Comment: Silver Fern Farms addresses capacity issues, but no progress on meat industry restructure

Allan BarberThe only meat industry capacity rationalisation evident so far is beef not sheepmeat related. Silver Fern Farms has announced the closure of the beef chain at its Waitoa plant which it bought 18 months ago from Wallace Corporation in, what chief executive Keith Cooper said at the time, was an essential contribution to the meat industry’s sustainability.

The logic behind the purchase was to take out a competitor and to provide cover for the loss of Te Aroha’s capacity from a fire. According to chief operating officer Kevin Winders the plant has fulfilled its purpose, but will be retained specifically for bobby calf processing for 12 weeks of the year. Management and veterinary oversight will be provided from Te Aroha which will not be operating at full capacity during the calf season.

Although Waitoa will be mothballed for the remaining 40 weeks of the year, it can be restarted on beef in the event of a drought. There will be 17 salaried positions made redundant as a result of the transfer of beef processing and management to Te Aroha.

Silver Fern Farms is also looking to sell its fellmongery at Shannon following an approach from Hastings-based Lowe Corporation which would toll-process all the pelts through its Hawke’s Bay plant. If the sale goes through, 86 workers at Shannon will almost certainly lose their jobs.

However according to Kevin Winders, Lowe Corporation is conducting due diligence on the fellmongery; the process may take several weeks and there is no guarantee the sale will go through. In that case there are several options open to SFF, including sale, retention, or closure of the plant.

In the event the last option is chosen, presumably there is a strong possibility the pelts would be toll-processed by Lowe. With a declining sheep and lamb kill it must make sense to rationalise the number of pelt processing units. So it depends which company most wants to do a deal before the final outcome of this transaction becomes clear.

SFF is currently involved in renegotiating its banking facilities which must be completed before 31 December and, according to Winders, these are progressing normally and no problems are anticipated. However there are strong rumours of another annual loss to 30 September, hard on the heels of the previous year’s after tax loss of $31.1 million which, if true, must put a degree of pressure on the company’s banking facility renegotiation.

On a broader industry front, it is obvious that nothing is going to emerge in a hurry from the discussions between the companies about finding a more satisfactory industry structure. Talk about tradeable slaughter rights have gone nowhere, a quota allocation system doesn’t suit either, so it’s hard to see what is next.

If stock numbers follow the present trend, plant closures will be inevitable, more particularly in mutton and lamb chains than beef. Therefore Silver Fern Farms’ tentative step to close the Waitoa beef chain is unlikely to be the last development on this front.

Annual results for Alliance and Silver Fern Farms due out in late November will provide a better indication of performance for the year to 30 September 2013. But farmers will need to keep a close watch on their livestock payments so they don’t get an unpleasant surprise.

Allan Barber is a meat industry commentator. He has his own blog Barber’s Meaty Issues and can be contacted by emailing him at allan@barberstrategic.co.nz.

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