The Agribusiness World Today

Ken Shwedel
Investigador de Agronegocios, Rabobank, México
9 - 13 de Junio de 2008

The World

Going to private labels to deal with higher prices: At first glance that this appears to be one of the strategies that consumers are adopting to deal with the higher food prices. According to a Nielsen study, between April 2007 to April 2008 private label sales in the U.S. have risen by 9.1 percent. While this sounds impressive, a closer look shows that unit volume during the same period actually fell by 1.2 percent. What this means is that “higher unit pricing is the main driver of growth.” During the same period sales of branded items grew by 3.9 percent. Although similarly to private labels, the unit volume of branded products sold through supermarkets, drug and mass merchandise stores fell by 0.4 percent. Behind the relative higher increase in private label prices is the fact that, in general terms, raw material costs make up a larger portion of the end costs than do they for similar branded products.

For brand products, by way of contrast, marketing costs are an important component in the overall cost structure. Although the relative gap between private label and branded products appears to have narrowed, this doesn’t imply a movement away from private label products. Private label products continue to be sold below branded products, which is the ultimate criterion. Products with strong brand equity are showing themselves to be the exception; nevertheless, private label products will continue to command an increasing share of the consumer’s wallet.

Taking the marketing into their own hands: Frequently we have seen companies entering into joint ventures or alliances in order to maximize core capacities. The Zwanenberg Food Group, however, has decided to take a different route with regards to their participation in the Australian market. They have been producing meat products (“mainly ham products and frankfurters”) for Simplot, with the products being sold under the Plumrose brand. Believing that they could do a better job and “improve [their] market position in Australia” to take advantage of the growth opportunities that they see in that market, Zwanenberg said that they will acquire the Plumrose brand from Simplot. To this end, they have set up an Australian subsidiary, Zwanenberg Australia Pty. don’t forget that they produce a wide variety of specialty meat products as well as canned meats. We expect that they will build on the brand, leveraging their wider range of products to move into other categories.

Mexico

The real game in town: For the most part attention seems to be focused on the Calderon Administration’s energy reform package. It is being discussed in the Senate, and there is the possibility of a number of non-binding state or municipal run referendums. We feel, however, that a key conflict is now taking place that will have as much or even more of an impact on the economic future of the country: the disagreement over the level of interest rates in the country. The Administration has criticized the high rates as being a drag on the economy, calling on the Central Bank to lower the rates. The Central Bank, for its part, has resisted in the name of fighting inflation. The discussion goes beyond just interest rate levels; it has the potential to turn into a dispute over the autonomy of the Central Bank.