Polish poultry – prime for the plucking

With more than 40 years’ experience boosting the operational efficiency and performance of large-scale poultry businesses around the world, Jim Johnston of Food Chain Enterprises Ltd knows an opportunity when he sees one. Right now, his sights are set on Poland which has emerged as the latest frontier for growth and investment in poultry production.  
Poultry is forecast by the OECD (Organisation for Economic Cooperation and Development) to become the world’s most popular meat by 2020, surging past pork and red meat.

Johnston says Poland has risen to become Europe’s largest producer of poultry in the past decade, doubling its production in that period, and has hence evolved into fertile territory for continued expansion.  
“Poland is unique. The Polish grow a lot of their own grain so they have excellent raw materials sourcing. They joined the EU and have excellent, upgraded infrastructure meaning they can move things around rapidly. They are located right next to major markets such as Germany and France where there is a great appetite for chicken,” he says. 
“With a strong and growing economy in the EU – and in the world – the Polish themselves have been significantly increasing poultry consumption per capita. And, because they are cheaper [producers] than all the other 27 EU countries, there is huge demand coming from the rest of Europe for Polish products. Poland’s low labour costs are often a third cheaper than other key poultry producing countries like France. These factors become a significant advantage.”   
EU poultry meat producers have to comply with legislation on environmental protection, animal welfare and food safety. This legislation has increased the production costs of poultry meat and has arguably impacted competitiveness for some EU member states.
Poland is now the largest poultry producer in the EU and yet its production costs are the lowest in the bloc at 81.8 eurocents per kg live weight, whereas Italy comes in highest, at 90.6 eurocents per kg live weight.

Johnston believes Poland has flown under the radar until recently, and it is now truly becoming a hot spot for international producers and processors.

The ‘sweet spot’ for growth, Johnston says, is for Poland to improve its farming base.

“Poland has a huge amount of very small farms from which they’ve historically grown the industry, but today there is the opportunity to scale these farms and improve logistics and costs to get live birds to processing,” he says.

“I would forecast there will be more investment into the farming base to go after these efficiencies. There is quite a bit of money there to be had in the next decade by making the farm base even more cost-effective.”

That’s been the backbone of Johnston’s career – advising poultry businesses around the world on how to improve operational efficiencies at the farm gate and throughout the supply chain. He is in a unique position of understanding the food industry challenges and being able to utilise his network to provide solutions, collaborating with many agricultural industry players, TerraProtein Equity Partners included.

“If you look at the next 10 years in the global poultry industry, realistically you may not get paid more in real terms for the chicken you are producing today – you’re flat-lining your revenue which means you’ve got to get better at production to improve margins,” he says.

“Poland is one of the places in the world where I see the opportunity to continue to improve margins. Compared to the UK which is a very mature industry, to shave a penny off production, it is hard to do, but in Poland there is still opportunity for more efficiencies that will enhance margin through optimising the supply chain.”

International poultry players have begun to realise the growth prospects in Poland. In recent years, there has been significant investment from foreign companies taking stakes in local, Polish-owned and run companies.

Johnston says that’s the best model for international investors to gain access to the Polish poultry opportunity.

“It would be quite difficult for someone to come in and start totally new in Poland. The best way of doing it is to invest in a local company that is well established and help them grow the business,” he says.

“That is the main investment strategy that the international investors have taken in Poland – they’re walking together with their local partners – investment in the Polish industry has been made by 2 Sisters Food Group, Charoen Pokphand Group and Plukon Food Group. You get the local expertise and knowledge as you buy into an existing sales and distribution model, then grow from that point.”

Another strength of the Polish poultry sector is the human element: a strong work ethic.

“The Poles are inherently hard-working and have become technically proficient at what they do, with an excellent eye for detail. These are fundamental things you need in the workforce and such traits lend themselves very well to poultry across the whole supply chain,” Johnston says.

“To do poultry well is like a military operation – you need to do the same things rigorously every day in, day out, and the Polish do that superbly.”

Work ethic and integrity aside, we live in an era where food safety is more critical than ever, especially in the meat sector. Recent events such as the ‘meat scandal’ in Brazil and the outbreaks of Avian Influenza (AI) reinforce just how easily a market can be disrupted, causing immeasurable repercussions for global trade.

The EU states, including Poland, are not immune to this challenge. The EU poultry industry has been hit heavily by a wave of AI outbreaks all over the continent, with more than 1,000 cases in commercial poultry and 1,400 cases in wild birds4. However, according to Rabobank, the amount of AI cases has had a relatively limited impact on the market, with six per cent more production in Q1 in the EU, compared to Q1 2016, and prices around two per cent higher.

Johnston acknowledges the severity of AI and its major threat to the industry.

“Its a huge concern but also for human health. There have been a number of scares of highly pathogenic strains which have flown out of agriculture to harm people too, which creates media attention and blurs people’s perceptions, especially once the human element makes headlines,” he says.

“It’s a threat that will be continual but because we have a better structure as to how we manage poultry flocks in Europe and register kept birds, the biosecurity levels, policies and protocols are far better than in some developing countries like Africa.

“We have a better handle and awareness level within the population and farming communities to control these things here. We work very well with governments and industry to address these challenges together. That is a massive advantage of being based in the UK and EU in comparison to other parts of the world where there is less-coordinated action.”

While there will always be unknowns in any business, one thing is certain – Poland’s poultry sector is a dynamic and expanding space, garnering the attention of the international food chain.

“I see very strong growth for Poland going forward,” Johnston reiterates.

“If you look at global [poultry meat] growth, it sits at 1.1 per cent in 2016, but Poland has been running at seven per cent and I think it will remain at that level for the foreseeable future. And the fact that poultry remains the cheapest and most affordable meat protein, unless the economy shifts dramatically in this period, people will continue to favour chicken rather than beef and lamb.”

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