New Integrated Supply Chain in NZ Meat Sector

NEW ZEALAND - A summary of a PricewaterhouseCoopers (PwC) business case used to prove the merits of the proposed partnership between Silver Fern Farms Limited (Silver Fern Farms) and PGG Wrightson Limited (PGW) has today been made publicly available.
calendar icon 30 July 2008
clock icon 2 minute read

The 36-page report is a summarised version of the larger Business Case Report that PwC presented to the boards of Silver Fern Farms and PGW prior to the announcement last month of the proposed partnership. Whilst truncated due to the commercial sensitivity of much of the information in the Business Case Report, the Summary Report captures the key thinking behind the decision to table the proposal. It reflects what the directors of both companies have seen as a very compelling case for the partnership to proceed.

When approved, the proposal would see PGW invest in Silver Fern Farms, and the two companies working together to create an integrated supply chain within the farm gate, feeding into the existing red meat supply chain and thereby fulfilling the 'plate to pasture' vision.

The Summary Report includes discussion of the proposed business structure, the operating model and the estimated costs and benefits associated with the partnership. It adds to a considerable weight of information already released -- in the initial announcement of the proposal on 30 June and the publication of a White Paper available on both companies' websites.

The next step will be the publication of an Explanatory Memorandum for SFF suppliers next month.

This approach - the release of comprehensive information relating to the partnership - has been undertaken to ensure that the SFF suppliers have all the information they need to make what is a crucial decision for the future of their industry.

The Summary Report also lays out the mechanism under which other processors could join the partnership, including detail on how PGW's shareholding and right to appoint directors would reduce.

PwC identifies the key quantifiable benefits of the proposal to be:

  • Enhanced supply profile - consisting of smoother stock volumes through Silver Fern Farms and resulting processing efficiencies,
  • Cost synergies - consisting of savings in corporate overheads and the livestock procurement function
  • In-market benefits - increasing average revenue through an increased proportion of chilled lamb and price premiums for specification, and
  • On-farm productivity gains - resulting from an increased average weight of stock processed, with associated processing efficiencies.

PwC concludes that the expected annual benefits of the partnership are $59 million in the short term and $111 million in the long term. It also notes that this does not include unquantifiable benefits such as anticipated gains from a more efficient procurement model and the participation of other companies.

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