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Partnership Represents New Direction For Meat Industry

Fuseworks Media
Fuseworks Media

Silver Fern Farms (SFF) and PGG Wrightson (PGW) have today announced a partnership proposal under which PGW would purchase a 50 percent shareholding in SFF and they would work together to lift the earnings of New Zealand meat producers. The partnership would create an integrated supply chain "from plate to pasture" - with every stage geared to meeting the needs of meat consumers around the world. On approval, the proposal will see PGW take a 50 percent stake in SFF for $220 million, resulting in a hybrid company structure that retains the governance and supplier benefit elements of a co-operative.

SFF will pursue market strategies targeting the growing international ranks of consumers demanding high-quality and consistent meat products from traceable and sustainable sources. The SFF and PGW chairmen, Eoin Garden and Craig Norgate, said the market goal would be to reposition New Zealand meat as the ethical protein source for this growing, and increasingly affluent, consumer category.

Mr Garden and Mr Norgate say the heart of the proposal is the formation of a truly integrated supply chain - on a 'plate to pasture' model - with every link in the chain geared to meeting the needs of international meat customers. "There are very clear synergies, in terms of cost and performance benefits, that both parties bring to the table. These translate to more money in the pockets of SFF's suppliers, and benefits to its international customers in the form of year-round supply, grower identification and product tracing, to name but a few."

Under the proposal, the relevant parts of the two companies will work together on a complementary basis. PGW will provide access to advisory and other services inside the farm gate, and procurement for prime and store stock. SFF will provide its processing capacity, technology and expertise in logistics, marketing and branding.

Short-term gains to suppliers will include: o Increased information about customer needs - and thus a better basis for farm decision-making o Guaranteed-price supply agreements - short and long term - increasing certainty and reducing risk o Guaranteed processing space for commitment to supply o Finishing programmes o Finance on livestock - especially where it is committed under supply agreements o Store stock finance advance - especially where purchase is for supply in winter months o Access to on-farm check-up, reviewing current livestock policy and financial outcome o Access to an expanded set of specialist knowledge in fields including animal breeding, nutrition, health, pasture, livestock finance and ancillary services.

Mr Garden says the directors of SFF believe the proposal will be endorsed by the company's stakeholders, including the required approvals by rebate suppliers, given its immediate and transparent benefits.

"An evaluation undertaken by PWC on behalf of the two companies has identified prospective short-term gains of more than $60 million per year, with longer-term financial benefits ranging up to $110 million per year," Mr Garden says. "This does not factor in further gains anticipated to flow from a more efficient procurement model, nor from the participation of other companies, which would spread the improved economics across a broader supply base. Benefits are expected to accrue to farmers as suppliers, to farmers and PGW as shareholders in Silver Fern Farms, and to PGW directly." Mr Norgate says both companies share the view that investment in an integrated supply chain is the key to unlocking the value of high-quality New Zealand meat. "There is clear growth in the global protein market, so we need to build a structure to ensure that there is a stimulus to investment in the meat industry on a par at least with dairy.

"SFF is on the right road already in the form of its marketing and consolidation initiatives. We see our investment in SFF as an important step towards consolidation of the industry, with the benefit of enhanced supplier returns through rationalisation, marketing integration and a move to an Annual Equity Value (AEV) share model.

"Just as Silver Fern Farms is making changes to its business, PGW recognises that it needs to work alongside its clients to ensure their needs are met. Our future strategies are very much aligned with SFF. They involve striving to improve returns for agricultural producers by facilitating change - change we must all embrace. Our investment can be seen as a substantial vote of confidence in the future of the industry," Mr Norgate says.

Messrs Garden and Norgate believe the cornerstone of the venture will be the fact that the two companies have highly complementary capabilities and resources. "The partnership will allow the capabilities of the two organisations to be combined in the most effective way and deliver the integrated supply chain to the benefit of all participants."

See APPENDIX (attached): Transaction structure Operational integration Further industry consolidation Financial gains

Also released today: White Paper Media Briefing

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