years but reported a $97.9 million loss before tax last year.
Mackay suggested there couldn’t have been “much fat in the system” if that’s all it took to ask farmer shareholders for cash.
“This is a question a lot of the farmers have asked me since I’ve spoken to a lot of them since Friday when we announced the capital raise,” Wiese said.
While that result had a “significant impact” on Alliance’s decision, there were other factors at play, he said.
“We had significant cost that we brought on to deal with the droughts that were coming, that [then] didn’t happen.
“Last year we had no seasonal peaks – that obviously contributed to much lower efficiency and much higher compressed margins as we were trading through the market.
“So a number of things have sort of played out at the same time.”
Weise said it was a difficult time for the meat industry in general and trading conditions in markets such as China were still tough.
Alliance was also dealing with livestock flow complexity, he said.
“We’re through about 60 per cent of the season and we have not seen a peak yet – we have not worked one hour overtime to process the livestock coming at us.”
Although Alliance was ahead of last year’s volume, year to date, these tough trading conditions were still having an effect, he said.
Despite this, Wiese still saw “more of a rosy future coming at us from most markets”.
Listen below:
Mackay asked if Alliance’s processing model was antiquated, operating “big bulky plants” rather than using smaller year-round chains.
Wiese agreed.
“That’s why, about six years ago, we started reviewing our network through our internal benchmarking and manufacturing excellence process.
“We have a significant amount of flexibility in the network; we can switch between species, we can switch between chains, which gives us the ability to look at how livestock is going and then respond – rather than saying, ‘give me the livestock in the way that I run my plant’, which was the older view of looking at the business.”
Wiese said another concern raised by farmers was third-party traders making profits at the expense of existing loyal shareholders, resulting in changes at Alliance.
“We have restructured the way we procure and pay across our entire farmer base from small to large farmers and we have ensured that we put a significantly more competitive schedule together within that range.”
Since Alliance didn’t pay its supplier shareholders the same amount for their product, Mackay suggested it was not a “pure co-operative”.
“I would differ from that,” Wiese said.
“I’ve been involved in many co-operatives, there’s never the same price for every single supply – you have volume supply benefits.
“If a person supplies five lambs versus 600,000, there are definitely differences.”
Mackay asked if the co-operative model was outdated.
“I don’t think so, Jamie, I really think there’s a lot of value for us in remaining a co-operative and it’s the link of our farmers directly to the markets,” Wiese said.
“I personally believe that we need a co-operative in the sector to also make sure that we hold this sector to account from getting value back to our farmers.”
Whatever happens, Weise said Alliance’s future rested with its farmer shareholders.
“Ultimately … the decision is in our farmers’ hands, whether they leave or whether they want their co-operative.”
Also in today’s interview: Mackay asked Wiese if Alliance ran the risk of a shareholder run on the bank.
