October 5, 2015

 

For EU pork processors: How to stay in business

 

 

In the face of declining pork consumption in the EU, pork processors have to acquire competitive power and good market position, agricultural lender Rabobank said in a new report on the EU pork industry.

 

The report, titled "The EU Pork Industry; Competitive Power Is Key," offers five key success factors for pork processors to consider if they have to remain in business. These are cost competitiveness, sourcing, efficiency, market approach and client access.

 

Albert Vernooij, Rabobank animal protein analyst, said that EU pork processors must make a strategic decision regarding their positioning in order to remain profitable and in business beyond 2025.

 

This decision, he said, should be based on the company's status and the five key success factors.

 

The pork processor's focus, he added, should be on:

 

-- reducing cost price through targeted, efficiency-improving investments;

 
-- rationalising capacity to optimise utilisation; and
 
-- strengthening the value chain position due to strategic investments in connecting activities or a merger/sale to strengthen the competitive position.

 

Vernooij traced the cause of the strong price pressure and squeezed margins to the "rapid growth of the discount channel across Europe [which] has increased retail competition.

 

Decline in pork consumption

 

Regarding the recent decline in pork consumption, Rabobank said this was triggered by higher pork prices due to feed cost increases and trading down to cheaper proteins due to the economic crisis. "These developments collided with three longer-term trends of the last decades: consumer preference for convenience and processed meat products containing less meat; the increase in meat-restricted diets for environmental, ethical, animal welfare and health reasons; as well as various meat scandals in the EU".

 

Vernooij said "a clear difference between outperforming and underperforming companies has developed", with the outperforming processors having been able to "stabilise margins through highly efficient production processes and cost price leadership".

 

Rabobank said the underperforming processors face the greatest pressure to adapt and apply the five key success factors since they equally face the greatest challenge to remain in business.

 

The outperformers, on the other hand, will continue to invest and develop to secure ongoing success, it added.

 

Overall, Rabobank sees opportunities for the EU pork industry to improve margins in the coming years.-Rick Alberto