rabobank group - asociación conxemar · 7 in norway there is a gradual increase in atlantic cod...

Rabobank Group

RaboResearch Food and Agribusiness

October, 2018

Gorjan Nikolik

What to expect in European white fish markets?

2

Toronto

New York

Mexico City

Sao Paulo

Buenos Aires SydneySantiago de Chile

Willemstad

Calgary

Washington DC

Chicago

Atlanta

DallasEl Centro

San Francisco

Tasmania

Melbourne

Wellington

Cedar Falls

St Louis London

Madrid

Milan

AntwerpFrankfurt

Warsaw

Utrecht

Hong Kong

Singapore

Mumbai

Kolkata

Jakarta

Tokyo

Beijing

Delhi

Kuala Lumpur

Moscow

Istanbul

Dublin

Lubuan

Amsterdam

Paris

Bangalore

Shanghai

MaputoChimoio

Beira

Tete

Ulónguè

Malema

Maxixe

Nampula

Kigali

Asuncion

46 Countries Over 600 Offices Over 55,000 Employees

Rabobank: Globally leading food and agribusiness lender and financial services provider

Groundfish: A sector with fairly stable supply and commodity prices I

Photo: Shutterstock 2018

4

4

4,5

5

5,5

6

6,5

7

7,5

8

8,5

9

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Million MT

Groundfish production is stable and sustainable, with a stable supply outlook

Source: FAO, Groundfish forum, Rabobank 2018

Global groundfish (key species) supply and forecast

Overfishing period

TAC increase

Stable supply

Biomass Recovery period

5

0

200

400

600

800

1.000

1.200

1.400

1.600

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E

Norway Russia EU Iceland Faroes / Greenland / Canada / USA

Atlantic Cod follows a similar pattern of the larger ground fish category with a minor contraction recently

Source: FAO, Groundfish forum, Rabobank 2018

Atlantic cod TAC development

6

There is some growth in EU import of ground fish products, the majority of which are traded frozen

Source: UN Comtrade, Rabobank 2018

-

200

400

600

800

1.000

1.200

1.400

2012 2013 2014 2015 2016 2017

Millions of MT

Fresh Frozen

15% 5%3%

7%2% -3%

-

6%

-15%

3%

7

In Norway there is a gradual increase in Atlantic Cod prices but only recently surpassing 2011 price levels

Source: Rafisklaget, Rabobank 2018

10,0

15,0

20,0

25,0

30,0

35,0

40,0

Jan

2011

May Sep Jan

2012

May Sep Jan

2013

May Sep Jan

2014

May Sep Jan

2015

May Sep Jan

2016

May Sep Jan

2017

May Sep Jan

2018

May Sep

Cod prices in NOK/kg

Fresh Frozen

Atlantic Cod prices in Norway

8

But in the years of stable supply prices have stayed the same or have even decreased. Why is that?

Source: Urner Berry, Rabobank 2018

Groundfish commodity prices in the US us/lb

0,4

0,6

0,8

1,0

1,2

2,0

2,5

3,0

3,5

4,0

4,5

03/01/2011 03/01/2012 03/01/2013 03/01/2014 03/01/2015 03/01/2016 03/01/2017 03/01/2018

Pollock blockCod products

UB Cod, Sknls/Bnls, Loins, Double Fz, Atlantic 7 oz - Low $/lb

UB Cod, Sknls/Bnls, Shatt, Double Fz, Atlantic 8-12 oz - Low $/lb

UB Pollock, Block, Alaskan Minced, FOB New Eng - Low $/lb

Intensely competitive white fish processing industryII


10

Despite stable supply, the ground fish sector is often described as an intensely competitive sector

Source: Rabobank 2018

Frozen product easy to store and

transport

Fairly commoditised products in a

mature market

Competition is global or at least

continentalResult: highly competitive sector with low margins

for processorsRetailers quickly change from one supplier to the

other

11

… but there is more to this and we need to go back 5-10 years and look at the ownership of the industry back then


In NW Europe most branded companies

were PE owned

Southern Europe dominated by one

Family / listed

High leverage after multiple PE owners

Short term / cash flow focus

Extreme level of (hidden) leverage

Eventually leads to bankruptcy

Focus on cost cutting to service

debt

Branded players in white fish / seafood processing across Europe had high leverage

12

The high leverage was combined with intense price competition from PL suppliers

Source: Undercurrent, Rabobank 2018

A Chinese (also highly leveraged) company become

the largest PL white fish supplier

Market share gain focus to achieve

scale in processing in China and

sourcing in Russia

Strategy: Undercut competition with

low prices

Result: Industry

wide focus on price

competition and cost cutting

Although many companies have PL products one Chinese owned company became both the dominant raw material supplier and processor of PL white fish in Europe

13

This leads to the a toxic combination which inevitably results in financial difficulties, bankruptcies and consolidation

High leverage Intense price competition

In time nearly all the producers in this

sector experience financial difficulties,

get acquired or become part of bigger groups

….. This process of rationalization is not

over yet

Combination of focus on cost cutting i.e. lack of marketing and differentiation by branded players and a PL supplier focused on market

share acquisition based on low cost product leads to a race to the bottom

Fresh water - farmed species: declining in both EU and US III


15

0

100

200

300

400

500

600

700

2008 2009 2010 2011 2012 2013 2014 2015 2016

Million USD

USA Europe China

The Vietnamese Pangasius industry is moving away from Europe due to a poor image (fake news)

Source: VinHoan, Ground fish forum, Intrafish 2017

Vietnamese Pangasius Exports to China in value

1621

Competition in the US market is fierce with Vietnamese Pangasius gaining market share but both species loosing volume

Frozen fillet prices of Tilapia and Pangasius in the US market (2018

YTD July)

Tilapia and Pangasius import in the US market (2017 YTD

December)

Source: Urner Barry, Rabobank 2018

124

194 214 227 215237

288

230

332

292

371 352 364348

283

264

0%

10%

20%

30%

40%

50%

60%

0

100

200

300

400

500

600

700

2010 2011 2012 2013 2014 2015 2016 2017

Million lbs.

Pangasius Fz Fill Tilapia Fz Fillets Market share of Pangasius

1,5

1,8

2,1

2,4

2,7

3,0

3,3

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

USD per lb.

Tilapia Pangasius

July, 18: USD3.13

The US has imposed largest ever antidumping tariffs on Pangasius fillets.

17

Surprisingly today China is by far the largest market for Vietnamese Pangasius

Source: UN Comtrade, VASEP, Intrafish, Undercurrent, Rabobank 2018

Vietnamese Pangasius Exports to China in value

0

50

100

150

200

250

300

350

400

450

2012 2013 2014 2015 2016 2017E

Millions USD

18

Many Tilapia and Pangasius exporters are changing focus away from EU and US due to poor image and weak margins


Panga initially targets EU (due t problems with US domestic catfish)

Chinese Targets US with Frozen Tilapia fillets

EU market flooded with low cost

Panga filets, but image problems hamper demand

Re-focus to US, low price to

acquire market share

Dominates market with a low price product for

years

Rejected Tilapia products are sold in China, below cost

Observation: Both tilapia and pangasius frozen fillet suppliers seem to put little emphasis on gradual market development and cooperation

with local processors, but focus on supply growth, price competition and new markets development

EU and US decline

New focus on the Chinese market?

Losing competiveness in US. New focus on

RoW, domestic market and Africa?

China will be in

oversupply with white

fish

New owners of white fish assets IV


20

Firstly there are a number of salmon farming companies taking a greater role is the white fish value chain

Source: Undercurrent news, Intrafish, Rabobank 2018

21

-1,4% -1,3%

12,2%

22,5%

2,0%

9,0%

4,3%

-6,7%

5,0%

7,2%

-10%

-5%

0%

5%

10%

15%

20%

25%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E

0

10

20

30

40

50

60

70

80

90

NOK/kg

Norway whole salmon spot price (NOK/kg)

Unlike in the ground fish sector salmon prices tend to be more responsive to supply (especially to contractions)

Source: Fish pool, Rabobank 2018

Norwegian fresh salmon prices (left axis) and yearly global supply changes (right axis)

Yearly % change in supply

22

Salmon sector claims to be very customer oriented and innovative, can they replicate this in the ground fish sector?

Source: Marine Harvest, Rabobank 2018

…..But it is also a farmed product with consistent supply, a fresh

product, rich in Omega3 fats, with a consolidated supplier base

Growth of Pre-Packed salmon in Germany

0

10

20

30

40

50

60

70

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Million USD

0

20

40

60

80

100

120

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Million Euro

+133%

+31%

Growth of Pre-Packed salmon in US

23

Large family owned wild catch companies also enter into the European white fish value chain


24

And most importantly a large part of the industry is now part of listed multi-species food conglomerates


25

-0,8%

-5,4%

-8,0%

-7,0%

-6,1%

-3,8%-3,3%

-2,7%

1,1%

3,5%

5,9%5,6%

2,9%

1,3%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18

Organic Revenue Growth

The market leader Nomad is showing that the new strategy is reversing the decline into growth

Source: Nomad Foods Q2 2018 Rabobank 2018

Organic Revenue growth per quarter as reported by Nomad Foods

26

Although the Russian white fish companies are not new-comers they are themselves undergoing a transformation

27

While Pollock still mostly going to China (for re-processing) Russian exports of Cod to the EU have increased

Russian Cod exports – Value, per import region Russian Pollock exports – Value, per import region

Source: UN Commtrade, Rabobank 2018

-

100

200

300

400

500

600

700

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Million USD

China EU Rest of the World

-

300

600

900

1.200

2012 2013 2014 2015 2016 2017

Million USD

China Rest of the World

28

Although a diverse group there are some common features of the new entrants into the whitefish processing space


Highly profitable, companies with low leverage

Diversified multi-species platforms – e.g. salmon, wild

catch species, animal proteins

Mostly listed and family

owned companies with a long term

view

…..and many are consolidators so expect more transactions in this space

Or vertically integrated companies

29

Innovation / product

development /

marketing focus (as

opposed to price

and cost focus)

New brands?

Suppliers have a

broader range of

product and can

become category

managers and

work closer with

retailers

Perhaps more

focus on fresh

products?

Fewer double

frozen products?

Value based

growth and

improving

profitability?

So what could be the new dynamics in white fish markets?


30

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Rabobank

Gorjan NikolikSenior Analyst – Seafood

Telephone +31 30 712 3825Mobile +31 6 1243 2463E-mail [email protected]

mailto:[email protected]

rabobank group - asociación conxemar · 7 in norway there is a gradual increase in atlantic cod...

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