Alliance Group chairman Murray Taggart.
Murray Taggart has seen four big downturns over his working life, but the outgoing Alliance Group chairman is confident the meat industry still has a bright future through technology advances and the opening up of new markets.
Outgoing Alliance Group chairman Murray Taggart has been involved in corporate banking and various rural industries, but he says the meat trade is by far the toughest of them all.
He should know.
The market for New Zealand meat has been favourable in recent years, but last year - the co-op’s 75th - was a different story, driven mostly by a slump in demand from China.
The company’s net loss came to $70.17 million against a profit of $73.6m in the previous financial year, prompting an examination of Alliance’s capital structure.
Red meat processors and exporters were hit hard during the year by a deteriorating global market, although Alliance - the country’s biggest sheep meat exporter - was particularly affected by the sharp decline in sheep meat pricing and demand.
This financial year, which ends September, should see Alliance back in the black, but Taggart says conditions are still far from easy.
In its latest update, Beef and Lamb NZ says farmers will have to continue to dig deep to stem what looks like widespread cash losses in the sheep and beef sector for the 2023/24 financial year.
“I’ve been lucky enough, both from my banking career and as a director, to have had exposure to a number of industries and businesses, and the meat industry has been the toughest of the lot,” Taggart told the Herald.
“But it’s also one of the most intellectually challenging, which makes it interesting,” he says.
“It’s a low-margin business, requiring heavy investment in fixed assets, highly unionised and operating in two markets at once.”
Taggart was involved in corporate banking with ANZ in the late 1980s - through the debilitating 1987 sharemarket crash.
“I worked with a lot of distressed companies, so it was a pretty fascinating time.”
Taggart stuck with banking until he had enough money to go farming, choosing to set up shop in North Canterbury.
In various roles, he has seen more than his fair share of tough times down on the farm.
“When I reflect on it, and if you look at the current downturn in the meat industry, I have actually seen it four times now – once when I was a banker, then when I started farming, once as a director, and once as chairman,” he said.
But Taggart accepts that rollercoaster ride as being part and parcel of the volatile commodities game.
“It’s an industry that has ridiculously fine margins considering the amount of capital that is invested in fixed assets.
“And there is the fact that you are competing in two markets at the same time – in markets for your products offshore, and you compete in the market for livestock back home.“
While Alliance, and co-ops like it, have struggled from time to time, Taggart is convinced the model is the right way to go.
“In my experience, whether companies succeed or fail is based on the quality of their governance and management.
“It’s nothing to do with whether it’s a proprietary company, a listed company or a co-operative company.
“When I was with the bank, they said there were three reasons why companies fail – management, management and management.”
Taggart is departing after a tough year in 2023, but he’s more upbeat about the current year despite big questions about the economy of its biggest export destination, China.
“This year is a complete turn-around from that, and that’s traditionally what has happened across these cycles, but what we are seeing is a hardening of bank attitudes right across the farming sector, whether it’s the fertiliser companies, or farmers themselves.
“With that change of attitude, rural businesses were looking at how to shore up their balance sheets, and Alliance is no different to that.
“There are ways and means of doing that which are relatively painless for farmers, but it just helps us retain our credibility with our stakeholders.”
In terms of the current state of play with markets, Taggart says there are two sides to the coin.
In Alliance’s traditional markets of North America, Europe and the UK, he said there were some significant and encouraging green shoots appearing.
However, the same could not be said for China.
Chinese New Year is normally a buoyant time for sales for Alliance, but the most recent was flat.
“Certainly, the Chinese economy does not look great, and that will continue to have a significant bearing on how prices look across the world.”
China, the world’s second-biggest economy, has tended to provide price tension across global markets.
“While we are redirecting product that would have gone to China, the Middle East in particular is back in focus as a significant market. But the reality is that it does not provide significant price tension in the way that China did.
“That’s not to say that there is not a lot of production going to China, it’s just that it’s not driving global prices like it used to,” he said.
The other big challenge is that China has enlisted a whole lot more South American meat processing plants to supply it with beef, which does not help prices.
Then there’s Australia, which has been until recently flooding the China market with sheepmeat.
“Not only has the Chinese economy been weak, there is additional product going in there, which is not helping to achieve price increases,” he said.
In years gone by, Alliance’s well-connected partners in China had typically “screamed out” for more product.
“Now, the conversation tends to be, ‘If you have another market you can send it to, then it’s probably the best that you do, because there is probably no point in depressing the market any further by flooding it with product’.
“It’s certainly a different attitude from our Chinese partners to what we have previously seen.”
Reflecting on his time with Alliance, Taggart said it had been a tough decade.
“We have had a raft of government policy, plus some economic drivers, that have seen the sheep flock decline significantly, and beef as well.”
A sore point with sheep and beef farmers has been the loss of often productive land for tree planting, purely for carbon credits.
“We have had governments subsidising land going into forestry for carbon farming at the expense of sheep and beef.
“Then there have been other economic drivers that have driven land out of sheep and beef.”
Unsurprisingly, Taggart is not a big fan of carbon farming.
But as the current chairman of forestry company Taumata Plantations - which encompasses the former Carter Holt Harvey’s forest estates in the central North Island and Northland - he is clearly not anti-forestry.
He is quick to point out Taumata’s plantations are harvested, with half its logs being absorbed by the domestic market.
Planting trees to cash in on carbon credits is another matter.
“Essentially, what is happening is that the urban sector, instead of addressing their carbon footprint, is offsetting by planting trees on farmland.
“That is not a sustainable long-term strategy and it does not actually force people to address their carbon footprint.”
“They [the new Government] have made noises [signifying] that they want to address the issue, but they are also considering that if they do address that issue, then that pushes increased carbon pricing back into the urban sector, which they have largely avoided to a significant degree up until now.”
He says if the trend towards carbon farming continues, it will depress livestock numbers further.
“Then plants will need to close and, obviously, no one wants to be the one to close a plant.”
Taggart said the issue would be a challenge for the new National-led Government.
Against the background of flagging demand in China, Alliance is understandably hot on the need for free trade agreements (FTAs) and has been “beating the drum” on the potential of India for some time.
“India is a huge opportunity.
“It’s growing particularly rapidly.
“[Indian] Prime Minister [Narendra] Modi’s approach is red-carpet rather than red-tape, so we think that it is a real opportunity, and it has frustrated us, the lack of commitment from recent governments to try to open up that opportunity.”
A major sticking point for any potential FTA would be dairy - a sector that is fiercely protected in India.
Prime Minister Christopher Luxon talked a big game regarding trade with India during last year’s election campaign.
Alliance has a holding in QualityNZ, a company that specialises in exporting to India, supplying meat to five-star restaurants there.
“Continuing to make a deal with India conditional on the inclusion of dairy is unrealistic and is handing Australia a huge and growing market at our expense.”
New Zealand did not get a comprehensive FTA with Europe last year. The meat industry was less than impressed, as was the dairy sector, with the FTA, but kiwifruit, onion and wine growers treated the EU deal as a win.
“If we were happy not to do one [a comprehensive FTA] in Europe, why have we been so regimented about having to have a comprehensive FTA in India?
“If we do one in India without dairy then, who knows - in time, if we build confidence and trust with the Indian government and Indian authorities, a free-trade dairy agreement may develop further down the track. But it does feel like that’s going to be one of the first cabs off the rank in terms of formal part of an FTA.
“We are hopeful that a more pragmatic approach is taken by this Government.
“Certainly, they have a desire to pursue an FTA with India, which is great.”
Taggart said Australia has taken a more pragmatic approach in its agreement with India.
“They are in there with lambs, with no tariff, and we are in there paying 38 per cent.”
While farmers face difficulty in the short term, Taggart says there are opportunities ahead.
“In the here and now, farmers are worried about their own survival, let alone looking to the long term, because these are tough times on the farm, particularly sheep and beef farms.
“A big chunk of sheep and beef farmers will be making a loss for this year.
“We won’t have a sustainable supply chain if there is a link in it that is not making a profit, and clearly farmers are a key link,” he says.
“But long-term, there are definite opportunities to capture more value both from core meat cuts but also from the co-products.”
Taggart says the meat industry has come a long way.
“I think there has been a massive modernisation of systems, processes and human resource capability across the business.
“We have seen increased automation, although not at a rate that we would like, and I think the market positioning has got a lot more sophisticated.”
Unlike some, Alliance has remained a purely farmer-owned co-op, with no outside participation in its capital structure.
He’s keen to see it stay that way.
“Each cycle we go through tough times, and we rely on farmers to continue to support the balance sheet through each of these cycles.
“In the past they have, and they continue to do so.”
“It’s the old story: You can’t own a business if you are not prepared to put capital in.”
Taggart steps down as chairman next month.
He remains a director of FMG Insurance.
The Alliance board has voted to appoint current director Mark Wynne to be the co-operative’s new chair, as of April 12.
Alliance said Wynne has extensive experience in agribusiness, including 20 years in the dairy industry.
He stepped down as chief executive of Ballance Agri-Nutrients co-operative in September 2023.
Wynne was previously president South Asia for Kimberly-Clark, growing the United States multinational’s market share with brands like Kleenex and Huggies.
He has served on various boards during his management career and in recent years as a director.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
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