Farmers are active in markets on which they have on the whole little to no influence on the prices of the end product. These prices nevertheless do have a great impact on their results. This was also the case in 2017. Milk, meat and egg prices recovered considerably in 2017. The sharp rise in swine prices towards the end of 2016 levelled off during 2017, but historically speaking, the prices are still relatively high. As a result, livestock farmers have seen their returns improve in 2017.
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This improvement in returns is a welcome development given that with ever-stricter European legislation in the area of environment and animal welfare, they still face great challenges. ForFarmers supports farmers with sustainable Total Feed solutions and advice which allows them to further improve their profits.
With a growing world population and increasing prosperity in many places, demand for animal protein grows. At the same time, more attention is focused in the more prosperous countries on the effects on the environment and the wellbeing of humans and animals when in the manufacture of animal protein. Given the position in the value chain, the – mainly in the Western countries operating - animal feed industry plays an important role in solving sustainability issues in the meat-, egg- and dairy-product-production process. Sustainability is therefore an integral and natural element of ForFarmers’ business operations. This entails aspects such as making the best possible use of scarce raw materials, minimising the impact on the environment, attention to people and society, and promoting animal welfare. ForFarmers aims to be the leader in policy with regard to sustainability in the feed industry, particularly in the use of raw materials, production & logistics, and feed concepts aimed at efficiency and animal welfare.
Raw materials market
The most important raw materials that ForFarmers purchases are types of grain such as maize, wheat and barley, and plant sources of protein such as soy, rape meal, and sunflower meal. In addition, high fibre raw materials are an important category, including co-products from the starch and oilseed processing industries, and products originating from the milling of grains. Other categories are fats and oils, and the so-called feed additives such as amino acids, vitamins and minerals.
Grain and oilseed harvests were good worldwide in 2017, leading to prices falling in the second half of the year. There is also a whole range of factors that influence raw material prices, such as production costs, storage, transport (water levels in rivers) and energy. For instance, as a result of a fire at a supplier of vitamins (in Germany), a shortage of important feed ingredients vitamin A and E arose, leading to higher prices. But also those who speculate on the futures markets and on foreign currency fluctuations influence the price development of raw materials. Raw material costs form a considerable part of the cost of feed, and changes in these costs are passed on to customers. The purchasing process and composition of raw materials in feed (formulation) is therefore an important activity for ForFarmers.
The purchase of raw materials can be broken down into micro ingredients (such as amino acids and minerals) and macro ingredients (raw material groups such as grains, plant proteins, high-fibre raw materials and vegetable oils). In the purchase of micro ingredients and premixes, ForFarmers takes advantage of economies of scale by concentrating these purchases as much as possible with its strategic partner Nutreco. In the purchase of macro ingredients, ForFarmers focuses especially on the efficiency of the purchasing process and the optimisation of the feed composition with the desired nutritional content.
The increase in scale and professionalism of the agricultural sector continues undiminished. This is the answer of livestock farmers on their rising costs due to increased pressure from retailers on the prices of their products, and the growing influx of laws and regulations, especially directed towards animal welfare and the environment. The agricultural business is getting more complex by the day and that leads to an increasing need for integrated solutions and for proper monitoring of technical and financial results. The amount of data gathered from animals and farms is strongly growing. ForFarmers encourages customers to structurally monitor and make use of these data. For this, the Company offers programmes that translate data into usable management information, allowing the livestock farmer to optimise production processes and increase returns. The rising digitalisation of the sector opens up new opportunities to connect data on a massive scale and to use it for valuable analyses. These can again form the basis for improvements to the business process. This is used a lot in arable farming, generally referred to as ‘Precision Farming’. ForFarmers also expects this to accelerate in livestock farming and increasingly focuses on keeping its knowledge in this field up-to-date and translating this into ever-better service to customers.
In the markets in which ForFarmers’ customers are active, a range of trends can be detected. Under the influence of further globalisation and increasing prosperity in emerging markets, international trade in agricultural products is on the increase. This makes for a more varied export trade pattern that makes countries less dependent on one or several trade partners. In addition, interest is growing in Western Europe for sustainable local and regional products. This creates plenty of initiatives focused on a specific consumer segment in the local market.
Brexit will probably also have an impact on international trade, but it is still unclear what its consequences will be on the agricultural sector in Western Europe.
Milk production in the Netherlands and the United Kingdom was stable in 2017, while in Belgium and Germany there was slight growth. In 2017, milk prices recovered considerably after a sharp drop in 2016. This is primarily attributable to the initially decreasing production in Europe and a worldwide growing demand for dairy products, especially from China. For the dairy sector in northwest Europe, which holds a very strong export position and a high-added-value product portfolio, this offers good prospects for the future. Because of the abolition of milk quota, the sector does however need to take into account ongoing volatility in the dairy market. In the Netherlands, the dairy sector also has to take into consideration the phosphate ceiling as determined by the EU.
After a stable first quarter in 2017, swine prices rose quickly in the second quarter, partly under the influence of tight internal EU supply and growing export to countries outside the EU. Over the course of the year, production in the EU recovered and the demand from China dropped. This resulted in a destination needing to be sought on the internal market for a lot of EU pork. Partly as a result of this development, prices fell back to early-2017 levels in autumn. The British swine sector can only provide for approximately 60% of local demand. Because of the fall in the Pound sterling, the necessary imports, from Europe in particular, have become more costly. Growth in this sector, in which ForFarmers has a good market position, does therefore seem tangible. In the short- to mid-term, growth is expected in exports to Asia, especially to Japan, Korea and the Philippines. Stricter environmental legislation in China is expected to shrink production capacity there. This offers possible opportunities for EU pork in the more keenly priced segment.
In general, a growing preference can be seen–especially in Western Europe–for poultry, coupled with a falling demand for pork. However, the poultry sector, particularly in the Netherlands and Germany, is faced with extensive legislation and initiatives for animal health and welfare. On the one hand, these developments entail additional costs, but on the other hand, the considerable growth in demand for animal-friendlier meat generates a lot of opportunities. In the layer poultry sector, the increase in the life span of laying hens, and consequently in the laying period, is one of the main points for attention. The number of countries imposing a prohibition on beak trimming is also on the rise.
Although welfare concepts have become the new standard in the Netherlands, conventional production remains standard in other European countries and for export. In this area, most of the competition comes from Poland and Ukraine.
In 2017, the layer and layer parent stock sector suffered in several European countries–including the Netherlands and Belgium–from the Fipronil affair. This led to major problems for affected farms, a temporary sharp dip in the number of layers and an increase in egg prices because of reduced supply. This imbalance in the layers sector is expected to be restored in 2018 .
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. This also applies to goat farmers in the other countries in which ForFarmers is active, even though the scale of the goat sector is limited outside the Netherlands. ForFarmers supports Dutch farmers with a dedicated team and has been very successful in this market with the Capri concept (feed approach) for goats.
Biological (Organic) sector
The biological (organic) sector continues to professionalise and grow. Because of increased attention for animal welfare and interest in the provenance of food, more consumers are prepared to pay a higher price for organic products. Returns are therefore good for organic livestock farmers. However, compared to conventional livestock farming it still remains a niche market.The limited supply of organic raw materials, however, is increasingly a point of attention.
ForFarmers is a leader in the organic market in Europe, operating under the name of Reudink. ForFarmers has a specialised factory for the production of organic feeds, which also engages in toll manufacturing for third parties.
In the past years, the equestrian sport and sector in Belgium, Germany and the Netherlands has grown thanks to the healthy economy. Since a number of years, horse breeding is on the rise again and equestrian centres experience a growing influx of (recreational) young and elderly riders. Retail is also seeing its revenues increasing and trade in horses is flourishing. Sport federations are experiencing a drop in membership, however.
The fast growing group of recreational horse owners has a large preference for feed without grains, molasses and without genetically modified ingredients. Additionally, an increasing interest is noticeable within the equestrian sport for data driven solutions that enable rations to be better tuned to the health, well-being and performance of the animal. Pavo, the brand under which ForFarmers serves the horse sector, responds to these trends.
Compound feed industry
The Total Feed portfolio of ForFarmers consists of all sorts of feed, from compound feed to individual raw materials, and silage additives for forage. Because farming businesses are tending to get bigger, there is an increasing interest in ‘home-mixing’. The ForFarmers approach of offering total feed solutions fits in well with this. From an international perspective the compound feed market is very fragmented. Consolidation is taking place in all markets. In the Netherlands, ForFarmers, Agrifirm and de Heus hold a joint market share of around 60%, whilst the remaining 40% is divided over approximately 85
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other feed producers. In the United Kingdom, the three largest feed companies hold a combined market share of approximately 35%. These include AB Agri, ForFarmers and Mole Valley Partners. In addition, there are some 150 smaller players active in the British market. The largest feed companies in Belgium (Aveve, VandenAvenne, ForFarmers) together make up around 35% of the market, which has some 50 players. In other European countries, more fragmentation can be seen, such as in Germany where Agravis, DTC, Bröring and ForFarmers are important feed companies (approximately 30% market share combined). Additionally, there are around 300 smaller competitors in Germany. Feed companies are often owned by a cooperative or a family. ForFarmers fully concentrates on delivering (feed) solutions on farm and leaves the production of premixes to other players in the chain. Furthermore, there are competitors that are active throughout (parts of) the complete value chain. From a geographical perspective, ForFarmers focuses on Europe+ markets (Europe and its bordering regions), whilst a number of direct competitors have a broader geographical scope.
The European market is consolidating. Scale and focus is crucial to continue to stay ahead of the competition. This also applies to ForFarmers, which focuses–with the One ForFarmers efficiency programme–on making optimal use of economies of scale by, among other things, investing in innovation, knowledge development and versatile feed solutions. As part of this programme, projects are also embarked upon and executed in a range of fields, such as supply chain, administrative departments, and marketing in order to work as cost-efficiently as possible. Furthermore, ForFarmers focuses on acquiring feed companies in order to optimise its market positions.
Legislation and regulations with respect to sustainability and the environment have seen a lot of developments at a European level. However, national governments often adopt or implement these at different speeds. The anticipated ban on pig castration as of 1 January 2018 is still being debated because a number of countries are not yet ready for this. In the EU, the focus lies largely on reducing antibiotic use and improving animal welfare. Different countries run at different speeds in this area too. In Germany and the Netherlands, for several years already antibiotics are no longer added to feed and Belgium has in the meantime introduced more stringent rules in this respect. In 2017, the United Kingdom started registering antibiotic use at a national level and there is currently a sector-specific approach being worked on to limit their use. Specific goals have been set per sector, in most cases for the period up to 2020. Thanks to the experience that ForFarmers has built up in these countries that are ahead on these measures, the Company has an advantage in terms of guiding farmers in the countries that follow.
The European Food Safety Authority (EFSA) has recommended a ban with a maximum transition period of five years, on veterinary feed with zinc oxide as an active ingredient. All veterinary feed permitted for sale in the EU that contain zinc oxide must be taken off the market by 2022. In the Netherlands, this ban will come into force by May 2018. Proposals regarding the maximum content of copper in animal feed are pending approval. These measures will, in EFSA’s opinion, lead to less harm to the environment. EFSA also expects the reduction of copper levels to contribute to a reduction in antibiotic resistance. The European Commission is also currently reflecting on regulating the use of animal proteins in animal feed. The use of pork protein in poultry feed and of chicken protein in swine feed could potentially be allowed again in time subject to certain conditions. Additionally, there is a proposal underway to allow the use of insect protein in feed for non-ruminants.
After the abolition of milk quotas in 2015, and the subsequent increase in milk production, the Dutch government decided to introduce a system of phosphate rights as of 2018. The Dutch dairy chain (dairy industry, feed companies, LTO, consultancy organisations and the government) decided on a joint approach to achieve phosphate reduction. This set of measures, in force as of 1 March 2017, is aimed at three pillars: subsidies for livestock farmers that stop (the ‘stop settlement’), levies for keeping too many animals and a reduction in phosphor levels in compound feed. In the meantime, the goals as regards the number of animals and phosphate reduction have been attained, the permitted deviation to the European norm, the derogation, for 2017 is assured, and an important condition has been met to maintain this scheme for 2018-2021.
Rules and regulations with respect to settlement policies for the agricultural sector in Germany and the Netherlands have–on the back of petitions from citizens–become so strict that in some places it is nigh on impossible to build barns on new sites or to expand new sites, unless old locations are being taken down.
More responsibility for the agricultural sector
Generally, the onus for successful business is increasingly on the agricultural sector. In some areas in Germany, for instance, the feed industry is required to organise the supervision of its own sector. Many farmers are against this given the effort this requires. In the Netherlands, the dairy industry is firmly organised and FrieslandCampina, which processes 80% of milk in the Netherlands, is the market leader. In Belgium, Germany and the United Kingdom, the processing industry is more fragmented, and any governance there is, is the responsibility of the retail sector as well as the processing industry.
In 2017, ForFarmers joined the Action Plan to Revitalise Pig Farming by the Dutch Association of Pig Farmers (Producenten Organisatie Varkenshouderij - POV). A number of partners have now got together to work on the implementation of this Action Plan.
The influence of retail in the food-production chain remains very high. Their influence differs per country, however. In general, retailers are great proponents of cost-savings and further efficiency in the supply chain. Supermarkets also have increasing numbers of products on their shelves that are produced as part of specific concepts. A growing number of supermarket chains in the Netherlands, for instance, sell only eggs and poultry meat produced as part of concepts with additional attention for animal welfare. These requirements do not apply–or apply to a lesser extent–for export markets, which is where around two-thirds of Dutch production goes. There are many different initiatives in the swine sector, often regional initiatives, that stand out for sustainability and animal welfare. This is still a relatively small–but nonetheless growing–section of the market. Increasingly, specific concepts are preferred over mass propositions. In order for many of these concepts to come about, cooperation is often opted for with a limited number of partners in the chain. Thanks to its strong position in the market and good contacts with all relevant parties, ForFarmers is well-placed in this field.
In Northwest Europe, there is growing interest in the quality and provenance of food products. There is a general–but also politically driven–interest in health. Price and simplicity however continue to be important factors. Specific preferences are on the rise, such as for organic food and local products. In addition, there is increasing interest in non-genetically modified food, especially in Germany. This also has an impact on the Dutch market, albeit still limited to dairy companies that make products for the German market. ForFarmers plays a proactive role in several pilots in this area. This broad range of shifting and changing needs and requirements culminates in an ever-increasing fluctuation in the demand for foodstuffs. ForFarmers responds to this with concepts and advice.
Food prices have risen sharply over the last few years and farmers have also profited from this. Over the longer term, total consumption of animal protein remains stable to slightly growing. A growing preference can however be seen for poultry, coupled with a falling demand for pork. There is also a growing number of people who for various reasons eat less meat. This stimulates developments in the area of alternative sources of protein such as plant protein, insects and cultured meat. Although demand for these alternatives is still low compared with the demand for animal protein, it will only continue to develop. This is expected to manifest itself faster in Europe than in most other regions.
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Trends in the chain