Peoples Republic of China. An expats persepctive

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1 - Peoples Republic of China An expats persepctive

2 China Economic Growth Status Macro Level Analysis China Grain and Oilseeds Industry Characteristic and Dynamics - 2

3 The Background -Chinese Growth 9 16 D Byn US t Percen Output % of World Output Avg Growth Last year China generated a quarter of the world's economic growth, more than the US. On current trends, China will over take the US sometime between 215 and 225 to become the world's largest economy - 3

4 2 % of the worlds population now live in China China Rest of the World India Brazil Russia - 4

5 Indicators Point to Growth in (Processed) Food Consumption in China: GDP Per Capita Growth, Urbanization and Total Population Growth Quick Scan Population Growth and Urbanization 1,6, Total Population 1,4, 1,2, 12, 1, Nominal GDP per Capita at PPP Exchange Rates of people 1,, 8, 6, 4, Urban Rural r year US$ pe 8, 6, 4, 2, 2, Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat. The 24 Revision Source: Global Insight - 5

6 The Rise of the Middle Class in China Is Starting to Show More and More People Will Jump From Lower to Higher Income Classes Million people; income classes based on annual USD household income in real terms as of 2 1 Actual Forecast Total urban China ons] 8 Urban people In China [milli Upper mass (5-13K) Lower mass (3-5K) Poor (under 3K) Mass affluent (13-25K) Global affluent (over 25 K) Note: Million people; income classes based on annual USD household income in real terms as of year 2 Source: McKinsey Global Institute analysis Q1, 26 forecasts - 6

7 (Processed) Food Consumption in Asian Markets is Expected to Follow an S-curve Processed Food Consumption Per Capita in Relation to GDP Per Capita Development Processed fo ood per capita a (US$, 26) 2, New Zealand )Australia 1,5 1, 5 India Indonesia Malaysia Thailand China Japan Taiwan South Korea 2,5 5, 1, 2, 5, 1, Source: Datamonitor, Euromonitor, Bain GDP per capita (US$ p.a., 26 - PPP adjusted) - 7 Organic/health/nutrition Range of processed food Specialized ingredients Specialty retail Cold/chilled chain Live-to-Eat Increasing health consciousness Increasing range of processed food Rise in modern trade Increasing supply chain sophistication Eat-to-Live High fresh proportion Commodity focus Poor infrastructure Small organized sector

8 But it is still a contrast between new - 8

9 ..and old - 9

10 China Economic Growth Status Macro Level Analysis China Grain and oilseeds Industry Characteristic and Dynamics - 1

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14 China, with 2 percent of the world's population. but only 7 percent of its arable land, has been losing land to factories and houses, airports and roads in the last 2 years of breakneck industrial growth. China's 14 million hectares of arable land covers just 13 percent of its territory. This amounts to.27 hectares per capita, less than 4 percent of the world per capita average, one-eighth the U.S. level, and one-half that of India's level. China became a net importer of food in 24-14

15 There Is Not Enough Arable- and Cropland Available to Satisfy the Growing Protein Consumption in China Arable and Permanent Cropland Development in China From 1994 to 27 [ hecta res] 18, 16, 14, 12, 1, 8, 6, 4, 2, Year official figures suggest that 15 percent of China's total arable lands are polluted by heavy metals, and more than 4 percent have suffered from soil erosion and desertification Source: Food and Agriculture Organization of the United Nations (FAO). 26. FAOSTAT Online Statistical Service. Rome: FAO. - 15

16 To Illustrate Today China Is Struggling to Keep up With Its Growing Consumption of Corn Corn Production, Export and Consumption and Stock Development in China From Production Gap 1 Myn M MT 5-5 Falling Stock Crop Year 95/96 96/97 97/98 98/99 99/ /1 1/2 2/3 3/4 Declining Exports 4/5 5/6 6/7 Production (1 MT) MY Exports (1 MT) Total Consumption (1 MT) Ending Stocks (1 MT) 7/8 8/9 Source: Foreign Agricultural Service, Official USDA Estimates

17 Soybeans production has lagged domestic demand even longer 6, 5, Production Gap 4, MM MT 3, 2, 1, 95/96 96/97 97/98 98 /99 Crop Year 99/ /1 1/2-17 Production Imports Consumption Stox Unchanged Production 2/3 3/4 4/5 5 /6 6/7 7/8 8 /9

18 Increasing Vegetable Protein Demand Has Been Met by Imported Soybeans Protein Feed Demand History and projections for 21 to 21 [MM MT] /1 1/2 2/3 3/4 4/5 5/6 6/7 7/8 8/9 9/1 Year Soybean Meal Sunflower Meal Cottonseed Meal Peanut Meal Rapeseed Meal Fish Meal Other Meal - 18

19 This Trends Is Also Supported by Increased Actual and Projected Imports of Soybeans Into China Imports of Yellow Soybeans Into China History and Projections for 21 to Forecast 35 [MM MT] / 1 1/ 2 2/ 3 3/ 4 4/ 5 5/ 6 6/ 7 7/ 8 8/ 9 9/ 1 Year - 19

20 Increasing Oil Demand Will Be Met by Imported Soybeans, Soybean Oil and Palm Oil History and projections for 21 to 21 3, 25, ' MT 2, 15, 1, Palm Oil - Imported Soy Bean Oil - Imported Soy Bean Oil Produced from Chinese Crush 5, /1 1/2 2/3 3/4 4/5 5/6 6/7 7/8 8/9 9/1 Year Other Oils Rapeseed Oil Locally Produced - 2

21 Analyzing the Gap in Vegetable Protein Per Capita Consumption Between China and Taiwan There Is Still a Lot of Room to Grow Per Capita Vegetable Protein Usage (Including Fish Meal) 12 1 [K Kilograms Per Cap pita] Kilograms Gap in consumption between Taiwan and China China /1 1/2 2/3 3/4 4/5 5/6 6/7 Source: Oil World - 21

22 Meat Production in China Has Grown Steadily Over the Last Decades Total Meat Production Development for China and Reference Countries From 198 to 24 Meat Prod duction [Metric Tons per Year] [ 8,, 7,, 6,, 5,, 4,, 3,, 2,, China USA Brazil 1,, India Russian Federation Year Note: Data describe total meat production that is from both commercial and farm slaughter. Data are given in terms of dressed carcass weight excluding offal and slaughter fats. Total meat production comprises horse meat poultry meat and meat from all other domestic or wild animals such as camels rabbits reindeer and game animals. Definition: Meat production data refer to the amount of meat in metric tons produced in a given country or region each year. Source: Food and Agriculture Organization of the United Nations (FAO) FAOSTAT on-line statistical service (FAO: Rome 25). Available at

23 In More Detail The Chicken Industry Is Already Large in China on an Absolute Basis, and It Can Get Even Bigger on a Per Capita Basis Chickens Slaughtered per Year Per Capita Consumption of Chicken Meat 8,, 4 7,, 35 d Chicken Slaughtere [ s head] 6,, China 5,, 4,, Brazil 3,, India 2,, Indonesia 1,, Thailand ption ear] eat Consump per capita per ye Chicken Me [kilograms p Taiwan China Kilograms Year Year Source: FAOSTAT - FAO Statistics Division 27 Source: WTU - 23

24 With Close Culinary Affinity to Taiwan and Hong Kong, It Shows That ON AVERAGE Vegoil Consumption in China Still Has Room to Grow Mainland China vs. Taiwan and Hong Kong Veg getable Oi il Consum mption [Kilo s per ca apita per year] kg 12. kg Mainland China Taiwan Hong Kong - 24

25 Although Slowing Down, Going Forward Expect The Chinese Growth for Both Protein and Vegoil To Be Strong Chinese CAGR s Chinese Average Economic Growth has been near or above double digit for the past several years and is expected to continue through h 21 > 8-9% - Focus on growth in rural areas has been heightened and more consumer domestic spending is being encouraged Feed demand d has grown at above 5% in the past 5 years and is expected to grow at 3 to 5% through 21 Proteins demand has exploded and grown 25% in the past 7 years I expect growth to taper off and settle at 5 to 7.5% through h 21 That is > 2 million MT per year. Vegoil demand has grown at about 1.5MM MT per year in the past 7 years Growth towards 21 will be slower at 1MM MT per year as per capita numbers near other comparable economies / cultures Per capita consumption of vegetable oil has increased 8% over the past 1 years, and dchi China s population has been increasing i at a rate of about t13 million people per year Currently 33% vegoil is consumed as unrefined but changing rapidly I expect demand d for Refined Oils will continue to grow at > 1% per year - 25

26 Food Service Companies Is One of the Examples Growth of the food service markets in China 25 McDonald s / KFC / Pizza Hut Stores in China 2 es Numb ber of Stor 15 1 McDonald's KFC Pizza Hut Year Looking at major US fast food company data, the food service industry is growing in China. - 26

27 Going forward China's 1.3 billion consumers will clamber up the food chain, and start eating beef and pork, fast-food hamburgers and chicken nuggets instead of rice, China's ability to feed itself will become more and more constrained as more acres are turned over to livestock or urban encroachment. As China's growth has fueled the explosion in world commodity prices, which has sent the price of oil and iron ore, steel and shipping and other raw materials so high, the impact of greater Chinese food consumption as living standards rise is going to be striking. Chinese government will push to ensure acreage is available for rice and wheat as they are the staple diets in the poorer parts of the country With a strong Remimbi and cheap production costs China will be more likely to be an importer of raw materials rather than processed - 27

28 - XIE XIE NI Thank you