EXECUTIVE SUMMARY TRENDS SHAPING MEAT, POULTRY, AND SEAFOOD MARKET SEGMENT REPORT Freedom Drive Suite 600 Reston, VA USA

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TRENDS SHAPING MEAT, POULTRY, AND SEAFOOD MARKET SEGMENT REPORT EXECUTIVE SUMMARY 2017 11911 Freedom Drive Suite 600 Reston, VA 20190 USA Market

1 TRENDS SHAPING MEAT, POULTRY, AND SEAFOOD MARKET SEGMENT REPORT EXECUTIVE SUMMARY Freedom Drive Suite 600 Reston, VA USA Market research report on the trends shaping the meat, poultry, and seafood market segments analyzing the needs and investments in processing and packaging equipment.

2 The trends for flexible packaging are increasing dramatically, with rigid packaging increasing for the deli section. Industry Expert

3 2017 Trends Shaping Meat, Poultry, and Seafood: Market Segment Report PMMI The Association for Packaging and Processing Technologies Freedom Drive, Suite 600 Reston, VA Phone: (571) pmmi.org/research Publication Date: May, 2017 Jorge Izquierdo, Vice President, Market Development, PMMI Paula Feldman, Director, Business Intelligence, PMMI Copyright 2017 PMMI, The Association for Packaging and Processing Technologies, Inc. All rights reserved. The information contained herein shall not be distributed or shared by the recipient. No part of this document may be reproduced without the express written permission of PMMI.

4 Our operations will likely grow by 15%, we are almost at capacity now and adding employees for 2nd shift. Owner; Beef, Poultry, Raw Seafood

5 CONTENTS Predictions of Capital Spending in the Next Months 1 EXECUTIVE SUMMARY 2 Increasing Automation 3 The Meat, Poultry, and Seafood Markets 4 Top of Mind Trends 5 U.S. Value of Shipments 6 Opportunities for OEMs 8 Growth Trends by Market Segment 9 What You ll Learn in the Full Report 28% 12% 10% Increasing Staying the Same Decreasing Not Certain 2 OPERATIONAL IMPROVEMENTS 11 Operational Growth Driving Change 12 Automation Advancement 14 Measuring OEE and TCO 3 FUTURE EQUIPMENT NEEDS 50% 17 Capital Spending Predicted to Increase 18 Top Attributes When Evaluating Machinery 19 Customized Equipment 20 Technology Improvements 23 Recommended Machinery Functionality 4 SANITATION AND REGULATIONS 96% of companies plan to advance automation in manufacturing operations in the next 3 to 5 years 25 Sanitary Specifications 26 Greatest Challenges in Sanitation Practices 27 Hygienic Machine Demand 28 CIP (Clean-in-Place) 29 Regulations 30 Antimicrobial Coatings 5 CHANGES IN PACKAGING, MATERIALS, SHELF LIFE TECHNOLOGY, AND PRODUCT INNOVATION Growing Companies Predicting Growth 33 Changing Packaging Styles 34 Extending Shelf Life 35 Use of HPP (High Pressure Processing) 36 Film Improvements 37 Overview of Each Market Segment 80% 6% 14% n Growing n Maintaining Production n Not Certain 6 WHAT S AHEAD 41 Most Critical Concerns 42 Opportunities for the OEM 7 APPENDIX 45 Appendix A Highest Ranked States by Industry 49 Appendix B Industry Participants 51 Appendix C References and Sources

SECTION ONE EXECUTIVE SUMMARY RESEARCH ON THE MEAT, POULTRY, AND SEAFOOD SEGMENTS The PMMI 2017 Trends Shaping Meat, Poultry, and Seafood Market Segment Report focuses on the operational changes and

6 SECTION ONE EXECUTIVE SUMMARY RESEARCH ON THE MEAT, POULTRY, AND SEAFOOD SEGMENTS The PMMI 2017 Trends Shaping Meat, Poultry, and Seafood Market Segment Report focuses on the operational changes and future equipment needs in the processing and packaging of meat, poultry, and seafood products. Categories represented include fresh, frozen, canned, deli, ready- to-eat (RTE), individual quick frozen (IQF), and preserved. The report analyzes intelligence from the experiences and opinions of professionals in manufacturing, operations, engineering, maintenance, processing, packaging, senior management, and procurement Interviews References The industry is increasingly turning to automation as a way to reduce human contact with products and the surrounding environment in an effort to reduce the potential of contamination. Industry Consultant

TRENDS SHAPING MEAT, POULTRY, AND SEAFOOD SEGMENTS The Meat, Poultry, and Seafood Markets Are Automating Operations To Improve Sanitation, Meet Global Demand, and Minimize Labor Contamination is a

7 TRENDS SHAPING MEAT, POULTRY, AND SEAFOOD SEGMENTS The Meat, Poultry, and Seafood Markets Are Automating Operations To Improve Sanitation, Meet Global Demand, and Minimize Labor Contamination is a Top of Mind Concern The meat, poultry, and seafood industries often compete for consumer attention, yet share many of the same operating challenges. One of the top concerns across all three industries is sanitation and product contamination. With increasingly complex regulations, as well as a general lack of qualified labor, the difficulty of ensuring proper sanitation compliance is compounded. Global Expansion Driving the Demand for Longer Shelf Life Population gains Increasing meat, poultry, and seafood production Growth in foodservice Export opportunities The meat, poultry, and seafood industries face a myriad of challenges moving forward, yet appear well positioned to navigate a steady course through changing consumer preferences. Manufacturers continue to adapt their packaging and product offerings with more convenient portions and environmentally friendly materials. Through cooperation and communication, both OEMs and their customers are proactively addressing the current and future hurdles within the meat, poultry, and seafood industries. Global Meat, Poultry, and Seafood Demand is Driving Growth Globally, the meat industry has seen steady gains as new markets open that previously did not have regular access to meat. A growing middle class in developing countries, the expansion of food safety regulations, and an increasingly global trade network have allowed consumers in developing markets to more regularly incorporate meat into their diet. On a global level, poultry has seen similar gains to meat, as developing countries adopt poultry more regularly into their diets. There are shifting global perceptions regarding seafood that are poised to benefit the industry. Origin naming, such as Alaskan Cod and Norwegian Salmon, along with updated packaging, have helped revive seafood s image as fresh and healthy. Over Half of Companies Say Labor is the Most Costly Element of Manufacturing Labor, as well as all the costs associated with managing a workforce, is one of the biggest expenses in manufacturing operations. Companies are seeking to reduce labor requirements through automation, while also providing a safer workplace to their employees. Many companies continue to explore increasing levels of automation as a posssible solution to labor sourcing issues. 62% 2 of 3 Manufacturers focus on updating their packaging materials and general presentation, with a shift toward flexible and clear packaging that highlights the product itself. 1

AUTOMATION IS TAKING PLACE WHEREVER IT CAN ADD VALUE Nearly Every Company Is Voicing Plans for Greater Automation 96% Nearly every company interviewed plans to increase their use of automated

8 AUTOMATION IS TAKING PLACE WHEREVER IT CAN ADD VALUE Nearly Every Company Is Voicing Plans for Greater Automation 96% Nearly every company interviewed plans to increase their use of automated machinery in the next 3 to 5 years. Depalletizing Processing Packaging End of Line 96% 2 4Machinery will be more automated in the future to keep pace with the growing demand for meat, poultry, and seafood. 4Sanitary design and easy cleaning are essential to delivering the safest product possible. The Level of Automation at The Manufacturing Plants Interviewed, Today and in the Future The Level of Automation 0-10% 20-30% 40-50% 60-75% 80-90% 100% Now 31% 31% 24% 8% 4% 2% 5 Years 2% 28% 26% 19% 17% 8% The Level of Automation Each Plant Implements Depends on The Manufacturing Process, The Availability of Labor, and The Total Cost Automation Drives New Equipment Design We evaluate high volume production areas to target first for automation. Purchasing Manager; Veal, Lamb More automation is growing across the board processing and packaging. Corporate Engineering Manager; Turkey

9 THE MEAT AND POULTRY MARKETS ARE DOMINATED BY A HANDFUL OF LEADERS CHALLENGED TO MEET CONSUMER PREFERENCES AND ADAPT TO GLOBAL GROWTH Large Firms in Meat and Poultry Generate 85% to 95% of Market Revenue, While The Seafood Market Has a Greater Portion of Smaller Establishments 60.6% Small establishments with 1 19 employees 19.9% Medium establishments with employees 19.5% Large establishments with 100+ employees 1.9% of Total Value of Shipments for Meat, Poultry, and Seafood 7.4% of Total Value of Shipments for Meat, Poultry, and Seafood 88.4% of Total Value of Shipments for Meat, Poultry, and Seafood EC1231SG2 Manufacturing: Industry Statistics for Subsectors and Industries by Employment Size: 2012, Release Date 12/18/2015 Club Stores Have Gained Share for Meat, Poultry, and Seafood Purchases; A Slight Shift Away from Traditional Grocery Stores n Traditional Grocery n Wholesale-Club n Specialty Market 75.9% n E-commerce n Other 22% Growth in Retail Sales from 2007 to $ bn $ bn Supermarkets 75.9% 73.7% Whse - Clubs 18.1% 20.7% Specialty Mrk 5.8% 5.2% E-commerce 0% 0.22% Other 0.1% 0.1% 18.1% 5.8% 73.7% 20.7% 5.2% EC1244SLLS1 Retail Trade: Product Lines Statistics by Kind of Business for the U.S.: 2012 and Consumer Perceptions and Preferences Drive Demand While the U.S. consumption of beef has dipped recently, the consumption of pork (especially bacon) has increased significantly. With rising prices, rather than forgo meat altogether, consumers seek out cheaper alternatives to the meats they were previously purchasing. The poultry industry in the U.S. has seen gradual but consistent gains over the last decade as American consumers demand for poultry products continues to rise, with chicken in particular making successful inroads into the snack market. The seafood industry, while significantly smaller than either the meat or poultry industries, has recently exhibited signs of growth. Millennials and Generation Z are more likely to eat seafood on a regular basis when compared to other demographics. The U.S. Export of Meat/Poultry Increased 2.5% From 2015 to 2016, and Imports of Fish/Seafood Rose 6% 19 $15.5 bn Exports Meat, Poultry Imports Fish, Seafood U.S. Census Bureau: Economic Indicators Division USA Trade Online, Current date: 03/29/2017 $14.6 bn $7.7 bn $4.9 bn Imports Meat, Poultry Exports Fish, Seafood As one of the world s largest and most efficient poultry producers, U.S. imports are negligible. In 2012, U.S. exports accounted for about 34% of global broiler chicken and turkey meat.

10 TOP OF MIND TRENDS CHANGING THE FUTURE INCREASING DEMAND EXTENDED SHELF LIFE SANITATION Global Consumers Looking for Healthier Choices and Convenient Packaging On-the-go eating has consumers looking for portion control and convenience in bite-size, flavorful foods. Sustainable and eco-friendly packaging is growing in demand among every classification of consumers. Clean and clear claims of organic, GMO free, antibiotic-free and free-range are appearing on labels to address the desire for a more natural and transparent product. Beef and pork have faced challenges from poultry and seafood as consumers who are concerned about fat and cholesterol seek out healthier protein sources. Industry experts agree that the purchase of organic foods has grown by double digits for over a decade, but some forecast it might be leveling off. Consumers are increasingly looking beyond meat products to alternative sources of plant-based protein options. Sourced in the U.S. is particularly important, with consumer perceptions of higher quality and USDA standards. 4 Packaging Changes Moving to Flexible With Extended Shelf Life and Resealable Closures For Some New Products Machinery Advancements for Processing and Packaging at Meat, Poultry, and Seafood Plants Flexible packaging gaining ground over rigid packaging on performance and sustainability advantages. Extending shelf life with the use of MAP and vacuum packaging is expanding across the meat, poultry, and seafood industries, driven primarily by the rise in case-ready meats. The use of PET films and trays for meat packaging is expanding. Consumers desire to see the product they are purchasing in order to verify the freshness visually themselves. The use of HPP (high pressure processing) is expanding as a way to better preserve the texture, flavor, and appearance of foods. It is also seeing secondary applications such as shucking shellfish and tenderizing meat. Single-serve packaging and small portions for smaller families are increasing. Labeling products allergen free, non- GMO, organic, and antibiotic-free is increasingly popular. Increasing automation to reduce contamination risks posed by human interaction. More easy-to-clean stainless steel machines to meet sanitary verification. Simplified HMIs to improve user compliance and document recipe changes. Total cost of ownership calculations include acquisition cost, sustaining costs (labor, utilities, and consumables) and maintenance/repair costs. By working closely with their customers from the onset of a project, OEMs can strive to offer machine attributes that work to alleviate operational stresses. Features such as intuitive, picture-based HMIs, push- button operation, and preset recipes can assist with introducing new machines into a less technically proficient labor force.

11 $227.9BN - TOTAL VALUE OF SHIPMENTS FROM MEAT, POULTRY, AND SEAFOOD SEGMENTS $48.3bn Meat Processed from Carcasses 21.2% 1.9% $4.4bn Meat By-Products Processing $227.9bn Value of Shipments % $64.0bn Poultry $99.3bn Animal Slaughtering (8.1% of manufacturing revenues were from meat processing; and 6.3% of revenues came from meat by-product processing.) 43.5% 5.2% $11.9bn Seafood Segments represented include fresh, frozen, canned, deli, ready-to-eat (RTE), individual quick frozen (IQF), and preserved. 5 ANIMAL SLAUGHTERING (Not Poultry) MEAT PROCESSING - EDIBLE (Not Poultry) MEAT BY-PRODUCTS PROCESSING Beef 43.5% 28.1% 21.2% 1.9% Veal Lamb Pork and Other Processing, Preserving Cutting, Slicing Packaging Rendering and Processing (animal fat, bones, and meat scraps) Annual Survey of Manufacturers: General Statistics: Statistics for Industry Groups and Industries: 2015, U.S. Census Bureau POULTRY SEAFOOD 5.2% Meat, Poultry, and Seafood Segments are 17.3% of the Food and Beverage Segment Measured by Total Value of Shipments in 2014 U.S Census Data 2017 PMMI Food Processing Report Preparation Processing/Packaging By-Products Preparation Processing/Packaging By-Products 17.3% Slaughtering and By-Products Were Not Included

12 OPPORTUNITIES FOR OEMs Meat, Poultry, and Seafood Manufacturers Predict Increasing Automation; There is a Need for More Sanitary Equipment to Fight Against Contamination Equipment Procurement Half of the companies interviewed will be spending more on capital equipment in the next 12 to 24 months. Manufacturers top attributes considered when evaluating machinery are focused around service, cost, and quality. Almost all manufacturers use customized equipment at some level. Sanitation is the top priority with safety teams involved in machine specifications requiring IP69K washdown. Over half of the companies are changing packaging styles. Nearly half of companies are using both MAP (modified atmosphere packaging) and vacuum packaging to extend shelf life. 1 of 3 companies interviewed are using high pressure processing (HPP). 52% & 1 of 3 Companies interviewed are using high pressure processing (HPP) Over half of the companies are changing packaging styles. 6 Equipment Functionality At new project development stages OEMs need to provide specific data on specifications, costs, performance, and documentation. End users recommend machinery improvements that focus on cleanability, operator safety, and flexibility in changeover. Machine cleanability is the greatest challenge in equipment sanitation and preventing contamination, with the need for equipment that is easy to disassemble and reassemble. More hygienic processing and packaging machines are being specified by 4 of 5 meat, poultry, and seafood manufacturers, even though the cost may be greater. Clean-in-Place (CIP) processes are sometimes not reliable enough on their own; secondary cleaning is often needed. 2 of 5 companies are actively working to eliminate the bagging process prior to washdown. Food manufacturers say their most critical concerns in the year ahead are food safety, sanitation, and operational efficiencies. Machine cleanability is the greatest challenge in equipment sanitation and preventing contamination, with the need for equipment that is easy to disassemble.

Sustainable solutions focus on recycling and achieving zero landfill. Manufacturing Operations 4 of 5 companies predict growth in their operations, with growth rates from 3% up to 40%.

13 Sustainable solutions focus on recycling and achieving zero landfill. Manufacturing Operations 4 of 5 companies predict growth in their operations, with growth rates from 3% up to 40%. Operational growth causes manufacturing challenges, with solutions coming from new equipment, changes to packaging, and new lines or line expansions. 96% of companies plan to advance automation in manufacturing operations in the next 3 to 5 years. Preventing human error in manufacturing requires improvements in operating instructions and safety. 3 of 4 companies measure OEE (overall equipment efficiency) and/or TCO (total cost of ownership) and look for data collection improvements. Over half of engineers say labor costs are the most expensive element of manufacturing. Antimicrobial coatings for food and equipment are being used by only a handful of companies. 3 of 5 companies interviewed are looking for film improvements. Sustainable solutions focus on recycling and achieving zero landfill. 4 of 5 Companies predict growth in their operations, with growth rates from 3% up to 40% 96% of companies plan to advance automation in manufacturing operations in the next 3 to 5 years 7

14 MEAT, POULTRY, AND SEAFOOD SEGMENT TRENDS Market Size Measured by Value of Shipments Meat market value of shipments since post recession has seen a steady increase, however, shows a decline of 3.5% from 2014 to Poultry market value of shipments has seen a continued increase in the past eight years, with a 0.5% increase from 2014 to Seafood market value of shipments has remained flat, until a decline of 3.6% from 2014 to Billions Meat Poultry Seafood $152 bn $64 bn 50 $12 bn Cost of Materials Used for Product Production Cost of materials in the meat market since post recession has seen a steady increase, however, shows a decline of 6.4% from 2014 to Cost of materials in the poultry market has seen a continued increase, with a 0.4% increase from 2014 to Cost of materials in the seafood market has remained flat, until a decline of 5.9% from 2014 to Billions Meat Poultry Seafood $117 bn $38.4 bn $6.9 bn Capital Investments in Machinery Capital investments in the meat market since post recession have seen a steady increase, with a decline of 9.9% from 2014 to Capital investments in the poultry market have seen a continued increase after the 2010 recovery, with a 15.8% increase from 2014 to Capital investments in the seafood market have shown a continued increase since 2010 recovery, with a 43% increase from 2014 to Annual Survey of Manufacturers (ASM), US Census, 2008 to 2015 Leased Equipment Changes Between MEAT 4.2% INCREASE IN LEASED EQUIPMENT (2014 to 2015) Billions Meat Poultry Seafood $1.67 bn POULTRY 5.8% DECLINE IN LEASED EQUIPMENT (2014 to 2015) $1.25 bn $0.27 bn SEAFOOD 0.2% INCREASE IN LEASED EQUIPMENT (2014 to 2015)

15 WHAT YOU LL LEARN IN THE FULL REPORT 2017 Trends Shaping Meat, Poultry, and Seafood 50 Interviews 110 References* Advancements in Packaging Explore the trends and technology advancements that are changing the wet processing industry: Responsible sourcing Sustainable materials A move from rigid to flexible Technology Push Equipment Procurement What functionality is needed on the next generation of equipment to address: Sanitation Increasing production Increasing automation Customization What s Now 9 Market Pull What s New What s Changing *Complete list of references can be found in Appendix C of the full report Regulations & Standards Impact on Manufacturing In the U.S., the meat, poultry, and seafood industries are regulated by the USDA, the FDA, and NOAA: How are engineers evaluating equipment improvements? What s ahead? More stringent food safety regulations demand greater strides in recall prevention and execution CIP (clean-in-place) Washdown components Eliminating bagging during cleaning Introducing robotics

16 PMMI HEADQUARTERS Freedom Drive, Suite 600 Reston, Virginia T: (571) F: (703) E: LEARN MORE! PMMI s Business Intelligence Reports PMMI LATIN AMERICA Homero 418 Piso 7 Col. Miguel Chapultepec Miguel Hidalgo, D.F Mexico T: + (52 55) F: + (52 55) E: latina@pmmi.org 6 Visit pmmi.org or contact Paula Feldman, Director, Business Intelligence, at or pfeldman@pmmi.org. PMMI s most recent reports include: Retail-Ready Packaging Food Safety and Traceability Trends in Robotics Beverage Our Latest Report Aftermarket Parts and Services Trends in Packaging and Processing Operations State of The Industry US Packaging Machinery Report Food Safety Modernization Act Trends in Food Processing Operations Trends in Packaging and Operations Dairy Food Packaging Trends and Advances Brand Protection and Product Traceability Pharmaceutical & Medical Devices

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