Osler Desouzart, the colorful and astute poultry industry consultant from Brazil, puts the economic crisis of 2008 and the industry’s current economic uncertainties in perspective: “People eat even during crisis. I have been in this industry for six major crises, and I hope to be around for the inevitable next one. It is a matter of adjustment and a matter of economic and corporate Darwinism. Many corporations or countries will lose their leading roles to the ones that have adapted faster or mostly to those that have anticipated the changes.”
If one views change as opportunity, this is a period in which some people, companies and industries should benefit. As Desouzart points out, it’s a matter of adaptation or seizing the opportunity. There is risk, to be sure, but risk is inevitable in either action or inaction.
Following are a few of the areas of risk/opportunity identified by industry executives and economists with whom I have spoken in recent days.
Supply/demand uncertainties
While there’s near-consensus that feed grains are in good supply, several people said significant risk still exists. Some of the risk involves oil and gas prices and the increase this month in the renewable fuels mandate.
John Prestage, Prestage Foods, said, “With the government taking minimum 4 billion bushels of corn for ethanol, if there is less than a 12 billion bushel crop, corn prices will go over $6 a bushel on CBOT futures. That would drive turkey live costs up to around $.60 a pound. This would require commodity prices to rise by at least $.10 a pound to remain profitable. This wouldn’t happen without at least a 10% reduction in the turkey supply in 2010 from 2009 levels.”
The risk/reward potential in grain purchasing was abundantly demonstrated in 2008.
Products and channels
An opportunity being helped by the recession is the increase in thigh meat consumption and sales. Consumers looking for a food bargain are seizing on thigh meat. And it won’t stop there, said industry economist Paul Aho. “As the world economy starts to recover, consumers will be buying more of our leg quarters,” he said. Plus, domestic sales of deboned thigh meat are increasing due to longer-term, broader-based demand.
“The increase in deboned thigh meat has occurred with very little or no marketing. If poultry companies were to do some work on deboned thighs, they could get a bigger bang for their buck on that product,” Aho said.
There’s also the possibility of some rebalancing of products and channels by poultry marketers as a result of the recession. Consumers have cut both the frequency of restaurant dining and the amount spent per dining occasion. At the same time, consumers are not actually cooking more at home. They are reheating processed foods at home.
It remains to be seen how long these changes in buying patterns will ast, but they may represent an opportunity for marketers.
Commenting on the drop in restaurant traffic, Bill Lovette, Case Farms, said, “I believe consumers will continue to demand value-added and further processed poultry products, but we may have to deliver more products in different channels in the future.”
This might result in further growth in poultry sales in the supermarket delis, value-added products in convenience stores, or food-court venues in malls and airports, he said.
These are just three areas of potential risk and opportunity in 2010. The bottom line is this: Don’t miss the upside of the downside in 2010.
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