Animal protein faces “an uncertain world,” says Rabobank

14 Nov 2019 --- RaboResearch Food & Agribusiness, a research arm of Rabobank, has published its annual global animal protein outlook. On the whole, the report outlines that African swine fever (ASF) overwhelms the outlook for 2020 and is expected to pull down overall growth, as well as bring uncertainty to all markets. The analysis asserts that the global animal protein sector “faces an uncertain world, which also offers opportunities for some.”

“Besides the impact of ASF, many trade disputes and issues are causing uncertainty for global animal protein, with the US-China trade war the most apparent – but not the only – trade uncertainty. In addition, the ongoing rise of alternative proteins also adds to the uncertainty – even though Rabobank has a less bullish view of alternatives than others do,” says Justin Sherrard, Global Strategist Animal Protein at RaboResearch Food & Agribusiness, in his summary of the overall outlook of 2020.

The report also covers sustainability developments, which are slightly less prominent than the above issues. However, Sherrard comments, “In our view, sustainability is just as important as other areas of uncertainty as it will shape the growth of animal protein production and consumption through the 2020s.”

The impact of ASF overwhelms the outlook for the global meat industry in 2020.Growth outlook for global meat in key regions
Rabobank expects growth in most regions in 2020 as the meat sector recovers from strong losses in 2019, but the impact of ASF in Asia overwhelms the outlook. The outbreak has caused mass disruption across East and Southeast Asia and had a significant impact on global markets, with prices of pig meat rising rapidly between February and May this year.

ASF dominates the outlook for the Chinese market, with a further decline in pork production in 2020. Production will grow for all other species, given the pork shortage and prices at high levels. In particular, Rabobank notes China’s production losses will exceed the growth in all other regions combined. 

In Southeast Asia, ASF is notably affecting pork production and is expected to spread further in 2020, impacting production. Poultry production will again rise strongly in 2020, partly in response to ASF. Beef production remains flat, but imports are on the rise, highlights Rabobank.

However, in Europe, the analysis outlines that poultry and pork production are set to rise, driven by export opportunities. Beef production is expected to decline, in response to soft consumption.

Across species, aquaculture and poultry will lead production growth in 2020, while beef will be stable and wild-catch seafood is expected to decline. All of these changes are minor compared with the production decline in pork, notes the analysis.

With regard to seafood, RaboResearch expects a modest growth of salmon supply. Norway is expected to be the main, albeit modest, supply driver in 2020. 

The shrimp industry is also set for growth, despite low prices, with Ecuador, followed by Vietnam and Indonesia, leading production gains. The fishmeal market sees both lower supply and lower demand in 2020. ASF has impacted the demand for fishmeal in piglet feed in China, countering the effect of lower supply in 2019. Rabobank expects a similar pattern for 2020.

In North America, Rabobank expects production for all species to rise in 2020 – led by pork, followed by poultry, and finally, beef. While domestic consumption will grow, exports will need to pick up to manage this production growth.

Production growth in Brazil is expected for all species in 2020. Export opportunities are the main driver, although domestic demand is also improving.

Tight livestock inventories in Australia will see beef production down and sheepmeat production stable in 2020, with firm prices for both. Meanwhile, Rabobank expects New Zealand’s beef and sheepmeat production to rise, with favorable price levels.

Five uncertainties for global animal proteinThe ongoing US-China trade dispute builds on uncertainty for the sector in 2020.
In global animal protein trade, Rabobank outlines five central issues leading to uncertainty in 2020: 

1. ASF: The specific impact on production and local responses to ASF is expected to create considerable uncertainty around global animal protein trade in 2020. 
2. The US-China trade war: “While we do not expect a permanent resolution in 2020, ongoing or temporary increases in food and agriculture  trade are quite possible. Overall, we see this issue adding to uncertainty in trade.” 
3. Brazil’s access to key chicken export markets: “Brazil has had problems with exports to Saudi Arabia and the EU, which has created uncertainty in trade,” outlines Rabobank.
4. Brexit: As the UK has been the EU’s largest importer for all proteins, potential changes to UK access for current exporters will continue to create uncertainty in trade. 
5. USMCA: Rabobank expects the United States-Mexico-Canada Agreement will be ratified, but ongoing delays in this process add to uncertainty. The analysis explains that some of these uncertainties will simply result in changes in currency crosses, while others will result in more trade “friction” and higher transaction costs; some may result in trade bans or blockages.

Rise of alternative proteins
The Rabobank report outlines that meat and seafood consumption in the EU and the US is not declining in spite of growth in consumption of alternative proteins. “In the western world, meat alternatives are not yet stealing growth from animal protein – they are adding to total protein consumption volumes,” states the analysis.

“‘More’ has been the key word for alternatives in 2019. More media attention, more consumer interest, and more investment. Also: more products, and more competition in retail cases and at foodservice counters. Contrary to expectations, the growing interest in alternative proteins has added to total protein consumption – the substitution effect is not yet clear in the consumption data,” explains Rabobank.

At the same time, Rabobank identifies that animal protein consumption has been stable, or up slightly, in the EU and US in recent years. This is despite double-digit growth in alternatives’ sales: 16 percent year-on-year growth in 2018 in the US and a 16 percent CAGR in the Netherlands since 2016. 

“In 2020, we expect alternatives to keep growing, along with meat and seafood consumption. We also expect more clarity as to whether alternatives are an addition to or a substitute for meat and seafood. Alternatives will need to improve their nutritional profile and eating quality, and address regulatory barriers such as terminology, in order to maintain current growth rates,” says Rabobank.

Opportunities for global animal protein recovery
Despite the listed uncertainties, Rabobank also makes note of the opportunities for a rebound in global animal protein. “The most obvious area of opportunity in global animal protein is the recovery from ASF, which, in Rabobank’s view, will extend through the 2020s,” says Sherrard.

“Winning on sustainability is another opportunity, which can be achieved by harnessing the supply chain and moving ahead of market signals. Finally, investing to secure ongoing trade flows can also be an opportunity, as this can reduce some of the uncertainty and secure continuous market access,” he concludes.

By Benjamin Ferrer