The Agribusiness World Today

Ken Shwedel
Investigador de Agronegocios de Rabobank, México
2 - 6 de Junio de 2008

The World

Adjusting structures in the dairy industry. Over the last decade or so the dairy industry has undergone significant structural change, particularly through mergers and acquisitions. Among the main drivers was the desire for products and economies of scale in an increasing global market place, in order to enhance competitive positioning. The industry structure continues to evolve; now however, we are seeing industry – wide adjustments in structure and strategy responding to the need “to restructure their operations to remain competitive amidst increasing raw material costs”.

Towards the end of third quarter last year, for example, we saw Arla Foods shifting and cutting production in order “to better deal with a dwindling global supply of raw milk.” Additionally, in October the sold Delimo to Lactalis. Last week they announced the closing of their dairy and distribution facility in Manchester in the UK. At the same time, also in the UK, they are restructuring Milk Partnerships Ltd., which is Arla UK’s own investment company, around a joint venture with Arla Foods. This brings the parent company closer to the UK market, and particularly to British dairy farmers. Obviously, supply must be on their mind.

Farming away from home. A couple of weeks ago we were talking about countries promoting farming in other nations to assure food supply. That of course is not the only reason, looking for lower costs, particularly for land, has been a major driver. We have seen some farmers complaining about a stifling policy environment moving to farm outside their home environment. In the U.S. another reason, although somewhat related to the traditional drivers, is emerging: labor availability. Migrant workers are an important part of the agricultural labor force in that country. With the increased security in place and the “recent immigration and Customs Enforcement raids [targeting] major agricultural producers…and several large packing plants” it is becoming harder to find the number of farm workers needed at crucial times. The option is to farm or form joint ventures or alliance outside the U.S. In Mexico for example, according to a survey by Western Growers, “American companies now farm more than 45,000 acres of land in three Mexican states”. What this says is that while agribusiness has always been a global enterprise, now farmers themselves are increasingly becoming ‘globalized’.

Mexico

Looking to assure cheaper food. Faced with rising food prices with their potential social, inflationary and political consequences, the government announced a series of measure designed to lower food prices. The central aspect of the program is eliminating import tariffs on a number of basic food products, i.e. corn, wheat and rice, while at the same time cutting powdered milk tariffs and allowing for a duty free quota for imported beans. For farmers, the government says that duties on fertilizers will be eliminated and credit will be extended to buy fertilizers. Because Mexico has a number of trade agreements already in place, what this will do is allow complete freedom to globally originate these products from the lowest cost source. In many cases, though, the lowest cost already comes from a trade treaty country.