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The Alliance Group is asking its farmers to supply more capital in the wake of lower global meat prices

Rural News / news
The Alliance Group is asking its farmers to supply more capital in the wake of lower global meat prices

The meat company Alliance Group is asking its farmers for more money to reduce its need to borrow for working capital.   

It is also signalling a return to profitability after last year’s loss. 

Alliance is a fully owned farmer co-operative, but has suffered from weaker world trade.

“New Zealand’s red meat sector has been impacted by weaker global market prices,” says its chairman, Mark Wynne.

“Farmers, processing companies and the agribusiness industry in general are facing significant financial pressure. Alliance Group is no exception.”

Last year, Alliance made a loss of $97.9 million before tax due to geopolitical tensions, labour shortages, inflation and weakening global markets.   But Wynne is signalling a “modest profit” for this financial year, which ends in September.

“This is in line with our financial performance over the last decade where Alliance has been profitable for nine of the last 10 years.”

Wynne says getting back to profitability has pushed the need for working capital to rise faster than shareholder equity.

“We acknowledge that times are extremely tough on-farm, and this is not an ideal time to implement such changes. We have explored all other viable opportunities to reduce working capital before seeking capital from farmers."   

  “However, in order to remain a 100% farmer-owned co-operative and continue to drive towards being New Zealand’s most efficient processor, an increase in shareholder equity is required,” says Wynne. 

 The money will be raised by returning $3 less to farmers per head of livestock processed. Farmers will also have to increase the number of shares required to be held in the company per head of stock from 12 to 16.

As an offset, the board is improving the loyalty programme it offers to farmers who send all their sheep to an Alliance works for processing.

“With shareholder investment, we can reduce our reliance on lenders to fund our working capital debt, expand our product offerings and explore new opportunities to support the transformation of the co-operative to deliver more value to our farmers,” Wynne says.

The financial pressure on the Alliance Group is shared by its big rival Silver Fern Farms, which reported a loss this month of $24.4 million after tax.  

Earlier this year, the Meat Industry Association warned of hard times generally. 

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41 Comments

Bleak outlook for sheep meat in reality. Conversions to dairying wherever the region/locality is viable are obviously not without reason and the economies of scale for the remainder of lamb/mutton processing are thus being pinched, harder and deeper.

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Minimal conversions for the last 10 years due to nutrient restrictions.

Much of the decline in sheep numbers relates to simple economics, including carbon forestry

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Amusing to watch carbon farms try to flog off chunks of overpriced fattening land to sheep and beef farmers, and failing miserably. Net result more land in trees and vacant houses.

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Amusing to have farmers ringing forestry companies flat out trying to sell and escape. Watch the land price in the next 12 months if things don’t change and no buyers with any money about.

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The difference being sheep and beef farmers have to operate in the real world, not some government climate homeopathy boondoggle. The land prices have been jacked upped to eye watering levels by artificial government diktak, not free market fundamentals. A few winners but ultimately less export receipts for the country so we all lose and climate doesn't change one little bit.

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Well you have your wish as land prices fall now -  it’s all yours fill your boots.

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Nothing to do with trees. All down to the economics of farming - and that’s from my farming friends.

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You are deluding yourself if you don't think carbon bludging hasn't driven up the price of sheep and beef land. You really think artificially high land prices don't hinder the economics of farming?

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It was failing before that. I bought land pre any boom and the amount available was staggering. Same story and the history of decline goes way back to the 1980s. Just look at the numbers. The biggest decline in sheep numbers coincides with the biggest decline in forest area - dairy took the best land. I’ve got farmers banging down the door who need to exit and they have owned the land for decades - nothing to do with trees ramping prices, or friends who want to go, kids aren’t interested, and they are stuck.

Try and get any funding to buy a hill country farm at any price. The issue now is if they can sell the farm it buys nothing if you want to retire to Wanaka or BOP beach. In fact many banks will only lend if you plant some trees!!!!

The reality is the numbers don’t work due to market things out of anyone’s control. Blaming one thing doesn’t add up and avoids the real issues that need to be confronted.

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By forcing this on farmer shareholders without any forward warning with the full knowledge that most shareholders have absolutely no interest in putting in more funds, appears to be a strategic move to right size the business and bring in external capital. Alliance as a co-operative has processing capacity to handle lamb peaks that no longer exist so in order to shut down / reconfigure plants they need to reduce their supply base to justify it.

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A tough ask when many are loosing substantial amounts this year. From what I see and hear from many farmers, this year has broken the back of many and sheep numbers will plummet - again, for cattle and other land uses.

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"Last year, Alliance made a loss of $97.9 million before tax due to geopolitical tensions, labour shortages, inflation and weakening global markets.   But Wynne is signalling a “modest profit” for this financial year, which ends in September."

But while NZ Inc. adheres to 'best practice' animal farming techniques, will the consumers of meat in other countries even care? I.e. lamb from 'anywhere' vs. lamb from NZ? Or any other meat for that matter? 

Sadly, methinks not. It'll become much the same as any other processed food. Once the 'lamb leg' becomes an unknown thang because most people can't afford it ... It looses relevance ... and it's value.

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Alliance plant Lornville today had to send stock home after staff failed to turn up for work...  Its a mess

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Demonstrates another eternal negativity. Who wants to be,  plet alone can afford to be on the chain as a seasonal worker,  and it is hardly the most attractive workplace environment either. 

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Now I see the problem

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Osty - I would take them blaming staff with a grain of salt. Not Alliance nor Lornville but another site blamed staff, weather, local council, anyone and everyone but in the end came down to incompetent management. 

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No mention of the massive pork glut in China. Too much cheap pork make NZ lamb relatively expensive.  Similar to the Turangi windblow creating a log glut in the same market.

"China tries to stabilise pig population as pork prices plunge

Beijing acts to tightly monitor herd size as falling prices help add to wider climate of deflation

China’s pig herds, which make up about half of the global total, were devastated by an outbreak of African swine fever from 2018 to 2021, leading to widespread culling, higher prices and a push for more production that in subsequent years resulted in volumes recovering to the point of overcapacity. China’s pig population was 434mn in 2023, up significantly from a low of 310mn in 2019."

https://www.ft.com/content/c2535517-956e-40fb-b2c2-37afb8a746ba

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So whose fault is it then?

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It's no ones fault Jack. It's just the market. Only point being it seems a significant factor that doesn't seem to rate a mention in an article on red meat economics. 

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So what do you think will happen in the red meat market?

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All that tells us profile is customers will only pay so much. Unfortunately for sheep meat that is less than the cost of production.

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Its hard to imagine when Lamb was getting $ 8 - 9 k.g , that it was becuse it was competing on price with pork in china . 

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Why are south island farmers going to pay same as North island farmers?

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It’s been mooted before and fiercely resisted but the prospect of merger of Alliance & Silver Fern Farms (in those days PPCS) may now well be converging like it or not. Assuming your reference to sourcing product through third parties refers to draughting, that can only signal once again the dreaded and negative element of overcapacity and the age old flawed mentality to gain throughout in order to lower cost by unit even though there is neither volume nor return in the market(s) to support those numbers. So just as per long ago for instance, Waitaki/Borthwicks and other subsequent rationalisations the only answer to overcapacity is to reduce the capacity, in short plant closures.

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All great questions, third party fills plants at whatever price is required and still keeps the public schedule low at the expense of the loyal suppliers. With technology (scales) widely adopted and lower lamb numbers it would be debatable if the expense of livestock reps can be justified any longer.

The bigger issue is that strategy, team culture or accountability at any level is not encouraged as they can to do the bare minimum on good salaries with other people's money and have each other's backs!

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all things are true. Having witness culture, staff and issues first hand I feel for the loyal rep who is treated like a commodity.

SFF reviewed their procurement process and have eliminated most of their third party activity and driven a good team culture which is in contrast to Alliance.

As i say, there is now a need to look internally, there is wastage and people with personal agendas that need to be sorted.

My feeling is it may be too late as they won't go far enough to stop the inevitable. 

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What I'm told by many Alliance farmers is there's a certain large stock trading firm which can buy there stock at a higher price than Alliance offers them direct, and send it to Alliance, plus get plant access and I assume take a margin as they aren't doing it from the goodness of their heart 

Now I'm a simple type but they are all part of the coop, some are actual farmers the other a trader. How does that get loyalty from all and a sense of fairness? It seems to me from outside the system that the company is loosing the room without realising it as most farmers tend to say nothing but just move on as they can to other options - or is this not true???

If true how is this defined as a coop then?

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Correct

 

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Who is running who and who is doing what!!!

After 40 years in business it seems to me there needs to be a day of reckoning with some brutally honest discussions within this industry.

Stop blaming or throwing rocks at anything or anyone outside the ship and sort the ship out. It will be hard and scary for all sides.

Until this is done there's going to be a ship with multiple steering wheels all going in different directions and it will end up with all rearranging the deck chairs on a ship called the Titanic.

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You are correct, the balance has shifted to large corporate suppliers dictating terms and the jo average farmer has to take what he is given.

The cooperative as we knew it has gone

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From my observations it is not often that any issue gets you hot under the collar. That in itself reveals worrying reason for concern. I had no idea that the dealings etc in procurement had descended into this sort of artfulness. The industry relies on three basic sectors and needs understanding and cooperation shared amongst them. Good, reliable farming stock. Efficient processing. Effective marketing. That one sector might think to control or exploit the other(s) is entirely self defeating obviously because not one can survive without the other(s.)

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It's worse than you could imagine. Unfortunately this isn't the site to be open on as repercussions likely.

But extremely Sad that a few people have poisoned what should be a simple business.

 

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Where do you think is the place to sort it out? 
Serious question as I’ve seen this rumbling around for a while and everyone seems to scared/threatened to say or do anything.

Very sad for the industry and a major problem in an already tough game.

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Your nominated spot

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Foxglove: The livestock procurement industry has been a cesspit of shifty dealings for decades! That includes the meat processors! Farmers really only have themselves to blame for this as a great many of them contract out of the buying and selling of livestock to 3rd party players (we all know who they are) and then wonder why they pay to much and receive to little! They don't seem to understand that the agents don't use their own money!!!

I have lost count of the times I have walked out of livestock auctions because a livestock firm has come with the intent of holding up prices on a day that should have seen depressed pricing. They would buy nearly every pen with no clue as to where they would be re-homed. The agents don't care as a large percentage of their income is commission based so its numbers, numbers, numbers for them.

As for Alliance they are trying to raise capital to prop up the operating budget in the hopes that they can keep trying to right off all their bad assets, of which they have many. These are "assets" that should have been written off 30 years ago! Any farmer wanting to be a shareholder in a meat company has rocks in their head!!

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Some livestock agents can be pretty shonky and expensive. Transporting livestock has become a high cost exercise. You have to think very carefully about entering stock in a sale. The cost of it is prohibitive.  Like accountants I think agents are trying to reinvent themselves to keep their income. I see many stock at auction that should have gone straight to the works. The $$ to the farmer would have been better. 

Why agents are still picking lambs beats me. Its not hard picking a fat lamb. 

Same with cattle. Why in this era of scales is an agent needed to pick your fat cattle. If you as a farmer dont know how to pick whats ready why are you a farmer?

The sales ring can be a foray into darkness. Bids out of thin air to pump the price. Agent bidding against agent, bids taken off you when you DID NOT indicate a bid. 

As farmers I think we need to be more careful. The professionals that advise us need their cut. And its out of our hide. They need us more than we need them. Cultivating better relationships with our processors seems a better ideal. But jeez what a year for Alliance to tax you on your stock. That money likely as not gone forever. 

 

 

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Belle, I think the problem is some farmers can't make a decision when it comes to selling, particularly in the drystock area. Many don't trust  processors and think the middle man will give them an edge. In all honesty I am for selling directly between farms and then directly to the processor. We only have to look at the very thin margins the meat companies work on when looking back over the last few decades. How anyone would want to invest in the industry is a mystery. But that reflects on us as producers of livestock as our endeavours would be in vain were it not for the processing industry and their marketers.

"Cultivating better relationships with our processors seems a better ideal" Couldn't agree more. That is where it is. That is how confidence is built up. Knowing where your supply is and the reliability of that supply. Farmers are their own worst enemies when they constantly look for one more cent with no thought to the company they should be loyal to.

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I agree with you Hans. The recent covid and drought years further pushed everyone to the brink. Many moved to a pre xmas kill. Suddenly big steers became a problem. The meat companies couldnt handle the pre xmas flow. Just one of the many effects of the last few years. 

We must not forget what the government did to us through covid. Between the bait and switch with interest rates. The lockdown rules. And the unmentionable, our farming systems were broken. I do not hold Labour fully responsible as essentially there was no opposition to it all. However here we are after the crowd laid its belly bare.

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Sounds like nothing has changed much since I done my apprenticeship under Borthwicks Cws 40 years ago.

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