Trends and developments
As a company, we are at the heart of society. Developments in the food sector, in European livestock farming and in society require us to anticipate what is happening around us. That is the only way that we can remain successful and properly meet the social challenges we are faced with as a company. That is the key to future success.
We can see that the food system within which we operate is facing three challenges – ensuring food security for a growing global population, providing farmers and others working in the food chain with a decent livelihood and improving the environmental sustainability of the sector.
The global population is growing. More food is needed, but the price of food is rising.
The global population is expected to reach 9.8 billion by 2050. This means that there will be many more mouths to feed in a relatively short time from now. Population growth is leading to a 1.4 per cent annual growth in global food consumption, according to the Organisation for Economic Cooperation and Development (OECD) and the Food and Agriculture Organization of the United Nations (FAO).
In 2022, food prices rose sharply worldwide, which was largely caused by the war in Ukraine. The price of food increased by nearly 16 per cent in the past year and an imminent price drop is far from certain, despite the declining prices of agricultural commodities. According to the World Bank, food prices will remain historically high until at least the end of 2024.
Dairy and meat are high on the list of products with the steepest price increases. In addition to increased commodity prices, increased demand plays a role here, combined with effects of drought in various countries.
Major differences in use of animal products worldwide
If food turns out to be unaffordable and unattainable, food security is not a given. Price and accessibility have a reinforcing effect on the level of malnutrition in the world.
There are major differences in the use of animal products worldwide, varying from overconsumption to considerable protein deficiencies. The FAO states that 828 million people suffer from hunger every day. In contrast, the number of people who are obese is over 670 million.
These major differences pose a challenge in terms of better distribution when it comes to the issue of food. On a global scale, we need to move towards a more circular, moderate animal protein consumption that is in keeping with a healthy lifestyle. This certainly applies to consumption in the West, where the vast majority of the VanDrie Group's sales take place.
The EU indicates in Agricultural Outlook 2022 - 2032 that meat consumption in the EU will decrease by 2.2 per cent in 2032 compared to 2022 and that this decrease is also accompanied by a change in the consumption pattern from red meat (beef, veal, pork) to white meat (poultry).
A good income for farmers and workers in the food chain is essential.
Research shows that there a disproportionate profit is not being made anywhere in the chain: each link in the food chain, from farmer to supermarket, has a total net margin of around 3 per cent.Missing Reference The Netherlands has relatively high prices for land and labour and the agricultural sector here is capital-intensive. As in an increasing number of other sectors, more and more competition is coming from abroad, where production prices and/or environmental requirements are often lower.
Compared to their counterparts in other Member States, farmers in the Netherlands are more market-oriented. This results in an above-average income per year worked compared to the rest of Europe. However, fluctuations in income and profitability have traditionally been high on farms. This is partly due to the development of the level of revenues and costs.
There are also major differences in revenues between agricultural businesses. These depend on the chosen market strategy, contracts with customers, company size and set-up, professionalism and management qualities. External events can also have considerable impact. The war in Ukraine is having a major impact on costs such as energy, and the coronavirus outbreak in 2020 and 2021 caused a significant drop in occupancy levels and demand in the veal sector.
Pressure on the labour market
Pressure on the labour market is tangible at processing companies in the food chain. It is difficult to fill vacancies. The total number of employees in the meat processing and wholesale meat industry as a whole increased from 36,100 to 37,400 between 2006 and 2020. The proportion of migrant workers rose from an average of 27 per cent to 37 per cent over the same period. To remain attractive to employees compared to other sectors, employment conditions must move with the times.
A good income for farmers and workers in the food chain is essential, as the new generation of farmers and food producers must steer a course towards modernised production methods in order to meet new requirements regarding environmental sustainability and animal welfare. Without large-scale investment, endurance capacity and sufficient labour capacity, they do not succeed.
Food production is running into environmental use limits.
With the growing demand for food, the demand for natural raw materials is also increasing. Land, water, phosphate and fossil resources are consequently becoming increasingly scarce. However, the impact of increasing food production is also significant: food production, for example, accounts for 26 per cent of global greenhouse gas emissions.
Half of the world's habitable land – land that is ice-free and desert-free – is used for agriculture. Food production must take place without causing irreparable damage to nature. To this end, concrete agreements and policies have been made on a global scale in recent years.
On course towards circular agriculture
In the 2015 Paris Agreement, 195 countries, including the countries in which the VanDrie Group operates, agreed to limit the rise in average global temperatures to well below 2 degrees Celsius by 2050, and 1.5 degrees Celsius where possible. In addition, the Glasgow Climate Change Conference (COP26) in 2021 made concrete commitments to slow down climate change. These include a decision to halt and reverse deforestation by 2030, and to reduce global methane emissions by 30 per cent compared to 2020 by 2030.
In the Netherlands, there are very specific initiatives have been enacted in order to reduce nitrogen emissions, improve biodiversity and restore water quality. The course towards circular agriculture is irreversible. Farmers and companies within the chain will therefore be obliged to make large-scale improvements. Making agriculture more sustainable, as well as making industry more sustainable, the housing and mobility target, and the energy transition are putting a strain on the scarce space in the Netherlands and the government's investment agenda. These important and sometimes conflicting themes and interests have a major impact on the VanDrie Group and its operations.
The impact for the VanDrie Group
The three challenges when creating a sustainable food system – namely food security, a decent livelihood in the chain and improving environmental sustainability – include technological, political, social and economic elements that strongly influence the VanDrie Group's strategy.
Technology
The VanDrie Group needs to make great strides to make its operation and associated processes carbon neutral and minimise nitrogen emissions. The entire footprint of the value chain needs to be aligned with the global climate change mitigation goal.
Short-term implications: there needs to be investment in innovation with regard to stall systems, circular animal feed and the supply chain
Long-term implications: getting to zero emissions involves costs and requires continued commitment
Politics
In the coming years, the VanDrie Group is expecting to see significant political interventions in order to stimulate the protein transition, to tax activities that impose pressure on the environment and to improve the revenue model in the chain. Secure government regulation on these issues is seen as inevitable.
Short-term implications: reduced margin across the value chain, as achieving a surplus value price from consumers is not expected.
Long-term implications: challenges for a fair distribution of costs across the chain and incorporating true cost-price principle into the VanDrie Group's business model.
Social
The VanDrie Group sees a dilemma emerging, now that food prices and inflation are high, access to nutritious protein-rich products has become more difficult for various income groups and there is a desire to factor certain social costs of food production into the price of consumer products. The VanDrie Group also expects further regulation on the employment of temporary workers.
Short-term implications: higher costs not only in the case of contributions to social costs, but also with regard to wage and pension contributions. Less flexibility in hiring employees and an increased necessity to build accommodation for those employees.
Long-term implications: continued urgency to reduce chain cost price. Increasing need for robotisation to address labour shortages and ultimately reduce labour costs in a systematic way.
Economic
As a result of declining animal protein consumption in Western markets, a transition to more white meat and in expectation of significant government measures, the production and sales market for the VanDrie Group will shrink.
Short-term implications: elaboration of plans. The VanDrie Group estimates that in the short and medium term, a contraction of 12.5 to 15 per cent in the number of places for calves in the Netherlands is realistic. This will potentially put pressure on the company's bottom line if there is insufficient focus on creating value in the chain.
Long-term implications: due to an ageing population and government measures, further contraction cannot be ruled out.
In the chapters entitled Strategy and Our Results, you can read more about how we are responding to these influencing elements.