f&a - US market
What'sNewS Issue 3 May/June 2001
Beef handicap
Debt loads
Creating structures
Paying off
between 15 and 20 presentations. 'We're
not only talking to companies,' says Dan
Hebert. 'We're also presenting to govern-
ment and industry bodies.' The message is
perhaps unpalatable for some. 'We are
very up front,' confirms Weststrate.
'We've even told very senior people that in
our take on their business, if poultry had
been a purely private sector, then they
would have been fired. They accept our
message because we have proven expertise
in their business. Some have even said they
wished we'd started laying it on the line
earlier. lt has certainly stimulated discus
sion in the industry on where the poultry
business has to go.' In the shake out of the
customer portfolio, RI decided to focus on
the top 15 players. 'We won't go below
that line,' says Westrate. 'Why? Because
the others won't survive in a consolidating
market. Many smaller players are family
businesses. They are starting to under-
stand there is no succession. And once is
sues like food safety, environmental pro-
tection, animal welfare and labour become
integral components in the business, then
the barriers will be too high for small op
erators.'
The scenario is pretty much the sarne for
the beef and pork (see conference report
on page 7) industries. Over the past 30
years, North America's share of the global
beef market has gradually been eaten
away by competition from South America.
In a special industry report for the Animal
Protein Conference, Joyce Cacho and Car-
los Sahad conclude heef has not been com-
petitive. 'It's been losing ground to
chicken and pork throughout the Ameri-
cas,' says Cacho. 'Add to that the frag-
mented structure of beef production and
you'11 understand why the industry has
been handicapped in responding to con-
sumer demand for innovative products of
a consistent quality.' Beef industry pecial-
ist Bruce Baccus agrees. The Chicago and
Dallas manager says that 'although some
small agribusiness companies can carve
niches and develop successful husinesses,
most will eventually reach the point where
they have insufficiënt scale to capture ad-
ditional opportunities.' This in spite of the
fact that innovative companies able to
meet consumer demand for niche products
can earn premium prices.
Consolidating expertise -(Itr) Dan Hebert, Roger Barr, Joyce Cacho, Adriaan Weststrate, Bruce
Baccus and Gordon Arnold
For RI's industry specialists working the
North American market, the writing is on
the wall. 'The present environment,' says
Baccus, 'means companies have a number
of options. Those who do not have suffi
ciënt scale will either have to pass on po-
tential expansion or go to capital markets
to finance growth. But that's debt based.
Acquisition is often preferred to debt
loads.' While it will be clear that this
opens up considerable scope for RI, there
is also another clear trend that is driving
consolidation. Says Joyce Cacho, 'we're
seeing a shift towards mainstreaming of
niches. Ethnic foods is a good example of
how consumer behaviours are changing.
And the retailer is meeting those demands.
Ethnic foods are no longer a single self in
the specialty corner. These kinds of prod
ucts are now in every aisle throughout the
store.'
Although opening up chances for RI, the
fact that the whole food and ag sector is in
a state of almost continual and rapid
change also presents problems. 'lf we
want to play a significant role as a major
banking partner,' says Bob Bucklin, 'then
we have to respond by creating structures
that will support consolidation. And that
consolidation is happening at every stage
in the chain of every sector, from retail al
most to the farm gate.' With the banking
sector as a whole increasingly wary of
food and ag, RI is actually taking on a
kind of "seal of approval" function for
those contemplating getting into deals.
'The way it's working at the moment,'
Bucklin continues, 'is that often a tradi
tional player will not join a deal unless
Rabo is in it. This would be gratifying if
the syndications market wasn't so tough.'
Adriaan Weststrate is keen to raise an
other issue that represents a challenge to
RI in North America. 'Our role with cor-
porates has clearly changed in the last few
years,' he says. 'We are no longer per-
ceived as a small player with only credit
on offer. Now, we meet with CEOs and
we're talking strategy with these big guys.
We're ad vising on how they should posi-
tion. Lending will always be a product. It
won't go away. But we no longer have to
give huge commitments to get M&A man
dates. At the same time, the recognition of
our expertise and longer term insight is
not the end of the story. Everyone knows
and acknowledges the power of the re
tailer. Traditionally, that hasn't been our
strong suit. The production side is what
we're known for. What we need now it to
take on the food industry itself and build
expertise and track record at that end of
the chain. It's tough, hut it's exciting. Our
focus on customer intimacy and on stick-
ing to what we're good at is paying off.'
