Alliance is moving to entrench its co-operative status as its larger rival Silver Fern Farms waters down its co-operative by tapping Chinese investor Shanghai Maling Aquarius for capital to repay debt, upgrade plants and invest for growth. If successful, Alliance’s move will ensure shareholder investment in the co-operative matches livestock supply, and will bolster its own balance sheet.
"The Alliance Group has made it plain that they would like to be in a position where they have complete alignment between their shareholders and suppliers – a very efficient model, as acquisition costs/costs of contracting/transaction costs are expected to be minimised at this point," said James Lockhart, senior lecturer at Massey University's School of Management.
"Traditionally farmers have probably been under-capitalised in the processing side of the industry, particularly if you compare us with the dairy industry, or the likes of the kiwifruit industry or other industries," said Rick Powdrell, chair of Federated Farmers meat and fibre industry group.
Powdrell said that to get farmer support, Alliance will need to clearly outline how the extra investment in shares will aid farmers.
The Federated Farmers meat and fibre industry group is likely to discuss the move at its council meeting in Wellington next week, said Powdrell. A farmer in Te Puke, he isn't an Alliance shareholder and says he doesn't have the option of a sheep co-operative because of the distances to plant.In a letter to its farmer suppliers outlining the proposed change, Alliance said some shareholders don't currently hold enough shares to reflect the amount of stock they supply.
Alliance also wants to retain more profits to allocate towards share payments. In future, it wants to be able to withhold half of a profit distribution as payment towards shares, up from a third currently.It is also ending the current scaling shareholding system which rewards larger farmers.
Currently shareholder suppliers are expected to hold 11 shares a stock unit up to 5000 stock units and then reducing to 4.5 shares a stock unit, but limited to 25,000 stock units in aggregate.
One lamb, sheep, or calf is equal to one stock unit; one deer is equivalent to four stock units; and a cattle beast is equivalent to 12 stock units.
Under the revised calculation, there will be no reduction from 11 shares a stock unit after a particular level of stock units, reflecting that all stock processed requires the same use of processing facilities and therefore should require the same number of shares, Alliance said.
“The strength of the co-operative depends on farmer ownership and all farmers contributing and benefiting equitably,” Alliance said. “We are all in this together and these changes will ensure all members of your co-operative invest equitably and that the business is appropriately capitalised to operate sustainably.”
The co-operative is also lifting its shareholding cap to 1.35 million shares, equivalent to about 2% of its shares, from a current level of 145,000 shares.
Alliance said it was aware farmers had faced a “challenging” season and its board debated the changes “at length”, mindful they would have financial implications for those shareholders who don’t have enough shares.
“In the end we were of the view that delaying these changes would prolong the inequity of the current system where those shareholders who meet the standard shareholding effectively subsides those who do not,” it said.
