Contact Details :
Craig Culley, Secretary
World Ostrich Association
33 Eden Grange
Carlisle, UK CA4 8QW
Tel +44 1228 562 923
Fax +44 1228 562 187
Newsletter No. 65 - August 2008
Included in this edition:
1. Global Economy
2. Increasing Demand for the ‘4 Fs’
3. Small Farmers and Ostrich
4. Financial Impact of Volume
5. AGM 2008
1. Global Economy
Rising energy costs, animal feed costs and food availability continue to dominate the news and agriculture. This month’s newsletter is focusing on the impact on our fledgling industry and examines the economics of production in greater depth. We can see clearly that if farming ostrich becomes efficient, not only is it optimising the resources, the profitability is increased. As can be seen, working with low production methods results in low profitability, and unless prices received for the products are high production may not be profitable.
2. Increasing Demand for the ‘4 Fs’
The ‘4 Fs’ are Food, Feed, Fibre and Fuel and the latest report from Rabobank predicts demand to continue to grow worldwide.
Quote: Demand for the ‘4 Fs’ (i.e. food, feed, fibre and fuel) is set to continue to increase worldwide. The combined effects of this increased demand are placing pressure on agriculture to operate more efficiently and this is in turn leading to a higher level of investment in the industry. This development is enhanced by the fact that transportation networks around the world are being improved and countries with extensive natural resources that were previously inaccessible are now accessible. This will further boost investment in agriculture and increase the value of inputs, particularly in South America, Eastern Europe and Southeast Asia. Rabobank puts forward the above outlook in a new Food and Agri report entitled ‘The Boom Beyond Commodities’.
Despite recent shocks to the global economy caused by the credit crisis and soaring food and energy prices, companies operating in the food production and agricultural sectors are expected to achieve extremely strong growth in the years ahead, particularly in Asia. Substantial growth opportunities will arise in numerous sectors such as animal proteins and dairy, food processing, energy crops and commodities.
Considerable prospects for growth will continue to emerge. Players in a number of agricultural sectors will benefit from these opportunities, particularly in the up- and mid-stream segments of the value chain, including animal proteins and dairy, food processing, energy crops and commodities, and agri-inputs and agri equipment.
“As income growth drives demand for more protein foods, a multiplier effect for commodities and commodity inputs will support prices,” said Food & Agribusiness Research and Advisory (FAR) Brady Sidwell, who authored the report. “Expanding urban populations which prefer convenience and variety will bring growth to food processing and food retail — which will again boost demand for commodities and inputs and thus growth for players in these businesses.”
The Asian region clearly has the greatest potential for further expansion. Despite the short-term threats to growth ensuing from increasing inflation and a slowing world economy, growth in income, population and urbanisation will lead to strong fundamental demand. This will create new opportunities that will change the way agriculture is seen as an investment and valued as an asset. Commodity prices are expected to ease in the years ahead. Companies that are well positioned to respond to growth and changes in lifestyle, which will be most pronounced in developing countries, will be able to achieve strong success.
There will be a high level of rural-urban migration over the next ten years, particularly in China and India. The forecast is that every day around 50,000 people will move to the cities where the demand for food and energy is even higher than in the countryside.
Industries affiliated with biofuel will also require increasing volumes of crops. They will consequently also be a key driving force behind the growing demand for commodities, inputs and natural resources. End Quote
This continues to provide excellent opportunities for ostrich, once produced using commercially viable production systems.
3. Ostrich and Small Farmers
The FAO recognises the impact of high food prices in developing countries. In December 2007 they launched an initiative to boost food production in the short term. Known as the ISFP - the Initiative on Soaring Food Prices - it had simple but effective goals – to distribute seeds, fertilizer, animal feed and other farming tools and supplies to smallholder farmers in developing countries.
We are still aware of small farmers in some developing countries being encouraged to enter ostrich production. Whilst ostrich has the potential to be highly productive, offering excellent commercial potential, your directors recommend that small farmers are discouraged from purchasing ostrich at this time. It is a waste of precious resources and has little chance of success. The first step is for a strong unit to be established along strong commercial lines. This unit should be well financed to develop the support infrastructure required to provide the necessary support for the small farmers.
Pig, Poultry and Cattle have many decades and centuries of experience in feeding and farm management practices to support their production. Vets are experienced in health issues with vaccination programs fully developed. Even in regions where there are farmers with just a few animals of these species, the combined numbers are still of sufficient volume to enable production of the right feed for each of the species. With ostrich this is not the case. Ostrich do not do well when fed incorrectly, and it is not possible to even eke out a meagre living unless they can be provided with nutrients adequate for their needs.
When food is expensive and in short supply it is important to optimise the utilisation of that feed, no matter which specie.
4. Financial effects of volume
Last month we discussed the effects of low, medium and high production to demonstrate how efficiencies in production methods improve performance. This month we will illustrate the impact on the overall profitability in money terms. The figures illustrate why so few currently make good profits from Ostrich production and why few who entered the industry have remained.
Feed is the highest input cost of all livestock production and has the greatest control over production, product quality and profitability. In such a discussion we can only talk in general principles as costs do vary on location and are dependent on volume. Main ingredient prices are similar throughout the world; reasons for price variances are mainly volume related, but local transport costs, subsidies and duties can also have an influence. The following are some examples of variables influencing costs:
- Bag (25 or 50 kilo)
- Truck Load
- Ship Load
- Local subsidies/duties
- Mixing costs/farm feed milling efficiency
- Home Produced
- Scale of operation and location has a significant influence on production costs of crops
Purchasing supplements/finished feeds:
- Mixing Costs
- Distance from supplier
- Distance from port, if importing
- Distance from mill if not milling own feed
- Local fuel costs
The following tables illustrate the differences based on average feed ingredient costs at current world prices. They illustrate the impact of improvements in productive performance and how productive performance has a greater influence on profitability than costs per tonne of feed and other production costs. The Low, Medium and High relate to production levels as discussed in last month’s newsletter, which can be viewed at here.
Table 1 illustrates the production costs per Trio and the individual costs per chick. Other production costs include an allowance for incubation costs, labour, infrastructure, utilities etc. You will note that as production improves, although input costs are higher, the cost per chick on the ground is significantly lower. The impact of reduced days to slaughter, as can be seen, is significant.
Table 2 illustrates the gross margin per trio and assumes high volume production in the first section. The lower section illustrates the effect of the increased costs that come as a result of low volume. The revenue illustrates the price required per chick under the different production scenarios. Market conditions will determine the value of chicks if sold. Worthy of note is that the chicks from low production breeders are more challenging to rear and take longer to finish, adding further to their costs of production, with many slaughtering out with low meat yields, thus reducing revenue potential.
Costing slaughter bird production is challenging with economies of scale having a significant impact on processing, marketing and distribution, as well as market availability. Many markets are not available when working on low volume. Table 3 assumes high volume with the farmer slaughtering and marketing his own meat, as currently there are very few organisations purchasing birds off farm for processing. Meat price is average for all cuts, with processing costs allowing for packaging costs. Processing costs do vary from country to country and are volume sensitive.
Table 3 shows increasing values for the skin as days to slaughter reduce due to the reduced likelihood of scaring. These skins must be in good condition and produced in sufficient volume to enable meaningful sales. Tanneries purchase skins by the container load (min. 1200) and dealers providing a consolidation service are rarely interested in less than 200. Skins not removed correctly or not stored correctly will have little or no value. There are some low volume producers achieving excellent additional revenue from the sale of the oil, but that is a specialist area requiring specialist knowledge.
Meat yield is assumed the same, with the variable the number of days taken to slaughter. However, the current average meat yield of low production birds is below 30kgs, even when slaughtered in greater than 365 days...that will reduce the revenue potential by a further $80/bird. As processing costs remain similar, reduced yield increases the processing costs per kilo, increasing the production costs of that meat. An example of a high production chick achieving 40kgs of boneless meat in 200 days is included to illustrate the impact on revenue and margin of the additional kilos.
These figures illustrate the challenges when working in low volume. They illustrate the challenges when working with low production. They illustrate the need for collaboration, a move to precision agriculture and development of the genetic base. The higher the volume of turnover, the faster the genetic base can be improved. To date the industry has followed the low/medium production route and this is a major reason for the slow industry development.
5. AGM 2008
The provisional date for the AGM is 23rd October. Fiona Benson and Bert Rayner are the two retiring directors who offer themselves for re-election. Any Member who wishes to stand for Director Election is welcomed and requested to advise the Secretary of their wish to stand for election. (Applications close 60 days prior to the AGM the date). Along with your notification, please send a brief resume as to why you think you are suitable, bearing in mind the conditions as laid down in the Director's resolution available for viewing at: http://www.world-ostrich.org/memoran.htm.