MLBA8: April / May 2009
Investment in Asian meat processing: Changing the way we process and market our meat
Investment in Asian meat processing has taken an interesting turn. Thanks to the global economic crisis, meat processors, particularly larger, export-driven ones, are dealing with an unprecedented fall off in demand. When this occurs, investment is usually the first victim of cost cutting.
Indeed, some serious cost cutting has happened. Speaking at the recent VIV Asia livestock exhibition in Bangkok, Jean-Yves Chow, Rabobank's assistant manager in Hong Kong, stated that the ongoing financial crisis has dried up the meat processing sector's access to credit, thereby reducing the volume of investment in the industry. By starving smaller enterprises dependent on financial capital, Chow believes the crisis could even accelerate the ongoing consolidation of Asian meat processing.
Yet, this consolidation is not merely about small companies going out of business. Recession or not, large multinationals know that emerging Asian meat sector has an endless horizon of growth ahead of it. Hence, whether it's Tyson Foods setting up a joint venture with Godrej Agrovet, India's largest poultry processor, CP entering China's hog sector or Smithfield entering pork processing jointly with China's COFCO, foreign investment in Asian meat processing has never been higher.
Yet, with demand sharply falling off, even large, capital-rich, well-financed meat processors are cutting back. Overly dependent on shriveling Western exports, Thailand's integrated meat processors have slashed capital outlays by up to 50 percent. Yet, if all the recession did was drastically cut the quantity of investment in meat processing, there would be very little to write about it.
This however, is not the case. While the quantity of investment has fallen, it has not completely stopped, as is the case in some Western countries. Instead, the recession's greater adjustment was in the quality of investment, not the quantity. With overcapacity looming in mature markets like Thailand, a company like CP is restricting capacity expansion to fast growing emerging markets such as Russia, China, Vietnam, India and perhaps the Philippines.
On the other hand, recessions create an oversupply that only intensifies price competition. Hence, investments that reduce production costs are going ahead, especially when lower cost competitors are nipping at producer's heels. Thon Otton, organiser of the VIV Asia livestock exhibition, states that, "deteriorating economic circumstances present a great opportunity for companies to rush into learning new technologies to enhance their productivity and reduce costs."
These include more efficient production equipment, energy efficient climate control systems and IT-based ERP systems that enable meat processors to reap additional savings from the supply chain. Towards this end, China's leading pork processor, the Yurun Group, recently updated its Enterprise Resource Planning (ERP) system to better squeeze efficiencies out of its supply chain, which increasingly spans both retail and swine rearing.
Yurun rival Shineway Group recently introduced an entire array of new enterprise software to better manage production, point-of-sales at chain stores, financials, inventory, procurement, distribution and delivery. The company also recently implemented a quality inspection system for live hog slaughtering.
Aside from improving business efficiency, there is a further benefit to investing in end-to-end IT systems, particularly for Chinese companies. When investment in such IT systems reach a critical mass, they will span the meat processing supply chain in such a way that makes meat traceable from feed mill suppliers to livestock farms right through your dinner table. Needless to say, such end-to-end traceability will play a key role in getting China's food safety problems under control.
Indeed, Chinese meat processors are only starting to invest in the farm-to-table traceability that their Thai rivals have recently enabled for their pork and poultry lines. On the other hand, with Thailand feeling competition from lower cost neighbors, CP and Betagro are presently investing in 'smart', IT-driven climate systems that manage feeding, lighting, heating, cooling and water while conserving energy. It is hoped that by cutting costs, these new systems will keep Thai meat competitive with that of its emerging neighbors.
Yet, such cost-cutting only goes so far. For this reason, our survey also finds Thai food giants trying to escape price competition by adding more value-added processing to their products. Again, we find that the recession has in no way dented Asian meat processor's investments in ready-to-eat meals or in nationwide retail network designed to sell these new products. To ensure these new products succeed, Indian, Chinese and Thai meat processors are making sure that customers are close to a store that carries their ready-to-eat meals.
Despite all these commonalities, the large variation in economic development across Asia means that meat processing investments, their nature and source, vary greatly by country. Towards this end, we survey the state of Asian meat processing investment in one country that exports meat processing capital, another that wants to import meat processing know-how and a third, large market that does both. We hope you find the insights we gained meaningful.
