Treasury clinches chicken deal
End of the line: Chicken still dominate Poland's white mat market.
One of Poland's largest poultry producers was privatized last week when the Treasury Ministry finally clinched a deal with Germany's Lohmann & Co. to acquire a majority stake in Szczecin-based Drobimex Heintz.
Lohmann, a leader in the German poultry market, paid zl. 17.5 million ($4.3 million) in return for about 52% of Drobimex-Heintz. After the deal is finalized later this year, Lohmann will control 78% of the poultry producer. In signing the deal, Lohmann said it would invest at least zl. 25 million ($6.2 million) in the company, half of which would be made during the next two years.
In the works for almost a decade, the completion of the privatization deal not only gives Drobimex-Heintz a chance to recapture market share lost due to the drawn-out sell-off process, it also opens the door to increasing its competitiveness before Poland joins the European Union (EU).
However, while analysts praised the deal as good news for Drobimex-Heintz, they said last week that the company has little chance of regaining its leading position on the domestic market.
While in 1995 Drobimex-Heintz was ranked No. 1 on the market, the past six years of tug of war over the company's future meant a fall to the third-place slot. Not only were investments frozen due to lack of cash, production was sliced by 20%.
"It's too late for it to have a strong position," said Bogna Sikorska, analyst with CDM Pekao. "It's not even in second place any more."
Chicken dominates the white meat sector in Poland and Drobimex-Heintz holds about 4-5% of the market, according to Bodo Engling, the company's president. The undisputed market leader is Drosed, which holds at least a 10% chunk depending on how calculations are made among members of the National Poultry Council. Based in Siedlce, Drosed is controlled by the French giant LDC. The No. 2 position is held by the food conglomerate Animex, which controls roughly 6-8% of the market and whose strategic partner is the U.S.' Smithfield Foods.
For its part, company officials last week said Drobimex-Heintz is positioned for a comeback, but that it will take time.
The company plans to double production by 2004. To achieve this, Drobimex will undertake a tripartite investment strategy, increasing the supply of chickens by investing in reproduction facilities. The company will also move to improve its processing capabilities. The third prong of the turnaround program is to improve the company's marketing and sales networks.
"It's very difficult; it takes years of work," Engling said. "We will have to make up for the time we lost in completing the privatization process."
According to Engling, Lohmann and Drobimex-Heintz share similar priorities, which will ease the expansion process. In particular, both companies exclude purchasing animals on the free market. Also, chickens used in processing are fed only vegetable-based products. Both companies in the past five years have halted purchases of chicken feed with meat and bone meal products.
The move also comes at a key moment for Poland and Europe's poultry industry. While statistics are not clear or consistent, indications are that as with Western Europe poultry consumption in Poland is on the rise as consumers turn their back on red meat in light of the BSE and foot-and-mouth crises.
In 2000 in Western Europe, beef consumption dropped by 10%, according to the Agriculture Ministry's foreign agriculture markets monitoring unit, FAMMU/FAPA. The research unit estimates that poultry production will increase by as much as 20% during the next couple of years.
Signs are that consumption is on the rise as well. According to the agriculture Web page www.ppr.pl, sales at turkey producers Indykpol and Ekodrob have rocketed this year. In the first three months of 2001, Indykpol's sales increased by 49% or zl. 36 million ($9 million) over 2000's first-quarter sales. Ekodrob's first-quarter results also increased by 24% or zl. 5.4 million ($1.35 million) over the first three months of 2000.
Beyond the battle for market share, preparing the sector for EU accession also remains a key challenge facing poultry producers. Like beef and pork producers in Poland, large poultry suppliers face stiff competition from a market glutted with so-called garage producers. In the Polish poultry industry alone there are 500 producers, many of which do not meet EU sanitary norms industry leaders said.
At present only 29 of these companies are permitted to export their products to the EU, according to the Warsaw-based Institute for Agricultural Economics (IERiGZ).
