11292 horse & other equine production in the us industry report (1).pdf

WWW.IBISWORLD.COM Horse & Other Equine Production in the US November 2014 1

IBISWorld Industry Report 11292Horse & Other Equine Production in the USNovember 2014 Antal Neville

Saddling up: Increased disposable incomes will boost spending on race and recreational horses

2 About this Industry2 Industry Definition

2 Main Activities

2 Similar Industries

3 Additional Resources

4 Industry at a Glance

5 Industry Performance5 Executive Summary

5 Key External Drivers

7 Current Performance

9 Industry Outlook

11 Industry Life Cycle

13 Products & Markets13 Supply Chain

13 Products & Services

14 Demand Determinants

16 Major Markets

17 International Trade

19 Business Locations

22 Competitive Landscape22 Market Share Concentration

22 Key Success Factors

22 Cost Structure Benchmarks

24 Basis of Competition

25 Barriers to Entry

25 Industry Globalization

27 Major Companies

28 Operating Conditions28 Capital Intensity

29 Technology & Systems

30 Revenue Volatility

30 Regulation & Policy

31 Industry Assistance

33 Key Statistics33 Industry Data

33 Annual Change

33 Key Ratios

34 Jargon & Glossary

www.ibisworld.com | 1-800-330-3772 | [email protected]


Establishments in this industry breed and raise horses, mules, donkeys and other equines (mammals belonging to the Equidae family) for transportation,

racing events, rodeo competitions and other recreational sports. These establishments are commonly referred to as ranches, farms or studs.

The primary activities of this industry are

Producing and raising burros

Producing and raising donkeys

Producing and raising horses

Producing and raising mules

Producing and raising ponies

11199 Hay & Crop Farming in the USEquines subsist on a diet of hay, oats and other crops, much of which are produced by the Hay and Crop Farming industry.

11521 Livestock Production Support Services in the USEstablishments primarily engaged in equine boarding are classified in this industry.

42452 Cattle & Hog Wholesaling in the USEquine producers buy and sell their livestock through specialist wholesalers in this industry.

71121b Racing & Individual Sports in the USEquine owners enter horses in racing or other spectator sporting events.

Industry Definition

Main Activities

Similar Industries

About this Industry

The major products and services in this industry are

Mules, burros and donkeys

Racehorses

Show horses

Thoroughbred breeding mares

Thoroughbred breeding stallions

Thoroughbred foals

Other horses and equines


About this Industry

For additional information on this industry

www.agcensus.usda.gov/index.php Agricultural Census

www.horsecouncil.org American Horse Council

www.bloodhorse.com Blood-Horse

www.census.gov US Census Bureau

Additional Resources

IBISWorld writes over 700 US industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.com


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Demand from racing and individual sports

SOURCE: WWW.IBISWORLD.COM

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Revenue Employment

Revenue vs. employment growth

Products and services segmentation (2014)

52.9%Other horses and equines

1.9%Racehorses

19.8%Show horses

0.8%Thoroughbred

breeding stallions

11.3%Thoroughbred breeding mares

7.5%Mules, burros and donkeys

5.8%Thoroughbred foals


Key Statistics Snapshot

Industry at a GlanceHorse & Other Equine Production in 2014

Industry Structure Life Cycle Stage Mature

Revenue Volatility Medium

Capital Intensity High

Industry Assistance Low

Concentration Level Low

Regulation Level Medium

Technology Change Medium

Barriers to Entry Medium

Industry Globalization High

Competition Level Medium

Revenue

$1.5bnProfit

$117.2mExports

$362.8mBusinesses

168,776

Annual Growth 14-19

1.8%Annual Growth 09-14

-4.1%

Key External DriversDemand from racing and individual sportsPer capita disposable incomeConsumer Confidence IndexTrade-weighted indexPrice of feed

Market ShareThere are no Major Players in this industry

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FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 33



Key External Drivers Demand from racing and individual sportsHorse racing and related sporting events demand horses as the main feature for recreation and entertainment purposes. An increase in horse racing will raise demand for horses bred to participate in such activities, lifting revenue. Revenue for racing and individual sports is expected to increase during 2015, presenting a potential opportunity for the industry.

Per capita disposable incomeDemand for horses is sensitive to household disposable income as horses are an expensive discretionary purchase, and annual maintenance, such as food, boarding, training and veterinary services can cost into the thousands. Consumers with higher disposable income are generally more able to afford recreational horses. Per capita disposable income is expected to increase slowly in 2015.

Executive Summary

Revenue for the Horse and Other Equine Production industry was on an upward trend until the recession severely weakened demand for horses. Downstream demand for the industry’s horses is mainly dependent on household disposable income, activity in the horse racing industry and the popularity of horses for recreation. Due to the onset of the recession in 2009, demand fell, causing revenue to plummet that year and in several subsequent years. The industry is not expected to recover to prerecessionary levels; revenue is

anticipated to fall at an annualized rate of 4.1% to $1.5 billion in the five years to 2014. The decline is mainly attributed to the drop in big-ticket purchases during the recession, but the industry has also been negatively affected by less participation overall in horse-racing activities. Renewed demand is expected to lead to 1.9% revenue growth in 2014.

The recession also negatively impacted profit margins. As fewer people had the disposable income for purchases of new horses, breeders had to drop their prices to accommodate the buying market.

Many did not make up the costs that went into producing these horses, and the industry recorded comparably low margins throughout the past five years. Profit margins have inched back up, but are still below precessionary levels. As a number of breeding facilities failed to make ends meet, many left the industry, spreading out the inventory of horses and other equines to specialized breeding facilities as well as to generic boarding facilities. Therefore, participation in the industry has grown in the past five years, increasing an annualized 1.7% to 174,799 establishments in the five years to 2014.

The industry is forecast to grow slowly but consistently in the next five years due to further recovery in consumers’ disposable income, which will prompt increased demand for these discretionary purchases. Similarly, consumers with more spending money will attend or take part in horse racing related activities, such as gambling. These factors will enable racing facilities to generate more revenue and, therefore, offer larger amounts of prize money to incentivize racers to participate. Racers will then demand more Thoroughbreds, which are known for their high quality performance. Additionally, increased exports will facilitate revenue growth. As a result, revenue is forecast to rise at an average annual rate of 1.8% to $1.6 billion in the five years to 2019.

Industry PerformanceExecutive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage

Profit margins have inched back up, but are still below precessionary levels


Industry Performance

Key External Driverscontinued

Consumer Confidence IndexBecause horse races can be an expensive and risky investment, Thoroughbred demand is particularly sensitive to consumer sentiment. A higher consumer sentiment makes people more willing to make these investments, in addition to participating in related activities, such as gambling. The consumer confidence index is expected to increase during 2015.

Trade-weighted indexExchange rates affect the price competitiveness of this industry’s exports. An appreciation of the American dollar makes US horses relatively more

expensive to the global market, making them less attractive to purchase, in turn, negatively affecting export earnings. The trade-weighted index is expected to increase in 2015, representing a potential threat to the industry.

Price of feedA rise in the domestic prices of feed for horses increases operating costs for horse ranches. If firms elect to pass these costs on to downstream buyers in the form of higher prices, demand can fall. Generally, a higher price of inputs like feed causes operators to reduce the number of horses kept. The price of feed is expected to fall during 2015.

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Thoroughbred racing and breeding

Demand for racehorses and stud services, or horse breeding services, is influenced by the prize money available to race participants in the United States and abroad. In turn, the amount of prize money depends on earnings from admissions tickets and revenue from spectators’ gambling activity. Over the past decade, downstream demand from horse racing has been on the decline, partly due to the recession. With less disposable income, Americans were less willing to participate in risky gambling on horse races, so racing facilities earned less money from gamblers, which trickled down as smaller prize money offers. This trend led the total Thoroughbred foal crop, or number of pedigreed baby Thoroughbreds born, to fall in each of the past five years. According to The Jockey Club, a racing association, the foal crop declined 2.2% from 22,500 in 2012 to 22,000 in 2013. This figure is down from a high of close to 40,000 in 2005. Consequently, revenue from breeding racing Thoroughbreds has decreased.

In addition to the economic environment, horse racing has been under pressure due to competition from other forms of gambling, such as casinos and sports betting. Furthermore, according to racing news source The Paulick Report, the racing industry is under scrutiny as a result of infighting about the division of wagering revenue,

public concern about the treatment of retired racehorses and an NTRA that is limited in its marketing and strategy development for the industry.

However, consumers have not completely lost interest in horse racing. In fact, viewership of televised events has increased. For example, the Belmont Stakes drew in 20.6 million viewers in 2014 when the Triple Crown was at stake, up from 7.0 million viewers in 2013. The tune-in was the second-largest on record for the Stakes, trailing only the 2004 race when another Triple Crown was at stake. The Rolex Equestrian Championship is another annual horse racing event that is gaining slightly higher viewership. As viewership and interest spreads and disposable income increases, the decline in betting has slowed. In addition, the increasing popularity of racinos, combination race tracks and casinos, in the past decade has helped generate more interest for the sport in the past several years. As a result, despite the five-year overall decline, revenue is expected to grow 1.9% in 2014.

Although the Horse and Other Equine Production industry was growing, any progress was stamped out during and following the recession. Downstream demand is largely determined by disposable income, activity in the horse racing industry, popularity of horses for recreation and export activity. When disposable income plummeted during the recession, consumers became less willing

to purchase these animals, which represent a considerable expense for both the casual rider and competing professional. Thus, demand fell, causing revenue to plunge in 2009 and continue to drop through 2012. Though growth has resumed slightly, the industry has yet to recover. Revenue is expected to fall 4.1% per year on average to $1.5 billion in the five years to 2014.

Current Performance

Competition from other forms of gaming affects demand for race horse production



International trade Although horses and other equines are difficult to transport, international trade remains an important industry activity. Exports make up an estimated 24.5% of revenue in 2014. America is a leading horse-breeding nation that produces well-pedigreed race horses and show horses. Buyers looking for high-performing horses often shop on a global market, including in the United States. The majority of sales value of exported horses comes from buyers in countries where equine sports are popular, including the United Kingdom and Japan. However, as fewer Thoroughbreds and other high-price horses were bred in

the United States in the past few years, the value of exports also dropped, declining an annualized 6.7% to $362.8 million in the past five years.

Despite the United States’ leadership in horse breeding, other countries also specialize in industry activities. Breeders in Europe produce lines of horses that are prized in disciplines outside of racing, including dressage and jumping. As the popularity of these showing events has remained strong, demand for suitable horses, such as Warmbloods, has increased. In the past five years, the value of imports has risen 7.0% per year on average to $324.2 million in 2014.

Profit margins for the industry are traditionally high, particularly for Thoroughbred racehorses, which are bred specifically for high quality performance. But extremely low demand for these animals led operators to slash their prices for these animals starting in 2009. In addition, the volatile cost of hay rose dramatically in 2008 and 2012, parallel to corn prices. In addition to being a major input for cow, hog and chicken feed, corn’s major role as an input for biofuel production has placed upward pressure on its price. Since hay is also a feed crop, its price often fluctuates with the price of corn. In order to counteract these high costs and soften profit declines, firms reduced their man hours. Industry wages have

fallen an annualized 1.2% to $273.3 million in the five years to 2014.

Reduced profit forced many higher-end breeding facilities to shut their doors and exit the industry. Nevertheless, the total inventory of horses has risen, and they are less concentrated in specialized facilities. The number of establishments has consequently risen 1.7% per year on average to 174,799 in the five years to 2014.

Profit and industry participation A decline in profit has

contracted the number of horse farms and ranch locations



Profit expansion Increasing demand for horses will allow operators to raise their prices from recessionary lows. Also, Thoroughbreds demand a price premium for their perceived superior bloodline and are forecast to experience greater demand from the racing industry, boosting profit margins. In addition, hay prices are

anticipated to be less volatile in the next five years. Consequently, the industry’s profit margin is expected to expand in the next five years. Consolidation that occurred in the past five years will also support profit expansion in the future period due to the increased efficiencies of larger operations.

In the next five years, the Horse and Other Equine Production industry is forecast to grow consistently while still remaining under prerecessionary levels. Continued recovery in factors affecting downstream demand for the industry’s animals and services will benefit revenue. For example, higher disposable income, in addition to greater participation and stronger interest in equestrian sports, will play a key role in stimulating demand. Although imports will pose a threat to the domestic market, the industry will benefit from export growth. In light of these positive factors, revenue is forecast to increase at an average annual rate of 1.8% to $1.6 billion over the five years to 2019.

Industry Outlook

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Revenue Exports

Revenue vs. exports


In the five years to 2019, continued economic recovery will allow disposable income to rise at a forecast 2.5% per year on average. Since horses and other equines are considered expensive luxury goods, higher disposable income will encourage consumers to buy these animals for equestrian and recreational purposes. Larger amounts of spending money will also encourage consumers to pay for activities, such as riding lessons and scenic tours conducted on horseback, which will cause these downstream enterprises to purchase more horses from horse breeders.

By the same token, consumers with higher disposable incomes are typically more willing to gamble on horse races, creating more interest and driving up

attendance for these types of events. Facilities that combine racetracks and casinos, known as racinos, are expected to increase. Some will even upgrade from having only video lottery terminals (i.e. slot machines) to having card tables with live dealers. As racing facilities gain more revenue from admission tickets and spectators’ gambling activity, they will be able to offer larger prize money packages. These larger prize purses will give race teams more incentive to compete. Furthermore, to better their chances, racers will demand more of the expensive Thoroughbred horses that were bred for high quality racing performance, boosting industry revenue with sales of Thoroughbred race horses.

Turnaround in horse racing



As horse breeding becomes a more profitable industry, breeders that once left during the recession will reenter, as these operators already have the specialized experience and knowledge necessary for running a breeding facility. Growing profitability will also attract new entrants who have the appropriate resources to enter the industry. Therefore, the number of establishments is anticipated to rise at an average annual

rate of 1.4% to 187,291 in the five years to 2019. Similarly, the more farms in operation will require more workers. The number of employees is forecast to increase 0.4% per year on average to 895,736 in the same five-year period. The trend of horse farm movement to states with protected farmland is also expected to continue well into the future and further support establishment and employee growth.

Profit expansion continued

Despite growing demand in foreign markets, exports will continue to fall as the US dollar appreciates, making US-bred horses more expensive on the international market. Nevertheless, the use of shuttle stallions (i.e. studs that are shipped to different parts of the world depending on breeding seasons) is projected to increase internationally, partially tempering declining demand for exports. As a result of these factors, exports are expected to fall 2.4% per year on average to $322.0 million in the next five years.

However, the industry will face competition from imports due to an appreciating dollar. When the dollar

appreciates, foreign products are relatively less expensive to the domestic market, making them more attractive to purchase. Imports of specialty breeds not traditionally bred in the United States, including European Warmblood breeds, will continue to drive much of this demand, Imports are projected to rise an annualized rate of 7.0% to $454.7 million in the five years to 2019.

Trade conditions The risk of equine diseases indicates the importance of biosecurity in the industry


Industry PerformanceProducts and services enjoy wholehearted market acceptanceProduct development is limitedIVA is expected to grow at a slower rate than GDP during the 10 years to 2019

Life Cycle Stage


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DeclineShrinking economicimportance

Quality GrowthHigh growth in economic importance; weaker companies close down; developed technology and markets

MaturityCompany consolidation;level of economic importance stable

Quantity GrowthMany new companies; minor growth in economic importance; substantial technology change

Key Features of a Mature Industry

Revenue grows at same pace as economyCompany numbers stabilize; M&A stageEstablished technology & processesTotal market acceptance of product & brandRationalization of low margin products & brands

Hay & Crop Farming Tractors & Agricultural Machinery Manufacturing

Livestock Production Support Services

Farm, Lawn & Garden Equipment Wholesaling

Cattle & Hog Wholesaling

Horse & Other Equine Production



Industry Life Cycle The Horse and Other Equine Production industry is expected to grow at a similar rate to the overall economy in the 10 years to 2019. Although demand for these animals fell considerably in years during and following the recession due to low disposable income, the industry is forecast to recover over the next five years. In addition, profit is anticipated to expand in the next five years. As a result, in the 10 years to 2019, IBISWorld projects the industry’s contribution to the economy, as measured by the industry value added (IVA), to increase at an annualized rate of 1.1%. Over the same period, GDP is forecast to rise at an average annual rate of 2.5%. As such, the industry is in the mature stage of its life cycle.

Although considered a luxury, there is a consistency of demand from particular

segments of society for racehorses, show horses and horses for recreational use. This consistent base of demand makes industry growth fairly reliable. Furthermore, horse racing and other professional equestrian sports, including show jumping and dressage, are widely recognized and practiced internationally, from novice levels up to the Olympics.

The structure of this industry’s products and services, though, leads to little product innovation, which is common to many mature industries. Product innovation for the Horse and Other Equine Production industry typically refers to the variations within horses’ bloodlines. Thoroughbreds are already considered the optimal choice for racing, while operators are limited to mixing bloodlines for improving the quality of animals bred.

This industry is Mature


Products & Services Industry revenue is earned through sales of equine animals and services, but the single largest revenue earner for this industry is through the sale of horses for racing purposes. Meanwhile, the majority of horses, mules, donkeys and burros produced are for non-racing purposes. Participants within this industry also earn revenue through the sale of stud services, as well as by providing boarding and training for equines. Stud services have high prices, especially within the Thoroughbred racing horse markets. The segments outlined in this discussion are based on volumes and intend to reflect animal uses compared with total animal numbers. Overall, each product segment has seen lower volumes in the past five years in line with depressed downstream demand due to reduced disposable incomes during the recession.

Thoroughbred production and racehorsesThis segment includes all of the horses involved in the racing industry, from breeding stock to racing stock. Included in this segment are Thoroughbred breeding mares, Thoroughbred breeding stallions, Thoroughbred foals and racehorses. Well-pedigreed Thoroughbred horses are mostly raised for racing purposes. Although the total Thoroughbred segment accounts for only about a smaller share of volumes, the segment’s contribution to revenue is the highest. Some horses can command price tags in the millions depending on the performance of previous horses in their bloodline, while prices well into the tens of thousands are more common. Horses raised by stud farms are bred to possess certain characteristics and therefore command a high price. Male

Products & MarketsSupply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations

KEY BUYING INDUSTRIES

11 Agriculture, Forestry, Fishing and Hunting in the US Farming, ranching and forestry industries use horses for transportation across rugged terrain and long distances.

42452 Cattle & Hog Wholesaling in the US Livestock wholesalers may use live horses.

71121b Racing & Individual Sports in the US Horse racing groups are major purchasers of Thoroughbred horses.

KEY SELLING INDUSTRIES

11 Agriculture, Forestry, Fishing and Hunting in the US Horse farmers purchase stock from other ranches for breeding purposes.

11521 Livestock Production Support Services in the US Horse ranches often use support services for maintenance.

33311 Tractors & Agricultural Machinery Manufacturing in the US Agricultural equipment is used for a variety of purposes in horse ranching.

42382 Farm, Lawn & Garden Equipment Wholesaling in the US Horse ranches purchase equipment and machinery at the wholesale level.

42451 Corn, Wheat & Soybean Wholesaling in the US Farmers may purchase equine feed from grain wholesalers.

42491 Farm Supplies Wholesaling in the US Feed is purchased from farm supply wholesalers.

54194 Veterinary Services in the US Ranches and stables use veterinary services.

Supply Chain


Products & Markets

DemandDeterminants

Per capita disposable incomes play a pivotal role in determining participation in horse-related recreational activities. Horse ownership can be expensive because owners incur maintenance costs

associated with stabling, feed, supplies, training and veterinary services. An increase in per capita disposable income will make horse ownership more affordable and also increase participation in racing events.

Products & Servicescontinued

Thoroughbreds have the highest breeding value, particularly those with a proven winning track record, since they are able to mate up to 200 mares per year.

Show horsesWhile show horses also command much higher prices than their utility-based counterparts, racehorses often outshine their value. Still, horses bred for these purposes command high price tags in the tens or hundreds of thousands of dollars and account for a larger percentage of revenue than recreational horses or horses used for utility. Some of these horses compete in dressage, jumping and rodeo events.

Recreational and other horses and equinesOther horses account for about half of all horses sold in the United States. Horses in this segment are often used for

recreational riding or at equestrian schools. Some of them are even used for transportation or other practical purposes on ranches and farms. Some horses in this segment simply live on pastures on large properties. Due to the informal aspect of much of these uses, horses in this segment are usually not bred for any particular use and switch roles or functions any number of times in their life depending on who their particular owner is.

The last segment in the industry is other equines including mules, burros and donkeys. These animals are traditionally bred for use as beasts of burden. However, their use as labor animals is now obsolete on most farms or ranches. Now these equines are used for a variety of functions, including being kept as pets, used for rides for small children or kept among horses where they often have a calming effect on herds.

Products and services segmentation (2014)

Total $1.5bn

52.9%Other horses and equines

1.9%Racehorses

19.8%Show horses

0.8%Thoroughbred

breeding stallions

11.3%Thoroughbred breeding mares

7.5%Mules, burros and donkeys

5.8%Thoroughbred foals



Products & Markets

DemandDeterminantscontinued

Racehorse demandDemand for racehorses is primarily driven by activity in the downstream horse racing industry. An increase in horse racing will increase demand for racing Thoroughbreds. The prosperity of US racehorse production depends on the level of wagering at racetracks. Meanwhile, the amount of prize money and incentive payments received by racehorse owners also determines the funds available for purchasing Thoroughbreds from studs.

The popularity and participation levels of alternative animal racing and other sports can also indirectly influence the demand for horses. Like many Western nations, the US has developed an extensive greyhound racing circuit that provides an alternative to traditional horse racing. An increase in greyhound racing can translate into reduced activity in horse racing, thus lowering demand for racehorses.

Export demandExports account for about one-fourth of all industry revenue and are driven mainly by the sale of horses for racing purposes, including Thoroughbred breeding. The value of the dollar relative to the currencies of the United States’ biggest trading partners, as indicated by the trade-weighted index (TWI), forms a part of export demand. As the TWI rises, the value of the dollar increases relative to the currency of foreign nations. On the other hand, as the TWI falls, US horses become more affordable to foreign buyers. However, because high-performance racehorses are a high-value commodity, buyers are often undeterred by added expenses related to exchange rates and are more motivated by the pedigree of a horse. As such, in addition

to exchange rates, the reputation of US-bred racehorses compared with horses from other countries helps determine export demand.

In addition, a number of horses have been purchased by Mexican and Canadian meat processors since a 2007 ban in horse slaughter in the United States. A 2011 Government Accountability Office report estimated that about 140,000 horses were exported for slaughter in 2010, about as many as were slaughtered domestically prior to the ban. While these numbers are high, horses for slaughter are sold for very little, thus the monetary impact of exports for slaughter is small.

Breeding demandThe demand for horses for breeding and stocking purposes can depend on existing inventories, which in turn may be affected by disease outbreaks. Reductions in the national equine population can create a push for farmers to restock herds. Throughout the year, available supplies of horses are partly determined by the biological breeding cycle. Horses are seasonal breeders that typically produce small numbers of offspring each year.

Other equine demandDemand for other equine relies on demand from downstream users including riding schools, ranchers performing stock work, the police force and carriage services. Participation in equine-related recreational activities, such as trail riding, are major factors driving demand for horses. Meanwhile, equestrian events such as dressage and show jumping create another source of demand. Demand for horses in the equestrian circuit depends on the size of these events.


Products & Markets

Major Markets

Horses bred for equestrian sports generate the highest total sales value of any use. However, because these sports exist on an international level, high-performance horses are often bought and sold across borders. Almost one-fifth of industry revenue is generated from exports. Similarly, about one-fifth of the value of domestic demand is imported. These figures suggest that buyers of high-performance horses do their shopping globally, looking for a prime specimen regardless of country of origin. As such, the breakdown of major markets in the US Horse and Other Equine Production industry is skewed away from high-value equines, which are accounted for in trade.

RecreationHorses sold for recreation account for the largest share of domestic sales. The majority of horses in the United States are used recreationally, including for lessons for children and beginners, trail riding and arena riding. Owning and riding horses is a popular pastime, especially in wealthy and rural communities that have the land available for horseback riding. In communities where recreational horseback riding is common, it is also well established. As

such, this segment has remained steady over the past five years and is expected to remain steady in the future.

ShowingLike many other sports, horseback riding exists in a number of forums both professional and amateur where a horse-and-rider team competes for placement. Showing disciplines include Western-style events such as barrel racing, cutting, roping and pole bending, as well as European-style events such as classical dressage, showjumping and cross-country jumping. Horses sold to this market can be used in amateur performance, where there is some crossover with the Recreation market segment, or can compete in much more professional contexts like national rodeos or Olympic events like dressage and jumping. A number of higher-end horses in professional showing, especially European-style events, are bought and sold on the global market.

RacingHorses sold for racing purposes in the domestic market generate about the same amount of revenue as the showing segment. However, these horses command the highest selling price. Even

Major market segmentation (2014)

Total $1.5bn

24.5%Exports

23.1%Other

18.6%Recreation

17.1%Showing

16.7%Domestic racing



Products & Markets

International Trade ExportsMexico and Canada are consistently strong sources of demand for US exports. The shared borders between the United States, Mexico and Canada facilitate easier transportation. Also, reduced trade barriers from these countries’ participation in the North American Free Trade Agreement (NAFTA) further facilitates trade. Exports to these two countries primarily consist of greater volume of less expensive horses. The United States shares an agriculture and ranching history with both its neighbors; as such, many horse dealers close to a border

operate on both sides of it. Furthermore, since a 2007 ban on slaughtering horses for meat, horses have been exported to these two countries for slaughter. Though the ban has since been lifted, US meat processors and regulators have been slow to reinstate the practice. Exports of horses for slaughter form a small part of the value of exports, though a significant share of volume. Exports have fallen at an annualized rate of 6.7% to total an estimated $362.8 million in the five years to 2014.

The United Kingdom, Ireland and Japan represent several other large

Major Marketscontinued

though this market accounts for about the same share of revenue as showing, there are far fewer active racehorses than show horses. Further, Thoroughbreds are the most commonly raced horse, though other breeds, such as Quarter horses and Arabian horses, are raced in smaller events. Horse racing is highly competitive and only the fastest horses get a chance to compete professionally. These high-performance horses often come with a high price tag; since many perform on a global level, the market for racehorses is international. Many of the top Thoroughbred breeders, including Shadwell farm and Darley, are owned by foreign parties. Horse racing has declined in popularity in recent years; as a result, this market segment has shrunk slightly.

ExportsAlthough exports account for a significant share of revenue, their value has dropped slightly in the past five years. High-performance horses for racing, which make up the lion’s share of the value of exports, are in low demand due to the sport’s waning popularity. High-end show horses are still in high demand, though breeders in other countries, particularly in Europe, have attracted more of the global market in recent years.

After a 2007 ban in slaughtering US horses for meat production, a new export market cropped up in Canada and Mexico to slaughter and processes horses. According to a 2011 Government Accountability Office report, about 140,000 horses per year are exported to these countries for slaughter, about the same amount that had been slaughtered domestically in prior years. Though these numbers are high, the monetary value of horses exported for slaughter is small because these horses often fetch a low price. The ban has since been lifted, though meat processors and government officials have been slow to reinstate the slaughter of horses for meat. If this practice picks up again domestically, or if regulators ban the export of horses for slaughter, this export market will dry up.

OtherOther markets for horses include farm and ranch work, carriage horses, polo horses, rodeos and police work. Horses bought for these and other miscellaneous uses account for a significant share of industry revenue. Nevertheless, there is some crossover between this market segment and the showing or recreational segments. Polo horses, for example, can be used for recreational sport as well as professional sport.

Level & Trend Exports in the industry are High and Decreasing

Imports in the industry are Medium and Increasing


Products & Markets

International Tradecontinued

markets for US exports. These countries have a tradition of racing and buyers there are often in the market for US-bred horses. Japan hosts major horse races including The Japan Cup, The TokyoYushun, and the February Stakes. The United Kingdom is also home to some of the world’s most famous courses including Newmarket, Ascot and Cheltenham. The country hosts races including the Epsom Derby, Grand National and Cheltenham Gold Cup.

ImportsImports have risen at an annualized rate of 7.0% to $324.2 million over the past five years. During this time, breeders in countries with a tradition of refined horsemanship and select breeding, especially in Europe, have been producing horses in high demand. A number of US dressage and jumping competitors in the US buy horses from countries where these sports have a strong tradition. The top import markets for the industry are

Germany, the Netherlands, Ireland, Canada and Belgium. The value of imports has increased as demand for these high-end pedigreed horses rises around the world. In the next five years, as the US dollar is expected to appreciate, US equestrians will have a buying advantage. As a result, the value of imports is expected to increase in the next five years.

Imports From...

Total $324.2m

37%Germany

22%All others

20%Netherlands

11%Ireland

10%Canada

Exports To...

Total $362.8m

42%All others

19%United Kingdom

16%Mexico

12%Japan

11%Ireland

Year: 2014SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA SOURCE: USITC

$ m

illio

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600

−600

−400

−200

0

200

400

2006 08 10 12 14 16 18Year

Exports Imports Balance

Industry trade balance



Products & Markets

Business Locations 2014

MO3.3

West

West

West

Rocky Mountains Plains

Southwest

Southeast

New England

VT0.3

MA0.5

RI0.1

NJ0.7

DE0.2

NH0.2

CT0.5

MD0.8

DC0.0

1

5

3

7

2

6

4

8 9

Additional States (as marked on map)

AZ2.4

CA3.8

NV0.6

OR1.9

WA1.7

MT2.6

NE1.7

MN1.8

IA1.7

OH3.1 VA

2.4

FL3.3

KS2.0

CO3.0

UT1.6

ID1.7

TX11.7

OK4.4

NC1.9

AK0.0

WY1.9

TN2.9

KY3.9

GA2.0

IL1.7

ME0.3

ND1.2

WI2.8 MI

2.4 PA3.3

WV0.7

SD1.8

NM1.3

AR1.8

MS1.7

AL1.9

SC1.5

LA1.7

HI0.1

IN2.6

NY2.4 5

67

8

321

4

9


Mid- Atlantic

Establishments (%)

Less than 3% 3% to less than 10% 10% to less than 20% 20% or more

Great Lakes


Products & Markets

Business Locations Historically, specialist horse studs have been established on urban fringes or close to towns. The horse industry was affected by the rising value of metropolitan land and the encroaching developers. However, in recent years, horse farms have been assisted by movements to protect farmland in some states. Horse farms provide open spaces that complement the land-use objectives of many suburban jurisdictions. For example, the Agricultural Reserve in Montgomery County, Maryland, has 93,000 acres of protected farmland. In this region, horse farms have more than doubled over the past 25 years while other farm numbers have declined.

Surveys carried out by the US Department of Agriculture show that factors influencing location decisions for horse and other equine producers include precipitation levels, feed costs, the density of production and the number of established ranches and stables in the state. In light of these assumptions, the seasonal characteristics and open spaces found in the Southeast and Southwest regions are expected to continue generating high percentages of overall US horse sales.

SoutheastThe greatest equine inventories and sales occur in the Southeast region. The region’s large proportion of horse sales is explained by its heavy involvement in racing and historical factors. Kentucky alone, home of the Kentucky Derby, accounts for about 6.0% of all horse and pony revenue due to the state’s dominance in the horse racing industry. Kentucky is also referred to as the “Bluegrass State” due to the quality of its pastures, which are optimal for raising horses. According to the Kentucky Horse Park, the state produces roughly 30.0% of Thoroughbred foals born in the country each year and, during breeding season, it is home to roughly 20,000 Thoroughbred mares and 368

Thoroughbred stallions. Kentucky also accounts for about half of the live foals reported every year, according to the Jockey Club. Aside from horseracing the Southeast has a tradition of horse breeding in the US and has developed specialized breeds including the Tennessee Walking Horse, the Kentucky Mountain Saddle Horse and the Quarter Horse (originally bred in Virginia).

SouthwestThe Southwest region is expected to account for the second-largest concentration of sales by volume. Texas has the single-largest share for any state of horse sales by volume at an estimated, while Oklahoma makes another strong showing on a national scale. High concentrations of agricultural activities in these states, including beef production, and their vast open spaces make them ideal as horse markets. Furthermore, the industry and tradition of cattle ranches in these states have continued to drive equine events, such as rodeos. Many horses bred in these states are raised for these purposes.

%

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Mid

-Atla

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Eng

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Plai

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ount

ains

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EstablishmentsPopulation

Distribution of establishments vs. population



Products & Markets

Business Locationscontinued

PlainsThe Plains region is expected to account for the third-highest sales volume. Specifically for this region, Missouri, Minnesota and Iowa exhibit the highest regional concentrations of equine sales volumes.

Missouri’s shared border with Kentucky makes it convenient for interstate Thoroughbred sales, while dense concentrations of agricultural activity in Iowa and Minnesota help increase equestrian demand in those states.


Cost Structure Benchmarks

ProfitProfitability can vary widely between different production segments. For example, stud horses, or horses kept for breeding, tend to be highly profitable because their bloodline is crucial in determining price. Racehorses also generate a high profit margin based on the high quality of their performance. However, some businesses record losses on their horse and other equine production, but remain in business by

subsidizing from other income sources including operating equestrian schools, boarding facilities or ranches. Overall, the industry took a loss in 2008 as buyers held off on horse and pony purchases at the onset of the recession. Profit is also affected by input costs, such as the price of feed, which has been highly volatile in line with the price of corn over the past five years. Feed costs jumped especially high in 2008 and 2012, cutting into operators’ profit margins. As a result,

Key Success Factors Locating close to key suppliersLocating close to grain and hay sellers helps ensure a continuous supply of horse feed.

Production of premium horsesFarmers that produce premium horses (e.g. high-quality breeding stock) will secure higher prices in livestock markets.

Appropriate physical growing conditionsLocation and regional weather conditions impact equine welfare in ranch-style

breeding businesses. This subsequently impacts equine production and quality.

Market research and understandingRanches need to identify, anticipate and respond to demands for particular horse breeds as well as the type of activity they will participate in (e.g. racing, recreation).

Locating close to key marketsLocating close to key equine markets reduces transport costs and provides buyers easy access.

Market Share Concentration

Equines are frequently raised by hobby farmers or part-time producers, creating a highly fragmented industry. As such, the Horse and Other Equine Production industry has a low level of concentration. Although the specialist racehorse segment is more concentrated than others, even commercial producers account for a small proportion of the industry’s revenue.

Horse farm structures are very different from other agricultural operations. Other agricultural operations, such as meat and grain production, are volume-focused due to their connections with downstream food industries and markets. Over the years, those operations have concentrated on increasing the productivity of their

plants and animals so as to increase their output while minimizing inputs. In comparison, this industry is focused more on improving the quality of the animals bred and not necessarily increasing their productive capacities.

The difference between quality-based and quantity-based production has grown horse farm numbers and kept owner concentration low. In addition, small horse farms remain viable and competitive due to the low infrastructure requirements of less commercialized farms. Therefore, other livestock operations have more to gain in the way of economies of scale than horse farms; those industries usually have higher concentrations.

Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization

Level Concentration in this industry is Low

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:


Competitive Landscape

Cost Structure Benchmarkscontinued

profit was volatile, but ultimately rose slightly as a share of revenue in the past five years, estimated at 7.9% of revenue in 2014.

PurchasesPurchases are the largest cost segment at more than half of revenue. Specifically, feed purchases make up one of the biggest components. Hay is the most common feed purchased for horses. A horse out of pasture can eat as much as five tons of hay in a year. Though properties with enough acreage can let horses graze to make up part or all of their diet. However, the cost of feed increased rapidly over the past five years in line with corn prices, because hay and corn are both used as animal feed throughout the agricultural sector, which partially ties their prices together. Corn has become more expensive, as it is also a major commodity for ethanol production. Ethanol is seen as the solution to lessen

America’s dependency on foreign oil, which is placing upward pressure on the price of corn. Some farmers are locking in feed prices with supplier contracts, safeguarding against sudden price hikes in feed, but purchase costs have still grown as a share of revenue in the past five years. Other purchases include hay and bedding costs, horses, stud fees, boarding and training, shoeing and equipment.

WagesWages are a major cost component for horse and other equine producers, accounting for about one-fifth of revenue. Hired workers are typically employed to carry out labor-intensive duties, such as feeding, cleaning stables and horses, providing simple medical care, and other farm maintenance responsibilities. However, these duties depend on how large the facility is. As such, smaller breeding facilities may have no employees,

Sector vs. Industry Costs

■ Profi t■ Wages■ Purchases■ Depreciation■ Marketing■ Rent & Utilities■ Other

Average Costs of all Industries in sector (2014)

Industry Costs (2014)

0

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40

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1008.4

3.99.3

3.0 4.3

59.8

11.5

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1.09.2

51.2

18.4




Basis of Competition Internal competitionPrice and quality are the two factors on which most equine producers compete. Competition between equine ranches is primarily based on price because horses and other equines are price-sensitive commodities. Moreover, basic equine stock is relatively homogeneous. Thus, the main basis for distinguishing between suppliers is price.

In contrast, specialist equine producers compete on a platform of quality where horse bloodlines are extremely important. Buyers of Thoroughbreds meant for racing, for instance, are less sensitive to price changes than customers in other breed segments. The premium prices for Thoroughbreds reflect the high production costs associated with animal husbandry as well as the specific traits of the horse produced. Thoroughbred

stallions have the highest breeding value because they can mate with as many as 200 mares a year.

External competitionThe industry faces competition from foreign producers in the domestic marketplace. Factors that influence competitiveness of US horses and other equine include: exchange rates, trade barriers, quality, price and overseas supply conditions.

Other countries are also known for their specialty in the horse production industry. Many Western European countries, for example, have long traditions of horsemanship and breeding practices that have been refined over centuries. Thus, many Americans looking for specific breeds of horses, including Spanish Lipizzaners or German Warmbloods, may look abroad.

Cost Structure Benchmarkscontinued

while large-scale Thoroughbred stud farms may have a number of full-time, skilled or professional staff that require a sizeable payroll.

Other costsRent and utilities also make up a significant expense for horse and equine breeders. Horses need to be exercised regularly to maintain their health, so considerable space is required for horse facilities to include pastures and arenas in addition to stables. In addition to the expense of leasing facilities, utilities costs for these establishments adds up, especially for water. Industry establishments require water for horses to drink, to bathe them with and hose down dusty arenas.

Depreciation costs include the upkeep and maintenance of facilities like

mending fences and repairing pipes but also the loss in value of the equines themselves. The value of high-performance Thoroughbreds, especially racehorses, depends on their ability to perform. Horses that end up unable to race lose virtually all their monetary value. Similarly, sires and mares must be retired once they are past breeding age, with costly pedigreed horses required to replace them.

Other costs include insurance, transportation costs, veterinary fees and medicine costs, which are necessary for maintaining high quality animals. Horse and other equine farms also use marketing to distinguish themselves from other farms. Common marketing tactics include designing websites and logos, taking photos of the horses and posting classified advertisements.

Level & Trend Competition in this industry is Medium and the trend is Increasing



Industry Globalization

The Horse and Other Equine Production industry has a high level of globalization. Globalization varies depending on the operator’s industry segment. Farms that mainly produce horses for recreational use have a low level of globalization, as the majority of farms are domestically owned and operate within particular regions. However, breeding high-performance horses for racing, dressage or showjumping operates on a global scale. The majority of horse trading is attributable to this segment due to the demand for high-quality bloodlines.

Globalization is driven by the desire to build a global reputation for racehorses.

Thoroughbred breeders seek to take advantage of the global supply of bloodlines to perfect a racehorse’s genetic makeup. The use of shuttle stallions across the world has increased. This process involves transporting stallions between countries to take advantage of the various breeding seasons. Shuttle stallions have increased trade between the major horse breeding countries and widened the available bloodlines. The globalization of this industry segment is set to increase over the outlook period as high-end equestrian competition becomes more competitive.

In addition to the large volumes of trade, many of the operators within this

Barriers to Entry Entry into the Horse and Other Equine Production industry is fairly unrestricted, but requires a large capital investment. The 2012 Agricultural Census (latest data available) revealed that the average horse and other equine farm occupied land and buildings worth $404,393 and employed plant and machinery valued at $42,075. Those figures represent increases of 14.1% and 2.1%, respectively, over 2007 figures. In addition to land and buildings, farms must be able to pay for feed, veterinary services, cleaning services and other items necessary for maintaining a healthy animal. If potential operators cannot afford these investments, they will not be able to enter the industry.

However, with perhaps the exception of Thoroughbred breeding, new entrants are able to procure most necessary inputs and equipment at a reasonable cost, as all inputs are readily available. Also, producers can usually shift between agricultural activities with ease and there are often a number of equine ranches for sale.

Entry into specialist equine breeding is more difficult. New entrants need to invest heavily in breeding stock and access to high-quality Thoroughbred stallions can also present financial and logistical

hurdles. Other operating costs associated with the establishment of a stud farm mean that new entrants need a substantial cash flow. Studs need to outlay money on animal husbandry, stabling, supplies, feeds and veterinary services.

Reputation and proven success is also important, particularly in this specialist breeding segment. Often, it takes time for a stud to receive a return on these expenses, especially while it is still building a reputation as a winner at the track. Therefore new entrants may find it difficult to compete successfully until they have built a good reputation within the industry. Although a proven reputation is not a barrier to entry, it may hamper the success of new entrants.

Barriers to Entry checklist Level

Competition MediumConcentration LowLife Cycle Stage MatureCapital Intensity HighTechnology Change MediumRegulation & Policy MediumIndustry Assistance Low


Level & Trend Barriers to Entry in this industry are Medium and Steady

Level & Trend Globalization in this industry is High and the trend is Increasing



Industry Globalizationcontinued

industry run horse breeding and training operations in different countries. For example, industry player Darley America operates within seven countries and has

over 50 stallions across the globe. These operations include breeding in the United States, Australia, Japan, the United Arab Emirates and the United Kingdom.


Trade Globalization Going Global: Horse & Other Equine Production 2004-2014

Expo

rts/

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nue

Expo

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Reve

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150

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Imports/Domestic Demand Imports/Domestic Demand0 040 4080 80120 120160 160

International trade is a major determinant of an industry’s level of globalization.

Exports offer growth opportunities for fi rms. However there are legal, economic and political risks associated with dealing in foreign countries.

Import competition can bring a greater risk for companies as foreign producers satisfy domestic demand that local fi rms would otherwise supply.

Export ExportGlobal Global

ImportLocal ImportLocal

Horse & Other Equine Production 2004 2014


Other Companies The Horse and Other Equine Production industry is highly fragmented and consists of small, family owned farms and breeding studs, along with a few larger industrialized farms. The type and size of the farms vary depending on the segment in which they operate. For example, the racehorse-breeding segment is more commercially focused than other segments of the industry so these farms are larger and generate more revenue than farms for other equines. Farms operating in this segment are also more profitable because this type of establishment generates high returns on the basis of superior quality in performance.

Some farms breed horses for recreational purposes. These farms are smaller and less concentrated than racehorse breeders. Movements to protect farmland have positively influenced the number of these farms. Horse farms are particularly located near urban populations because their land-use objectives are often consistent with suburban jurisdictions. Due to the private nature of these farms, financial information is not publicly available.

Shadwell Farm LLC Estimated market share: 1.6%Established in 1985, Shadwell Farm covers 3,200 acres in Lexington, KY. It currently has a capacity to house 160 mares, which are capable of producing 125 future racehorses in a year. Nashwan Stud, the stud farm of Shadwell Farm, is home to five Thoroughbred stallions. Shadwell Farm is part of the larger, international Shadwell Racing operation, which owns an additional seven stud

farms, seven in England and one in Ireland. IBISWorld estimates the company’s revenue will reach $23.1 million in 2014.

Darley America Estimated market share: Less than 1.0%Darley America is part of a global horse-breeding and racing company that has a presence in Australia, Japan, China, Ireland, the United Kingdom and the United States. Within the United States, the company is based on Jonabell Farm, which has been located in Lexington, KY, since its founding in 1954; Darley America acquired Jonabell Farm in 2001. Darley America also owns Godolphin, a horse-breeding and training farm specifically for racehorses. In 2014, IBISWorld estimates that Darley America’s stud farm operations will earn about $10.4 million in revenue.

Westphalia Ranch Estimated market share: Less than 1.0%Headquartered outside of Fredericksburg, VA, Westphalia Ranch breeds American Quarter Horses, a breed crossed from Thoroughbreds, Arabs, Barbs and Light Drafts that dates back to the 1600s. Westphalia prides itself on the purity of its Quarter Horse breeds, distancing them from variations with too much Thoroughbred line bred in. On its 115-acre facility, the ranch houses 18 pastures and six large mare-and-foal stalls. In all, the ranch has about two stallions that it breeds out for a fee and about 15 mares. IBISWorld estimates that its revenue will total about $1.1 million in 2014.

Major CompaniesThere are no Major Players in this industry | Other Companies


Capital Intensity The Horse and Other Equine Production industry has a moderate to high level of capital intensity. However, the level of capital employed in horse and other equine farming varies between different segments of the industry.

For facilities that do not breed high-performance racing or show horses, the capital intensity level is low. These establishments pay for the upkeep of their facilities, which succumb to regular wear and tear, and for other equipment including trucks and trailers for transportation to and from facilities. Overall, these costs are minor.

Facilities that breed high-performance horses, especially racehorses, the level of capital intensity can be high. These breeders often use artificial insemination

(AI), which has a number of benefits including preventing injury while breeding and preventing stallion overuse.

Operating ConditionsCapital Intensity | Technology & Systems | Revenue VolatilityRegulation & Policy | Industry Assistance

Tools of the Trade: Growth Strategies for Success


Labo

r Int

ensi

veCapital Intensive

Change in Share of the Economy

New Age Economy

Recreation, Personal Services, Health and Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation.

Traditional Service Economy

Wholesale and Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.

Old Economy

Agriculture and Manufacturing. Traded goods can be produced using cheap labor abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products.

Investment Economy

Information, Communications, Mining, Finance and Real Estate. To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.

Hay & Crop FarmingTractors & Agricultural Machinery Manufacturing

Livestock Production Support Services

Farm, Lawn & Garden Equipment Wholesaling

Cattle & Hog Wholesaling


Capital intensity

1.0

0.0

0.2

0.4

0.6

0.8

SOURCE: WWW.IBISWORLD.COMDotted line shows a high level of capital intensity

Capital units per labor unit

Horse & Other Equine

Production

Agriculture, Forestry, Fishing

and Hunting

Economy

Level The level of capital intensity is High


Operating Conditions

Technology& Systems

The Horse and Other Equine Production industry’s adoption of increasingly sophisticated production methods coincide with microchip technology and computerized monitoring systems. A radio transponder or microchip inserted on a horse’s neck between the ears and withers can be used to store details on birth and branding, veterinary treatments, weaning dates and ownership information. In conjunction, software such as HorseTrak can record and monitor horse health, performance and activities. These tracking systems are helping equine farmers increase identification efficiency and ensure quality. Increasing numbers of breeding stables are also operating websites with pictures and descriptions about horses for sale; some even have applications on new devices, such as the tablet computers, as a means for promoting their production, sales and services.

Increased knowledge about animal nutrition has also played a significant

role in the industry’s expansion. Modern equine are fed nutritionally balanced feed that encourages rapid growth. To assist in this process, US farmers supplement feed with a range of minerals, antibiotics and vitamins that help maintain heath. Genetic engineering offers the potential for the more efficient use of feeds in the future. In the future, genetic engineering may also be used to select horses that are genetically resistant to livestock diseases. Work is currently underway in this area so that farmers will be able to take blood samples from horses to test their susceptibility to degenerative diseases.

Artificial insemination (IA) equipment has also become increasingly popular in the past several decades. This equipment prevents a number of risks involved in horse breeding including injury and stallion overuse. This technology is fairly standard, but innovations continue to make equipment more affordable and processes more efficient.

Capital Intensitycontinued

High-prized racing Thoroughbred stallions can be required to sire up to 200 foals per year. Using AI allows the semen to be collected as few as three times a week instead of once or twice per day. However, AI equipment is expensive. Stud farms that take on this equipment need to breed at least 20 mares per year to justify the cost, according to The Horse, an industry publication. The high costs therefore restrict this equipment to only large-scale breeders.

In addition to AI equipment, the horses themselves are counted as depreciable assets. Horses are typically sexually mature from the ages of two or

three years old until they are about 15 or 20 years old. Well-pedigreed horses are expensive, especially if they are racing champions, and their maturing past breeding age represents a considerable cost for breeders.

Compared to other livestock industries, horse and other equine production tends to be characterized by high labor costs. These costs are highest in racehorse breeding where grooming, training and veterinary care are major features of production. Labor costs include wages but also purchases of veterinary, shoeing and other services from outside providers.

Level The level of Technology Change is Medium



Regulation & Policy Serious breaches or failure to comply with regulations, laws and other rules governing equine farming can subject industry players to civil remedies and administrative penalties. It can also result in considerable negative publicity that can damage the reputation and public image of producers. Given this, non-compliance can potentially have a material effect on the earnings and competitive position of firms operating in this industry. It is worth noting that industry sources believe that laws and regulations relating to agricultural production are becoming more stringent, resulting in increasing compliance costs for US equine producers.

State regulationsEquine producers must comply with state regulations that aim to control the impact of agriculture on the local environment. Regulations commonly relate to the size of operations, waste disposal, odor control, animal health and water quality. For startup farms, county zoning policies also impact on location decisions.

Increasing public concern about the treatment of animals is placing pressure on regulatory authorities to tighten controls on horse ownership. Non-profit organizations, such as the Animal Protection Institute (API), have played a key role in bringing the welfare of horses to the attention of the American public. Although the organization has no

Revenue Volatility Revenue volatility for the Horse and Other Equine Production industry is a largely a function of disposable income and capital expenditure. Horses represent a sizeable cost at any level, whether for the recreational rider or the racehorse owner. As such, when disposable income and capital expenditure levels are low, fewer horses are purchased and at lower prices. For example, in 2009 when the economy

was in recession, consumers had low disposable income and were less willing to buy big-ticket items, such as horses. As demand fell, operators lowered prices to entice consumers into buying these animals. As a result, revenue plummeted in 2009 and continued to trend downward for several years. Although industry revenue has subsequently risen, the industry has not reached full recovery.


Volatility vs GrowthRe

venu

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Five year annualized revenue growth (%)–30 –10 10 30 50 70

Hazardous

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Blue Chip

* Axis is in logarithmic scale


A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.

When a fi rm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.

Level The level of Volatility is Medium

Level & Trend The level of Regulation is Medium and the trend is Steady



Industry Assistance There are several government programs designed to assist equine producers. Direct assistance includes: the Livestock Relief Program and the Environmental Quality Incentives Program (EQIP). These programs provide financial and technical assistance to producers. Under the Livestock Relief Program, equine producers can apply for financial relief in the event of economic or natural disasters. This form of assistance is provided through emergency programs and is designed to protect farmers against the effects of low prices and extreme weather like droughts and floods. Under the EQIP, farmers can

obtain access to funding, advice and education services for addressing resource issues. The program is designed to help farmers use their land in the most environmentally friendly and cost effective manner. More than 50.0% of funding allocated to the project has been earmarked for livestock producers (including horse ranches).

Equine farmers also benefit indirectly from government assistance through export promotion and conservation programs. Generally, American horse and other equine producers do not benefit from domestic market protection. Presently, imports of horses and ponies

Regulation & Policycontinued

regulatory authority, it influences animal protection laws through its lobbying efforts targeting the courts and congress.

Federal regulationsIn 2014, a new Farm Bill was passed (The Agricultural Act of 2014). Key provisions include reinstating federal emergency disaster relief programs that had expired in 2011. These programs include the Livestock Indemnity Program (LIP), the Livestock Forage Program (LFP) and the Emergency Livestock Assistance Program (ELAP). Following a natural disaster, equine farmers will be able to apply for loans and may be able to receive funds. The industry benefits from increased funds to support conservation programs by livestock producers (Environmental Quality Incentives Program and Conservation Security Program) and increased funds for export development through the Market Access Program, which is designed to promote US agricultural or livestock products to foreign export markets.

Relevant legislationA 2007 ban on slaughtering horses for meat was lifted in 2011. Also in 2011, the

American Horse Slaughter Prevention Act was re-introduced. The bill intended to once and for all end the slaughter of horses for food production. Though horse slaughter is again legal, authorities have been slow to reauthorize meat processing plants for horse slaughter.

The Equine Equity Act of 2008 also provides regulations for the industry. The act shortened the capital gains holding period for horses from 24 months to 12 months, places all racehorses in the three-year category for depreciation, makes horses for breeding eligible for federal emergency loans and institutes permanent disaster-relief funds in areas declared to be disaster areas by the USDA for horse owners with horses for production agriculture. The Wild Horse and Burros Legislation is an amendment to this legislation to prohibit the commercial sale and slaughter of wild horses.

The Animal Enterprise Terrorism Act expanded the monetary and criminal penalties for economic losses caused due to acts of violence and damage toward farm animals and broadened the scope of the property and enterprises protected by the law.

Level & Trend The level of Industry Assistance is Low and the trend is Steady



Industry Assistancecontinued

are not subject to tariffs. Imports of asses are subjects to a 6.8% tariff and mules are subject to a 4.5% tariff. However, more than 15 countries are exempt to these tariffs based on special trade relations, including Mexico and Canada, the likely origin of these lower-priced beasts of burden. Despite the lack of protective import tariffs, quarantine rules designed to minimize the threat of animal disease outbreaks can restrict entry of imported horses.

More generally, this industry is assisted by private sector organizations

and industry associations. In the private sector, US horse producers receive assistance from the lobbying efforts of peak industry associations. Membership organizations include bodies like the American Quarter Horse Association and the American Horse Council. This membership-funded association also provides a range of services to paid members including education programs, access to industry research findings and discounted pricing from supporting businesses. There are also state-level industry bodies.


Key StatisticsRevenue

($m)

Industry Value Added

($m)Establish-

ments Enterprises Employment Exports

($m)Imports

($m)Wages ($m)

Domestic Demand

Per Capita Dis-posable Income

($)2005 2,011.0 579.2 171,967 157,533 733,183 549.7 337.7 374.0 1,799.0 34,4282006 2,160.7 605.0 166,843 165,643 762,509 573.8 335.1 384.6 1,922.0 35,4612007 2,348.6 655.3 168,694 167,080 796,597 471.6 413.0 415.7 2,290.0 35,8702008 2,000.8 314.1 165,375 158,184 787,135 484.4 331.9 332.1 1,848.3 36,0822009 1,824.5 507.2 160,476 152,252 770,444 512.9 231.0 290.1 1,542.6 35,6002010 1,708.8 507.5 169,117 162,352 800,609 436.8 235.3 334.9 1,507.3 35,7052011 1,570.6 422.5 170,301 161,193 813,422 366.4 311.5 298.4 1,515.7 36,2942012 1,389.1 482.0 172,043 165,620 856,313 475.0 309.9 277.8 1,224.0 36,7592013 1,455.9 528.5 170,553 166,156 874,297 378.8 323.6 279.6 1,400.7 36,7712014 1,483.4 527.0 174,799 168,776 877,633 362.8 324.2 273.3 1,444.8 37,3522015 1,492.6 534.2 176,630 169,302 881,248 351.2 351.3 279.0 1,492.7 38,3052016 1,519.9 545.3 180,323 172,018 881,989 345.3 384.8 285.4 1,559.4 39,1862017 1,561.3 555.5 183,513 172,902 885,373 346.2 405.7 288.5 1,620.8 40,2942018 1,617.5 568.9 185,020 175,095 890,244 329.4 429.9 292.3 1,718.0 41,3662019 1,624.7 568.3 187,291 175,902 895,736 322.0 454.7 290.5 1,757.4 42,312Sector Rank 28/37 27/37 6/36 6/36 3/37 19/27 17/28 23/37 22/27 N/AEconomy Rank 1078/1319 1060/1319 57/1318 54/1318 49/1319 262/405 294/406 1067/1319 317/405 N/A

IVA/Revenue (%)

Imports/ Demand

(%)

Exports/ Revenue

(%)

Revenue per Employee

($’000)Wages/Revenue

(%)Employees

per Est.Average Wage

($)

Share of the Economy

(%)2005 28.80 18.77 27.33 2.74 18.60 4.26 510.10 0.002006 28.00 17.43 26.56 2.83 17.80 4.57 504.39 0.002007 27.90 18.03 20.08 2.95 17.70 4.72 521.84 0.002008 15.70 17.96 24.21 2.54 16.60 4.76 421.91 0.002009 27.80 14.97 28.11 2.37 15.90 4.80 376.54 0.002010 29.70 15.61 25.56 2.13 19.60 4.73 418.31 0.002011 26.90 20.55 23.33 1.93 19.00 4.78 366.85 0.002012 34.70 25.32 34.19 1.62 20.00 4.98 324.41 0.002013 36.30 23.10 26.02 1.67 19.20 5.13 319.80 0.002014 35.53 22.44 24.46 1.69 18.42 5.02 311.41 0.002015 35.79 23.53 23.53 1.69 18.69 4.99 316.60 0.002016 35.88 24.68 22.72 1.72 18.78 4.89 323.59 0.002017 35.58 25.03 22.17 1.76 18.48 4.82 325.85 0.002018 35.17 25.02 20.36 1.82 18.07 4.81 328.34 0.002019 34.98 25.87 19.82 1.81 17.88 4.78 324.31 0.00Sector Rank 19/37 10/27 9/27 37/37 15/37 8/36 37/37 27/37Economy Rank 590/1319 192/405 130/405 1318/1319 660/1319 966/1318 1319/1319 1060/1319

Figures are inflation-adjusted 2014 dollars. Rank refers to 2014 data.

Revenue (%)

Industry Value Added

(%)

Establish-ments

(%)Enterprises

(%)Employment

(%)Exports

(%)Imports

(%)Wages

(%)

Domestic Demand

(%)

Per Capita Dis-posable Income

(%)2006 7.4 4.5 -3.0 5.1 4.0 4.4 -0.8 2.8 6.8 3.02007 8.7 8.3 1.1 0.9 4.5 -17.8 23.2 8.1 19.1 1.22008 -14.8 -52.1 -2.0 -5.3 -1.2 2.7 -19.6 -20.1 -19.3 0.62009 -8.8 61.5 -3.0 -3.8 -2.1 5.9 -30.4 -12.6 -16.5 -1.32010 -6.3 0.1 5.4 6.6 3.9 -14.8 1.9 15.4 -2.3 0.32011 -8.1 -16.7 0.7 -0.7 1.6 -16.1 32.4 -10.9 0.6 1.62012 -11.6 14.1 1.0 2.7 5.3 29.6 -0.5 -6.9 -19.2 1.32013 4.8 9.6 -0.9 0.3 2.1 -20.3 4.4 0.6 14.4 0.02014 1.9 -0.3 2.5 1.6 0.4 -4.2 0.2 -2.3 3.1 1.62015 0.6 1.4 1.0 0.3 0.4 -3.2 8.4 2.1 3.3 2.62016 1.8 2.1 2.1 1.6 0.1 -1.7 9.5 2.3 4.5 2.32017 2.7 1.9 1.8 0.5 0.4 0.3 5.4 1.1 3.9 2.82018 3.6 2.4 0.8 1.3 0.6 -4.9 6.0 1.3 6.0 2.7

2019 0.4 -0.1 1.2 0.5 0.6 -2.2 5.8 -0.6 2.3 2.3Sector Rank 19/37 27/37 11/36 12/36 20/37 23/27 17/28 32/37 11/27 N/AEconomy Rank 780/1319 1049/1319 410/1318 540/1318 937/1319 339/405 286/406 1189/1319 171/405 N/A

Annual Change

Key Ratios

Industry Data



Jargon & Glossary

BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry.

CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of labor.

CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the “real” growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator.

DOMESTIC DEMAND Spending on industry goods and services within the United States, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports.

EMPLOYMENT The number of permanent, part-time, temporary and seasonal employees, working proprietors, partners, managers and executives within the industry.

ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control.

ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise.

EXPORTS Total value of industry goods and services sold by US companies to customers abroad.

IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in the United States.

INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%.

INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry’s contribution to GDP, or profit plus wages and depreciation.

INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%.

LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an industry’s life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry’s products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services.

NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals.

PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax.

Industry Jargon

IBISWorld Glossary

ENVIRONMENTAL QUALITY INCENTIVES PROGRAM A federal government program where farmers can obtain access to funding, advice and education services for addressing resource issues.

EQUINE An animal of the Equidae family, or horse family.

FOAL A baby horse or equine

HORSETRAK A proprietary software technology that monitors and records a horse’s health.

STUD An establishment or farm where horses are kept for breeding or a group of broodmares and stallions kept for breeding.


Jargon & Glossary

VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.

WAGES The gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure.

IBISWorld Glossary continued

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