Primo buyout raises concerns

28 Nov, 2014 01:00 AM
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Staff at a Joe's Meat Market butchery.
Farmers and meat retailers are increasingly frustrated by consolidation of meat processing
Staff at a Joe's Meat Market butchery.

AUSTRALIA'S biggest meat processor and exporter says it will be business as usual, but in the bush speculation is mounting about the impact of JBS Australia's $1.45 billion acquisition of smallgoods company Primo.

Livestock producers are particularly worried about two more abattoirs joining the powerful JBS network and further reducing processing competition options.

NSW Farmers has responded to a flurry of concern and questions from producers by making submissions to the Australian Competition and Consumer Commission (ACCC) and the Foreign Investment Review Board (FIRB) to ensure the right regulatory decisions are made on "this significant acquisition".

Although the Brazilian-based giant JBS - the world's biggest animal protein processing company - has only been in Australia for seven years, it already owns 11 abattoirs (10 are operating) in five States, including Queensland's big Dinmore and Rockhampton plants.

Primo operates abattoirs at Port Wakefield in South Australia, processing pigs, and Scone in NSW's Hunter Valley, which processes cattle.

JBS is enthusiastic about diversifying its red meat business and growing Primo Group's markets, particularly ramping up Primo's $130 million export business with a smallgoods sales offensive into Asia.

Processor choice limited

But farmers and meat retailers are increasingly frustrated by consolidation of meat processing activities which are limiting the choice of independent meatworks bidding for livestock or offering service kill options to producers or butchers.

The Primo takeover follows the 2011 merger of Teys and Cargill's six abattoirs in NSW, Queensland and SA and the earlier sale of Country Fresh Australia's NSW and Queensland plants to SA's Thomas Foods International, plus recent smaller meatworks closures in eastern Australia.

"The loss of independent kill options is a major concern for many people," said NSW Farmers cattle committee chairman Derek Schoen at Corowa on the NSW-Victorian border.

"We're not really sure what JBS' plans are likely to be in the longer term, but it feels like the meat processing industry is fast moving to the same sort of duopoly we've got in the supermarket sector.

"As producers we're always being told to add value to our production by finding niche markets to buy selected lines, but it's getting harder to achieve that goal if you can't easily access an independent service works."

NSW Farmers president Fiona Simson said the association wanted to see a "thorough process of consultation and consideration".

"We recognise the importance of working with all key players across the food chain to ensure competition policy delivers for the buyer as well as the producer," she said.

The Primo Group, the largest processed ham bacon and smallgoods business in Australia and New Zealand, owns the Primo, Hans and Beehive brands and key processing operations in five locations.

Its recently developed Queensland plant at Wacol is Australia's biggest food processing facility. Primo also owns about 30 retail butcher shops under the Joe's Meat Market and Farm Fresh Meats banners in NSW.

Established by Sydney's Lederer family in 1985, Primo has been 70 per cent owned by Asia-Pacific based equity fund manager Affinity Equity Partners for the past three years.

Assuming regulatory approvals are granted, Affinity has described JBS as "the logical owner for Primo".

Expanding into Asia

For JBS the takeover represents an opportunity to grow export operations across Asia, including China where Primo opened a Shanghai office last year.

Industry observers also expect JBS to use its North American supply chain to source ham, bacon and delicatessen meat for local and international markets.

JBS said the purchase was consistent with the global strategy of Brazilian parent company JBS S.A. to grow its presence in value-added products.

"We are seeing strong annual growth in consumption of processed meat products with good prospects to increase exports of high quality convenience products from the Primo Group's portfolio," said chief executive officer Wesley Batista.

Primo Group CEO, Paul Hitchcock insisted operations at Primo sites would remain "very much business as usual" for employees, suppliers and customers.

"We look forward to being part of JBS and capitalising on its international distribution network," he said.

No big changes flagged

JBS Australia's chief executive officer Brent Eastwood has made a point of noting the new owners "do not intend to make any meaningful changes to Primo Group's operations for the foreseeable future".

However, Australian Meat Industry Council board member and NSW butcher Robert Constable said while JBS had no immediate changes planned it would be "interesting to see how it deals with a business model that's quite different to what does at the moment".

He said meat industry players were also questioning the future of Primo's retail shops under JBS.

"I can't imagine they took them on thinking they would make the sort of margins a big company like JBS would be accustomed to - each shop is really just a small business out there on its own."

At Scone, selling agent Jim MacCallum said there was also considerable speculation at this week's prime cattle sale that JBS may eventually on-sell the town's Primo abattoir, possibly to another foreign buyer.

"That could end up being a better outcome because we'd possibly get another player in the market," he said.

"But regardless of who owns the abattoir, it doesn't provide service kill facilities any more - Coles has that spare capacity all booked up with its beef."

Next stage of Primo's journey

Primo Group was founded by enterprising Hungarian migrant Andrew Lederer at the former Plumrose tinned ham plant at Homebush in Sydney.

Mr Lederer had previously been a joint founder of the Presto Meat company which was eventually sold to Adelaide Steamship Company for about $12 million in 1980.

His new Primo business grew rapidly becoming a leading ham, bacon and smallgoods producer, moving its base to a new Chullora facility when the State Government reputedly paid about $35m to demolish his old factory to make way for Olympic Park in the 1990s.

However, several years after Mr Lederer's death, 70.1pc of the family business was sold to Affinity Equity Partners in late 2011 in a deal which valued the company at $740 million.

Affinity's Australia and NZ head, Brett Sutton, said selling Primo Group to JBS would facilitate the next phase of growth for a great Australian business and its 3000 employees.

"Paul Lederer, his family and employees built an iconic Australian business and brand and we have been honoured to have been part of Primo's journey," he said.

Affinity's investment and knowledge of regional markets had helped to make the business even stronger with a growing export operation.

"JBS, whose core business is processing protein products for the world, will position Primo for even stronger growth over the longer term."

FarmOnline
Andrew Marshall

Andrew Marshall

is the national agribusiness writer for Fairfax Agricultural Media
Date: Newest first | Oldest first

READER COMMENTS

Jock Munro
28/11/2014 3:05:16 AM

Why worry about this major sell off and further control by foreign corporations? How much more do our urban elite decision makers intend to 'flog' off? The comments from Canberra suggest that it is business as usual and all of our strategic assets are still for sale.
Rob Moore
28/11/2014 12:26:44 PM

Notice that they paid "cash" too - No more cheap loans from Brazil like in the early days of "global takeover" . I can only assume that the National Party is more wedded to the big end processors and middlemen than the long suffering producers. COMPETITION has been zero amongst the few moguls that run the show for 3 years now so I guess it won't matter! Can't get less than their pathetic offerings now...........??????????
Philip Downie
28/11/2014 1:11:00 PM

Well looks like we are in the whispering sweet nothings and cuddling stage and all will be rosey. You know what that leads to....
GWC
8/02/2015 10:12:59 AM

I like the way Mr Sutton acknowledges the tremendous contribution by Primo's employees. Thanks Brett pity none of us would see the windfall from the sale of this great company.

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