Farmer Owned Not Way of Future?

July 1, 2008

PGG Wrightson needs 75% of Silver Fern Farms’  shareholders to support PGW’s move to take a 50% stake in their company. The vote will also determine how important shareholders regard farmer control.

Silver Fern farmers will be asked to surrender control of their company to a partnership with Wrightson, with the two partners each having four members on the board.

In September, the 9000 farmers will vote on the deal, with a 75 percent majority needed to allow the cooperative’s constitution to be changed.

A 75% majority is a big ask, but not impossible.

“The big question is: who are the natural owners of the assets – is it the farmers or is it others?” Meat and Wool NZ chairman Mike Petersen.

“We’re going to get answers now, from the vote the Silver Fern farmers have”.

Another question concerning Co-operatives Association chair Peter Macdougall is the impact on farmers’ incomes.

“This is a decision the members of the cooperative need to make. It comes down to how they believe they’ll be getting the best dollar for their animals, and to what extent they want to retain control of their cooperative business.”

“The same dollar can’t go in two directions,” he said.

If farmers are convinced the the new structure will increase earnings that might not matter.

“Farmer members will be interested to know how the cooperative can retain its cooperative status with PGG Wrightson holding half of the voting shares.”

The Cooperative Companies Act 1996 only allows for 40 percent of investor shares in a cooperative. PGG Wrightson is seeking a 50 percent stake in Silver Fern Farms, and offering to pay $220 million…

The meat industry has been dogged by the tension between seasonal supply of lambs and the market demand for year-round supply. The PGW strategy aims to provide high value chilled cuts 12 months a year rather than what happens now with 70 percent of sheep slaughter taking place between December and May.

That’s good in theory, but not so easy in practice for farmers who don’t have the feed to finish lambs in winter and spring. However, higher returns from the meat industry mean processors have to meet the market, and if year-long chilled cuts are what consumers want, farmers will have to find a way to supply it.


Still No Crisis?

July 1, 2008

Hawea people are losing patience  with the Government’s refusal to admit there’s a power crisis.

The Government must bite the bullet and tell the nation to make a 10% savings on power or endure public shame if it is not achieved, the Lake Hawea Community Association chairman Errol Carr says.

Lake Hawea residents are on high alert as Contact Energy begins this week to draw down Lake Hawea to the emergency level of 336m for the first time in 20 years.

Mr Carr said the lake level was stable at about 338.1, but a public demonstration was likely if residents’ concerns about low lake levels and environmental damage were not heeded.

“If told, I think the South Island would buckle in and do what they can. The Government is saying there is no crisis, but why are we going to emergency generation?”

Because it’s election year and Labour doesn’t want power cuts.

Lower South Island residents have saved the lowest percentage of electricity, recording 3.2%, according to Transpower statistics.

Upper South Island residents have saved the highest percentage nationally, at 4.1%, and the national average savings is 3.6%.

I don’t know how much power is the difference between 3.2%, 3.6% and 4.1%, nor why the Upper South Island beats the national average. – But it’s easy to explain why savings are lower in the lower south: it’s winter, and the further south you go the colder you get. Here,  around the 45th paraellel, yesterday’s frost still hasn’t thawed from shady places and it’s only .5 degrees outside right now.

Mr Carr said while he did not want older people and those with limited heating sources to suffer, the national average was “pretty mediocre” and there was a lot more that could be done.

He attributed the Government’s reluctance to take leadership to a desire to avoid bad news during an election year.

“We would like to see the Government telling the country there is a problem,” Mr Carr said.

And I’d like to see the Government explaining to the country why there is a problem.


Who Needs History Lesson Now?

July 1, 2008

Remember Helen Clark criticising John Key for his grasp of history last week?

In Colin Espiner’s story about her speech to a journalism conference she was quoted as saying: “Today’s political editors of the two main TV channels were barely in their infancy, if born, when Norman Kirk brought the troops back from Vietnam…”

I posted  on this yesterday and a couple of commenters said Kirk didn’t bring the troops home, that was done in 1971, before Kirk came to power.

Inventory 2 then said: … the Holyoake/Marshall National government started the withdrawl of NZ troops from Vietnam, although Clark is half-right about Kirk. He came to power in November 1972, and one of the first things he did as PM was to bring the REMAINING troops (of whom my eldest brother was one) home. But when you’re half-right, you’re also half-wrong!

If you are criticising someone else for lack of precision do you not need to be precise yourself; or does this just prove that a little knoweldge is a dangerous thing?


Silver Fern Farms PGW Plan Not Silver Bullet

July 1, 2008

The proposal for PGG Wrightson to take a 50% stake in Silver Fern Farms is not a silver bullet for the meat industry and initial reaction to the concept isn’t very positive.

… yesterday’s announcement went down like a “cup of cold sick” with shareholders, who fear farmer-ownership of New Zealand’s largest meat company will be diluted.

Mossburn farmer Stephen Cullen said he was “bloody shocked” that Silver Fern Farms wanted to effectively sell its soul to outside interests and alienate itself from the rest of the industry.

Farmers feel very strongly about retention of farmer-control in the processing industry.

Meat Industry Action Group chairman John Gregan said he was “staggered” that PGG-Wrightson wanted, what he believed, was a controlling share in Silver Fern Farms.

“There’s no doubt the current structure is failing us, but the loss of farmer shareholding will be a sore point for some,” he said.

Mr Gregan believed it would be a “big ask” to achieve the 75 percent voter threshold required to advance the partnership.

MIAG has gathered proxies from SFF & Alliance shareholders to call a special general meeting of both companies aimed at getting the two comapnies together. I don’t know whether the proxies will enable MIAG to vote on the SFF PGW deal as well.
Federated Farmers Southland meat & fibre chair Martin Hall agreed the 75% would be difficult and farmers would have to dedecide whether they wanted to be an owner of a meat company or just a participant.

“I’m a bit angry about it. They (Silver Fern Farms) didn’t dream it up last month. It takes a long time to put together something like this.”

MIAG is meeting SFF chair Eion Garden today. One of the questions they could ask is: why SFF let the Meat Industry Taskforce waste time and money starting the process of developing an industry strategy when they SFF must have already been planning the deal with PGW?

Garden believes shareholders will support the initiative becuase of the immediate benefits.

The new board of SFF would decide on the use of the $220 million, but a sizeable chunk would go on the upgrade of existing processing plants, including the use of robotic meat-cutting systems developed between SFF and Dunedin’s Scott Technology.

“This industry is starved of capital.

It’s one of the fundamental reasons we don’t have strong balance sheets and strong profits on a long-term basis,” Mr Garden said.

He is right that lack of capital is a problem, but it’s not the only one. The drastic drop in sheep numbers has resulted in an over-supply of killing space so whether or not the deal goes ahead there will be more works closures.

The other problem is marketing and SFF & PGW say more money would be spent on researching customers and stronger branding of New Zealand meat. But they also say the money won’t be used for reducing debt and high debt is one of SFF’s big problems.

I haven’t spoken to anyone who is wildly enthusiastic about the plan yet but perhaps I’m talking to the wrong people. The ODT found a more positive reaction from Otago Fed Farmers meat & fibre chair Rob Lawson because it involved Craig Norgate.

I am cautiously optimistic. I can see some really positive things, and one of those is the business acumen of Craig Norgate and the PGG Wrightson team.”

Other factors the Merton farmer saw as favourable were the injection of $220 million from PGG Wrightson; the move to an integrated supply chain linking consumers with farmers; the potential for industry rationalisation; and the market focus the investment would encourage.

All these are fair points and there is no doubting Norgate’s abilities, nor his powers of persuasion. If he fronts a road show to sell the concept he may be able to change the minds of at least some of those who aren’t enthusiastic about it.

The loss of total farmer control of SFF was a possible concern, but Mr Lawson said farmers had to ask themselves what farmer control of the meat industry had achieved so far.

That’s a fair question but as Fonterra found when they tried to persuade their shareholders to open up the company to outside investment that farmers aren’t keen to lose control.


Winter’s white

July 1, 2008

It’s been a long time coming but winter is finally here – we had a cold weekend and a hard frost yesterday. Although it was sunny all day the ground was still frozen in the shady areas by late afternoon.

We woke up to a starry sky this morning and we’ve got another good frost. However, touch wood, the water is still running in the house taps and again there’s not a cloud in the sky so it looks like we’re in for another sunny day.

In Uruguay winter doesn’t officially begin until the mid-June solstice. Seasons don’t fit neatly into a calendar – we can get warm days in winter and cold days in summer, but it’s not unusual for us to get our coldest temperatures from July – and of course there is almost always a storm in time for lambing and calving in August.


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