Of Cornered Markets

“There are bargains to be had, niche markets to be cornered and economies-of-scale to be achieved” Scott Hirsch

Buy when the market is low, so the adage goes. It is a mode of thinking that drives the purchase of raw materials as much as the companies that produce them. In the animal feed industry, one billion tons of compound feed are produced around the world annually, with commercial feed manufacturing generating an estimated turnover of over $400 billion USD. But despite the seeming potential for profitable niches in a low market, the global food supply chain is already highly consolidated.

More than 97 percent of US chicken farmers work under contract with a large producer who also supplies the farmers with feed, medication and other inputs. In Brazil, BRF alone processes one-third of the country’s poultry. It is also active in Europe, Argentina and in halal markets in the Middle East and Turkey. In China, the number of poultry farms fell from 100 million in 1996 to 35 million in 2005 – a 70 per cent drop in less than a decade – in line with the trend towards industrialization and intensification.

A second wave of COVID-19 may delay the trend of consolidation as companies wait and see how markets will react. Additionally, a surge in protectionism by countries around the world could hamper cross-border deals. It remains to be seen whether innumerable mergers and acquisitions will grip the animal feed industry, but we already know from experience that there are both opportunities and significant challenges in consolidation.

Our newly flattened world impacts feed companies big and small. Unanticipated maintenance schedules on the other side of the world can hamper a small company’s cash flow. When that small company is acquired, perhaps even saving it from financial ruin, the chain of command for rectifying an issue can move even further from the source. When the industry as a whole is consolidated, a small ripple of a problem can quickly turn to disruptive volatility.

In the age of COVID-19, decision making amongst globally dispersed teams within large complex organizations becomes even more complicated. Now more than ever, visibility across the supply chain is necessary to do business, along with data that is accessible and actionable. Whatever the future of our industry, whether fragmented or further consolidated, Glowlit is building the tools needed to see the landscape for what it is.