The Pig Meat Growth Challenge. Jim McGrath Pig Producer & Chairman Truly Irish Country Foods

Transcription

1 The Pig Meat Growth Challenge Jim McGrath Pig Producer & Chairman Truly Irish Country Foods

2 Presentation Outline The global market opportunity Overview of the Irish Pig Meat sector Food Harvest 2020 growth target Key challenges and opportunities Irish industry structure Truly Irish brand Conclusions and Recommendations

3 World Market Overview Pig meat output of 114 million tonnes in 2013 accounted for 37% of global meat production USA, Europe and China are the major producers EU production 22 m tonnes carcass weight EU consumption 20 m tonnes = 40% of total meat consumption Per capita consumption is 41 kgs per head About 7 million tonnes Pig Meat is traded internationally Emerging markets are the major growth areas driven by: Population growth & urbanisation Income growth and affordability Westernisation of eating habits

4 Global Pigmeat consumption projected to grow by 10% by 2020, Bord Bia 43

5 EU Com. Pigmeat Market Forecast to 2022 Modest growth in production and consumption on the internal EU market EU exports have grown by more than 36% since 2009

6 EU Market Situation The market environment for producers has been very difficult Sharp increases in feed prices from mid 2010 Sow welfare legislation has added incremental cost without market compensation Producers pushed into loss making situation until late 2012 due to inability to achieve market price increases at trade level EU finished pig supplies in decline in 2012 and % decline in 2012; c.1.5% in 2013 Some producers downsizing and / or exiting Forecast output recovery of 2% in 2014 Supply restriction stimulated a positive price response in 2013 The EU is 110% self sufficient and is a major world exporter Main destinations: Russia, China, Japan / East Asia EU market growth will be limited, 3 rd Country export growth critical

7 No of Farms No of Pigs '000 The Irish Pig Industry Pig production ranks third in primary production behind beef and milk Consolidation process at producer level Pig numbers of 1.55 m: 1% of EU output (CSO June Census figures) National output -3.1% in Bord Bia registered producers Largest average pig unit size in EU at 540 sows A number of units in excess of 2,000 Average weekly slaughtering 55,000 in ROI, plus c. 10,000 in N.I. 423m gross output at farm-gate level in ,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Year No of Farms No of Pigs

8 Food Harvest 2020 target A 50% growth in the value of output relative to 2007/2009 baseline Acknowledgement that profitability concerns must be addressed through: Improved sow productivity Substantial increase in herd size Reduction in the costs of production Improvement in market returns Challenge set to: Increase sow productivity from 21 (2005-9) to 24 Increase the national sow herd by 50,000 to 200,000 sows Teagasc figures show sow productivity for 2012 has increased to 24.4 Can the expansion target be achieved?

9 The Economic Benefits of Pig Sector Expansion Current employment in the pig sector is estimated at c.8,000 (1,500 farm labour units) +50% output offers significant employment growth potential 2,000 to 2,500 additional jobs? The Pig sector utilises close to 1 million tonnes of concentrate feed per annum Potential for an additional 0.5 million tonnes Tillage sector benefit Pig meat exports for 2013 estimated at 525m (+3%) Additional output will be exported with some import substitution Growth potential: c. 250m?

10 Key Challenges Producer profitability The industry has come through a very difficult period due to the lag in recovering feed cost increases Producer profitability varies considerably Units that are matching Danish norms in sow productivity and feed conversion efficiency have shown consistent profitability over time Pig production is capital intensive. The replacement cost of existing piggery production capacity is of the order of 900m To profitably achieve the Food Harvest expansion target of 50%: Sow productivity must increase by 30% to 35% relative to the 2007 / 2009 period to match best in class international standards Significant progress has been made An additional 15% to 20% increase in output capacity will require further capital investment of the order of 150 to 200m

11 Funding the expansion Investment will primarily be made by existing, efficient producers who will use cash flow from existing business to partly fund expansion along with debt levels up to 3,000 per sow (total investment c. 6,000 per sow) Structural issues within the industry need to be resolved to improve producer margins and accelerate expansion investment

12 The Irish Pig Meat Supply Chain Very fragmented Ireland: No Farmer control Limited integration Absence of cohesive strategic industry direction Feed Compounders 396 Producers 6 Independent Slaughtering Plants Multiple Added Value Processors Multiple sellers International Competitors: Co-Operative ownership is common Vertical integration is increasing Operational scale at processing level is higher

13 Irish Industry Structure Need to manage risk and achieve sustainable returns The fragmentation of the supply chain increases the risks for all parties Producer returns are commodity driven Processors do not have security of supply when making investment decisions Is the processing sector adequately capitalised? Additional processing investments of 100 m+ will be required? Development of an added value strategy is essential for all industry stakeholders to build more sustainable returns

14 c/kg dw excl VAT EU Pig prices increased during 2013 But Irish price on average still 10c/kg below EU average 200 EU 3% higher Ire EU IE 6% higher Source: Bord Bia Conference Jan 2014

15 Key Challenges (1) Feed Price competitiveness Feed represents c. 70% of pig meat production cost Teagasc research has shown that feed costs in Ireland can be up to 10% higher than mainland EU The cost of extended feed merchant credit terms 1% to 1.5% per month up to 4 months - adds significantly to the adverse cost differential Stakeholders must work together to improve feed cost competitiveness

16 Key Challenges (2) Grow Pig Meat export sales The UK accounts for in excess of 50% of Irish exports Net imports are 47% of consumption Can we close the price gap with domestic product through an added value strategy? Can Ireland achieve an increased share of the European market for lower value cuts? Can we maintain export growth to emerging markets? Profitable outlet for the 5 th quarter Limited demand growth within the EU

17 Key Challenge (3) Increase domestic market consumption of Irish output Imports equate to 57% of domestic consumption although some product re-exported in added value form Tonnes 2012 Production 241,000 Imports 81,000 Total Availability 322,000 Consumption 142,000 Exports 180,000 Source: Bord Bia Irish market preference for Backs brings intense Continental competition Country of origin labeling absolutely necessary Consumers are entitled to know the origin of the product when making a purchasing decision Investment in product innovation and marketing support essential Brand development builds customer loyalty and adds value

18 Truly Irish Truly Irish is a farmer owned business sourcing raw material from over 80 farms The brand is listed in all major supermarkets in Ireland C.50% of the premium breakfast meat market Our mission is to provide consumers with guaranteed Irish premium quality pig meat products produced to the highest international animal welfare standards in the world Lowest EU carbon foot print We promote Irish pork as a great product that showcases our world class production standards Use traditional recipes that are focused on taste and customer satisfaction rather than yield The Truly Irish brand is a potential added value vehicle to grow export sales

19 Conclusions & Recommendations The world demand outlook for pig meat is positive Irish pig production is now very intensive Further strides required to get productivity up to best-in-class norms The Food Harvest 2020 expansion target is challenging Expansion will be driven by existing players who will fund using existing cash flow along with available debt Structural issues within the industry need to be resolved to improve producer margins and accelerate expansion investment All stakeholders must work to have an industry structure that is focused on long term growth and sustainable returns to support the national expansion target Added value growth strategies such as branding and innovation are critical We have a product that we are proud of as producers Has the Truly Irish brand a role to play in an industry solution?

20 Thank You