The most important market trends of previous years continue unchanged, and even sometimes at an accelerated pace. With the exception of the layers sector, many farmers were again confronted with declining selling prices this year. In combination with ever-stricter European legislation in the area of the environment and animal health and welfare this poses livestock producers considerable challenges. Their business operations consequently become ever more complex. In this respect ForFarmers can support its customers optimally with the Total Feed approach.
Raw materials market
The most important raw materials that ForFarmers purchases are types of grain such as maize, wheat and barley and vegetable sources of protein such as soy, turnip, and sunflower meal. In addition, high fibre raw materials are an important category, including co-products from the starch and oilseed processing industries and originating from the milling of grains. Another category is feed additives, such as amino acids, vitamins and minerals.
In 2015, prices on the raw materials markets showed an overall declining trend but did fluctuate during the period. Harvests were good as a result of which a stock of grains and oilseeds was built on the world market. The latter occurred despite the increasing demand for food as a result of the growing world population. As the balance in the world stock of these raw materials can fluctuate quickly between an abundant and an equally scarce supply, prices are expected to remain volatile in the coming years. The currency exchange rate of the Euro/British Pound compared to the US Dollar had a considerable influence on the development of price this year. The world market prices for grains and oilseeds are quoted in US Dollars. In a historical context, these US Dollar prices were low in 2015. The Euro weakened in the course of 2015 and this partly cancelled out the decline in US Dollar prices. In the last quarter, low water levels in the rivers of North-Western Europe resulted in increasing forwarding costs because navigation had to take place with smaller vessels, carrying less cargo.
Considering the impact of the costs of raw materials on the cost price of feed, the purchasing process and the composition of the feed represent a crucial activity at ForFarmers. The increased concentration of the purchase of micros (e.g. amino acids and minerals) and premixes at the strategic partners enables ForFarmers – and therefore its customers – to take advantage of economies of scale for the purchase of these raw materials. In respect of the purchase of macros (raw materials like grains, vegetable protein, high-fibre raw materials and vegetable oils) economies of scale can be achieved by process optimisation. For instance, by sharing knowledge, the internal purchasing process can be optimised further.
Volatility of purchase prices requires an accurate process for the correct pricing of feed. By combining the knowledge and experience of the Purchasing, NIC and Formulation departments, ForFarmers can anticipate developments in the prices of raw materials through optimisation of feed composition. In this way the company limits the volatility in its prices, without compromising feed efficiency.
The pace at which adjustments in prices of raw materials are passed on in feed prices depends on many factors and differs per country. Good coordination between the purchasing and the sales activities is therefore also of utmost importance. This guiding principle forms an important aspect of risk management with regard to the purchasing process within ForFarmers. In view of food safety the quality of all supplied raw
materials for feed must be guaranteed. In cooperation with (inter)national industry organisations ForFarmers has developed standards and criteria that suppliers of raw materials and the purchased raw materials must comply with. The implementation of these standards and criteria is a continuous process that ForFarmers actively supports. It goes without saying that ForFarmers exclusively purchases raw materials from suppliers who comply with the defined criteria.
Increased regulations, in particular aimed at animal wellfare and environment, confront many farmers with increasing costs. More than ever before they are consequently looking for solutions to improve the efficiency on farm and to increase their return. This development goes hand in hand with a further scaling up and professionalisation of the industry. The complexity of agricultural business has increased further and this results in a changing demand towards the feed industry: there is an increasing need for integrated solutions and for good monitoring of technical and financial results. The amount of data established at animal and business level grows strongly. Translating this data into usable management information is an area that ForFarmers has placed much focus. ForFarmers anticipates that innovative feed and management concepts and advanced monitoring systems will enable livestock farmers to produce as efficiently as possible and to increase their return. The selling price of output that livestock producers provide declined more strongly than expected in 2015. This is partly related to the Russian import ban as a result of which a large sales market for meat and dairy was lost.
Dairy production in North-Western Europe increased considerably in the past year, due in part to the abolition of milk quotas. In the same period, the demand for dairy products from China declined as economic growth slowed. Declining oil prices had a similar effect on exports to the Middle East. Due to these developments, combined with the Russian import ban, there is potentially a short-term surplus supply of dairy products. In the longer term, the global demand for dairy products is expected to grow more strongly than the supply. This offers good prospects for the future of the dairy sector in North-Western Europe which holds a very strong export position thanks to a product portfolio with high added value.
Swine farmers have had a difficult year with poor returns. Even though the export of pork to China continues to grow, this could not entirely compensate for the loss of the Russian sales market. In the European market, and in particular in North-Western Europe, the consumption of
pork meat continues to decline. Worldwide, the demand for pork meat is expected to increase. Swine farmers in North-Western Europe will only be able to take advantage of this to a limited degree as additional strict requirements are imposed on animal wellfare and the environment, leading to additional production costs. These market developments will lead to accelerated consolidation and an imperative for first-class results on farm. In addition, on the continent the trend for meat concepts with a higher added value is evident. In the United Kingdom this has been the case for a number of years.
In the poultry sector, legislation and initiatives from the retail sector in the area of animal health and wellfare have a big impact. This year, egg exports received a temporary boost after the outbreak of avian influenza among poultry in the United States. However in the longer term, selling prices for eggs are expected to remain under pressure. For broiler producers 2015 was a reasonable year. Even though selling prices were under pressure, cost prices declined strongly. This led to improvement of returns for farmers. The developments around ‘Tomorrow’s Chicken’ (‘Kip van Morgen’) are expected to have a positive effect for the broiler producers in the Netherlands, albeit that this only relates to the domestic market and it only makes up 15% of the total production volume. In the short term this will result in a decline of the number of animals in the Netherlands.
Goat farmers in the Netherlands are in a favourable position; there is ample demand for their products and a good price is paid for them. ForFarmers supports these farmers with a dedicated team and has been very successful in this market with the Capri concept.
In 2015 organic livestock farming increased by approximately 5% in the dairy sector and approximately 10% in the poultry sector in the Netherlands. The organic swine sector remained stable. In Germany there was also question of growth. This segment has professionalised further, however compared to common livestock farming it remains a niche market.
The return for organic farmers was good in 2015: compared to common products organic farmers receive relatively good prices for their products. ForFarmers is active in the organic market under the brand Reudink and has a specialised production facility for the production of organic feed. In addition ForFarmers produces organic feed for Agrifirm in the Netherlands on a toll manufacturing basis.
The Total Feed portfolio of ForFarmers consists of compound feed, young animal feed and specialty feed, co-products, individual raw materials, seeds and fertilisers. However, the essence of the Total Feed portfolio is compound feed. The other products are often offered in addition to compound feed.
From an international perspective the compound feed market is very fragmented. In the Netherlands the five largest feed companies hold a market share of around 80% whilst the remaining 20% is divided over approximately 90 other feed producers. In the United Kingdom the six largest companies for compound feed and blends hold a market share of approximately 55%. In other European countries much wider fragmentation is evident. The European market continues to consolidate and scale is of crucial importance to be competitive and market-leading. This also applies to ForFarmers in that investments are made in nutrition and innovation and to continuously train the Sales personnel. The latest knowledge and professionalism are preconditions for being able to offer customers the best possible nutritional solution in a world that becomes ever more demanding and ever more complex.
Legislation and regulations with respect to sustainability and the environment continue to increase. This takes place at European level, however the countries in which ForFarmers is active usually take this a step further. For instance the ban on beak trimming for laying hens at European level takes effect in 2018, but will be implemented by Germany in 2016. This also has consequences for poultry farmers elsewhere who produce eggs for export to Germany.
Medicated feed for pigs has not been used in Germany and the Netherlands for many years. In Belgium the rules were tightened for this, and it is subject of discussion in the United Kingdom. Milk production increased considerably after the abolition of milk quotas and this prompted the Dutch government at the start of 2016 to introduce phosphate rights in order to keep phosphate production within established boundaries.
The additional requirements that livestock farmers must comply with brings about costs that can not automatically be passed on. These developments can place heavy demands on the entrepreneurial spirit of livestock farmers. However, with a correct approach a new perspective can be created again. The changes that derive from this legislation are expected to lead to an improving image of the sector and, in time, to an improvement of competitive position. ForFarmers has the knowledge to help farmers convert these developments into opportunities.
For retail organisations, price is an important factor when purchasing products. In consultation with livestock producers new concepts are developed for products that stand out in the area of, for instance sustainability, animal wellbeing, taste or because of the fact that they were produced locally or regionally.
In the Netherlands, the impact of ‘Tomorrow’s Chicken’, the agreement concluded in 2013 between supermarkets and the poultry sector that should result in a more sustainable poultry product range in Dutch supermarkets, is growing. The agreement is about the conditions in which animals are kept and the obligation of supermarkets to only purchase chicken meat that was produced under these conditions.
Unlike this sector-wide initiative, the swine sector has many different – often regional – initiatives that stand out in the area of sustainability and health. In the Netherlands this includes, for instance, the Frisian Friberne, the ‘Tomorrow’s Pig’ (‘Varken van Morgen’) and the ‘Live Better 1 star’ (‘Beter Leven 1 ster’) pork. Belgium has the ‘Better for everyone’ (‘Beter voor iedereen’) concept of supermarket chain Delhaize and the United Kingdom has the ‘Pig Real Welfare’ programme. The success of the ‘Animal Wellbeing Initiative’ (‘Initiative Tierwohl’), which was launched in Germany in the spring of 2015 is notable. This initiative, funded by the retail trade, imposes requirements on animal husbandry, hygiene and animal health.
These special meat concepts have been set up in the market by the retail sector in close cooperation with farmers in the United Kingdom for a number of years. It is noticeable that retailers have become more engaged in this process in the last year. Producing meat for these kinds of concepts creates opportunities for livestock producers but also imposes different requirements that often bring about higher production costs. ForFarmers advises and supervises livestock farmers during the transition and supplies appropriate feed products in order that they can comply with the requirements in a profitable manner.
Thanks to its nutritional knowledge and broad experience, ForFarmers is able to support farmers during the development of new, sustainable concepts. In the Netherlands, ForFarmers has designated special key account managers in the swine and poultry sector as a contact person for businesses that operate within a concept. This account manager knows what impact working within a concept has on business decisions and methods on farm level and he supports the farmer in finding the correct balance between added value and controlling costs.
Unlike the trend in emerging economies where meat consumption increases, meat consumption in Europe has stabilised. Per capita, consumption in the EU declined slightly, however this is compensated for by a slight increase in the number of residents. In particular, poultry has become more popular in the EU, at the expense of pork. This is due partly to chicken having a better image than pork but mostly because chicken is relatively cheap and is often used by the retail sector for price promotions. The consumption of beef only declined marginally. Even though the demand for sustainable food products grows and the shelves contain more wellbeing concepts and regional and organic products, the higher price of these products is often still (too much of) a barrier for consumers to actually purchase.