Rising household incomes in developing economies will play into the hands of international food producers this year, particularly those in the business of selling pork. Pig prices in the UK might be at historically high levels and set to remain so, but food producers in the FTSE 350 such as Cranswick (CWK) are benefiting from market growth, less competition from the continent and a resurgence in the popularity of pork, which is now a top alternative for price-conscious shoppers in the UK. Meanwhile, population growth and urbanisation in emerging markets is causing meat consumption to rise.
Cranswick will inevitably benefit from rival Vion's exit from the UK food market, while stricter EU animal welfare regulations, coming into force this month, will push up pig prices on the continent, making European pork less competitive in the UK, where welfare standards are already high, and enabling Cranswick to more easily claw back any raw material cost increase from customers. Overseas, the food producer has been given approval to export pork products to China, which is already boosting sales growth.
In fact, China accounts for 50 per cent of the world's pork market and demand for western-style sausages is growing rapidly. Analysts from Goldman Sachs believe the collagen casings market there will grow by 10 to 15 per cent, as sausage production becomes more industrialised, a major advantage for Devro (DVO). Despite fluctuating exchange rates and rising raw material costs, which forced the sausage casings producer to issue a profit warning in October, the company has huge scope for medium-term growth, and demand for new higher-margin products is growing fast. It is one of the two top players in its market and plans to expand capacity by 8 per cent over the next two years in Europe and Asia.