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Boom in global protein production ‘to pressure margins’

Trade expansion could provide further impetus for consolidation, with Asian demand feeding through exports growth in Brazil and the US, research suggests.

The coming year will see global animal protein markets shaped by continued consolidation and expanding trade as producers adapt to an evolving retail landscape, according to Rabobank.

In a report released this week, a team of authors led by strategist Justin Sherrard wrote that expanding global protein production will increase competition among regions and species while placing pressure on prices and profit margins along the supply chain.

“Expect new areas of opportunity to open up in all markets, with animal protein companies and supply chains that are most agile and innovative in responding to these opportunities best placed to benefit,” the report said.

Making ends meat

In an online video accompanying the report, Sherrard said that Rabobank projects overall animal protein production to increase by just more than 4.5 million tons, a 1.75 percent increase he attributed to improving economic conditions and consumer confidence, relatively low feed costs and cyclical forces that favor continued expansion.

The lender expects growing animal protein production to lead to continued pressure for consolidation in the year ahead, though the forces driving the efforts will differ among regions.

The report’s authors wrote that consolidation efforts in the US will be driven by an increasing focus on value-added products, while Brazilian meat producers try to recover from scandals that reduced export growth and European producers attempt to capitalize on opportunities in lower-cost Central and Eastern European countries.

Another consequence of growing animal protein production, according to Rabobank, will be an expansion of trade between regions, though the bank noted exchanges would likely be complicated by currency volatility and non-tariff trade barriers, among other factors.

“Old trade agreements are now being reopened and renegotiated. New trade agreements are very hard to close,” Sherrard said in the video. “We find ourselves in a situation where trade is going to deliver more competition – between species and between trading regions – and more volatility.”

The Amazon effect

Specifically, the report projects an increase in exports of poultry, beef and pork from both the US and Brazil as demand for imported beef grows in Vietnam, Malaysia, the Philippines and Thailand. The central role of China as a demand center is discussed repeatedly throughout the report, which predicts an increase in imports across animal protein segments.

Foodservice and food retail companies are best positioned to benefit from the expansion in production examined in the report, though its authors believe the expansion in channels and product options bring both opportunities and threats. For animal protein, the blurring of distinctions between retail channels typified by Amazon’s acquisition of Whole Foods in August will encourage producers to test new products online and increase the importance of supply-chain management, according to Rabobank.

“Costs will go down through better inventory planning, higher volumes, more automation and improved end-to-end supply-chain visibility. The leaders in this process may capture more margin.”