The poultry industry in the UK, the European Union's top broiler meat producer, has overblown idea of its competitiveness, and needs to consolidate and curb supply to avoid being undercut, Rabobank warned. The UK poultry industry should be in a strong position given the relative weakness of sterling against the euro, improving its competitiveness, and restrictions on the use of frozen poultry in fresh foods which landed the European Union into dispute with distant exporters such as Brazil. However, it has consistently achieved lower profit margins than European Union peers, has failed to lift exports and, indeed, is suffering increased import competition despite its currency advantage.
"The fact that the industry has not significantly profited from an improved competitive position in the EU market compared to its main competitors, especially the Netherlands, Ireland, Brazil and Thailand, suggest that it may be dealing with additional structural problems," Rabobank said.
Efficiency question
The UK poultry sector has "overestimated" its own competitiveness – and in fact is "not well-known for having an efficient value chain", Rabobank analyst Nan-Dirk Mulder said.
"The UK industry is less efficient that similar industries in exporting countries such as the Netherlands and Germany."
That was allowing foreign groups to take share of what is a high-end poultry market, offering greater scope in margins for outsiders to compete.
"This is one reason the UK is traditionally a focus area for both EU and non-EU exporters."
Suppliers vs supermarkets
Furthermore, poultry groups were, thanks to their relatively small size and tolerance of oversupply of excess meat production, putting themselves "at a disadvantage" in negotiations with their main customers, the UK supermarkets.
"While the UK poultry industry is suffering from oversupply, the market power of UK retailers is constantly increasing," Mr Mulder said.
"This has put retailers very much in the driver's seat of the UK poultry value chain."
Mergers ahead?
It was "vital" for suppliers to boost their efficiency, a factor which should involve mergers to create groups with more bargaining power against the big supermarkets.
"The level of market consolidation should at least be similar to retail consolidation levels," and could involve tie-ups with producers elsewhere in north west Europe.
Furthermore, greater discipline over meat supplies "should be one of the industry's top priorities".
The comments come the day after official data revealed that UK poultry producers, a narrow second in profitability among farm sectors two seasons, were expected to see an 8% slide in profits in 2011-12, demoting them to fourth place behind dairy, cereal and general cropping farms.
Source: Agrimoney
