Competitività della filiera bovina europea rispetto ai ......Gira 2009 MEATITALY, Cremona il...

MEATITALY, Cremona il 22/10/09Gira 2009 1

Competitività della filiera bovina europea rispetto ai grandi produttori mondiali

MEATITALY, Cremona il 22 Ottobre 2009

by Christophe Lafougère, Director e-mail : [email protected]


Consulting

Individual market research

Strategic multiclient research

Market due diligence

What GIRA does

all along the food & drink and distribution chain- throughout the world


MENU

1. Competitiveness = cost of production?

2. Price-makers

3. Europe and Italy

4. Conclusion


Are we really talking about the same thing? For the same purpose - Mercedes vs. Lada?

Very different animals: local / improved; dairy / meat; grazed /

finished; etc.

Average weights of cattle slaughtered in 2006


Cattle numbers: the key global exporter Brazil has a national herd 2.2 x the combined EU herd!

EU combined herd smaller than the Brazilian, Chinese or US national herds

Global Cattle Herds: 1997-2009

0

20

40

60

80

100

120

140

160

180

200

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

US

AR

EU

CN

(mio

hea

d)

(India not shown, 2008 herd: 277 mio head)

Source: Gira Meat Club

BR


Herd productivity varies enormously: but China is clearly getting much better at the job

Kilo

s sl

augh

tere

dpe

r hea

dof

the

herd


EU is uncompetitive for feed, livestock costs & labour. But are we really all in the same world as everyone else?

Brazilian production costs ~2/3rds of US or Canada - 2/5ths to 1/3rd of the EU!

Global Feedlot cost comparison 2008 ($ per 100kg of beef)

0

200

400

600

800

1000

1200Au

stria

Ger

man

y

Fran

ce

Spai

n

Italy

Irela

nd UK

Sw

eden

Nor

way

Pola

nd

Can

ada

US

Areg

entin

a

Bra

zil

Col

ombi

aP

eru

Chi

na

Indi

nisi

a

Aus

tralia

Sou

th A

frica

US$

/100

Kg

cw

OtherFuel, Energy, WaterMachinerySeed+Feed+Animal PurchasesOwn CapitalLiabilitiesOwn LandRented LandFamily Labour Paid Labour

Source: Gira based on

Agribenchmark

Arge

ntin

a

Indo

nesi

a


Comparison of the cost of milk production

Milk production cost differentials are indicative also for beef costs in many countries

0 5 10 15 20 25EUR per 100 kg

EU average

USA

China

Ireland

Chile

Australia

The Netherlands

Brazil

New Zealand

Bangladesh

Poland

India

Argentina

Source: FonterraExchange rate used: 1.26 $/EUR


In general, only subsidies make beef production possible in the EU

0

100

200

300

400

DE POL FR ES IT IRL CAN USA ARG BRE

Euro

s pe

r 100

kg

sale

s w

eigh

t

Sales price Total cost

Total cost of production compared to sales price, 2005


Wildly fluctuating exchange rates - they can make inefficient producers into exporters, & vice versa ...

Major Exchange Rates Index, Foreign Currencies vs. USD, 2005-2009

CADARPBRLUYPEuroRUBCNYJPY

AUDNZD

75

80

85

90

95

100

105

110

115

120

125

130

2005 2006 2007 2008 2009

Depreciation (vs USD)

Appreciation (vs USD)

Source: Gira Meat Club 2008/2009



Cattle Producer Prices, 1997-2009 (Current EUR/t cwe)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

USARUYEU CowEU Male beef R3AU

Beef producer prices Look what the Real's revaluation did to Brazil's competitiveness!

BR


MENU


2. Price-makers

3. Europe and Italy

4. Conclusion


40

530208

343

281

55

201

307

858

468

270

480 131

160

Beef Trade Flows, 2008 Making the world's base price is essentially a two-man show

Net importer

Net exporter



Beef & Veal Exports: What counts is who you sell to A sophisticated offer for a sophisticated clientele?

Destination of Exports (in KT cwe)

E.U.

Others

US

RU

ME/NA

0

500

1,000

1,500

2,000

2,500

2006 2007 2008 2009

BR

EU enlargement

Others

CEECs

RU ME/NA Africa

020406080

100120140160180200

2006 2007 2008 2009

EU

Others

US/CA

JP

KR

Other F.E .

0200400600800

1,0001,2001,4001,6001,800

2006 2007 2008 2009

AU



Brazil: a strong domestic market has provided the base for an extraordinary growth in exports

Current problems are probably just a temporary hiccoughThey haven't stopped corporate position-building in major consumer markets

Brazilian beef balance

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000

10 000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008(e)

2009(f)Source Gira compilations

('000 t cwe)

production

consumption

exports



Enormous potential, (temporarily) squashed by domestic political concerns.

Argentina: Government restrictions still demotivating an otherwise dynamic export sector

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

(e)

2009

(f)

('000 t cw e)

Consumption

Exports

Source: GIRA

Production

Argentine Beef Balance, 1997-2009 (forecast)


Big is not always better - but now it's a case of getting hold of a decreasing world ressource

Major Global Meat Processors

0 2000 4000 6000 8000 10000

Tyson Foods

JBS/Bertin/Pilgrims

Cargill Meat Solutions

Brasil Foods

Smithfield Foods

Vion

Danish Crown

Marfrig incl. Seara

National Beef Packers

Shineway Group

Next 10

Approx primary processing volume '000t cwe

BfPkPy

Source: Gira '06/07 volumes adjusted for M&A Sept'09


Price formation

World trade makes the world reference price

since imports are always available to play the role of the "lid" on domestic prices.

But at national level - and in the absence of major imports - domestic supply still generally sets at least the reference point for price

in the context of increasingly cyclical production ...

and ever-larger primary processor groups ...

and allowing for the effects of (direct) subsidies

But as markets are increasingly opened - with beef production basically stagnant - and in the absence of any real product differentiation - it is the lowest cost producer who will increasingly set the price...

Unless it's the guy that can get his hands on enough of the world's (and the EU's) meat who imposes his price!


MENU


2. Price-makers

3. Europe and Italy

4. Conclusion


EU-15 an inexorably self-destructing production base: Down 8% (600K tec) in 10 years

Decline of the herd and of production of beef: EU-15

50

55

60

65

70

75

80

85

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Her

d : m

illio

ns o

f hea

d

5

5,5

6

6,5

7

7,5

8

8,5

Prod

uctio

n : m

illio

ns o

f ton

s cw

e

Herd - Mn Meat - MT cweSource: Gira Meat Club 2008/9


From an 800KT trade surplus to a -100KT deficit in 12 years - No wonder the EU industry is still in shock

Nearly a million tons have "disappeared"!How can this NOT have an effect on productivity?


Declining beef consumption as high price sees EU consumers move to cheaper meats

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

45 000

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

'000

t cw

e SheepPoultryPigmeatBeef & veal

EU 15 EU 25 EU 27

EU Meat Consumption, 1997-09f



... with some very high & growing import dependence: increasingly inter-linked, but still very different structures

Supply Structure amongst Top 10 Beef & Veal Importers – 2001-2006 & 2007(e) / 2011(f)

0%

20%

40%

60%

80%

100%

Shar

e of

sup

ply

ImportsProduction

IT UK DKESDEFR NL EL PT SE

Source: Gira Decreasing import volumeNOTE: each column represents a year - 2001 to 2007, & 2011

5.2 Production etc. - Beef


VION

Others Westfleisch

GausepohlMüller Fleisch Färber

AIBP

OthersGrampian

Foyle

DawnWoodhead

Bros.

ABCS

Others

SocopaSVA

Kerméné

Terrena

Norteños-Gypisa

Others

SAT FribinEl Encinar

de Humienta

Viñals Soler

Merca-Carne

Inalca

Others

Unipeg

Colomberotto

Bugin

F.lli Schellino

Source: Gira

High concentration in the top 2 BF&V producing countries - around 55% share for the top 5

Source: Gira


There's nothing contradictory in a "premium" AND a "discount" offer - even to the same consumer

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

A polarising value-for-money structure in beef & veal supply

1998 2004 2010 2015Source: GIRA

premium"commodity"discount

"Horses for courses"


Italian beef: a steady production decline in a tough market - with nearly 50% import dependence

Static domestic consumption

down in last 2 years due to economy + high prices in 2008

Modern consumer trends away from beef

Strong imports are competitive on price & quality

Italian grain finishing is expensive, lacks scale

-200400600800

1,0001,2001,4001,600

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

(000

t cw

e)Consumption Net Production Imports Exports

Source: Gira Meat

Club

Italian Beef Balance ('000 t cwe)

The industry is moving away from live imports & finishing in Italy to importing meat- thus loosing even more of the added value!


EU beef production competitiveness issues

Positive factors

Good demand for national beef at a premium price point

Seen as more reliable

Better quality

Safer

More ethical…

Strong grass based cattle herd, avoids grain cost issues

National nuances in flavour support local finishing / cutting

“Food miles” issue is building… but is not so strong in beef

Intra EU trade – free access to the richest markets.

Negative factors

High cost of production due to:

Higher feed and labour costs

Higher welfare costs

Lack of real scale at finishing

Declining dairy herd, which dominates beef production

Struggle to valorise carcases

by exporting cuts to better markets, since EU prices often uncompetitive

Increasing threats from imports

Climate is not generally conducive to intensive cattle production

EU population are historically pig eaters… and now cheap poultry.


MENU


2. Price-makers

3. Europe and Italy

4. Conclusion


Conclusions: the competitiveness of EU beef must above all be looked for in the mind of the consumer

"Protection" can only come from clear market demand segmentation• This means fully developing meaningful premium, convenience and origin niches• While, at the same time, encouraging increasing farmer and processor efficiency by all

means for the production and delivery of everyday beef - mitigating the EU's natural cost dis-advantages

• And constantly pressuring consumers, retailers and caterers to " buy EU".

But beef is and will remain essentially a "commodity"

That means it will continue to have a high degree of price elasticity

So the freer the market, the more important lowest production cost (for a given product) will become.

The temptation to simply "milk" the market - a possibility for the new mega-groups in the EU - must be resisted at all costs

"Abusing" the market thus must ultimately boomerang

It will remove retailers', caterer's and processors' "moral" obligations to domestic producers and slaughterers

... And, of course, by continually explaining that it is not by becoming dependent on the Americas that EU consumers' best interests will be served in the long - or even medium - term!


Thank you for your attention

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