The poultry business is set to become more and more global. Not only is there a growing consumer base in less developed countries demanding more meat protein but much of this demand is in countries without a favorable supply of natural resources for poultry production. Demand will be filled through global poultry trade.
Following are three areas of global competition that will make a difference:
The availability of land, water and climate favors production of meat proteins in countries like Brazil and the U.S., but other major competitors will emerge.
In the Western Hemisphere, these will include Argentina, Uruguay and Paraguay, predicts Osler Desouzart of ODConsulting. Elsewhere in the world, he foresees South Africa, Angola and Ukraine joining the “club of major world meat exporters.” Other future contenders, according to him, are India, Vietnam, Indonesia, Sri Lanka, Pakistan, Korea, Nigeria and Kenya.
However, he says, the competition for natural resources will impact the poultry business in new ways. Capital structure will continue to move from family-based operations, typical of the past, towards more public investment, including some by countries without abundant natural resources buying shares of companies with operations in countries where the necessary resources are plentiful.
Governments play a role
Public policy also makes a difference on the global playing field. This can take the form of trade barriers, subsidies and government-backed financial support for investment.
Brazil’s BNDES (National Bank of Economic and Social Development), for example, has provided financial support for expansions, mergers and acquisitions, which have given Brazilian meat and poultry producers global size and scale.
“The most recent operations that BNDES supported are the JBS acquisition of Swift Argentina and Swift USA and the mergers of Sadia and Perdigao, Marfrig and Seara and JBS and Bertin, to mention just a few,” says Fabio Nunes, an industry consultant based in Brazil.
Such industry-government coordination not only can help an industry expand outside its national bounders but can help strengthen and make it less susceptible to foreign acquisition.
The role of currencies
Currency valuations add complexity in a global business model. U.S. companies, for example, must currently buy feedstuffs with a depreciating currency.
Just one of the risks/opportunities of an industry becoming truly global is that the weakness or strength of its currency can impact its position on the global playing field, says Jim Budzynski, managing principal of MacroGain Partners.
Currency valuations will play a role, hurting the U.S. producers for the foreseeable future, he predicts. “The grains and other nutrients that U.S. companies buy to feed their chickens are priced in dollars, which will hurt them due to the current depreciating U.S. dollar. With these commodities priced in dollars, this may be a significant, long-term weakness for U.S. producers given the outlook for the dollar.”
Competition between proteins
The world’s poultry industry should be able to leverage its superior feed conversion to gain market share in the future over its red meat competitors. Chicken’s 2-to-1 feed conversion ratio compares favorably to that of beef and pork, which have feed conversion ratios of 4-to-1 and 3-to-1, respectively. As more of the world’s population in less developed countries begins to consume more meat proteins, poultry will fare well because it costs less.
Producers in countries like the U.S. and Brazil have an opportunity to further leverage this advantage. “To be a global player, you cannot ignore the future trends towards products that require fewer natural resources (land, grains, water, etc.) as is the case of poultry and aquaculture,” Desouzart says.
Further globalization of the poultry business is inevitable. As Desouzart says, “The last walls of protectionism are falling apart, even if you see barricades being constructed left, right and center.” Those barricades won’t last, he says, and the future of the business is global.