There’s been an increase in mergers and acquisitions in the poultry feed and pullet sectors as companies grapple with tough market conditions. Michael Barker reports
It is a time of change and upheaval in both the poultry feed and pullet sectors, with increased merger and acquisition (M&A) activity reflecting businesses’ attempts to shore up their bottom lines at a time of great financial pressure.
A new report by Oghma Partners, published in June 2023, notes that the first four months of this year have seen a hefty 17.9% increase in the number of M&As in the food and beverage industry compared to the same period a year ago, with the Covid hangover and tough economic conditions cited as major factors.
There has certainly been plenty of activity in the poultry sector. One of the most notable deals came last year when Wynnstay acquired Humphrey Feeds & Pullets, with the move followed up this April with the announcement that the two firms are combining their poultry feed and pullets offering into one brand. It was a decision that arguably said as much about the current fragile state of the industry as it did the two companies’ strategies.
Speaking to Poultry Business, Wynnstay’s commercial sales and marketing director Paul Jackson says the reason for creating the unified brand now reflects the increased consolidation within the sector, as well as rising demands from retailers and packers. “It was clear the businesses had many synergies, and bringing the two together into one brand allows us to share 190 years of knowledge in rationing and farm service, plus the added flexibility of manufacturing at local mills supports our sustainability initiatives,” he explains. “We believe this puts us in the best position to meet the needs of our customers now and in the future.”
Elaborating on the timing, Jackson says it has been a challenging period for producers following lockdowns, AI pressure, feed costs and egg prices leading to supply issues, and the company felt merging the operations was the best way to support its customers’ needs.
There’s little doubt that the pullet sector in particular has been through the wringer. As Jackson notes, in early 2022 producers didn’t have the confidence to replenish their flocks due to egg prices not keeping up with rising feed and energy costs, with pullet prices also going north as feed, chick, labour and energy costs bit.
Meanwhile, a further deal that would have seen a merger between ForFarmers and 2Agriculture was dropped after the Competition & Markets Authority (CMA) concluded that it raised competition concerns in four local areas across East Anglia, north-west England and North Wales, where it claimed it could lead to higher prices for poultry feed, lower quality feed, or worse quality of service. The CMA said it had received a number of complaints from customers and other market participants in relation to the impact the proposed joint venture could have on choice of feed suppliers and poultry feed prices.
Two deals with contrasting outcomes then, but industry insiders say they are both a reflection of the parlous state of both the feed and pullet supply sectors over the past year. “If there are lots of suppliers trying to get a share of the market, they’ll be quoting lower prices because they all want a slice of the pie,” said one senior industry source, who did not want to be named. “It’s a bit like when in the late 90s there were basically six registered Lion egg packers – there are now 43, which is part of the reason why the egg market has been so challenging. All the packers are fighting for a finite volume, and they oversupply the market to try to get that volume and then the market collapses. When there are fewer players, it’s easier for them to control supply and demand.”
That’s true, and that also strikes at the heart of why the CMA objected to the ForFarmers-2Agriculture deal. “Feed is the biggest expense faced by farmers when rearing chicken,” said Sorcha O’Carroll, senior director of mergers at the CMA, in December. “With food prices already increasing and the wider cost-of-living crisis, it is vital that we don’t allow a reduction in competition between poultry feed suppliers, which could make this situation worse, both for farmers and shoppers at the checkout.”
There’s clearly a balance to be struck in order to find a sweet spot between competitive supply and profitability, but the industry source doesn’t think we’ve seen the last of the M&A activity. “There will be more, because people are constantly striving for efficiencies, and I think there will be some mergers within the egg packing industry as well,” he observes. “That will probably be helpful.”
Independent companies focused purely on pullet rearing have the problem that they’ve no other source of income or levers to pull during tough times, according to the industry source, and therefore nowhere to hide. That’s a situation that has led to a number of rearers cutting back on production in the past year as they struggled to stay afloat. “If you are a feed miller and a pullet rearer, you’ve potentially got two bites at that cherry,” he explains. “So if you’re wanting to be really competitive with pullets, you can reduce your feed margins and gain business. Or if you’ve got the backing of a packer, or feed company, or both, you’re in a position of more comfort.”
Jackson notes that consolidation isn’t new in the agriculture sector and is a trend that will continue. “We are at a time when innovation is required to meet the needs of the industry for the future, and this is likely to require businesses to come together to become broader to develop this innovation,” he adds. That’s certainly part of the objective for Wynnstay Humphrey Feeds & Pullets, which believes that the new unified team puts it in a strong position.
The good news from the pullet sector’s point of view is that both Jackson and the industry source say that as the egg price to producers has risen recently, confidence has started to return and there is a race to book rearing space. “There is now a strong demand for pullets and producers again have the confidence to book their space well in advance,” Jackson says, while the source adds: “There is a bright light at the end of the tunnel. Rearers are now in a position to charge a much more commercial price.”
As for ForFarmers and 2Agriculture, unsurprisingly the CMA’s conclusions didn’t go down too well. In a statement announcing they had abandoned their plans, the two sides said they had “taken into consideration, among other things, the current impact on their respective businesses, the duration and costs involved and the impact this process has on both employees and farmers.” They stressed, however, that they continued to believe that the joint venture would have “made for a robust business, with improved expertise and presence across species, to successfully meet the changing demands from the entire value chain”, and that it would have invested in “driving improvements and optimising services in the most efficient manner, with a focus on further improving production efficiency and feed quality to the benefit of both farmers and end consumers.”
That particular deal may not have gone ahead, but it would be a brave individual to bet against further M&As going through in the coming months.