Global Investment Driving Growth in the Pulse Industry Australia Milling Group/AGT Foods Australia Peter Wilson, CEO July 2015
AGT Foods Highlights Company Overview Global leader in pulse, staple food and food ingredient processing and distribution Merchandising offices and valueadded processing facilities in Australia, Canada, the US, Turkey, India, China & South Africa European sales offices Russian origination office Global customer base HQ: Regina, SK, Canada Global Company & Brands Company Profile TSX Listed: AGT Shares Outstanding: 23.2 million (fully-diluted) Market Capitalization: ~ $730 million Annual Dividend: $0.60/share 2
AGT Foods History 3
AGT Foods Global Operations Canadian head office and 39 facilities in 6 key agricultural production origins on 5 continents with approximately around 1.6 million mt of annual production with Sales, merchandising, origination and administration offices located around the globe. 4
AGT Global Origination Strength Canada Aug/Sept China Sept/Oct U.S. & Russia July/Aug India Oct (Kharif) Australia/South Africa Nov/Dec Turkey May/June India June (Rabi) 5
Rural Renaissance a future in which agriculture provides societal solutions to energy supplies, health promotion and climate change. whatever producers and processors do, they must be done in innovative ways that resonate with their customers. 6
Agriculture Not just food anymore Agriculture not just hitting the breadbasket anymore Protein is a key driver of agricultural markets Food safety non negotiable Impact reaching far outside Agri-Food: o Health sector o Energy sector o Environment sector o Immigration sector o Economy overall 7
Pulse Industry Growth Growth Opportunity Traditional price conscious markets are increasingly commoditized but more reliable The agricultural and agri-food industry needs To leverage nutrition, health, energy, food security/safety and the environment profile to achieve sector growth Find new approaches to build on existing strengths in non-traditional markets and products To tap into the growth potential for feed in domestic and international markets Food, Fibre and Feed Pulses ingredients like flour, protein, starch and fibre as well as premium pulses with market demand in consumption markets How to realize the potential: Non-traditional uses for grains and pulses such as ingredients and industrial uses Move up the value-chain with branded packaged wholesale and retail Increase value-added milling capacity for pulses The Asian and MENA markets are in close proximity and large in size Research partnerships with industry Focus on food safety, logistics and market development and access 8
Factors Driving Global Demand Benefits of Pulses Emergence of the Middle Class Health and Wellness Trend Alternative Fuels & Sustainability Pulses are a sustainable source of protein GMO-free, gluten-free, low allergen, major source of protein and fibre, which developing nations particularly rely on vegetable sources for their protein and energy requirements Lower energy use, reduced greenhouse gas emissions, improved soil health through rotational cropping, increased water use efficiency Overall food output to increase due to population growth, urbanization and income growth Middle class may increase from 1.8 billion to 3.2 billion by 2020 and to 4.9 billion by 2030 - with 85% of this growth coming from Asia. Global spending by the middle class may grow from $21 trillion today to $56 trillion by 2030 Consumer movement towards healthy lifestyles in non-traditional markets Pulses offer many benefits for nutrition, health and chronic disease prevention As a result, there has been increased interest from food companies in using pulses in product formulations, for cost, characteristic, allergen, GMO-free and other reasons Pulses production globally is at all time highs from multiple origins Pulses are a rotational crop for cereals and canola which are used in ethanol and biodiesel production Pulses lower the carbon footprint and support the sustainability efforts of processors, food companies and meet the demand of consumers for sustainably produced products Source: UN FAO; OECD 9
Markets for Pulses & Staple Foods Traditional Markets for Pulses Growth Driver: Population & Global Demand for Food 2050 - Global population expected to rise 30% Global food output will have to grow by 70% to feed the world with growing middle class Pulses are a sustainable source of protein, a key nutrient for large numbers of the world s populations New Markets for Pulses Growth Driver: Health, Nutrition and Sustainability High Protein and Fibre, Nutrient Dense, Low Fat, Gluten Free, non-gmo, Low Allergenicity -> snackfoods Lower Energy Use, Reduce Greenhouse Gas Emissions, Improve Soil Health through Rotational Cropping, Increase Water Use Efficiency North America Middle East and North Africa South Asia Europe China Latin & Central America Source: UN FAO 10
Pulses & Sustainable Agriculture Plant Fixing Nitrogen Lower Energy Requirement Increased Water Use Efficiency Pulses produce their own fertilizer by fixing nitrogen Pulses Use Less Non-Renewable Energy Relative to Other Crops 70% of the non-renewable energy used in cropping systems in western Canada is attributable to fertilizers 43 gallons of water required to produce one pound of pulses 1,857 gallons of water required to produce one pound of beef 1,857 Gallons/ lbs 756 Gallons/ lbs 469 Gallons/ lbs 43 Gallons/ lbs Pulses Source: (Zentner et al. 2004) Source: Hoekstra and Chapagain, Globalization of Water, U. of Twente, Waterfootprint.org National Geographic, April 2010 11
Global Pulse Production Rising 12
Relative Australian Pulse Area, Production and Value 10% $1.80 9% $1.55 $1.60 8% $1.40 7% 6% $1.11 $1.00 $1.07 $1.20 $1.00 5% 4% 3% 2% $0.30 $0.57 $0.39 $0.61 $0.40 $0.82 $0.62 $0.69 $0.84 $0.81 $0.80 $0.60 $0.40 1% $0.20 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Area Production Value (Billion A$) Expon. (Value (Billion A$)) $- ABS/ABARE/Pulse Australia Limited
$500 Spread Prices basis CFR Mumbai $400 $300 $200 $100 $0 ($100) ($200) ($300) ($400) ($500) ($600) ($700) Desi/Yellow Pea Yellow Pea/CBOT Wheat Desi/Lentil Linear (Desi/Yellow Pea) Log. (Yellow Pea/CBOT Wheat) Log. (Desi/Lentil)
MT Indian Pulse Production, Consumption and Gap 50,000,000 45,000,000 40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11f 2011-12f 2012-13f 2013-14f 2014-15f Production Consumption Gap
2016 International Year Of Pulses Four thematic areas; Managing Director of the Grains & Legumes Nutrition Council and Non-Executive Director of Pulse Australia, Ms Georgie Aley chairs the International Creating Awareness theme as well as being the chair of the Australian Steering Committee. Pulse Australia CEO, Tim Edgecombe is a member of both the global Market Access and Stability and Productivity and Environmental Sustainability theme committees Michelle Broom, Nutrition Program Manager at the Grains & Legumes Nutrition Council, is a member of the global Food and Nutrition Security and Innovation theme. The Australian national IYP committee will continue to hold industry workshops and engage with stakeholders throughout 2015 to capitalise on the opportunities available to the Australian pulse and food industry through the IYOP16.
International Year of Pulses What s in it for the Australian Pulse Industry? Greater promotion and awareness of pulses for human consumption. Greater investment interest in further value addition for domestic and export demand. Better asset utilisation margin improvement More options for farmers as liquidity improves What s in it for the Australian Grains Industry? More sustainable industry lighter carbon footprint. Future model for grains industry integration and supply chain efficiency. Opportunity for grain and pulse food product collaboration.
Challenges for Australian Ag Sector Australian crops are almost fully dependent on export markets Market access is an ongoing priority for the pulse industry Bilateral free trade agreements China Sanitary/phytosanitary issues, other non-tariff barriers Tariff and Non-Tarrif trade barriers Differentiate and capture market and sales opportunities over competing origins, processors, traders. Primary vs. Secondary processing Balance between the two. Need to up value some products and efficiently ship others 18
Ocean and Intermodal Containers Transportation advances are creating freight options that were not available before Transformational projects like the Toowoomba Range Crossing and the Inland Rail Project will change the way product flows in eastern Australia. Full containers in = empty containers available for outbound shipments adjusting to the downturn in car part imports Free-Trade Agreements with key partners will be a big opportunity for Australian businesses Australia Milling Group is one of the largest agri-products container shippers in Australia 19
Conclusions Agriculture in in the midst of a renaissance impacting many sectors of the economy Opportunities as agri-production moves up the value-chain focused on food, fibre, feed and fuel as well as packaged and retail products and ingredients Global race for protein is on and Australia has the opportunity to become the protein-basket of the world Global agri-products markets are strong with need for secure and stable food supplies Initial investment, follows an idea, sustained investment in this sector follows supply and demand confidence. International Year of Pulses set to drive supply, demand and investment -> margin Australia needs to harness the legacy benefits of the Mining Boom as it migrates to the sustainable benefits of the Dining Boom 20