viernes, 17 de julio de 2009

The Agribusiness World Today

Ken Shwedel
Investigador de Agronegocios, Rabobank, México
13-17 de Julio de 2009

The World

Selective switching: Consumers, as we have mentioned before, are following different strategies to deal with the generalized economic contraction. One strategy, of course, has been to move towards private label brands in an effort to save on grocery spending. Recent research in the U.S. by ICOM, while confirming the trend, concludes that “the threat of exodus to store brands varies by category.” What dives consumer decision is “perceived risk”? Simplifying they say “less-risk-means-more-switch”. It is not surprising that consumers are “reluctant to switch to store brands on purchases for children.” Interestingly, they are also reluctant to switch when making purchases for pets. Food manufactures of major brands have, of course, been developing strategies of their own to counteract the movement to store brands. They are “investing heavily in innovation, and are coming out with value offerings of their own”. This is, of course, a valid strategy, but what stands out is that the ability to trust the product is important for consumers. Food companies should, also, look to incorporating trust into their strategic promotional focus.

Looking at a weak cattle market: That is what the Cattle Fax outlook seems to be implying. Behind the outlook is their vision that even though the world economy is projected to improve next year the upturn will be modest. In other words, demand, or rather the lack of a strong demand for beef, will be driving the market. In the U.S. that means that the cattle numbers will continue to fall, which translates into a contraction in slaughter and production. They do project that average cattle prices will increase next year, but they will be below the previous three year’s price levels. Interestingly, they see the contraction in U.S. cattle numbers continuing to fall through 2011. We would expect that by then the contracting supply will catch up with demand, which by that time should also be on the rebound. That should provide support for cattle prices. But don’t think that that means that the industry will be seeing a significant margin improvement, especially for feedlot operators. The outlook for feed is that the economic recovery will also pull up feed prices. If the past is any indication, feed costs will grow faster than cattle prices.


Protecting agriculture: Mexican vegetable production is undergoing an important change as it moves from open sky to protected production. By protected production we mean both greenhouses as well as plastic and screen covered production. Plastic by itself is used both on the ground and in greenhouses, including covered shade-type structures. Screens are also used in covered shade-type structures. Area in greenhouse-type production is estimated to be around 10,000 hectares, with most of dedicated to tomatoes and bell peppers. According to Agro Síntesis, the Mexican agricultural magazine, 60% of the greenhouses use plastic, while 4% are glass. The remaining 36% in covered shade-type structures. Right now most of the greenhouse area is in the state of Sinaloa, which is where the winter vegetable market is centered. The advantage of greenhouse production is not only increased productivity, but the potential for quality and improved food safety. Last year, according to estimates greenhouse area grew by 2,000 hectares. Rabobank is projecting a slowdown in growth this year and into 2010 due to the economic situation. The outlook, however, is for a long term expansion in protected agriculture.

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