World competition for World competition for animal productionanimal production

IP ErasmusJune 25th 2010

Today’s objective?Today’s objective?«food for thought » «food for thought » 

Set the scene and update on worldwide Set the scene and update on worldwide market facts and dynamicsmarket facts and dynamics– Supplying/ demandSupplying/ demand– Industry: structure and strategiesIndustry: structure and strategies

Focus on Poultry… as an illustrationFocus on Poultry… as an illustration– ....– + Ability of main producing areas to fullfill + Ability of main producing areas to fullfill

expectations ( consumers…)expectations ( consumers…)

Meat production led by Asia Meat production led by Asia

1316

12,5

14154,5

89

22

1,32

2,2

121754

9135,6

5772

100

Mt -2009- USDA

36%

17%18%

13%

13%

Consumption led by ChinaConsumption led by China

152111

10113

81221

133051

2009-mt-FAO-USDA

46%20%23%

12%

12%

Highest consumption growth Highest consumption growth between 2010 and 2015 in Latin between 2010 and 2015 in Latin

america and Asiaamerica and Asia

2%8%5%

7%25%16%

-2%3%4%

9%13%8%

FAO

Consumption increase: where ?Consumption increase: where ?

0

50

100

150

200

250

300

350

400

450

1985 1995 2005 2008 2015 2025

mT

Beef Pork Sheep Poultry

+34%+29%

+25%

+23%

0 5 10 15 20

China

USA

Brasil

EU

India

Mexico

Japan

Russia

mt

Poultry and Pork Asia for the major part

Fueled by population growth, economic growth … and urbanisation

FAO

Most of the trade growth will be in red Most of the trade growth will be in red meat…meat…

rather than poultry & pigmeat …rather than poultry & pigmeat …

0

5000

10000

15000

20000

25000

30000

2000 2005 2010 2015

'000

t cw

e

SheepmeatBeefPorkPoultry

US

MENA

RU

CH

MENA

CH

RU

MENA

CH

US

US

RU

CH

FAO

Brazil’s ambitions Brazil’s ambitions Forecasts – Share of WW export in % by specieForecasts – Share of WW export in % by specie

0

500

1000

1500

2000

2500

3000

3500

4000

1995 2000 2005 2010 2015 2020

1000

T -E

xpor

t

BeefPorkPoultry

37%

25%

41%

12%

48%

45%

30%

14%

FAO – Brazil Ministry of agriculture

• US firms …traditionally biggest US firms …traditionally biggest operators but brazilian meat operators but brazilian meat processors expanding quickly processors expanding quickly globallyglobally

Brazilian players emergence in Top 3Brazilian players emergence in Top 3

0123456789

10111213

JBS Pilg

rims B

ertin

Tyson

Cargill

Smithfie

ldVion

Danish

crown

BRF Braz

il

Marfrig

/ MoyP

ark

People'

s food

Yuran

ShineW

ayDou

x

Perdue

Hormel

JBS …through acquisitionsJBS …through acquisitions

2010Key world positions

www.JBS.com.br

Brazil’s JBS……in 2010 Brazil’s JBS……in 2010

www.JBS.com.br

JBS Pilgrims Bertin Tyson Cargill SmithfieldVion Danish crown BRF Brazil Marfrig/ MoyParkPeople's food Yuran ShineWay DouxPerdue Hormel

Poultry

Top 3: 10%

JBSTysonBRF

Beef

Top 3 : 23%

JBSTysonCargill

Pork

Top 3: 7%

SmithfieldTyson

Vion ea DC

Concentration going on.. Concentration going on..

Poultry highlightsPoultry highlights

Worldwide production, consumption, trade

Cost price advantage

No restrictions to consumption

Processing ability ( & added value)

F.S.

(Relatively low) requirements for land, water, feed ingredients

World average growth:95-05: +4.1% p.a.05-10: +2.9% p.a.10-15: +2.5% p.a.

China and Brazil challenging China and Brazil challenging « traditional » producers« traditional » producers

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

1995 2000 2005 2010 2015

('000

t cw

e)

THARGJPRUSIND MENAMXOther S.AMBREUCNUS

www.JBS.com.br

Producing areasProducing areasDifferent needs… and strategiesDifferent needs… and strategies

-10

0

10

20

30

40

50

60

70

-10 -5 0 5 10 15 20 25 30 35 40

Prod 2009 – X 1000t

Prod increase 2005-2010 in %

Export/ Prod Volume - %

US

BRCH

EU

TH

IND

Mx

JP

IRSelf

sufficiency

Trade

ARG

Value Added

Net exportersNet exportersPoultryPoultry

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

US EUBraz

il

China

Argenti

na

Mexico

Russia

India

Iran

Japa

n

Thaila

ndOthe

r

X100

0T

0

20

40

60

80

100

120

140

160

Production Consumption Self suff

Exportations of poultry meatExportations of poultry meatUSDA ForecastsUSDA Forecasts

Real devaluation

EU Salted meat

Free from Influenza

1st WW Exp

MS 41%

Brazil and Brazil and USUS in top 3 in top 3

0

500

1000

1500

2000

2500

3000

3500

4000

JBS/ P

ilgrim

's

Tyson fd

s

BRF Brazil J

BS

Marfrig

/Moy

parkCarg

illDoux

Perdu

e

Vion/ Gram

pian

CP Foods

Bachocc

o

westfle

isch

vero

nesi

Terrena

/unicopa

LDC

PHW G

ruppe

Glon

HKScan

Smithfie

ld DUC

Plukon

Sada

Amador

i

2 sister

s

B Math

hews

X 10

00 t

Sce: from Rabobank 2009, updates

Consolidation driven by Brazil/ US Bargaining power – Risk management

EU still to consolidate/ retructure/ use EU opportunities

2 industry segments different competitive areas « Global trade/ local trade «  «  Scale or niche »

Attn! Brazil making their way in EU: added value

Europe still national and fragmentedEurope still national and fragmented

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Brazil US

France UK

German

yIta

lySpa

in NL

Hungary

Poland

A fragmented. Nation based industry

Top 10 – 30%

Where and how to produce …..and sell?

Basic criteria ?– Population growth & demographics– Economic prosperity– Relative cost/price advantage– Consumer expectations

Food Safety ( traceability, compliance to rules..)Environmental concernsAnimal welfareConsumer friendly products

USUS EU27EU27 BRAZILBRAZIL CHINACHINA THAILANDTHAILAND

Production % WWGrowth rate 05/10X/P

222

18

1268

151522222929

1717232322

2232323434

Domestic marketEvolution 05/10Drivers

47kg/c – 13,4FlatLarge domestic

23,3- kg/c -8,7+7%

41,4 kg/ c- 41,4 kg/ c- 8,18,1+ 22% + 22%

NGP growthNGP growthUrban.: 86%Urban.: 86%

13,9kg/c-13,9kg/c-12,612,6+25%+25%

Urban. 50%Urban. 50%FSFS

NGP growthNGP growth

14kg/c (34u)- 14kg/c (34u)- 1,51,5++

Retail/ FSRetail/ FSUrban,:34%Urban,:34%

Industry structure 6 states EContracts 90%Integration-10%V integ. 99%Top 3: 50% prod

SizeFragmentation15 g: 30%Lack of consolidationLocal based

South South 75% prod near 75% prod near

RMRM95% under cont.95% under cont.Vertical integrat.Vertical integrat.

Top 8 52%Top 8 52%

75% production- 75% production- Units > Units >

2000birds2000birdsUs modelUs model

Top 50: 63%Top 50: 63%Top 10:10%Top 10:10%

70% production 70% production by 1% of by 1% of producers producers ( integrated )( integrated )

Competitivity Inland feed ing.Economy of scaleWagesEthanol

Feed costsRM net importerEnergy costsHigh wages

Inland feed ingInland feed ingLow investments Low investments

costscostsLow wagesLow wages

Efficient processEfficient process

Soya imports Soya imports undr gvt controlundr gvt control

Complictd Complictd access to landaccess to land

Barrier- prices of Barrier- prices of imported soyaimported soyaGenetics/ vet.Genetics/ vet.Zoot param.Zoot param.Energy – low Energy – low wages & prod cts wages & prod cts

Composition of the production cost Composition of the production cost for the primary farm by countryfor the primary farm by country

LEI study 2009 based on 2007 costs

Production costs after slaughter €c/ kg carcass weight NL 1,38 Thailand 1,11 US 1,01 Brazil 0,9

USUS EU27EU27 BRAZILBRAZIL CHINACHINA THAILANDTHAILANDFood safetyTraceability

Sanitary risks

++

AI 2004 – risk due to scale

IFS BRC…+++

+++

Certifications for Certifications for some playerssome playersAI free areaAI free area

But raise But raise standards standards

Efficiency of Efficiency of control?control?

Risk- Means and Risk- Means and credibility of credibility of

systemsystem……

Hpai regular Hpai regular since 2004 ( no since 2004 ( no comm broiler ?) – comm broiler ?) – Coexist 2 waysCoexist 2 waysCompartimentalizCompartimentalizationationCertfication on Certfication on the way -CPFthe way -CPF

Compliance with EU regulation

+++Cost

Fight program Fight program agst AnBio agst AnBio residuesresidues

Residue and Residue and additive additive

managementmanagement

Environment Rd, reg, CRwastes

Cost Negative imageNegative imageEfficiency of Efficiency of

control?control?

Animal welfare +++ ++++Cost

++Raise standards

Bad ?

GMO Cost/ access Traceability?

Hal Al/ Kosher + + ? ? +

Added value products

+++ ++ (+) +Via acq. free range,organic

- +

EU: regulation and competiveness« Expected » increase in broiler cost between 2004-2012

LEI P Van Horne

€cent per kg of LW

Salmonella

Bird density

Ammonia

Growth prom

NL G UK FR PL

Horizontal & verticalconsolidation of slaughter groups Driven by US BR players

Developped marketsLow consumption growthSegmentation …

"Zero risk“- Law

Emerging markets

Long term demand potential

MarketingSegmentation

NPD

SafetyPrice Pressure

Cost reduction

Risk management

Rising feed, labour, fuel

Political & pressures: CAP Reform…

Rising regulatory costs

Higher volatility in feed ingredients

WTO-Rising imports

Processors

Ethanol/ finance as competitors

Retailer concentration & internationalisation

Retail driven supplychain

rationalisation

Meat in Hard Discount& Retail Branding

Food service

Thanks for your attentionThanks for your attention