Supply discipline is also essential for the industry to meet its goals, according to Dutch-based research firm Rabobank. The report examined the strengths and weaknesses of poultry companies in the UK, and concluded that the country needed to improve efficiency in order to catch up on Continental Europe’s performance.
“The industry is operating within one of the highest value-added markets in Europe, but high feed prices, limited volume growth and oversupply are eroding industry margins, especially those of second-tier companies that lack long-term customer relationships,” the report added.
Rabobank believes that UK poultry firms need to follow the example set by 2 Sisters Food Group and broaden their scope to include the north-western European market, improving sourcing efficiency and flexibility, and reducing sensitivity to strong imports.
“Companies such as Moy Park, Sun Valley and Grampian are now foreign-owned, while [2 Sisters] has large foreign operations in exporting countries. The relatively inefficient supply structure and relatively high input costs in the UK is a common reason for companies to shift to international sourcing,” the report said.
It also suggested that the UK’s inability to take advantage of the pound sterling depreciation and the recent ban on the use of frozen poultry in fresh processed food products were linked to structural problems that did not affect the rest of the EU.
“Although the UK poultry industry’s market power has increased in recent years, the industry needs to take further steps to regain market power in the new market realities. Feed prices have gone up significantly since 2009, while poultry prices have increased only slightly. This situation has improved marginally in recent months, but not enough to fully compensate for higher feed costs,” Rabobank added.
Retailer relationships also need to be improved, as the current power imbalance is impacting the performance of suppliers. “Retail represents 53% of the total UK poultry market. Within this segment, the top four supermarket chains, Tesco, Asda, Sainsbury’s and Morrisons, have a combined market share of 84% in total UK supermarket sales.
“UK poultry producers have come under increasing pressure as retailers and quick-service restaurants (QSRs) have exploited their market power. Poultry suppliers without a preferred supplier relationship often find themselves in the difficult situation of having to fight for retail tenders with price competition from other suppliers, or decide to only supply ingredients to supplier companies which do have retail access,” the report said.