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[Australia Agribusiness Monthly June 2016]]> https://research.rabobank.com/far/en/sectors/regional-food-agri/Agribusiness-Monthly-AU-June-2016.html?utm_medium=RSS This monthly update provides a market outlook for grains & oilseeds, dairy and other key commodities, and gives an overview of what developments to watch in the weeks to come.

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  • Brexit: For some sectors, the exposure of the Brexit is significant. In particular; beef, sheepmeat and wine exporters would be concerned about any sustained impact on the UK economy and household incomes, and if product affordability suffers due to adverse currency movements.
  • Grains & Oilseeds: The Australian 2016/17 winter crop is off to a good start, with Rabobank forecasting increased production across all three large winter crops, wheat, barley and canola.
  • Dairy:  Several opening dairy prices for 2016/17 have been announced. The spread across the processors in announced price schedules so far is AUD 4.80-5.30/kgMS, reflecting the different business models and market exposures.
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Regional Food & Agri Thu, 07 Jul 2016 11:19:53 GMT 235202
<![CDATA[New Zealand Agribusiness Monthly June 2016]]> https://research.rabobank.com/far/en/sectors/regional-food-agri/NZ-Agribusiness-Monthly-June-2016.html?utm_medium=RSS This monthly update provides a market outlook for dairy, beef and other key commodities, and gives an overview of what developments to watch in the weeks to come.

Download the report > Click here to download the full monthly <
  • Brexit: For some sectors, the exposure of the Brexit is significant. In particular; sheepmeat, wool, fruit and wine exporters would be concerned about any sustained impact on the UK economy and household incomes, and if product affordability suffers due to adverse currency movements.
  • Dairy: Several opening dairy prices for 2016/17 have been announced. The spread across the processors in announced price schedules so far is NZD 4.00-4.95/kgMS, reflecting the different business models and product mix.
  • Beef: New Zealand beef producers have benefited from a sustained strong run of prices, despite export markets, particularly the US, remaining subdued.
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Regional Food & Agri Thu, 07 Jul 2016 11:19:16 GMT 235204
<![CDATA[Oceania Dairy: Let’s Debt Serious]]> https://research.rabobank.com/far/en/sectors/dairy/oceania-dairy-lets-debt-serious.html?utm_medium=RSS The severe cyclical downturn of the dairy market has caused significant financial challenges for Oceania dairy farmers, and will continue to do so for the foreseeable future.

Global dairy commodity prices have collapsed to near-decade lows where they have lingered for two years. This current cycle is a reminder that sometimes it’s more than just market forces at play. A number of disruptive economic and non-economic factors created this perfect storm, leading to a sustained period of global oversupply and extreme market volatility between 2014 and 2016. In fact, dairy commodities have moved alongside other commodities that also experienced extreme pricing shifts over the last two years. 

For New Zealand dairy farmers who face a third low milk price season, ‘challenging’ is an understatement. Budgets were tightened in the 2014/15 season, reset completely in 2015/16, while the 2016/17 season will require yet another round of cuts. Farmgate milk prices in New Zealand fell by as much as 55% since the 2013/14 peak. While it is likely that there will be an increase in farmgate milk prices in 2016/17 compared to the previous season, at this stage it will still be below breakeven for most.

Across the ditch, global market dynamics have finally caught up in Australia; however, even in the current environment, southern farmers are still getting paid a higher milk price than their counterparts in New Zealand, despite the commodity rout. The landscape for milk prices in Australia will continue to remain under pressure, with a reset of prices for export-focused processors—with the flow-on effect likely to lead to pressure on domestic milk price contracts. However, Victorian farmers are entering this current downturn well prepared.

For both New Zealand and Australian dairy farmers, critical decisions will need to be made in order to manage this cycle and move into a positon to capitalise on the recovery in preparation for the next inevitable down cycle.

A sustainable, productive and resilient farm business in New Zealand and Australia is one that can endure extreme volatility. Sufficient equity is the best long-term strategy.

The long-term ambition for Oceania dairy producers should be to produce more milk with less debt.

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Dairy Thu, 07 Jul 2016 11:18:27 GMT 235324
<![CDATA[Dairy Quarterly Q2 2016: Taking Stock of Inventories]]> https://research.rabobank.com/far/en/sectors/dairy/dairy-quarterly-q2-2016.html?utm_medium=RSS Global deliveries of milk have started to fall, while dairy markets are showing only modest demand growth. Despite upward movement in prices at the end of Q2 growing inventories will continue to overhang the market as the world works its way through the current glut.

In Q2, the world’s farmers started to react to protracted lower farmgate prices by slowing growth in production—as anticipated, production will start to fall in response to low farmgate prices, leading to sharp reductions in export surpluses. Despite higher buying from China in the first half of the year, poor economic performance, low oil prices and geopolitics continue to weaken demand in many regions. Global stocks continue to increase, with current stocks estimated to stand at 6.4m tonnes higher than the five-year average in liquid milk equivalent (LME) terms, representing around 7.5% of annual trade. Rabobank continues to forecast that prices will start to increase in 1H 2017, but high levels of stock and weak global demand can threaten this. In addition the decision of Britain to leave the EU could skew global competition if as forecast the euro weakens increasing the competitiveness of European products in export markets.

While we still forecast prices to rise in 2017, these risk being dampened by continuing weak demand due to low oil prices, trade bans and lack of affordability in emerging markets. As a result, the light at the end of the tunnel remains undimmed.

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Dairy Wed, 06 Jul 2016 10:06:38 GMT 235274
<![CDATA[What Is Happening in China’s Pork Market? ]]> https://research.rabobank.com/far/en/sectors/animal-protein/what-is-happening-in-chinas-pork-market.html?utm_medium=RSS China’s rising pork prices are again the centre of attention in the global pork market. China’s pork prices skyrocketed at the start of 2016, reaching an all-time high of over RMB 20 per kilogram. A combination of farmers’ losses and government measures to close down unsuitable farms led to destocking over the past two years, which also drove the Chinese sow herd size to a historic low.

“China plays an increasingly important role in the global pork market,” according to Chenjun Pan, Senior Animal Protein Analyst at Rabobank. “China needs to increase imports to cover the supply gap in 2016. In total, we expect China to increase pork imports by 30%. The EU, the US and Canada are well-positioned to increase exports to China given their availability of product and the adaption of production systems in response to China’s ractopamine-free policy.”

Beyond 2016, China will likely maintain its level of imports, even when local production recovers in 2017. We hold the view that local users of imported pork will continue to rely on imported pork due to its consistent quality and lower price, compared with local production. 

Leading pork processors and packers are already responding to this significant new trade opportunity, by adjusting production systems and taking advantage of current currency dynamics. Competition to export to China is expected to grow as production expands and demand remains relatively stable. This means exporters will need to keep improving their productivity and investing in trade partnerships that can help secure their future access to the Chinese market.

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Animal Protein Tue, 05 Jul 2016 16:57:41 GMT 235355
<![CDATA[The Impact of China’s Infant Milk Formula Registration Measures ]]> https://research.rabobank.com/far/en/sectors/dairy/The_impact_of_Chinas_infant_milk_formula_registration_measures.html?utm_medium=RSS New IMF registration measures in China—that will come into effect on 1 October–will have an impact on domestic IMF companies, as well as overseas IMF companies looking to export to China. They are required to register a maximum of only 3 formula series (each containing 3 formulas for the three stages of infancy) with China’s Food and Drug Administration (CFDA). A grace period will likely apply until 31 December 2017. The key implications of the new legislation are outlined below.

While IMF producers start to process formula registration—and up to the end of 2017—we expect importers/distributors and retailers in China to start to rationalise their inventory. Based on judgement calls, smaller brands or brands that are less likely to receive registration will be cleared, and more focus placed on credible brands that are more likely receive registration.

This could cause some disruption in the market and could put pressure on retail pricing in the short term.

Committed IMF companies will need to take timely actions to comply with the new regulation and ensure early communication with distributors and retailers in order to reinforce confidence in the brands to focus on. 

It would be reasonable to expect that once the regulation is in full implementation, it will negatively impact the capacity utilisation of 1) domestic IMF companies that produce a large number of small brands; and 2) overseas IMF companies that conduct OEM for a large number of small brands targeting the Chinese market.

Domestic IMF producers may flock into manufacturing ‘Stage 4’ kid’s milk formula—for kids above 3 years of age—in order to maintain a reasonable level of utilisation outside the production of the 3 registered formulas. ‘Stage 4’ kids milk is not explicitly regulated by the new regulation.

After almost a year of preparation and soliciting public opinions domestically and internationally, the Chinese Food and Drug Administration (CFDA) has adopted the Administrative Measures for the Formula Registration of Infant Milk Formula (IMF) Products. The measures will come into effect on 1 October 2016.

The final version of the measures is broadly the same as discussed in ‘An Imminent New IMF Regulation… and What It Means for China’s IMF Market’

Undoubtedly, the new regulation will lead to a substantial reduction of the number of IMF brands in China, which currently stands at over 2,000—roughly 10% of which are licensed import brands. This means that an average domestic producer now has about 18 brands in its portfolio. Domestic manufacturers focusing on de facto OEM may lose a significant amount of business and the reduced scale may even make it hard to justify their existence. This may trigger a round of asset sale or exits by smaller players.  It may also trigger more manufacturing of ‘Stage 4’ kids milk formula.

Overseas producers of IMF products, especially those manufacture products on an OEM basis targeting the China market, may have to choose to work for the strongest customer brands if they want to maintain access to the Chinese market, and, at the same time, actively seek diversification into other emerging markets.

While the measures themselves do not explicitly state a grace period offered to IMF companies, the Ministry of Finance has stated that the formulas of IMF products to be sold in China must be registered with CFDA starting from 1 January 2018.

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Dairy Tue, 05 Jul 2016 13:51:35 GMT 235359
<![CDATA[USDA Reports: Corn Grown in Every American Backyard]]> https://research.rabobank.com/far/en/sectors/agri-commodity-markets/Corn_Grown_in_Every_American_Backyard.html?utm_medium=RSS Rabobank’s price outlook based on the USDA’s June 2016 Grain Stocks & Acreage reports.

USDA’s June corn area and stocks pushed prices lower. Without a weather issue—and therefore, yield issue—the US market will be well supplied in 2016/17, which should keep pressure on prices. The soybean balance—despite a 1.5m ac increase from the March estimate—is still relatively tight, and only with above-trend yields, a stock reduction in the US can be avoided. Us wheat balance is now even less tight and—combining the improved acreage numbers with the expected very good yields—should keep the wheat market in the US well supplied.

USDA’s July WASDE will take those stock and acreage numbers into account and adjust the balance sheet accordingly. The market will now focus even more on weather, as US corn moves into pollination and soybeans start blooming. So far, crops are looking good, and ratings for corn and soybeans are well above those of last year and the five-year average. But soil moisture in the Midwest is at the lowest levels since 2012, and more rains will be needed.

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Agri Commodity Markets Fri, 01 Jul 2016 12:03:09 GMT 235287
<![CDATA[Food Equipment—Wie wil er nou nog een machine kopen?]]> https://research.rabobank.com/far/en/sectors/consumer-foods/TU-machines.html?utm_medium=RSS Bezit is uit, delen is in. Kijk maar naar het succes van bijvoorbeeld Uber, AirBnB en Greenwheels. Ook in een B2B omgeving is langdurig bezit uit en flexibel gebruik in. Denk aan lease-auto’s, koffieautomaten en kopieerapparaten. Dat is de normaalste zaak van de wereld. Maar gaan de brouwketels, rijskasten en flow-wrappers ook van de balans af? Producenten van food equipment leveren binnenkort misschien wel een service in plaats van een product.

Download the full report > Click here to download the report < ]]>
Consumer Foods Fri, 01 Jul 2016 11:14:01 GMT 235399
<![CDATA[Crystallising the Sugar Flows in Asia]]> https://research.rabobank.com/far/en/sectors/sugar/Crystallising-the-Sugar-Flows-in-Asia.html?utm_medium=RSS For decades, Australian sugar exports have relied on the gap in sugar production and consumption in Asia. And stalling consumption growth in developed economies continues to make Asian markets (even) more attractive—not just for Australia, but also for key export competitors. The outlook for Australian sugar, therefore, relies on two factors: Will this supply gap remain? And what will it take to see sugar exports from Australia continue to play a meaningful role in filling this gap?

  • The appetite for sugar—and importantly, sugar imports—is expected to grow in Asia through the medium term.
  • To take advantage of this growth, it will be important for Australian sugar to keep pace with key Asian markets’ government policies, demand dynamics and supply chain evolution.
  • Market access and a level playing field for tariffs will continue to play an important role in maintaining Australia’s competitiveness.
  • The Australian industry should focus on the few levers for success it has within its control—including productivity growth, sustainability and marketing arrangements—in order to maintain competitiveness in the region.
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Sugar Thu, 30 Jun 2016 11:14:51 GMT 234962
<![CDATA[California Walnuts: Confronting Growing Production]]> https://research.rabobank.com/far/en/sectors/regional-food-agri/US-Walnuts-Confronting-Growing-Production.html?utm_medium=RSS California walnut growers will produce another record crop in 2016/17, keeping prices at current low levels. This follows a record crop in 2015/16—of 600 thousand in-shell equivalent tons.

At the same time, an additional 1.2m in-shell equivalent tons were produced abroad last year—making 2015/16 the largest production year on record. As a result, prices for California growers fell nearly 50% from the 2014/15 marketing season to the 2015/16 season. While this is less profitable for growers, the lower prices have encouraged more shipments, reducing US inventories. Orchards with lower yields or other high costs will find it difficult to be competitive in the medium term, as production levels continue to increase in the US and abroad. The industry is investing more in marketing walnuts domestically, but prices will not be as high in the medium term as they were in the last ten years.

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Regional Food & Agri Wed, 29 Jun 2016 18:02:55 GMT 235109
<![CDATA[Premiumisation Still a Dominant Trend, but Storm Clouds Gathering]]> https://research.rabobank.com/far/en/sectors/beverages/beverage-market-reflections-June2016.html?utm_medium=RSS Premiumisation has been a driving factor in the US food and beverage market in recent years, as noted in our recent report, “The Premiumisation Conundrum”. We believe these trends are likely to continue, but see increasing risk from a number of factors that could eventually undermine the premium segment’s growth momentum.

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Beverages Tue, 28 Jun 2016 13:17:30 GMT 234832
<![CDATA[India’s Pursuit to Curb Plastic Packaging Waste]]> https://research.rabobank.com/far/en/sectors/fa-supply-chains/Indias_pursuit_to_curb_plastic_packaging_waste.html?utm_medium=RSS 2016 seems to be the year of the ‘plastic discussion’. There are daily media reports from around the world about the issues related to pollution caused by plastic usage by consumers. Both the infamous ‘plastic soup’ in the ocean and polluted land areas are caused by a lack of efficient local collection and recycling systems, and the lack of consumer awareness and behaviour in this regard. This particularly holds true for emerging consumption markets such as India, that show a strong growth in plastic packaging. Government initiatives will need long-term commitment, serious implementation and the adoption of innovative practices by stakeholders.

The Indian plastic industry has shown strong growth with a 5-year CAGR of 7 percent in volume terms, leading to a current estimated market size of 8m tonnes per year. Food&Agri packaging accounts for almost 40 percent of this. This growth means efficient measures are needed to deal with the associated waste, as the negative impact of plastic waste is a major issue in India. The Ministry of State for Environment, Forest and Climate Change, indicates that India generates 15,000 tonnes of plastic waste every single day, of which only 9,000 tonnes are collected. This corresponds with an approximate 2.2m tonnes of plastic annually that is not collected or treated in any way but left to pollute the environment.

The speed and efficacy of implementing efficient measures does however face some challenges. Collection and segregation of waste at source level is already a major obstacle and there is no efficient recycling storage and logistics infrastructure in place across India. In parallel, innovative solutions to further minimise plastic waste should be explored, e.g. the use of 100% biodegradable plastics.

Indian authorities have started to rise to the challenge of effectively curbing the growing plastic waste problem. Various government bodies across India have taken a range of initiatives in recent years. One small-scale initiative was the instruction by the Union Water and Sanitation Ministry to all Ministries to use alternatives to plastic bottles for drinking water during their official meetings. Similar restrictions have been set in some other states, e.g. Sikkim. The most far reaching initiative, though, is probably the new Plastic Waste Management Rules (March 2016), aimed at creating a system that will make all the stakeholders in the chain more accountable for waste management. Measures include:

1.      Expanding the jurisdiction of municipal areas to include rural areas.
2.      Establishing an Extended Producers Responsibility system in which producers, importers and brand owners need to establish a system for collecting the plastic packaging waste generated from using their products.
3.      Introducing a system to collect a plastic waste management fee through pre-registration of producers, importers and street vendors/retailers for using/handling plastic packaging. The fee will be used to establish the waste management system.
4.      Phasing out the manufacture and use of non- recyclable multilayered plastic.
5.      Increasing the minimum required thickness of plastic carry bags and plastic sheets to 50 microns. This leads to a price increase of 20% thus discouraging vendors to give away free carry bags, as well as incentivising re-collection by waste pickers.
6.      Reusing plastic waste as much as possible, e.g. in road construction, converting waste to oil or energy.

By adopting the above rules and initiatives, governmental bodies have embarked on a much-needed and long-term commitment to waste management. However, the proof is in the pudding: it will require enormous efforts by all stakeholders to seriously implement the outlined strategy.

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F&A Supply Chains Tue, 28 Jun 2016 12:05:54 GMT 235192
<![CDATA[What the Brexit vote means for the meat industry]]> https://research.rabobank.com/far/en/sectors/animal-protein/What-the-Brexit-vote-means-for-the-meat-industry.html?utm_medium=RSS As a net importer of meat—some 2 million tonnes were imported into the UK last year—the vote for the UK to leave the EU immediately raises questions for the meat industry. In this article we set out the most important points we see in the aftermath of the vote, and the issues to watch over the coming months. We also reflect on the Brexit vote as part of a longer term trend away from globalisation, and what this may mean for the global meat industry.

There is much we don’t know about how the Brexit vote will play out, but one thing we know for certain is this: The coming months will be a period of change for the UK meat sector, bringing new areas of opportunity but also risk that are yet to be seriously contemplated.

Currency to drive change in trade in the near-term

The EU is the UK’s main meat trading partner. Over 80% of Britain’s imports came from the EU last year, with the Netherlands, Ireland, Germany and Denmark as main suppliers. Trade itself is not going to be interrupted by the Brexit vote in the near-term, although changes in the value of the British pound will affect trade.

The value of the pound fell swiftly in response to the vote outcome, and the uncertainty created by the vote is expected to place downward pressure on the pound through 2016. This means UK consumers should expect upward pressure on meat prices. Take bacon as an example. The UK imports just under half of its bacon needs, and a large share of pork imports are locally processed into bacon. All of this comes from the EU (mainly from Denmark, Germany and the Netherlands). It’s not possible to say by how much bacon prices will rise, but euro-denominated exporters will expect to be paid as before by GBP-denominated buyers.

Currency could also heighten M&A interest in the UK

It’s also possible that the devaluation of the pound could lead to increased M&A activity in the meat sector, as UK meat companies appear to offer good value to non-UK buyers. But whether this happens is subject to many considerations by potential buyers and sellers.

Currency is just one element of uncertainty

Uncertainty appears set to take centre stage in the UK economy, and meat will not be insulated from this. In addition to the currency dynamics, Britain appears set for a period of uncertainty, with the formalities of the UK leaving the EU containing many variables, a new Prime Minister to be appointed to lead Britain through this process and a community that has been divided by this vote who will look to come back together. This uncertainty will affect business and consumer confidence, with flow-through effects on investment decisions and purchasing decisions at a micro-level, and on the UK economy at a macro-level. Growth seems likely to stall, with lower consumption or down-trading placing downward pressure on prices, contrary to the currency-related upside pressure.

New trade agreements will take time

In the medium-term, the implications of the Brexit for the meat industry will depend on the trade agreements Britain strikes with its partners. While the EU is currently the most important trade partner for meat, it is possible that the UK will seek to expand competition by allowing additional imports from other exporting countries, such as Brazil and the US. Britain’s high standards around animal welfare and food safety may be a barrier to wider trade agreements, however. In general, trade agreements for food and agricultural products tend to be given a low priority in trade negotiations and are often the hardest to achieve because of phytosanitary considerations—so we shouldn’t expect change in trade any time soon.

A new investment environment?

A related consideration—and we will need to wait for the dust to settle before we have clarity on this—is how the global meat industry, including traders, input companies, technology providers and equipment suppliers, will look at investments in the UK. The expected higher costs of trading for Britain may make it a less attractive destination for investors, and they may, for example, delay or defer product registrations for a market the size of the UK.

A silver lining?

On the other hand, the much talked about reduction in regulation from Brussels might have some advantages for UK meat companies. If there is more flexibility for these companies they could start to invest in innovation and achieve productivity gains that could turn around the long-term trend of declining UK food self-sufficiency. And devaluation of the pound will increase the competitiveness of British meat exporters.

Brexit as a sign of a long-term shift away from globalisation

Our world is fast-moving and unpredictable, and this challenges many people, companies and governments. Last month, Jeff Immelt, CEO of GE, talked about the need for a ‘bold pivot’ away from a globalisation agenda, to a future where ‘companies must navigate the world on their own’. He referred to productivity growth through digitalisation, and the need for leaner, faster and decentralised organisations.

The trend away from globalisation is not yet strong, but appears to be growing. Public distrust of governments and institutions can be seen in the Brexit vote, in the rise of populism in the US Presidential campaign, and in the rise of politicians pushing isolationist views across most parts of Europe.

A trend away from globalisation—a trend to reducing free trade—is going to challenge the global meat industry. Meat is not heavily traded compared with grains and oilseeds, but the trade that does take place makes a significant difference to producers in meat exporting countries, and to consumers in importing countries. Trade will not stop, but an increase in trade barriers could make life harder for everyone in the global meat industry.

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Animal Protein Fri, 24 Jun 2016 16:54:58 GMT 235153
<![CDATA[Brexit likely to inflate UK food prices]]> https://research.rabobank.com/far/en/sectors/regional-food-agri/Brexit-likely-to-inflate-UK-food-prices.html?utm_medium=RSS The UK is a food importing country. Its isolation from the internal EU market after the Brexit is likely to increase its costs of sourcing food products, while it also increases the costs of the technology needed to produce food.

In 2015, the National Farmers Union (NFU) warned that the UK might need to import over half of its food within a generation (The Guardian, Feb 2015). It claimed that currently 60 percent of foods consumed in Britain are grown in the UK, as compared to 80 percent in the mid-1980s. This decrease is a combination of a growing population and stalling farm productivity.

Over time, Britain’s decision to leave the European Union will most likely result in higher costs of trading. As such it will impact trade flows and prices of food and agricultural products, both within and outside the UK. Additionally, non-UK based F&A companies might decide to postpone investments in the UK until there is a clearer picture of how trade will settle following a transition period. Some companies might even cancel investments or relocate UK assets to a location within the European Union. If anything, independence from Europe means no longer enjoying the benefits of having access to an abundantly supplied food market with opportunities to sell to a 500 million consumer market. Historically, the UK had a global empire (the Commonwealth) that supported its cheap food policy. Today, the world market is not such a reliable low-cost sourcing partner anymore.

In the longer term, the UK also risks higher costs, and later availability, of new agricultural production technology. The EU stamp of approval no longer suffices in the UK. Suppliers will have to invest in getting a stamp of approval for the UK market, too. It may well be that technology providers choose to not apply for a UK registration or certification especially in the early stages.

On the other hand, less regulation from Brussels might also have its advantages. However, British exporters will still have to conform to EU regulations when they trade with the continent. And consumer prices? Let’s hope for Britons they won’t head towards Norwegian or Swiss levels!

Over the past few months, dozens of studies have been published about what would happen if there’s a Brexit, but in all fairness, nobody knows exactly what is going to happen now that Britain has voted to turn its back on Europe. There are just too many variables and unknowns. What level of import duties and/or quotas to expect for what type of product, for example, or when this will be implemented? Will investments be delayed, cancelled or relocated? Will farmers lose out on CAP subsidies? Redirection of good flows can cause prices to go up or down, which will also cause follow-on effects.

Potential implications for a selection of Food & Agriculture sectorsAnimal proteins

The UK is well known for its bacon imports with only 55% self-sufficiency. In the short term we do not expect a dramatic drop in trade, though prices may go up if new border measures increase costs.

Beverages

The UK is a major producer of malting barley and has a well-installed malting industry. Malting barley production varies annually with the size of the harvest, but generally the UK is a small net exporter of malt. Therefore, we expect the impact of a Brexit on the beer industry to be minimal. Other cost items such as packaging will see a limited impact, because most of the packaging manufacturing takes place in the UK.

For Scotch whiskey, potential trade barriers would deteriorate the position of the Scotch versus whiskies from Ireland on the EU internal market, putting them in the same position as the US and Japan.

Consumer Foods

A Brexit could potentially impact sales volumes and profitability of companies active in consumer foods, food service, food retail and wholesale in Britain, as well as on the continent. Changes in currency rates could have a major impact on flows of consumer products. A well-known impact is that of private label production. In times of a weak currency, British food retailers reduce their buying of private label products from producers whose facilities are based on the continent. Companies that produce for the European Union might decide to postpone, cancel or redirect investments for new or extra production capacity to regions within the EU instead of the UK. On the other hand, some new capacity might also be planned for the UK to limit the impact from EU regulation.

Dairy

The UK is a net importer of dairy products, even though it is the third-largest milk producer in the EU. Its main dairy import requirement is cheese, particularly Cheddar, although it takes a wide variety of soft cheeses too. The main contributors to these UK imports are Ireland and France. Another important dairy import for the UK is butter—again Ireland provides the bulk of this. The Brexit could provide significant challenges for Ireland (and a lesser extent France) given their level of exposure to the UK market. Given the volume of import required, it is likely that trade would still continue. Clearly it would be done under different agreements and on a country-by-country basis. The UK may use something like quotas.

Farm Inputs

Seeds, crop protection products, fertilisers and machinery are not subject to the CAP. As such, the fact that after a Brexit the UK will no longer be part of the CAP, isn’t likely to change anything for farm inputs. However, a weaker pound will mean higher prices for imported products. Most farm inputs in the UK are imported.

In the longer run, the fact that the UK is no longer part of the EU market will increase the costs of selling farm inputs products in the UK market. For example, files to get a registration for crop protection products will have to be filed separately for the UK market—with all the related costs of building research files to illustrate the safety and efficacy of a product. Some inputs may simply not become available in the UK market as the costs are prohibitively high in relation to the potential sales in the UK, especially in the case of new innovative technology for which a market is not yet established. These costs occur in many farm inputs sectors where intellectual property rights, safety and efficacy play a key role in the performance of a product.

Horticulture

Exporters of fruit & vegetables and flowers to the UK could be impacted as a result of bureaucracy/documentation at the border and a potential devaluation of the British pound following the Brexit. However, many exporters have been used to significant currency swings in the past and as such this is not something new to them.

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Regional Food & Agri Fri, 24 Jun 2016 11:28:12 GMT 235123
<![CDATA[Beef Quarterly Q2 2016: Volatility Challenges Beef Markets]]> https://research.rabobank.com/far/en/sectors/animal-protein/beef-quarterly-q2-2016.html?utm_medium=RSS The Rabobank global beef index ticked up in Q1 2016 after declining for much of 2015. However it shows signs of dropping again as softening prices in the US and Canada battle strengthening prices in Australia and Brazil.

Volatility is a key theme across most markets at the moment. A range of factors are creating a degree of uncertainty, including the economy and exchange rates influencing Brazil, seasonal conditions impacting Australia, the economy impacting China, and market volatility impacting the US.

The low value of the real, high domestic prices and the slow economic conditions will continue to support increased Brazilian beef exports. Exports to China, which reopened in June 2015, totalled more than 70,000 tonnes from January to May, while exports to Saudi Arabia, another new market, are more than 11,000 tonnes in the first five months of 2016.

China’s slowing economy is affecting general beef consumption, but higher- and middle-income earners are supporting continued imports as they continue to seek quality beef products. Beef prices will remain stable in the coming quarter, as supply and demand are likely to be balanced.

Australian cattle supplies remain tight and prices strong. Australian cattle prices are expected to remain strong through Q3, given ongoing tight cattle supplies. Buoyed by recent rains, cattle prices have again risen to record levels in June.

US market volatility continues to be a market disrupter. The combination of marked week-to-week price volatility, and equal volatility in the futures market, has made marketing decisions difficult to impossible.

Europe is the most stable beef production region right now, with prices strengthening slightly, supported by steady exports, in particular to Turkey, despite ample availability of beef and low prices of competitive proteins.

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Animal Protein Thu, 23 Jun 2016 15:57:34 GMT 235031
<![CDATA[The Wheat Is On]]> https://research.rabobank.com/far/en/sectors/grains-oilseeds/The-Wheat-Is-On.html?utm_medium=RSS Robust demand growth in both food and feed sectors across the region has put the South-East Asian market at the top of the agenda for many global grain companies.

South-East Asian (SEA) demand for wheat (in Indonesia, Malaysia, Thailand, Vietnam and the Philippines) has grown at close to 6.2% annually over the past ten years, driven by higher animal protein and processed flour demand for noodles and bakery products. This growth has culminated in SEA becoming the second-largest wheat import region, after the Middle East and North Africa. Rabobank expects SEA to show consumption growth of 4.5% per annum over the next five years, with consumption growing, from 18.5m tonnes in 2014/15 to 24.4m tonnes by 2020/21.

In order to service the growing South-East Asian market, Rabobank expects to see a shift towards wheat originating in the Black Sea Region. Due to favourable cost-competitiveness factors such as production and sea freight costs, the additional growth in wheat demand throughout SEA—particularly demand for feed wheat—is expected to be increasingly met by imports from the Black Sea Region. To successfully meet the growing demand, companies will need to navigate the significant supply chain and regulatory diversity across SEA.

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Grains & Oilseeds Thu, 23 Jun 2016 12:01:44 GMT 234283
<![CDATA[China F&A Monthly June 2016]]> https://research.rabobank.com/far/en/sectors/regional-food-agri/China_FA_June_2016.html?utm_medium=RSS The fertiliser market remains weak, as spring seasonal demand has come to an end, while export stumbles. The short-term outlook remains gloomy. Recent heavy rainfalls during the harvest period damaged the quality of new crop wheat in many regions.

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Regional Food & Agri Wed, 22 Jun 2016 14:11:09 GMT 235074
<![CDATA[Agri Commodities Monthly June 2016]]> https://research.rabobank.com/far/en/sectors/agri-commodity-markets/ACMR-Monthly-June-2016.html?utm_medium=RSS The S&P increased 6.4% so far in June, incentivised by weather risks, a 2.6% drop in the US dollar index and a 6% appreciation in the Brazilian real. Non-Commercials have bought extensively into this rally, to build a near-record net long position across ags. When will they sell? With the summer months critical for the US G&O complex and La Niña possibly coming soon, they may stick around a little.

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Agri Commodity Markets Agri Commodity Markets Tue, 21 Jun 2016 16:35:42 GMT 235043
<![CDATA[Beverage Companies in the Wake of the Brexit]]> https://research.rabobank.com/far/en/sectors/beverages/beverage-companies-in-wake-of-brexit.html?utm_medium=RSS What implications will the UK’s Brexit vote have on the global beverage sector?

In a referendum held on Thursday, 23 June 2016, voters in the UK decided to leave the European Union. The full effect of the UK’s departure will be difficult to predict. One of the most notable short-term implications has been the marked devaluation of the British pound, while the need to negotiate trade agreements—and the uncertainty that this creates for everyone—looms in the longer term.

The scale of change that results from this decision will have critical implications for the beverage sector, given the UK’s role as both a major importer (e.g. wine) and a major supplier (e.g. scotch). With this high level of uncertainty, many beverage companies are rightfully concerned and are actively developing contingency plans. They will find that there are a number of short- and long-term strategic alternatives that can mitigate risks and help them to take advantage of new, attractive opportunities. These options include shifting sourcing, M&A, shifting geography for production/value-add, pipeline loading, hedging and shifting market focus.

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Beverages Beverages Beverages Beverages Sun, 19 Jun 2016 11:39:35 GMT 235350
<![CDATA[Australian Crop off to a Flying Start]]> https://research.rabobank.com/far/en/sectors/regional-food-agri/australian-crop-update-june.html?utm_medium=RSS The Australian 2016/17 winter crop is, for the most part, off to a good start, with increased production forecast across all three of the large winter crops: wheat, barley and canola (rapeseed).

Good autumn rainfall not only supported planted area, but has set the crop up for good yield potential. While production is difficult to forecast this early in the season, the positive rainfall outlook, combined with recent rainfall, suggests that yields have the potential to come in above-average in 2016/17. Rabobank currently forecasts a wheat crop of 26.7m tonnes (up 10% YOY), a barley crop of 8.8m tonnes (up 4% YOY) and a canola crop of 3.3m tonnes (up 11% YOY).

While the forecast is for a larger Australian crop, weather through the important spring growing period (September to November) will be crucial in determining final yields and the outlook for crop production. 

At a time when global wheat markets are well supplied, the outlook for an above-average Australian crop is likely to add further pressure to global export markets.

Download the report > Click here to download the full report < Report highlights
  • While we are forecasting only small percentage changes in planted area across the big three crops—wheat, barley and canola—one key theme for the 2016/17 season will be an increase in acreage across pulses and oats (designated ‘other’). Price signals have dictated that where rotations and conditions allow, these more niche crops are planted.
  • Wheat planted area is likely to be steady YOY, we are forecasting barley acreage to decline, down 3% YOY, and canola planted area is expected to increase 3% YOY.
  • While production is difficult to forecast this early in the season, the positive rainfall outlook combined with recent rainfall suggests that yields have the potential to come in above average in 2016/17. 
  • National wheat production is forecast at 26.70 million tonnes, a 10% increase on 2015/16. Driving the increase in production is an increase in average yield, as good autumn rainfall and a forecast wetter than average June-August period support crops. 
  • Barley production is tipped to increase 4%, despite a 3% drop in acreage. Yields are likely to be supported by a better season in Victoria, which saw poor yields in 2015/16.
  • Canola production is forecast to increase 11% on 2015/16, a result of both increased acreage and better yields.
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Grains & Oilseeds Regional Food & Agri Fri, 17 Jun 2016 11:35:50 GMT 234863
<![CDATA[Time for Africa]]> https://research.rabobank.com/far/en/sectors/animal-protein/Time-for-Africa.html?utm_medium=RSS The poultry industry is evolving, from a national and regional basis to a more global platform. And Africa is ready to take its place on the world stage.

Global poultry markets have been growing for years, and this is set to continue: a demand growth of more than 60% is expected over the next 20 years. This leads to significant global investment streams in an industry that is evolving, from a national and regional basis to a more global platform. Most recent investments have focused on Europe, the Americas and Asia, driven by bullish market circumstances. Africa has attracted relatively limited investor interest. But this is changing.

Time for Africa: Benefit from early-mover investment opportunities

Driven by a rising middle class and rapid urbanisation, a more modern poultry industry is taking shape in Africa. The growing middle class is changing its consumption patterns, moving from vegetable-based consumption to a more protein-rich diet. In this shifting diet, poultry and eggs are the protein of choice for African consumers—as these protein sources are affordable and available, but also because consumers prefer the taste of chicken and eggs over other proteins. Poultry availability is supported by the short payback times for poultry and egg production, making poultry production easier to start up and expand.

Poultry and egg industry—the key sector to benefit from growth

Supermarkets and quick-service restaurants have responded to the opportunity of a rising African middle class and are expanding across the continent, pulling new investments into the region.

Rabobank has built up strong knowhow and a good track record when it comes to this type of investment decision. The bank is willing to share its knowledge and network with companies who want to benefit or develop business in Africa, along with offering the most appropriate financial products to support company growth. Our upcoming publication ‘Time for Africa: Capturing the African Poultry Investment Opportunity’ provides more information on this investment opportunity.

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Animal Protein Animal Protein Thu, 16 Jun 2016 16:16:26 GMT 234941
<![CDATA[Mexican Agribusiness Looks to 2025]]> https://research.rabobank.com/far/en/sectors/regional-food-agri/mexican-agribusiness-looks-to-2025.html?utm_medium=RSS The Mexican agricultural sector is expected to structurally change in the next decade, as global economic conditions and agricultural fundamentals are very different from those a decade ago.

Report Summary

Macroeconomic shifts affecting Mexico include slower economic growth—particularly in developing countries—a stronger US dollar, and lower oil and energy prices. Mexico will also need to adjust to a rise in US agricultural and animal protein production, along with lower prices compared to those between 2010/11 and 2013/14.

Mexico’s grain and feed prices depend heavily on US prices, as most markets operate under a deficit. In 2016, the appreciation of the US dollar against the Mexican peso will add support to Mexican grain prices—driving an increase in Mexican prices relative to global prices.

In Mexico, corn is the most important crop, as it is used to produce tortillas, the most basic staple food in the country. In 2014/15, Mexico exceeded the 25 million-ton corn barrier. Under normal weather conditions, Mexico is moving to produce around 26 million tons of corn from 2016/17 and onward. In the nearer term, the increase in production will reduce imports, but imports will grow in the longer term.

During the last decade, the Mexican animal protein industry was not only able to survive several major challenges, several players were also able to expand, transform, and reach global quality standards, including sustainable practices. Over the next decade, chicken will remain the most-consumed protein in Mexico, but pork consumption is expected to grow at a faster rate than that of the rest of the protein complex. Beef is expected to grow at a marginal rate.

The Mexican and US sugar industry will continue to be mainly driven by policy. Over the next decade, Mexico’s sugar industry needs to adjust its business strategy, as the recent trade agreement with the US limits the ability to grow domestic production.

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Regional Food & Agri Animal Protein Wed, 15 Jun 2016 13:57:33 GMT 234671
<![CDATA[Strong Exports in Corn and Soy versus Strong Wheat Yields ]]> https://research.rabobank.com/far/en/sectors/agri-commodity-markets/USDA-june-2016.html?utm_medium=RSS The US 2015/16 soybean balance tightened further due to a 10m bu higher crush and a 20m bu increase in exports. Also 2016/17 shows a 15m bu rise in exports.

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Agri Commodity Markets Fri, 10 Jun 2016 20:40:16 GMT 234734
<![CDATA[Coffee Outlook Q2 2016]]> https://research.rabobank.com/far/en/sectors/agri-commodity-markets/Coffee_outlook_q2_2016.html?utm_medium=RSS Fundamentals continue to support robusta prices, whereas currency, cross commodity movements and potential weather risks are responsible for arabica prices increasing beyond USD 1.36/lb.

<p>Read the full details in the Rabobank Coffee Outlook Q2 2016. </p>]]>
Agri Commodity Markets Thu, 09 Jun 2016 16:45:36 GMT 234697
<![CDATA[Short Supply Chains: Benefits as well as Challenges for Food Service ]]> https://research.rabobank.com/far/en/sectors/consumer-foods/short-supply-chains.html?utm_medium=RSS Local food is gaining popularity in food service. Being more responsive to local circumstances can bring food companies increases in traffic and customer loyalty, but it also involves challenges. With more local food on the menu, companies may face a larger variety of suppliers. And that involves dealing with both short and long food supply chains.

Short supply chains involve as few intermediaries as possible, connecting local suppliers with local consumers more directly compared to conventional (longer) supply chains. Further development of companies specialising in short supply chains—or elements thereof—can reduce potential higher overhead costs and benefit farmers, food service and, in the end, consumers.

Across the daily food service news bulletins, we notice a constant focus on the local food theme. Think full-service restaurants mentioning local food on their menus and selling locally brewed craft beers. We’ve also noticed quick-service restaurants increasingly emphasizing locally sourced ingredients. We’ve even come across food service brands specifically built around the premise of ‘local’. And even though that word has no clear-cut definition, consumers are living the trend, as they:

  • …are better informed than ever and require more transparency from the supply chain.
  • …perceive local food to be healthier, fresher, of higher quality and better for the environment and local economy, compared to processed alternatives.
  • …seem to be willing to pay more for local food.

Sourcing food locally provides food service companies with the opportunity to deepen the relationship with the customer. It can bring the food service company closer and it distinguishes them from others. But growing demand brings challenges, as food service companies need to cope with a mix of short and long supply chains while maintaining food quality standards. Also, economies of scale can prove more difficult when dealing with short supply chains. The rapidly changing local preferences adds to the complexity. 

Professionalization and further development of short supply chains has the potential to reduce overhead costs and benefit all links in the chain, consumers included. The benefits of increased volume and pricing should outweigh the potential overhead costs.

The role of traditional supply chains diminishes as short supply chains emerge. Regulators, municipalities and businesses are supportive, but this supply chain model needs further development. As farmers focus on the product itself and food service companies are busy preparing the food, there is an increased need for companies specialised in connecting the farmer with food service. 

We recently visited a seminar on short food supply chains, where we saw some interesting examples of entrepreneurial innovation which further develops short supply chains. One participant built an online/offline local food distribution platform, so consumers can order local food online and pick up their groceries close to home. Another interesting initiative had multiple stakeholders—farmers, municipality, consumers—aiming to further bolster the local economy by using an online platform to trade a variety of local products. Also present was an independent consultant advising food service companies on hospitality, the use of local food and how to benefit from local regulations or available subsidies. 

Further development of short supply chains by small innovative entrepreneurs can help food service companies benefit from the local food trend and overcome challenges such as maintaining quality standards or dealing with a larger variety of suppliers.

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Consumer Foods Consumer Foods Wed, 08 Jun 2016 17:43:53 GMT 234675