Category Archives: New Zealand At Home

Meat activity in New Zealand, of interest to exporters and importers.

NZAGRC produces new factsheets

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The New Zealand Agricultural Greenhouse Gas Research Centre (NZAGRC) has produced its first three new factsheets, which are aimed at providing background and a broader context to the work of the Centre and the challenges this country faces regarding climate change and greenhouse gases (GHGs).

These handy items talk about how livestock agriculture impacts climate change, how climate change is affecting NZ agriculture and the complicated ground of GHG metrics.

The fact sheets are: ‘The impact of livestock agriculture on climate change‘; ‘Impacts of global climate change on New Zealand agriculture‘; and  ‘Economic and Policy Implications of Alternative GHG Metrics’. You can download them here or click the image above.

Further factsheets are planned on specific research areas.

Meat companies high debt levels must concern the banks

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New Zealand meat companies’ high debt levels, must be of concern to the banks, says meat industry commentator Allan Barber.

Silver Fern Farms (SFF) is operating on a three month extension to its bank facility which expired at the end of September, but reported current (expiring within 12 months) loans of $316.7 million at the end of its 2012 financial year, Barber writes.

In its last published annual accounts to September 2011, ANZCO had current and non-current loans of $220 million which must surely have increased in the very challenging 2012 year. Lastly at the end of September Alliance had $331.8 million of assets and non-current loans of $196.1 million which are clearly not causing any immediate concern.

The two big co-operatives published their annual reports last week and neither makes pretty reading. Both results benefited from a large tax loss which, to be effective, must of course be offset eventually by profits.

Alliance’s financial position was fully flagged in its announcement of a $50.8 million post tax loss including the $19.4 million write down of its Mataura sheep processing unit, which was actually a pre-tax loss of $70.6 million before tax credits. Its balance sheet with 51 percent equity ratio is still strong, although not nearly as strong as twenty four or even twelve months earlier.

SFF had already announced an after-tax loss of $32.2 million which was also, in reality, a loss of $44.2 million pre-tax, which included no restructuring costs. Debt rose during the year from $111 million to $316 million, a massive increase which was largely accounted for by the inclusion of $35 million insurance payout for Te Aroha in the 2011 accounts, the cost of the rebuild, $83 million of higher livestock and finished product inventory, and the funding of the annual loss.

A careful study of the annual reports sheds an interesting light on the company’s banking arrangements. Its 2010 report stated that its facilities had been renewed for two years till September 2012 and included $75 million for repayment of its SFF030 bonds. The 2012 report notes that its facilities expire in September 2012, hence the classification of all secured loans as a current liability, as was the case in the 2011 accounts.

I understand from chief financial officer Keith Winders that SFF has been operating on a temporary extension to its banking facilities since the end of September; he claimed this was quite normal because of the annual renewal arrangement with its bankers. However it appears unusual to me, because firstly SFF previously had a two year facility and secondly it can’t be ideal to carry $300 million of bank loans into the new financial year without negotiating secured banking arrangements. However, the directors must have received solid assurances of the company’s continued trading ability to allow it to continue to operate and incur liabilities.

Winders was also quite definite that there would be no significantly different terms and conditions attached to the new facility when finalised. This suggests the operating environment since September must be at least stable, although there is little evidence of an improvement in market demand, especially for sheepmeat which caused all the problems last season.

The only major improvement I can see is the reduction in lamb prices which have fallen from $140 to $90 in a year for a 17.5 kg lamb, but the season hasn’t yet got sufficiently into its stride for trading performance to have recovered many of last year’s losses.

What is absolutely crystal clear is that the banks will be watching their exposure to the industry like hawks and will demand some dramatic improvements for the rest of this season for which the critical period will be from January to May. Last season’s problem was that the price was much too high to start with and none of the processors was brave enough to lead the way to get it down when stock numbers were low.

I imagine none of the meat companies will have any appetite for chasing market share at the expense of margin this year and, if they do, their banks will be down on them like a ton of bricks. Farmers had a bonus last season, but there’s no point in hoping for a repeat any time soon. This presupposes that processing capacity is fairly well aligned with livestock volumes because the last thing the industry can afford is a procurement led price war.

Unfortunately my impression is that there is still excess capacity in the country, even after the closure of Mataura, but for the time being the companies will all be determined to rebuild their balance sheets. Past experience suggests industry peace will only last as long as necessary to repair the damage before the companies find the prospect of grabbing market share too hard to resist.

The only long-term remedy will be rationalisation of processing capacity and ownership, combined with seasonal supply commitment like the dairy industry. The banks are one of two critical factors in a change of this nature, but they would have to work together and accept write-offs in the interest of a lasting solution.

Farmers are the other critical factor, but the process of converting them to seasonally committed suppliers is a slow one and nothing will make this happen overnight.

The meat industry appears likely to be consigned to a further period of instability, but this season may give some indication of whether it is heading in the right direction.

This item has appeared at interest.co.nz and also at Allan’s own blog Barber’s Meaty Issues.

Nearly two million more lambs, but still third smallest lamb crop

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Nearly two million more lambs have been tailed this spring, according to the latest figures, which also forecast 8.4 percent more available for processing this season. 

Lamb Crop 2012, the latest report from Beef + Lamb New Zealand’s Economic Service, shows that an estimated 26.9 million lambs were tailed, 1.9 million more than last year.

Even then, this will be the third smallest lamb crop since the early 1950s. Only the previous two years were lower.

This year’s increase was due to slightly more ewes mated (+0.6 percent) and the sheep being in good condition thanks to favourable feed conditions before mating. There was also an increase in the number of lambs born from hoggets, according to Economic Service executive director, Rob Davison.

“The average lambing percentage across the country was 123 lambs born per hundred ewes – up from 119 in 2011.”

Davison said this result confirmed the pregnancy scanning results from earlier in the year, signalled in September’s New Season Outlook 2012-13.

“There were pockets of unfavourable weather in some areas during lambing, but farm management practices ensured good lamb survival,” Davison said.

In the North Island, there was a small increase (1.2 percent) in the number of breeding ewes compared with last spring and good lambing weather, combined with stock in good condition, drove the lambing percentage up from 118 percent to 123 percent.

In the South Island, ewe numbers were the same as last season, but the number of lambs born was higher. The lambing percentage increased from 121 percent to 123 percent and the weather was a lot better than the year before.

“Significantly there was a sharp increase in the number of lambs from hoggets because more were mated due to favourable feed conditions. Also evident, was a structural change to a younger flock, with more than usual older and poorer performing ewes culled before mating.”

The B+LNZ Economic Service forecasts that there will be 20.5 million lambs available for processing in the 2012-13 season – up an estimated 8.4 per cent. This contrasts with last season’s 18.9 million, which was the lowest since 1960-61.

The increase will be partially offset by an expected 2.1 percent decrease in average carcase weight to 18.3 kg. This follows a return to more normal climatic conditions after good growing conditions last season saw lambs reach a record 18.7 kg.

Other key points from the report are:

  • North Island export lamb slaughter estimated to increase 12 per cent to 9.9 million, an increase of 1.1 million lambs
  • South Island export lamb slaughter estimated to go up 5.3 per cent to 10.6 million, an increase of 500,000 lambs
  • While there will be more lambs, there has been a sharp correction in lamb prices – $5-6 per kg early in the season, compared to over $8 per kg in 2011.

Landcorp to return $20 million dividend to government

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State-owned farm, Landcorp, has had a solid performance this year according to its latest accounts, says meat industry commentator Allan Barber.

Landcorp’s net operating profit of $27 million for 2011/12 was down on the previous year, but still a good performance, Barber says in a recent blog, adding that the SOE will pay a $20 million dividend to the Government.

During the year, it produced 10,176 tonnes of sheepmeat, 9,715 tonnes of beef and 2,258 tonnes of venison, as well as large volumes of milk solids, wool and timber.

Landcorp has a target of selling 80 percent of its lambs on fixed price contracts to Silver Fern Farms, Alliance and other meat companies and last year achieved in excess of 70 percent by this method, proving to its satisfaction that this provides less volatile and overall better market returns than spot trading. Lamb production is geared to meet specific weights and specification to fulfill meat companies’ contracts with northern hemisphere retailers.

As a founder partner with Silver Fern Farms and the Ministry for Primary Industries in FarmIQ Systems, Landcorp is committed to the development of integrated value chains from pasture to plate, designed to align New Zealand production and supply with consumer demand preferences. Twelve of Landcorp’s farms are now on FarmIQ’s farm management system.

The development which attracted the most publicity was the joint venture with Shanghai Pengxin to manage the 16 Crafar dairy farmers bought from the receivers and expected to get underway shortly. This fits in with Landcorp’s goal to increase its involvement in the dairy industry and a further “extension to Maronan Dairies in mid-Canterbury and further development Wairakei Estates near Taupo will contribute to this,” Barber believes.

Sheep and beef finishing has been boosted by the development of Cheltenham Downs in Manawatu and this has helped recovery from the drought years of 2007 and 2008, reports Barber.

Over the past 22 years, Landcorp has paid dividends to the government; therefore, New Zealand as a while, of nearly half a billion dollars.

“There’s no evidence that Landcorp is constrained by public ownership or that it would benefit from part privatisation,” concludes Barber.

Read the full blog item here at Barber’s Meaty Issues …

This item has also appeared at www.interest.co.nz.

 

Andrew Ferrier new NZTE chair

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Former Fonterra chief executive, Andrew Ferrier has been appointed as chair of the New Zealand Trade and Enterprise Board (NZTE).

His chairmanship will be for a three-year term commencing November 2012, announced economic development minister Steven Joyce and trade minister Tim Groser today.

Ferrier has held a number of director and executive positions for large multi-nationals and has “a wealth of experience in international business, and brings strong governance and strategic capability to the NZTE Board. He is well placed to take up the role of chair for the Board,” says Joyce.

Businesswoman Julie Christie, consultant Charles Finny and Canterbury Employers’ Chamber of Commerce Chief Executive Peter Townsend were reappointed for a second, three-year term.

The Ministers thanked outgoing chair Jon Mayson for his valuable contribution to the operation of NZTE and for steering it through a period of significant change.

Andrew Ferrier has almost 30 years’ experience in international business, with a background in building global, performance-driven businesses.

In September 2011, he stepped down as chief executive of Fonterra after eight years. Prior to joining Fonterra, he was president and chief executive officer of GSW Inc. and spent 16 years in the sugar industry working in Canada, the United States, the United Kingdom and Mexico. He served as the president and chief executive of Tate & Lyle North America Sugars Inc.

Andrew Ferrier is a director of Orion Health Ltd and CANZ Capital Ltd. He was appointed to the University of Auckland Council in March 2012. Born in Canada, he has been a New Zealand citizen since 2008.

A little bit of export meat, in Wellington

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Customers of an award-winning New Zealand family line of butchers in Wellington are being treated to export quality product this year.

The run into Christmas for Wellington’s Preston’s Master Butchers is starting this week with the launch of free-range spring lamb. The new season’s lamb is sourced through sister company, meat processor and exporter Taylor Preston, which in turn sources from selected farmers in the lower North Island and top of the South Island.

“It’s not a matter of the best stuff going for export,” says the butcher’s general manager Andrew Preston, “we make sure that it comes straight here.”

Spring lamb has a unique flavour profile which is more delicate than older lambs – predominantly due to being milk-fed and young – and it’s also very tender. “People enjoy the taste,” says Preston, ” and we reckon everybody should have a chance to sample it – so we’re doing a special introduction across our stores, at really affordable prices.”

Preston’s is also launching two new beef ranges – under the Ted’s Choice premium label; Natural Farm Hereford and Natural Farm Angus – with a Preston family influence right through the chain. The cattle are sourced predominantly from lower North Island farms with Andrew Preston’s cousin, Campbell Preston, individually selecting the carcases at the Taylor Preston processing plant for meat colour, muscle size and conformation, marbling content and pH tests are also used as an indicator for tenderness.

“We expect the range will go well in our retail stores and hospitality,” says Andrew Preston. “People are looking for a little bit extra and the Natural Farm product certainly gives that, with very strict quality standards and full traceability. What’s more the butcher in-store can portion it any way you want.”

In addition, Preston’s Master Butchers learned last week that had been awarded a gold medal in the Devro New Zealand Sausage Competition for its Turingia Bratwurst (pictured right).

“Our customers have been telling us for a while that this is a fantastic sausage,” says Preston. “A win in a national competition is reinforcement that we’ve got it right. Our Anytime Turingia Bratwurst is a traditional pre-cooked German bratwurst, flavoured with marjoram and parsley and a touch of pepper and garlic. “It’s great for a variety of uses, from the family BBQ, eating as a snack, through to portioning into a risotto.”

Preston is looking forward to the shops being “a bit crazy for a while, as Preston’s has previously won gold, silver and bronze medals for bacon and other sausages. We will have a bunch of new customers coming to our stores just to try it and, I can tell you now, they won’t be disappointed.”

 

NZ farmers encouraged to Twitter

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The dawn chorus will have an added ‘tweet’ from now on as New Zealand’s farmers are being encouraged to start using Twitter to connect with their customers.

A forum on social media for farmers, organised by the Primary Industry Capability Alliance (PICA) forum, was held earlier this month.

Beef + Lamb NZ Ltd (B+LNZ)’s mid-northern North Island extension manager Erica van Reenan reports that the forum turned out to have a good turnout from the rural industry. She says representatives left, after an informative six hours, clutching their smartphones, and contemplating how social media could be put to work.

A farmer would want to be on Twitter or Facebook because it enables them to tell their story, explains Reenan. For example, Hunterville sheep and beef farmer and Farmer Council member William Morrison, regularly tweets about life on the farm and has – at the time of writing about 600 followers from all over the world and all walks of life, she says.

“What better way to connect with the people that buy our wonderful products that to tell them the pasture to plate story through a personal connection in easy to understand language.

“There are times when the way we produce food is challenged – more and more, through social media. If you’re not there, how can you defend yourself?” asks Reenan. “Being present allows you to build trust with the customer, who is then more likely to advocate for you.”

As Lincoln University’s Dorje McKinnon put it “Social media is like silage. It can be challenging to get it right – and sometimes it stinks. But, just like the old tractor, it’s a tool and if used right it can add value.”

While 76 percent of New Zealanders have a Facebook account, only 19 percent have a Twitter account, a recent survey has shown.

Read more …

Meat industry lacks leadership according to Cooke

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The National Meat Workers Union’s General Secretary Grahame Cooke stated last Monday the large loss published by Alliance Group would be the first of several for the 2012 year. His point is fairly accurate, confirmed by Silver Fern Farms’ loss announced on Tuesday, writes industry commentator Allan Barber.

Of the other companies ANZCO and Blue Sky Meats will file their results with the Companies Office at the end of March. AFFCO is now a wholly owned subsidiary of Talley’s and doesn’t disclose its results, although the Meat Workers Union says (optimistically) these will be horrendous because of the lock out earlier this year. AFFCO’s results may not be as bad as all that because of the lack of a peak kill.

Cooke’s next point was the losses would inevitably lead to more industry rationalisation; this in turn would cause job losses for the meat workers who have already been affected by several plant closures in recent years. Job and earnings security suffered from fewer stock numbers and shorter season with workers being paid piece rates for shorter shifts; also higher average weights mean better productivity which is true for lambs, but not cattle.

His final point was about the lack of industry leadership in spite of the fact there are a number of good individual companies, all competing vigorously with each other. Cooke said the meat industry has not changed in the last fifty years with poor marketing and plant closures quickly followed by the addition of more capacity. He described the industry graphically as behaving like a cow with its head chopped off.

A look at the Union’s website provides more information on this topic: plant capacity has increased over the past decade with new plants, rebuilds and upgrades at nine plants across the country as well as capacity increases at several more. The Union believes the Government must initiate a ‘meat summit’ to address this.

So the questions are whether Cooke is correct or the industry is behaving in a perfectly rational manner.

My first reaction is the Government will never initiate a summit, almost certainly just another talkfest, because it realises the industry has a functioning commercial model. It competes in a global market and government should never interfere with privately owned businesses, provided they comply with the law. The meat industry has its own industry body, the MIA, which deals with all sorts of industry issues, but not those which impinge on competition between its members.

In addition, land use changes dictated by relative sector profitability will continue to occur regardless. The government would not be wise to get involved in picking winners or hobbling one sector’s ability to adjust its processing facilities.

My next reaction is meat processors and exporters are not the whole industry. There is a value chain which starts behind the farm gate and finishes in restaurants or consumers’ homes. The Red Meat Sector Strategy, FarmIQ and other company based initiatives attempt to define what can be done to join links in the value chain so they contribute to higher, more consistent returns. But it’s up to the farmers to produce to these specifications.

Meat exporters have done a great job over recent years to convert yesterday’s freezing industry into a sophisticated red meat member of the food industry, while also expanding into high value medical and other non-food product areas. More can always be done, but the industry has moved light years from the age of subsidies.

However, this process of modernisation has of necessity been achieved at a cost to overall jobs and terms of employment. The older plants were inefficient and built to service a different industry structure from a previous age. The period following deregulation and more particularly the removal of subsidies saw many farmers in serious financial straits, so their only option was to change farming practice or land use or sell. An unavoidable, even desirable, outcome was a big decline in sheep and prime beef numbers, offset to some extent by the growth in the dairy industry and the US manufacturing beef market.

Owen Poole made the point to me the losses are a sheepmeat problem and Alliance has responded by making the appropriate plant decisions, such as closure of Mataura sheepmeat processing, doubling Mataura’s beef capacity, increased venison processing at Smithfield and rendering at Lorneville. Keith Cooper also confirmed his satisfaction with SFF’s footprint in relation to livestock volumes, having already taken some tough capacity decisions.

This emphasises the regular requirement for new plant configurations to meet the demands of the market place and consequently the workforce must adapt as well. My experience tells me the meat industry does a pretty good job of responding to changes in market conditions, while generally trying to keep its workforce employed. But there is no future in keeping inefficient plants running to protect workers’ jobs, because these will disappear sooner rather than later.

Equally there are no prizes for leaving customer orders unsupplied when competitors are still prepared to process livestock. I certainly wouldn’t fancy the chances of the industry leader who sets an example by refusing to pay the money and has to tell Tesco or Marks and Spencer his company can’t supply because the stock costs too much this week.

Leadership is not as simple as it appears.

The item has appeared in NZ Farmers Weekly and at Allan Barber’s blog Barber’s Meaty Issues.

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 …