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 | Columnists »» Leonardo Prandini |  |
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12/05/2009GLOBAL MEAT INDUSTRY OUTLOOK 2009Following a period of record prices and sharp expansion in the agribusiness sector, meat supply chain members remain in relatively strong position to face the economic turmoil, thanks to firmness of demand for its non-replaceable end product and export potential to meet local supply imbalances. In this context, the meat sector relies on trade to reach the global food needs and deliver sales. The current reduced capital accessibility and increased credit requirements limit the fast recovery of international meat trade flows.
Unlike in previous years, low liquidity and reduced margins intensify pressure at global meat processors to rationalize productivity and pursue consolidation instead of aggressive expansion. Critical challenges for the sector arise in risk management tools and vertical integration schemes, particularly to those operating in South America.
Despite major worldwide price decline since October 2008, the general 30% currency exchange rate devaluation in the main meat exporting countries in the same period (Australia, Brazil, Argentina and Uruguay) underpinned supportive values for local producers at profitable levels. Moreover, the exchange rates play an increasingly valuable role in meat export competitiveness. Global meat processors benefit from alternative supply to cope with currency fluctuations.
Market access remains a crucial challenge for exporting countries. In response to weak demand and low industry margins in developed countries, the agricultural sector relies further on decoupled subsidy and protectionist policy, fostering decreased efficiency, output fall and lack of international competitiveness. Uncertainties lie on the developments of the European Common Agricultural Policy health check in 2013, the trade liberalization progress under current economic scenario, serving as a confidence check for investors.
Meat consumption is anti-cyclical, it remains an important issue in human diet and share of consumer expenditure. Influenced by the economic uncertainties, reduced food service demand took place and consequently, usage of premium beef cuts. Consumer shifts towards low-price beef for home-eating, and a remarkable price-oriented competition with pork and poultry. Beef processors report difficulty to achieve carcass market price balance, evidencing the sensitiveness of beef to negative economic periods.
The peak commodity prices during 2007-2008 period inflated feed input costs and knocked operational margins of grain-fed livestock. Recent agricultural price adjustments benefited producer margins, to the extent that input costs decreased faster than livestock values. Unattractive margins remain for US grain-fed cattle producers and processors, being mostly domestic market oriented and unable to benefit from currency fluctuation. In EU, positive farm level margins are due lower feed costs and limited competition from low-price imported Brazilian beef. Pork and poultry producers overcame the critical periods of high feed inputs and enjoy gradual higher margins.
The next issue on the agenda is livestock emissions. Extensive South American grass-fed systems are blamed for being less efficient than intensive feed lot methods. Measurement standards are unclear and regulations undefined, but potential green-house gas taxes target livestock production in the short-term. In order to protect its interests and safeguard consumer demand, it is crucial for livestock entities to fight policy for review, to incorporate the livestock natural environment and total farm emissions as potential tax credit.
The current economic developments bring new challenges for meat processors worldwide in terms of overcapacity, where (or to) invest to reach global demand, and the relocation of margins along the supply chain, where exceptionally the producer is the current least affected among them all. The main driver for the global meat processors is the approach to strategically overcome current economic issues and reach the forecasted growing international demand for animal protein.
 Leonardo Prandini is graduated in Business Administration (FAAP), has masters degree in Agribusiness Management (SAC-UK) and nowadays works in the Netherlands.
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