Comment: Moment of truth for MIE and its board candidates, says Barber

 

Allan Barber

In the seven months since Meat Industry Excellence (MIE)’s first farmer meeting in Gore, there have been more meetings, discussions with meat companies and, most recently, nominations for the boards of Silver Fern Farms and Alliance Group. Meat companies have tried and failed to find an acceptable solution to the problems raised by MIE.

Previous MIE executive members Richard Young and Dan Jex-Blake are standing for election to Silver Fern Farms (SFF)’ board. Don Morrison has been nominated for the Alliance board as a farmer director, while a shareholder, Mark Paterson, has proposed a resolution to nominate Fonterra director John Monaghan for the independent directorship vacated by Owen Poole. This will be voted on by those members present at the AGM, but the result of that vote is not binding on the board.

Alliance Group’s AGM takes place on 13 December and SFF’s on 18 December. Therefore, we will know before Christmas how many of these candidates have actually made it onto one or other of the co-operative’s boards.

At least one of Young and Jex-Blake will be elected, because there are three candidates for the two vacant positions on SFF’s board, the other being sitting director David Shaw who is retiring by rotation and available for re-election. Sitting directors, chairman Murray Taggart and Jason Hill, retire from the Alliance board by rotation and are available for re-election, so long-time supplier Morrison must beat at least one of those to gain a seat.

Taggart was voted off the Alliance board once before, but was re-elected in 2010 and took over from Poole as chairman in September this year. His fate in the election next month will provide a very clear indication of Alliance shareholders’ attitude to the ideas being pushed by MIE, including support or rejection of the concept of a merger of the two cooperatives. To date, Alliance has been adamant there is no commercial benefit from a merger.

On the face of it, Alliance has plenty of justification for rejecting the idea of merging with SFF. It achieved a modest profit, whereas SFF had its second consecutive loss of either side of $30 million; it has also taken some tough decisions on closure of excess capacity, and its balance sheet is much stronger than its competitor’s.

Alliance’s view has always appeared to be that it supports broader industry rationalisation, if common ground can be found; but meanwhile it is busy getting on with refining its business model, which involves providing feedback and rewards to suppliers for supply to specification and building strong relationships in the market.

Although there is plenty of justification for Alliance’s stance on merging with its neighbour, there remains concern about the continuing downward spiral of the sheep flock and the rate of dairy conversions in the far south. However, it is hard to see exactly what a merger will achieve.

MIE is caught in a cleft stick. To make progress it needs influence, serious money and a viable strategy. To have any chance of achieving change it has to have representatives inside the tent, but past history suggests, once inside, it is hard to gain unanimous support for radical changes. As it is MIE’s conviction the meat industry model is broken and a merger of the two co-operatives the best option for progress, this is what the new board candidates will be fighting for.

Even if their campaign is successful and the banks agree (not a given), there will be massive cultural disruption, loss of intellectual capital, the pain of plant closures and redundancies, combined with an inevitable loss of market share. A merged entity will end up with less than half the available livestock which is nowhere near enough to create a Fonterra lookalike. In such a scenario, there is no guarantee the merged co-operative would be a success.

Two recent communications from MIE, one a message to group members from Mark Patterson, the other a PR release from MIE chairman John McCarthy, strongly promote the campaign to vote the candidates onto the Alliance and SFF boards and the need to be loyal to both co-operatives.

McCarthy urges farmers to get out and vote and to become involved in supporting their co-op as an essential requirement for an integrated industry strategy that will enable farmers to participate in the value chain, rather than being permanent price takers.

This may be a valid strategic intent, but it doesn’t necessarily constitute an achievable strategy. For reasons already outlined, I am doubtful about the certainty of success, even if the board election campaign produces the desired outcome. The industry will still consist of a mixture of farmer-owned and privately-owned companies, all chasing livestock and selling product.

To repeat what I have already said, ad nauseam, ultimately commitment of supply to a processor of choice without third party intervention is the only long-term solution. This would result in a rational industry size and structure. MIE should keep up that campaign.

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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