Rabobank Food & Agri Research - All Sectors https://research.rabobank.com/far/far/en/rss/rss-all-sectors.html All sectors feed for Food & Agri Research en <![CDATA[Sugar Quarterly Q2 2017: Like a Stone]]> https://research.rabobank.com/far/en/sectors/sugar/sugar-quarterly-q2-2017.html?utm_medium=RSS Raw sugar futures (basis October 2017 contract) have lost further ground during Q2 2017, falling from USc 17.1/lb at the beginning of January to below USc 13.0/lb in late June.

Report summary

With sentiment negative, fund selling has met little resistance, pushing sugar prices down to parity with Brazilian ethanol. At the same time, ethanol parity itself has been declining, as ethanol prices have been falling over the quarter and the BRL/USD exchange rate has weakened.

In the short term, ethanol parity could slip lower. In the longer term, we continue to believe that the projected surplus in 2017/18 depends very much on favourable weather in key countries for the next six to twelve months.

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Sugar Tue, 27 Jun 2017 17:37:40 GMT 245706
<![CDATA[Halal: Is It Sweet You’re Looking For?]]> https://research.rabobank.com/far/en/sectors/consumer-foods/Halal-Is-It-Sweet.html?utm_medium=RSS Although Ramadan may have come to an end this past weekend, halal food has enough sweet things in store for the rest of the year. The European halal food sector is developing rapidly, and it’s certainly worth keeping an eye on—but traceability challenges might just throw a spanner in the works.

‘Halal’ is an Arabic term that means ‘pure’ or ‘permissible’. The term refers to a way of life that follows Islamic law. Accordingly, halal food is prepared according to Islamic rules and has to be free of pork products, alcohol, and certain other ingredients. Annual European halal spending is estimated to be around USD 60bn to USD 70bn, but this also includes non-food spending, for example on cosmetics. The halal food market in Europe is forecast to grow some 14% annually during the period 2016 to 2020. 

Demographic developments are an important driver behind the growth forecast for halal food in Europe. Approximately 2% to 3% of the global Muslim population lives in Europe (top 3 countries: France, the United Kingdom, and Germany). This population is growing as a result of immigration and higher birth rates. And the Muslim millennials (‘Generation M’) are an especially interesting group of buyers for consumer foods in Europe. They are referred to as being proud of their faith, young, affluent, and growing. According to the PEW Research Center, one-third of all Muslims are under the age of 15, while two-thirds are under 30. Third-generation Muslims, in particular, have more spending power than former generations. And young Muslims’ shopping habits seem to differ from those of their parents, as they visit regular supermarkets more often. So it’s not surprising that European supermarket chains like Tesco, Sainsbury’s, Carrefour, and Casino are expanding their halal portfolio, while start-ups like For Aisha (a UK-based halal baby-food company) are targeting this group of consumers.

To fully benefit from the growth potential in the European halal food business, supermarkets and food suppliers need to gain the trust of the Muslim consumer. Halal certification should do the trick, but the lack of standardisation is a challenge. Certification is not unified, and many different (over 300) Islamic institutions are involved in certification and labelling. Global or continental leadership is lacking, and it is not clear whether this international halal supply chain puzzle will be solved (and who will solve it). The lack of a reliable certification system makes it difficult for general food players to step into this clear market opportunity.

While the Muslim community is eating a lot of sweet delicacies to celebrate the end of Ramadan, we can conclude that the demographics—and especially the rise of Generation M—are giving a boost to the growing demand for halal food in Europe, even beyond confectionery. But, in the short run, traceability challenges may leave European food companies with a bitter aftertaste.

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Consumer Foods Tue, 27 Jun 2017 17:05:31 GMT 245722
<![CDATA[No Time to Sit Back and Relax for Greenhouse Growers]]> https://research.rabobank.com/far/en/sectors/regional-food-agri/European-Greenhouse-Growers.html?utm_medium=RSS In our previous article on the consumption of vegetables produced in greenhouses we concluded that the overall outlook for the European market is positive. This does not mean growers can sit back and relax, as competition remains fierce.

Europe’s largest vegetable consumption markets—Turkey, Spain and Italy—are also Europe’s main producing countries, with greenhouse areas (fruit and vegetables) estimated at around 74,000 ha, 55,000 ha and 25,000 ha, respectively. Sizeable markets such as Russia, Germany, France, and the UK are far from self-sufficient. With very low self-sufficiency levels, Germany and the UK are Europe’s largest import markets (see Figure 1).

Greenhouse Figure 1

Actually, production areas of greenhouse vegetables in Germany and the UK have hardly increased over the last few years, despite the widely recognised trend towards sourcing of locally-produced food and the price-premium often paid for domestically produced vegetables (see Figure 2). This has various reasons, including:
- Limited tradition of greenhouse production in these countries;
- Low appetite by domestic banks to finance greenhouses;
- Fierce international competition.

Greenhouse Figure 2

It is expected that eventually greenhouse production in large import markets will rise. We sense a growing interest by investors in the greenhouse sector. Furthermore, consumer preference for local produce seems to be lasting. The technology to control greenhouse production from a distance (for example by a company in the Netherlands) makes it easier to control multiple international production locations. Possibilities to heat greenhouses with alternative energy sources such as residual heat from factories makes production less dependent on expensive (and less sustainable) heating with fossil fuels. In the UK, the increase in the greenhouse area could be spurred by the Brexit. In Russia, government support and import bans have accelerated investments in domestic greenhouses.

Spain and the Netherlands are the dominant exporters of greenhouse vegetables in Europe. But in both the German and the UK market, the pressure from Spain is increasing, in particular for bell peppers and cucumbers (see Figure 3). The Netherlands is the largest supplier of imported tomatoes, bell peppers and cucumbers to Germany, the UK and the Nordic countries. In France, tomatoes from Morocco have become dominant at the expense of Spanish ones. In Russia, Turkey used to be a leading supplier before the import ban imposed on Turkish tomatoes. Morocco has taken advantage of this ban. 

Greenhouse Figure 3

The increasing emergence of Spain has different reasons:
- Lengthening of production seasons
- Rising quality of Spanish production
- Increased use of biological pest management instead of chemicals
- More year-round consumption of greenhouse vegetables, resulting in higher imports in winter time (see Figure 4)
- Strong expansion in organic production, a rapidly growing market.

Spain’s competitive advantage is even more logical when you take into account the suitable climate, low cost prices, flexible production systems with low-capital needs, experienced growers, and the existence of a cluster of related activities (suppliers, logistics etc.) in Southern Spain.

This high concentration of greenhouse(-related) activities in a small geographic area is also an advantage for Dutch horticulture. Moreover, Dutch growers excel in high productivity achieved with high-tech solutions. Another success factor is the ability to supply quality premium products, such as snack tomatoes, consistently throughout the year—with the help of artificial lighting.

Competitive production cost are important but not the only decisive factor in the European market. Growers can also compete with premium or niche products, local production for which customers are willing to pay a premium, and organic production. Last-but-not least, growers can create competitive advantage by teaming up with the right partners, for example breeders that provide them with new or exclusive varieties, exporters that are able to find lucrative export markets, or growers associations that pack and market in a very efficient or attractive way. 

This is the second article in a series of articles on the European greenhouse sector. The third article will appear on Monday 3 July. These articles are largely based on a recently published Dutch-language report on the Dutch Greenhouse Sector “De Nederlandse glasgroentesector naar voren: Bouwen aan een robuuste onderneming in 2026”. 

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Fresh Produce Mon, 26 Jun 2017 17:07:01 GMT 245677
<![CDATA[Agri Commodities Monthly June 2017: Tales of a Thousand and One Stocks]]> https://research.rabobank.com/far/en/sectors/agri-commodity-markets/ACMR-Monthly-June-2017.html?utm_medium=RSS Agri Commodities have largely been under pressure and so have outside markets such as crude oil, which lost 15% MOM and broke out of its six-month trading range. 2017/18 might be the first season since 2003/04 in which global stocks of most major G&O decline. However, much more bad news will be required to spark a severe price rally. Weather will be the largest risk factor to drive such a move.

Podcast: Listen to the report's highlights

To download an mp3 file of this podcast, click the download button (Soundcloud_download_button.png) in the top-right corner of the audio player.

You can find the RaboResearch Agri Commodities Podcast on iTunes/Apple Podcasts and Stitcher. You can see the podcast feed and listen to the episodes, as well as subscribe to receive a notification whenever a new episode arrives.

Your phone is the best device for listening to podcasts. Most iOS/Apple devices have the “Podcasts” app pre-installed—if not, you can find it in the App Store. On Android devices, Stitcher and TuneIn Radio are popular podcast apps.

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Agri Commodity Markets Agri Commodity Markets Mon, 26 Jun 2017 16:08:20 GMT 245664
<![CDATA[ Wh(e)at's Going On?]]> https://research.rabobank.com/far/en/sectors/grains-oilseeds/wheats_going_on.html?utm_medium=RSS Declining US wheat acres are at a 100-year low, which creates challenges and opportunities.

Report summary

US wheat acres have declined almost year after year over the last 35 years, and in the current season, they have hit the lowest point in more than 100 years, resulting in various key issues industry players should consider in their strategic planning: 

- A smaller US acreage base gives less supply cushion in case of a supply shock—drought, for example, which is currently being experienced in US spring wheat growing areas. 

- End users are likely to see periods of difficulty in procuring desired volume and quality of US wheat, resulting in the periodic need for increased imports and alternative supply arrangements. 

- Increases in imports, however, result in longer supply chains and increased cost. 

- Changes in wheat supplies and quality (e.g. protein content) increase the volatility of price spreads between wheat classes, while escalating protein premiums for end users. 

- Given the very low US planted area, spreads between classes have the potential to more frequently exceed historic spread levels, placing additional difficulties on businesses involved in wheat. 

- The smaller acreage base and inherently variable weather patterns in the Great Plains region also increase the probability of higher volatility of basis levels, which can make effective hedging on futures exchanges more challenging.

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Grains & Oilseeds Mon, 26 Jun 2017 11:53:31 GMT 245541
<![CDATA[Dairy Quarterly Q2 2017: Optimism Grows Faster Than Supply]]> https://research.rabobank.com/far/en/sectors/dairy/dairy-quarterly-q2-2017.html?utm_medium=RSS Global milk production levels continue to recover following the sharp contraction in late 2016, according to the Rabobank Global Dairy Quarterly Q2 2017.

Report summary

Higher farmgate prices and more favourable weather conditions are providing much-needed relief for the world’s dairy farmers after a three-year decline in milk values. Farmgate prices in the US continue to track well above the prices in Europe and Oceania, spurred on by local demand and, thanks to a slightly weaker US dollar, firmer export trade. According to Kevin Bellamy, Rabobank Global Dairy Head: “We expect, given continuing good margins over feed, that milk production in the US will continue to grow and that, after a slight stumble in Q1 2017, US consumption of butter and cheese will also continue to drive solid domestic demand growth.” 

Average farmgate prices in Europe moved up at the end of 2016, but have remained at only mildly interesting levels, leading to varied production responses. Farmers in Ireland, Poland, and Italy have all continued to expand production, with the UK also adding a late production spurt in Q2 2017. However, overall production in Europe has grown more slowly than many expected. Germany and France, the two largest producing states, fell well behind last year’s production levels throughout 1H 2017. With a cold and dry spring limiting production in March and April, and environmental constraints hitting the Netherlands, Europe’s farmers struggled to return to growth. 

“The weak production growth in the EU, at a time of year when butterfat levels are naturally depressed, and the strong demand growth in the US have contributed to a global shortage of butterfat, forcing prices of butter and cream to exceptional levels. In the short term, to alleviate the pressure, processors will certainly be tempted to move farmgate prices up to encourage more butterfat supply”, according to Bellamy. 

On the other hand, weaker milk supply in Europe has led to less need for surplus protein to enter public stocks, with, so far, much lower levels of support buying. Elsewhere, the surplus of proteins caused political tensions between the US and Canada in a spat over Canada’s moves to prevent US exports. 

South American production recovery continues to be slow, but steady. In Brazil, despite the renewed political turmoil, input costs have started to decline, and production and consumption started to recover. Argentina is also likely to return to production growth in 2H 2017 as the region recovers from what has been a disastrous couple of years. 

Looking forward to the remainder of 2017, New Zealand is ‘steaming up’, with more optimism for the new season than has been seen for the last three years and opening prices at, or around, NZD 6.50/kgMS. Good weather leading into the season will stimulate strong growth. Australia is also starting the season with more optimism than last year and will start to recover some, but not all, of the production lost. 

In China, farmgate prices have been weakening, restricting volume growth from large corporate farms and forcing smaller farmers out of production, meaning that even mediocre consumption growth has managed to outstrip supply increases. With stocks running low, Rabobank’s expectations are that import levels will need to grow dramatically faster in 2H 2017 and that the full-year import growth will near the forecast of 20% for the year, conveniently soaking up the extra supplies stemming from New Zealand. In addition, the introduction of tighter infant formula regulations appears to be benefiting importers more than local players, with imports also significantly higher. 

Overall, Rabobank’s outlook suggests that the global production recovery will continue, and the industry will move into a phase of trade expansion which will be needed to supply the steady, if modest, demand growth. The structural increase in demand for butterfat will, however, take longer to resolve, with prices needing to adjust to reflect changing consumption patterns and new long-term incentives needed to encourage the production of more fat.

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Dairy Thu, 22 Jun 2017 10:58:13 GMT 245457
<![CDATA[Agricultural Machinery Markets: Recovering, but not Booming ]]> https://research.rabobank.com/far/en/sectors/farm-inputs/agricultural_machinery_markets.html?utm_medium=RSS After four years of decline, the global agricultural machinery market is expected to show a modest recovery in 2017. For the years to come, we expect demand to stabilise, as farmers can no longer put off replacing older machines. A return to the exceptionally high peak sales levels of 2012 is unlikely however, as agri commodity markets are far below the 2012 level.

Going forward, the farmer income picture is not looking very positive, especially not for North American crop farmers. This leads us to conclude that the recent recovery in agricultural machinery sales is predominantly driven by replacement demand: farmers increasingly need to replace their old machinery. This means that the recovery in the agricultural machinery market will be modest at best. A return to the record sales levels of 2012 is not likely, because agri commodity prices today stand at 25% to 45% lower than 2012 levels.

In the past few years, farmers responded to the lower commodity prices by postponing machinery investments. The main reason was the lower availability of liquidity and credit, but the diminishing urgency to buy the latest technology because of lower marginal returns given low commodity prices also played a part. As a result, the average age of machinery at farms is increasing. 

The combined sales of agricultural machinery for the industry’s big three—Deere, CNH Industrial, and AGCO—have declined since 2013 (see Figure 1). The second quarter typically shows the highest sales. Sales in Q2 2016 were around 38% lower than in Q2 2013. When comparing sales for the full years 2013 versus 2016, we see a similar decline. The decline in like-for-like sales was more severe, because these companies’ acquisitions disturb the picture somewhat. For 2017, the three largest companies expect sales to recover between 3% and 8% compared to 2016. Q1 2017 marked the first time in recent years that sales were higher than the same quarter in the previous year, at around 4%.

FI_20170621_chart1

The main drivers for agricultural machinery sales—corn, wheat, and soybean prices—are still in decline, with a neutral to negative outlook for this year’s crop. This is what the key regions are looking like:

• US farmers in particular face significant continued margin pressure, with on-average negative net returns for crop farmers.

• In Europe, margin pressure is somewhat lower, with crop farmers realising approximately break-even levels in 2017, which is an improvement on 2016 due to an expected recovery in yield.

• In Brazil, crop farmers are relatively well off due to relatively attractive crop prices in Brazilian reais.

Dairy is a sector that seems to have left the lows behind, with milk price recovery supporting farmer margins in almost all important production regions.

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Farm Inputs Wed, 21 Jun 2017 14:12:32 GMT 245558
<![CDATA[Podcast: Milk Prices Are in—It's back to the Future versus Breaking Rank]]> https://research.rabobank.com/far/en/sectors/regional-food-agri/milk_prices_are_in.html?utm_medium=RSS The Southern Australian milk prices for 2017/18 have been announced. Murray Goulburn has reverted to a traditional pricing model, while other processors chose to break rank. But is this a watershed moment for the industry? And how do local milk prices compare to Rabobank’s expectations... and to global peers?

Listen on your phone

When on your phone, click on one of the following links to find the RaboResearch Food & Agribusiness Australia/New Zealand Podcast: iTunes, Stitcher and TuneIn. Alternatively, you can search for ‘Rabobank’ on your favourite podcast app. You can see the podcast feed and listen to the episodes, as well as subscribe to receive a notification whenever a new episode arrives. 

To download an mp3 file of this podcast, click the download button (Soundcloud_download_button.png) in the top-right corner of the audio player.

Your phone is the best device for listening to podcasts. Most iOS/Apple devices have the “Podcasts” app pre-installed—if not, you can find it in the App Store. On Android devices, Stitcher and TuneIn Radio are popular podcast apps.

Available Rabobank podcast channels are RaboResearch Food & Agribusiness Australia/New Zealand and RaboResearch Agri Commodities.

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Dairy Tue, 20 Jun 2017 13:34:16 GMT 245538
<![CDATA[Volume or Value in Frozen Bakery: a Strategic Choice Is Looming]]> https://research.rabobank.com/far/en/sectors/consumer-foods/volume_versus_value_in_frozen_bakery.html?utm_medium=RSS In the next few years, the growth in frozen bakery will be lower than in the last few years. We believe frozen bakery companies will have to make strategic choices as the short-term outlook is quite attractive but there are concerns about the longer-term horizon.

As said, the short-term outlook is quite attractive. The market for bake-off products is expected to grow at a rate of about 3% per annum in the next five years. This growth will be driven by:

- The increased adoption of bake-off by artisanal bakers. Artisanal bakers are increasingly looking for differentiating products and convenience in the production processes. These bakers are turning to bake-off for some products, especially complicated products or products with a lower volume.

- The continuous adoption of bake-off in food retail. More and more food retail shops will have an in store bakery as a means to attract traffic.

- Food service is using bake-off at a higher rate. It helps prevent waste and means never having to say no to a customer’s request.

At the recent AIBI (European Association of Plant bakers) congress in Versailles, the topic was “Bread and Bake-off: Anticipation of Consumer’s Expectations”. The congress saw many fruitful discussions on the future of bake-off in Europe but also concerns about the longer-term horizon as maturity in the frozen bakery market is looming. The concept of bake-off is well-known and, especially in food retail, well understood, but will growth level off as demand starts to become saturated? 

And that is where it becomes interesting. At this point, strategies may have to change or strengthened. The last few years have seen a lot of investment in volume production in industrial bakeries. With that we mean high-volume, low-cost production capacity of commodity products in bakery. But given changing consumer preferences and the increased use of bakery by food retailers and food service to differentiate there is increased demand for value: higher-end products that are produced at relatively low production rates. Also worth noting from the congress, was the emphasis on storytelling. We heard of some very special local breads that are now going to be produced industrially (and frozen of course) before these are shipped across Europe. Another example of value.

What does it mean? We believe that bakeries, at least on a plant level, but potentially on a group strategy level, may have to make decision in which field the next battle will be – in volume or in value. And that will have implications for R&D spending, marketing spending, and capital expenditures in the next few years.

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Consumer Foods Consumer Foods Tue, 20 Jun 2017 11:51:04 GMT 245530
<![CDATA[The European Fresh Vegetable Sector: A Green Light for the Greenhouse]]> https://research.rabobank.com/far/en/sectors/regional-food-agri/european_fresh_vegetable.html?utm_medium=RSS Growth in fresh vegetable consumption in Europe is speeding up. In the first article in this series, we discuss how changes in the way western European consumers are shopping, preparing and eating vegetables offer greenhouse vegetable producers a chance to differentiate

In recent years, growth in fresh vegetable consumption lagged behind population growth in the mature Western European market. But the tide is expected to turn for the fresh vegetable market as a whole. Consumers are becoming more health consciousness, plant-based foods are gaining popularity, and restaurants, schools, and hospitals are increasingly willing to put vegetables on the menu. Although consumers don’t always follow through on what they say, various consumer data are showing signs this change is real (see Figure 1).

FP_greenhouse_fig1

For tomatoes, peppers, and cucumbers, the main vegetables produced in greenhouses, the market outlook is mixed in terms of volume consumption. The continuation of recent trends in the UK and Germany points to steady market volume growth for peppers and slight growth for cucumbers (see Figure 2). For tomatoes, market volumes are on the decline, not only in the UK and Germany but in nearly all western European countries, with the exception of France. This decline is largely caused by a shift in consumption from large tomato types towards smaller varieties. 

In reality, the market will not follow a straight line up or down. Future consumption will fluctuate according to unforeseen incidents, such as weather extremes, political issues and trends or hypes. An event like the Brexit may impact consumer demand for greenhouse vegetables if market access and import prices are affected. And heavy rainfall in Spain last winter has shown that weather events can actually result in empty supermarkets shelves for certain vegetables or price spikes that affect consumer purchases. 

FP_greenhouse_fig2

In the coming decade, consumption value growth is likely to outpace consumption volume growth as has been showcased in the fresh tomato market (see Figure 3). This change is driven by a shift in consumer preferences towards food on-the-go and a larger emphasis on flavour, experiences, personalisation and sustainable production. Changes in the way shoppers buy groceries—buying less at mainstream supermarkets and more online and in convenience stores—may also drive up sales value rather than sales volume.

FP_greenhouse_fig3

Consumers love food that combines convenience, health, and flavour. Examples are ready-to-eat lunch salads and snack vegetables. In the Netherlands for example, snack tomatoes, which are mainly sold in 250g cups and 500g buckets, have already become the main tomato type in Dutch food retail’s tomato category, with a market (value) share of over 30% ahead of the mainstream vine tomato and loose tomato. In Germany, sweet pointed peppers and small snack peppers have gained market share (see Figure 4). 

Fig4_greenhouse_fig4The overall outlook for the fresh vegetable market is positive. European growers of greenhouse vegetables have the chance to take advantage of this trend for foods that are sustainable, organic, locally produced, superior tasting, snackable, and/or a substitute for meat. They have a story to tell and sell. In addition, there may be other niches worth exploring for cultivation in greenhouses or other protected environments, such as premium lettuce types, Asian vegetables, herbs, aromatics like saffron and vanilla, and crops for medical uses.

Growers of mainstream varieties of cucumbers, bell peppers, and tomatoes should be aware of persistently competitive markets. Producing at a low cost while meeting basic conditions like quality, safety, consistency and reliability of supply remains important for these fairly commoditised products. 

This is the first article in a series of articles on the European greenhouse sector. A second article will appear on Monday 26 June, and a third will be published on 3 July. These articles are partly based on a recently published Dutch-language report on the Dutch Greenhouse Sector “De Nederlandse glasgroentesector naar voren: Bouwen aan een robuuste onderneming in 2026”. ]]>
Fresh Produce Mon, 19 Jun 2017 16:45:17 GMT 245512
<![CDATA[The European Feed Mix: Successful Ingredients for the World’s Second-Largest Feed Market]]> https://research.rabobank.com/far/en/sectors/grains-oilseeds/the_european_feed_mix.html?utm_medium=RSS The European feed market is one of the world’s largest feed markets. Yet, it is stagnating in terms of volume growth. In this article, we will discuss short-term market developments and provide a perspective on structural shifts in the industry.

Europe is the second-largest market for compound feed in the world. Total compound feed production in Europe in 2016 was estimated at 249.4m tonnes, only preceded by Asia-Pacific at 367.6m tonnes, according to Alltech’s latest global feed survey. If we take a closer look at Europe, a distinction can be made between the EU28 and non-EU countries on the continent. Compound feed production in the EU28 in 2016 was estimated at 153.4m tonnes, according to FEFAC, the European feed industry association. This equals 15% of global industrial feed production. About a third of total feed consumption in the EU is compound feed; the other ingredients are forages (approximately 50%) and direct-fed raw materials (approximately 20%). Non-EU28 neighbours such as Russia (29m tonnes) and Turkey (19m tonnes) are ramping up production fast; the sum of their current compound feed production is already higher than that of the two largest producers within the EU, namely Germany and France. This is indicative of the stagnating compound feed production in the EU: in the last ten years, production has grown by only 4%, whereas the global market almost doubled in that period. For 2017, we expect a very small increase, of +0.3%, supported by growth in poultry and cattle feed (see Figure 1).  

FI_feedmagazine1

The largest compound feed market in Europe is the poultry feed market, representing roughly one-third of the total European compound feed market. In 2016, EU poultry feed production amounted to 53.6 million tonnes. This was 0.2% below the 2015 level, mainly caused by outbreaks of Avian Influenza in various European countries, putting a brake on the steady production increase of poultry meat and feed since 2007. Feed production had been growing at a 1.4% CAGR in the period 2007 to 2015. In that same period, poultry meat production continued to grow at a 3.3% CAGR, up to 11m tonnes of meat in 2016, with a further forecasted growth of 2.1% in 2017. The different growth pace of feed and meat production is exemplary for the rapid efficiency improvements in poultry production—less feed is required to produce more meat. Key European poultry feed producers are Poland, France, the UK, Germany and Italy. These countries produce approximately 63% of total EU poultry compound feed. Especially Polish feed production has been growing fast: +4.8% CAGR since 2007. Other EU-N13 countries such as Hungary and Romania are following suit, albeit at a large distance.

The second-largest compound feed market in Europe is the pig feed market; historically the largest market, but surpassed by poultry in 2010. Feed production in 2016 was 49.4m tonnes, a decline of 1.6% compared to 2015, despite rising pig prices, slightly higher meat production, and optimism in the market last year. Efficiency improvements also play a role in pig feed demand, although less than for poultry. An example is the declining, yet more productive, sow herd, resulting in relatively lower sow feed demand. Also, home-mixing is quite common in pig production—mixing dry or liquid co-products with concentrates. This feeding strategy is expected to become more important as farms grow and have the flexibility to opt for such systems. For 2017, a decrease in both feed and meat production is expected, in line with medium-term expectations. The largest pig feed producing countries are Spain (9.9m tonnes) and Germany (9.6m tonnes), followed by the Netherlands (5.3m tonnes) and France (5m tonnes). Feed companies in these markets will need to contribute to a structural improvement of the competitiveness of their domestic pork farming sectors, through further feed cost reductions or by participating in added value concepts. 

Finally, the third most important compound feed market in the EU is cattle feed, mainly for dairy cattle. The volume in 2016 was 41.4m tonnes, equalling 27% of total EU compound feed production, a -1.5% decline compared to 2015. Key producing countries are Spain (7.4m tonnes), Germany (6.5m tonnes), France (5.4m tonnes), and the UK (5.2m tonnes). With the abolition of milk quotas in 2015, the subsequent decline, and ultimate recovery, in milk prices, the dairy sector has gone through a volatile season. In the coming years, we expect milk production within Europe to shift north and west, towards areas with cheaper feed sources, i.e. grass. The Dutch dairy sector will face additional changes as a substantial phosphate reduction needs to be achieved, resulting in downsizing of the herd. Yet, because of continuous modernisation and higher usage of compound feed in dairy diets, we expect a minor increase of +0.2% in EU cattle feed demand in 2017. A topic to watch closely is the uptake of precision livestock farming technologies at dairy farms: a shift in farmer wallets will take place, but the role of animal nutrition providers is yet to be determined.

Above we looked at structural changes in the EU feed market. Volume growth in the European compound feed market is stagnating. Market developments within and outside the EU28, changing nutritional product needs, and a consolidating farmer base will all challenge the straightforward growth potential of the established European compound feed markets (see Table 1). Most of the key companies in these markets already operate diversified businesses, and with international footprints and broader product portfolios than just compound feed, they are developing into ‘total nutritional service providers’. The Spanish market is an exception as the majority of feed is produced by vertically-integrated animal protein producers. Independent feed production accounts for approximately 40% of the market. Operational efficiency improvement of the country’s 820 feed mills is the key challenge here. However, this also applies to the animal nutrition providers in other countries—where livestock farming is a commodity business, feed costs per kg of produce should be contained. This will always be a challenge for a net feedstuff importing region such as Europe.

FI_feedmagazine2

Given the size of the EU livestock sector and feed industry, the EU is the second-largest consumer of feed raw materials in the world, after China, and well ahead of the US and Brazil (see Figure 2). Grain makes up the largest part of feed in the EU, accounting for about 70%, followed by about 25% oil meals (see figure 3). The EU accounts for 18% of all globally used grain for feeding. And although grain fed in the EU has marginally grown over the last ten years, other regions have shown stronger growth rates. 

FI_feedmagazine3FI_feedmagazine4

Strategie Grains estimates grain for feed in the EU in the current 2016/17 season to reach 166m tonnes—slightly below the 167m tonnes of the last two seasons. About 60% of this grain is used in compound feed. The remainder is fed directly on farm. For compound feed producers it is relatively easy to substitute the different grains in the feed rations depending on the costs of the different feed raw materials and their availability. The amount of wheat used in feeding has grown over the last four years, from 45m tonnes in 2013/14 to 54m tonnes in 2016/17. The majority of this wheat is grown in the EU. The wheat supply in the EU this season has been very different from previous years. France faced strong rains during the wheat harvest period 2016 which resulted in the lowest French wheat yields in 30 years and in significant quality reductions, which increased the share of feed wheat quality. Many other western-European countries also saw a year-on-year decline in production, leaving overall EU wheat production at 136m tonnes—10% down on last year. 

EU 2016 barley production, at 60m tonnes, was in line with the average of the previous three years. Barley feeding in the EU this marketing year is expected to rise by more than 10 percent year-on-year and to exceed 40m tonnes, as the rains across France have resulted in a 65% the share of feed barley quality in the EU, well above the usual 55% to 60%. 

2016 EU corn production reached 61m tonnes, up 3m tonnes year-on-year, but the overall supply of corn in the EU is not as good as that of feed barley and feed wheat and thus the amount of corn in feed will decline by about 5% to 50m tonnes. 

In addition, the EU feeds 4m tonnes to 5m tonnes of rye, and about 17m tonnes of other grains, including mixed grains, durum, sorghum, and oats. 

Besides grains, 56m tonnes of oil meals are fed in the EU. This makes the EU thus the second largest oil meal consuming region in the world, after China. The amount of oil meal consumed in the EU has slowly grown over the last five years, by 1% per year. Still, other countries like China (+3% p.a.) and the US (+2% p.a.) have shown a stronger increase. Soymeal makes up 58% of all the oil meals used in the EU. EU soybean production has doubled in the last four years, to 2.4m tonnes, but this is only sufficient to supply 5% of its soymeal demand, requiring largescale imports of soybeans and soymeal. The EU will import 21m tonnes of soymeal this year, with almost 60% coming from Argentina, one-third from Brazil, 5% from Paraguay and the remainder from the US, India and China (see Figure 4). In addition, almost 13.5m tonnes of soybeans are imported and processed in the EU, about 50% coming from Brazil and almost 30% from the US.

FI_feedmagazine5

EU rapeseed production in 2016 once again disappointed and, at slightly over 20m tonnes, fell 10% from the 2015 output and 20% from 2014. Imports of rapeseed into the EU thus surged and are forecast to exceed 4m tonnes in 2016/17, up almost 20% YOY. Still, the overall EU rapeseed crush will once again decline this marketing year and will only result in about 13m tonnes of rapeseed meal. 

The 2016 sunseed crop in the EU and the Blacksea region was very good and results in a higher EU crush of domestic and imported sunseed, pushing the EU consumption of sunseed meal to a record 7.4m tonnes, up 10% YOY.

EU feed also includes another 2.5m tonnes of palm kernel expeller from the Malaysian and Indonesian palm oil industry, less than 0.5m tonnes each of fish meal, linseed meal, and cotton meal, as well as 3m tonnes of corn gluten feed—the by-product from wet milling of corn for the starch industry—as well as another 3.5m tonnes of distiller dried grains from the ethanol industry. EU pulses supplies have increased in recent years and are gaining a higher share in the EU protein mix. This season, about 2.2m tonnes will be used, up from 1.8m tonnes last season.

With global grain and soybean supplies at high levels, grain and oilseed prices were relatively low in recent months. Global wheat supplies are currently record-high given that in 2016 most of the key exporters, with the exception of the EU, harvested a record or close to record amount of wheat. We expect most of the global key wheat producers to return to more ‘normal’ to slightly below ‘normal’ yields in 2017, which also means that global production is expected to decline slightly. Despite the wheat production issues in the EU in 2016, CME wheat futures in Paris stayed within a 155 Euro/t to 175 Euro/t range so far this season and we forecast them to largely stay within that range for the remainder of 2017, as global supplies of wheat are still high while the outlook for the 2017 harvest in Europe calls for a slightly below trend output.

CME Paris corn futures traded mainly in a range of EUR 160/tonne to EUR 175/tonne in recent months and are thus about on par with wheat futures, resulting in reduced corn use for feeding. Competition for wheat in EU feed from corn is expected to rise again. Global and US corn supplies in 2016 were record high, which kept prices in check and even the drought in Brazil did not change that. US corn area was slightly reduced YOY, but without serious weather problems in key producing regions, global supplies of corn in 2016/17 are expected to remain sufficient to keep CBOT corn futures at or below current levels for most of the next 12 months. Global soybean prices have come under significant pressure in the first quarter of 2017. The US 2016 crop already reached a record high due to very good yields and the South American production in 2017 also came in at an all-time high. US farmers are expected to increase their area for the 2017 crop massively, which, assuming a trend yield, will result in a large amount of soybeans that will hit the world market by fall, when the combines in the US are rolling. Without a weather problem in the US, CBOT soybean futures might be forced to move further down, potentially towards the sub 9 USD/bu levels seen in late 2015 and early 2016.

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Farm Inputs Grains & Oilseeds Animal Protein Mon, 19 Jun 2017 14:38:03 GMT 245490
<![CDATA[Amazon Moves Offline]]> https://research.rabobank.com/far/en/sectors/consumer-foods/Amazon_Moves_Offline.html?utm_medium=RSS On Friday, 16 June, in a game-changing and widely unanticipated move, Amazon announced its acquisition of Whole Foods Market, for USD 13.4bn (valued at USD 42/share). In this short note, we highlight some initial thoughts on the implications of this deal, focusing on the likely impact on food companies.

Since its inception as an online bookstore in 1994, Amazon has disrupted most retailing sectors, becoming the preferred option for consumers to purchase anything—from books to apparel to electronics, or anything else in between and beyond. 

However, grocery—with its high frequency of purchases—has been the one retail sector that remains highly attractive, but so far elusive. Amazon has been selling food online for 18 years, and—despite establishing a number of platforms, including AmazonFresh—reported food and beverage sales through its sites were USD 8.7bn in 2016: only slightly over 1% of the USD 700bn grocery market.

The acquisition of Whole Foods takes Amazon’s objective of becoming a top 5 grocery retailer by 2025 much closer, allowing it to grab an important share of the premium market in one swoop. The Whole Foods platform provides Amazon with a number of previously missing key elements to take on WalMart (25% grocery market share in the US) and Kroger (10%), including: decades of experience in selling food, a physical presence closer to loyal and affluent consumers, and a successful private label brand. 

Food retail expertise. As the number-one e-commerce player, Amazon’s online technological know-how and supply chain savvy can’t be disputed… but selling food is a different game to books and electronics. Whole Foods gives Amazon a deeper understanding of the offline world of food, of sourcing and curating, as well as managing perishable products and cold supply chains. Figuring out fresh food is a necessary skill set for Amazon in order to take on long-time food retailers such as WalMart, Kroger, or Costco. 

Store footprint. For all of the talk surrounding retailing moving online, the deal also confirms Amazon’s recognition that not everything has to be online and that—in the case of food—bricks-and-mortar shopping still has, at the industry level, a bright, but evolving future. Amazon has already given us a glimpse of its vision of the future of food retailing by way of its Amazon Go store concept in Seattle. The Whole Foods purchase gives Amazon the opportunity to apply its ‘grab-and-go’ learnings from these test stores into Whole Food’s 460 prime locations. In return, Amazon now has access to the shopping habits of affluent, loyal, trend-setting foodies, as well as invaluable insights into the experiential nature of food shopping, interacting more directly and personally with customers—something that Whole Foods excels at.

A private-label brand. Whole Foods Markets also comes with the successful 365 private-label brand, an important category in food (16% of food sales in the US are private label), in which competition is heating up, especially with Lidl’s arrival into the US the year. As with groceries in general, Amazon has made previous attempts at private label, without much success. In contrast, Whole Foods’ 365 brand represents about one-quarter of total sales for the company. In order for Amazon to be successful in retail, it certainly has to become a strong and innovative player in private label: Whole Foods’ existing private-label savvy (skills, knowledge, infrastructure, brand value, supply chain, manufacturing arrangements, etc.) will prove invaluable.

After almost two years of same-store sales declines, along with management and board-level upheaval, the acquisition is a welcome chance for Whole Foods to increase its value proposition. Groceries are playing with a variety of online formats, but so far, no one has cracked the code to online food sales. 

More than one retailer will be jealous of Whole Foods’ access to Amazon’s technology, automation, and algorithms. The expectation is that Amazon will support the company in restoring its dominance in the organic and natural space—both on- and offline—and no longer have to rely on third parties such as Instacart.

There also appears to be alignment in the values of the two founders: the acquisition integrates two truly disruptive companies, with common missions of “bringing the highest quality, experience, convenience, and innovation to our customers”, as stated by John Mackey, Whole Foods Market co-founder and CEO.

While the acquisition is a major threat to other retailers who are facing increased competition from new entrants such as Lidl, along with new direct-to-consumer players such as Blue Apron and Freshly, the implications for the larger food CPGs are a little more complicated. 

Don’t panic. In the short term, we believe this deal will have little immediate impact on established food companies, for the simple reason that virtually all of their products (apart from their natural and organic lines, such as Annie’s Homegrown in the case of General Mills) are already excluded from Whole Foods. (It is not unfair to categorise Whole Foods as targeting the high-income and aspirational shopper, whereas most CPG company portfolios are still largely targeted towards the mass market.) 

Stepping up. However, with online and organic sales as two of the fastest-growing segments in food, Big Food cannot afford to be left behind. Many CPGs have already begun this process, either by way of direct acquisitions (such as Hershey's purchase of Krave and Danone's buying of WhiteWave) or through their corporate VC arms. (Almost all CPGs currently have a VC platform set up to look for and invest in emerging and interesting brands.) We expect this deal to hasten CPGs’ move into natural and organics, speeding up the rate of acquisitions in order to secure shelf space at Whole Foods and on Amazon. 

Discounting Whole Foods. But if Amazon steers Whole Foods away from its ‘whole-paycheck’ image (the company recently offered up a discounted Prime subscription service to the 40m+ adults on food stamps) and/or successfully sells Whole Foods products online, then Big Food faces the threat of losing even more market share.

Taking control. The rapid growth of online food sales, coupled with the fact that CPGs are already being squeezed off the shelves of traditional supermarkets (see RaboResearch F&A’s Talking Points June 2017), raises the question of what can they do to improve their bargaining position and procure better access to consumers. One obvious area which some CPG companies are already exploring are direct-to-consumer (DTC) options, even at the risk of being delisted by supermarkets. Almost ironically, Amazon recently extended an olive branch to CPG companies, inviting them to a conference on using its platform to sell directly to consumers, bypassing the supermarket. 

For the small and emerging brands that have so successfully taken market share from established players over the past five years, this deal offers some opportunities, along with posing some threats. For the longest time, getting distribution at Whole Foods was always the holy grail for these companies and a key milestone in achieving credibility in the marketplace. But increasingly, there are so many other distribution possibilities, as organic and natural foods move beyond natural food retailers and into the mainstream. And this has contributed to the erosion of Whole Foods’ competitive advantage, which has culminated in this deal. 

Having said this, with ‘Whole Foods’ now meaning ‘Amazon’, the price for getting in might be raised once more—preferred featuring on its online platform, providing higher volume opportunities—but the cost might also increase, with margins likely to come down, as Amazon is likely to be stricter on prices. 

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Consumer Foods Mon, 19 Jun 2017 12:56:49 GMT 245498
<![CDATA[Australian Wheat Outlook 2017/18: The High-Stocks Game Continues]]> https://research.rabobank.com/far/en/sectors/grains-oilseeds/australian-wheat-outlook-2017-2018.html?utm_medium=RSS Rabobank expects Australian wheat prices to push into firmer territory over the next 12 months.

As the 2017/18 Australian season begins to play out, the world wheat stocks-to-use ratio has reached 33%. Much of the stock accumulation has occurred in China and should arguably be discounted when assessing the prospects for a global price recovery. In contrast, Ukrainian wheat stocks are very low, which will reduce export potential from this key competitor into South-East Asia in the coming season. Nonetheless, even after removing China from the equation, a relatively high stocks-to-use ratio weighs heavily across the world. Continuing high stocks-to-use ratios will dampen prospects for a significant recovery of global wheat prices in the coming season. Australian wheat prices are likely to gain support, following our expectation of a softening AUD/USD exchange rate.

Over the coming 12 months, Rabobank expects global prices to appreciate modestly, creating opportunity for the appreciation of Australian wheat prices. With an anticipated softening of the Australian dollar and decreased local new-season production, we expect Australian wheat prices to push into firmer territory over the next 12 months. Prices that deliver solid on-farm margins for wheat production in Australia are, however, expected only beyond 2017/18.  

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Grains & Oilseeds Mon, 19 Jun 2017 11:24:46 GMT 245300
<![CDATA[A Licence to Bill: Changing Dynamics in the Seed Traits Earnings Model ]]> https://research.rabobank.com/far/en/sectors/farm-inputs/a_licence_to_bill.html?utm_medium=RSS With growth in the GM seed market levelling off due to high penetration rates in key crops and regions, traits proprietors may need to adjust their strategy. Other seed companies have a stronger position in relation to proprietors in licence negotiations than before, forcing proprietors to look for long-term licensing commitment.

When it comes to seed market growth between 2003 and 2016, the difference between conventional and GM seeds is astonishing. While the former increased by 23%, the latter grew more than five-fold, from USD 3.7bn to USD 20.3bn.1 However, the adoption rate of GM seeds in corn, soybeans, cotton, and rapeseed has risen above 90% in the main regions, challenging growth perspectives. 

During the period of explosive growth in the GM seed market, GM traits proprietors benefited strongly. With growth in the GM seed market levelling off as a result of high penetration rates in easy-growth crops and countries, proprietors need to adjust their earnings models. As competition in the traits segment increases, its per-unit value decreases. The so-called ‘licensing-out model’ will, therefore, become even more important to proprietors in order to maintain a sufficient cash-in from traits sales. 

Most commercialised GM traits are owned by major tier-one players in seeds and agrochemicals, but far more companies are using these traits. These other companies use traits through licensing, which allows them to incorporate these traits into their seeds, often using their own germplasm. This model has allowed traits proprietors to further capitalise on their intellectual property using third-party brands and retail channels, thereby optimising their earnings model. 

The 2015 corn traits licensing agreement—between Syngenta on the one hand, and KWS, Limagrain, and their joint ventures AgReliant and Genective on the other—functions as an example of the hybrid earnings model in the GM traits space. Syngenta is licensing existing and future GM corn traits for a span of 20 years, indication a desire to ensure earnings. Apart from GM traits dynamics, licensing also occurs in conventional seeds—for example, with the recent licensing agreement between Bayer and KWS with SESVanderHave on the conventionally-bred sugar beet seed with ALS-inhibiting herbicide tolerance.2 Again, a dominant player licenses out to a major competitor. 

In addition to the dynamics between proprietors and licencees, there is continuous competition between traits proprietors. The recent and upcoming introductions of new (stacked) traits by certain top-tier players may lengthen the life cycle of licence income and even increase licence incomes at the expense of their competition. (We will look at this specific issue in more depth in a future article.) 

With the changing dynamics in the GM seed market, traits proprietors are forced to review their strategy. While out-licensing traits was always seen as an additional sales channel in which other seeds players were dependent on the proprietors, new practices may, to an extent, turn the tables. The commoditisation of traits—which combines lower values per unit and a shift in bargaining positions—underlines that both sides of the table need to change their mindsets.

1 Source: Phillips McDougall 2017
2 ALS = acetolactate synthase

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Farm Inputs Thu, 15 Jun 2017 11:30:37 GMT 245445
<![CDATA[Podcast: Mid-June Wheat Market Update]]> https://research.rabobank.com/far/en/sectors/agri-commodity-markets/podcast-mid-june-wheat.html?utm_medium=RSS In this episode, Stefan Vogel takes a look at spring wheat prices in the US. These have increased substantially over the last four weeks, reaching a two-and-a-half-year high due to crop concerns after hot and dry weather hit key production areas in the Northern Plains.

Listen on your phone

You can find the RaboResearch Agri Commodities Podcast on iTunes and Stitcher. You can see the podcast feed and listen to the episodes, as well as subscribe to receive a notification whenever a new episode arrives.

To download an mp3 file of this podcast, click the download button (Soundcloud_download_button.png) in the top-right corner of the audio player.

Your phone is the best device for listening to podcasts. Most iOS/Apple devices have the “Podcasts” app pre-installed—if not, you can find it in the App Store. On Android devices, Stitcher and TuneIn Radio are popular podcast apps.

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Agri Commodity Markets Grains & Oilseeds Wed, 14 Jun 2017 14:11:10 GMT 245389
<![CDATA[Podcast: A Global Perspective on New Zealand’s Red Meat Prospects]]> https://research.rabobank.com/far/en/sectors/regional-food-agri/a_global_perspective_NZ_red_meat.html?utm_medium=RSS Blake Holgate and Angus Gidley-Baird discuss the latest developments in the global red meat export market, and assess what this means for both the short and long term prospects of New Zealand beef and lamb.

Listen on your phone

You can find the RaboResearch Food & Agribusiness Podcast on iTunes, Stitcher and TuneIn. You can see the podcast feed and listen to the episodes, as well as subscribe to receive a notification whenever a new episode arrives.

To download an mp3 file of this podcast, click the download button (Soundcloud_download_button.png) in the top-right corner of the audio player.

Your phone is the best device for listening to podcasts. Most iOS/Apple devices have the “Podcasts” app pre-installed—if not, you can find it in the App Store. On Android devices, Stitcher and TuneIn Radio are popular podcast apps.

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Animal Protein Wed, 14 Jun 2017 14:10:51 GMT 245388
<![CDATA[Podcast: Bungle In The Ag Tech Jungle—Australia & New Zealand]]> https://research.rabobank.com/far/en/sectors/farm-inputs/Bungle_in_the_ag_tech_jungle_podcast.html?utm_medium=RSS While the hype around digital agriculture is high, farmer adoption has remained low. Wes Lefroy and Ken Zuckerberg discuss the barriers to adoption and the future of digital farming, and in particular the report ‘Bungle in the AgTech Jungle: Cracking the Code on Precision Farming and Digital Agriculture’.

Listen on your phone

You can find the RaboResearch Food & Agribusiness Podcast on iTunes, Stitcher and TuneIn. You can see the podcast feed and listen to the episodes, as well as subscribe to receive a notification whenever a new episode arrives.

To download an mp3 file of this podcast, click the download button (Soundcloud_download_button.png) in the top-right corner of the audio player.

Your phone is the best device for listening to podcasts. Most iOS/Apple devices have the “Podcasts” app pre-installed—if not, you can find it in the App Store. On Android devices, Stitcher and TuneIn Radio are popular podcast apps.

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Farm Inputs Tue, 13 Jun 2017 14:10:51 GMT 245313
<![CDATA[USDA WASDE: Back to Weather-Watching]]> https://research.rabobank.com/far/en/sectors/agri-commodity-markets/USDA-WASDE-Back-to-Weather-Watching.html?utm_medium=RSS 9 June's WASDE surprised a bit as crops in Europe were not lowered as much as one could have anticipated. Global soybean ending stocks for 2017/18 were increased by 3.4m tonnes MOM, to 92.2m tonnes.

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Agri Commodity Markets Mon, 12 Jun 2017 09:21:21 GMT 245248
<![CDATA[Separating the Wheat from the Chaff in the Fragmented European Feed Industry]]> https://research.rabobank.com/far/en/sectors/farm-inputs/separating_wheat_from_the_chaff.html?utm_medium=RSS The European feed industry is a mature but also fragmented market. The top 15 feed players in Europe only have a 35% market share. Local, medium-sized feed companies are important suppliers for a large part of the European livestock farming sector. However, these local feed players’ customer base is shrinking, and product demand is changing, challenging their competitive position.

Animal feed production often dates back to local grain-milling activity, with local feed companies serving the livestock farmers in a specific region with prepared feeds. Because of the high transport costs of compound feed, every region used to have its own feed mill. And although the sector has consolidated over time, it remains fragmented today, with many independent, medium-sized feed manufacturers. The 15 largest feed manufacturers in Europe only produce about one-third of Europe's total annual compound feed. In Europe’s largest feed market, Germany, the top-ten compound feed producers have a market share of 60%, in a home market with more than 300 competitors, according to the German industry association DVT.

The business models of the local, medium-sized feed producers range from product specialists, who for example focus on pig feed, to all-round agricultural cooperatives, who operate a combined farm input supply and grain origination model. What these feed players also have in common are largely depreciated assets and a high solvency ratio. Cost-efficiency is a challenge, as operational costs can make a significant margin difference. Sometimes, companies join forces in activities such as purchasing, to benefit from economies of scale and mitigate risks. However, the most important advantage—and pitfall—of these local feed players is their strong network of loyal customers in the region, often embedded in a cooperative structure: these feed players’ access to the farmgate is their right to exist. 

But what happens when these farmgates eventually disappear? The total number of livestock farms in Europe is declining, and the average farm is becoming larger (see Figure 1). The Pareto principle applies here: most animals are held in a small group of farms. But particularly the developments around the large group of smaller farms with fewer animals are of interest to the mid-market feed players. On top of that, regular volume expansion is very limited in the European compound feed market, partly driven by farmers switching to alternative feeding strategies.

So, local feed players have two challenges cut out for them:
1. To ensure feed volumes to fully utilise their capacity in this shrinking market
2. To build a business model that meets the demand of the farmers of tomorrow. 

Efficient operations are a prerequisite. An opportunity lies in the rise of independent farm advisory services, which support farmers to improve their performance, allowing the local feed specialist to evolve into a trusted farm advisor.

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Animal Protein Farm Inputs Thu, 08 Jun 2017 15:20:15 GMT 245211
<![CDATA[Milking NAFTA: Changes to NAFTA and Scenarios for Dairy]]> https://research.rabobank.com/far/en/sectors/dairy/milking_nafta.html?utm_medium=RSS After 23 years, the North American Free Trade Agreement (NAFTA) could be at risk of dissolution. The implications would be significant cause for concern for the US, Canadian, and Mexican dairy industries.

Report summaryIf NAFTA were to be terminated, US producers would face lower milk prices, likely back down to 2009 lows, as domestic supply would pile up and exporters would need to find new markets, which would take time and money. Meanwhile, Mexican consumers would face higher food prices, and the Canadian dairy industry would need to find another trading partner to help balance any difference in their local market.

Over NAFTA’s 23-year history, the US and Mexican dairy industries have become somewhat interdependent. The US depends on Mexico for dairy exports—Mexico accounted for 32% of US dairy exports in 2016. The US dairy industry also depends heavily on Mexican labour on-farm—around 50% of dairy labour comes from Mexico, which is of benefit to both markets. The Mexican consumer also benefits from NAFTA, as Mexico is only 80% self-sufficient in dairy. The US is a good, close source of dairy products to fill the gap.

Meanwhile, Canada has been somewhat removed from involvement in NAFTA dairy, but has relied on small volumes of trade on an ad-hoc basis to help balance its local dairy market. Canada recently developed a Class 7 milk price, which has had an impact on US exports to Canada and has implications for Canadian exports of milk proteins going forward, and may also put them at a disadvantage in terms of dairy if any renegotiations occur

With the threat of a dissolution of NAFTA, Mexico and Canada have both sought to reach bilateral agreements with the EU and other markets who, in theory, could easily backfill the US as a trade partner from a dairy perspective.

As it stands today, the future of NAFTA is uncertain, and the apparent risks of dissolution for each market have become too real. Given what is at stake from a broad economic perspective and from recent political statements, we believe the most likely scenario is for NAFTA to be renegotiated. For dairy, we believe this opens the doors for more trade within North America, benefiting producers and processors alike to continue milking NAFTA. But this also serves as a reminder to all of the North American dairy industry, the importance of trade going forward.

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Dairy Thu, 08 Jun 2017 14:00:00 GMT 245178
<![CDATA[Poultry Quarterly Q2 2017: Strong Industry Performance with a Shake-up in Global Trade]]> https://research.rabobank.com/far/en/sectors/animal-protein/Poultry-quarterly-q2-2017.html?utm_medium=RSS Global poultry is currently performing well, with profitability in most regions in the world, despite the ongoing global pressure of avian influenza (AI), especially in Asia. The big exception remains China, where the negative impact of human AI cases has kept prices down.

Report summary

Global poultry trade has reached record-high levels, but trade streams have shifted. The US and, to a lesser extent, Thailand have been the winners in this trade shake-up, due to AI-related restrictions and the impacts of the ‘meat scandal’ in Brazil.

Human AI cases in China are still spreading and impacting the market, although prices have recently recovered somewhat. A concern is the further spread of the virus in China, with recent movements to northern regions. Chinese local authorities have closed many live bird markets, and this has had a particularly big impact on the yellow-bird market. Imports are relatively unaffected, as they serve the processed meat market.    

The Brazilian ‘meat scandal’ is having a significant impact on global trade. Exports from Brazil have been dropping since March (April: -23%), and this has created an additional shift in global trade streams, on top of the AI-related impact. The US has been the winner, with European exporters also taking some of the Middle East trade.  

Most global markets are performing well, with a combination of strong demand, restricted supply, and ongoing low feed costs. Industries in Mexico, India, Thailand, and Japan are performing particularly well, while South Africa and the EU are on the road to recovery.    

Global meat trade is highly volatile, but reached a record-high Q1 level of 3m tonnes. Aside from the changes in raw trade driven by AI, along with the meat scandal, a potentially big—but still uncertain—development could be the entry of Chinese cooked chicken into the US market.

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Animal Protein Thu, 08 Jun 2017 11:05:14 GMT 245031
<![CDATA[Talking Points: Cheaper Food—A Tale of Commodities and Competition]]> https://research.rabobank.com/far/en/sectors/consumer-foods/talking_points_june_2017.html?utm_medium=RSS In this month’s Talking Points we discuss four topical issues: falling retail prices, "Grocers galore!", complementary condiments (the importance of aligned values) and Terra’s first cohort.

We believe the ‘not seen in my lifetime’ run in falling food prices,—welcome by consumers but a serious challenge for the rest of the food chain—will continue for at least the next twelve months.

The increased competition from a wave of new entrants into food retailing, including direct to consumer (DTC) options, coupled with aggressive Ever Lower Prices (ELP) strategies by established grocers will put a number of retailers under pressure, leading to opportunities for further consolidation.

The recent acquisition of the upscale condiment company, Sir Kensington’s, by Unilever, highlights once again the importance of matching up the values between companies in the M&A process.

We summarize three themes from the inaugural cohort in Rabobank’s Food & AgTech accelerator program, Terra.

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Consumer Foods Wed, 07 Jun 2017 16:57:24 GMT 245185
<![CDATA[Podcast: Pulsating Pulse Prices—What’s in Store for Chickpeas?]]> https://research.rabobank.com/far/en/sectors/regional-food-agri/pulsating_pulse_prices.html?utm_medium=RSS Chickpeas are an attractive option for Australian growers, as strong Indian demand drives high prices for export. However, potential shifts in Indian purchases and domestic disease risks create an uncertain price outlook. Cheryl Kalisch Gordon and Charlie Clack provide Rabobank’s view on prices in the 12-month period.

Listen on your phone

You can find the RaboResearch Food & Agribusiness Podcast on iTunes, Stitcher and TuneIn. You can see the podcast feed and listen to the episodes, as well as subscribe to receive a notification whenever a new episode arrives.

To download an mp3 file of this podcast, click the download button (Soundcloud_download_button.png) in the top-right corner of the audio player.

Your phone is the best device for listening to podcasts. Most iOS/Apple devices have the “Podcasts” app pre-installed—if not, you can find it in the App Store. On Android devices, Stitcher and TuneIn Radio are popular podcast apps.

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Grains & Oilseeds Tue, 06 Jun 2017 17:48:04 GMT 245163
<![CDATA[Coffee Consolidation Accelerates]]> https://research.rabobank.com/far/en/sectors/beverages/Coffee_Consolidation_Accelerates.html?utm_medium=RSS Significant consolidation lies ahead in the coffee industry—and it will take shape differently at the brand-owner level than through the rest of the supply chain.

To understand how this change will play out, we look at how the ABI/3G/JAB model of rapid, acquisitive growth, combined with tight cost controls and financing terms, will influence the pace and direction of consolidation throughout all levels of the industry.

The landscape has shifted

The last five years have seen a sudden shift in the coffee landscape, with JAB spending over USD 30bn to acquire coffee brands around the world. JAB’s emergence as a clear competitor to Nestlé for global coffee leadership will speed up the pace of M&A industry-wide. Given that JAB has a close relationship with Anheuser-Busch InBev (JAB partners include the current and former chairman of the USD 200bn market cap brewer), we look at five coffee-relevant themes resulting from the rise of the ABI/3G model:

  • A path of aggressive M&A can rapidly take a regional company to global sector leadership
  • Competition for market share will push competitors to increase the pace of acquisitions
  • Increased financial pressure on suppliers will drive a separate wave of consolidation upstream
  • Best practices of the ABI/3G model spread rapidly, e.g. the adoption of spread of zero-based budgeting across the consumer packaged goods (CPG) sector
  • Local platforms become a base for distribution of select regional/global premium brands.
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Beverages Beverages Thu, 01 Jun 2017 16:15:21 GMT 245469
<![CDATA[Rabobank To Go: US Restaurants—Have Consumers Lost Their Appetite?]]> https://research.rabobank.com/far/en/sectors/consumer-foods/rabobank_to_go_us_restaurants.html?utm_medium=RSS In the first issue of what will become a regular publication analysing the global food service industry. Rabobank to Go is intended to provide commentary on current market developments, to integrate Rabobank knowledge from across the value chain, and to express our views regarding future trends for the industry. The first issue focuses on the US market, setting the scene in terms of recent performance, challenges, opportunities, and outlook.

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Consumer Foods Thu, 01 Jun 2017 16:14:30 GMT 245708