Market Developments in the Food Value Chain

Global developments with respect to animal protein show a mixed picture. With a growing global population and increasing prosperity in emerging markets the demand for animal protein – dairy products, meat, eggs – continues to increase around the world, although in Europe overall consumption of animal protein is virtually stable. At the same time, ongoing globalisation positively affects international trade in products containing animal proteins while tensions in the global market are causing uncertainty and shifts in the flows of export goods.

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A large amount of animal protein is exported from Europe to countries where methods of producing animal proteins are less efficient, for example because of the climate. Given the (local) environmental impact of producing animal proteins for export the European agricultural sector is coming under growing social pressure. The European livestock feed industry can play an important role in finding solutions to sustainability issues associated with the production of meat, eggs and dairy products. The additional investments that livestock farmers need to make in order to comply with the legislation and regulations are driving consolidation among farming businesses. This is resulting in changes to client needs and requirements, for example for innovative tools to monitor on-farm data. The consolidation of feed companies should also be viewed in this light.

Growing consumer interest in food quality and provenance is prompting new initiatives and collaborations within the sector, for example welfare concepts. The new dynamic in the agricultural sector is evident with opportunities and challenges for the whole industry. As an essential link in the food chain ForFarmers has a role to play in these developments. Providing farmers with cost-effective and sustainable Total Feed solutions (feed concepts, advice and tools) is the basis for this.

Raw materials market

Raw material costs account for a considerable part of the cost of animal feed. Fluctuations in these costs are passed on to clients wherever possible. The purchasing process and the combination of raw materials in the feed (the formulation) are therefore very important activities for ForFarmers. The purchase of the raw materials that are processed by ForFarmers can be divided into micro ingredients (such as amino acids, vitamins and minerals) and macro ingredients (such as cereals, plant-based proteins, high-fibre raw materials and vegetable oils). When purchasing micro ingredients and premixes ForFarmers takes advantage of economies of scale by sourcing as many of such purchases as possible from its strategic partner Nutreco.

Macro ingredients are purchased from a small number of global suppliers with purchasing having been optimised in 2017 by the establishment of category specialists to manage the purchasing across the countries. ForFarmers is mainly focused on the efficiency of the purchasing process, the quality assurance of the products and optimisation of the feed composition within the desired nutritional performance. The most important macro ingredients purchased by ForFarmers are cereals such as maize, wheat and barley, and vegetable protein sources such as soybean meal, rapeseed meal and sunflower seed meal. ForFarmers aims to purchase fully sustainably produced soybean meal and palm oil, in line with one of the Company’s sustainability objectives. In addition ForFarmers processes residual flows from human food production, for example from breweries and cheese manufacturers, thus contributing to a circular agricultural sector. 

The prices of raw materials are determined by a whole range of factors, including the quality of the harvest, which is strongly dependent on weather conditions. Costs associated with production, storage, transport (influenced amongst others by the water levels in the rivers) and energy also impact on the cost of raw materials. This became abundantly clear in 2018, when the exceptionally hot and dry summer resulted in a sharp and rapid increase in the price of raw materials in Europe and transport costs rose as a result of the low river levels in the Netherlands and Germany in particular. Purchasing of raw materials for the organic sector was also under pressure in 2018 due to tighter European guidelines regarding the provenance sites of such raw materials, which are now required to be more European and regional.
 
Feed companies in general came under more pressure in 2018 to purchase raw materials sourced locally rather than on the global market. This poses a dilemma in terms of an adequate availability of raw materials in the face of the growing demand for animal protein.
Finally the trade tensions between the United States and China resulted in lower exports of raw materials from the United States to China, making certain raw materials from the United States more attractive for European importers such as ForFarmers.

Farmers

The tone of the public debate on the agricultural sector in relation to the environment and the well-being of humans and animals is becoming increasingly harsh, particularly in the Netherlands and Germany. It is up to all those involved in the agricultural chain to explain how they contribute to sustainable high-quality food production. Consumer confidence and transparency in the food chain are important aspects in this. New technologies such as blockchain might have a role to play here in the future, although this will push up costs in the chain. Livestock farmers are already facing rising costs as a result of increasing legislation and regulations. Moreover retailers are keeping up the pressure on prices of agricultural products. All this is driving a steady increase in scale and professionalism in the sector. As a result the business operations of livestock farmers are becoming increasingly complex and this is fuelling the need for integrated feed solutions and the ability to monitor technical and financial results. The volume of data being recorded at both animal and business level is growing. While we also expect to see an acceleration in the availability and application of livestock farming business data, the extent will differ from country to country. Dutch livestock farmers are frontrunners in terms of using data. ForFarmers is applying the knowledge and experience gained in the Netherlands to encourage farmers outside the Netherlands to structurally monitor and use data, using data management systems such as Agroscoop to demonstrate to farmers how they can use data to help optimise their business operations.

Ruminant sector

Within the ruminant sector ForFarmers is mainly active in the dairy segment. The dairy sector in Northwest Europe benefits from a strong export position based on a high added-value product portfolio and against the backdrop of growing demand for dairy products from across the globe, particularly Asia.

We are seeing increasing differentiation in dairy flows in the markets where ForFarmers is active. Growing demand from German consumers for non-GMO food is fuelling interest in VLOG-certified (Verband Lebensmittel ohne Gentechnik) feed from livestock farmers in the Netherlands and Belgium who export products. In order to meet this demand ForFarmers reopened a factory in the Netherlands, which is fully dedicated to producing non-GMO feed.

 

Developments in the ruminant sector differed from country to country in 2018. For example in the Netherlands farmers were faced with the impact of the phosphate reduction measures announced in 2017. As a result the dairy herd shrank by around 11%. In Germany, Belgium and the United Kingdom dairy herds were reasonably stable. The extreme weather conditions in Northwest Europe in 2018 – a cold, wet spring followed by a long hot and dry summer – saw dairy farmers in various countries facing lower milk volumes and reduced availability of forage. The latter resulted in increased demand for ForFarmers compound feed in the United Kingdom in particular.

The goat herd in the Netherlands stabilised following several years of growth. The United Kingdom saw an increase in both sheep and cattle herds in 2018.

Swine sector

While the global demand for pig products continues to grow, demand in Europe is stable to slightly lower. Continental pig farmers tend to produce for both the local market and for export. Intensive pig farming is faced with increasingly strict local environmental legislation, with the Netherlands for example announcing a ‘warm restructuring’ of the pig farming sector in 2018. This is aimed at innovating and restructuring the Dutch swine sector in order to improve the living environment in livestock-rich areas on a voluntary basis. ForFarmers supports the Action Plan to Revitalise Pig Farming by the Dutch Association of Pig Farmers (Producenten Organisatie Varkenshouderij - POV) and is now working with a number of partners to implement the plan.

In Germany tighter limits were set on the amount of nitrogenous manure farmers are allowed to spread on their land. The aim is to make better use of fertilisers and to reduce both ammonia emissions and groundwater pollution.
Virtual chain integration is under development in the swine sector with various initiatives being developed in the Netherlands across the sector and a start now also being made in Germany.

In the second half of 2018 pig farmers in Belgium had to deal with an outbreak of African swine fever among wild boar. This prompted several Asian countries to block imports of Belgian pig products, putting pressure on prices. Feed companies including ForFarmers are following hygiene protocols as a precaution and keeping a close eye on the developments.

In the United Kingdom the consolidation among pig farmers and processors stabilised in 2018. A large part of the market is supplied by three parties (BQP, Wayland Farms, Brydock Farms), of which two reported like-for-like growth. The sector is able to meet around 60% of local demand, amid growing demand for pork. Essential imports, primarily from Europe, have become more expensive since the Brexit vote and the associated fall in the value of the Pound sterling. Growth in the UK swine sector, where ForFarmers holds a good market position, would therefore seem likely.

It is possible that China will increase its imports of European pig products in the wake of a reduction in the Chinese swine herd due to an outbreak of African swine fever. In addition local pig farmers are facing increasingly strict environmental regulations while the trade tensions between China and the United States could also push up Chinese demand for European pig products. 

Poultry sector

Consumers in Western Europe have a growing preference for poultry, which is seen as affordable. In the Netherlands and, increasingly, Germany consumers are opting for meat from slow-growing chickens and organic or free-range eggs. This means that Dutch and an increasing number of German poultry farmers are feeding their animals according to welfare concepts especially developed for this purpose, which although they are more expensive produce greater returns for these non-conventional farmers.

 

However, conventional production is still the standard in other European countries and for Dutch exports. Competition in the field of conventional production is mainly coming from Poland and Ukraine.

ForFarmers strengthened its competitive position in this segment in 2018 with the acquisition of a 60% stake in the capital of Tasomix of Poland. There is continued growth in the Polish poultry market, in both the integrated chain and the non-integrated segment of the market. A large amount of additional processing capacity is being built to facilitate the growth of the broiler chain. In addition there is increasing consolidation among processors, causing smaller processing companies to disappear. The poultry sector produces mainly conventional broilers for both the domestic and the export market.

The poultry sector in the United Kingdom reported considerable growth whilst the arrival of new layer companies in Belgium is also a positive development. The number of laying hens in both the Netherlands and Belgium remained lower in 2018 compared to the previous year following the fipronil affair of 2017.

In 2018 ForFarmers introduced a data collection tool that gives poultry farmers a real-time insight into their animals’ performance. This is in line with ForFarmers’ ambition to provide livestock farmers with a sustainable way of improving their on-farm returns using the Total Feed approach (feed, advice and tools).

Organic sector

The organic sector is experiencing ongoing professionalisation and steady growth. Consumers want healthy food and to know about the provenance of food, and this is driving demand for organic products. Moreover consumers are increasingly prepared to pay the higher prices associated with organic products. This means returns for organic livestock farmers are good. Despite this, the organic sector is still a niche market compared to conventional livestock farming. The limited availability of organic raw materials remains a point of attention.

Operating under the Reudink name ForFarmers holds a leading position in the European organic market. The Company has a dedicated factory for the production of organic feeds, which also undertakes toll manufacturing for other feed companies. In 2018 Reudink’s position was further strengthened with the acquisition of Van Gorp Biologische Voeders (active in the Netherlands and Belgium). A small acquisition was announced in the United Kingdom, where ForFarmers also has a strong position in the organic market operating under its own name.

Horse sector

In recent years riding and keeping horses has grown in popularity in Belgium, Germany and the Netherlands. Horse breeding has been on the rise for the last few years and riding centres have reported a growing number of new (recreational) riders of all ages. The retail sector is also benefiting from the growing interest in equestrianism. In addition, there is a flourishing trade in (recreational) horses that have been bred in Belgium, Germany or the Netherlands. Sports associations report a drop in membership, however.

Recreational horse owners have a strong preference for feed containing no cereals, molasses or genetically modified ingredients. This sector is also displaying growing interest in data-driven solutions that allow rations to be adjusted to better suit the health, well-being and performance of the animal. Pavo, the brand under which ForFarmers has been serving the horse sector for 50 years, is responding to these trends.

Compound feed industry and competitive position of ForFarmers

ForFarmers is active in the compound feed market, which is highly fragmented at an international level. All markets are experiencing steady consolidation of both farming businesses and feed companies. However, the number of animals in the various markets is virtually stable.

The three main players in the Netherlands – ForFarmers, Agrifirm and De Heus – have a combined market share of around 65% with the remaining 35% split among around 80 other feed manufacturers.

The three largest feed companies in the United Kingdom – AB Agri, ForFarmers and 2Agriculture – have a combined market share of around 35%. Besides these, around 150 medium-sized and smaller players are active in the UK market.

Following the acquisition of Voeders Algoet ForFarmers is the second-largest feed company in Belgium after Arvesta (the former Aveve) and ahead of VandenAvenne (number 3). Together these three companies hold a market share of around 35%, in a playing field of around 50 companies.

The German market is more fragmented. Agravis, DTC, Bröring and ForFarmers are the leading feed companies here with a combined market share of around 30%. Germany has around 300 other medium-sized and smaller players. Feed companies are often owned by a cooperative or one or several families. 

In 2018 ForFarmers also entered the Polish market, which has a higher level of consolidation, with the three largest feed companies – Cargill, De Heus and Wipasz – having a combined market share of almost 40%. Following the acquisition of 60% of the shares in Tasomix in 2018 ForFarmers is the number four in Poland.

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The transaction means that ForFarmers is now active in five countries and a step further towards reinforcing its leading position in the European feed market.

ForFarmers is fully focused on delivering Total Feed solutions on-farm. This sets it apart from a number of its larger competitors. In line with the Horizon 2020 strategy the Company leaves the production of premixes to other players in the chain. ForFarmers has a strategic partnership with Nutreco which also covers the purchasing of premixes.

ForFarmers wants to be the leading European animal feed company. In terms of its acquisition strategy ForFarmers focuses on strengthening its market positions and leveraging synergies in the markets where it is already active as well as on new markets in Europe+ (Europe and adjacent regions). A number of its larger direct competitors have a wider geographical scope. Smaller and medium-sized competitors tend to have a local focus and in some cases specialise in a specific species of animal.

In the consolidating European market, scale and focus are key to a competitive and leading position. ForFarmers is therefore seeking to use its One ForFarmers efficiency programme to maximise economies of scale for example by investing in innovation, knowledge development and versatile feed solutions. Under this programme projects are undertaken in a wide range of areas, including the supply chain, administrative departments and marketing, with the aim of achieving maximum cost efficiency.

Government

Legislation

Legislation and regulations for the agricultural sector are usually developed at a European level and affect all livestock farmers. The main focus is on reducing the use of antibiotics, improving animal welfare and, given climate change, environmental impact. In addition increasing attention is being paid to circularity in the agricultural sector, including making use of residual flows from the food industry. ForFarmers offers such co-products in the context of its Total Feed solutions.

In the Dutch dairy sector the focus is mainly on reducing phosphate emissions and finding a better way of dealing with the manure surplus. ForFarmers assists dairy farmers with programs for analysing and understanding on-farm data in order to enable them to make the right decisions. There are also programs for optimising manure processing. ForFarmers is working with partners in the Netherlands in this area for example with ‘Next Level Mest Verwaarden’, an innovation programme aimed at adding value by gaining insight into the conditions for the optimum functioning of sustainable manure processing.

Measures to reduce phosphate and nitrate in the swine sector have been announced in the Netherlands and in Germany. As mentioned previously, these are the Action Plan to Revitalise Pig Farming in the Netherlands and the ‘Düngeverordnung’ (‘fertiliser ordinance’) in Germany. In addition in Germany, where there is a growing emphasis on animal welfare, the second phase of ‘Initiative Tierwohl’ has started, a programme focusing on welfare concepts (including more room for animals).

The addition of antibiotics to feed was banned in the Netherlands and Germany some years ago. The rules in Belgium have been tightened and progress is being made in reducing antibiotics in feed, a practice that is mainly still found in the swine sector. The United Kingdom also took further steps in 2018 aimed at limiting the use of antibiotics in feed. ForFarmers uses the knowledge and experience it has gained in countries that are frontrunners in terms of such measures to show livestock farmers how good feed and attention to on-farm hygiene make it unnecessary to add medication to feed.

In Poland there is growing resistance to the use of genetically-modified soya and measures are being planned to limit its use. In addition the Polish government is putting more pressure on feed manufacturers to use raw materials from Poland. These materials can be of inferior quality as well as more expensive.
Finally Brexit will affect the entire sector, although it remains impossible to say what the precise impact will be.

Retail

Retail organisations play an influential role in the food-production chain although their influence differs from country to country. Generally speaking retailers are a major driver of cost control and greater efficiency in the supply chain. In addition supermarkets are increasingly stocking products made according to specific concepts. A growing number of Dutch supermarket chains for example now only sell eggs and poultry meat produced according to concepts with extra attention for animal welfare. These special requirements do not apply, or at least not to the same extent, to export markets, the destination of around two-thirds of Dutch poultry production.

Retailers are also increasingly demanding transparency with regard to food provenance and a manageable chain. This results in concepts which are developed with fixed suppliers throughout the chain which supply a certain concept, under the header ‘virtual chain integration.’ Thanks to its strong position in the market and good contacts with all the relevant parties ForFarmers is well positioned in this playing field, further helped by its sustainability target aimed at purchasing 100% responsible soya and palm oil in due course.

Consumers

Non-governmental organisations (NGOs) play an important role in getting topics on the agenda in the public debate; examples of such topics include the carbon footprint of the agricultural sector, animal welfare, particulates and odour nuisance from intensive livestock farming and food provenance. This has resulted in growing demand from consumers for organic and/or locally produced foods. Price and convenience nevertheless remain important factors for consumers. There is also increasing attention for food produced without the use of genetically modified raw materials (non-GMO), with consumer interest in non-GMO dairy products being particularly high in Germany. This impacts on Dutch exports of dairy products and hence on demand for non-GMO feeds from Dutch dairy farmers. In light of this in 2018 ForFarmers converted an existing feed mill and reopened it for the dedicated, exclusive, production of non-GMO feed.

Although the overall global consumption of animal proteins is increasing it is reasonably stable in Europe. Consumers in Northwest Europe are increasingly choosing chicken and fish while pork consumption is falling. While interest in the Netherlands in things such as plant-based meat substitutes, flexitarianism, vegetarianism and veganism is growing noticeably, studies show that the average per capita consumption of animal proteins and meat is not (yet) declining. In Belgium there is also increasing attention for products made according to specific concepts while the ‘Buy British’ campaign is affecting consumers’ choices in the United Kingdom.

The number of people who are eating less meat for whatever reason calls for the development of alternative sources of protein, such as plant-based proteins, insects and cultured meat. Although the demand for alternatives is still small compared to the demand for animal protein this development is set to continue. It is expected that this will happen sooner in Europe than in most other regions.

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Trends in the chain