Meat group wants ‘bad bank’
Meat industry reform group Meat Industry Excellence (MIE) is proposing to park the debts of New Zealand’s two farmer cooperatives in a ‘‘bad bank’’.
It would then create a cooperative which would act as a conduit for meat supply from its ‘‘significant’’ farmer support base, MIE chairman John McCarthy says. The good equity of the co-operatives would be placed in a ‘‘good bank’’.
In banking terms, impaired loans are placed in a bad bank by the parent bank which becomes divided into two banks, a good one that holds good loans and a bad bank that holds the bad or toxic loans.
The most debt-laden cooperative is Silver Fern Farms, which in September 2014 carried $288.6 million of debt. It has been trying to raise about $100m of new capital through investment bank Goldman Sachs.
McCarthy said the most compelling message to motivate farmers to join the new co- operative – which has the working title of NewCo – was the ‘‘spectre of foreign entry and eventual dominance of the supply chain’’.
An industry insider said a possible buyer of New Zealand meat companies was Brazilian company JBS, which dominates the Australian meat processing market. Chinese buyers are also said to be interested.
McCarthy said MIE’s proposal was a ‘‘serious alternative’’ to raising new capital.
‘‘The new proposal is a good bank-bad bank thing. We’ve had discussion with leading financial institutions and banks and it has got real legs,’’ he said.
He said he did not want to go into detail about the proposal because it was still in the ‘‘conceptual’’ phase.
The plan would involve reducing the over-capacity in the industry.
The only levers of power that MIE had were with the cooperatives because private companies had no incentive to change the model.
‘‘A private company just has to pay an extra 50c to ensure supply and they pocket the difference. They have no incentive to change for the betterment of farmers,’’ McCarthy said.
Funding for
the
new
co- operative would be from three sources: the shareholders of the existing co-operatives; from ‘‘all’’ farmers who would buy shares; and ‘‘for those cash strapped or inherently sceptical a levy proposal over the period of their committed supply’’.
Farmers would be expected to commit to supply livestock for three years.
‘‘It may be that some form of protective legislation may be required to enable aspects of this condition,’’ McCarthy said.
Agribusiness NZ chief executive Conor English said he had been involved earlier in discussions over the SFF debt.
He said MIE’s proposal appeared to be a form of ‘‘toll processing’’ whereby the proposed co-operative would supply livestock to processors, and would then sell the meat.
SFF and Alliance were not attracted to the concept, English said.
His preferred option was for existing shareholder farmers to be given a chance to invest into the co-operatives. The $100m that SFF needed was not a lot in relation to the value of farmers’ landholdings.
He said there should be more emphasis on creative ways of selling products.
‘‘We talk about being an export-led economy, but we just send stuff to the beach, throw it on a ship and forget about it. What we’re not doing is going into other countries, setting up camp there and importing from New Zealand,’’ English said.
‘‘We haven’t invested in any supermarkets in the United Kingdom for example, but we’ve been concerned about the margins they’ve been taking,’’ he said.
Meanwhile Beef+Lamb NZ says it is ‘‘very close’’ to getting agreement on a collaborative marketing entity with a budget of $8m a year to promote New Zealand sheepmeat and beef by partnering with meat processing and exporting companies.
B+LNZ chairman James Parsons said the industry body had been working to agree a 50:50-funded way of promoting New Zealand sheepmeat and beef and telling the unique ‘‘country of origin’’ story.