Alliance Group co-operative focus is on the future

Alliance roadshow 2018
Alliance shareholders have been getting an update on their co-operative's activities.

The Alliance Group co-operative is resolutely focused on the future and capturing more value from its products to pass back to its farmer shareholders.

Alliance chairman Murray Taggart took time out of the co-operative’s annual supplier roadshow to speak to MeatExportNZ. He and chief executive David Surveyor and general manager livestock and shareholder services Heather Stacy are travelling the country talking to groups of their suppliers in 24 locations from Gore up to Dannevirke. More than 800 people have attended the roadshow so far.

Roadshow-goers have been hearing that this season, 2018-2019, is a significant year for the company, which is headquartered in Invercargill, but also has a corporate office in Christchurch in New Zealand and has subsidiary operations in London, the US and Singapore.

Murray Taggart speaking to Alliance supplier roadshow
Murray Taggart speaking to shareholders at the Alliance supplier roadshow.

The world’s largest sheepmeat processor is a producer co-operative – not a public or private limited company – which is a fundamental point of difference both from the perspective of the farmer and the customer, Taggart believes.

With a turnover of $1.6 billion annually, Alliance Group ranks sixth, in revenue terms, amongst New Zealand’s co-operatives. At the top of the scale is the $18.8 billion Fonterra, Silver Fern Farms Co-op is fourth at $2.4 billion and Zespri seventh ($1.45 billion).

Alliance was formed 70 years ago when sheep and beef farmers got together to form a company for their livestock, to give them better access to sufficient processing capacity and combine their resources to more effectively market and brand their products. Now, it has over 4,000 sheep, beef and deer farmer shareholders, employs over 4,700 and has eight plants throughout New Zealand, processing sheepmeat, beef and venison. The number of shareholders is growing and Alliance is continuing to attract new shareholders. According to the the co-operative, numbers are currently at record levels.

Alliance’s principal strategy is to maximise operational efficiencies and capture more value from its markets and pass the gains to shareholders.

“The reason farmers invest in a co-operative is because by grouping together they can achieve what they can’t achieve as individuals,” explains Taggart.

“If you look at it from the customer perspective increasingly around the world customers want to feel a lot more connected to the farmers. That’s something that no other company can offer in New Zealand – we’re a group of farmers – so that really resonates with the customers.”

Co-operatives differ from a usual limited company and operate around the world under seven principles: voluntary and open membership, democratic member control, economic participation by members, autonomy and independence, continuing co-operative education, training and information, co-operation among co-operatives and, as multi-generational businesses, a concern for community.

“Farmers invest in their farms for 40-50 years and it’s often inter-generational,” explains Taggart, who is himself an Alliance supplier of sheep and beef cattle from his family’s North Canterbury property. He was first elected to the Alliance board in 2002, becoming chairman in 2013.

David Surveyor, Alliance Roadshow
David Surveyor.

The Board is signalling profit for the company this year is lower than expected. Alliance chief executive David Surveyor has been telling attendees at the Alliance roadshow for its shareholders. “It’s down, but in a meaningful way.”

Part of the profit compression was due to Alliance keeping procurement prices high during the early part of the challenging 2017-2018 season, during the drought, to “look after farmers, rather than the company, at that point of time, so we didn’t crash prices,” he has explained.

Surveyor is warning supplier shareholders a profit rebate is unlikely this year. However, he has made it clear that the company is profitable, has a very strong balance sheet and that it has the capacity and capability to build forward.

“We’re taking a view as a co-op that we’re investing for the longer-term,” explains Taggart.

“Traditionally, the investment horizon has been a bit shorter, not just in our company but across the industry. So, this year is a classic case, our result was down the financial year just completed but we’re saying to farmers, ‘Look we’ve got two choices here, we do a short-term pay-out now or we invest in the future, which one do you prefer?’ And, without exception they’re saying you carry on investing in the future.”

He admits he’s felt encouraged to hear that because the board has to make sure the company is investing in the direction its farmer shareholders want them to.

“That’s one of the big advantages of the supplier roadshows. It’s not just about us lecturing at the farmers, it’s about hearing the farmer views on what we’re doing – It’s very much a two-way street –and certainly we take on board the views that they raise. Inevitably at the roadshows there is something that comes up that we hadn’t realised was the implication of the thing we’d done, so it is very useful from our perspective.”

Getting fit in its transformational journey

Work on Alliance’s transformational journey over the past three years or so has put the co-operative in a good position to maximise the opportunities presented in-market, says Taggart.

Alliance is now a third of the way through its transformational strategy, which started in 2015 and is steered by the board and Surveyor. The team has concluded Phase I to ‘get fit’ – lift efficiency, lower costs and improve sales and marketing.  It is now moving into Phase 2 to ‘make it sustainable’ through building organisational capability, growing value-add and capturing market value and making further investment, moving operations towards Phase 3 – a sustainable and value creating growth agenda and improving the industry model, Taggart explains.

Alliance Farmers Produce logo
The new logo signifies Alliance’s marketing stance.

“Every company will have a different perspective on what the opportunities are, depending on where they are directing their attention. A lot of work we’ve been doing up to now has been getting fit internally to get our cost structures right and improve processing efficiency.

“Now our focus is turning to capturing more out of the marketplace and adding more value to some of the products we produce. For us, 2018 is actually a really significant year in terms of the market.”

The most obvious signal of how Alliance is changing its focus from a meat processor to a food business was the change of company logo this year – only the second time in 70 years. It is a marker that consumers and customers these days “don’t want to feel an affinity with a processing plant and want to feel a connection with farmers,” says Taggart.

“When you look at the growth of farmers markets around the world, and the number of consumers who frequent those markets, a group of farmers like Alliance is only one step removed from a farmers market. For what we’re seeing, our customers get that connection.”

This season will see the roll-out of Alliance’s upgraded Farm Assurance Programme (FAP), a refreshed app to support compliance and the use of electronic Animal Status Declarations (eASDs). While around 85 percent of Alliance suppliers are already part of its FAP, a 10 cents per kg deduction for non-FAP lambs is encouraging the remaining few towards the new programme.

Taggart says the co-operative also has a few other “irons in the fire” particularly around co-products where there is exciting work on the go, but is not ready to be talked about yet.

“We think there are real opportunities in some of those areas,” says Taggart.

Last year, Alliance purchased its agent in Singapore and Taggart says it is very keen to extend its global footprint and put more people on the ground.

“Much as we all think we’re experts at it, the reality is there’s no substitute for being on-ground, in-market.”

The co-operative is very pleased with the way its foray into emerging markets are going – India in co-operation with Quality NZ and also in China, in partnership with Grand Farm. Alliance will be highlighted on Grand Farm’s stand at the forthcoming China International Import Expo (CIIE) in Shanghai in November.

“Mr Chen, Grand Farm’s president, gives us very generous recognition for which we are very grateful,” says Taggart.

In addition, a new programme is being developed for the US, aside from the co-operative’s activity with the New Zealand Lamb Company, to target the high-end foodservice sector.

Although it is unlikely there will be a profit re-distribution from the year just completed, Alliance has distributed $15m in loyalty payments.

Supply is also being rewarded with a bonus share issue in December increasing farmers’ equity in their co-operative from around $78 million to $85.8 million (up $7.8 million). The issue is based on supply of lamb, sheep, cattle, calves and deer in 2017-2018 at the rate of $1 per head for lamb and sheep, $12 per head for cattle, $4 per head for deer and $1 per head for bobby calves.

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