Archive for March 2013

International Supermarkets

Newsletter No. 45 – Item 5

Newsletter No. 20, Item 3, discussed the increasing power of the supermarkets and their impact on the agricultural market place.

Newsletter No. 45 focused on just 3 of the major International supermarkets to illustrate how they are developing globally and remembering that they purchase globally from the most efficient producers capable of supplying the volumes they require.  The “green revolution” has made this rapid growth possible enabling production of food at significantly reduced costs in real terms and available to increasing numbers of people.

Republishing in 2013, we will include the original information and updates as appropriate.  At the time of rewriting, we are experiencing a meat scandal in Europe where companies and authtorites have found horse meat in place of beef in a number of processed products.  The scale of the problem is still to be established, but is vast.  It  indicates how few companies today are in the supply chain. The manufacturers producing the processed products supply several brands and brands supply many different countries.  It is the reason why if wishing to start producing ostrich, the scale of operation to supply volume needs understanding.

WalMart
WalMart, founded in 1962, is the largest retailer in the world and a US owned corporation.  Outside the United States, they wholly own companies in Argentina, Brazil, Canada, Puerto Rico, and the United Kingdom but recently sold their retail operations in South Korea and Germany.  They have joint ventures in Japan, Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica.  The 2012 map illutrates their growth into Africa. Their web site to-day state: "Today, Walmart operates more than 10,000 retail units under 69 banners in 27 countries. We employ 2.2 million associates around the world — 1.4 million in the U.S. alone."

Carrefour
Carrefour, founded in 1959, is a French owned supermarket chain, described as the leader in Europe and 2nd worldwide.  According to their web site "As of December 2012, the Carrefour Group operates 9,994 stores in 33 countries".

Carrefour Areas of Operation

Carrefour areas of Operation - 2006

News item published on 20th November, 2006.

Quote:
Bharti ties retail knot with Wal-Mart
In a scoop appearing in NDTV, telecom major Bharti has finally tied the retail knot with the world’s largest retailer, Wal-Mart.

Carrefour, the other contender was left in the lurch as a result of aggressive bidding by the former. To get around archaic Indian FDI rules, Bharti will take up the front-end retail operations while Wal-Mart will power the back-end supply chain. For retailing rights, Bharti will pay a royalty to Wal-Mart. As a strategy, an agreement is being sought with a large foreign real estate group for large investments in real estate that will be required.

The deal seems to have the blessings of the Government and industry minister Kamal Nath even promised more liberalized norms for foreign companies investing in the supply chain. Wal-Mart already sources goods worth $1.5 billion. The deal is likely to change the face of modern Indian retailing. The news has already paled into relative insignificance, Reliance’s recent Hyderabad launch”.  Source: http://www.rvgonline.com/ (as at Feb 2007)

Tesco
Tesco, founded in 1919, is the largest British supermarket chain.  The first map below illustrates their international growth.  In addition, they are on target to enter the United States in 2007.

Tesco Areas of Operation

Tesco Areas of Operation 2006

A news item published on 6th October, 2006

Quote:  “Tesco & Carrefour exchange stores
In an unusual but astute business move, Tesco and Carrefour have agreed to swap stores and their operations located in Slovakia and Taiwan.

As part of the deal, 11 Carrefour stores in the Czech Republic and 4 stores in Slovakia will be transferred to Tesco for Euro189mil. In exchange, Carrefour will receive 6 Tesco stores and 2 sites in Taiwan for Euro132mil.

The swap provides Tesco with the opportunity to grow its businesses in the highly competitive Czech and Slovak markets and exit the Taiwanese market where it is lacking critical size.  Source: http://www.rvgonline.com/

This information further illustrates how we are operating in a marketplace that is always changing.

The statement in Item 3 (smallholder agriculture) referenced small producers diversifying.  Many diversified into Ostrich production before development of markets, before identification and development of performance genetics and with no clear leadership.  As can be seen, this move into diversification came at a time of dramatic change in the global agricultural marketplace.

Foot note as at March 2013.  Wikipedia has a page that illustrates the global scale that today's supermarkets now operate.

Commercialising small holder agriculture

Newsletter No. 45 -  Items 2 - 4

This newsletter discussed an article on a page of the FAO (Food and Agriculture Organisation) web site in 2007. As the following introductory statement under the heading of Farm Management is so relevant in livestock production, discussing the issues continues to be important to those actively working to develop their business based on ostrich production.

Quote: Powerful driving forces are changing farming systems across the world. Globalisation and market development are opening up new opportunities for farmers and local markets are challenged and sometimes overwhelmed by lower priced imports; the result is rapid commercialisation of smallholder agriculture in many parts of the developing world.

Urbanisation is increasing the number of people for whom food must be produced by farmers, increasingly delivered through supermarkets.  As a consequence, farmers are intensifying existing patterns of production, diversifying into new lines, seeking off-farm work, expanding business size and even existing agriculture in an attempt to improve their livelihoods and escape poverty. End quote

Livestock producers have tended to go in two different directions over the past few decades, driven by the “green revolution” and the effect of "globalisation" that has brought about changes in market delivery.

The progressive farmers adopted the new technologies and management systems, consolidated and produce in volume with increasingly efficient methods of production.  These efficiencies are a combination of:

-    Production technology inputs (e.g. fertiliser, weed killers, vitamins, minerals, pharmaceuticals)
-    Management systems to support that technology (e.g. machinery, computers, records, systems, biosecurity)
-    Genetic improvement in livestock, fruit, vegetable and grain production (e.g. winter hardy seeds, high yielding grains, fast growing pigs, high yielding dairy cows).

The result of introducing these efficiencies in production is increased yields, reduced unit costs of production and greater consistency of products required by the buyers of these supermarket giants.

The illustration from the USDA Farm Policy 2001 document, illustrates how the farm supply chain has changed over a very short period.  Note how during the last 10 year period of the illustration selling moved from 5% selling direct to processors on contract to nearly 70% in the US.  It is likely that this figure has increased further by 2013.  We see similar trends in other regions and across most livestock production.  Contracting provides greater consistency, economies of scale and enables the ever increasing demands for full traceability in the supply chain to be maintained.

Hogs Sold by Marketing Method

Hogs Sold by Marketing Method

Whilst this graphic was produced a decade ago, it illustrates the rapidly changing market place and the influence on the supply chain in all species of livestock production.   Small holders linked into the supply chain for larger enterprises enables the benefits of economies of scale whilst retaining the independence of the small holder….provided that larger enterprise operates in an ethical manner to ensure payment terms that sustains the whole supply chain.

Ostrich Leather Grading

Newsletter No. 44 - November 2006 Item 2

This newsletter reporte the completion of the World Ostrich Association leather grades and published them on the web here.  Premium and Super Premium are two additional grades not included in the NOPSA Leather Grading that to date has been the industry standard.   These new grades more accurately reflect customer demand and encourage production to higher standards.

Studies carried out by the South African researchers proved the younger the birds at slaughter the higher percentage of Grade 1 skins achieved.  Scars and blemishes determine grades rather than weight, thickness or follicle development.  That study also reported the follicles insufficiently formed and blamed the young age of the birds as the reason, but there is evidence that genetics may also contribute to follicle style and size.

There is further evidence, verified by a study personally carried out in South Africa and published here, that method of rearing controls the age of maturity of the follicles.  The significance of producing acceptable skins at younger age indicates the ability to achieve skins with fewer blemishes and scars and therefore it makes sense to introduce these new grades to improve standards and prices.

Nutrition and management are the major factors influencing age of slaughter, scaring or blemishes.  Overcrowding, batch size, fencing, handling methods, transport are all management factors that influence scaring and blemishes.  We still see many skins ruined by poor handling at slaughter and storage.

Also published is a document to identify the areas of management that influence the quality of the skins that can be viewed here.

There are currently no classifications for follicle size and development even though buyers vary in their requirements, some preferring larger, heavier skins with large follicles, others prefer lighter weight skins with small follicles and others like to roll their skins to flatten the follicles.  These items remain subjective to the individual buyers and sellers. We can develop follicle classifications and quantify other elements as volume increases with industry growth.

The greatest benefit of improving standards of production to produce better quality finished products is that the systems required to achieve those standards also reduce the costs of production to enable commercially viable meat production.

Earlier slaughter requires less feed, less infrastructure and faster return on working capital.  These factors significantly reduce production costs.

The Benefits of Building a Value Chain

Newsletter No. 43 - Items  1 & 2 

What are the benefits of building a Value Chain?  To answer this question, we first need to understand the differences in a Supply Chain, a Horizontal Chain and a Value Chain.

What is a Supply Chain?
A supply Chain is where each element of the process to the end consumer is defining their section of the process as the product.

Figure 1 - Ostrich Supply Chain

Ostrich Supply Chain

For example the technology companies, such as machinery, chemicals and seed suppliers, supply the arable farmer.  The arable farmer buys for the best price and sells for the best price but his efficiency is dependent on those technology companies that supply him.

The grain buyer might be a grain trader, it may be a livestock farmer or it may be a commercial feed mill. They buy at the best price and sell at the best price.  They all work independently of each other.

The technology companies supporting the livestock producers are vets, pharmaceutical companies, premix companies, feed manufacturers, equipment manufacturers and so on.

Livestock producers can be specialist breeders, rearers, finishers or they may do the whole process.  They sell to the processor.

Each section is a supplier to the next, each taking their own profits but all operating totally independently of the other with no communication, no coordination or collaboration or feedback. Each simply buying at the best price and selling at the best price to optimise their profits.

What is a Horizontal Chain?
A Horizontal Chain is a group of Producers working together to consolidate supply. So why is this NOT a Value Chain?

The missing link is Quality Control.

What is a Value Chain?
A Value Chain is where there is collaboration between all processes in the supply chain to ensure that there is no leakage of value through poor performance of one link in that chain.

A Value Chain is an alliance of enterprises collaborating vertically to achieve a more rewarding position in the market. Collaboration builds value and reduces costs.  Customer needs drive the value chain, as each customer demands certain standards.

Companies in a value chain are legally independent operations, but become interdependent because they have common goals and work collaboratively to achieve those goals.  They work together over the long term, discussing issues and troubleshooting problems together.  It is more than just long-term contracting.

Ostrich Value Chain

Ostrich Value Chain

Each member of a value chain is a buyer from the previous step and a supplier to the next step.

Each company can be independent of the other, but each company is interdependent on the other.  Each member adds value at the end of the chain by contributing to customer satisfaction.

Changes in agriculture over the past few decades have meant that Vertical Integration in agriculture is essential for economic success.  A further reason is the increasing requirement for full traceability. Building a "Value Chain" is a method of achieving a Vertically Integrated operation incorporating many separate businesses working together with a common goal through collaboration and interdependence whilst retaining independence.  That common goal optimises the value for all in the chain.

A Value Chain is full vertical integration that improves quality, increases efficiency, enables differentiated products and improves profitability.

Ostrich Meat Market Barriers and Opportunities

Newsletter No. 40 - Items 3 & 4

Barriers
There are mixed feelings today amongst many we talk to regarding the future of our fledgling industry.  Most are aware of the opportunities discussed earlier and the reason for becoming involved in Ostrich production.

The main barrier to success and servicing these market opportunities remains the lack of production caused by the poor production performances on farm, resulting in high costs of production.   These concerns are real as poor egg production, low fertility, low hatchability, high chick mortality, late slaughter and low slaughter weight continue to be the norm.

To overcome these barriers requires greater understanding as to the causes.

The primary reason for these poor production results is due to the poor information that remains prevalent on methods of production; most of this information breaks the rules for successful commercial livestock production.  Some examples:

a.    Ostrich can be produced using low value feed ingredients
Adult Ostrich can survive eating very little; adult ostrich food consumption is only 1.4% of their body weight per day.  In contrast, an adult chicken consumes 8.5% of her body weight in food per day.  The implication of this is that to be productive every ounce of ostrich feed must be nutrient dense in order to provide the commercial ostrich with sufficient nutrients to be able to produce commercial levels of production.

b.    Poultry type rations
Many rations we see for ostrich are poultry style rations.  Ostrich are not poultry.

c.    Misleading Published Information
Newsletter No. 34 discussed recently published papers and the continued references to outdated farming methods including flushing and teasing, mid-season breeding rest, use of poor quality forages and 350+ day slaughter ages.

Newsletter No. 38 discussed information on the internet, most of which was first published over 10 years ago and based on no science or proven experience.  We still hear people quoting certain practices because they have read them somewhere and assume them necessary practices to follow.

Opportunities
Ostrich is a new meat in every market.  Ostrich meat only entered Europe a little over a decade ago with buyers still looking for reliable and sustainable supplies.   The above discussion clearly indicates that Ostrich meat has a place in many markets.  In the long term, Ostrich can supply red meat with the efficiency of Pig and Poultry.  While volumes remain low, Ostrich meat can service the high-end niche markets in all regions.

In January 2005, we highlighted that our competition is not each other, rather our competition is the other specie.  It can be seen that there is room for all, and where pig meat is not an option, ostrich provides the consumers with increased variety of meat.