A large number of mergers and takeovers have taken place in the Brazilian food industry over the past year. A major meat company is now situated in Sao Paulo, Brazil. The new company, Brasil Foods, is the result of the merger of Perdigão and Sadia. Being big is the way ahead, José Antonio do Prado Fay, CEO, Brasil Foods, told World Poultry.
By Ad Bal and Vincent ter Beek
The merger between Perdigão and Sadia was announced in early 2009 after several months of discussions. Antitrust authorities, however, need to review the plans, so at this moment, definite approval for the merger is not expected until the first half of 2010. The main obstacle in this process is new Brasil Foods’ dominance in certain domestic markets, mainly regarding frozen foods. The market situation is currently under review in order to define the real size of each market and the share of Brasil Foods. Until final approval is given, both original companies will keep functioning separately, although the shareholders’ base of Brasil Foods constitutes members from both previous companies.
The name Brasil Foods is intended to be only the name of the holding company; brand names like Perdigão, Sadia and Batavo (for dairy products) are said to continue ‘forever’. The new company will be active in over 100 countries worldwide.
José Antonio do Prado Fay
José Antonio do Prado Fay graduated in mechanical engineering at the Federal University of Rio de Janeiro and gained a postgraduate degree in equipment engineering from the COPPE/Petrobrás, one of the most prestigious centres of learning and research in engineering in Latin America. In his professional career he has worked as a top manager for companies in a variety of industry sectors. These include Petrobras (oil and derivatives), Bunge (food), Electrolux (household appliances) and Batávia S/A (food). He joined Perdigão in 2007. As CEO of BRF – Brasil Foods S.A. (current name of Perdigão), he heads one of the leading companies in the food sector in Brazil.
What was the main reason for Perdigão and Sadia to merge?
José do Prado Fay: “We face a very, very competitive market, and we believe that although we operate in the same business, we have a lot of complementarity. The main reason for this merger is to be stronger in external markets, and to accelerate our internationalisation process.”
So the current size of the companies was not enough to expand in this way?
JPF: “The companies separately were two big companies and were two important players, mostly for poultry in the global market. But together we can expand better, and more quickly than if we keep functioning separately.”
Did the current financial crisis influence the ongoing merger process?
JPF: “Depending on your financial position, the crisis can bring opportunities. I think you can grow further or become weaker, according to your strategy. I expect that merger processes will continue in 2010, not only in the food industry, but throughout the entire chain.”
Will you focus on poultry again?
JPF: “Yes, we are in the food business and we consider ourselves to be a branded company, mainly in the food market. Poultry is our main speciality – it’s the origin of our company, but it’s not the only protein product that we produce. Milk and margarine are also a part of our portfolio. To maintain steady growth in the food business, poultry is very important. Poultry and poultry derivatives constitute at least half of our entire business, but the focus is on further processed and branded products.”
Perdigão has seen double-digit growth. Do you expect the same for Brazil Foods?
JPF: “Of course! We also want to continue to speed up our growth. But first, however, we will have a period when we will be very involved and focused on this merger and the integration of these two big companies.”
Where will that growth come from? Is that organic growth or do you expect more acquisitions?
JPF: “Acquisitions will continue in the future. We want to grow quickly and therefore consider acquisitions to be very important. These will primarily be in new categories in the internal market, in other kinds of branded food, as well as branded products, and will depend on the opportunities that come. If an opportunity fits in with our branding strategy then we will analyse it.”
Do you have any specific regions in the world where you intend to grow?
JPF: “Asia is an important area, as well as the Americas, from Northern America down to the south of Chile. We also intend to expand our business in Europe, where we already have two processing plants.”
Does Brasil Foods have any poultry farms of its own, or are there only contract growers?
JPF: “We run our business under integrated growers contracts. We do not have any farms ourselves, except for R&D and multiplication purposes.”
How do you control product quality?
JPF: “This is extremely important! We can control everything, like poultry from the egg to the grill, depending on the bird that we are growing. This is because we supply all the materials to the farmers - everything they need comes from us, including feed and medicine.”
Where does Brasil Foods get its feed from?
JPF: “We have many feed mills. Poultry feed is delivered to the farmers, already formulated and so on. We buy soybean meal and corn, as well as all the macro and micro ingredients that are used in the formulation of the poultry feed. The farmers, therefore, receive feed that is completely ready to be fed to the birds.”
What does the breeding structure at Brasil Foods look like?
JPF: “We import grandparent stock as well as the genetic line. For the poultry sector these are Cobb and Ross lines. The majority of multiplication of the genetic material is done by Brasil Foods itself. Some of the breeders are also on contract.”
What do you think is the main advantage of becoming one of the world’s largest food integrators?
JPF: “Throughout the value chain one can see some concentration, from our suppliers to our clients. So, to be profitable in this environment, it is proven important to be big, and to be strong. Additionally, in order to protect profitability, we need to have the capacity to distribute our products to all regions of the world.”
Do you think that integrations will dominate the international meat market in the future?
JPF: “Yes! There are some Brazilian companies, most of which are based on beef, that are integrating a lot, such as JBS and Pilgrim’s Pride. I Headquarters: São Paulo, Brazil Key markets: Poultry, pork/beef, specialty meats Net sales, first six months of 2009: R$5.31 billion (US$2.97 billion) • Poultry 457,900 tonnes (-0.6%; year-on-year) • Pork/beef 92,800 tonnes (+3.8%) • Processed meat 374,400 tonnes (-7.3%) Adjusted net income, first six months of 2009: R$35 million (US$20 million) Main brands: Perdigão, Perdix, Sadia, Batavo, Elegê Active in: 110 countries, including Brazil Number of employees: Approx. 105,000 Sales by market, first six months of 2009: Export 43.3%, domestic market 56.7% think that in the future of the protein business there will be strong global companies from Brazil as the country is a strong competitor with many advantages.”
What are those advantages?
JPF: “Brazil has unique conditions that are suitable for expansion. We have a very good climate, a sunny land as well as plenty of available fresh water, which is very important for food production and processing. In addition, we also have good feed exporting conditions as we have raw materials such as corn and soybeans, and this can be done without touching the Amazon rainforest area – as we are based in the southern end of Brazil.”