Brazil’s No. 3 broiler producer finds its fit with Cargill

After a quarter century ownership by different soybean companies and being up for sale much of the past decade, Brazilian chicken and pork producer, Seara Alimentos S.A., has found its fit with Cargill. At least that's the view of Seara Alimentos' management, who say that Cargill unlike previous owners in the soybean business understands and is dedicated to the meat business. Now Seara is bearing down on its chicken and pork businesses backed by the global reach and resources of Cargill.

Not that Seara Alimentos sat in the wings in the meat business before being bought by Cargill in 2005. Far from it. Since its founding in 1956 as a supplier of pork carcasses for butcher shops in the town of Seara, Santa Catarina, the company which is today Brazil's third largest poultry producer and fourth largest pork producer has made the necessary moves to grow steadily and maintain its position as a leading Brazilian producer/exporter.

The company got into chicken production in 1975 and was soon exporting chicken to Kuwait. After being acquired by soybean producer Ceval in 1980, Seara became the first Brazilian chicken producer to export to the European market in 1982. The company backed up its growing export business by acquiring six chicken processing plants in the 1980s and 1990s. It also acquired, in 1992, a private port facility in Itajai, Santa Catarina, to facilitate its export business.

In 1997, Bunge, the Argentine soybean producer, bought Ceval Alimentos, but almost immediately tried to sell Seara and in the process made it, in 1998, an independent company, Seara Alimentos S.A. Still, Seara continued on a positive track with the start-up in 2001 of its first plant producing fully-cooked products, in Itapiranga. The company, however, remained in a state of "limbo" being up for sale until 2005 when it was acquired by Cargill.

Perhaps most amazing is that Seara managed to maintain its market position and reputation for quality, in spite of the portfolio mismatches with its parent companies and being up for sale for an extended period. In fact, by fiscal year 2005 the year in which Cargill acquired the company Seara's revenues had reached a company record of nearly $1 billion U.S.

Seara's white knight

Seara's acquisition by Cargill delighted Seara's senior management, as Cargill has a very strong reputation in the meat processing and export business. Especially important, in their view, is Seara's fit with the Cargill product portfolio. Clever de Avila, Seara's poultry director, sums it up succinctly: "Cargill loves meat." And this, Avila says, is a good thing for Seara Alimentos. "I believe that Seara has strong support from the Cargill stockholders because they believe in the meat business, including chicken and pork."

In Avila's view, the alignment in portfolios sets a positive tone for Seara's future. "Cargill believes in pork and poultry, so we are going to increase our offerings from Brazil to the customers around the world. We have good conditions in Brazil to be able to do that," he said.

The Brazilian formula

Seara Alimentos produced 271 million broilers in FY 2005, and the company projects it will produce about 277 million in the FY 2006 calendar year ending this month. This puts Seara on track to maintain its No. 3 position in Brazilian broiler production.

Being a leader in Brazil's chicken industry means, of course, that Seara focuses on world markets. Ninety percent of its chicken production is exported. Still, the company has an important presence in the domestic market. In FY 2005, Seara accounted for 6.26 percent of the domestic market, while, in pork, it was fourth with 4.95 percent of the domestic market.

A big part of the 10 percent of Seara's chicken production that stays in Brazil is accounted for by hearts and gizzards chicken heart meat being particularly popular in Brazil. Another important part of the production for the domestic market is Seara's further processed line, which is extensive. Brazilians are very big on cold cuts, and Seara offers a wide assortment of these products made from pork and chicken. Some of these items are exported to Venezuela, Peru and Argentina.

In the same reporting period, Seara was third in Brazilian chicken exports, accounting for 12 percent of Brazil's total chicken exports. The lion's share of Seara's exports went to Asia (43 percent) and Europe (25 percent), while the remainder went to the Middle East (14 percent), Russia and CIS (10 percent), Africa (4 percent) and Latin America (2 percent).

Among Brazil's chicken exporters, Seara leads in exports to Europe and Japan. The company sells chicken breasts to Europe; wings to Taiwan, Hong Kong, China and Singapore; and legs to Japan. It also produces 2,000 tons a month of fully cooked product, all of which is exported.

Seara exports to almost 100 countries, exporting 35,000 tons of chicken a month. This generated close to one billion dollars in revenue last year, although revenues have declined recently due to an unfavorable exchange rate.

Investment In Port, TerminalPlus ISO 9002 Certification

With the company's fortunes resting so heavily on the world's poultry and pork markets and its ability to reach them, this can call for special investment. That was the conclusion reached by Seara's management in 1992, when the company purchased a private port facility in Itajai, in northeast Santa Catarina state, one of the two largest poultry production states in Brazil.

According to Clever de Avila, "We bought the port facility in order to have an easy way to export our products. Plus, the union regulations made things difficult at times. Seara decided to buy the port facility and thereby reduced our costs by 40 percent as well as greatly increasing the productivity of the port by working three shifts, seven days a week.

"Braskarne is the name of the company that runs the port, and it has, new container terminal, with capacity for 312 units, equivalent to 7,800 tons.

"When Bunge bought Seara, our headquarters was in Gaspare, a city 30 km from Itajai. Then Bunge told Seara to move and the decision was made to move the head office to the port facility. But in 2005 we decided to increase our port's capabilities, and the port facilities took over the head office. Therefore, we moved to a new headquarters, in Itajai, not far from the port," says Avila.

Another move by Seara in 1996 further illustrates the company's customer focus. That's the year that Seara became the first company in Brazil to earn the ISO 9002 certification for the entire chicken production chain from genetics to sales. This certification is very important for Seara because the company's export customers value it a great deal.

Recovering markets in 2007

"Like everyone else in Brazil, we had a tough year in 2006, with export sales being way down," Avila said. "That's tough for a company that exports 70 percent of its products, and 90 percent of its poultry products. We reduced our poultry production last year by 9 percent, and so did many other Brazilian companies. We decided to reduce, because the price was down. Now in 2007, the prices are better and we are producing at full capacity again. The main issue for us is the exchange rate, between the Brazilian real and the U.S. dollar."

While figures for Seara's 2006 fiscal year ending June 1 were not available at press time, the earnings period included very mixed market conditions some difficult months in 2006 but also the recovery months of early 2007. The company's FY 2005 also included months of mixed performance in the markets, and despite that year's record revenues of $989.6 million U.S. the company reported an $8.3 million loss in net income. In the current fiscal year, poultry exports dropped in calendar year 2006 due to the avian influenza panic in Europe and Asia, and Russia an important customer for Seara's pork products closed its doors to Brazilian pork. Fortunately for Seara, Russia reopened its doors in early calendar year 2007 to Brazilian pork exports.

Whether or not the recent recovery in export markets is sufficient to overcome the disastrous world markets of last year remains to be seen. The exchange rate, with a weak U.S. dollar, continues to be a serious concern for the industry.

Focus, fit and new opportunities

Seara Alimentos has shown a remarkable ability over the years to stay focused on its mission through the ups and downs of markets and changes in ownership. This focus has allowed the company to remain among the top Brazilian poultry and pork producers. Now backed by the global reach and resources of Cargill a company that understands and is committed to the meat business Seara is bearing down on its chicken and pork businesses with renewed focus.

"The decision-making comes from here at Seara and not from Cargill," Avila explained, "but Cargill has given us new opportunities. Because of Cargill we now have new offices in London and Moscow and this has made us stronger. We added those to the offices we already had in Holland, Singapore and Argentina.

"We produce products with the Seara name, with our client's brands or with the Sun Valley name, which is Cargill's brand." In Singapore, for example, consumers will find the Seara brand in supermarkets; while in most European markets, Seara packs its products under private label with the client's brand. In certain markets, Seara will pack product under Cargill's Sun Valley brand.

"In terms of future growth, we'll first concentrate on increasing the production in our own plants, and, secondly, we'll look at opportunities to buy other companies," Avila said.