Friday, March 29, 2024

SFF has new plant in its sights

Neal Wallace
Chinese investment in the New Zealand primary sector is worth about $2 billion and rapidly growing. As Silver Fern Farms concludes the final details on its partnership with Shanghai Maling Neal Wallace begins a two-part series looking at this contentious issue.
Reading Time: 4 minutes

THE ink on their joint-venture contract is barely dry but Silver Fern Farms and their Chinese partner are already talking about building a new plant producing value-added meat cuts for China.

During a recent visit to the SFF head office in Dunedin, Shanghai Maling chairman Wei Ping Shen said he wanted to see SFF transform from a meat company to a food company.

The joint venture between the two companies, in which Shanghai Maling would invest $261 million for a half share in SFF, was on track to take effect from January 4, he said.

Shen and SFF chairman Rob Hewett said it was business as usual for suppliers and staff but further out the intention was to use Shanghai Maling’s knowledge of the Chinese market and its retail presence to grow volumes of value-added products.

SFF exported about $350m of primarily commodity meat cuts to China but Shen said SFF had been working on new cuts and products tailored to the Chinese market that would be assessed during his visit.

Hewett said while the deal injected cash and removed debt, just as importantly SFF would also use the relationship to help with export licensing of more plants to export to China.

The joint venture allowed SFF to address several issues facing co-operatives, such as being cash-constrained and accessing markets.

As sales of value-added product to China increased SFF would refine contracts with farmers and provide feedback to ensure it got the stock needed.

“Ultimately as we increase value-added product we will outgrow it and we will need a new dedicated plant.”

Rob Hewett

Silver Fern Farms

It would also be rolling out a trial sheep meat eating quality (EQ) programme in the coming year similar to its beef EQ programme.

The capacity of the company’s food tech retail packaging plant at Takapau was likely to be exceeded as sales of value added product grew.

“Ultimately as we increase value-added product we will outgrow it and we will need a new dedicated plant,” he said.

Shen said during their visit he met with board and management about the company’s strategic plan, co-operating in the Chinese market and developing value added products.

They also met with prospective directors to represent Shanghai Maling on the joint venture board, SFF Ltd.

Just like SFF, China’s Bright Dairy, a sister company to Shanghai Maling, was Synlait’s white knight.

It was 2008 and the global financial crisis had hit and the ambitious Canterbury dairy processor was looking for investment to expand.

Synlait chairman Graeme Milne said the company had embarked on a public listing but had failed to get traction due to the global financial meltdown.

Once the green shoots of recovery started to appear in 2010, Milne said they initiated a private placement which was taken up by Bright Dairy, a subsidiary of Bright Foods.

The Chinese company bought 51% of the Synlait for about $80 million which enabled the dairy processor to build its second dryer.

Bright Dairy also participated in a recent $100 million rights issue and today it was Synlait’s largest shareholder at about 40%.

“They have been a loyal shareholder in the company since they joined us.”

Milne said they have contributed to the board, provided insight to the Chinese market and while not an exclusive customer, was an important one.

Synlait was Bright Dairy’s first offshore investment in a food company and he could not see any negative consequences from foreign investment.

He said off shore capital allowed businesses to grow and it reflected the fact the world was in effect a global village.

Part of the reason for the recent influx of dairy investment was a looming deadline by which time nutritional manufacturers supplying China must be registered.

Foreign capital enabled companies like Westland Milk Products to invest in a joint venture, Pure Nutrition, with China-based Ausnutria and build an infant formula blending and canning plant at Rolleston near Christchurch.

Westland chief executive Toni Brendish said Ausnutria’s investment enabled Pure Nutrition to be developed, something she said shareholders could not afford given the dairy downturn.

The two parties already had a relationship and would benefit from Ausnutria’s knowledge of the Chinese market and its contacts.

Ausnutria will invest $4.5 million and Westland transfer land worth $3 million to Pure Nation, which would be 60% owned by Ausnutria and 40% by Westland.

The Chinese company would loan Pure Nation $32 million to run the plant to which Westland would be the sole supplier of 5000 tonnes a year of infant and toddler nutritional products from the second year of operation.

Brendish said Chinese investment in New Zealand food production was strategic and calculated and not a gold rush.

While Chinese investors were accessing food internationally, investments still had to satisfy basic business principles.

“They first look at whether it is a good fit, is it an organisation that fits their values and growth projections and will it supply the products they need.”

Brendish said China had been a focus for exporters but Westland was looking elsewhere for markets and saw Indonesia as having huge potential with a growing, affluent middle class and a history of consuming dairy products.

Examples of Chinese investment in NZ primary industries and food processing.

November 2010: Bright Dairy becomes a shareholder in Synlait.

April 2012: Shanghai Pengxin buys the 16 Crafar family farms.

May 2014: Lianhua Trading Group buys a stake in Southland meat processor, Prime Range Meats. In November it increases its stake to 75%.

November 2014: Yili opens a $214m processing facility at Glenavy in South Canterbury and announces plans for a $400m expansion in five years.

January 2014: Shanghai Pengxin takes majority stake in Synlait Farms, later renamed Purata.

February 2015: Blue River Dairy Products buys Blue River Nutrition HK. It is sold to another China-based company Blue River GP in April 2016. New owners announce plans to invest $40m in expansion.

November 2015: Yashili opens $212m infant formula plant in Waikato.

December 2015: Binxi Foods buys outright shares in processing plant Lean Meats Oamaru Ltd.

April 2016: Allied Faxi Food Co starts producing ice cream from a factory in the Hauraki District.

July 2016: China Animal Husbandry Group announces plans to invest nearly $200m in Mataura Valley Milk.

August 2016: Shanghai Maling’s $260m offer to buy half the processing assets of Silver Fern Farms are approved by shareholders.

September 2016: Westland Milk Products and Ausnutria form a joint venture to build and run a blending and caning plant at Rolleston in Canterbury.

October 2016: China Resources Ng Fung increases its stake in Comvita from 5% to 9% following a share placement.

 

 

Total
0
Shares
People are also reading