How has the southern hemisphere animal protein sector held up since #COVID-19?

Managing the challenges & maximising the opportunities of COVID-19 in the animal protein sector

Supply chain disruptions from foodservice shutdowns to plant closures have created short-term challenges for the global animal protein sector. Despite these challenges, the medium / long-term prospects for animal protein remain attractive and present an opportunity for companies to pivot their businesses for the future.

Focusing on the southern hemisphere, TerraProtein spoke with two of its clients, Guillermo García González—CEO of Coexca S.A., Chile’s second largest meat processor and exporter—and the CFO of a vertically integrated beef producer in Australia, to understand the challenges and opportunities their businesses are facing.

Foodservice shutdown yields challenges across markets

To reduce the transmission of COVID-19, many nations have mandated the closure of restaurants, hotels, and other foodservice outlets. The closure of this key sales channel for animal protein has presented short-term challenges for producers & processors across the globe.  

Mr. González of Coexca S.A. highlighted, “In Chile, we believe domestic demand for pork has fallen about 30% because of closures in the likes of restaurants and hotels. At a household level we also see a decline in demand since less people reunite and celebrate social events with a traditional Asado.”

To combat the drop in domestic demand & export uncertainty, Mr. González explained Coexca’s strategy in lowering live pig weights from 130kg to 110kg to provide a buffer at the processing plant. ”Lowering weight by 20 kg means taking out younger pigs and creating larger farm capacity equivalent to three weeks of production.“

Likewise, accommodation and food service are the two hardest hit industries in Australia so far, according to the Reserve Bank of Australia. While consumers have emptied shelves in Coles & Woolworths across the nation, foodservice processors have experienced challenges in pivoting from primal cuts destined for foodservice to retail cuts.

“The main problem is that suppliers and processors who supply the food service have been hit hard, a number of which have already gone bankrupt immediately, but the ones that supply the retail sector benefits from the current situation”, says our Australian client.

“The Australian situation is quite unique, as the retail sector is very consolidated with only a few large retailers having enormous influence. When all the restaurants closed and consumers started buying more meat at supermarkets, the retailers immediately started showing up everywhere. This made it more difficult for smaller processors to buy up meat.”

For Australian producers, other factors are softening the impact of COVID-19. “Beef prices have not fallen sharply in Australia, as the climate has been dry for a long time, however lots of rain has fallen over the past few months, causing farmers to sell less livestock and rebuild their herd. As a result, less cattle are available for slaughter, with the result that [live cattle] prices went up.”

Our Australian client noted that these rising live cattle prices could present a challenge to Australian processors exporting to the US as, “there comes a point that the processors will no longer earn money because cattle prices are going up and meat prices in America are going down.” If this does occur, Australian producers might experience challenges in selling live cattle to processors struggling with large losses.

In contrast, Australian beef exporters are suffering from export challenges due to scarcity of raw material causing delays in shipment. “Transport overseas takes about two weeks…to fill an entire container may take up an additional three weeks, and if your Australian supplier wants to receive direct payment on the other hand, your payables will go down immediately as well. All these delays are hurting your working capital.”

Limited impact on southern hemisphere processing operations

The American meat processing supply chain is experiencing substantial turmoil due to COVID-19 impact on labour supply. Starting on 6 April, Tyson Foods announced it closed its Columbus Junction plant after more than two dozen of its workers tested positive for COVID-19. As of 6 May, the Financial Times reported 18 large meat processing plants have closed in the US.

According to Mr. González, the Chilean supply chain has fared better as no processing facility has closed due to smaller concentration of large plants, which allows for early detection of cases and effective compartmentalisation measures. In addition, low infection rates are present in the key processing regions.

In Australia, there have neither occurred major operational disruptions like in the United States. The Australian CFO highlights, “In Australia the number of infections per capita has been manageable so far and our meat processors are less consolidated."


Animal protein demand remains positive in the long run

As COVID-19 continues to impact animal protein markets in the short-term, the medium to long-term prospect for animal protein remains positive. Research conducted by the European Commission estimates that China is expected to have 4.5x higher pork imports in 2021 compared to its 2018 pre-ASF outbreak levels.

“We are in a special situation”, believes Mr. González. “What favours us this crisis, in contrast to 2008, is that the world’s largest pork producer, China, lost half of its herd due to African Swine Fever (ASF). As Chile holds a Free Trade Agreement with China, our company is experiencing historical revenue growth towards this market. However, Chinese importers are taking advantage of global market conditions by lowering import prices, thus affecting Chilean export value.”

Vertical integration benefits to drive industry consolidation

Mr. González believes Coexca SA, with its integrated value chain from hog production to export distribution capabilities, has a competitive advantage over disintegrated producers, highlighting that “a pig producer that is not vertically integrated is obligated to sell its product on the local market for the available price."

"In these crisis situations, being vertically integrated is often much more strategic. The same holds for the United States, where producers are not vertically integrated and have their sows euthanised and weaners eliminated as processors have no capacity to receive the animals. Vertically integrated processors on the other hand, give privilege to their own animals over third-party animals.”

Looking forward, Mr. González comments, “In the United States pork sector, I believe there will be a paradigm change and we are probably going to see a joust over consolidation. No doubt about that.”

“Every crisis brings opportunities”

Despite immediate challenges from COVID-19, Mr. González of Coexca SA stays optimistic about the future of the pork sector.

“Every crisis brings opportunities. What is happening in the US, for example, is an opportunity for us. They are the world’s largest pork exporter and a great competitor in Asian markets. With the current situation, where the US is prematurely killing sows & piglets, and producers losing around $50/head, it cannot maintain its previously high annual production growth between 3-4%. From a competitive point of view, this benefits Chilean exporters.”

In Australia, our client discussed how they maximised an opportunity to ramp up sales through their e-commerce platform in Hong Kong.

“As we were able to scale up [the e-commerce channel] quickly, our sales through this channel have increased by more than 2,000%. If you need to set up something from scratch, like an online platform and delivery logistics, it does take a while.”

TerraProtein Equity Partners would be glad to discuss the challenges & opportunities of COVID-19 for your business. Email Marijn Hendrickx, Executive Director, at to start a discussion.

TerraProtein Equity Partners is a corporate finance advisory firm with proven expertise in agriculture & agri-technology investment projects within venture capital, private equity, and debt capital markets. We strive to assist agribusinesses grow quality business, support existing owners/operators, and connect agribusinesses with professional investors & industry partners. Contact us today to get started.


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