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Oct 02, 2019 09:15
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In Latin America, poultry production will grow nearly double world average

In addition to the high competitiveness of poultry farming in Brazil and Argentina, chicken farming has been growing mainly in countries such as Peru, Colombia and Bolivia, as well as Panama and Nicaragua in Central America.

By Humberto Luis Marques

Latin American poultry will grow at higher than world averages over the next ten years. In this period, global poultry farms will grow 2.5% per year, while in Latin America the estimate is 4% per year. This major advance in the region is marked by the current economic scenario, in which birds benefit from their greater price competitiveness and consumer preference. In the Latin American market, about 50% of total animal protein consumption is chicken meat. South American countries like Peru, Colombia and Bolivia - but also in Central America, such as Panama and Nicaragua - have shown significant growth in recent years. “Poultry has the great advantage that it is easy to develop large volumes of quality, homogeneous products through the vertical integration system,” says Nan-Dirk Mulder, Rabobank International's Global Animal Protein Specialist.

The full development of the activity in the region, however, will have to overcome some local (dependent on economic and characteristic factors inherent in each country) and external challenges for industries operating in international trade. In addition, the health issue and the adoption of biosecurity measures will be extremely important regardless of country or industry. In the case of exporting companies, the main challenge will be to understand and anticipate the rapid changes in consumer demands in different importing markets. “Brazilian and Argentine exporters are among the most competitive in the world, but consumers in major buying regions - such as Japan, the European Union, Saudi Arabia and China - are shifting their demands to specific product categories such as slow-growing, free-range poultry. antibiotics, free-range eggs, as well as seeking knowledge of production methods, requiring sustainable production systems, ”says Mulder.

In this interview, Rabobank International's expert comments on the large growth in poultry consumption in Southeast and South Asia, as well as the impact of new technologies on productivity and the rise of chicken meat as the most important animal protein. consumed worldwide. Check out.

Many experts have placed Latin America (alongside Sub-Saharan Africa) as the world's leading food producing center. What factors enhance this region as a major world granary?

There will be globally a rising food supply challenge in the next 30 years with food demand rising by more than 50% while resources will be very limited. This will put more pressure on resources and will require a much more dedicated focus on how organizing future food & agri value chains. Key hereby is supplying affordable food to feed the rising world population (will grow to 10 million people) on a sustainable way. Most of food production is at the end related to land based agriculture (like feed grains, pasture based livestock production on horticulture). Agricultural land use hasn’t really grown anymore over the last decade. Latin America together with North America and Europe are currently the major grain exporters in the world. In the future, the biggest upside for growth will be especially in Latin America, Eastern Europe (Russia and Ukraine) and increasingly more Africa. Africa has good soils and production opportunities, but infrastructure is not strong enough to develop an internationally competitive grains and oilseed sector yet. This is somewhat changing yet due to the rise of meat production in the region whereby investors invest increasingly in grains and oilseed production to supply local livestock production. Global meat demand will grow by 50% until 2050 and more than 60% of global growth in animal protein will be in Asia. This is a major challenge as resources in Asia are relatively limited. Countries like China, Japan, Vietnam and Indonesia have very limited farmland and water per capita (10-20 times less than for example US, Brazil or Russia). The rising importance of Asia in global markets with limited resources will require a different approach with a focus on more efficient local supply chains and likely more international trade of agri commodities whereby grain surplus countries like Brazil, Argentina, Paraguay and Uruguay Russia, Ukraine and US can benefit in terms of trade of grains and meat products. 

Countries such as Brazil, Argentina, Paraguay and Uruguay are major producers of grain and meat. In Latin America, will these countries continue to be the main references in exports of these products? Are there other Latin countries that have increased their production of grain and, consequently, meat?

Like mentioned earlier, we expect these 4 countries to remain the most competitive countries in Latin America in terms of feed grains supply (for trade or export of poultry). Chile has also developed an increasing role as exporter of meat and poultry products to high value markets in Japan, United States and the EU. Although Chile is not a major exporter of grains their bilateral trade agreements (which they could set up due to their associate member status of Mercosur) has allowed them to build up this position together with the presence of strong local industry players with a global market perspective. Other markets in Latin America will likely stay locally/regionally focused. This is not really an issue as Latin America represents some of the fastest growing global poultry markets.

Specifically in the chicken meat market, we have two major producers in Latin America, which are Brazil and Mexico. In which other countries is poultry farming developing and potentially becoming a major player?

Poultry has become the preferred protein for the Latin American region with now an almost 50% in total meat consumption in the region. Poultry market demand has been the fastest growing protein over the last decade with in average almost 4% growth per year while the meat market as whole has been growing only 2.5% per year. Many countries like Peru, Colombia and Bolivia but also central American markets like Panama and Nicaragua has been growing a lot faster. A lot of the growth has been related to economic growth whereby poultry benefits from its price competitiveness in the market and the preference of consumers for poultry. Another benefit for poultry is the easy to develop large volumes of high and homogenous quality products via the vertical integration model. This is also a strong model to develop local farmers via the contract pricing model which can help farming developing skills and scale up via its specific quality management and contract pricing model. 

Will Latin America be the world's largest producer of chicken meat? Is chicken meat the fastest growing protein in the world?

Yes, like mentioned before. Poultry is the fastest growing protein in the region with an average growth expected also in next decade of around 3.5-4% but with big differences between countries depending on economic development and power of country in international markets. Some markets like Venezuela has seen big drops in local production while others like Colombia, Peru and Bolivia has been growing fast. The growth of poultry meat in Latin America is higher than the global average of around 2.5% growth per year for the next decade.

What are the major challenges for the continuous evolution and expansion of poultry production in Latin American countries?

In terms of challenges, there will be differences between the export driven industries and the locally focused industries. In general, economic volatility has been a major issue in the industry and as meat is one of the most expensive food products for consumers it can drive volatility in industries like we have seen in the region. Also disease remains a concern and high biosecurity will remain a key priority. For export driven industries, the key challenge will be to anticipate on the fast changing demand of products in international markets. Latin American exporters from Brazil and Argentina are among the more competitive in the world but consumers in key exporting regions like Japan, EU, Saudi Arabia and China are changing demand increasingly with more demand for specific categories like slow growing birds, antibiotic free chickens, cage free eggs but also to more knowhow and guarantees how products are being products and if this happened on sustainable ways. It is important for exporters that they are very close to these development and work together with clients in supplying the right products these consumer want to secure long term license of supply. For more domestically focused industries, beside the volatility and disease risks, it is important to adjust to changing consumer demand. In general, economic development leads to different consumer demand and this offers opportunities for selling more into supermarkets, QSRs but also in selling more value added products included branded products. The level in which this happens is different in each market. Some markets like Peru and some Central Latin American markets are still majority traditional distribution focused like others like Chile, Brazil and Colombia are much more modern distribution focused.

Can chicken meat exceed pork, becoming the most consumed in the world? What factors indicate this?

This happened already in 2016. Poultry is currently the number one meat protein in the world. The ASF outbreaks which we see now happening in Asia and Europe has big impact on production and will lead to several years of negative growth in global pork production. The biggest competitor for poultry in global markets has been increasingly seafood e.g. aquaculture. In the previous few years global seafood consumption growth has surpassed poultry for the first time as fastest growing protein. This is very much because of the success of specialized aquaculture production. Global wild catch production is not growing anymore due to environmental restrictions.

Where are the largest consumers of animal protein in the world? Eventually, would these countries not be able to expand their production to meet domestic demand? Because?

Around 60% of global growth in meat will be in Asia with China as the biggest market but most growth will be in South East and Southern Asia with most countries seeing poultry production rising by 5-10% per year. China is different, with their domestic market growing only 1-2% per year over the last years whereby poultry even declined due to food safety (antibiotics) concerns and disease threat (human cases of Avian influenza). As all these countries have limitations in terms of agricultural land and water availability there are questions on how to supply future demand. The most efficient way might be to increase trade of meat proteins from the most competitive countries in the world like Japan has done years ago. However, this tends not to happen yet and most countries prefer to develop a local meat industry because of employment reasons. This is especially the case for poultry, pork and eggs. We’ve seen a change in beef markets where governments in for example Malaysia, Indonesia and China have opened markets over the last years. The current outbreaks of ASF in Europe and Asia is having big impact on global markets with only already in China pork production declining by 25% this year and it is expected to be down further in the next couple of years. Also other countries in the region like Vietnam, Laos and Myanmar have been hit by ASF. As in all these countries pork is the main protein, it will push local governments to rethink future protein supply. They will certainly try to rebuild the pork industry but likely it offers opportunities for local and international poultry industry to benefit and help supplying protein into these markets in the next years. The Middle East will remain a major buyer for poultry in the world, although there is an increasing support to establish also some local production because of food security reasons. Countries like Saudi Arabia, Qatar, Bahrein and Emirates have supported local production. The EU will remain a major buyer of poultry and beef from Latin America and the pending Mercosur – EU trade agreement will offer additional opportunities to sell products in this market. Important hereby is that supply requirement for local and international suppliers in the EU are rising and it should be first priority for exporters to be in the forefront of adapting such changing standards to secure long term supply positions.

What prospects can be drawn for the future of the poultry industry in Latin America and the world?

Poultry will be the leading protein leveraging on its price competitiveness, it’s healthy and convenient image. The global market will grow by 60% in the next 20 years and Latin America will take almost 30% of the global growth and can be considered behind Asia as the biggest regional growth market. In terms of markets we can expect further changes with in general a gradual decline in live bird and traditional markets worldwide (driven by economic growth), a move from frozen to fresh products and a further growth of processed poultry products. We can also expect worldwide more differentiation in markets based on consumer concerns like animal friendly, health, environment and safety. This development will be seen relatively more in high income markets as it will lead to higher prices. Product developments like natural chicken, antibiotic free chicken, slow growing and free range chickens fit in this category. From an investor perspective it can create more value into the sales category and therefore also more opportunities for branding and marketing. Latin American markets will also face these developments and the rise of supermarket and restaurant sales offers rising opportunities to create value. Exporting companies have to deal with the fast changing requirements in products in exporting markets and need to anticipate pro-actively on these changes to secure a long term supply position in these markets.

Will new technologies - primarily within the so-called 4.0 concept - transform the animal protein production landscape? Could this somehow lead countries without basic conditions to expand their poultry production to - with technological application - become a major producer?

New technology like smart farming, block chain, artificial intelligence, big data, genomics and gene-editing but also new feed ingredients like novel feed additives will change industries in the coming years. Early adaptors will benefit significantly especially as optimal adjustment of the new technology will offer significant improvements in terms of efficiency, health, welfare and value chain management. It is likely that such new technology will also lead to changing supply strategies of supermarkets and restaurants chains in near future. Clients will ask suppliers on certain scores in terms of pricing, health, welfare and environment and these are measured in for example the block-chain with smart farming, sensor, camera technology and artificial intelligence and can been managed via dedicated management information systems. We don’t expect this to lead to major shifts in global production of poultry but at least companies who are in the lead here could benefit from early adaptor position in the market. If local companies in export markets are faster here then exporting countries it could impact trade flows as well.

In the world, we have different market profiles. Quite quickly, we could say that there are markets - in Asia, for example - where there is an increase in demand for animal protein, but less concern in issues such as animal welfare, for example. In Europe, which includes more mature markets, there are a number of animal welfare requirements, no use of antimicrobial additives in feed, etc. Is it possible for Latin America to meet both demands consistently?

Yes, this is certainly possible and with current scale of operations in for example Brazil it should be possible to dedicate production increasingly more toward a key market. Saudi Arabia and other Middle Eastern markets are requiring for special halal standards and Brazil has already increasingly more focused on supplying these markets with dedicated value chains. In Europe we see the market changing fast with now 8% of market being based on chicken concepts based on slower growing breeds which is expected to double until 2025. Clients in Europe also require increasingly higher standards in terms of environment, animal welfare, health (like antibiotic use). In the US we see the move to antibiotic free chicken and increasingly also more slower growing breed based concepts. These changing standards and new concepts are taken by required for local and international suppliers. For exporters, it is key important to be at least on same level as local suppliers here. The changing requirements in these developed markets will require investments but taken into account the importance for trade from Latin America (especially in terms of value) it makes a lot of sense to do this and to set up more dedicated supply chains.

FAO reports indicate that over the next ten years Latin America will account for something close to 25% of world exports of agricultural products. Should this attract more agribusiness-focused investors to Latin American countries?

In line with limited global resources in the fast growing food markets in the world the need for global sourcing is rising. We have seen this moving over the last decade and this is expected to move on in the coming decade. The Latin American meat industry has become already a lot more international in these years and this is certainly a trend we expect to move on with more two-way investments with at one side companies from net-importing countries securing supply via investments in potential export regions like Latin America but also in Eastern Europe while at the other side exporters from Latin America to try to get better access to key export markets and investing there in local distribution and production. It might also become more interesting for global companies to invest in fast growing regional markets in Latin America to capture local growth. Also here we have seen interest rising over last decade and this is expected to continue.

 

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