Hayley Moynihan Food & Agribusiness Research and Advisory Rabobank 8 July 2013 Winning through the...
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Transcript of Hayley Moynihan Food & Agribusiness Research and Advisory Rabobank 8 July 2013 Winning through the...
Hayley MoynihanFood & Agribusiness Research and AdvisoryRabobank
8 July 2013
Winning through the supply chain
Red Meat Sector Conference
4
The industry has been here before….
Source: Rabobank, 2013
Quotes over the past 20+ years......
“ By the end of this year three year term, I’m determined to see a meat industry that knows where it’s going.” Minister of Agriculture, 1991
“Competition may force
meat plants to close” – 1997
“Meat industry failures tipped” – 1997
“A year of promise that didn’t deliver” – 2008
“Lamb kill in nosedive” – 2010
“Call for consolidation in industry with too much capacity” – 2012
“Riding the rollercoaster of returns” – 2013
5
Sheep flock has been in a constant decline
Source: Beef and Lamb NZ, Rabobank, 2013
Likely to get below 30 million head for the first time in over 50 years……19
7219
7319
7419
7519
7619
7719
7819
7919
8019
8119
8219
8319
8419
8519
8619
8719
8819
8919
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
12
25
30
35
40
45
50
55
60
65
70
75
Flock numbers
million h
ead
Over 30 years 35 million head less (down 50%), but processing capacity not adjusted to the same extent
6
Viability within the sector falling
Source: Rabobank, 2013
Particularly in relation to dairy
Mar
-09
Jun-
09
Sep-
09
Dec-0
9
Mar
-10
Jun-
10
Sep-
10
Dec-1
0
Mar
-11
Jun-
11
Sep-
11
Dec-1
1
Mar
-12
Jun-
12
Sep-
12
Dec-1
2
Mar
-13
Jun-
13
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
Dairy Sheep/Beef
Ea
sil
y v
iab
le a
nd
Via
ble
min
us
Just
via
ble
an
d U
nvia
ble
7
Margin volatility drives prices
Source: NZ Agrifax, Statistics NZ, Rabobank, 2013
Volatility in returns unprecedented – market signals distorted by procurement pricing
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Jan-
12
Jul-1
2
Jan-
13125
175
225
275
325
300
350
400
450
500
550
600
650
700
750
800
Spread (SI) (LHS) Farmgate Price (SI) (RHS)
NZ
c/k
g (
FO
B a
ve
rag
e e
xp
ort
p
rice
min
us S
I fa
rmg
ate
17
.5/k
g
cw
t)
NZ
D c
/kg
cw
t
8
Pressuring margins for processors too
Source: Annual reports, 2013
Small or negative margins across the supply chain
2008 2009 2010 2011 2012
-4%
-2%
0%
2%
4%
6%
8%
EB
IT/o
pe
rati
ng
pro
fit
ma
rgin
10
Global food and agri markets have changed
Source: Rabobank, 2013
Red meat sector needs to evolve too, with greater coordination
11
The ultimate dilemma for both parties
Source: Rabobank, 2013
Which risks can you afford to live with and which can be managed?
Sellers’ dilemma
Buyers’ dilemma
12
Drivers of change will vary for everyone
Source: Rabobank, 2013
Chasing value, rather than price, is the common feature but with different motivators
• Reduce exposure to market price volatility• Improve resilience to market shocksReduce risk
• Optimise production• Improve process innovation• Optimise resource flows and valorise waste
flows
Improve productivity
• Improve investment opportunities• Access new models that provide leverage from
chain partners
Improve access to capital
• Improve product innovationAccess new markets
• Work on other product attributes, such as quality and sustainability
Enhance brand and reputation
13
Example: UK dairy industryFocus on price may come at the expense of efficient supply chains
Over the last decade; production down 8%, farm numbers down 44% (10,000), average herd size doubled
Initial strategy to drive costs out of the business due to price pressure and industry shrinking
Processors have since consolidated, been acquired by multinational brand players and diversified their product range
New processing capacity and lower milk supply resulted in procurement competition heating up
“Voluntary code of best practice on contracts”
14
Example - MSA program Australia
Source: MLA’s NLRS Rabobank, 2013
Premiums obtained in all segments across the supply chain
18
0 - 2
20
kg
22
0 - 2
60
kg
26
0 - 2
80
kg
18
0 - 2
20
kg
22
0 - 2
60
kg
26
0 - 2
80
kg
0
10
20
30
40
50
60
MSA yearling cattle price differential 2012
NSWQLD
Heifers
c/k
g c
wt
Steers
• MSA is a beef and sheepmeat eating quality programme
• Designed to assure buying, eating and cooking quality for consumers
• Extensive research involving farm practices, processing, cuts, ageing periods and cooking methods
• MSA requires standards to be maintained from paddock to plate
15
Déjà vu – supply chain tough to manage
Adding value rather than chasing price
Looking in the mirror
Supply chain dynamics
Looking forward
16
Status quo + less scale = unsustainable
Source: Rabobank, 2013
But increases the necessity for addressing overcapacity - larger scale operators feel heat first
20
14
f
20
13
f
20
12
20
11
20
10
20
09
20
08
-
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
All other companies (excl Alliance, Affco & SFF)
AFFCO
Silver Fern Farms Limited
Alliance Group Lim-ited
* based on extrapolation of quota allocations in each year
17
Key considerations for the meat sector
Source: Rabobank, 2013
Which risks can you afford to live with and which can be managed?
Farmers’ dilemma
Processors’ dilemma
Need to manage efficiency, higher
prices and volatility
Need to secure share of limited
supply
How much margin or certainty to offer suppliers?
Will returns be better if I play the
open market?
Why commit to a processor?
Should I invest further capital in the supply chain?
18
A different path needs to be trodden carefullySupply chain behaviour needs to align with ambition
The red meat sector fundamentally has a positive market outlook BUT a shrinking industry is the greatest risk and reduces options
The status quo is not sustainable for all participants – efficiencies lost will hinder competitiveness
Change is needed – but must be based on greater value for consumers and a more efficient supply chain
Change also carries risks in execution; transactional costs and maintaining market share
Capital will be needed to support restructuring of the supply chain
Supply chain relationships and commitment will be key to extracting value
19
Déjà vu – supply chain tough to manage
Adding value rather than chasing price
Change is inevitable - scale needed for success
Looking in the mirror
Supply chain dynamics
Looking forward
20
Rabobank contact details
Rabobank International
Hayley MoynihanFood & Agribusiness Research and Advisory
t. +64 3 341 4218
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