Meat co-op dilemma
Meat processor Alliance Group's cash-strapped farmer shareholders face a dilemma - either pour more money into the co-operative or risk losing 100% ownership and control.
The co-op reported an operating result of $8 million for the year ending September 30, 2018 versus $20.2m the previous year.
It paid at least $14m in loyalty payments and another $31.6m in advance payments to support farmers during periods of low cash flow.
Turnover rose to $1.8 billion ($1.5b in 2017) and payment to farmer shareholders for livestock was at least $1.2b. Shareholders will get a bonus share issue based on livestock supply during the 2017-18 financial year.
Alliance chairman Murray Taggart says the co-op is also increasing sheep processing capacity and it added overtime to assist farmers during the summer dry spell, pushing costs higher than anticipated.
“When the rain did come, we made the decision to maintain capacity ahead of the expected second peak in processing volumes. As a cooperative, it is our responsibility to be there for our farmers when they need us.
“We also added capacity to manage our farmers’ beef processing requirements, which saw bulls, dairy cull cows and the Mycoplasma bovis cull overlap.”
Market prices for lamb eased late in the season and procurement pricing was slow to align, impacting late season profitability.
“It was a challenging year for beef profitability with weaker international pricing. We are enacting changes to our business model to improve our capability in this area.
“As a 100% farmer-owned cooperative, we always work hard to maximise farmgate results and our farmers received strong livestock prices and other benefits over the year.”
The balance sheet and shareholders’ equity (64.1%) remain strong.
“We have also made good progress improving the operational performance of the cooperative and lifting capability within the business.
“The cooperative is not making a profit distribution to shareholders and will instead invest in the long-term future of the business. Our farmers overwhelmingly backed this decision at our recent round of shareholder meetings. We will also issue 9.5 million bonus shares to shareholders next month.”
Chief executive David Surveyor says the company has been building capability, strengthening its sales and marketing activity and moving faster to capture more market value.
“Alliance is a more competitive co-operative as a result of our progress in lifting efficiency, improving our operational performance and identifying opportunities,” says Surveyor.
“There is still a lot of effort needed to lift the profitability of the cooperative to more sustainable levels that we and our farmer shareholders expect. The next 12 months will continue to see Alliance execute its strategy to bring farmers greater returns.”
Logo and tech upgrades
Alliance says it is continuing to invest in new technology and innovation.
This includes a $15.9 million venison plant at Lorneville in Southland, a primal cutter at Dannevirke, an upgrade of the engine room at Lorneville and the replacement of the co-operative’s IT system.
The company’s new corporate identity, launched in September, has been rolled out to global markets and has been “very well received,” claims Surveyor.
“We are combining our world-class processing capabilities with our great relationships with farmers to build a premium food company; we are targeting discerning customers and the new farmgate logo reflects that.
“The new identity captures our roots as a co-operative, our farmers’ dedication to raising outstanding livestock and our market focus on food and solutions.”
