Tony Egan CEO of AFFCO NZ

July 2005
Roger: My guest this week is the Chief Executive of AFFCO, Tony Egan. Tony, welcome to the show.

Tony: Thanks Roger, its good to be here.

Roger: Tony, AFFCO has to be one of our most successful agricultural international companies. Youve had a bumper year in 2004. Youre expanding in the South Island as a result of that. How is that venture with South Pacific Meats going?

Tony: Its going well, youre right. Were 101 years old and we have been successful but weve had tough times during that 100 years as well and part of the companys growth if you like in the last 4 or 5 years has been focussing back on our core business. And part of that focus has been on our plants and some growth in the South Island through South Pacific Meats.

Roger: Now the rush to dairy conversion has slowed off now. That must surely be a bonus for you.

Tony: Well we kill a lot of dairy cows as well. But yes, youre right in saying that. The dairy conversions have eased. The move back into sheep meat farming is becoming apparent as a trend, and some of the experts who monitor the industry are saying that as well, and a lot of farms that had moved their emphasis to cattle away from sheep say 60 / 40 or what have you are now moving back the other way with some more emphasis on sheep farming which is good for us because we also have a big sheep processing activity as well.

Roger: Whats that going to mean for AFFCOs bottom line?

Tony: Well we certainly had one out of the bag last year, and that was a combination of factors and while we like to take the credit for that as management, we have to accept there were things going on in the industry such as a record beef kill that enabled us to make a lot of money last year. Going into this year we highlighted that it would be a more traditional year, and at the half year we did announce a 14 million dollar profit, but we also alluded at the half year to a much more difficult second half. Partly due to the currency, partly due to a reduction in numbers available for processing. So we certainly wont be repeating the 58 million dollars we made last year.

Roger: Lets talk about the slide in the dollar. What sort of impact will that have?

Tony: When we went above 70, it became extremely difficult to go to customers who over a number of years had been constantly asked for price increases, to keep pushing our products up the protein scale, depending on the species, and it got the point where there was real opposition and customers were starting to look to other countries and other products to replace expensive meat from New Zealand, so the easing in the dollar has been very welcome. It needed to come back substantially, and it still needs to come down further.

Roger: Lets look off shore now. What are the international drivers for AFFCO? What does the world meat scene look like?

Tony: We are still very much a quota-driven country. In the USA for instance with our beef products, we have a certain quota there of about 213 thousand tons for New Zealand and thats divided up amongst the companies on a production-history basis. Thats our best paying market, particularly for grinding meat, and so we are very reliant on the USA still, and any freeing up in that market for us would be a godsend. Thats not to say that there hasnt been huge gains made in Asia, particularly through the period where other countries have been banned in Asia, the north American countries with BSE for instance. On sheep meats were very much driven by Europe, which is again a quota market for New Zealand and thats where traditionally our highest prices have been paid. However, what weve also seen is the growth in the United States as a demand market and more recently some significant growth in Asia where sheep meat has not been traditionally strong. So, while were still very much centred on quota markets for the highest priced end of our profit, were certainly looking to other markets to come through over the next decade or so and take up some of that demand.

Roger: Tony, thank you for joining us.

Tony: Thank you.