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Meat Processing Goes Global: Trends of the Meat Processing
Industry
From staple products like grain, rice and meat to exotic
fruits and vegetables, food producers are evolving to meet
the growing demands of consumers around the world. Advances
in technology have industrialized food processing, creating
a greater needs for effective cost controls and information
to determine profitability. This article will take a brief
look at the changes in one segment of agricultural trade –
the meat processing industry. In recent years, the USDA has
released a series of reports that provide a detailed look
into how the world’s agricultural trade practices have
changed in the meat markets. Over a 30-year period, dramatic
changes have occurred as technology and globalization have
infiltrated the industry. With changing business strategies,
cost managers must become more skilled at developing a true
cost picture to ensure their operations remain competitive.
The evolution of the US meat processing market
For most of the last century, beef consumption dominated the
market for meat in the United States. People visited their
local butcher shop or supermarkets to purchase fresh cuts of
beef, pork and lamb or whole poultry products. In the
1970’s, poultry slaughterhouse inspection rules changed and
when a bird failed inspection it was taken from the line and
the problem section was removed. Then the remainder of the
bird was then butchered and the chicken parts were marketed
and sold in markets. This accidental innovation was a
delight to consumers who favored convenience and less
expensive cuts of meat. Poultry processors recognized the
demand for particular cuts in different regions of the world
which eventually spawned a global market for chicken parts.
In more recent years, poultry processors have continued to
push the envelope in developing further-processed items that
meet consumer demands for quality, price and convenience.
The poultry segment has captured a significant amount of
market share in meat products over the past three decades.
Pork consumption has remained relatively stable while the
sale of beef products has plummeted. Pork processors, and
beef companies to a lesser extent, have adopted similar
strategies focused on an expanded number of further
processed items available to consumers. Supermarkets are now
filled with case-ready and packaged consumer goods that
feature meat products.
Global Expansion of the Meat Trade
Changes in trade practices, increased productivity, advanced
technology, growing economies and changing consumer choices
have expanded the global trade of meat products. Cost
managers have to account for how each of these drivers
impact product costs and predict future implications as they
continue to evolve. Here we’ve described these drivers and
discuss how they impact the production and sale of meat
products worldwide.
Productivity
Vertical integration and coordination practices to improve
quality and increase yields for meat production have been
embraced by processors, especially poultry and pork
providers. By solidifying relationships with growers, the
processors can ensure a steady flow of product and reducing
overall production costs. These agreements made it possible
to adopt new technologies and better ensure quality – both
of which are attractive to customers.
The expansion of plant sizes and increased consolidation of
the number of processors has drastically increased the
capacity for livestock processing. The larger plants achieve
more consistent utilization and higher efficiencies which
directly reduces per-unit production costs. Coordination
with growers and expanded product offerings reduce
challenges like seasonality which made processing
unpredictable previously. And with more advanced plant
technology, meat processing can better manage performance in
all areas using traditional manufacturing measurements.
Calculating production yields and variances, tracking
inventory and ingredients or analyzing overall performance
are all a result of the now industrialized meat processing
business.
Expanding Global Economies
Economies with low per-capita income consume a different mix
of food products than mid or high income areas. As the
income of a country or region rises, meals switch from
mainly cereal products to significantly more meat products.
This change is primarily because as income grows, the
percentage of the budget spent on food falls. With the
increase in disposable income along with the effects of
urbanization which makes more food options available, the
amount of meat consumed also grows.
Source: FAOSTAT
Increasing wages in many developing countries are also
escalating demand for meat products. This phenomenon does
not, however, lead to a correlated increase in worldwide
livestock trade. For example, while many Asian countries
have experienced rapid economic growth, their domestic
production of livestock has kept pace with the newly-created
demand. Although there are many countries that are becoming
wealthier, meat imports are generally concentrated to
developed countries without the natural resources to support
a domestic meat industry. The following chart depicts the
importance of Japan to the global meat trade. The country’s
limited ability to produce livestock products coupled with
its strong, mature economy makes it almost entirely
dependent on importing meat to cover demand.
Source: FAOSTAT
As the meat processing industry continues to expand
worldwide, the competition for market share will only become
more intense. With worldwide differences in livestock prices
and labor rates, companies will need to find a balance
between quality and cost to remain competitive.
Shipping Technology Changes
One of the principal reasons for the growth of meat trade
globally is the introduction of container shipping in the
1950’s. Containerization allows producers to ship goods at
much lower costs and with multiple modes of transportation
(rail, sea, truck). The debut of the refrigerated container
allowed perishable items to move across oceans to ports
primarily in high and middle income East Asian countries,
North America and Europe.
The expense of transporting perishable goods is significant,
so an accurate accounting of true product costs is essential
to determining product. Computing overall product or
customer profitability will require that transportation
costs are also appropriately allocated.
Consumer Preferences
While technology advances and trade growth have expanded all
sectors of food production in the US, consumption of the
various classes of meat has shifted significantly in the
last few decades. The USDA reports a 16% increase in poultry
with a simultaneous 13% drop in beef and steady consumption
of pork products in the United States from 1970-2000.
Source: Economic Research Service, USDA
Economists have cited both demand- and supply-side theories
for the difference. Demand arguments include changing
customer preferences due to perceived health benefits, more
availability of further-processed poultry and pork products
and relative price savings. The supply-side positions are
more complex and less direct, dealing with topics like
livestock production costs or technology adoption rates
between meat classes.
Regardless of position, the overall argument remains the
same. Consumers have positively responded to the variety of
further processed products available. Pork, beef and poultry
processors are all focused on expanding their product lines,
leading to more complicated costing processes. With more
processing, the added steps and ingredients must be
accurately accounted for to compute accurate product costs
to determine the most profitable products and lines.
Survival of the Leanest
Now more than ever there is a tremendous need for strategic
planning for meat processors. Ballooning SKU’s and emerging
markets have created wide reaching cost implications.
Increasing consolidation in all meat industries require that
processors have the ability to compare performance between
facilities, link disparate systems and eliminate stop-gap
solutions. Global trade adds an additional layer of
complexity to the costing process as well.
Profitability for meat processors is highly dependent on the
balance between product costs, market values and product
mix. Since meat processors can do little to shift market
prices for their goods, active management of their cost
structures is essential to remain competitive.
Enterprise coordination of cost information is required for
business leaders to accurately steer decisions on
operations, sales and marketing. The changing landscape of
the industry requires that cost managers create integrated
processes that can track disassembly and assembly costs,
manage bills-of-materials, and calculate product line or
customer profitability. To effectively plan for the future,
these processors will also need to track third-party
livestock sourcing costs, develop production forecasts and
run simulations to plan for shifting market conditions.
These metrics help business leaders at these processors make
sound decisions about all parts of their business to develop
the best overall strategy for success.
References
Economic Research Service, USDA: www.ers.usda.gov
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