The Agribusiness World Today

Ken Shwedel
Investigador de Agronegocios de Rabobank, México
29 de Septiembre - 3 de Octubre de 2008

The World

Buying into Brazil: Seeing that in their home U.S. market “consumption is stagnating and cost spiraling” Tyson, the large meat and poultry company, appears to have concluded that their alternative is to aggressively but also selectively internationalize their business. That means that they will be on a buying streak to rapidly build a globally based business. They have already moved in that direction with the recent acquisition of a 60 percent stake in Shandong Xinchang Group, the Chinese poultry producer. Now they have announced the acquisition in Brazil of Macedo Agroindustrial and Avicola Itaiopolis, They also took a 70 percent stake in Frangobras. Obviously an important advantage of being in Brazil is that they can use it as an export base. It is not by chance that the companies are located near ports. Brazil gives them “greater access to markets that are currently buying little to no poultry from the U.S.” In fact, Macedo is already exporting to Europe, Hong Kong, Japan and South Africa. While the export market is important, the growing domestic Brazilian market, where consumption has grown by some 25 percent between 2002 and 2007, is also very attractive. Even though Tryson has indicated that they will grow production in these companies, the market expects them to make additional acquisitions in Brazil. And don’t be surprised if they continue looking in other markets outside of the U.S.

Eating out of the home but not in a restaurant: With food prices rising and the economies in a number of countries slowing down, we have seen a contraction of food consumed in restaurants. That, though, doesn’t necessarily mean that consumers are eating more at home. Rather —and most likely simultaneously— there is the growth of in the “brown bag” segment, i.e. more workers are taking their lunch with them rather than going out to eat lunch. According to estimates in the U.S. “12 percent of lunchtime opportunities were brought from home as of the year ended February 2008.” For food manufactures this means changing their product offerings to adjust to the market Kraft, for example, “has introduced new packing for its Deli Fresh Natural Cheese slices”. Campbell’s says that since they introduced their Soup At Hand line of heat-and-go microwaveable bowls, “sales exceed US$250 million”. And now there is even a microwaveable pasta on the market.

Mexico

A slowdown but not pneumonia: There is the saying that when the U.S. gets cold, Mexico gets pneumonia. With just over 80 percent of Mexico’s exports going to the U.S. you would expect that with problems in that country Mexico’s economy would be in a recession. This is not the case. We estimate that the economy will grow 2.3 percent this year. Why? The financial system is sound, due largely to the independence of the Central Bank and what at times may have been considered excessive regulation. In fact, their Mexican affiliates are some of few money makers left for global banks. At the same time the government made some policy moves to keep the domestic economy growing, particularly accelerating investments in infrastructure, as well as attempting to hold the line on prices of key domestic consumables. All this, of course, doesn’t mean that there are not concerns on the horizon. Unemployment is up while domestic consumption is down. Nevertheless, it may now be the case that when the U.S. gets pneumonia, Mexico will only catch a cold.