By Diane Montague
Almost ten years old, Nutreco is just now seeing its first slump in profits after years of astounding growth and success. The year 2002 was not an easy one for the Netherlands based feed-to-food company that saw profits fall for the first time since it was formed in 1994. After six years of substantial year-after-year increases in sales and profits, an unchanged net income in 2001 has been followed by a substantial fall in 2002. Net income after tax was down 25% from €91.6 million (about U.S. 98.8 million) in 2001 to €68.2m last year, while sales fell by 0.7% from €3,835.3m to €3,809.6m.
As one of the world’s largest producers of fish food and farmed fish, Nutreco was hit by a sudden year-end surge in salmon production in Norway and Chile, causing prices and profit margins to be slashed. Although some of the price pressures were offset by dramatic increases in salmon consumption in the U.S., Japan and the E.U., income from aquaculture fell by more than 32%. Results from the group’s agricultural division were a little better, but low prices for poultry and poultry products particularly in Spain and the Benelux countries also reduced income from these activities by nearly 11%.
The results for 2002 are the first real check in the spectacular growth of a company that has been built on the economically vulnerable markets of pigs, poultry, animal feeds and fish farming. Through a combination of acquisition and organic growth, Nutreco has become the world’s leading producer of fish food with an output of more than 1.1 million tonnes, accounting for some 40% of the salmon and trout feed market. Its annual production of 180,000 tonnes accounts for 17% of the world’s farmed fish production and makes it the world’s largest producer of salmon and sea trout.
Through its agricultural division, which is involved in the integrated production of pig and poultry meat, pig and poultry breeding, feed manufacturing and meat processing, it is the largest feed compounder in the highly fragmented European market with a 4% share and a 19% share of the European pre-mix market. Total production of compound feeds, concentrates and pre-mixes is currently around five million tonnes. It produces some 230,000 tonnes of poultry meat and 240,000 tonnes of pig meat. It is the leading producer of poultry meat in Spain and a major producer of poultry and pig meat products in the Benelux countries.
Between them, the aquaculture and agriculture divisions have more than 120 production and processing units operating in 22 countries and employ around 13,000 people.
The fact that Nutreco (the name is a combination of the words Nutrition, Ecology and Economy) has managed to grow in what are regarded as very difficult areas in difficult times, is due to a combination of shrewd management, a concentration on production, quality, technical expertise — and an element of luck.
Rooted in success
Although Nutreco itself is only nine years old, the companies on which it has been built — Skretting, Hendrix and Trouw — are much older. The oldest, Skretting, was formed over 100 years ago in Norway. It began trading as an agricultural merchant and was one of the first companies to produce fish feed in 1963. In the Netherlands, Hendrix started trading as an agricultural merchant in the 1930s, dealing in seed, grain, potatoes and fertilizers. It later moved into poultry breeding and was an early pioneer of the integrated food chain. Trouw also began in the Netherlands in the 1930s where it developed new ideas for the production of mineral additives for animal feeds. In the 1950s it began to produce the first pre-mixes for farm livestock and feed for fish.
The events which were to form the basis of Nutreco began in the early 1970s when BP, one of the world’s major oil companies, decided to invest in agriculture and food production as a diversification from the oil business.
BP set up a company called BP Proteins to develop a new synthetic protein, Toprina. A state-of-the-art plant was built on the Italian island of Sardinia. Recognizing the need for technical know-how of animal nutrition in developing the product, in 1975 BP bought the specialty feed companies Trouw International in Holland and Cooper Nutrition Products in the U.K. The two companies were merged in 1976 and renamed BP Nutrition. However problems with the Italian government over approval for the commercial use of Toprina, coupled with a steep rise in oil prices, which made production of oil-based proteins uncompetitive, led to the project being abandoned in 1978.
Instead, BP decided to go on to develop an integrated feed and food business on conventional lines. In 1979 it bought the Dutch feed manufacturer Hendrix Fabrieken, followed by the Spanish feed companies NANTA (Nueva Asociacion para Nutricion et Tecnicas Alimenticia) and Sada and Pingo the poultry producer. The foundations of the fish farming side were laid about this time with the purchase of Moore Clarke in Canada and the move in 1981 by Trouw Chile into fish food production.
By the mid-1980s BPN had become one of the largest feed manufacturers in Europe with some 40 production units operating in 10 European countries and an annual production of 3.7 million tonnes. In a move that made it the largest feed manufacturer in the world, it bought Purina Mills, the largest feed manufacturer in the U.S., from parent company Ralston Purina for U.S.$550 million. During the late 1980s BPN also diversified into pet foods, seed breeding and grain trading with the purchase of Tradigrain. In 1989 BP Nutrition had the third largest turnover in the BP group after oils and chemicals. But by then, profits were already beginning to slide.
At the beginning of the 1990s, BP decided that agriculture was no longer a core business. The fashion among the multinationals for diversification was waning; CAP reforms were biting and BP’s love affair with agriculture and food had come to an end.
Amid the recession and plunging profits of 1992, BPN was put up for sale. The breakup of the group began in 1993 when Purina Mills was bought by its management team for $425 million, the pet food business was sold to the U.K. agribusiness group Dalgety, and Tradigrain was bought by U.S.-based Farmland Industries. In 1994 the core businesses of BPN were bought out by its management team for $425 million, forming a new company called Nutreco.
A running start
Nutreco established its new headquarters in the Netherlands and began a period of reorganization and consolidation during which the business was divided into the two main streams of agriculture and aquaculture. These are reflected in the company’s green and blue logo, representing its land and water-based activities. Then in 1997 Nutreco floated its shares on the Amsterdam Stock Exchange.
This provided access to funds for a new and rapid period of expansion. Over the next five years, Nutreco acquired more than 25 companies in Europe and North and South America. These included businesses in feed compounding, pre-mixes, fish farming and processing, pig and poultry breeding and pig and poultry meat production and processing.
Among them were two of the world’s largest fish farming enterprises — Marine Harvest McConnell, the second largest salmon producer in the world, and Hydro Seafood, the largest Atlantic salmon producer and processor with a global market share of 11%. These acquisitions marked a major step in Nutreco’s involvement in fish farming,
giving the group significant market shares in two fast expanding markets of Atlantic salmon and salmon trout feed. In 2001 it made its first move into Australia with the purchase of Pivot Aquaculture, the leading fish feed manufacturer in South East Asia.
The agriculture division made a major move into the U.S. in the same year with the acquisition of Ducoa, a premix business originally established as a joint venture by DuPont and ConAgra and subsequently bought out by its management. In its poultry meat processing sector, the purchase of Agrovic in Spain to add to the activities of feed manufacturer NANTA and poultry producer Sada, gave Nutreco a leading position in the Spanish poultry market with a fully integrated operation stretching from breeding to the supply of branded, added-value products for food outlets. Nutreco’s activities in Spain underline the group’s growth policy of building links through the production chain.
The structure of the organization with the aquaculture and agriculture divisions has been designed to take full advantage of the benefits of integration while at the same time operating a system of decentralized management that enables businesses to react to the varying needs of farmers and consumers in each country.
The aquaculture division has two operating groups that cover feed and fish production and processing. The fish feed business group has feed manufacturing operations in Europe, North and South America, and Asia Pacific. In addition to salmon and trout, the fish feed division produces specialty food for more than 50 species including sea bass, sea bream, eel, yellowtail, cod and halibut. The Trouw Chile plant is the largest fish feed plant in the world.
The salmon business group covers farming, processing and marketing. Operating as Marine Harvest, the group has salmon farming businesses in Norway, Chile, Canada, Scotland and Ireland and the South Pacific, while other marine species are also farmed in Europe. It operates at more than 200 locations and has 11 primary processing plants plus six dedicated to further processing. They supply the wholesale and retail markets as well as the food service industry.
INTO THE FUTURE
Operating in the relatively new market of fish farming research and development is seen as crucial to the company’s expansion and success. The research and development division is based in Stavanger, Norway, and is one of the few dedicated to aquaculture research and analysis. Other research units run by Nutreco in Norway, Canada, Chile, France and Scotland are involved in bringing to commercial farming practice the R&D developments focussed on nutrition, health, husbandry and feed management.
Research work on other species such as sea bass and sea bream is carried out in Spain and Israel, on eels in Germany, the Netherlands and Denmark and on yellowtail in Japan. In Norway a project for the commercial production of cod to fill the gap in falling supplies of wild cod is nearing completion. Commercially farmed cod is expected to be available for the first time in 2004. Its project for farmed halibut is now also being scaled up to commercial-sized trials.
In its research programs, Nutreco aims to combine technical developments with welfare and environmental improvements.
In fish farming one of the main objectives is to keep down levels of PCBs and dioxins. This involves identifying specific sources of fish meals and oils and working on ways of making increasing use of vegetable oils. One of the most exciting developments has been a new starter feed for very young fish fry that provides the correct levels of nutrition at a critical stage in the development of young fish.
Nutreco’s agriculture division similarly covers the complete food chain from breeding to feeding, poultry production and processing and pork processing. Breeding activities are run by Euribrid and include producing livestock for poultry meat and eggs, pork and turkey meat for the American and Canadian markets. It provides day-old parent chicks, artificial insemination products, breeding sows and boars, turkey poults and hatching eggs.
The feed businesses are involved in specialty feeds and compounding. Trouw Nutrition produces premixes, concentrates, feed additives, young animal feeds and home-mix minerals. It supplies independent feed compounders, integrated production units, merchants and individual farmers as well as companies within the group. Nutreco’s main feed compounding operations are in Spain and Portugal and the Benelux countries.
It produces a wide range of feeds for poultry, pigs, ruminants, rabbits and other livestock, supplying its own production units and the market. It also has feed manufacturing units in Germany, Poland, Hungary and South East Asia.
The company’s main poultry and meat processing plants are in Spain and the Benelux countries. Sada, with 10 plants, is Spain’s leading broiler processor supplying both the food industry and the retail market. Pingo Poultry is a leading supplier of poultry products to retailers and meat processors in Belgium and The Netherlands as well an important supplier to markets in France, Germany and the U.K. The main pig business handled by the Hendrix Meat Group in the Netherlands supplies pork and related products to further processors, wholesalers and retailers throughout Europe.
The agriculture division’s research operation is involved in breeding, nutrition, animal health and welfare and environmental aspects. Poultry research is centered in Madrid, Spain, while research on pigs is based at the Swine Research Centre near Boxmeer, the Netherlands. The research center for ruminants is also at Boxmeer; there is a unit supporting commercial operations for rabbits and turkeys in Vigny in France.
Specific projects include the development of feeds for very young animals and systems for producing high quality chicken raised under ecologically friendly conditions. One of the recent research projects to have reached commercialization is the development of Greenline products, which provide a totally antibiotic-free alternative to growth promoters.
Projects like these are in direct response to the changes in consumer attitudes. The company believes that one of its important strengths is its involvement in the complete food chain. Although Nutreco’s founding companies started life as basic producers of feeds and fish and livestock products, they began to move steadily down the food chain towards end markets as the advantages of integration and opportunities for added value became clear.
This has meant moving into basic and further processing to supply wholesalers and the food service industry as well as the retail trade. The rapidly expanding market for prepared foods both for consumers and the catering industry has created new demands for livestock products with tight specifications. By being involved in breeding, feeding, production and processing, Nutreco believes it can react to changing market conditions quickly and introduce new products by identifying product opportunities and meeting the demands in evolving patterns of food consumption.
The single production chain has also enabled Nutreco to introduce quality assurance schemes like the Feed-to-Food Programme in the Netherlands which covers the whole chain from raw material purchasing, feed production and feeding, on-farm handling of stock and product processing.
Food safety and environmental factors are among the challenges facing companies like Nutreco in the future.
On the highly charged subject of genetically modified foods, Nutreco says that it is almost impossible to guarantee totally 100% GM-free material because of the potential for contamination in handling, storage and transport. But since research has not revealed any harmful effects caused by GM varieties it feels there is no reason to believe they are unsafe. It is, however, introducing a system of identity-preserved raw materials and one of the Hendrix plants produces a range of GM-free feeds.
On the fish side, the industry as a whole has come in for considerable criticism for polluting coastal waters around the farms and damaging the habit for natural species. Nutreco is working on the development of more efficient feeds and improvements in feed management that have reduced the amount of uneaten feed. It is also setting up new sites further off shore where the carrying capacity of water is higher and there is more water movement.
Despite the setback in last year’s figures, Nutreco believes it is in a good position to take advantage of the continuing opportunities in the food market. Although the demand for pig meat in Europe is expected to stabilize, consumption of poultry products is expected to increase.
There are still plans for expanding further on an international basis, especially with premixes and concentrates. At the moment its agricultural activities account for two thirds of total sales and just over 50% of profits while aquaculture accounts for one third of sales and 48% of profits — but this ratio is likely to change with the potential increase in world demand for fish products. This applies particularly to the U.S. where salmon consumption has risen by 23% in the last two years, while consumption in Japan has risen by 16% and in Europe by 7%.
The company’s success so far has been in identifying trends in the food industry and developing ways to meet them.