Strategic planning moved Argentina into a professional mode

 

The poultry meat business in Argentina closes a decade of astonishing growth. Figures are more than evident: only in 2010, it reported a daily slaughter of 2,500,000 birds, a domestic annual consumption of 37 kg per capita, 310,000 tonnes of exports and 67 open international markets, the granting of credit for the sector and the start-up of the second 2010-2017 strategic project (which implies an investment of at least USD 600 millions). Furthermore, it has managed to join an even greater initiative: the national project.

 

There are several reasons to explain the success of the sector. Perhaps, the most decisive reason has been that the sector dared to reinvent itself and to fight against the cash loss it faced at the beginning of the decade. For that matter, it was necessary to design an integral development plan to be maintained through time.

 

When the last decade is reviewed, the capacity the sector has had to recreate itself is clearly noticed. “Year 2000 seems so far away,” recalls Roberto Domenech, president of CEPA (Centro de Empresas Procesadoras Avícolas, the association of poultry processing companies). We didn’t know where we were standing. Stubbornness and the incapacity to get out of the convertibility and, later on, the explosion of the economy model, made us get to 2002 with what was left. Companies survived as they could, with the only hope that this situation would come to an end.”

 

In those years, it was very difficult to get to foreign markets. “We were a competitive sector. From the productive parameters standpoint, we could compete with any other country, but when we got out to the world all we wanted to sell was expensive but our price product ratio was not good. That was the most evident symptom that convertibility was impractical,” states Domenech.

 

In all the sectors of Argentina’s economy, convertibility led to a concentration process in favour of those most powerful. In the agricultural and livestock sector, many small and medium size breeders were left behind. The poultry segment was not alien to that process. However, notwithstanding the economic model implemented since the 90s, “the poultry sector presented, at the very core of its activity, two very severe drawbacks that we suffered even before the convertibility: the first and most important were the endemic crises, always closely related to the second difficulty: the incapacity of the sector to manage its stock, or what we may call compulsive production,” states Domenech.

Also, the poultry sector had a production capacity which was modified according to the time of the year, to the progress of genetics, or to the cost of feed; all these variables modified the chicken offer. In that context, whenever there was an excess in the supply with a low or moderate demand, producers started to lose part of the working capital.

 

Domenech says, “Whenever that point was reached, producers automatically reduced their production and prices lowered. This made consumers increase their demand. But when demand increased, the sector took revenge. “That’s how we were, with a consumer who was not loyal: he appeared whenever it was convenient and left whenever the price increased again. And so we were playing against the relationship we wanted to have with consumers.”

 

By the end of 2001, the economic model completely crashed, causing a social and institutional crisis. Back then, Domenech held a position in the public administration, at the Subsecretaria de Políticas Agropecuarias y Alimentos (Sub-Secretariat of Agricultural Policies and Food). “After the end of convertibility, I had to face difficulties such as the impossibility to obtain corn or soybean, and to make it worse, in the middle of all that chaos, there was another important difficulty: how was the producer going to pay his debts? In that decade, the country overcame what we can call its bankruptcy really fast.” In the second term of 2002, some normalisation signals started to show, mostly due to the acceptance of a change of the economic model and the “pesification”.

From the analyses CEPA made on the situation the poultry business was undergoing, it was possible to come to some conclusions: “In order to avoid recurring crises, to start to revert the present, we had to have greater participation in the exports, we had to broaden our market and not be restricted only to the domestic market and, furthermore, that participation had to be important in relation to our production. From the productive point of view, we had all the chances, but what we lacked was an international competitive price.” In that context, Domenech again insisted on the need to create a comprehensive project for the sector. As a result it stopped asking for magical solutions, set aside the childish attitude of asking for solutions of others and, instead, it decided to become the owner of its own destiny with correct decisions and making mistakes, but becoming responsible for its own destiny.

 

 

Domenech: “Today we see that chicken is included in the plans and projects of our employees, that not only do they see the importance of the sector, but it is also within the project of value addition of the raw materials produced by the country. Furthermore, chicken ceased to be a “substitute meat” and it turned into an “alternative meat”, a change that was necessary and indispensable.” Domenech then moved to become CEPA president and started to draft a 10 page plan for the sector, which would be the foundation stone of the change which was needed. The plan covered the term 2003-2010.

 

“For that matter, we made an inventory: how many birds were left, what was the extent of the production we had, etc. The sector had become very weakened, convertibility had shattered it: by 2003, it had an estimated production of 720,000 to 730,000 tonnes. The second task was to clarify where we wanted to get to. The purpose was a growth pattern of 10% a year, that is to say, to go from the 720,000-730,000 tonnes in 2003 to 1,350,000 tonnes in 2010. Besides, we stated that for 2004 we had to try to reduce the idle capacity,” explains Domenech.

 

At the time these guidelines started to be drafted, additional benefits came up: “We were coming from a “cannibalised” poultry business, if we managed to achieve these goals, we knew there would be growth for all breeders. So far, companies or breeders expected their competitors to become bankrupt or to give up producing so that a space would be created in the market. That was how we lost the main companies.

 

Now, having a strategic project generated a growth opportunity and tranquility for everyone. Cannibalisation, apart from being a disaster, generates a great deal of distrust among all. A project like the one we designed, on the other hand, generated trust in the sector and for the sector,” assures Domenech. Furthermore, the end of the convertibility entailed another essential benefit for the poultry business, he says. “During that period, all we wanted to sell was expensive. That was then reverted. Our production cost made us sell our goods at USD 1,100 per tonne, while with “pesification” we could sell at USD 650 per tonne, and with profit. Until that moment, chickens entered the country at USD 700/750 per tonne from Chile or Brazil. These countries took away our corn and our soybean, they transformed raw material into chicken and they introduced it in a pricing scale that took a toll on our market; from the end of convertibility the price they asked for was impossible for our domestic market to afford,” he explains.

 

“From the moment of these changes, growth went faster than foreseen,” Domenech continues. “We had achieved price stability thanks to the change of course in the policies, and that allowed to generate consumer loyalty. Also there were two transcendent facts which contributed to total growth: the dispute of the government with the national livestock sector, and Thailand’s withdrawal from the international market due to avian flu,” explains Domenech. The poultry sector found a domestic market which demanded everything that was produced and an international market that had to seek a substitute for Thailand in Brazil.

 

Brazil delivered everything it could, but as it was not enough, the attention turned to Argentina and then to Chile. It was the opportunity that the Argentine poultry business had been waiting for. “And we could capitalize that opportunity only because we had a growth project,” says Domenech. “From 2003 to 2005, the Argentine poultry business had grown almost 50%. These growth indexes remained stable, and in 2007, the goal of 1,340,000 tonnes had been achieved three years before. “And additionally, we achieved this goal with an annual consumption of 27 kg per capita. With export figures around 240/250 thousand tonnes”.

 

Success did not stop the hunger for growth. “By 2008, we started from 1,340,000 tonnes and we made a projection for 2010 of a 10% growth,” Domenec continues. “However, in October, the financial American bubble blew up and expanded to the rest of the world. But we could handle the situation by applying the strategic concept we started to build back in 2003.

 

The sector has managed to look to the future, and not only to urgent matters. As I said before, crises did not allow us to build any strategy, everything was conjuncture, everything was an emergency. When we were able to leave this scenario behind, we finally said “let’s plan”, we were saying, at the same time, let’s develop growth strategies; that is, open new markets, know how to behave and manage at the edge of an incoming crisis,” says CEPA´s president.

 

Another tool is the capacity to enter into agreements with the National Government. Thus, when in 2006 a sudden increase of prices of all commodities began and caused the increase of food, the poultry business entered into a strategic agreement with the Government so as to guarantee the price of chicken. “The Government expected to keep food price in order to maintain its redistribution programme and balance between growth and production. For that matter it created compensations, like for chicken. As a result, the retraction of exports in 2008 did not affect us so much because it represented 16/17% of our production (280,000 tonnes were exported). During two months, we intensively served the domestic market and even operated below the agreed prices. Consumer reply was spectacular. Annual consumption of 30 kg per capita, moved up to 31 kg,” explains Domenech.

 

By January 2009, signs of reactivation of the international market started to appear. In April of that same year, the world demand was almost reset. Finally, 2009 ended with 290,000 tonnes of exports, with a domestic per capita consumption of 34.5 kg per year and an annual slaughter of 2,300,000 birds a day.

 

 

“The 600,000 tonnes we are planning to participate with in the world market imply a 5% share of the world market, which are reasonable figures,” he says. If the business today is oriented toward smaller margins, scale and high capital turnover, as pointed out by CEPA’s president, it is critical to finance investments, as they enable to increase the scale and, at the same time, they improve a high capital turnover. “The goals for the next years are to decrease costs, especially in commodities, live and eviscerated chicken, as it is the product which allows the addition of labour, and consequently value, and thus reach the goal the country has to increase its exporter profile. The only way to do so is through financing,” he affirms.

 

“Today we already have seven projects submitted for the so called “Créditos del Bicentenario” (Bicentennial Credit) for big, medium and small size companies. At the same time, private financing starts to appear. In other words, we are facing a new scenario. Furthermore, being included in the national project implies an alteration of the risk assessment, as the country is certain that it is important to develop the poultry business, not only because it demands employment or because it produces an excellent alternative meat, but also because the country is naturally prepared to produce and export it to the world. Risk has decreased,” says Domenech.

 

“Moreover we are well positioned in the negotiations with the EU and I am sure that we are going to achieve a position within that market. This will be key for us, as it is not just a commercial operation, but an opportunity to add more value by cutting the chicken since the EU demands breasts. From that point, we can build the price of leg-thigh, the wings and all the different cuts that can be obtained from chicken,” explains Domenech.

 

Furthermore, it is important to mention the necessity of traceability from the breeding hen to the incubated egg, and a follow-up of all the chickens, which will have an impact on biosecurity. When the achievements made by the poultry sector in the last decade are reviewed, it can be proved that chance had very little influence. Achievement is the consequence of a very long and serious work and, above all, the result of assuming a leading role and planning.

 

As Domenech concludes, “the transformation that the poultry business went through in the last decade would not have been possible 40 years ago.” In other words, that is how a decade went by, that is how a new life began for the Argentinean poultry business.