The pressure is on Silver Fern Farms and PGG Wrightson to deliver on their promises after the partnership deal scraped over the 75% support hurdle last week.
But industry commentators are also saying the result will put pressure on Alliance to raise its game and play its part in industry reform.
In an unprecedented turnout of shareholders 83% of SFF suppliers eligible to vote did so with 75.62% backing PGW’s $220 million bid for a 50% shareholding.
Eoin Garden, Silver Fern Farms’ chairman, says he is delighted with the result.
‘This is not just about Silver Fern Farms and its shareholders, it’s about the future of the red meat industry.’
PGW’s $220m will recapitalise SFF, boosting shareholders’ funds to $510m and raising the equity ratio to 80%.
The partnership aims to create a truly vertically integrated supply chain – from plate to pasture – that better serves the needs of international customers.
‘We intend capitalising on the opportunities presented by an increasingly affluent and sophisticated international market, for high quality red meat products,’ say Garden and PGW chairman Craig Norgate.
Both say they are committed to driving for further industry consolidation, and consider the vote a clear mandate from shareholders to pursue that.
However, Alliance chairman Owen Poole has made it clear he does not believe a merger with SFF, and even less so the SFF/PGW partnership, is in the interests of Alliance shareholders, a view he says is endorsed by the landslide defeat of MIAG’s special meeting resolutions (see page 3).
Lincoln University’s Keith Woodford says in light of that view industry players need to look at what is achievable in the short term.
‘We need to get on.’
Top of his list is a move to 12-month contract supply: not year-round supply, he stresses, but a 100% commitment from suppliers to one company for a year’s production.
‘A system of 12-month contracts, like in the dairy industry, can work if both cooperatives commit to it. But it won’t if only one does it.’
Such a system would defuse the looming procurement war that threatens to drive prices to unsustainable levels, damaging both cooperatives and the industry as a whole.
A schedule of known premiums throughout the year would be offered upfront with a standard base price to be determined, rather like the dairy payout, once the year’s business is completed.
Suppliers not on contract shouldn’t expect to find space at the works, as companies will only open enough chains to process the stock they know they have coming on contract, he says.
‘The other thing for the contract to work is that the spot price mustn’t exceed the contract price. If it does, the contract price automatically goes up to that level and that needs to be written into the contract.’
Woodford says shareholders’ approval of the PGW/SFF deal not only puts the pressure on them to deliver, but means Alliance will have to play its part in addressing the industry’s issues too.
