Overview of agribusiness trends David Burch AAI Second Global Forum Market Power and the World Food...

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Overview of agribusiness trends David Burch AAI Second Global Forum Market Power and the World Food Crisis Sao Paulo, Brazil, 22-24 January 2009 Slide 2 Megatrends Globalisation Environmental degradation Resource depletion Energy costs and availability Population growth Growing urbanisation Development, poverty, gender and trade Financial crises Slide 3 Five major trends in F&A Continuing concentration along the agri-food supply chain Changing power relationships along the supply chain. Shift in production to the less developed countries. The growth in consumer concerns/issues. The financialisation of food and agriculture. Slide 4 1. Concentration along the agri-food supply chain The AAI has its origins in concerns about the increasing levels of concentration in key agri-food sectors, initially in the USA and Europe, and the impacts of this on farmers and consumers in particular. Ther genesis of this work lay in the research carried out by W. Heffernan, M. Hendrickson, R. Gronski and others at the University of Missouri in the 1990s. Slide 5 Concentration ratios in processing Broilers (USA) 19861990199419982001 CR4 =35%44%46%49%50% Top 4 companies - Tyson, Gold Kist, Perdue Farms, Pilgrims Pride. In 2006, Pilgrims Pride acquired Gold Kist; CR4 in 2007 was 58.5%. Slide 6 Concentration in the retail sector US supermarkets: 199720012004 CR5 =24%38%46% Top 5 - Wal-Mart, Kroger, Albertsons, Safeway, Ahold. Slide 7 Rethinking concentration levels Most applications of the concept of the concentration ratio have been conducted at the national level. But in a period of globalisation, when the companies operate in more than one country, and import and export products in a variety of forms - e.g. poultry in complete ready meals - the concept of concentration needs further consideration. Slide 8 Concentration in global manufacturing CompanyGlobal share of packaged food sales Nestle3.4% Kraft Foods2.5% Unilever Group2.2% PepsiCo1.8% Danone Group1.3% Cadbury Schweppes1.0% Mars Ltd.1.0% Kellog Co.0.9% General Mills Co.0.7% Barilla Holdings0.5% Top 15 companies account for 17.8% of packaged food sales Slide 9 But in particular commodities US company Pilgrims Pride is now No.1 poultry producer in the world, but the Charoen Pokphand (CP) Group of Thailand (with poultry operations in Thailand, China, Turkey, Russia, Indonesia, Cambodia, Vietnam, and elsewhere), is reportedly No. 2. Slide 10 2. Power along the supply chain Supermarkets have come exert control over the supply because of: - Market concentration; - Scale of purchases and buying power; - Control over access to shelf space; - Own brands or private labels; - Their role as food innovators. Slide 11 Control over access to shelf space Supermarkets can determine who has access to shelf space, and the terms and conditions of access; Supermarket suppliers may be charged slotting fees for space or for premium positions - in 2004, US food producers paid US$9 bll in slotting fees. Supermarkets also require suppliers to pay for specials or price reductions - Every Day Low Prices. Slide 12 Own brands or private labels Own brands have become a mass phenomenon in the UK, they account for over 40% of all grocery sales and growing at 6% p.a.; in Australia they are 30% of total sales; in the US they are 17%. Larger profits for supermarket; Denial of shelf space to proprietary brands, or an enhanced ability to extract rent through slotting fees Slide 13 Sourcing from the Third World Increasingly, this means sourcing from the less-developed countries; e.g. in the UK and Europe, Tesco sources much of its poultry products from Thailand; Sainsbury sources organic green beans from Kenya and grapes from Egypt; In Australia, the two leading supermarket chains source own brand canned fruits from South Africa, Thailand, the Philippines, Indonesia and Swaziland, and frozen beans and cauliflower from China. Slide 14 Supermarkets as product innovators Established food companies have not been major innovators and have depended on long-standing quality brand products; e.g. Heinz baked beans were essentially unchanged for over 100 years, until they were forced to innovate through the impact of own brands. Food companies have ignored contemporary trends in consumption and the demand for new food forms - convenience foods - deskfast and dashboard dining Slide 15 Ready meals and meal solutions Ready meals are complete single, fresh meals, with a shelf life of 4-5 days, and much in demand in a society where many people live alone or where families graze instead of sharing a meal. Ready meals were first introduced by the UK supermarket Marks and Spencer in 1988, and now supermarket own brands still account for 95% of production Slide 16 The market for ready meals Sales in the UK are over 2.6 bll. p.a. 1 in 4 families eats at least one per week; Increasingly targeted as convenient and healthy, restaurant quality products; There is a high level of innovation in 2003, when Tesco introduced a new range, it included 350 new dishes (starters, mains and desserts); Such meals are assembled from ingredients sourced globally, e.g using chicken from Thailand, China, etc. Slide 17 Food manufacturers under threat Because of the threats from own brands, etc, established food companies are re-defining themselves by focusing on health and wellness products - functional foods and nutriceuticals; The global market for functional foods was US$72 bll., in 2005, with the largest market the US growing at a rate of 13 percent per annum. Takeovers and mergers between food and chemical/ biotech/ nanotech companies strategic alliances patents to replace brands. Slide 18 Food for health The global market for functional foods was US$72 bll., in 2005, with the largest market the US growing at a rate of 13 percent per annum. Takeovers and mergers between food and chemical/ biotech/nanotech companies patents to replace brands. Nestles, Unilever, Cargill, Tyson and Danone, all produce functional foods and nutriceuticals. Slide 19 Nestl The largest food manufacturer in the world now refers to itself as a wellness company. The company now has a dedicated Nutrition Division covering infant formula, baby food, medical nutrition, weight management and performance (sport) nutrition, and a Strategic Wellness unit to drive the idea of wellness throughout all of the company s main divisions; Slide 20 3. Production moving to the LDC s Less developed countries have experienced a shift away from the export of traditional tropical products (coffee, cocoa, tea, sugar, etc) and towards non-traditional exports - especially horticultural products; Much of this is fresh produce and is certified organic; But there is also underway a significant shift towards value-added processed products, e.g. poultry, seafood. Slide 21 3W production of processed foods e.g. poultry products for supermarkets and fast food chains (led by China, Brazil, Thailand, with India to follow); In 2003, the USA accounted for 27% of world poultry production - by 2008 this was down to 23%; Similarly, the US share of world exports fell from 36% in 1995, to 26% in 2005 - the share held by Brazil, China and Thailand went from 16.5% to 36% over the same period. Slide 22 3W production of processed foods Seafood products (prawns from Thailand, Vietnam, Bangladesh; tuna from Thailand and small Pacific island states; Canned and frozen fruits and vegetables (often under supermarket own brand labels) - tomatoes from China, pineapple from Thailand, Indonesia, the Philippines, canned fruits and desserts from Swaziland, cauliflower, peas, beans from China, etc. Slide 23 Agribusiness in developing countries Much of this new production is accounted for by western agribusiness companies re-locating to lower-cost production sites (e.g. poultry production by Tyson (US) in Brazil and China, and Grampian Food Group (UK) in Thailand). This is done to meet the growing demand for poultry in the less developed countries and to supply cheap produce to the West. Slide 24 Agribusiness in developing countries But of increasing importance are the local. home-grown agribusiness companies emerging within Asia and Latin America; Charoen Pokphand Group (Thailand) San Miguel (Philippines) Indofoods (Indonesia) Reliance Group (India) New Hope (China) Sadia (Brazil) Slide 25 Charoen Pokphand (CP) Group Thailands largest corporation and Asias largest agribusiness concern; 2001 turnover of US$12 bll. Largest producer of animal feed in the world Second largest poultry producer Largest shrimp producer a workforce of 100,000 (excluding many tens of thousand of contract farmers) in over 250 companies in 20 countries. Slide 26 CP Group - a global corporation First and largest foreign investor in China; Investments in land and real estate, shopping malls, fast dood outlets and supermarkets, telecommunications, motorcycles and machinery, petroleum, seeds, etc; Poultry operations in Thailand, Russia, Turkey, China, Vietnam, Indonesia, Cambodia, UK; The largest single supplier of poultry to Tesco, UKs largest supermarket chain. Slide 27 3W Farmers and globalisation Whether the agribusiness company is locally- or overseas- owned, the effects on local communities are the same; Farmers are drawn into global market economy through spread of agribusiness and neo-liberal models of development advocated by WB, ADB, IADB, etc; Free Trade Agreements (NAFTA, Thailand-Australia); Contract farming - increased capital intensity and imported technology; GMOs and Nanotechnology A viable model? Slide 28 4. Agribusiness and Consumers There are many issues that have emerged in the relationship between agribusiness and consumption; In the developed centres, food safety is an issue; globalisation and food from nowhere who produces food, where and under what conditions? Food scares - foot and moth, BSE, melamine in milk, bird flu, pesticide residues on fruit and vegetables, etc. He