Adding Value & GrowthTo Commodity Driven Categories

Prepared forCanadian Meat Council Annual Conference

Breakout Session 1Breakout Session 1May 31, 2012

Canadian Pork ProductionCanadian Pork Production 1.945 million tonnes of pork produced in 2011 7 000 Farms in Canada marketing over 27 million pigs in 7,000 Farms in Canada marketing over 27 million pigs in

2011 Canada accounts for over 20% of global pork exports and % g p p

is the seventh largest pork producer in the world Third largest exporter behind the USA and EU Selling to over 100 countries annually Last seven years Canada exported over 1 million tonnes

annually setting new volume records the last two years YTD-March exports trending +3.6% over same period last

yearyear2

Canadian Pork Export Growth 1989 20111989 - 2011

1,400,000tonnes

2011 = 1 151 274 tonne / $ 3 2 billion

1,000,000

1,200,000OtherJapan

2011 1,151,274 tonne / $ 3.2 billion

600 000

800,000

pUS

400,000

600,000

0

200,000

9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 189 90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Source: Statistics Canada 3

Canada’s Top Ten Export Markets 99 201995 – 2011

Source: Canada Customs 4

Canadian Exports as % of ProductionP k | B f | P l 1990 2011Pork | Beef | Poultry 1990 – 2011

70 00% 64%

50 00%

60.00%

70.00%Beef Pork

64%

38%

30 00%

40.00%

50.00% Chicken 38%

10 00%

20.00%

30.00%13%

0.00%

10.00%

990

991

992

993

994

995

996

997

998

999

000

001

002

003

004

005

006

007

008

009

010

011

19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20

Source: Statistics Canada 5

Canadian Pork GlobalM k i B l ( h )Marketing Balance (snapshot)

Loin: Leg (Ham):Loin:Sales Revenue: 24%

Premium Potential: 24%

Leg (Ham):Sales Revenue: 25%

Premium Potential: 29%

Belly:Sales Revenue: 20%

Premium Potential: 50%

Sundries:Sales Revenue: 9%

Premium Potential: 2%

Source: CPI Export Premium Analysis Audit 2008 6

Canadian Pork Value PropositionpWorld class swine genetics combined with high

energy feed grains and producers who care Abundant arable land base clean air and waterAbundant arable land base, clean air and waterHACCP based on-farm food safety system CQA®

E t d i b i lt b d 4 d dProduction

Export driven business culture based on 4 decades of experience delivering the most exacting

specifications to the most demanding marketsReliable and safe processing systems based on p g y

HACCP and a world renowned inspection system

Extensive network of transportation infrastructure

ProcessingExtensive network of transportation infrastructure

World class marine, rail, road and air transportation capabilities to serve anywhere in the world with safe

secure pork of the highest quality

Distribution7

The Domestic Market is ShrinkingMeat Imports as a Percentage of Domestic Disappearance

35%Chicken Pork Beef & Veal

28 8%

25%

30% 28.8%

15%

20%24.5%

5%

10%

15%

22.3%

0%

5%

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

8

199

199

199

199

199

199

199

199

199

199

20 20 20 20 20 20 20 20 20 20 20 20

Source: Statistics Canada Table 002-0010 - Supply and Disappearance of Food in Canada

Canadian Pork ImportsCanadian Pork Importstonnes250,000

O S200,000

Other US

100,000

150,000

50,000

0

Source: Statistics Canada

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Canada is Canada’s M I M k D i iMost Important Market Destination 200,000+ tonne opportunity not , pp y

including adding value and growth to existing domestic business

The domestic market import gap is almost as large as ouris almost as large as our Japanese business

The export market has taught usThe export market has taught us that domestic pork almost always commands a premium in the meat case or on the menu

10

Canada’s Domestic Marketing Ch ll

Carcass I like CanadianChallenge

Carcass UTILIZATION

and VALUE OPTIMIZATION“The meat always

How do we COMPETE in a PRICE DRIVEN

DOMESTIC Tell me what kind of PIGS

t d

I like Canadian Pork But…The OTHER GUY

say’s his pork is CHEAPER andy

follows the money, SO…

SHOW ME THE MONEY”

MARKET?“We need a

BIGGER TOOL BOX”

you want … and PAY me for my

EFFORTS“SHOW ME THE MONEY FIRST”

CHEAPER and ALL PORK IS THE SAME…

RIGHT?MONEY FIRST”

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KEYS TOSTO

SUCCESS &GROWTH ① SEGMENT the market identify the opportunity gaps and offer the

GROWTH ① SEGMENT the market, identify the opportunity gaps and offer the

best in-class protein solution② DIFFERENTIATION: Understand the demand drivers that are

shaping the current and future protein marketplace and offer a value proposition beyond the commodity price point

③ LEVERAGE the redefinition of value, quality, emotion and performance to earn business and improve competitive position

④ ENGAGE the connected end-user customer in meaningful ways they understand and trust with a solution based tool boxunderstand and trust with a solution based tool box

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Segment Market OpportunitiesSegment Market Opportunities

By sector, sub-sector and end-user ycustomer Right product for the right marketRight product for the right marketAnalyze the opportunities: are they real,

deliverable profitable and how easily candeliverable, profitable and how easily can they be duplicated? Right si e the s ppl chain ith theRight size the supply chain with the

product assortment, specifications, quality attributes volumes and frequenciesattributes, volumes and frequencies

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DifferentiationDifferentiation

Meat Quality AttributesMeat Quality AttributesTraceabilityOn-farm Food SafetyyAnimal WelfareExclusivityCConsistencySpecifications Financial Performance Financial PerformancePromotional SupportConsumer MarketingConsumer Marketing

Value = Benefits/Cost14

DifferentiationCanadian Pork/CQA Quality & Safety Mark

Canadian Pork On-farm Food Safety and Animal W lf S tWelfare System

Global applications Will require licensing agreements Will require licensing agreements

in place with packers and end-user customers wishing to utilize the brand mark to differentiate Canadian pork in the marketplace

Concept Draft Only

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Pork Quality Selection SystemPork Quality Selection System① Do you agree that quality standards designed to

consistently deliver pork with reddish pink meatconsistently deliver pork with reddish pink meatcolor, consistent marbling scores, firm finetextured meat and white fat color would …

4. If such a program was offered 4. If such a program was offered would it be considered forwould it be considered for your your operationsoperations: : 76%76% interestinterest(54.4% yes, 21.0% maybe)(54.4% yes, 21.0% maybe)(6 % f C )(6 % f C )

1. Provide1. Provide a a qquality uality

advantage In advantage In the marketplacethe marketplace

2. Worth paying 2. Worth paying a premium to a premium to

aacquirecquire(91% in Korea)

3. Command3. Command a a premium price in premium price in the marketplacethe marketplace(88% Chilean pork(88% Chilean pork(65% of Chilean pork users)(65% of Chilean pork users) the marketplacethe marketplace (91% in Korea) (88% Chilean pork (88% Chilean pork

users)users)

Totally Agree 59.4% 28.6% 37.5%

Somewhat Agree 30.4% 38.8% 33.9%90%90% 67%67% 71%71%gNeither Agree nor Disagree 4.5% 13.8% 8.5%

Somewhat Disagree 0.4% 9.4% 8.0%

N A 1 3% 1 3% 0 9%No Answer 1.3% 1.3% 0.9%

Source: CPI Pork Quality Perceptions Audit 07 - 08 16

Canadian Pork Quality Standards Canadian Pork Quality Standards Fresh Sausage

P d ti Hi h HIdeal Table Meat ColourFurther Grinding

Production High pHIdeal Table Meat ColourProcessingLow pH

Understanding the c linar

Table Meat Markets

FurtherProcessing

the culinary and processing

properties of meat is

important for delivering consistent

product qualityIntramuscular Fat (IMF) %

0.5% - 0.6% >0.3% >0.0% - 0.2%<

product quality to the right

market and a proof point for

FoodserviceRetailFurther Processingdifferentiation

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Canadian Pork Quality Standards S bj i O Li G di T lSubjective On-Line Grading Tools

Hand Held Ruler PrototypeS ifi tiSpecifications:3.5” x 11” inch's wideTester: Printed on vinyl with gloss laminationgFinal Version: Printed on 16 point PVC with imbedded metal stripFeatures:

FrontFeatures: Meat Colour (0 – 6)* Fat Colour (0 – 4)* Marbling (IMF) (0 – 6)** Metric and Imperial Ruler*Correlate to Japanese Meat Grading Association Standards (JMGA) **IMF scores correlate to chemical fat content % and National Pork Producers

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Council (NPPC) IMF standards

Back

Leverage the Redefinition of V l | Yi ld | Fi i l P fValue | Yield | Financial Performance

Competitive BenchmarkinggRetail Meat Case

EngineeringEngineeringMenu EngineeringFresh/Cooked Meat

Yield ProfilingYield ProfilingCompetitive Benchmarking Project

Federal Meat Academy, Japan, 2012 19

Profit Margin Percentage

|Meat Margin | Contribution Margin70 Meat Margin %

Supplier Meat Margin

Contribution Margin

Canada 69.11% 67.52%69

70 Meat Margin %Contribution Margin %

USA 68.04% 66.19%

Canada 68.18% 66.38%S % %

67

68

USA 68.16% 66.22%

USA 67.93% 66.04%Canada 67.15% 65,51% 65

66

Canada 66.54% 64.80%

Average 67.87% 66.09%63

64

Competitive Benchmarking Project

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Competitive Benchmarking ProjectFederal Meat Academy, Japan, 2011

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Cutting Labor UtilizationP fi P i l/M HProfit Potential/Man Hour

S li M t C t ib ti $1 200 00 Meat MarginSupplier Meat Margin/Hr

Contribution Margin/Hr

Canada $1,044.32 $1,020.18 $1,000.00

$1,200.00 Meat MarginContribution Margin

Canada $998.58 $974.23Canada $934.92 $910.47Canada $916.85 $892.62 $600 00

$800.00

Canada $916.85 $892.62USA $889.12 $865.01USA $874.33 $850.06

$ $

$400.00

$600.00

USA $850.68 $826.45

Average $929.82 $905.57

$0 00

$200.00

Competitive Benchmarking Project $0.00 Federal Meat Academy, Japan, 2011

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Foodservice Opportunity$ V %$ Versus %

A lo food cost % has minimal impact on the profitA low food cost % has minimal impact on the profit dollars generated from a menu item with a high $ contributioncontribution

But many foodservice operators create and measure their menu mix based on a low food cost %their menu mix based on a low food cost %

This common practice can lead to menu decisions based on PRICE rather than QUALITYQ

Which Menu Item Would You Rather Sell ?22

Real-Time Menu Item AnalysisReal Time Menu Item AnalysisFrench Cut Pork Rib Chop Chicken Breast Special

50 Seats x 50 Seats x3 Covers =

$1,407.00/day3 Covers =

$963.00/day, y$9,849.00/wk.

y$6,741.00/wk.

Foodservice Menu Engineering Sample Mexico City, Mexico, 2011 23

Commercial Kitchen Opportunity Gaps

Quality, Time and Temperature can result in money being left on the

t bl i thtable in the Foodservice

Industry:Water holdingWater holding

capacity effects quality and yield at

thethe End-Point

temperature and portion costs p

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Engage The End-User C Th i H T fCustomer on Their Home Turf

Communicate in ways th d t d d

Moscow 2012

they can understand and trust:

① F t d① Focus on sector and culturally specific performance drivers Sh h i 2010performance drivers

② Share information to enhance product quality,

Shanghai 2010

Mexico City 2011enhance product quality, sales growth and Canadian brand equity to Moscow 2010

earn the premium26

Th k Y

Mi h l L Y

Thank You

Michael L. YoungVice President, Technical Programs & Marketing Services

6171 Andover Rd. Sooke, British Columbia, Canada V9Z 1B2 778. 425.1982 | 403.451.1705 | young@canadapork.com

Skype ID: michaellyoung | www.canadapork.com

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