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June 23, 2017

A European Agribusiness Renaissance: Russia, Turkey, Spain accelerate Europe's two track feed & livestock sector


An eFeedLink Hot Topic
  • Europe may be the world's largest, most mature agribusiness market but it is no longer its slowest growing one
  • An ideal combination of fast growing Eastern European markets and Western European financial and technological capital transformed
  • Europe into a major world protein supplier
  • Russia played a very large unintentional role in Europe's agribusiness renaissance
  • America, Brazil and Oceana will no longer have Asian markets to themselves.
Europe has finally broken out of its staid agribusiness stereotype. For years, the world's second largest feed production region (after Asia) was a land of relatively flat feed output, little industry change and a chronic surplus of agribusiness production -but all this is no longer true.
With China dragging down Asian agribusiness growth, Europe surprised everyone by having its feed output grow by an Alltech Global Feed Survey estimated 4.5% --and more rapidly than that of any other region. The continent's impressive showing was powered by massive feed output growth in Russia (+13%), Turkey (+20%). Eastern European states such as Poland, Ukraine and Belarus all grew by 5% or more.
They were complimented by the western European exception of Spain, which has seen its feed output double over the last decade. All this was symptomatic of something far deeper: The transformation of Europe into an agricultural exporter of not just capital or technology but of meat, milk and fish.
In 2016, Russian economic woes stopped its feed sector expansion but this did not impact other Eastern European countries that do not depend on oil and gas for economic growth. Buoyed by growth rates once taken for granted in East Asia, European feed and livestock shows significant growth momentum for the first time in decades -but this was not always the case. To make a long story short, Easter Europe created the opportunity but Western Europe's brains and know-how made it happen.
From the 1980s through to the early 2000s, European agribusiness was known for stagnant protein consumption and a perverse, EU-mandated Common Agricultural Policy. The latter's high minimum price floors and tight production limits on dairy and other protein lines resulted in unmarketable surplus "lakes of milk" and "mountains of butter" throughout the 1980s.
This first started to change in the early 1990s. At that time, the end of the Cold War would eventually result in the creation of a 'two-track' European agribusiness market. A mature, oversupplied western EU home base, complimented by fast growing, rapidly expanding Eastern European agribusiness sectors.
The latter are dominated by Russia (29.1 million tonnes) and Turkey (21 million tonnes), who now account for nearly 50 million tonnes of Europe's 250 million tonne 2016 feed output, with states such as Poland (9.6 million tonnes), Belarus (7.5 million tonnes) and Ukraine (6 million tonnes). Russia, Turkey and former East Bloc states now collectively account for roughly a third of Europe's 250 million tonnes of annual feed output.
While Eastern European states may account for half of the continent's feed production by 2025, it was not always this way: The initial, immediate impact of Communism's fall xwas a steep decline in the meat consumption and feed output of Russia and former Eastern Bloc states. While statistics from this era are sketchy at best, based on USDA estimates of meat production trends, Russian feed output appears to have fallen by more than 50% during the 1990s.
From a peak of 19 million tonnes in 1989, Russian feed output appears to have bottomed out in the 8 to 9 million tonne range in the years 1996 to 1999. It reflected not only declining Russian meat consumption's offsetting of nominal growth in the rest of the continent.
In Russia's case, meat production fell far faster than its consumption, leading to a massive influx of chicken, beef and pork imports. Neighboring Eastern European states, while not faring as badly as Russia, saw feed a decade of flat agribusiness output during their transition from communism to capitalism.
All this changed after 2000, when meat consumption growth resumed in Russia, Eastern Europe and Turkey. Although meat consumption matched and even exceeded its end-of-cold war peak, it did so in a qualitatively different way.
For example, Russian meat consumption is back to 1990s levels, that year saw beef accounted for approximately 53% of Russia's meat consumption while chicken accounted for 11.7%. On one hand, Russia's chicken meat consumption quadrupled from 0.8 million tonnes in 1991 to a USDA estimated 3.84 million tonnes this year -and its chicken production increased by even more than this. From under 12% in 1990, chicken now accounts for 43% of Russia's meat consumption, with pork making up most of the rest.
On the other hand, Russians are consuming 65% less beef in 2017 than they did in 1990. From 5.06 million tonnes in 1989, Russian beef consumption will amount to a USDA estimated 1.785 million tonnes this year.
However, while Russian meat consumption is no higher today that it was the day communism fell, other factors caused its feed output to rise to pre-Cold War levels.
Chiefly among these is the import substitution that has occurred since the late 1990s:  Imported chicken went from accounting 78% of poultry meat consumption in 1997 to a mere 5% in 2017 -and this occurred even as consumption jumped 137% over this time.
A similar story occurred with Russian swine, where imports went from 39% of total pork consumption as recently as 2008 to a mere 9% this year. Because Russia's meat consumption recovery coincided with mass import substitution of chicken and pork, feed output rose far above pre-1990 levels even though meat consumption is no higher. Thus, a combination of rapid demand recovery from late 1990 lows and import substitution more than tripled Russian feed output in 20 years. It rose by approximately 233%, from just under 9 million tonnes in 1997 to approximately 30 million tonnes in 2017.
Turkey, like Russia also saw feed output rise rapidly after 2000; even more rapidly than Russia did, in fact. Unlike Russia however, Turkey used world trade to develop its agribusiness sector. While aquaculture is now starting to assume importance, in Turkey's case, an export-driven broiler sector has rapidly expanding beef and chicken consumption.
From 625,000 tonnes in 2000, Turkey's beef consumption and production jumped 167% to a USDA estimated 1.7 million tonnes this year. While chicken consumption increased a slower 145% from 660,000 tonnes in 2000 to a USDA estimated 1.62 million tonnes in 2017, export-driven poultry production outraced that of beef.
Turkish broiler meat exports jumped from zero in 2000 to a USDA estimated 310,000 tonnes this year. That helped its broiler meat output rise an even faster 191%, from 662,000 tonnes in 2000 to an estimated 1.925 million tonnes this year.
Together with a fast rising aquaculture sector, this pushed Turkish feed output from 5 million tonnes in 2000 to a FEFAC estimated 9.4 million tonnes in 2009 to 20.8 million tonnes in 2016.
Finally, among western European nations, Spain possesses unique consumption demographics caught between those of developed and developing countries. With low wages and unique meat quality offsetting high feed costs, Spain's expanding agribusiness sector sets it apart from its slower growing western European neighbors.
From 390,000 tonnes in 2000, Spanish pork exports jumped 451% in 17 years, to an estimated 2.15 million tonnes this year. Alongside strong domestic consumption, this boosted Spanish pork output from 2.9 million tonnes at the turn of the century to a USDA estimated 4.2 million tonnes this year.
With its flourishing aquaculture industry complimenting its strong red meat sectors, Spanish pork output now rivals that of Germany and Denmark -and its feed output has overtaken them. From just under 15 million tonnes in 2009, Spanish feed output more than doubled, to an Alltech estimated 31.85 million tonnes in 2016.
Hence, with a little help from Eastern European countries such as Poland, Ukraine and Belarus, the flourishing Russian, Turkish and Spanish agribusiness sectors have accounted for all of Europe's feed and meat demand growth. This creates a complimentary industry model, where mature, technologically advanced, well capitalized agribusiness suppliers in western Europe play a key role in bringing technology, financing and human capital to fast growing Russian, Spanish and East European markets.

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