We were delighted to have so many guests attend the annual rural industry function hosted by Colliers Rural & Agribusiness last Thursday, 31 March.
The quality of information shared with us by our speakers was excellent as was the venue at the new Tait Technology Centre. We were fortunate to have Trevor Burt speaking in his capacity as a Director of Silver Fern Farms and John Judge in his capacity as Chairman of the Board of ANZ Bank New Zealand. Both were candid and open in their discussion with a focus on the rural sector, the change required to remain competitive and the challenges faced.
Trevor kicked the presentation off by providing a great insight into the drivers for strategic change for Silver Fern Farms and it was fascinating that these reasons were endorsed by John in his later presentation. Because John’s insights painted the global requirement for sector change, that had partially been responsible for Silver Fern Farm decision making, I want to turn the presentations round and start by sharing some of my take outs from John’s address.
John gave us an overview of the current global economic situation, followed by the anticipated impact on the New Zealand dairy sector. The global overview was a sobering reminder of the fragility of current markets worldwide with New Zealand able to take some comfort that we are not quite as exposed as other nations. Here’s a snippet of some of the global information shared.
Australia faces extremely high production costs and requires a major overhaul and restructure to enable it to trade successfully in international markets in the future. The debt per head of population in Japan is not sustainable and quite possibly positions that nation as the first major economy to suffer the extreme consequences of that. The American debt burden is very high with mammoth pension debts not reflected on the current balance sheets but these are still required to be taken into account, and predictions are for little growth out of Europe for some time, with current interest rates lower than inflation.
It is this wider story that the New Zealand economy is currently battling. As a small nation we are not positioned to actually effect change globally but obviously are impacted by what is going on in the rest of the world. This provides the backdrop for the current issues in the New Zealand dairy sector, the banks management of the situation and associated response.
ANZ Bank has previously undertaken a significant review of their exposure to the dairy sector and set in place measures to limit that exposure and assist the sector with required change to ensure greater levels of sustainability. A key action was a change in the way the bank thinks about and works with the rural sector. As a result of that shift in thinking, the rural business has now been merged with the bank’s commercial business so the rural business is now measured and evaluated in commercial terms. The bank has provided associated support to the sector to enable them to transition more easily into a new way of managing and doing business. ANZ has also reduced its share of dairy lending and focused on supporting higher capitalised clients.
John’s view is that the sector needs to undergo even greater change to both business management and farming methodology if it is to increase returns and ride the current wave of economic uncertainty. For example, change needs to occur in the current share milking structure and, as a nation, we need to resolve access issues in USA and Japan and subsidy issues in Europe.
John also highlighted a requirement for increased communication between customers and their bank with customers needing to be more open to the reality of the environment, talking to their advisors and driving forward with more of a partnership approach. In my opinion and experience, I think that is true of all sectors in business and a message well worth reinforcing.
The good news is that the banks will continue to support the sector but we were all left in no doubt that change is necessary and those that are more open in embracing that will have more success than a head in the sand approach towards new ways of operating.
This final point about the need to find new ways of operating was demonstrated so effectively by Trevor Burt in his presentation. He provided insight into the possibilities that can open up, if as a business, you take a fresh perspective and are prepared to turn tradition on its head. The sheep and beef sector hit the same wall that the dairy sector is now facing years ago, and Silver Fern Farms has bitten the bullet, embraced the requirement to do business in a new way and has a more secure and stable future ahead as a result.
Sheep and beef farm returns have been low for a sustained period with the traditional industry model in that sector no longer delivering required commercial results. The answer for Silver Fern Farms was a strategic shift and adoption of a new strategy – “Plate to Pasture”. The strategy is a move away from being a processor of animals to being a food company that creates “inspirational food by passionate people”. Fundamental to this strategy is the concept that the change must be consumer led and represent consumer values. The investment has been made into new product development and value add.
Trevor highlighted that the problem for Silver Fern was a poor capital structure that would hinder their ability to execute the new strategy. Directors knew that the change had to occur and performance had to improve if Silver Fern was to remain viable. It was the need to find a successful resolution to this issue that necessitated the capital raising exercise, resulting in the proposed partnership with Shanghai Maling. Shanghai Maling is part of China’s largest food company – Bright Foods, which has a distribution footprint across China.
The partnership strengthens the Silver Fern capital structure with strong dividend prospects, enables retention of the cooperative structure and provides access to China with the premium strategy. With overwhelming support for the partnership from shareholders the company now needs OIO approval to meet the deal completion date of June 30th.
Both presentations left us in no doubt that the world is changing at a rapidly increasing pace and that those of us in business – whatever its nature – need to remain ahead of the game and continue to seek out efficiencies and strategies to ensure long term sustainability.
While we may not be in a position to do much about global economic buffeting we can, and should, ensure that whatever sector we are in we are continually looking forward, looking for new efficiencies and strategies, seeking out support and continuing to communicate with advisors.
Once again we would like to thank our speakers Trevor Burt and John Judge for their insights and comments and all the people who attended and contributed to the industry conversation.