The future of the Alliance Group as a co-operative depends on how shareholders respond to its capital raising programme, says chair Mark Wynne.
“If farmers want Alliance to remain a 100% farmer-owned co-operative, the only way that can happen is if shareholders contribute,” he said.
Alliance’s recent capital-raising announcement prompted some shareholders to question why Alliance on occasion pays more to third-party or volume suppliers than to its shareholders for their stock, with accusations that is not consistent with the co-operative spirit.
Wynne acknowledged that concern.
“We hear that loud and clear,” he said.
He said Alliance intends to reduce its involvement with third parties or volume suppliers, but it is not straightforward as they fill periods when supply is short.
There have been occasions when farmers have cancelled supply due to a sudden flush of grass growth, which he said leaves plants fully manned but without the animals to process.
“The fastest way to fill those hooks is to turn to third party or volume suppliers and the majority comes from non-Alliance supplier-shareholders.
“Our direction of travel is very clear: to increase the percentage processed direct from our farmer shareholders and decrease our reliance on third parties.”
Wynne said strengthening the connection between stock agents and shareholder-suppliers is key to that shift.
Other issues raised by shareholders at recent Wanaka and Canterbury shows and Southern Field Days at Waimumu, were to simplify the schedule and to be more competitive, to be honest in its communications and strengthen the co-operative’s balance sheet.
Wynne said Alliance’s banking syndicate is uncomfortable at current market volatility and wants the company to strengthen its balance sheet.
He estimates Alliance will need $100-$150 million in funding over the next few years but not all of it will come from new shareholder equity.
To reduce its demand on working capital, Alliance is carefully managing its inventory, accelerating its sales programmes, making changes to receivables and potentially divesting non-critical assets.
Wynne said the changes will strengthen Alliance’s balance sheet but also ensure shareholders have sufficient shares to match the volume of stock they supply.
To achieve that, the amount deducted per head of stock unit processed is being increased from $1 to $4/livestock unit.
The board has also increased the number of standard shares required to be held by shareholders from 12 to 16 shares/livestock unit.
Those already shared up will have $3/livestock unit processed deducted until they reach that new level.
Deductions will begin immediately.
Should the capital raise fail, Wynne said options include – but have not been fully discussed by the board or shareholders – issuing preference shares to farmers and agribusinesses or sourcing funding from outside the co-operative.
Wynne said examples of alternative ownership options within the meat industry include Silver Fern Farms Ltd, which is half-owned by Silver Fern Farms Co-op and China’s Shanghai Maling, and ANZCO, which, since 2017, has been fully owned by Japan’s Itoham Yonekyu Holdings.
It will take a few months to measure farmer reaction to Alliance’s request, but Wynne said recent shareholder interaction reveals support for the co-operative, an awareness of the request for capital, and the comment that the timing is not ideal.
Alliance is holding a series of woolshed and online meetings with shareholders to discuss the issue further.
Co-operatives have previously struggled to raise capital from shareholders.
A capital raise by Silver Fern Farms, which was under pressure from its bankers, failed and ultimately led to the sale of half its business to Shanghai Maling.
“In a co-operative you have got to play the longer game,” said Wynne.
“In the case of Alliance, the increase in shareholding equity has not risen for many years at the same rate at which revenue has increased.”
Alliance is growing its added-value business and Wynne said if the capital raise is “outstandingly successful”, capital could be invested in those added-value programmes.
Wynne said in his time working for Fonterra, it successfully used joint ventures to promote value-added programmes, which did not require the same capital investment and was something Alliance could replicate.
Halfway through the current financial year, Alliance is forecasting a modest profit.
This follows a pre-tax loss of $97.9 million for the 2022-23 financial year.
Wynne remains confident in the future of red meat, saying the world is hungry for high-quality protein, which NZ farmers can supply.
