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Statment From Meat Industry Action Group

Statment From Meat Industry Action Group

Friday 22 August 2008

Alliance Shareholders have been sent a ‘Notice of Meeting’ to be held 5th September, 2008 that was accompanied by the following statement from MIAG in support of the SGM resolutions.

Dear fellow farmer & shareholder,

This is a message from the executive of the Meat Industry Action Group Inc. (“MIAG”) in support of the Resolutions which Keith Milne, MIAG Committee Member will be putting to Alliance’s Special General Meeting on 5th September on your behalf (the “SGM”). 

Our Meat Industry

NZ has the finest red meat industry in the world. We supply 8% of international trade in beef, and over 50% of international trade in sheep meats yet our industry is in crisis. For example it is estimated that 7 million less lambs will be killed this year. 

MIAG believes that consolidation of the current fragmented market and supply chain will strengthen our industry and increase returns. If you look at the material on or if you look at the success of Fonterra, you can see what it takes to build a great industry.

Key to this is creating the appropriate structure. Fragmented industries which make no profits cannot afford to invest in R&D, marketing, or in high quality management. It is as simple as that. 

Industries with excessive fragmentation are doomed to production of undifferentiated
commodity products and to cycles of boom, bust, excess capacity and poor quality
management. They yield low prices and minimal profits. 

Consolidated industries are almost always more profitable than highly fragmented industries.

However, it is important to remember that those profits will flow to the shareholders of the central player, not the suppliers or clients. MIAG would like to see the benefits of consolidation flowing direct to farmers rather than a private sector consolidator. For this reason MIAG believes that, as well as being consolidated, the NZ meat industry also needs to be farmer owned and controlled (a “ National Champion”). 

Farmer control should be through a Shareholders’ Council. The National Champion should not be run by farmers day to day but by top quality commercial directors and world-class professional management. 

NZ has 26 red meat exporters marketing substantially similar products in our major markets.
Although this is too many MIAG remains fully supportive of boutique marketers existing and competing alongside a National Champion. 

MIAG’s Vision

MIAG believes that the NZ meat industry needs to be consolidated around a farmer controlled National Champion, like Fonterra. We believe that this National Champion could target 80% of NZ red meat exports to offer sufficient structure and leadership. 

MIAG is concerned that, despite some decent attempts, existing industry leadership has not delivered the industry consolidation we need. MIAG is of the view that “trying hard” is not good enough. We need results.

Unfortunately, in our judgement, our Directors are now focused on “shoring up their capital” to preserve traditional industry structure and often resort to “tribal. Rivalries” rather than creating the National Champion we need. 

Due to present circumstances and failures MIAG decided to canvas support from grass root farmers and to “vote change” through at the shareholder level. MIAG obtained sufficient authority from shareholders to cause both of the major NZ Meat Co-Ops to vote on the structure of the industry. These authorities were sent to both Co-Ops on 7th July 2008. 

MIAG has called this SGM in order to create a process towards a National Champion. If you vote for Resolutions A you will create a “Constitutional Committee” made up of Meat Co-op Directors, Meat & Wool NZ and an independent Chair. 

A vote for Resolutions A creates an independently chaired Constitutional Committee that provides a foundation for a better industry built around a National Champion. The specific shape of that industry will take time but farmers need to set out a clear objective for the industry for their Directors to follow.
What is our biggest challenge? Is it quality? Is it finance? Our biggest challenge is neither of those things. It is cooperation. Building an industry with leaders who talk to each other.

Given past rivalries Co-Op shareholders must hold their Directors accountable to “raise their Game” and deliver results. The “Constitutional Committee” process needs to have real teeth.

For this reason MIAG is asking you to vote for Resolutions B to give an opportunity to hold Directors accountable for their performance in March next year. By voting for this you enable the Chair of the Constitutional Committee, if he is not satisfied with performance of the Constitutional Committee, to allow an SGM to proceed, next March, at which stage all existing
Directors would need to re-stand for their positions.

On the other hand if the Chair feels the Directors have done their best, then he may elect to cancel that SGM and leave them in their
existing roles.  

In summary we urge you to vote in favour of Resolutions A and Resolutions B. A vote for these resolutions is the first step towards creating the National Champion we believe our industry needs. 

As regards the issue of external investment into either of the Co-Ops MIAG would welcome participation in the National Champion by top quality operators provided the National Champion remained farmer controlled. In many ways it would be better to be able to work with such parties with a strong mandate from farmers into the Constitutional Committee process.

The Constitutional Committee would then invite participation by private sector players rather than having them effectively “within” the Constitutional Committee from the beginning. Whether players such as PGGW are involved “on the ground floor” of the consolidation process will be a decision for the farmer shareholders of Silver Fern Farms. 

MIAG looks forward to working closely with farmers to create a farmer controlled National Champion for a successful, vibrant, globally engaged NZ meat industry. We urge you to vote in favour of the Resolutions in order to achieve this. 

Yours truly,

The Meat Industry Action Group Inc.
21st August 2008


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