Tuesday, March 12, 2013

Should meat companies merge

Should the Meat Cooperatives merge?
I used to be rather ambivalent as to whether the two main cooperative meat companies, at least, should merge or not. I accepted the line that we were fed, namely the economic advantages were not that significant unless we could get some magic figure of say 90% of the industry.

We are still being fed this line: Eoin Garden claims that “Aggregation or consolidation must be wider than the two co-operatives otherwise only the coop shareholders would carry the cost? Well Mr Garden I have some news for you, the shareholders are and have been carrying the cost of this mickey mouse run meat industry for years now; we are all getting paid buggerall this year so they can recover last year losses. (I might add not all of us received ridiculous prices for our lambs last year either, if you killed before February you did alright, but after that!).

I believe the arguments for merging the two coops is not about rationalising capacity issues or indeed any apparent economic advantages that may be gained from being bigger and one entity (which may or may not be a bonus), but more about eliminating the major economic disadvantages of the coops continually competing against each other through: firstly the ridiculous procurement model that we have been operating under for years and secondly the undercutting of each other in overseas markets to get rid of the product (which is generally a direct consequence of the ridiculous procurement model).

If the two coops merged tomorrow, my thoughts as to what should happen are:
• you would put a schedule in place for the whole season that would be conservative and considerably less than what it budgets or expects to get in the next financial year; and
• It would be a schedule that would be slightly higher at the beginning of the season (a sufficient amount to encourage those farmers who can, to lamb early) and then taper off a bit, but not drastically so; and
• A schedule that would not miraculously drop because of adverse economic events i.e. a drought. Why does a cooperative reduce the schedule when farmers have to get rid of their lambs, its supposed to be a cooperative and look after shareholders, not screw them; and
• the schedule price in any one week would be the same for everyone who have lambs killed that week, no special prices for lamb traders or big players e.g. landcorp. Traders should make their money from a numbers game, not getting a better per kg price than the breeder. We all get the same, yes what a concept “equity and fairness”; and
• When the coop later sells the lamb at a price that is budget or better, then as the original schedule price paid to farmers was under that figure, it would pay all shareholders an additional payment per kg of lamb supplied; If for some reason, it was sold for less than what was paid originally to the farmer, then as it’s a fair and equitable system for all shareholders, the next year’s schedule would be adjusted accordingly; and
• As shareholders we would sign contracts to supply lambs on this basis, as it would be fair and equitable and reliable and we would back the coop to do its job over and above the schedule price it had already paid and get the balance at the end. You would have certainty of supply; and
• As the two main players had merged, you would keep out of the store lamb market altogether and allow the market to decide the price not meat companies and
• You would pay on yield, but unlike Alliance at present you would pay a price per kg for the shoulder based on the value of that cut, similarly a price for loin and a price for hindquarter, all of which are paid independently of each other, not contingent on meeting the a threshold in all three. I was assured 2 years ago that this indeed would happen after raising it with the hierarchy, only to find nothing has been done. Such a payment system would ensure the breeding operation focused on the valuable cuts of the animal.
• Clearly as one entity SFF and Alliance would no longer be able to undercut each other in overseas markets.

I would assume to make this happen special general meetings would need to held; whereby the shareholders would demand the resignation of Mr Poole, Mr Garden and Mr Cooper (possible Mr Cuff also), this would remove the EGOs which I feel has become the main obstacle to making this happen. Shareholders need to make this happen, not just sit back and moan.
Incidentally if we got the two merged, I feel this would also become the logical primary vehicle to advance WOOL, the majority of us would already own it, it would just require some thought and expertise as to how we go about it.

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