Monthly Archives: November 2012

Agriculture best trade advantage, says new green growth report

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A new independent report launched yesterday in Auckland and Wellington looking into ‘green growth opportunities’ for New Zealand, says that agriculture is where New Zealand has the best trade advantage. It also says that two of the best green growth export opportunities for New Zealand are sustainable, efficient agricultural products and services and biotechnology. Both are within the meat industry’s domain.

Green Growth: Opportunities for New Zealand, commissioned by a group of business thought leaders Pure Advantage together with the Green Growth Trust, takes a macroeconomic look at  New Zealand’s green growth economic opportunities within a global context. It identifies 21 ways the country can capitalise in a global shift to greener growth and includes specific recommendations for forestry, electricity, transport, agriculture, fisheries and tourism.The report has been prepared  by internationally renowned economists Vivid Economics of London in conjunction with the University of Auckland Business School.

Within a six-point summary, the report says that New Zealand could benefit from global green investment patterns in two main ways: by exporting to nations investing in green goods and services and by importing new technology and ideas to create efficiencies at home. It says that New Zealand should focus on sectors where it already has an advantage or where its natural capital is best suited to capturing future advantages and that the best green growth export opportunities for New Zealand include sustainable efficient agricultural products and services, biotechnology, geothermal energy and forestry, including second-generation bio-fuels, the report says.

New Zealand’s agricultural advantage, one of seven identified by the report, is where there is the biggest trade advantage.

“The future of farming will belong to those nations who own and adopt water efficient, energy efficient, low carbon and low resource intensity input technologies and practices. New Zealand is performing well now and with an integrated strategy to ramp up investment and commercialisation of sustainable and efficient agricultural R&D and commercialise our intellectual property, we’ll make sure we stay ahead,” Pure Advantage says.

Increasing R&D to the OECD average and high level support for New Zealand’s brand has been applauded by Professor Jacqueline Rowarth, professor of agribusiness at the University of Waikato. “The main recommendations in the report are spot on,” she says. “Anything less is economic treason.”

“People in agriculture already know this. They also know that farmers are the biggest investors in R&D in NZ, through taxes, levies and as shareholders of co-operative companies. Of further importance is that farmers take up innovations rapidly as shown by the Statistics NZ productivity data and the University of Auckland IBM Innovation Index – the primary sector leads.

“The result, as highlighted in the UK last week under headlines such as ‘buy NZ lamb to save the planet’, is that NZ production systems are efficient in terms of greenhouse gas production per unit of milk or meat,” she said, adding that water-use efficiency is also good where new technologies, such as precision irrigators are used. “Water quality is also rather better than in other developed countries.”

Affording the new technologies will be difficult for farmers with little money forecast for farmers to reinvest into their operations this year, she notes. “The challenge continues to be explaining to society that farmers can do what is required, but the impact will be increased costs of food production and that will lead to increased prices in the supermarket. Government leadership supporting agriculture, as well as the brand, is required.”

Pure Advantage is the brainchild of fitness industry pioneer Phillip Mills. Other Trustees, who have also provided charitable funding for the initiative, are Sir George Fistonich, Rob Fyfe, Chris Liddell, Phillip Mills, Jeremy Moon, Rob Morrison (chairman), Geoff Ross, Justine Smyth, Mark Solomon, Sir Stephen Tindall, and Joan Withers. Founding trustees also included the late Lloyd Morrison and Sir Paul Callaghan. The secretariat is managed by Rob Morrison (Chairman), Duncan Stewart (Chief Executive) and Hannah Wills (Project Manager).

More information and a full copy of the report is available at the Pure Advantage website.

Silver Fern Farms bullish in spite of $31 million loss, says Barber

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Allan Barber has been speaking to Silver Fern Farms (SFF)’s chief executive Keith Cooper, following this afternoon’s announcement of a big loss for the co-operative for the year ending 30 September 2012. In his latest blog post, Barber reports finding Cooper bullish in spite of the loss.

Cooper confirmed the effect of lamb on the season’s losses, saying SFF had been comfortable with what it was paying for lambs price before Christmas. Market demand had suddenly stopped dead in February because of the market price and companies had all been hit by exposure to expensive stock, unable to reduce the price quickly enough. The net result was too much product going into overvalued inventory which resulted in a write-down of $25.6 million at balance date.

The company’s media release has highlighted the same reasons as Alliance for the loss, says Barber – unjustifiably high procurement cost, high dollar, sudden drop in market demand, inventory writedown – but made very positive reference to the future outlook. It has made significant new investments, including the Te Aroha rebuild, $8 million of new marketing initiatives and $4 million commitment to FarmIQ.

In the current year, SFF intends to invest a further $22.6 million in brand development, marketing initiatives and FarmIQ. According to chairman Eoin Garden, this “clearly demonstrates our confidence in, and commitment to, the growth path we have charted for our company” notwithstanding the poor performance during the year ended September.

High inventories are already being substantially sold down to a point where the company’s inventory level is already much closer to normal for this time of the year, lonely six weeks after balance date. As will be the case with Alliance the equity ratio will have already benefited from this.

The suspicion that SFF’s loss would not be a large as that posted by Alliance because of a greater proportion of beef in its kill proved to be correct. Nor did SFF have to take any plant closures on the chin. CEO Keith Cooper said the company’s footprint was consistent with livestock numbers and no further closures were under review.

In answer to a question about further industry rationalisation Cooper said SFF had already taken over two small companies, Frasertown and Wallace, and he was always in favour of aggregation. This invariably involved smaller companies being acquired by one of the big four. However it was ultimately up to farmers to decide on the industry’s structure, because industry rationalisation only lasted so long before a new processor emerged, which farmers would then typically support.

The general mood in the meat industry, confirmed by SFF, is positive for the new season. Procurement prices are aligned with the market, livestock volumes are stable, even recovering slightly, and capacity is fairly well balanced with throughput.

In conclusion, Keith Cooper said while 2011/12 was a poor year financially, strategically it was a progressive one. “2012 marked a continuation of our unwavering commitment to executing our Plate-to-Pasture strategy. This is a progressive and long term plan, which demands perseverance and determination, to ultimately generate sustainable value for our farmer-partners, by meeting the modern consumer’s requirements.”

This article appears also at Allan Barber’s Barber’s Meaty Issues. Read more …

Silver Fern Farms reports loss, but says strong balance sheet, investment into the future the key focus

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Silver Fern Farms has reported a net operating loss after tax for the 12 months ended 30 September 2012 of $31.1 million (2011 profit $30.8 million) from total revenue of $2 billion.

Silver Fern Farms chairman Eoin Garden says that, despite an operational loss, the company’s balance sheet was robust (44 percent equity ratio); and significant investments had been made in 2012 to underpin future growth, including new marketing initiatives ($8 million) and the new Te Aroha plant ($67 million).

In addition, Silver Fern Farms had also made a significant investment of $4 million in FarmIQ in 2012. Now in year three of the seven-year build timeframe, not only will FarmIQ become the enabler for farmers to deliver the required product to meet Silver Fern Farms’ marketing and sales plans, but it will also empower farmers to identify opportunities on farm to grow their productive capacity, thereby generating more value from within their own farming businesses.

Garden says it is important to highlight the commitment the company had made to forge ahead with the implementation of the business’ overall growth strategy for the future of Silver Fern Farms, its shareholders, suppliers and people, notwithstanding this poor 12-month financial performance.

“In the 2012/13 financial year, Silver Fern Farms plans to invest a further $22.6 million into brand development and marketing initiatives to build brand equity, channel and market development, and FarmIQ. That clearly demonstrates our confidence in, and commitment to, the growth path we have charted for our co-operative” says Garden.

Chief executive Keith Cooper comments that Silver Fern Farms operates in an environment where many outcomes are beyond the company’s control but materially impact on the business.

“Climatically, we went into the 2011/12 season with ideal pasture growing conditions which meant livestock was held on farm for valid reasons. This resulted in markets being short of product versus historical supply patterns. Off the back of this, we saw global prices for lamb in particular, escalate to unsustainable levels, which resulted in a sharp fall in demand and which then led to a significant decline in value. This market correction was subsequently reflected back to suppliers and, in turn, caused write-downs in inventory valuations throughout the financial year of circa $25.6 million.  Through this period, Silver Fern Farms had to manage business continuity – supplying to customers and operating processing assets – which meant we had to compete for livestock at unsustainable prices which further contributed to the problem.”

Cooper reiterated that while this was a poor year financially, strategically it was a progressive one.

“2012 marked a continuation of our unwavering commitment to executing our Plate-to-Pasture strategy. This is a progressive and long-term plan, which demands perseverance and determination, to ultimately generate sustainable value for our farmer-partners, by meeting the modern consumer’s requirements.”

Over the last four years, Silver Fern Farms has invested in designing the brand detail and marketing infrastructure required to drive a greater proportion of its revenue through premium value branded products. “Our differentiated approach means that our brand has now become integrated across all areas of the business – corporate, supplier service, operations, sales and consumer activities – and we are now starting to see the benefits of this throughout the value chain” says Cooper.

While Silver Fern Farms’ final inventory position for 2012 was up versus the previous year, he advises that this had decreased markedly since balance date, with the increased working capital being driven by those higher balance date inventories.

Eoin Garden also advised that incumbent director Angus Mabin, who retired by rotation, has been re-appointed unopposed, which gives the board confidence they have continuing shareholder support.

Silver Fern Farms is New Zealand’s leading processor and marketer of lamb, mutton, beef, venison and associated products to more than 60 countries.

The summary of key financial items for the year ending 30 September 2012, includes:

  • Turnover of $2.03 billion (as opposed to $2.1 billion for the year ending 30 September 2011)
  • Net result after tax of $31.1 million (2011 $30.8 million)
  • Operating cash flow (deficit) in 2012 of ($105.6m)   (2011 [$7.5m])
  • Equity ratio at balance date  44%  (2011 59%)

New Zealand’s top sausage for 2012 is …

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New Zealand’s top sausage for 2012 is a Smoked Kielbasa from Wellington’s legendary Island Bay and Strathmore Butcheries.

The 2012 Devro New Zealand Sausage Competition ran over three days last week, with the Supreme Award and People’s Choice Award winners being decided on Friday night.

From 450 sausages only one can reign supreme, however, and that went to the Smoked Kielbasa. Gold, silver and bronze medals were awarded a swell but only the best of the best made it to the Supreme judging round.

Don Andrew, owner of Island Bay and Strathmore Butcheries says he’s overwhelmed by the win. “More than anything I want to thank all our loyal customers for their support. To win this award is the ultimate prize in the craft of sausage making,” he said, encouraging butchers to keep on entering.

The People’s Choice Award was won by Franklin  Country Meats with a Smoked Paprika and Cheese Sausage.

The competition, which has been running since 1994, is proudly supported by Devro and Kerry Ingredients.

 

 

No leadership?

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Further to the Alliance Group news over the weekend, the Meat Workers Union is also pointing to the previously announced ‘disappointing year’ for Blue Sky Meats, with wage cuts and a loss of $600,000, according to a comment on Radio New Zealand  this morning. The union points to ‘over-capacity’ and National Secretary Graham Cooke says it is felt there is “no leadership in the industry. Read more …

 

Alliance posts $50.8 million loss for 2012

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Alliance posted its annual result on Friday which was every bit as bad as predicted, a net after tax loss of $50.8 million for the 12 months ended September, writes meat industry commentator Allan Barber in his recent blog post.

The result included restructuring costs of $13.5 million associated with the closure of the company’s Mataura sheep and lamb processing operations which followed similar costs of $19.4 million the previous year from the closure of its Sockburn plant.

The 2012 performance saw a $77.8 million deterioration at the operating level compared with 2011 which, despite the $9 million net after tax loss, produced an operating profit of over $20 million.

Chairman Owen Poole expressed his disappointment at Alliance’s first operating loss for 20 years which he attributed to the decline in the sheepmeat market exacerbated by the high New Zealand dollar and the unsustainable level of procurement costs earlier in the season.

In the 2012 financial year, Alliance was hit by a triple whammy of lower sales and product prices, ridiculously high livestock procurement prices driven by short supply pre-Christmas, and the high dollar. The strength of the dollar was in no way reflected in a realistic procurement market. There is a question whether other processors were equally affected or saved to some extent by a higher proportion of beef processing in their operations. This will be at least partially answered when Silver Fern Farms releases its result later this month.

One factor which Poole omitted to cover in detail was the significant impact of the last two years on the balance sheet which he said was “still robust”. Unfortunately, the equity ratio has declined from 81.5 percent in 2010 to 51 percent two years later. Clearly, it cannot keep declining at this rate for much longer, so the company’s board will be hoping fervently that markets will recover and livestock supply at least stabilise in the immediate future.

Poole referred in his statement to the operational upgrades to Mataura’s beef processing, venison processing at Smithfield and rendering at Lorneville which, when combined with the savings from closures, will lead to much improved efficiencies and a significantly better result for the current year. Growth of lamb sales to China, sales to Brazil, the contract with Marks & Spencer and better market outlook encourage some optimism for this year.

Longer-term, the sheep population is unlikely to increase to any great extent, although productivity can be expected to improve with genetics, technology and lambing percentage increases. Whether this will be enough to maintain the industry in its present configuration is doubtful, because individual processors will continue to look for efficiency gains. Silver Fern Farms is already thought to be planning a nightshift at its Gore plant to take advantage of the closure of Mataura.

Meat industry capacity adjustments and potentially company ownerships can be expected to change in response to market conditions. No different from normal!

Allan Barber is an agribusiness and meat industry commentator. This article has appeared at www.interest.co.nz. He writes his own blog at Barber’s Meaty Issues.

Business as usual for exports to US, with TPP next focus

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It’s business as usual for New Zealand meat exporters following the re-election of United States President Obama for another four year term, but it’s not time to relax.

Prime Minister John Key has already congratulated the President on his “hard fought victory” and re-election, tweeting last night that he looks forward to further developing the close and enduring relationship between the two countries.

“There will be many opportunities to enhance the relationship, which is built on shared values and a commitment to improve the prosperity and well-being of our people through initiatives such as the Trans-Pacific Partnership (TPP).”

Two-way trade with the US is valued at over $8 billion and the US is a leading source of investment, innovation and business ideas, says the NZ US Council. It is actively engaged in co-ordinating business and government efforts towards concluding a comprehensive, high quality result to the TPP negotiations.

NZUS Council executive director Stephen Jacobi comments that now the election has been decided, it’s positive news for exporters that there will be some certainty over the next four years.

“It’s business as usual for the relationship.”

President Obama will be very energised over his second term he notes. However, that the President will have to work hard on bringing the Republicans with him.

“The TPP initiative is good, in that it is something that can unite both sides, which will have a positive impact on the negotiations.”

The President’s biggest challenge is the state of the US economy, currently facing a ‘fiscal cliff’, and his ability to avoid a complete gridlock between Senate with its Democrat majority and the primarily Republican House of Representatives.

“How he deals with that has implications for New Zealand meat exporters as it will impact on the exchange rate,” says Jacobi, adding that one of the current US solutions – printing money – is bringing the value of their dollar down but is forcing the Kiwi dollar up, making it difficult for New Zealand exporters to operate.

With the Republicans advocating for more farm subsidies, keeping an eye on progress in the US Farm Bill will be important for New Zealand meat exporters too.

The focus now is the next TPP round of talks which take place in Auckland 3-12 December with New Zealand in the chair and hundreds of negotiators from around the Asia-Pacific attending the meeting. It is fortunate that the chief US negotiator remains unchanged, with Barbara Weisel remaining in her position. However, it’s important to note everything won’t be finalised at that meeting. “It’s a continuing process but Auckland will set out how negotiations will roll out in 2013,” says Jacobi, adding that 2013 is expected to see finalisation of the agreement.

Beef will be on the agenda as Canada and Mexico join the table as full members for the first time. Jacobi says he will also be interested to see how other economies, such as Japan, react to the election news as it may speed up their entry to the trade agreement.

The concern for Jacobi is the anti-globalisation movement, which is expected to be active around the time of the talks. He calls for industry, companies and farmers to stand together to explain why it’s important for New Zealand to be in the trade negotiations.

“We need to add our voice to the multitude in support of the negotiations,” he says.

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The US election may bring little change to the Senate agriculture committee with the Democrats retaining control according to Food Business News, while retirements factor into the House of Representatives’ agriculture committee with the Republicans maintaining control there. The finance committees face a similar scenario, says Jacobi. It is likely, however, that there will be a new US trade adviser. Mike Froman, currently assistant to the President and deputy national security adviser for international economic affairs – and a former Harvard classmate of Obama’s – is hotly tipped for the job.