Three years ago in this publication, we detailed some of the largest players in the global meat industry, with a particular emphasis on the processing giants based in Brazil and the US. With the industry in Brazil and the US much more concentrated than it is in Europe, these players were vast business entities when compared to even the largest meat processors in Ireland and Europe.

At the time, we concluded that Irish and European meat processors were protected from these heavyweight international competitors thanks to EU food safety standards and trade restrictions between the two regions.

However, with talks intensifying between the EU and the US to get the Transatlantic Trade and Investment Partnership (TTIP) deal across the line, and a renewed momentum to trade talks with Mercosur countries, the European meat industry may be playing on an entirely different field very soon.

Should the EU’s trade barriers open up to these markets in the coming months or years, the dynamics of the meat industry here will shift entirely. Trade flows that have been established for years are likely to be disrupted, with inflows of cheaper product coming to the market from places like Brazil.

For example, one study undertaken on the impact of a deal between Europe and Mercosur countries put the cost of such a trade agreement at €7.8bn to EU agriculture.

In Europe, we have already seen how trade-flow dynamics can be disrupted. One of the traditional markets for Irish beef over the years has been the premium French and Italian markets. However, weak consumer demand in these markets, coupled with an influx of cheaper meat from Poland, has seen these once-premium markets for Irish beef become less lucrative destinations. For example current average Italian factory beef price is around €4.15/kg, while the Irish price has hovered around €4/kg for the last six months. The gap has narrowed over the last two years.

The hope right now for Ireland is that an opening of the Turkish market will hoover up enough Polish beef to undo the displacement that has taken place in the last year in central European markets. However, should cheaper cuts of Brazilian or US beef start to enter the single market, the trade flows will become even more disrupted.

TTIP deal

Whatever about internal trade dynamics being disrupted following the completion of a TTIP or Mercosur deal, it is the scale of the US and Brazilian meat companies that poses the greatest threat to the European processing industry.

In Europe, the meat processing market remains highly fragmented compared to that of the US, where just a handful of companies dominate the processing industry for each meat category.

In beef, just four companies account for 75% of the national kill in the US, while four companies also account for 70% of all pork processing. The US poultry sector is less consolidated, although over half (53%) the market is still controlled by just four players.

The biggest meat processor in the US market, a company that holds a dominant market position across the beef, pork and poultry categories, is Tyson Foods – a company with a market cap of more than €21bn.

Tyson accounts for 24% of the national cattle kill in the US, 21% of all poultry production and 17% of the US pork industry. With annual sales of more than €36bn, Tyson dwarfs even the largest meat processors in the EU. For example it kills 6.7m cattle per year, compared to the largest processor in Europe, Bigard, which kills 1.6m head of cattle per year.

At the very height of its powers in 2011, the Dutch meat company Vion was the largest processor in Europe with sales close to €10bn, but it still only accounted for just 6% of the Europe-wide cattle kill. Since then, the group has run into financial difficulty and been forced to sell off assets in order to reduce high debt levels, so that today it kills less than 1m cattle.

Today, the largest meat processor in the EU in terms of revenue is Danish Crown, the Denmark-based pork and beef processor, with annual sales in excess of €8bn.

The German company Tonnies is also a sizeable player with revenues set to hit €6.3bn this year and, despite its troubles, Vion remains a significant presence in the European market, with sales of €5bn in 2014.

As can be seen in the graphic, the largest European meat companies have significant scale in pork processing . The sector is certainly the most consolidated, with the combined slaughtering of Danish Crown, Tonnies and Vion in excess of 52m pigs last year.

However, the beef and poultry processing sectors in Europe are much more fragmented. In beef, the privately owned French processor Bigard is the largest player on the continent. With an annual turnover of €4.3bn and slaughtering up to 1.6m head of cattle per year, the processor has a throughput equivalent to the entire annual kill in Ireland.

ABP has grown to become the second-largest beef processor in Europe with operations in Ireland, the UK and Poland and slaughtering in excess of 1.1m head of cattle per year. Understanding that supply is as important as scale to compete effectively in the European meat sector, ABP has been one of the more acquisitive processors in recent years. It has acquired three meat processing operations in Poland, giving it a large supply of cattle, as well as its most recent announcement to acquire a 50% stake in Slaney Meats.

Furthermore, in a move towards greater scale, Dawn Meats acquired a 49% stake in Elivia, the second largest beef processor in France, in 2014. It slaughters in excess of 500,000 head of cattle per year.

Despite this, these leading European beef processors are very small when lined up against Tyson and its annual cattle kill of 6.7m head. Similarly in the poultry industry, Northern Ireland-based Moy Park is the largest poultry company in Europe, processing over 260m chickens in 2015, with sales of €1.8bn.

Again, Moy Park may be a market leader in Europe but it pales in comparison to the 1.8bn chickens processed every year by Tyson Foods. However, Moy Park has a new parent company that knows a thing or two about scaling meat operations and is likely the greatest threat of all to the European meat sector.

JBS, the Brazilian meat processor controlled by the Batista family, snapped up Moy Park last June in a deal worth €1.3bn. Already the largest meat processor in the world, JBS now has its first significant toehold in the European market following the capture of Moy Park. So even if the EU-Mercosur trade talks break down, JBS now has a presence inside the EU.

Comment

The threat from the global meat giants has never been greater, as talks intensify around two major trade deals which could reshape the European meat processing sector.

The meat sector in Europe is very fragmented compared to global competitors, but we have seen moves towards greater consolidation in recent years. Not only are the bigger European processors preparing for the outside threat, from the likes of JBS and Tyson, they are also capitalising on the struggles of the smaller processors, who have been squeezed by the weak demand for a number of years.

Further consolidation in Europe and possibly here in Ireland looks likely, as companies try to shield themselves from new threats.

However, it may be the European authorities, through competition law, who will ultimately decide how the European processing sector looks in the future.

This article is part of the Agribusiness report which is available in this week's Irish Farmers Journal.

Read more

To read the full Agribusiness report, click here.