Dr. Ariovaldo Zani - CEO - Sindirações
16 October 2012 – Dr. Ariovaldo Zani, CEO of Sindirações – Brazil’s feed industry association – is concerned about livestock feed demand in Brazil next year as the sector continues to be hindered by many factors, including high production costs.
Dr. Zani firstly highlights a multiplicity of reasons that have impacted and continue impacting the livestock production chain in Brazil. These multiple reasons drove a couple of livestock producers to bankruptcy during the first half and other recent announcements will require caution from suppliers, he says.
He points out to the negative influence created by weakened exports since 2010 as a result of the stronger Brazilian currency and of the embargoes imposed by the US, Russia and South Africa.
“The devaluation of the local currency during the year, on one hand, returned competitiveness for exporters, but on the other hand, it continues to worry local producers, since the impact of conversion at current exchange rates can greatly compromise the balance and the extent of this will depend on the rate of debt pegged to the US dollar”, explains Dr. Zani.
“The amount of beef exported fell 12% in 2011. Chicken meat exports increased by only 3%, while pork exports fell more than 5%. This bad performance pressured prices paid to livestock producers due to the increased supply that remained into the domestic market”, he stresses.
Up until September 2012, the amount of chicken exported increased less than 1%, while pork recorded almost 10% growth, year-on-year.
Sindirações’ CEO also warns that the livestock production sector was hard-hit by this summer’s events.
The US drought, the growing demand for ethanol production, the late effect of La Niña in southern Brazil and the growth in Chinese demand all boosted the price of grains.
“Despite the shallow alleviation observed this early October, the strong rise in the price of corn since late June fueled a cumulative increase of 40 percentage points. Soybean meal prices also skyrocketed and, right now, are more than double what they were earlier this year”, argues Dr. Zani.
He adds: “Broiler and swine feed demand faced a 3.5% decrease until August in response to the drop in chick placements, which started in late June, and to a tendency to slaughter lighter pigs. Beef cattle feed and dairy feed dropped 5% and 1% respectively, while fish feed remained continued its growth trend”.
According to Sindirações data, overall feed demand in Brazil dropped 2.5% between January and August. The association is expecting an overall drop of 3% for 2012.
“It is too early to predict how much feed Brazilian livestock producers will require in 2013. It will depend on the odds of success to pass the additional cost of feedstuffs along the chain and how the final consumer will perform on retail”, warns Zani.
Besides feed costs, producers are impacted by the shortage of domestic credit for working capital and by labour costs.
“Since January the payroll index has had an impact too due to the adjustment of nearly 15% on minimum wage paid to employees”, indicates Dr. Zani.
Moreover, the energy tariff charged in Brazil is considered twice as expensive as in Russia, India or China, despite the greater water availability for electricity generation. It is also taxed at over 30%, above the international standard.
Finally, Dr. Zani stresses that producers must pay attention to the risks of legal measures that aim to overcome the crisis and allow continuity of economic activity and job preservation.
“The practice of financial discipline and exercising moderation in times of plenty are indispensable to the sustainability of any business and reveal all wisdom implied in the fable of grasshopper and the ant. But the tale of the goose that lays the golden eggs should become the bedside book for many entrepreneurs”, comments Dr. Zani.
