Livestock & Meat outlook

China

Livestock & Meat outlook

ChinaFebruary 25, 2008

Prepared by Shiyao Investment Ltd

Shanghai, ATO

Oklahoma Agricultural Leadership Program

Table of contents

Shiyao Investment Ltd

Outlook of China livestock situation in 2008

Opportunities for US grain and livestock producers

Shiyao Investment Ltd

Shiyao Investment Ltd is a very focused company providing advisory and investment banking services with a strict focus on Greater China and Japan and on the complete food chain, from the farm to the end consumer.

We are headquartered in Shanghai and established since 1999

Meat consumption in PRC: 92-02

Consumption volume of pork, beef and chicken meat per capita in China (1992 ~2002)

22.624.2

26.9

30.3

26.1

29.5

32.2

4.4

31.831.431.6

32.4

2 2.53.3 4.2 4.3 4.6 4.7 5.0 5.1 5.3 5.6

2.71.91.53.3 2.9 3.4 3.4 3.5 3.6 4.2

0

5

10

15

20

25

30

35

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Con

sum

ptio

n pe

r ca

pita

/yea

r/pe

rson

(K

G)

Pork Chicken Beef

Consumption trend:

Fast growing demand of meat products

especially high-grade chilled meat products in large cities require

high quality raw materials including

quality feed ingredients to insure

food traceability.

Evolution of meat production in China between 1962 and 2002

Beef meat consumed in China as a % of total meat Beef meat consumed in China as a % of total meat consumed per capita per month (2002)consumed per capita per month (2002)

Beef meat consumption in PRC

Beef Consumption in PRC

There are three forms of consumption for beef in PRC:

1. Frozen beef: Chinese beef cooking methods are mostly based on frying, and boiling while adding many condiments. People are used to buy frozen beef products for home consumption especially for festivals opportunities.

2. Fresh beef: This is the main form of consumption of residents particularly in rural market. Most people won’t keep the beef meat more than eight hours after buying it fresh.

3. Chilled beef: this form of consumption has developed in recent years. Together with the growth of modern retailers in PRC.

Consumers' consumption preference has evolved (from fresh meat to ch

illed meat, and from fat meat to lean meat, with a tendency to high quality consumption).

Import/Export value of beef meat in PRC for the last 10 years

184,520

110,454

73,402

168,708

0

50,000

100,000

150,000

200,000

250,000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Year

Imp

ort/

Exp

ort

valu

e of

bee

f m

eat

(100

0$) Import

Export

Beef imports forecast

By 2008, USMEF (US Meat Export Federation) expects Chinese beef imports to nearly double from levels of 2004. Increases in per capita income, improvements in the frozen product distribution chain, increasingly Western tastes and lower import duties will drive such import growth.

Given the genetic constraints of the Chinese herd and the lack of intensive grain-fed production, USMEF estimates that China will face a serious challenge to meet its demand for high-quality beef with domestic sources – and will need to import more.

Chicken meat consumed in China as a % of total meat Chicken meat consumed in China as a % of total meat consumed per capita per month (2002)consumed per capita per month (2002)

Chicken meat consumption in PRC

Foreign Retailers in PRC since 1900

Foundation of Sino-Foreign Joint-Venture Retailors

Pacific DepartmentStore

Hymall

B & Q

Tesco

OBI

Metro Shanghai No.1 YaohanParkson China

Carrefour

Wal-Mart

Pricesmart MakroRT-Mart

Lotus

Trust-Mart

AnchanResources Vanguard

1990

1992

1994

1996

1998

2000

2002

2004

2006

12

View from modern retailers in PRC

The Chinese meat market in modern cities is asking increasingly for more elaborate products at affordable price

Comparison of distribution chanels for meat products

Retailers

Strong developmemt of retail industry (in 2001, total sales of the 91 largest retailers in China reached Rmb 116 billion (USD 14.0 billion equivalent); with a total of 7953 retailers including: 3328 supermarkets, 271 hypermarkets, 3342 convenience stores). Modern retail chanel are becoming a fast growing sale chanel for meat products in PRC

Because of its guarantee for meat quality, more and more consumers prefer to buy meat products at supermarkets. It is believed that in the future, supermarkets and hypermarkets will replace wet markets and will become the main distribution chanel for meat products in China.

Wet markets

Most meat products in wet markets are directly supplied by slaughterhouses. Because of its lower meat price offering, this chanel is still at present the main distribution market for meat in China, particularly in the countryside.

In order to ensure meat quality and improve city sanitary condition, the PRC governments has begun to forbid these wet markets, and the share of meat purchased through this channel will be decreasing in the coming years.

Main provinces producing meat in PRC

PorkPork

BeefBeef

LambLamb

PoultryPoultry

Dairy cowDairy cow

Top 8 provinces for meat production in PRC

Heilongjiang

Sichuan/Chongqing

HenanTibet

Jilin

TianjinQinghai

Hunan

Gansu

Inner Mongolia

Anhui Shanghai

FujianJiangxi

YunnanGuizhou

Hubei

Shanxi

Shannxi

Xinjiang

Hainan

Ningxia

Zhejiang

Beijing

Hebei

Liaoning

Shandong

Jiangsu

GuangdongGuangxi

Legend: High: XXXAverage: XXLow: X

Province Pig Broiler Layer Aquaculture Dairy cows Main characteristics

Shandong XXX XXX XX XXX XX

Organized and relatively transparent market. One of the most important agricultural province. Strong power in agricultural industrialization (Longda,

Jinluo)

Guangdong XXX XXX XX XXX XXGuangdong province is ranked as No.1 in terms of

live poultry export value in China. High level of agricultural modernization

Hebei XXX XXX XX XX XXX Big agricultural products supplier to Beijing market

Henan XXX XXX X X XX Big total volume but small farming size

Sichuan XXX XX XX XX XXOne of the most important province for pig breeding.

Mostly household

Jilin XXX XX XX XX XX One of the three new live pig production areas.

Hunan XXX XX XX XX XXBiggest province of pig supply for the national

market

Heilongjiang XX XX XX XX XXXOne of the most important province for dairy cow

production

Top 8 provinces for meat production and their characteristics

An example: the Shineway Group

Backwards integration of meat processor (Ex: Shineway Group)

Shineway Group is the largest meat processor in China with total assets of RMB 6.3 billion (USD 759 million equivalent as of 2004) and 1,800,000 tons of meat products production volume, roughly 850 million USD of sales

Shineway started its business from a small meat processing company in 1969. After over 30 years development, Shineway has moved its business backward to slaughter house, breeding farm and forward to retail store.

To ensure the quality and safety of their meat products, Shineway is more and more involved in backward industries for integration. Recently Shineway just acquired a feed plant to produce feed products by themselves, which indicates the trend of the backwards integration in Shineway group.

Traceability challenges

Traceability: chances & difficulties

Chances Difficulties

1. Food safety issue promoted by government

2. Safe and high quality food products required by consumers.

1. Relatively few food enterprises in China have capacity to implement traceability for their products.

2. Additional cost for traceability procedures limit its development in China

Measures of the Chinese government related to the administration of food safety and quality

The Chinese government clearly mentions in its Tenth Five-year development plan that it will “accelerate the establishment of standard system to control agricultural products, food safety and quality” clearly putting food safety concern as a priority.

《 Food Safety Action Plan 》 《 Food Quality Insurance Program 》 《 Research on the Development Strategy of

Food Safety in China 》 《 Guidance for Establishment of Food Safety

Credit System 》（ protocol ）

19

Needs & Opportunities

Genetic Equipment Professional farming opportunities, especially in:

• Beef production• Dairy production

Meat exports Grain exports

China: soybean production

0

300

600

900

1200

1500

1800

Prod

uctio

n (1

0000

Mt)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Soybean Production in China

China: Soybean imports & exports:94-03

0

500

1000

1500

2000

2500

Impo

rts/

Exp

orts

Qua

ntit

y

(Uni

t: 1

0000

tons

)

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Imports Exports

Your contact:

Dr Benoit Rossignol, CEO

E-mail: brossignol@shiyaoinvestment.com

Shanghai Office:

Tel: +86 21 6508 8020/ 6507 8328 Fax: +86 21 6507 8354

www.shiyaoinvestment.com

Shiyao Investment Ltd