Alliance Group returns to profit after two years with $93m turnaround
After two years, Alliance Group has returned to profit.
Alliance marketing manager Murray Brown responded to our questions:
Why do the markets and lamb prices remain so weak?
We know it is hard for many of our farmers. The important Chinese market continues to be affected by a slowing economy with uncertainty amongst investors further denting consumer confidence. This, combined with a high domestic kill, has reduced demand for lamb imports across the board, including those from New Zealand. Consumer confidence in the key Middle East market has also deteriorated as oil producing economies adjust to low oil prices. Although the NZ dollar is lower, it is not enough to make up for the decline in global price movements. While the dry conditions and heavy stock flows have resulted in full processing plants, the weak markets have offset gains and made it difficult to hold prices.
Will the demand for higher-priced chilled lamb ease when Easter shipments leave early next month?
Both Chinese New Year (ends February 8) and the Easter chilled consumption will be important to confidence levels, following these periods. Alliance Group generally sees demand from China easing following Chinese New Year and the volume of chilled product in the UK also drops after this key period. The chilled programme will still continue, but at lower volumes.
Is China potentially a big market for NZ lamb/red meat?
Despite the slowdown in the Chinese market over the last year, the country remains an important long-term market. China is NZ's largest market for frozen lamb and mutton.
China is absorbing all the volume of products suitable for their main consumption style (hotpot). With the reduction in tariffs, and the growth in population, NZ has become an important supplier of protein to China.
As distribution and logistics improve, we can and must be more active in this market.
Despite all the talk about growth in demand for protein, why are farmers not seeing that reflected in better lamb prices?
It has been a challenging season with our global markets under pressure and demand for product low, which has impacted on livestock prices, and this looks set to continue. While the volatility means it is difficult to make predictions, we expect to see some improvement as product moves into markets. We remain confident in the medium to long-term prospects for the red meat sector.
Red meat farmers are claiming current returns are not sustainable. How do you respond to the suggestion that if dairy bounces back we will see more dairy conversions as sheep producers chase better returns?
We believe there is a strong future for red meat despite the current weak market conditions. The global demand for protein and the emergence of a middle class in emerging economies means the fortunes of sheepmeat will improve. In the future, we may also see opportunities in Latin America and Africa.
What messages are you giving suppliers about how they can improve returns and the future of red meat production?
We're encouraging farmers to commit to the co-operative and ensure they have a stake and an interest in the business. Alliance Group is now the only 100% NZ farmer-owned major red meat processor and we have a clear strategy for ensuring our shareholders can achieve better returns. We believe this is a real strength because every cent we make is either re-invested in the company or given back to our farmer-shareholders.
