Page 8 - National Poultry Newspaper

Australian poultry farms undergo major shift
ACCORDING to Col- liers International’s Ru- ral and Agribusiness Re- search and Forecast Re- port 2018, the Australian chicken meat industry is undergoing significant consolidation.
This is particularly so due to the major proces- sors’ desire for increased economies of scale in
every facet of their supply chain, from breeder farms through to processing fa- cilities.
On one hand, this is driving major investment in the sector.
On the other, third-party contract growers in re- gions that are becoming more expensive for pro- cessors to conduct their business are losing con- tracts to the bigger broiler farm operators where greater operational effi- ciencies can be achieved.
Baiada’s significant ex- pansion in NSW in recent years and the closure of its Victorian and south- east Queensland process- ing operations has led to a greater shift in the profile of contract broiler grow- ers.
This has resulted in the shift from traditional small family owner op- erator model to large cor- porate, institutional and private syndication in- vestments (that is, modern
‘super farms’).
Such projects have re-
quired tens of millions and in some instances hundreds of millions of dollars invested in strate- gic and centralised poul- try ‘hubs’.
These regions have ac- cess to abundant feed grain for poultry con- sumption, affordable land, proximity to high-capaci- ty power and water supply and importantly, access to markets.
Griffith and Tamworth in NSW are two regions whose communities have benefitted significantly because of the expansion in poultry-related infra- structure.
For example, Baiada’s rapid expansion in Grif- fith has included the con- struction of hundreds of broiler-rearing sheds built by a handful of private operators and Australia’s largest contract broiler- rearing operation ProTen.
Australia’s other major
chicken meat processor, Ingham’s, has also under- gone significant expan- sion activities, particu- larly in the form of free range production in South Australia, whereby more than 60 purpose-built free range sheds have come in- to production over the past three years to take advan- tage of consumer demand for this product segment. Farm change of use
Due to the consolida- tion or closing down of certain processors’ opera- tions in various eastern state locations, a number of contract growers have had their contracts termi- nated and are having to seek an alternative use for their facilities.
This has undoubtedly caused unrest in the in- dustry, with producers, investors and financiers alike taking greater cau- tion in assessing broiler farm acquisitions.
In some cases, owners of broiler farms have not been able to secure al- ternative production ar- rangements for their sheds and have been forced to sell due to the loss of in- come.
The two main alterna- tive uses for out-of-con- tract broiler farms include rearing layer hens for the egg industry and actual egg production.
Both uses require invest- ment in farm modifica- tions, meaning the price that egg industry partici- pants can afford to pay for these farms is likely to be significantly less than the value of an asset operating as a commercial broiler farm.
Further, the returns egg producers are able to gen- erate out of these assets is generally lower than broiler-rearing operations, also having an impact on value.
There are now several owners of uncontracted broiler farms throughout the eastern states looking for an alternative use or a sale.
While there is inter- est from parties looking to convert uncontracted broiler farms to an alter- native use, the depth of this market is limited.
It is Colliers Internation- al’s view that those farms that enter the market ahead of their competition have a greater chance of being taken up by alterna- tive users.
It is still too early to accurately determine the effect of a loss of contract on broiler farm values, however there has been some recent sales evi- dence showing a 40 to 50 percent reduction in the sale price of vacant farms compared to their previ- ous value as operating commercial broiler farms.
One transaction com- pleted by Colliers Inter- national was the sale of the Meredith broiler farm in Victoria.
The asset comprised four modern tunnel-ven- tilated production sheds, associated broiler farm improvements and a large homestead located on the Midland Highway, half- way between Geelong and Ballarat.
The property sold to a local egg producer for $3.52 million, showing a roughly 45 percent reduc- tion on its previous sale value when the property had a contract grower agreement.
Saleability and achiev- able value of farms will be a case by case situation and ultimately depends on such things as the value of the underlying land and the level of demand for alternative uses.
Market outlook
The key factors in play that Colliers International is watching carefully are as follows:
• The recent expansion and consolidation within the broiler industry into production hubs has re- sulted in increased supply of birds to processors in these key areas.
• The conversion of major poultry proces- sors from private to pub- lic ownership has the potential to alter market dynamics. Shorter-term profit expectations and other management driv- ers can differ under pub- lic ownership and there is potential for these motiva- tions to cause disruption within the sector.
• Supermarket retailers have discounted poultry products in recent times to attract customers in a similar manner to the way milk was treated ear- lier this decade. While the market indications are that this has increased sales for processors with- out margin pressure, there is potential for future mar- gin squeezes. It can be difficult to reprice product upwards once consumers become accustomed to lower prices.
• From a valuation per- spective, lower payments to growers (if they even- tuate) will most probably make it more difficult to justify new shed construc- tion for those farms con- templating expansion.
Notwithstanding the above potential head- winds, chicken meat re- mains a key protein choice for Australian consumers and the vast majority of meat products are con- sumed within Australia’s domestic marketplace.
Well-located, modern broiler farms are expect- ed to remain one of the stronger cash-generating investments to be made in the agricultural sector.
Page 8 – National Poultry Newspaper, July 2018
www.poultrynews.com.au
Poultry has the biggest share of the Australian meat plate (2016).