PGG Wrightson’s misguided attempt to buy into Silver Fern Farms last year cost the rural servicing firm $40 million last year.
Another unfortunate deal with the meat company has cost PGW $9.6 million and made a major contribution to its $30.7m loss for the year to June.
In 2009, the company entered into a 10-year supply contract for livestock to Silver Fern Farms. To the extent that the company was unable to meet the annual agreed level of supply, in certain circumstances it was required to make a payment to SFF related to the shortfall.
Due to the level of supply and current livestock market trends, a provision of about $9.6 million had been made, representing the best estimate of PGGW’s expected liability for shortfall payments over the remaining contract term.
Stock agent’s are supposed to get the best deal for their clients. They can’t do that if the company they work for has tied itself to one meat company.
The huge loss of lambs after the snow storm last year combined with increased demand and much higher prices would have made it a difficult season for PGW anyway and the deal with SFF compounded its problems.
PGW’s loss has been SFF”s gain again.
SFF was on its knees before Craig Norgate led PGW’s merger bid. The penalty payments when that deal collapsed helped the meat company back into the black last year.
We’ll have to wait for SFF”s results to discover the importance of the amount PGW contributed to its bottom line this year.