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]
MEATITALY, Cremona il 22/10/09Gira 2009 2
Consulting
Individual market research
Strategic multiclient research
Market due diligence
What GIRA does
all along the food & drink and distribution chain- throughout the world
MEATITALY, Cremona il 22/10/09Gira 2009 3
MENU
1. Competitiveness = cost of production?
2. Price-makers
3. Europe and Italy
4. Conclusion
MEATITALY, Cremona il 22/10/09Gira 2009 4
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
MEATITALY, Cremona il 22/10/09Gira 2009 5
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
MEATITALY, Cremona il 22/10/09Gira 2009 6
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
MEATITALY, Cremona il 22/10/09Gira 2009 7
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
MEATITALY, Cremona il 22/10/09Gira 2009 9
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
MEATITALY, Cremona il 22/10/09Gira 2009 10
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
MEATITALY, Cremona il 22/10/09Gira 2009 11
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
MEATITALY, Cremona il 22/10/09Gira 2009 12
Source: Gira Meat Club 2008/9
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
MEATITALY, Cremona il 22/10/09Gira 2009 13
MENU
1. Competitiveness = cost of production?
2. Price-makers
3. Europe and Italy
4. Conclusion
MEATITALY, Cremona il 22/10/09Gira 2009 14
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
Source: Gira Meat Club 2008/9
MEATITALY, Cremona il 22/10/09Gira 2009 15
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
Source: Gira Meat Club 2008/9
MEATITALY, Cremona il 22/10/09Gira 2009 16
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
Source: Gira Meat Club 2008/9
MEATITALY, Cremona il 22/10/09Gira 2009 17
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)
MEATITALY, Cremona il 22/10/09Gira 2009 18
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
MEATITALY, Cremona il 22/10/09Gira 2009 19
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!
MEATITALY, Cremona il 22/10/09Gira 2009 20
MENU
1. Competitiveness = cost of production?
2. Price-makers
3. Europe and Italy
4. Conclusion
MEATITALY, Cremona il 22/10/09Gira 2009 21
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
MEATITALY, Cremona il 22/10/09Gira 2009 22
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?
MEATITALY, Cremona il 22/10/09Gira 2009 23
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
Source: Gira Meat Club 2008/9
MEATITALY, Cremona il 22/10/09Gira 2009 25
... 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
MEATITALY, Cremona il 22/10/09Gira 2009 26
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
MEATITALY, Cremona il 22/10/09Gira 2009 27
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"
MEATITALY, Cremona il 22/10/09Gira 2009 28
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!
MEATITALY, Cremona il 22/10/09Gira 2009 30
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.
MEATITALY, Cremona il 22/10/09Gira 2009 31
MENU
1. Competitiveness = cost of production?
2. Price-makers
3. Europe and Italy
4. Conclusion
MEATITALY, Cremona il 22/10/09Gira 2009 32
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!
MEATITALY, Cremona il 22/10/09Gira 2009 33
Thank you for your attention