A global meat industry outlook Capturing business opportunities in a fast changing world Copenhagen Nan-Dirk Mulder, 18 February 2017
Rabobank international introduction and global network of branches and offices Rabobank International Global network Rabobank offices and branches Internationally active for over 30 years Highest credit rating of all private banks in the world Among the 25 largest financial institutions in the world No. 1 in Export Finance Global network Of all 60,000 employees, 16,000 work outside the Netherlands More than 1,650 offices in 44 countries, of which 750 offices outside the Netherlands Rabo Development has non-controlling interests in six partner banks. Finally Rabobank Foundation supports projects in 26 countries. Rabobank: the worldwide leading bank in Food & Agribusiness Food & Agri Support Packaging, bottle manufacturing, warehouses, logistics 8 Farm Inputs Farming Dom. Distr. Export trade Processing low value added Processing high value added Retail and Foodservice 1 2 3 Dairy Sugar 6 Beverages Beer, spirits, soft drinks, wine, coffee, tea Farm Inputs Farm machinery Fertiliser Farm chemicals Veterinary services 4 5 Grains & Oilseeds Animal Protein Fresh Produce 7 Value added Processing Confectionery, bakery, chilled, frozen, ambient, biscuits, breakfast cereals, snacks Food retail Foodservice 8 Feed additives/ premixes Cotton, wool Forestry, paper & pulp 8 Commodity Traders Packaging 16 2
Animal protein is our sweet spot North America South America Europe Asia & Oceania 14 out of top 20 meat companies are client of Rabobank Exposure in Animal Protein: EUR 19 billion 3
Table of contents Sections I Global meat industry outlook 2025 II Key investment themes in the global meat industry 4
1 Long Term Meat Outlook
Global animal protein market to grow by 45% in the next 2 decades Global animal protein market outlook 2015-2025 X 1,000 tonnes 900,000 800,000 AP demand: +45% +18% 2015-2025 Annual growth 700,000 +20% Seafood. CAGR:+1.4% 600,000 +23% Eggs. CAGR: +1.8% 500,000 400,000 +40% +25% Beef. CAGR +1.2% 300,000 200,000 100,000 Pork. CAGR:+1.4% Poultry. CAGR:+2.4% - 1985 1995 2005 2015 2025 2035 Source: Rabobank projections based on FAO, USDA, 2017 6
90% of global growth will be in emerging market, 60% in Asia Change in global demand for meat and eggs 2015-2025 X 1,000 tonnes 22,000 20,000 First tier: 57% of growth Second tier:25% of growth 18% 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 - -2,000 Poultry Pork Beef Sheep Eggs Source: Rabobank projections based on FAO, USDA, 2017 7
Demand for meat and dairy is moving more to Asia, where resources are relatively limited Land and water availability 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 New land availability per region 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 Good logistics 0 50 100 150 200 250 Bad logistics Source: Rabobank analysis based on FAO, OECD, USDA, 2017 8
Americas most competitive pork production area in terms of cost Live hogs production costs 2013 USD/pound 1.4 1.2 1 0.8 0.6 0.4 0.2 0 United States Mexico Chile Brazil EU Vietnam Russia Korea China Japan Source: Rabobank, Smithfield,, 2016 9
Global food supply challenge Meat demand Food demand Fuel demand +20% in 10 years Meat supply Food supply Fuel supply Expansion Efficiency Yield Livestock/poultry supply Grains and oilseed supply Efficiency Cultivation Yield Land use Source: Rabobank, 2017 Limited growth 10
Need for a fast modernizing of global and especially Asian dairy and 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, 2017 11
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 1,000 tonnes Meat species 7,000.00 16,000 Top 10 global meat importers 9,000 Tier 1: 35% of trade Tier 2: 34% of trade 6,000.00 New reality CACG: +9% 14,000 8,000 7,000 5,000.00 12,000 6,000 4,000.00 10,000 5,000 3,000.00 Pre-Commodity boom years CACG: +6% 8,000 6,000 4,000 3,000 2,000.00 4,000 2,000 1,000.00 2,000 1,000 0.00 0 - Meat Beef Pork Poultry Sheep Source: Rabobank analysis based on USDA, FAO, Bloomberg, 2017 12
Emerging markets drive growth in global production; poultry markets in India, Africa, Indonesia and Iran will show fastest growth Poultry production outlook 2025 in volume and CAGR X 1,000 tonnes 35,000.00 30,000.00 Pork production outlook 2025 in volume and CAGR X 1,000 tonnes 70,000 +1.3% 60,000 25,000.00 +1.3% +1.6% 50,000 20,000.00 +2.2% 40,000 +0.9% 15,000.00 30,000 +0.2% 10,000.00 5,000.00 0.00 +2.3% +4.8% +4.8% +4.1% +2.4% +2.8% +5.0% +2.7% +2.3% 20,000 10,000 0 +1.2% +1.0% +2.4% +2.1% +0.8% +1.3% +0.7% +0.7% +1.8% +1.7% +2.6% -0.3%Po +2.5% 2005 2015 2025 2005 2015 2025 Source: Rabobank projections, 2017 13
2 Key investment themes in the global meat industry
Six key investments for the global animal protein industry 1. Invest where the growth is 6. Follow globalisation trend 2. Focus on value added growth potential 5. Develop a new export platform 3. Invest in speciality markets 4.Capture the China consumer concern market opportunity Source: Rabobank analysis, 2017 15
1 Capture the growth: pork market outlook for Asia, moderate growth in most markets, Japan is saturated Asia pork market growth outlook 2015-2025 Per capita Consumption kg/head Mature/decline moderate growth Fast growth Slight growth 40 35 30 25 20 15 10 5 0-1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% CAGR Demand 2015-2025 Source: Rabobank analysis based on USDA, FAO, local statistics, 2017 16
EU meat production: shift away from traditional regions to new areas Central Europe and Spain EU pork production 2012-2015 X 1,000 tonnes 6,000 5,000 4,000 3,000 EU poultry production 2010-2015 X 1,000 tonnes 3,000 2,500 2,000 1,500 CAGR: +8.9% CAGR: +0.5% CAGR: +1.9% CAGR: +1.9% CAGR: +1.4% CAGR: +1.1% CAGR: -0.5% 2,000 1,000 1,000 500 CAGR: +4.6% CAGR: +5.7% 0-2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 Source: Rabobank analysis based on Eusstat and local sources, 2017 17
LATAM poultry industry: ongoing growth potential in terms of volume and value LATAM per capita meat consumption X 1,000 tonnes Latin America Poultry production by country excluding Brazil X 1,000 tonnes 2,000 +7.1% 1,800 1,600 1,400 +6.9% +7.0% 1,200-1.7% 1,000 800 600 400 200 +3.5% +7.9% -0.4% +5.6% +3.5% +1.4% +7.2% +2.9% +2.1% +6.0% +2.0% - 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Rabobank Analysis, MEG, USDA, 2017 18
2 From volume to value: The journey to higher margins The meat 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, 2017 19
3 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, 2017 20
Specialized Production Practice Price Premium Concepts are expanding also in other markets like pork in the Netherlands and poultry in the US Dutch pork industry beter leven concept market share US poultry concepts: antibiotics free as base of change Fresh pork Meat products Frozen Average AH 86% 42% 0% 66% Production Practice Lidl 77% 42% 0% 61% Jumbo 78% 22% 0% 55% Dirk 65% 32% 0% 50% Deka 62% 35% 0% 48% Producers <.1% Share *2024? Slow Grow $25.00/lb. Breast End Users COOP 65% 25% 1% 17% Spar 67% 20% 0% 17% Vomar 61% 18% 0% 43% 3% Share *2017 Organic $7.50/lb. Breast Aldi 63% 14% 6% 43% Deen 51% 14% 0% 36% Emte 41% 22% 5% 33% 30% Share Never Ever 3 No Antibiotics Ever Raised Without Antibiotics Antibiotic-Free $5.00/lb. Breast Jan Linders 50% 1% 0% 32% Plus 41% 11% 0% 29% Hoogvliet 10% 20% 3% 13% 66% Share No antibiotics for human health used as growth promotants $2.50/lb. Breast Total 58% 23% 1% 43% Source: Company Announcements; Rabobank, 2017 21
4 Capture the China consumer concern opportunity China meat market market 2012-2017 Investments are necessary 1,000 tonnes 70,000 60,000 CAGR: -0.1% 50,000 Branding Pro-active communication 40,000 CAGR: +0.8% 30,000 20,000 CAGR: -3.6% CAGR: +3.7% Modernization wet markets Modernization operations 10,000 0 Chicken Eggs Pork Beef China 2012 2013 2014 2015 2016 Value chain management Vertical integrations Feed scandal Antibiotics Scandal Local and global Avian flu outbreaks China environmental policy Source: Rabobank analysis based on USDA, Local Statistics, 2017 22
5 Develop an alternative export platform for value added meat products Global export market shares by country Opportunities for newcomers 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% AI Whole chicken Breast Cuts Processed Brazil US Thailand China EU Turkey Other AI AI AI Product Whole Breast Cuts Processed High potentials Source: Rabobank analysis based on FAO, USDA, local statistics, 2017 23
Need for differentiation even bigger in global beef industry X 1,000 tonnes 2,000 Global beef exports 2005-2016 1,800 20% 1,600 1,400 1,200 1,000 800 600 400 200 0 2005 2010 2016 24
6 Join the globalization trend the global meat sector Globalization in the meat industry Russia EU United States China Japan Middle East Mexic o Brazil India SE Asia Africa Australia Argentina Source: Rabobank analysis, 2017 25
Conclusions Global meat industry will remain one of the fastest growing agri sectors with 45% more demand in 2035 and a bigger preference for chicken Position of emerging market will fast grow with Asia in the lead. This will affect global investment significantly with two way investments from Asia in potential supply countries and from emerged markets in Asia to capture growth Industry will need to develop a market driven, product differentiation strategy to move out of the current commodity/bulk focus strategies to capture higher margins Trade will become significantly more important but still 80-85% of global meat supply will come from local markets in 2035 26
Global feed to meat outlook nan-dirk.mulder@rabobank.com