Global poultry and feed outlook Key investment trends shaping the industry in 2019 Nan-Dirk Mulder, 13 February 2019
Content 1.Global poultry and feed outlook 2.Regional perspectives on global poultry and feed markets 3.Key investment trends shaping the industry in 2019
Rabobank: Leading global Food & Agri bank Rabobank global presence and selected clients by regions North America Asia / Australia EMEA Latin America Latin America
Worldwide 35% more demand for animal protein in next 20 years Global animal protein demand projections 2017-2037f CAGR: 2017-2037f Eggs: CAGR +1.6% Beef: CAGR +1.1% Pork: CAGR +1.0% Poultry: CAGR +2.0% Seafood: CAGR +1.2%
Consumer demand is changing when economies develop further Source: Rabobank analysis, 2019
Big global differences in preference and level of meat consumption Kg/capita 140 120 100 80 Global per capita consumption meat 60 Global average 40 20 0 Source: Rabobank analysis based on USDA, FAO and local statistics, 2019 Pork Poultry Beef Sheep Other
Social changes can impact the outlook for animal protein markets Meat substitutes retail sales Carbon footprint of food products X 1,000 USD 16,000 14,000 12,000 10,000 8,000 6,000 CAGR: +3.5% Meat substitutes share <0.5% in global protein markets Global CAGR: +4.4% 4,000 2,000 CAGR: +10.2% CAGR: +10.1% CAGR: +3.2% CAGR: +10.2% - Asia Pacific North America Europe Middle East and Africa Latin America 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Rabobank analysis based on Euromonitor, 2019 Source: Rabobank analysis based on WUR, 2019
90% of global growth is in emerging markets; 60% in Asia X 1,000 tonnes Projected change in meat consumption 2017-2027f 12,000 10,000 8,000 6,000 4,000 2,000 0-2,000 poultry Pork Beef Source: Rabobank analysis based on USDA, FAO and local statistics, 2019
Global agricultural land use is declining; while especially Asia has limited resources Available land and water per capita 20 18 16 14 12 10 8 6 4 2 0 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Worldwide land use 1961-2015 Million hectares 6.0 5.5 5.0 4.5 4.0 1961-1997 Ongoing global land expansion +11% 1997- now Gradual decline? -2% 3.5 1961 1967 1973 1979 1985 1991 1997 2003 2009 2015 Acre per capita Water availability per capita Source: Rabobank, FAO 2019 Source: FAO/Rabobank analysis 2019
Significant differences in cost of production Live broiler cost of production, 2017 EUR/kg 1.40 1.20 1.00 0.80 0.60 0.40 0.20 - -22% -20% -17% -10% -8% -7% -3% -3% 0% 0% +8% +11% +24% +50% Global average Source: Rabobank estimate based on WUR and local statistics, 2019
Global food supply challenge: more focus on yield and efficiency Animal proten demand Food demand Biofuel demand +50% in 35 years Meat supply Food supply Fuel supply Expansion Efficiency Yield Livestock/poultry supply Grains and oilseed supply Efficiency Cultivation Yield Land use Further decline Source: Rabobank, 2019
Global trade of poultry will rise: but depends also on food security strategies Global supply strategies High costs World poultry trade flows in 2017 Importers Food security Locals Open market Closed market Exporters Low costs
Content 1.Global poultry and feed outlook 2.Regional perspectives on global poultry and feed markets 3.Key investment trends shaping the industry in 2019
Global industry performance: Global price pressure, but 2019 recovery? Global meat protein margin monitor Outlook: Gradual improved but volatile conditions _ African swine flu- - China tight supply - Oversupply US and EU - Brazil trade restrictions - Economic volatility - US-China turmoil Source: Rabobank analysis based on Bloomberg, CBOT and USDA, 2019
Poultry and eggs the winning protein; China growth is slowing down Global market excl. China 2007-2019f China market 2007-2019f X 1,000 tonnes 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 CAGR: +3.1% CAGR: +2.3% Meat consumption: CAGR: +1.8% CAGR: +1.4% CAGR: +0.4% Chicken Eggs Pork Beef World ex China 2012 2013 2014 2015 2016 2017 2018 2019f X 1,000 tonnes Meat consumption: CAGR: -0.1% 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 CAGR: -0.2% CAGR: +3.9% CAGR: -1.8% CAGR: +3.8% Chicken Eggs Pork Beef China 2012 2013 2014 2015 2016 2017 2018 2019f Source: Rabobank analysis based on USDA, FAO and local statistics, 2019
A new poultry trade reality; slow, volatile growth to push internationalisation Global chicken trade 2011 Q1-2018 Q3 Global pork trade 2010-2018 X 1,000 tonnes AI AI AI AI Source: Rabobank analysis based on Bloomberg, OIE, 2019
Brazil s meat and poultry industry challenging market conditions Brazil meat production and exports Brazil exports in volume by destination X 1,000 tonnes 16,000 14,000-2.8% SA:Changing standards 12,000 10,000 +3.7% 8,000 6,000 4,000-8% -1.5% +10% 2,000-10% 0 Production Exports Production Exports Production Exports Beef Chicken Pork 2012 2013 2014 2015 2016 2017 2018 Source: Rabobank analysis based on USDA and local statistics, 2019 UAE changing standards RSA trade restrictions EU: Banned BR export plants China safeguard
Lots of volatility is coming from Europe and the Middle East EU chicken imports: Brazil 2011-2018f: -50% Saudi Arabia: Poultry imports: -25% Tonnes 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 X 1,000 tonnes 800 700 600 500 400 300 200 100 0 Brazil France UAE US Other 2015 2016 2017 2018f 2011 2012 2013 2014 2015 2016 2017 2018f
1990/1991 1992/1993 1994/1995 1996/1997 1998/1999 2000/2001 2002/2003 2004/2005 2006/2007 2008/2009 2010/2011 2012/2013 2014/2015 2016/2017 2018/2019 China US import tariff will further shake up trade and Brazil Global soybean imports X 1,000 tonnes 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 China imports 62% of global Soybeans trade China-US Import tax Impact of China US Soybean import levies Relative low soybean prices Rising soybean prices Rising soybean prices Relative low soybean prices High soybean prices Relative low soybean prices Source: Rabobank analysis based on USDA, FAO and local statistics, 2019
Feed grains fundamentals: falling stocks in corn and wheat; soybean volatility Corn: Lower stocks Wheat: More pressured Soybeans: Rising US stocks Source: Rabobank analysis based on USDA, 2019
Thd tonnes China ASF outbreaks will impact markets and industry structure in coming years ASF cases in China since 3 August 2018 China pig farming: forced changes 2,000 Production -10% 1,500 1,000 Production -5% Potential Additional imports 500 0 Potential Gap Potential Buildup Lower Bound Upper Bound Extra exports from Brazil Extra exports from Canada
2019: The return of Chinese poultry? China poultry per capita consumption: big upside Grand parent stock imports in China 1,000 sets 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Source: Rabobank analysis based on USDA, FAO and local statistics, 2019
Content 1.Global poultry and feed outlook 2.Regional perspectives on global poultry and feed markets 3.Key investment trends shaping the industry in 2019
Key investment trends shaping the industry in 2019 Access to global growth 1 2 More focus on emerging market growth and food security More focus on value added concepts Increase value of poultry 6 New technology to drive industry change Efficiency improvement to keep a key driver for investments 3 Adapt new technology and become future proof On-line growth to change business models Social concerns are changing industries Stay competitive 5 4 Source: Rabobank analysis 2019 Social responsibility and social driven change
US meat industry s rising oversupply with ongoing trade challenges X 1,000 tonnes 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 US meat market 2012-2018 CAGR: +2.3% CAGR: +2.4% CAGR: + 1.0% CAGR: + 3.1% 2012 2013 2014 2015 2016 2017 2018 Chicken Beef Pork Domestic market key driver for growth US meat production and trade 2012-2018 X 1,000 tonnes 25,000 20,000 +2.2% 15,000 +2.3% +3.1% 10,000 5,000 0 Production Exports Production Exports Production Exports Beef Chicken Pork 2012 2013 2014 2015 2016 2017 2018 Source: USDA, Rabobank Estimates, 2019
China: Short term market recovery, but long term market growth slowdown China meat and egg market outlook in tonnes and YOY growth Source: Rabobank projections based on USDA, FAO and Local Statistics, 2019
Focus for investment to shift away from China to other Asian markets Asia (ex. China) meat and egg market outlook in tonnes and YOY growth Source: Rabobank projections based on USDA, FAO and Local Statistics, 2019
South and South East Asia will be key global growth market Poultry market growth 2017-2027f Source: Rabobank projections, 2019
EU Pork and poultry production; Relocation to CEECs and Spain EU chicken production 2010-2017 Source: Rabobank analysis based on Eurostat, local statistics, 2019
Latin American s industry growth alternative for slower Brazil growth Latin America Poultry production by country excluding Brazil Source: Rabobank analysis based on FAO, USDA, 2019
The rise of African poultry: Accelerating annual 5% growth in next decade The big 2: 65% X 1,000 tonnes The other Sub Saharan African countries: 35% of production X 1,000 tonnes Countries with expected growth of 6-10% year-on-year between 2015 and 2025 Nigeria Ivory Coast Ghana Ethiopia Uganda Kenya Senegal Malawi Angola Rwanda Source: Rabobank projections based on FAO, OECD, USDA and local data, 2019
Further internationalization of the feed to meat industry Globalization in the meat industry EU Russia United States China Japan Middle East Mexico Brazil Africa India SE Asia Argentina Australia Source: Rabobank analysis, 2019
China more sustainable if European efficiency is adopted Chinese pork production with Dutch efficiency Advantage in efficiency Saving 54 million tonnes grains Production 13 million tonnes (20%) more pork with same resources Source: Rabobank analysis, 2019
Consumer demand is changing when economies develop further Source: Rabobank analysis, 2019
From volume to value: The journey to higher margins High The poultry value added pyramid Brand Value added food Examples of nvestors who follow this strategy Margin level Value added chicken Premium chicken Low Standard chicken Source: Rabobank analysis, 2019
Speciality focus: social concerns are opportunities to differentiate markets Differentiated product Market differentiation opportunities Social concern Food safety Animal welfare friendly Environment friendly Consumer health Buy local Standard product Standard meat and chicken Source: Rabobank analysis, 2019
Specialised production practice Price premium Market demand is changing; more concepts and higher standards Europe: animal welfare driven change; NL example 100% US: Customer driven shift to concepts Production Practice 80% 60% 40% Producers Slow Growing Organic End Users 20% Antibiotic Free 0% 2013 2014 2015 2016 2017 No antibiotics for human health Better life Chicken of tomorrow Organic Regular Traditional Source: Company Announcements, Rabobank Estimates, 2019
Securing GM free feed grains supply: a rising challenge Global GM/GM free seed market by region Global seed crop areas by region Million USD 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 16% 27% 45% of global seed market is GM free 99% 85% 60% NAFTA Latin America Europe Asia MEA Million acre 200 180 160 140 120 100 80 60 40 20 0 Conventional Seed Source: Rabobank analysis, Philip McDougall, 2019 GM seed 2009 2015
Rising investment opportunities in alternative protein segment Altenerative proteins market segmentation Alternative protein investments Traditional meat replacers Start up meat replacers Startup Funding Protein industry investor 2011 $387 m 2011 $220 m 2012 $ 85 m 2009 $ 72 m Meat ingredient replacements Feed ingredient replacers 2015 $ 20 m 2015 $ 4 m Source: Rabobank analysis, 2019
Online to change industries; Emerging markets in the lead On-line food sales in United States On-line food sales in China (CNY million) On-line food sales in India (Bln INR) 300 USD 16 billion CAGR: +21% 250 USD 40 billion CAGR: +40% USD 2 billion CAGR: +45% 200 150 100 50 0 2013 2014 2015 2016 2017 2018 Source: Rabobank analysis, 2019
Animal protein supply chains will change fundamentally in next decade Food distribution: a future revolution Value chain models need to change New distribution models Horizontal specialisation model Grain and oilseeds Feed Breeding Farming Processing Customer Semi-Vertically integrated value chain Grains and oilseeds Feed Breeding Farming Processing Customer Full vertically integrated value chain: feed to poultry Grains and oilseeds Feed Breeding Farming Processing Customer Multisector Fully vertically integrated value chain: grains to poultry Grains and oilseeds Feed Breeding Farming Processing Customer Source: Rabobank analysis, 2019 Technologic innovation
New technology will help to solve key supply and social challenges Upcoming new technology Upcoming new technology Smart farming and big data Online, internet of things Growth rates FCR Yields Mortality rates Density Diseases Stress Blockchain technology Artificial intelligence Robotics Genomics and gen typing Novel feed additives and ingredients Foot print Efficiency Energy Water usage Financial and technical performance Environmental impact Animal health and welfare From intuitive to fact based decisions Quality management, horizontal and vertical communication Tracking & tracing Value chain ` coordination Benchmarking Source: Rabobank analysis, 2019
Global feed industry in 2019: position yourself in a fast changing landscape Top 20 global feed manufacturers Key investment themes in 2019 x 1,000 tonnes 30,000 25,000 20,000 15,000 10,000 5,000 - Source: Rabobank analysis, 2019
Conclusions Changing global animal protein markets offer great opportunities for investors in the feed to meat industry Markets 35% global growth; 90% in emerging markets More poultry and aquaculture On-line will change industries Alternative protein market to take off Supply Feeding the world requires efficient supply Social concerns to drive concept poultry growth Global reduction of antibiotics use Solutions need for disease pressure Technology New technology to support industry challenges especially for social issues Big data and smart farming could support the industry to further optimize efficiency and focus Clients More consolidation and internationalisation More value added and concept focused More vertically integrated Timing is an important factor for consideration: early investors are set to benefit
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