Alliance moves to deepen cooperative culture as Silver Fern sells stake

Alliance Group, New Zealand's second-largest meat processor, plans to entrench its cooperative status, encouraging farmers to 'share up' at a time larger rival Silver Fern Farms is watering down its cooperative by tapping a Chinese investor for capital to repay debt, upgrade plants and invest for growth.

Farmer groups failed last year to force a mega-merger on the country's two large South Island-based meat cooperatives. Both changed chief executives last financial year and Dunedin-based Silver Fern is now awaiting regulatory approval for the $261 million sale of half its business to Shanghai Maling Aquarius, while Invercargill-based Alliance is moving its business model further towards a cooperative system.

"Let's face it, the landscape has changed in the industry, it's a real point of difference, we are the only 100 percent-owned farmer cooperative in the industry," said Alliance chair Murray Taggart. "In a true cooperative all the people that supply it would supply it with 100 percent of their stock all the time. We don't live in a perfect world. When we are dealing with our shareholders, what we are trying to do though is reward those that are adhering to that cooperative principal."

The renewed focus means there will be "more transparency and rigour" to reward loyalty from its shareholder suppliers, he said.

That means in times of tight capacity and uncertain market conditions, Alliance will prioritise taking additional shareholder stock at its slaughterhouses, it will pay a 10 cent-a-kilogram premium to shareholders who commit all their livestock, and continue advance payments for shareholders who commit to lamb supply.

Alliance is also rejigging its share structure to ensure that farmers are holding the right amount of shares proportionate to the amount of stock killed with the cooperative each year, Taggart said. It's going to start skimming off 50 cents a lamb, and a proportionate amount for cattle and deer, to speed up the rate at which farmers become "fully shared up" and ensure some suppliers aren't being subsidised by others.

"Cooperatives are about family values, honesty, integrity, and fairness, and having one group supplying more capital per stock unit than another group isn't particularly fair," he said. "We are trying to make sure we are being fair, being transparent, being honest with our shareholder suppliers."

Alliance has undertaken surveys and focus groups ahead of the changes and says the reaction from farmer suppliers has been positive.

"Not every farmer in New Zealand believes in cooperatives so we want to build a business around those that do," Taggart said. "Cooperatives are inter-generational so we don't see this as whether we can change something dramatically for the next year, that's not what this is about. This is about ensuring the place of the cooperative for not just this generation, but the next."

It's also stepping up its communications in an attempt to deepen its relationships by holding more events and providing more information to shareholders.

"We have tended to be a bit of an under the radar company and sort of let actions speak louder than words which I guess is a wee bit of the Southland-based culture of the company coming through and we've felt we need to lift the game in communication."

Alliance was founded by Southland farmers in 1948 and formally became a cooperative in 1980, meaning it is owned by the farmers who supply its livestock.

(BusinessDesk)