Foodplus: value added to beef

More value is to be generated from beef with the development of innovative new products for food, ingredients and healthcare, thanks to the latest Primary Growth Partnership (PGP) programme.

PGP co-funding has been approved by the Ministry of Primary Industries (MPI) for an $87 million Foodplus programme, run by meat processor and exporter Anzco Foods. The PGP fund is committing $43.5 million over seven years towards the programme, with ANZCO matching that funding.

Foodplus will identify opportunities to create new products, with a particular focus on parts of the beef carcase that currently generate less value. ANZCO has identified three markets for innovative new products: food, ingredients and healthcare.

“Adding further value to the carcase is essential for the future success of the meat industry,” MPI director-general Wayne McNee says. “ANZCO’s vision for Foodplus is relevant and bold and now backed by a significant investment.”

Sir Graeme HarrisonANZCO Foods chairman, Sir Graeme Harrison is enthusiastic about the potential of the new Foodplus programme to enhance business opportunities for the sector.

It will give a vital boost to the industry, he says. “For too long, the meat industry has been criticised as being a production-led commodity business characterised by high volatility and marginal profitability. This government-industry partnership provides a springboard to further transform our industry, to leverage off the inherent strengths of our farming practices and animal health status and to collaborate and capitalise on the benefits of quality New Zealand research and innovation.”

“As Foodplus begins to use the PGP’s comprehensive research opportunities, ANZCO will introduce more projects that will certainly challenge and re-invent the traditional uses of beef cattle in particular.

“The Foodplus initiative will build on the existing expertise within ANZCO Foods but also add considerable new processes and opportunities never before realised in the meat industry,” says Sir Graeme.

Rennie Davidson, chief executive  of ANZCO’s Food & Solutions division says ANZCO welcomed the opportunity to partner with the Crown on the Foodplus programme. “It is a large-scale project that wouldn’t be achievable without collaboration. We’re excited about the potential that this will bring to the sector.”

The company also recently announced a company-wide energy management programme, which will see it working with the Energy Efficiency Conservation Authority’s business unit over two years to achieve savings of $2 million a year in its processing plant energy usage.

ANZCO Foods is a multinational group of companies and one of New Zealand’s largest exporters, with sales of $1.3 billion and employing more than 3,000 staff worldwide.

This article has appeared in Food NZ magazine (February/March 2013) and is reproduced with kind permission.

PGP project suggests meat industry ready to co-operate, says Barber

Allan BarberYesterday’s announcement of the Red Meat PGP Collaboration Programme for Greater Farmer Profitability at a total investment of $65 million is fantastic news for the whole industry, says meat industry commentator Allan Barber. The key words are ‘collaboration’ and ‘farmer profitability’, he writes.

The first of these has usually been notable by its absence, while the second combination of words has only been evident at irregular intervals.

Half the funding will be made available from the Ministry for Primary Industries (MPI)’s Primary Growth partnership fund, while 30 percent will come from farmers through Beef & Lamb New Zealand Ltd (B+LNZ) and Meat Board reserves and the balance from six meat companies, two banks and Deloitte.

B+LNZ’s contribution is contingent on levy paying farmers voting in support of the proposal at its annual meeting on 8 March. Although nothing is ever certain, it would be a shock if this support wasn’t forthcoming, because the programme represents a significant step towards fulfilling the objectives of the Red Meat Sector Strategy conducted by Deloitte and completed nearly two years ago.

The aim of the programme is to lift the performance of all farmers to match that of the best performers which was identified in the strategy as the best way of improving industry profitability. There is a significant gap between the top and bottom performers in farming methods and profitability. If this gap can be closed the gains for the sector and New Zealand are enormous.

The participation of the six meat processors – AFFCO, Alliance, ANZCO, Blue Sky, Progressive Meats and Silver Fern Farms – is as meaningful as it is welcome. These are the key sheepmeat processors which is recognition that it is the sheep meat sector in particular where the greatest gains are to be made. However, the focus behind the farm gate shouldn’t obscure the fact that there are substantial gains to be made from greater collaboration in the market place.

A striking aspect of yesterday’s press releases by Ministry of Primary Industries, B+LNZ, Alliance and Silver Fern Farms (SFF) was the difference in tone between the statements by the two meat companies and the enthusiasm with which Beef & Lamb is greeting the opportunity.

The tone of SFF’s press release was less than enthusiastic, emphasising the need for a levy vote in support before the programme could begin and the care taken to ensure this programme did not cut across SFF’s Farm IQ programme which was the first project out of the blocks.

In spite of a first sentence which confirmed SFF’s support for the collaboration programme, the main impression from the statement was that the company was a somewhat unwilling participant and would be guided by the farmers’ decision. If this happened not to be supportive, I was left with the feeling SFF would not be particularly upset.

In comparison with Keith Cooper’s guarded support for the programme, Alliance chief executive Grant Cuff was positively euphoric, stating:

“This new coordinated collaborative initiative will enhance the knowledge and capability in the sheep and beef sector and help improve farm performance, productivity and profitability.

“New Zealand can make significant gains in its export earnings by ensuring all parts of the value chain collaborate so suppliers are using the best available farm and business management practice and tools.

“This initiative is an important step in the implementation of the Red Meat Sector Strategy. We’re supportive of any steps to lift the industry’s game and improve on-farm profitability.”

After my recent call for a sheep meat strategy, I am cheered by this progress. Admittedly, results won’t happen immediately, but it provides an investment over several years during which industry participants will work together for the collective good.

This must be one of the best possible outcomes for an industry which is noted more for its divisiveness than its potential to cooperate in the interest of a better future for all the parties.

Allan Barber is a meat industry commentator who writes a number of columns on the topics. He has his own blog Barber’s Meaty Issues.

Red meat industry to work together

Wayne McNee, MPI.The red meat industry has agreed to work together to promote and assist in the adoption of best practice by sheep and beef farmers, as part of a new $65 million dollar sector development project with Government co-funding.

Wayne McNee, director-general of the Ministry for Primary Industries (MPI), has just approved a commitment of up to $32.4 million from MPI’s Primary Growth Partnership Fund (PGP) for the red meat sector’s new Collaboration for Sustainable Growth programme.

This seven-year programme will bring together a number of participants in New Zealand’s red meat sector including co-operatively owned and privately owned processing companies that together account for a substantial majority of New Zealand’s sheep and beef exports, two banks and Beef + Lamb New Zealand Ltd.

It aims to ensure that red meat producers consistently have access to and are able to effectively use the best-available farm and business management practices, by addressing gaps in technology transfer and ensuring stronger co-ordination between organisations and individuals working with farmers.

MPI Director General, Wayne McNee says the new PGP programme will transform the delivery of knowledge and capability within the sheep and beef sector.

“Importantly this is the most comprehensive collaboration of its type ever seen in the red meat sector, and the opportunities are very exciting. The Collaboration programme will build base capability, delivering benefits across the sector and aligned with other PGP programmes.”

The next step to establish this PGP programme is to develop the contract with the Crown and to seek farmer support for their portion of the investment. It is anticipated that once the required farmer and company approvals and contracts are in place programme delivery can begin, expected to be in the third quarter of this year.

Organisations presently in this initiative are: AFFCO, Alliance Group, ANZCO Foods, ANZ Bank, Beef + Lamb New Zealand, Blue Sky Meats, Deloitte, Progressive Meats, Rabobank and Silver Fern Farms. The programme is designed to be open, enabling others to invest. Participants will establish a formal partnership to run the Collaboration programme.

Chairman of the programme’s Steering Group, Dr Scott Champion says the Collaboration programme is built on the findings of the Red Meat Sector Strategy and will deliver significantly on the Strategy’s sector best-practice theme.

“This initiative is evidence that the industry is committed to delivering on the recommendations of the sector strategy. More industry collaboration is high on the list of Strategy actions, and so to have the red meat industry focused on supporting farmers and united in this programme is of major significance. Importantly, the Strategy also underlined the returns available to all farmers by lifting productivity and management towards that of the country’s highest performing farms.”

The PGP programme comprises several elements, including investigating how farmers prefer to receive and use new information and what drives their profitability, as well as benchmarking and integrating relevant databases. New tools, services and knowledge will be packaged and delivered in a range of ways by programme partners.

“With a new awareness of what drives farm profitability, the Collaboration programme will change the sector’s focus from one that is dominated by price to one focused on performance, productivity, profitability and the factors we can control,” Champion said.

“This investment will support the sector to better control its future and ensure confidence for continued investment.”

The Red Meat Sector Strategy was jointly developed by Beef + Lamb New Zealand and the Meat Industry Association, with funding support from the Government. It was released in May 2011.The Strategy identified a range of activities that, when implemented, will improve sector productivity and profitability, and provide greater certainty for participants.

 

Meat companies high debt levels must concern the banks

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.

Meat industry leaders support TPP negotiations

Heads of various meat industry organisations  have shown their public support for the Trans Pacific Partnership (TPP) trade agreement negotiations underway in Auckland this week between eleven APEC economies.

They are amongst more than 50 business leaders from some of New Zealand’s largest and most successful companies and business organisations to have signed an open letter to Prime Minister John Key, underlining the importance of international trade and investment for New Zealand.

Among the signatories are Alliance chief executive Grant Cuff, ANZCO Foods’ managing director Mark Clarkson, Silver Fern Farms’ Keith Cooper, Greenlea Premier Meats’ Tony Egan and Sir James Wallace chairman of Wallace Corporation alongside Meat Industry Association chairman Bill Falconer and Beef + Lamb NZ Ltd’s chairman Mike Pedersen and chief executive Scott Champion.

“The signatories to the open letter represent a cross section across all major export sectors in New Zealand, including agriculture, forestry, fishing, horticulture, wine, manufacturing, technology and Maori business. Together they either directly employ, or their members employ, an enormous number of Kiwis,” says the chairman of the New Zealand International Business Forum (NZIBF), Sir Graeme Harrison.

“These business leaders welcome the TPP round taking place in Auckland this week and commend negotiators from the TPP economies for their efforts to conclude a future agreement which should bring benefits for all member economies”.

“The group is aware the negotiation poses challenges for New Zealand policy settings in a number of areas and that the negotiation is complex. We have confidence that Trade Minister Tim Groser and his officials will seek solutions that meet New Zealand’s national interests.”

“We see great advantages for New Zealand arising from a future agreement that is high quality, comprehensive and ambitious, one that eliminates trade barriers, lowers the cost of doing business and makes improvements to the way regional supply chains can link producers and consumers in the region.”

The open letter coincides with the launch of a new business-led initiative, Trade Works, a website (www.tradeworks.org.nz) to help Kiwis better understand the benefits of trade and investment for New Zealand, and understand the potential benefits of TPP.  Funding for the website has been provided by the NZ US Council and the website has been built with the support of thirteen business organisations representing the main export sectors.

“The Council and its partners see value from an effort to create a TPP which meets business and wider needs and reflects the way business is being done today and will be done in the future.  This will assist economic growth and job creation in New Zealand.  Our new website signals that we are also ready to participate with other members of civil society in a dialogue about how TPP can contribute to what it is best for New Zealand,” says the chairman of the NZ US Council, Rt Hon James Bolger.

 

New programme to add value to beef

A new $87 million innovation programme that will look at how more value can be generated from beef carcases has been approved for Government funding.

Ministry for Primary Industries director-general Wayne McNee today announced approved co-funding from the Primary Growth Partnership (PGP) for the new Foodplus programme.

The PGP Fund is committing $43.5 million over seven years for the programme, which is worth $87 million in total and is being run by ANZCO Foods.

Foodplus will identify opportunities to create new products, with a particular focus on parts of the beef carcase that currently generate less value. ANZCO has identified three markets for innovative new products: food, ingredients and healthcare.

ANZCO Foods is a multinational group of companies and one of New Zealand’s largest exporters, with sales of $1.3 billion and employing more than 3,000 staff worldwide. ANZCO Foods also owns processing plants and a cattle feedlot: CMP, Riverlands and Five Star Beef.

“Adding further value to the carcase is essential for the future success of the meat industry,” says McNee. “ANZCO’s vision for Foodplus is relevant and bold and now backed by a significant investment.”

Rennie Davidson, CEO of ANZCO’s Food & Solutions division says ANZCO welcomes the opportunity to partner with the Crown on the Foodplus programme. “It is a large-scale project that wouldn’t be achievable without collaboration. We’re excited about the potential that this will bring to the sector.”

This announcement brings the Government’s investment in meat industry PGP programmes to $129.5 million, for projects worth a total of over half a billion dollars.

Minister welcomes announcement

David Carter, NZ Primary Industries MinisterPrimary Industries Minister David Carter has welcomed the announcement of another successful PGP bid which lifts the total invested in the variety of projects to more than $650 million.

“ANZCO’s proposal to generate more value from the beef carcase with its Foodplus programme is bold and innovative.  This is exactly what PGP is about – transforming great ideas into tangible R&D programmes focussed on results,” says Carter.

“Today’s announcement lifts the total government-industry investment in PGP since its inception three years ago to $665 million.  This is firm proof of the Government’s drive to lift economic growth through primary sector innovation.

“Thanks to the collaborative government-industry approach, we have relevant projects underway across a range of sectors from dairy, arable, red meat and wool to forestry, seafood and aquaculture and manuka honey.

“New Zealand stands to gain from innovative investment in its primary industries because our food, fibre, fishing and forestry sectors are at the heart of our economy,” says the Minister.

ANZCO Foods is a multinational group of companies and one of New Zealand’s largest exporters, with sales of $1.3 billion and employing more than 3000 staff worldwide. The company owns processing plants and a cattle feedlot within a group including CMP, Riverlands and Five Star Beef.

ANZCO MD new B+LNZ director

New B+LNZ board member: Mark Clarkson

Mark Clarkson, managing director of ANZCO Foods Ltd and a Meat Industry Association (MIA) Council member, has recently been appointed to the Board of Beef +Lamb NZ (B+LNZ) as one of two processor-exporter representatives nominated by the MIA.

Before beginning his current role with ANZCO Foods in March 2004, Clarkson was the chief executive of ANZCO subsidiary CMP Canterbury for 10 years. Prior to that, he was the general manager of Five Star Beef Limited, a 50:50 joint venture with Itoham and ANZCO.

Mark Clarkson joins the other processor-exporter representative on the board, Craig Hickson of Progressive Meats and the six farmer-elected board members.

Clarkson replaces Keith Cooper, chief executive of Silver Fern Farms who resigned earlier this year, having sat on the B+LNZ board since 2009.

Published in Food NZ (June/July 2012).