A global meat industry outlook

Capturing business opportunities in a fast

changing world

Copenhagen
Nan-Dirk Mulder, 18 February 2017
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branches and offices
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Food & Agri Support

Packaging, bottle manufacturing, warehouses, logistics
8

Dom. Distr. Processing low Processing high Retail and

Farm Inputs Farming
Export trade value added value added Foodservice

1 2 Dairy 6 Beverages
Beer, spirits,
soft drinks, wine,
3 Sugar coffee, tea

Farm Inputs 4 Grains & Oilseeds 7 Value added

Processing
 Farm machinery Food retail
Confectionery, bakery, 8
5 Animal Protein Foodservice
 Fertiliser chilled, frozen,
ambient, biscuits,
 Farm chemicals
breakfast cereals,
Fresh Produce
 Veterinary services snacks

 Feed additives/ Cotton, wool

premixes
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
2015-2025
Annual growth
900,000 AP demand: +45%

+18%
800,000

700,000 +20% Seafood. CAGR:+1.4%

+23%
600,000
Eggs. CAGR: +1.8%

500,000 +25%
Beef. CAGR +1.2%
400,000 +40%

300,000
Pork. CAGR:+1.4%

200,000

Poultry. CAGR:+2.4%
100,000

-
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
First tier: 57% of growth Second tier:25% of growth 18%
20,000

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 New land availability per region

20 100,000

18 90,000 Sub-Saharan Africa

16 80,000

14 70,000 Latin America

12 60,000

10 50,000 Eastern Europe/Central Asia

8 40,000

6 30,000 South/East Asia

4 20,000

2 10,000 Middle East/North Africa

0 0

Rest of World

0 50 100 150 200 250

Acre per capita Water availability per capita
Good logistics 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

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 +20% in

demand 10 years

Meat supply Food supply Fuel supply

Expansion
Efficiency
Yield

Livestock/poultry supply

Grains and oilseed supply

Efficiency
Cultivation
Yield

Land use
Limited growth 10
Source: Rabobank, 2017
Need for a fast modernizing of global and especially Asian dairy and
animal protein industry
Higher incomes and Modern value chain
welfare
Larger companies

Vertical integration
Modern distribution
Efficiency

Yield
Food safety, human
health and other social Value chain management
concerns
Sustainability
Animal disease threat

High land and feed

prices/limited resources

Fast growing and modernizing animal nutrition industry

11
Source: Rabobank, 2017
Where to produce? Limited available resources push Asian
countries to import more meat products
Asian meat imports by tonnes and share in global markets Top 10 global meat importers
X 1,000 tonnes Tier 2: 34%
9,000 Tier 1: 35%
Meat species of trade
of trade
7,000.00 16,000
8,000

6,000.00 14,000
New reality
CACG: +9% 7,000
12,000
5,000.00 6,000

10,000
5,000
4,000.00
8,000
Pre-Commodity boom years
4,000
3,000.00 CACG: +6%
6,000 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 Pork production outlook 2025 in volume and CAGR
X 1,000 tonnes X 1,000 tonnes
35,000.00 70,000
+1.3%

30,000.00
60,000

25,000.00 +1.3%
50,000
+1.6%

20,000.00
40,000
+2.2%
+0.9%
15,000.00
30,000
+0.2%

10,000.00
20,000
+2.3%
+4.8% +4.8% +4.1% +2.4% +1.2%
5,000.00 +2.8% +5.0% +2.7% +1.0%
+2.3% 10,000
+2.1% +0.8% +1.3% +0.7% +0.7%
+2.4% +1.8%
+1.7% +2.6% -0.3%Po +2.5%
0.00
0

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

2. Focus on
6. Follow
value added
globalisation
growth
trend
potential

5. Develop a 3. Invest in
new export speciality
platform markets
4.Capture the
China
consumer
concern
market
opportunity

Source: Rabobank analysis, 2017

15
 Capture the growth: pork market outlook for Asia,
1 moderate growth in most markets, Japan is saturated

Asia pork market growth outlook 2015-2025

Per capita Mature/decline Slight growth moderate growth Fast growth

Consumption
kg/head 40

35

30

25

20

15

10

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 EU poultry production 2010-2015
X 1,000 tonnes X 1,000 tonnes
3,000
6,000
CAGR:
+8.9%
2,500
5,000 CAGR:
-0.5%
CAGR:
+0.5%
4,000 2,000 CAGR:
+1.9% CAGR:
+1.9%
CAGR:
CAGR:
+1.4%
3,000 1,500 +1.1%

CAGR:
+4.6%
2,000 1,000

CAGR:
+5.7%
1,000 500

0 -

2010 2011 2012 2013 2014 2015

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 Latin America Poultry production by country excluding Brazil
X 1,000 tonnes
X 1,000 tonnes
2,000
+7.1%

1,800

1,600 +6.9%

+7.0%
1,400

1,200
-1.7%

1,000

800
+3.5%

600
+7.9%
-0.4%
400 +5.6%
+3.5% +1.4% +7.2%
+2.9% +2.1%
+6.0% +2.0%
200

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Rabobank Analysis, MEG, USDA, 2017 18

 From volume to value:
2 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

Food safety Animal welfare Environment Consumer Buy local

Consumer
friendly friendly health
concern

Standard Standard chicken

product
20
Source: Rabobank analysis, 2017
 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

Meat
Fresh pork products Frozen Average Production Practice
AH 86% 42% 0% 66%
Lidl 77% 42% 0% 61%
Jumbo 78% 22% 0% 55% ?

Specialized Production Practice

Producers End Users
Dirk 65% 32% 0% 50% *2024

Price Premium
<.1% $25.00/lb.
Slow Grow
Deka 62% 35% 0% 48% Share Breast

COOP 65% 25% 1% 17%

Spar 67% 20% 0% 17% 3%
*2017
$7.50/lb.
Share Organic Breast
Vomar 61% 18% 0% 43%
Aldi 63% 14% 6% 43%
Never Ever 3
30%
Deen 51% 14% 0% 36% Share No Antibiotics Ever $5.00/lb.
Breast
Raised Without Antibiotics
Emte 41% 22% 5% 33% Antibiotic-Free

Jan 66%
Linders 50% 1% 0% 32% Share No antibiotics for human health
used as growth promotants
$2.50/lb.
Breast

Plus 41% 11% 0% 29%

Hoogvliet 10% 20% 3% 13%
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
CAGR: -0.1%
60,000

50,000 Pro-active
Branding
communication

40,000
CAGR: +0.8%

30,000

20,000 Modernization Modernization

CAGR: -3.6% wet markets operations
CAGR: +3.7%
10,000

0
Chicken Eggs Pork Beef
Value chain Vertical
China management integrations
2012 2013 2014 2015 2016

Local and China

Feed Antibiotics global environmental
scandal Scandal Avian flu policy
outbreaks

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

Product High potentials

100%
90% AI AI

80% AI
Whole

70% AI

60%
Breast
50%
40%
30% Cuts
20%
10%
0% Processed

Whole Breast Cuts Processed

chicken
Brazil US Thailand China EU Turkey Other
Source: Rabobank analysis based on FAO, USDA, local statistics, 2017
23
Need for differentiation even bigger in global beef industry
Global beef exports 2005-2016
X 1,000 tonnes
2,000
20%
1,800

1,600

1,400

1,200

1,000

800

600

400

200

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
SE Asia
o Brazil
India
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