Big merging in Brazil

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Permalink Reply by Chris Wright on May 19, 2009 at 3:02pm

Fabio,

Although it is extremely early, do you have any idea how or if this will change the poultry and pig production landscape in Brazil? How will this affect international markets?

Chris

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Permalink Reply by Fabio G. Nunes on May 20, 2009 at 11:03am

Chris,

I believe it is still premature to envision, in full, the ample scope of benefits BRF will be able to generate. However, a bunch of things are quite predictable even from the early beginning.

The sinergy between the companies will generate an estimate US$ 1 billion/year savings from the first year onwards. This saving may mean increased profitability for the company, increased competitiveness and even lower sales prices. Assuming it may mean a bit of all, the prices for the meat goods will become cheaper for both domestic and int'l consumers, what may well translate into an increased market shares inside and outside Brazil.

The huge purchasing power from the resulting company may impose a revised price table for suplliers - from corn to package material. Lower inputs prices mean lower operational costs and, finally, more competitiveness. The benefit of this new reality can, expectedly, be extended to smaller companies either, benefiting the entire segment and, at the end the consumers...here and abroad!!!

The size of the new company allied to the domestic and international market shares, increased competitiveness from production to sales, consumers loyalty, brand name strength and negotiation capabilities - SADIA is very, very agressive internationally and enjoy a very strong and recognized brand name abroad - may give BRF a privileged position in the market negotiation table and an uncomparable performance throughout the international meat market. It means there is a big potential opportunity to increase the market share for the meats from Brazil - primarily chicken and turkey, but pork, as well. Not neglectable, though, is the fear the gigantic size of the company can inspire in importing countries, which may prompt protective measures to shield their markets.

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Permalink Reply by Chris Wright on May 21, 2009 at 1:20pm

Fabio,

I appreciate your insights on the future of of this. Here's a blog I just posted - I appreciate your answers to my questions.

BRF Q&A

Finally, the long rumored merger between Brazilian poultry processing giants Sadia and Perdigão was announced this week. Brasil Foods (BRF by its stock market designation) is the new company that results from the merger (see story).

There’s been massive amount of press coverage, but some very basic questions have remained unanswered. I asked a close contact in Brazil some of these questions and now those issues are also being addressed by the media.

Will Sadia and Perdigão continue to operate as separate companies for a year (as has been rumored)?

The companies may formalize the merger only after the CADE, the federal body that regulates companies and market relationships gives its OK. It may well take at least six months for that, or even a little longer. (Apparently there will also be some international input to this.) It does appear that this merger will be approved, and that the Brazilian government had already given an informal OK before the merger was announced.

Executives from both companies have said that nothing is going to change in the near future and that Perdigão and Sadia will continue to operate separately until everything is ready for a real merging of the operations.

BRF is the name for the company that will result from the merger (and it already has its own website: www.brf.com.br). But for now they will coexist as two companies.

What will happen to the brands?

Brands are an important asset for the future of BRF, and they are to be preserved, as executives from both companies have stated. Both companies have strong brand name recognition, not only in Brazil, but in over 110 countries. There should be minimal changes in that area.

How will this change the Brazilian poultry industry landscape?

Hard to tell. Since Perdigão and Sadia were already the top two companies, and no one else was that close behind, not sure if BRF will grow even more, although that is already being assumed by the media.

The Brazilian poultry industry is definitely changing: Tyson Brazil is up and running, and although still relatively small, it has some very aggressive growth plans. Also, Marfrig, a major beef processor, bought into the poultry industry a couple years ago, and then bought Moy Park in Ireland, so it will have a big impact on the industry, in time.

Between BRF, Tyson and Marfrig, the Brazilian poultry industry is in for significant changes in the next couple of years.

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