Tag Archives: Rabobank

Red meat industry to work together

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Wayne McNee, MPI.The red meat industry has agreed to work together to promote and assist in the adoption of best practice by sheep and beef farmers, as part of a new $65 million dollar sector development project with Government co-funding.

Wayne McNee, director-general of the Ministry for Primary Industries (MPI), has just approved a commitment of up to $32.4 million from MPI’s Primary Growth Partnership Fund (PGP) for the red meat sector’s new Collaboration for Sustainable Growth programme.

This seven-year programme will bring together a number of participants in New Zealand’s red meat sector including co-operatively owned and privately owned processing companies that together account for a substantial majority of New Zealand’s sheep and beef exports, two banks and Beef + Lamb New Zealand Ltd.

It aims to ensure that red meat producers consistently have access to and are able to effectively use the best-available farm and business management practices, by addressing gaps in technology transfer and ensuring stronger co-ordination between organisations and individuals working with farmers.

MPI Director General, Wayne McNee says the new PGP programme will transform the delivery of knowledge and capability within the sheep and beef sector.

“Importantly this is the most comprehensive collaboration of its type ever seen in the red meat sector, and the opportunities are very exciting. The Collaboration programme will build base capability, delivering benefits across the sector and aligned with other PGP programmes.”

The next step to establish this PGP programme is to develop the contract with the Crown and to seek farmer support for their portion of the investment. It is anticipated that once the required farmer and company approvals and contracts are in place programme delivery can begin, expected to be in the third quarter of this year.

Organisations presently in this initiative are: AFFCO, Alliance Group, ANZCO Foods, ANZ Bank, Beef + Lamb New Zealand, Blue Sky Meats, Deloitte, Progressive Meats, Rabobank and Silver Fern Farms. The programme is designed to be open, enabling others to invest. Participants will establish a formal partnership to run the Collaboration programme.

Chairman of the programme’s Steering Group, Dr Scott Champion says the Collaboration programme is built on the findings of the Red Meat Sector Strategy and will deliver significantly on the Strategy’s sector best-practice theme.

“This initiative is evidence that the industry is committed to delivering on the recommendations of the sector strategy. More industry collaboration is high on the list of Strategy actions, and so to have the red meat industry focused on supporting farmers and united in this programme is of major significance. Importantly, the Strategy also underlined the returns available to all farmers by lifting productivity and management towards that of the country’s highest performing farms.”

The PGP programme comprises several elements, including investigating how farmers prefer to receive and use new information and what drives their profitability, as well as benchmarking and integrating relevant databases. New tools, services and knowledge will be packaged and delivered in a range of ways by programme partners.

“With a new awareness of what drives farm profitability, the Collaboration programme will change the sector’s focus from one that is dominated by price to one focused on performance, productivity, profitability and the factors we can control,” Champion said.

“This investment will support the sector to better control its future and ensure confidence for continued investment.”

The Red Meat Sector Strategy was jointly developed by Beef + Lamb New Zealand and the Meat Industry Association, with funding support from the Government. It was released in May 2011.The Strategy identified a range of activities that, when implemented, will improve sector productivity and profitability, and provide greater certainty for participants.

 

Co-products return to centre-stage, says Rabobank

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A recent Rabobank report, published in the Netherlands, shows what has been evident to New Zealand’s processors and exporters for some time: that by-products – more usually known as co-products here – are returning to centre-stage and becoming a more important part of the carcase.

Over the last few years, the valuation of the animal carcase has shifted from prime cuts to processing cuts and fifth quarter products, the bank says. This is driven by changing consumer preference for processed products, fast-rising economic welfare and preference for animal co-products in Asia, new applications for animal co-products and lower availability of sow meat. The report by analyst Albert Vernooij suggests the trend will be permanent and will impact the business models of almost all players in the global meat industry.

“The impact of this shift in carcase valuation will be different for slaughterhouses, the further processing industry and dedicated companies active in the different parts of the by-product industry,” he says. “For slaughterhouses, the focus will increasingly move towards capturing the value of fifth quarter products, which might lead to forward integration in these activities.”

Vernooij puts the rise in price of cuts and co-products of cattle and hogs down to five main developments: growing economies in developing countries including the opening of the Chinese market for imports; the economic crisis which has caused consumers to trade down to cheaper products; the growth of convenience products with more women entering the workforce; consumers having less time to cook, and increased grazing; the growing number of applications for animal co-products in the pharmaceutical and cosmetic industries; and the decline in the sow herd in both the US and the EU.

He suggests that the further processing industry could be forced to change their raw material sourcing to other products or enter into long-term supplier contracts to safeguard supply. For dedicated processors, competition will increase which will urge them to strengthen their positions in the chain.

Generally, as affluence rises consumers move towards cuts, rather than co-products. However, as most co-products are considered a delicacy in Asia they should remain on menus in the long-term. Coupled with the growing number of applications for fifth quarter products Rabobank believes this will result in continued strong demand and the shift in carcase valuation will be permanent.

Feeding East Asia

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The importance of the East Asia region as the most significant market for New Zealand and Australian food and fibre products is set to grow in coming years, highlighted more recently by the global economic downturn, according to Rabobank.

In a recent report titled, Feeding East Asia’, Rabobank senior analyst Marc Soccio says the global and economic downturn has sharpened the focus onto the East Asian region as it continues to expand its slice of the global economic pie, offering opportunities no longer available in traditional markets as incomes grow and diets change in fundamental ways.

“The significance of East Asia to New Zealand and Australian farmers and agribusinesses is growing from an already strong base, with markets in developing economies coming on-stream to supplement more established markets in the region,” Mr Soccio says.

“As developing countries across East Asia continue to grow their share of the global economy, rising incomes are gradually transforming household consumption patterns. Opportunities for greater trade with the region are widespread and are more or less subject to the ongoing evolution of strong and sustainable consumer economies.”

Soccio says supply chains are evolving, and competition to capture value from rising trade flows is arising from both within the region and beyond.

“But overall, with a greater understanding of this diverse region, New Zealand and Australian suppliers appear well positioned to satisfy growing demands for a greater range and value of food and fibre production in years to come.”

The cultural and socio-economic diversity inherent in East Asia remains a defining characteristic that makes the region a particularly complicated prospect to navigate.

Accordingly, Soccio says the need to better understand the region and its future direction has never been so great, as this will provide New Zealand and Australian food producers with the competitive advantage required to explore the right markets, in the right way, at the right time.

On the topic of the rising tide of foreign ownership in the sector, the Rabobank report refers to the case of Australia’s sugar sector which undertook a significant shift in ownership of the industry’s downstream milling assets in the period from 2010 to 2011.

“In fact, over the past decade, control of almost three-quarters of Australia’s downstream sugar refining assets have been acquired by foreign investors – around two-thirds are now owned by businesses based in East Asia,” says Soccio.

“The investment into the sector has had a revitalising effect, but it has also significantly changed supply chain dynamics, with cane farmers now needing to be more mindful of how they transact with parties further downstream.”

The value created by opportunities to supply food and fibre products to East Asia into the future will be influenced by a number of factors.

According to Soccio, competition from suppliers, both within the region and in other parts of the world, will continue to put the strong reputation of New Zealand and Australian food producers to the test.

“Many countries across East Asia are significant agricultural producers in their own right and will try to meet their own needs as best as they can, which can limit opportunities for some crops where New Zealand and Australian producers may not have a clear cost or quality advantage.”

Soccio highlights other competitive forces, such as the way in which value is shared in the supply chain, as well as exchange rates and bilateral trade negotiations, will also have a bearing.

“One way or another, the stronger ties being forged to the region through greater inbound and outbound trade and investment will underline New Zealand and Australia’s pivotal role in feeding Asia in the years to come,” he says.

Rabobank New Zealand is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 110 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 48 countries, servicing the needs of approximately 10 million clients worldwide through a network of more than 1600 offices and branches. Rabobank New Zealand is one of the country’s leading rural lenders and a significant provider of business and corporate banking and financial services to the New Zealand food and agribusiness sector. The bank has 31 branches throughout New Zealand.

Global meat industry hurting, signs show …

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The New Zealand meat industry isn’t the only one suffering around the globe as news reports this week are showing signs of hurting businesses and a changing global scene.

In addition to Vion pulling out of the UK – a reflection of the tough trading conditions, says an item in meatinfo.co.uk – the Canadian pork industry has been warning of massive losses, according to an item in Globalmeatnews.com.

In the US, concern was also noted in a recent Wall Street Journal article “Meat firms face hit to plump profits’ as massive global meat processor Tyson Foods prepared to report its quarterly figures. However, Tyson’s results came out on Monday carrying an optimistic note for the next three years and shares rallied by nearly 10%. The company says it will focus on prepared foods and value-added poultry to “weather the anticipated increase in feed costs during the coming year” (meatandpoultry.com).

In the UK, a management buy-in from previous owner ANM has saved struggling meat processor Yorkshire Premier Meats, says foodmanufacture.co.uk, while another ANM-owned company, Scotch Premier Meats, cut 30 jobs in May.

Meanwhile, JBS SA is planning to build six more plants in Brazil on the basis of growing global demand, with a focus on grass-fed beef, reports MENAFN.com. However, foot and mouth disease continues to hold Brazilian beef exports back from Asian markets.

India was forecast by Rabobank’s global arm last week to become the world’s biggest beef exporter next year. Basing its claim on United States Department of Agriculture (USDA) figures, exports of buffalo meat from India are expected to rise to two million tonnes as Indian dairy farmers slaughter unproductive animals from their large and expanding dairy herd in response to high prices for meat.

‘Agflation’ to hit animal protein

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Skyrocketing agricultural commodity prices are causing the world to re-enter a period of ‘agflation’, with food prices forecast to reach record highs in 2013 and to continue to rise well into Q3 2013. Unlike the staple grain shortage 2008, this year’s scarcity will affect feed intensive crops with serious repercussions for the animal protein and dairy industries, according to Rabobank.

Luke Chandler global head of agri-commodity markets research at Rabobank comments, “The impact on the poorest consumers should be reduced this time around, as purchasers are able to switch consumption from animal protein back towards staple grains like rice and wheat.

MeatExportNZ covered this topic in a post last week ‘Global meat prices to surge’ but Chandler makes some additional points.

Firstly, that he does not anticipate the current period of agflation leading to the unrest witnessed in response to the shortage in 2008.

Rabobank estimates that the Food and Agricultural Organisation (FAO) Food Price Index will rise by 15 per cent by the end of June 2013. In order for demand rationing to take place, in turn encouraging a supply response, prices will need to stay high. As such Rabobank expects prices – particularly for grains and oilseeds – to remain at elevated levels for at least the next 12 months.

Chandler says that whilst the impact of higher food prices should be reduced by favourable macroeconomic fundamentals (low growth, lower oil prices, weak consumer confidence and a depreciated US dollar); interventionist government policies could exacerbate the issue.

“Stockpiling and export bans are a distinct possibility in 2012/13 as governments seek to protect domestic consumers from increasing food prices. Increased government intervention will likely encourage further increases in world commodity and food prices,” he warns.

Rabobank expects that localised efforts to increase stockpiles will prove counterproductive at the global level, with those countries least able to pay higher prices likely to see greater moves in domestic food price inflation. This is a vicious circle, with governments committing to domestic stockpiling and other interventionist measures earlier than usual – recognising the risk of being left out as exportable stocks decline further.

On top of that, Rabobank warns that global food stocks have not been replenished since 2008, leaving the market without any buffer to adverse growing conditions. Efforts by governments to rebuild stocks are likely to add to food prices and take supplies off the market at a time when they are most needed.

Full cup, steady hand

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While New Zealand sheepmeat producers have been enjoying a ‘full cup’ in recent times, with strong farmgate returns, a ‘steady hand’ will be needed to balance future production levels with demand uncertainty across European markets.

A newly released report Sheepmeat – full cup, steady hand from global agribusiness banking specialist, Rabobank, says that the strong farmgate returns in the past two seasons, have been as a result of retail price increases and limited supply availability.

Report co-author Hayley Moynihan says global sheepmeat supplies are forecast to increase from 2013, off a low productive base, although this volume growth is expected to be modest and availability will not recover 2010 levels until 2015.

“While sheepmeat demand has softened in developed markets, we expect retail prices will normalise at new levels – typically 10 percent higher than the three-year average for most regions,” she says.

“For New Zealand producers, a positive outlook will persist in export markets as the economic outlook improves and the market balance remains tipped in their favour.”

As the governments of the EU countries seek to restore balance to their economies, policy changes are expected to place increasing pressure on consumer purchasing powers, says Moynihan. In real terms, the increased cost of living for the average EU consumer is likely to exceed any growth in income, at least for the next 12 to 24 months.

Meat price inflation has led the charge in annual food prices, averaging 4.5 percent year-on-year, with eastern European countries experiencing increases as high as 10 percent in 2011.

“These factors can be expected to weigh heavily on sheepmeat demand and to limit growth prospects.”

Rabobank is picking a slow recovery for developed markets through to the end of 2013. “Emerging markets will continue to grow, albeit slightly below the rate of previous years and offer opportunities for sheepmeat demand growth,” says Moynihan.

The Rabobank report says retail prices will also be influenced by continued strength of competing meat prices; the impact of lower beef production from the US and EU on global supplies; and the rising beef production costs from Brazil, China and Australia..

“These factors are likely to mean that retail price movements for lower-value cuts will continue to rise faster than high-end cuts. This will be particularly evident across emerging economies and consequently only provide limited upward pressure on farmgate returns for exporters,” it says.

Moynihan says that by 2015, sheepmeat production from key exporting regions is expected to lift by an additional 135,000 tonnes a year, which would bring global export supply back to 2010 levels.