Persistent health challenges, tight labor supplies, volatile feed costs and disruptive regulations continue to plague the U.S. pork and poultry industries, causing short-term productivity challenges and limited industry growth. While efficiency gains will be gradual, the adoption of new technologies will be crucial for future growth, according to Rabobank's latest report, "Necessity Is the Mother of Invention: Escalating Costs Accelerate Animal Protein Innovation."
"We expect the rapid pace of operational and market change to accelerate the industry’s adoption of new technologies in order to remain competitive," notes Christine McCracken, Rabobank senior analyst for animal protein and author of the report. "This transition is likely to financially stress an industry already facing difficult operating conditions and a shrinking skilled labor pool. The alternative, however, is to risk being left behind."
After a decade of significant growth — with the U.S. broiler industry producing 25% more pounds of chicken with just 12% more birds and U.S. swine industry producing 16% more pork with only 5% more sows — productivity has plateaued.
While Rabobank expects the animal protein industry to overcome short-term health and genetic challenges, the multinational banking and financial services company says regulations will continue to be burdensome, decelerating any anticipated future production growth. Those regulatory changes include the restricted use of antibiotics and feed additives, the call for new animal housing requirements and product labeling.
"In our experience, top producers are able to transition to using new technologies, often in advance of a mandate, with a more muted impact on productivity," McCracken states. "Conversely we expect high transition costs and added compliance expenses to have an outsized negative impact on smaller producers and processors, which ultimately may force additional industry consolidation."
Adoption of new technology will no doubt remain slow, due to given capital and workforce constraints. However, in the short-term, McCracken says the industry should focus on four areas for best return on investment.
- Animal health and nutrition: With some feed additives being restricted and the industry decreasing its antibiotic use, Rabobank expects continued investment in animal nutrition, with a predominant focus on gut health.
- Genetic improvements: Evidence suggests animals have not reached their genetic potential. Gene editing could also be an effective solution but will continue to face regulatory challenges and consumer acceptance.
- Predictive management tools- Sensors and monitoring devices can help producers proactively resolve issues before they escalate, however adoption has been sluggish, with labor restraints on farm and lack of product support.
- Automation- While automation can relieve some of the most physically demanding roles in the plant, it also presents new labor challenges. Processors in rural areas will need to fill these positions with more tech savvy employees.
Regardless of what technology is adopted, McCracken says it must create additional value for all supply chain participants.
"The industry has already had great success moving commodity products into premium markets with year-to-date retail sales of value-added pork and poultry up 29% and 28% versus the 2017 baseline, respectively, according to IRI," McCracken notes. "Consumer surveys by 210 Analytics show one-third of consumers frequently purchase value-added meat, more than double the number in 2017, while only 9% signal they never purchase value-added protein options."
According to the latest IRI study, almost one-third of U.S. consumers said the no-antibiotics claim is important when shopping for fresh meat, while 20% said organic claims are needed. However, it’s not organic pork, but organic chicken that has the only meaningful share of the market case at 5.6%. Antibiotic-free chicken now makes up 45% of total retail chicken.
"Key to the continued success of claims-based sales, however, is consistent growth in consumer interest to justify retail support for the category," McCracken states.
Growth and opportunity will come from the foodservice and convenience industry as well as geographic expansion. Rabobank expects U.S. protein exports to Southeast Asia and Central America to continue to expand as gross domestic product-led demand outpaces domestic supply in those regions.
"As the second-largest exporter of both pork and poultry, the U.S. animal protein sector is often the target of retaliatory trade actions," McCracken states. "By developing multiple markets of size, the industry has been able to offset some of this risk through diversification.
"In an increasingly polarized world that is moving toward great regionalization and more nearshoring of supply chains, however, there could be additional near-term risk to a global growth strategy. For U.S. producers, this risk will require the continued development of new markets."