October 3, 2008

  

 

The US poultry industry, whose production is already concentrated in a handful of companies may see even more consolidation or become acquisition targets for foreign players as a US$7.3-billion increase in corn costs in the past two years caused companies to incur extensive losses,  a senior industry figure said.

 

Blair Snyder, president and CEO of AgriStats was speaking before moderating the CEO panel at the National Chickens Conference which saw the industry lamenting high feed costs and the difficulty of passing on those increased costs to consumers.

 

Clint Rivers, president and CEO of Pilgrim's Pride, said the ethanol impact was one of the biggest challenges in his career, with costs up 60 percent compared with a few years ago

Industry economists estimate that processors have been able to recoup only about half of their costs through price increases.

 

Amid the doom and gloom, some have speculated that weaker players may become acquisition candidates for foreign companies enriched by the weak dollar.

 

These comments come no less from Dick Bond, head of Tyson and Jim Perdue, CEO of Perdue Farms, two of the biggest US poultry companies.

 

Perdue noted that in 1996, the top three poultry companies comprised 38.5 percent of sales. Last year, the top three accounted for 53 percent.

 

Perdue also said the customer base for the poultry industry would become increasingly consolidated, but the distribution points would become more scattered.

 

He noted that the top seven retail chains who control 54 percent of market revenue are looking for suppliers who can offer national distribution.

 

At the same time, these retail chains are diversifying into various distribution points, such as convenience stores, drug stores and supercentres.

 

Perdue added that the aging population will call for product and packaging innovation, including more single- and double-serving portions, easy-open packages.

 

Bond also suggested that, like Tyson, other companies might begin to diversify into other protein segments.

 

The past month has seen Tyson issuing stocks to climb out of debt and Pilgrim's Pride coming within a whisker from defaulting from its loans due to a series of bad bets.  The company has also hired an advisory investment bank to look at its re-financing options.

 

Still, for Tyson at least, it has seen the wisdom of not laying its eggs all in one basket: the funds raised from its stock issuance would also fund acquisitions in foreign countries such as Brazil and China.