February 15, 2008

Alliance Group proposes mega merger to control 80 percent of New Zealand's livestock

Southland-based processor, Alliance Group, proposed a Fonterra-like mega merger yesterday to create one entity and manage 80 percent of New Zealand's livestock supply from farm to market. 

The concept seeks to generate a turnover of about US$5 billion and lift on-farm returns by about US$400 million every year.

It has been supported by the farming sector to market New Zealand meat.

Owen Poole, Alliance chairman, stated in a letter to shareholders that low returns in the recent years threatened the long-term viability of many suppliers, so that a more radical step should be considered.

The dry season has many farmers facing a third year of cash losses as animals sell for less than production costs.

The consolidation of 80 percent of the sector's procurement, processing and marketing into one entity would lift on-farm returns, Poole discussed.

Poole said short-term gains for sheepmeat would be in the order of US$15 a lamb, arising from market cohesion and reduced overhead costs from the removal of excess processing capacity.

Alliance will hold meetings with farmers this month to get a mandate for the concept before talking to other industry players and the government.

Mike Petersen, Meat & Wool New Zealand chairman, said there would be issues to resolve but he was confident the government would be favourable on the concept.

Dunedin-based processor PPCS has given the concept early support. Alliance and PPCS together account for about 59 percent of sheep-meat, 37 percent of beef and 78 percent of venison exports.