Global poultry and pork outlook Shaping the industry for competitiveness in a fast changing world Nan-Dirk Mulder, 8 November 217
Content I Global meat outlook 225 II III Regional meat outlook strategies for winners in global meat industry 2
Rabobank: The world s leading global F&A bank Rabobank group global presence 3
Animal protein is our sweet spot North America South America Europe Asia & Oceania 14 out of top 2 meat companies are client of Rabobank 4
Positive outlook with ongoing firm meat prices and stable feed costs Rabobank global protein market monitor Key themes in meat market Index 24, 22, 2, 18, 16, 14, 12, 1, 8, 6, Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1fQ3f 27 28 29 21 211 212 213 214 215 216 217 1. Disease related volatility 5. China volatility 4. Brazil meat scandal 2. Global low supply 3. Strong red meat prices despite Feed Poultry Pork Beef Source: Rabobank analysis based on USDA, FAO and local statistics, 217 5
Chicken the winner in global poultry except in China Global market excl. China China meat and egg market X 1, tonnes X 1, tonnes 8. CAGR: +2.2% 7. 7. 6. 5. 4. CAGR: +1.9% CAGR: +1.1% CAGR: +.1% 6. 5. 4. CAGR: +.8% CAGR: +.7% 3. 3. 2. 1. 2. 1. CAGR: -3.6% CAGR: +3.7% Chicken Eggs Pork Beef Chicken Eggs Pork Beef World ex China 212 213 214 215 216 217f China 212 213 214 215 216 217f Source: Rabobank analysis based on USDA, FAO and local statistics, August 217 6
China volatility has a major impact on global markets China poultry prices China poultry GP import volumes Chinese pork herd X million heads 25. 2. AI AI AI X million sets 2 1.8 5 48 46 55 5 15. 1.6 1.4 44 42 45 1. 5.. live broiler price DOC price dressed chicken retail price 1.2 1.8.6.4.2 29 21 211 212 213 214 215 216f 4 38 36 34 32 3 2 11 2 12 2 13 2 14 2 15 2 16 Hog inventory (LHS) Sow (adult female swine) Inventory (RHS) 4 35 3 Source: Rabobank analysis based on local statistics, 217 7
Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Increased volatility in global trade driven by diseases and FX Global chicken trade 211 Q1-217 Q2 Global avian influenza outbreaks Oct 216- Aug 217 Regional trade volumes (x 1, tonnes) 1.4 Global trade volumes (x 1, tonnes) 3.5 1.2 3. 1. 2.5 8 2. Exchange rate volatility versus USD 27-217 INDEX 16 6 4 AI AI 1.5 1. 14 12 1 8 2 5 6 4 - Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 AI - 2-211 212 213 214 215 216 217 Global Brazil US EU Thailand China 27 28 29 21 211 212 213 214 215 216 217 EUR/USD BRL/USD CNY/USD JPY/USD RUB/USD THB/USD ARS/USD Source: Rabobank analysis based on Bloomberg, 217 8
Poultry remains the fastest growing protein market Long term market outlook remains very positive, with good value added growth opportunities Global animal protein demand outlook 215-235f Predicted changes for meat and egg demand 215-225 X 1, tonnes 9. 8. X 1, tonnes 22. 2. First tier: 57% of growth Second tier: 25% of growth Asia to be 6% of global growth 18% 7. 6. +2% +18% Seafood: CAGR: +1.4% 18. 16. 14. 5. +23% Eggs: CAGR: +1.8% 12. 1. 4. +25% Beef: CAGR: +1.2% 8. 6. 3. 2. +4% Pork: CAGR: +1.4% 4. 2. - 1. - 1985 1995 25 215 225 235 Poultry: CAGR: +2.4% -2. Poultry Pork Beef Sheep Eggs Source: Rabobank analysis based on USDA, FAO, Bloomberg, 217 9
Poultry market projections 225: Saturated markets in emerged markets, growth in Asia, Africa and Middle East Per capita Consumption kg/head 6 Global poultry market growth outlook 215-225 Mature/decline Slight growth moderate growth Fast growth 5 4 3 2 1,% 1,% 2,% 3,% 4,% 5,% 6,% 7,% Source: Rabobank Analysis, USDA, FAO, 217 CAGR Demand 215-225 1
Pork market growth outlook 215-225: Very mature conditions in emerged markets Global pork market growth outlook 215-225 Per capita Consumption kg/head Mature/decline Slight growth moderate growth Fast growth 5 45 4 35 3 25 2 15 1 5-1,%,% 1,% 2,% 3,% 4,% Source: Rabobank Analysis, FAO, USDA, 214 CAGR Demand 215-225 11
Demand for meat is moving more to Asia, where resources are relatively limited Land and water availability per capita New land availability per region 2 18 16 14 12 1 8 6 4 2 1. 9. 8. 7. 6. 5. 4. 3. 2. 1. Sub-Saharan Africa Latin America Eastern Europe/Central Asia South/East Asia Middle East/North Africa Rest of World Acre per capita Water availability per capita 5 1 15 2 25 Good logistics Bad logistics Source: Rabobank analysis based on FAO, OECD, USDA, 217 12
Need for a fast modernizing of global and especially Asian animal protein industry Higher incomes and welfare Modern distribution Food safety, human health and other social concerns Animal disease threat Modern value chain Larger companies Vertical integration Efficiency Yield Value chain management Sustainability High land and feed prices/limited resources Fast growing and modernizing animal nutrition industry Source: Rabobank, 217 13
Where to produce? Limited available resources push Asian countries to import more meat products Asian meat imports by tonnes and share in global markets X 1, tonnes Meat species 7., 16. 6., 5., 4., New reality CACG: +9% 14. 12. 1. 3., 2., Pre-Commodity boom years CACG: +6% 8. 6. 4. 1., 2., Meat Beef Pork Poultry Sheep Source: Rabobank analysis based on USDA, FAO, Bloomberg, 217 14
Meat trade is relatively concentrated in 1 countries with together 6% share. Chinese growth in meat imports is impressive Top 1 global meat importers X 1, tonnes 9. Tier 1: 35% of trade Tier 2: 34% of trade China s impressive growth in imports X 1, tonnes 3. 8. 7. 6. 2.5 2. 5. 15% 1.5 4. 3. 12% 8% 1. 2. 5 1. - - Chicken Pork Beef Source: Rabobank analysis based on FAO, OECD, USDA, 217 15
The big 3 exporters Brazil, US and EU still dominate global poultry and pork trade with 78% market share Chicken exports by country 2-216 Pork exports by country 2-216 X 1, tonnes 12. X 1, tonnes 9. Big 3 market share: 78% 8. Big 3 market share: 78% 1. 7. 8. 6. 5. 6. 4. 4. 3. 2. 2. 1. Brazil United States European Union Thailand China Other European Union United States Canada Brazil Other Source: Rabobank based on USDA, 217 16
2 The regional poultry and pork perspectives
198 1986 1988 199 1992 1994 1996 1998 2 22 24 26 28 21 212 214 215f 218f Production Exports Imports Production Exports Production Exports Imports United States: Recovering meat demand. How high can the US meat consumption fly? US per capita meat consumption Lb/capita 1 225 US meat supply 21-216 2. 9 22 215 15. 8 7 6 21 25 2 195 1. 5. 5 19 185 4 18 Pork Chicken Beef Total Red Meat & Poultry Beef Pork Chicken 21 211 212 213 214 215 216 Source: Rabobank Analysis, Eurostat,, MEG, USDA, 217 18
EU: Poultry is winning protein. Pork and beef industries have been suffering from oversupply EU meat and egg market outlook 2-225 EU Poultry market outlook 215-225 x 1, tonnes 6. Economic crisis years Recovery Outlook Per capita consumption 45 Meat and eggs: CAGR: -.6% CAGR: +2.4% Meat and eggs: CAGR: +.3% 4 5. Eggs: CAGR: +.7% CAGR: +1.1% Eggs: CAGR: +.7% 35 P ortugal UK 4. Poultry: CAGR: +1.4% CAGR: +3.% Poultry: CAGR: +1.% 3 Spain H ungary P oland 3. 2. 1. Beef: CAGR: -2.2% Pork: CAGR: -1.2% CAGR: +1.5% CAGR: +2.9% Beef: CAGR: -.1% Pork: CAGR:+.1% 25 2 15 Franc e. N etherlands C zech Republic Denmark I taly Germany Slovakia Bulgaria Sweden Romania 27 28 29 21 211 212 213 214 215 216 217 218 219 22 1,%,5% 1,% 1,5% 2,% 2,5% 3,% 3,5% CAGR Poultry demand 215-22 Source: Rabobank analysis based on FAO, OECD, Local statistics, 216 19
EU meat production: shift away from traditional regions to new areas Central Europe and Spain EU pork production 212-215 EU poultry production 21-215 X 1, tonnes 6. 5. 4. 3. X 1, tonnes 3. 2.5 2. 1.5 CAGR: +8.9% CAGR: +.5% CAGR: +1.9% CAGR: +1.9% CAGR: +1.4% CAGR: +1.1% CAGR: -.5% 2. 1. 1. 5 CAGR: +4.6% CAGR: +5.7% - 212 213 214 215 21 211 212 213 214 215 Source: Rabobank analysis based on Eusstat and local sources, 217 2
EU meat industry is changing fast: Northwest Europe is moving to higher value focus and CEECs towards export leadership The new reality in EU poultry industry: slow growing birds and production in the East The dilemma of the EU pork sector Northwest Europe Less volume, more value Central and Eastern Europe Volume growth Expansion of the concept markets Difficult production capacity expansion More scarce poultry farm supply, oversupply in red meat Growing domestic demand Cost price leadership in standard chicken Increasing leadership in EU trade Pressured EU market Overcapacity at farming and processing level Further processors and exporters have strong position Source: Rabobank analysis, 216 21
Russia meat industry growth is slowing down and industry is now refocussing towards more value and exports Fast expanding Russian industry, but slowing down 1, tonnes 5. Broiler Pork Beef Rebuilding years 23-215 CAGR Production: +16% Rebuilding years 23-215 CAGR Production: +4% "Rebuilding" years 23-215 CAGR Production: -3% 4. 3. 2. 1. -1. -2. Self sufficiency: 41% Self sufficiency: 91% Self sufficiency: 88% Self sufficiency: Self 92% sufficiency: 87% Self sufficiency: 82% 2 25 21 215 23 28 213 21 26 211 Imports Production Source: Rabobank analysis based on Rostat 217 22
Asian poultry growth very strong especially in South and South East Asia Asia poultry market growth outlook 215-225 Per capita Consumption kg/head Mature/decline Slight growth moderate growth Fast growth 5 45 4 35 3 25 2 15 1 5-1,%,% 1,% 2,% 3,% 4,% 5,% 6,% CAGR Demand 215-225 Source: Rabobank analysis based on USDA, FAO, local statistics, 217 23
Asia pork: moderate growth in most markets, Japan is saturated Asia pork market growth outlook 215-225 Per capita Consumption kg/head Mature/decline Slight growth moderate growth Fast growth 4 35 3 25 2 15 1 5-1,%,% 1,% 2,% 3,% 4,% 5,% 6,% CAGR Demand 215-225 Source: Rabobank analysis based on USDA, FAO, local statistics, 217 24
China: structural changes necessary to return to growth China meat market 25-216 X 1, tonnes 9. China meat supply 21-216 X 1, tonnes 6. 8. 5. 7. 6. 4. 5. 3. 4. 3. 2. 2. 1. 1. 25 26 27 28 29 21 211 212 213 214 215 216 Production Imports Production Imports Production Imports Pork Chicken Beef 21 211 212 213 214 215 216 Source: Rabobank analysis based on USDA, FAO, local statistics, 217 25
13 th Five Year Plan for Chinese Animal Farming Production Prioritized areas for development Production: 21.67 million tons, major pork supply region Mission: larger scale, standardization, industrialization Promotion: Slaughtering in the same region, Cold Chain Distribution Areas with potentials Production: 1.54 million tons, but will be growing fast Mission: to establish crop-livestock model, and improve cold chain Moderate Development Production: 2.62 million tons, rich resources but poor infrastructure Mission: encourage large corporates to invest, develop production of local breeds for high end market Restricted areas Production: 21.88 million tons, Issues: high population density, water pollution Mission: industry upgrading, reduce slaughterhouses Boyar, 216 26
South East Asian poultry is a hot area for investors South East Asia market growth and regional internationalisation International investors +4.6% +2.8% +3.5% +5.5% Myamar Thailand Vietnam Philippines +2.6% Malaysia +4.5% Indonesia 215-225 Market CAGR poultry Source: Rabobank analysis 217 27
India: fast growth but still in early stage of development due to lacking value chain modernisation India Meat market 25-216 X 1, tonnes 8. India meat supply: Only beef exports exposed to global market 5. 7. 4. 6. 5. 3. 4. CAGR:+3.7% 2. 3. 2. 1. CAGR: +7.5% 1. 25 26 27 28 29 21 211 212 213 214 215 216 Chicken `Beef Pork Production Production Exports Production Chicken Beef Pork Source: Rabobank analysis based on USDA, FAO, local statistics, 217 28
199/1991 1991/1992 1992/1993 1993/1994 1994/1995 1995/1996 1996/1997 1997/1998 1998/1999 1999/2 2/21 21/22 22/23 23/24 24/25 25/26 26/27 27/28 28/29 29/21 21/211 211/212 212/213 213/214 214/215 215/216 216/217 Production Exports Production Exports Production Exports Brazil s export strategy is stagnating, while domestic market is weak Brazil stagnating growth model Brazil stagnating growth model x 1, tonnes grain trade 7. 6. 5. Domestic focus Grain valuation strategy into chicken export Slowdown growth x 1, tonnes chicken trade 4.5 4. 3.5 3. X 1, tonnes 16. 14. 12. 1. 8. 6. 4. 2. 4. 2.5 3. 2. 1. 2. 1.5 Pork Chicken Beef Brazil s very global poultry market access 1. 5 Saudi Arabia 17% Corn Soybean Chicken South Korea 2% Egypt 2% Others 27% Kuwait South 3% EmiratesAfrica 7% Hong Kong 6% Japan 9% China 11% EU-28 11% Source: Rabobank Analysis based on FAO, OECD, USDA, 217 29
LATAM poultry industry: ongoing growth potential in terms of volume and value Latin America Poultry production by country excluding Brazil X 1, tonnes 2. +7.1% 1.8 1.6 +6.9% 1.4 +7.% 1.2-1.7% 1. 8 +3.5% 6 +7.9% -.4% 4 2 +3.5% +5.6% +2.9% +6.% +1.4% +2.% +7.2% +2.1% - 25 26 27 28 29 21 211 212 213 214 215 Source: Rabobank Analysis, MEG, USDA, 217 3
Middle East: Rising importance in global import market but also ongoing growth in local poultry industries Middle East poultry production 21-216 Middle East: Self sufficiency in poultry by country, 216 2.5, 2., CAGR +2.3% CAGR +4.7% X 1, tonnes 2.5 2. 1.5, 1.5 1., 5,, CAGR +5.% CAGR +1.1% CAGR CAGR +.1% +13.% CAGR CAGR CAGR +9.4% -2.4% CAGR +41% CAGR +8.6% +2.4% 1. 5-5 21 211 212 213 214 215 216 Production for domestic Imports Exports Source: Rabobank analysis based on USDA, FAO, local statistics, 217 31
Positive fundamentals push growth throughout the region 2. 1.8 1.6 1.4 1.2 1. 8 6 4 2 The big 2: 65% 12 1 8 6 4 2 The other Sub Saharan African countries: 35% of production Countries with expected growth of 6-1% year-on-year between 215 and 225 Nigeria Ghana Uganda Senegal Angola Ivory Coast Ethiopia Kenya Malawi Rwanda - South Africa Nigeria - 26 216 26 216 Source: Rabobank projections based on FAO, OECD, USDA and local data, 217 32
Supermarket and restaurant chains are spreading over the continent International food retail chains in Africa International QSR expansion in Africa South Source: Rabobank analysis, 217 Source: Rabobank analysis, 217 Source: Rabobank Analysis 33
3 Capture the margin: strategies for winners in the global meat industry
Key global investment themes in the meat sector Key global investment trends in meat Trade diversification Invest in growth markets Local champions Globalisation of the industry Focus on emerging market growth especially Asia, LATAM and Africa Invest in (new) export platforms Capture the value, invest in value added products Fast changing Global landscape Capture the China investment opportunity Social concern driven investments Global investors Risk mitigation Social concerns Source: Rabobank analysis, 217 35
1 Invest where the growth is. Benefit from volume and value growth Poultry and pork projected market growth by country 215-225 Poultry Pork Volume Value Volume Value >5% Sub Saharan Africa India Peru Vietnam Indonesia +++ ++ ++ +++ +++ 3-5% Iran Pakistan Mexico Kazakhstan ++ ++ ++ +++ Brazil Sub Saharan Africa Indonesia ++ +++ +++ 1-3% China Brazil South Africa Russia Saudi Arabia Australia +++ ++ ++ +++ ++ China Russia Vietnam Mexico Korea Philippines +++ ++ +++ ++ ++ +++ -1% EU US Japan EU US Japan Thailand Australia South Africa + + + ++ + ++ Source: Rabobank projections 217 36
Big differences in market conditions depending on stage of development and local business climate Time free ECONOMIC TAKE-OFF Food as a need Income: < $ 5, ECONOMIC REINVENTION Food as stimulation Income: > $4, Location Bound Location free Income: $ 5, - $15, Income: $15, - $4, ECONOMIC DEVELOPMENT Food as a social occasion Source: Rabobank analysis, 217 Time bound ECONOMIC CONSOLIDATION Food as nutrition/well-being 37
2 Capture the value added growth potential The poultry value added pyramid High Brand Investors who follow this strategy Value added food Margin level Value added chicken Premium chicken Low Standard chicken Source: Rabobank analysis, 217 38
2 Speciality focus: consumer concerns to offer opportunities Market differentiation opportunities Differentiated product Consumer concern Food safety Animal welfare friendly Environment friendly Consumer health Buy local Standard product Standard chicken Source: Rabobank analysis, 217 39
Specialised production practice Price premium US industry also to move to concepts; antibiotics reduction as base Production Practice Producers Slow Growing *224 End Users Organic Antibiotic Free No antibiotics for human health *217 Traditional Source: Company Announcements, Rabobank Estimates, 217 4
4 Capture the China consumer concern investment opportunity: Invest in branding, value chains and efficiency China meat market decline: food safety and avian flu worries Regain confidence: The China investment opportunity X 1, tonnes 16. 14. 12. 1. 8. 6. 4. 2. 27 28 29 21 211 212 213 214 215 216 217f China poultry consumption versus levels in other countries Kg/head 5 4 3 2 1 Modernization wet markets Branding Value chain management Pro-active communication Vertical integrations Modernization operations China Taiwan Singapore Malaysia Source: Rabobank Analysis, FAO, Eurostat, GIRA, MEG, USDA, 216 Source: Rabobank 217 41
5 Further strengthening global sourcing and trade platform strategy via expansion in current or in new countries Exporters market shares by cut in global poultry trade Potential newcomers 1% Feed costs Labor costs Infrastructure Political support 9% 8% 7% Argentina Uruguay 6% Paraguay 5% 4% 3% Ukraine Russia 2% Indonesia 1% % Whole chicken Breast Cuts Processed Vietnam Brazil US Thailand China EU Turkey Other Malaysia Source: Rabobank Analysis, FAO, USDA, WUR, 217 42
6 Particapte further in the globalization trend the global meat sector Russia EU United States China Japan Middle East Mexico Brazil India SE Asia Africa Argentina Australia Source: Rabobank analysis, 217 43
The changing global animal protein landscape Global meat company ranking by volume 1, tonnes 12. 1. 8. 6. 4. 2. - Source: Rabobank estimate based on public statistics, 217 Poultry Pork Beef Source: Rabobank 44
Conclusions Animal protein is a fast growing industry with poultry and aquaculture as the fastest growing sectors Rising supply challenges especially in Asia and Middle East will lead to fast modernization and globalisation of the industry Fastest growing poultry industries for the next decade will be in South and southeast Asia, Latin America, Eastern Europe and Africa Industries in Europe and US will consolidate and globalize in the next decade Disease pressure and global food security challenges will push new export hubs in global trade matrixes 45