KEY POINTS:
The much speculated mega-merger prospect of meat processor co-operatives PPCS and Alliance Group dissolved last week raising the ire of farmer body Meat Industry Action Group.
PPCS wanted to merge, Alliance did not.
Meat Industry Action Group chairman Mark Crawford said farmers were disappointed.
"What we've been hoping for was that our directors would show us some strong leadership and show us some vision so that farmers had something to hang their hat on and continue in the industry," Crawford said.
"We're just not getting into the marketplace where all the decent money is to be made. So people [are] just getting disillusioned with the industry."
Alliance said the merger was not commercially sound and chief executive Grant Cuff confirmed that debt levels at PPCS had played a part.
Alliance's 2006 annual report showed total equity of $298.9 million with debt (excluding creditors) of $42.7 million, giving it a debt:debt plus equity ratio - a measure of how the business is being financed - of 12.5 per cent.
The preferred ratio level depended upon the industry sector and the maturity of the particular company. Faster growing companies are usually expected to use less debt while larger more established firms might use more.
However, generally speaking the higher the ratio the greater the perceived risk, with anything above 50 per cent likely to raise eyebrows.
PPCS's 2007 half-year report showed equity of $273.5 million but significantly higher debt of $498.2 million - a debt:debt plus equity ratio of 64.6 per cent.
In the current credit crunch environment and with interest rates half way up the north face of the Eiger it's a ratio that must be biting.
In 2004 PPCS took over Hawkes Bay-based Richmond for $140 million after a long-running and hostile takeover battle.
In turnover terms PPCS is almost double the size of Alliance - a combined business would have generated more than $3 billion a year - but the merger would have meant sacrificing a stronger balance sheet in support of a weaker one.
Despite turning PPCS down Alliance still prefers the idea of a single large industry co-operative - which would control 43 per cent of the global trade in sheepmeat - although farmers should not hold their breath in expectation.
A merger would have needed 75 per cent approval from both sets of shareholders and Alliance perhaps thought the obvious miss-match in balance sheets meant it was not even worth asking the question - least ways not yet anyway.
Alliance is arguably better off staying out of a merger for now but remaining friendly and waiting to see if PPCS can reduce its debt levels - hence perhaps comments about still wanting to collaborate in some way.
In the meantime a merger was seen by some as a distraction from tackling pressing issues including better understanding of expected product availability, consumer trends offshore, product development, processing efficiencies and the mitigation of risks.
LAMB ON THE MEND
Meanwhile there was positive news for lamb producers from Westpac, whose market outlook expected a tightening in the global supply to trigger a recovery in prices this season, averaging more than $60 a head.
Westpac says prospects for beef prices were positive in the medium term, although future price gains would be restricted by more South American production and US competition within Asian markets.
For dairy farmers Fonterra is forecasting a record payout of $6.40 this year but Westpac believes if prices stay strong and depending on the travels of the kiwi dollar, the eventual payout could top $7 per kilogram of milk solids.
A result of the good times in dairy is more farms being converted to milk production, with the rearing of bulls switched to heifers.
As a consequence the current over-capacity pressure in the meat processing sector is likely to grow during the next few years.
There are no simple solutions in a complex industry in which animals are transformed into many products, targeted at a variety of markets each with its own commercial dynamics.
Merger may not have been the cure all today but it may yet be part of the solution tomorrow.
HOKI POKI
The hoki fishery got the thumbs up last week from the Marine Stewardship Council - a global non-profit body which promotes environmentally responsible fishing practices.
Deepwater Group fishing companies chief executive George Clement said he was pleased but not surprised the Hoki fishery was re-certified by one of the highest independent conservation standards bodies in the world.
"This is all about focusing on long-term sustainability," Clement said. "It's important to be audited and its very, very pleasing to pass that test."
The industry had cut catches and voluntarily closed more than 30 per cent of the exclusive economic zone to bottom trawling, he said.
"There's always room for improvement, but the world can be confident about the sustainability of New Zealand hoki."
AGRESEARCH INVENTION
"Now pay attention 007, this next bit of farming wizardry could just save your life."
Crown Research Institute AgResearch has developed a stab and flame resistant garment made from a knitted Vectran-based fabric - a non-cut, ultra high strength liquid crystal polymer - with short wool fibre packed into the outer fabric surface.
That's a vest to you Bond.
When exposed to severe temperature the wool does not burst into flames but instead chars to form a carbon barrier which provides protection against the heat and is held in place by the Vectran yarn.
Research associate Maree Hamilton-Chisholm said the fabric could resist puncture and knife penetrations but was also lightweight and comfortable to wear.
"This is offered as an alternative stab, cut and fire resistant fabric developed to protect the wearer from the ever changing and sometimes hostile world we live in," Hamilton-Chisholm said.
The fabric was unveiled at last week's Air New Zealand Fashion Week - so you should also be able to look good wearing it. Ingenious.
"Even you should be able to bring it back in one piece 007."
GEESE GIVEN THE BIRD
The sight of a flying formation of geese winging through the air, calling out their progress is a beautiful thing, awe inspiring even - but 36,597 birds chomping through your livelihood and polluting your lake can be a costly and deadly nuisance.
The total count for the South Island in June, excluding the West Coast, was considerably higher than an agreed cap of 20,350 Canada geese.
Federated Farmers of New Zealand says three adult geese can consume a volume of grass equivalent to one sheep each day, reducing the number of possible stock units by 25,000 animals and requiring farmers to re-sow crops and pasture.
Feds estimated a national population of 75,000 birds wiped $1.5 million off profits last year, based on the 2006 average annual export lamb prices, without counting the cost of re-sowing and bird control.
Furthermore, one dairy farmer at Huntly lost 35 cows to avian salmonella after they grazed in the same pasture as the geese, costing an estimated $75,000.
Federated Farmers national board member Donald Aubrey said the bird should be placed under the Wildlife Act's fifth schedule providing it no protection and the chance of being labelled a pest.
"Losing its protection would allow landowners, councils and others in the community to act more aggressively to bring this pest down to manageable levels," Aubrey said.
Fish and Game manage the population and estimated the national population at a lower 50,000 birds.
Time for the geese to duck, so to speak.
DISEASE BUSTING
Crop & Food Research has identified a possible source of tolerance to barley yellow dwarf virus - among the most widespread arable viruses globally.
The tolerance was found in wild barley, Hordeum bulbosum, and has been transferred to cultivated barley by conventional wide-crossing techniques.
Crop improvement scientist Bill Griffin said: "The future use of these types of resistant cultivars should assist farmers to reduce their use of chemicals."
FOOD FOR THOUGHT
A new centre of research excellence (Core) will get more than $20 million of Government investment over six years with the aim of developing convenient, healthy and tasty foods. AgResearch, Crop & Food Research along with Auckland, Massey and Otago Universities will partner in the centre.
