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Challenges and opportunities for Latin America Adolfo Fontes October 2017 Global pork market

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Page 1: Global pork market - piclatam.compiclatam.com/news/galeria/upload/documentos/iztMsW_1. ADOLFO FONTES.pdf · Global pork market . 2 Pork Global Market Perspectives A changing world

Challenges and opportunities for Latin America

Adolfo Fontes

October 2017

Global pork market

Page 2: Global pork market - piclatam.compiclatam.com/news/galeria/upload/documentos/iztMsW_1. ADOLFO FONTES.pdf · Global pork market . 2 Pork Global Market Perspectives A changing world

2

Pork Global Market Perspectives

A changing world

Pork global market

Latin American potential

Challenges

Conclusions

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3

Page 4: Global pork market - piclatam.compiclatam.com/news/galeria/upload/documentos/iztMsW_1. ADOLFO FONTES.pdf · Global pork market . 2 Pork Global Market Perspectives A changing world

4

Pork Global Market Perspectives

A changing world

Pork global market

Latin American potential

Challenges

Conclusions

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5

Three point that describe the meat market

We should be prepared for more changes

Opportunities and threats are also changing

Fonte: Rabobank, 2017

The market has changed

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A changing world

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Millennials seek quality over quantity and are driving sales today with a strong adoption of diverse choices in meat

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

15 20 25 30 35 40 45 50 55 60 65 70

Po

pu

lati

on

in

millio

ns

Age in 2015

92 M MILLENIALS

61 M GENERATION

X

77 M BABY

BOOMERS

US Population

Page 8: Global pork market - piclatam.compiclatam.com/news/galeria/upload/documentos/iztMsW_1. ADOLFO FONTES.pdf · Global pork market . 2 Pork Global Market Perspectives A changing world

8

World population growing

Source: US Department of Commerce, 2014

Bilh

ões

2014 7.2 More food will be needed in the first half of this

century, than it was consumed in the last 7,000

years

Bil

lion

Page 9: Global pork market - piclatam.compiclatam.com/news/galeria/upload/documentos/iztMsW_1. ADOLFO FONTES.pdf · Global pork market . 2 Pork Global Market Perspectives A changing world

9

But not just population

Population

Urbanization

And per capita income

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10

Pork Global Market Perspectives

A changing world

Pork global market

Latin American potential

Challenges

Conclusions

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11

Pork market overview

Fonte: Rabobank

Brazil – Brazil’s political turmoil

has impacted the meat sector

Mexico – 3% increase in the sow

herd. However, there is still

issues with PEDv. Production is

still behind consumption,

increasing imports

Argentina – Pork

consumption and imports

growing in 2017

USA – Two new plants in the US

are expected to add 7% to US

packing capacity

China – China pork imports

expected to declined around 10%

in 2017

Russia – Russia is

becoming less dependent

on pork imports

Europe – Growing dependence on

exports to Asia

Page 12: Global pork market - piclatam.compiclatam.com/news/galeria/upload/documentos/iztMsW_1. ADOLFO FONTES.pdf · Global pork market . 2 Pork Global Market Perspectives A changing world

12

[MM ton]

Pork production 2017

Source: USDA, April 2017 (Major Traders)

Others

12,6

Russia

2,9

USA

11,3

EU

23,4

China

53,0

6,7

0,50,5

1,4

3,7

Chile Argentina Mexico Brazil

Latin America

Total: 111 million tons

China is responsible for almost half of global pork production

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13

[Million tons]

Source: Rabobank; USDA

China slowing down and the US increasing pork production

Pork production per country

União Européia

3,0 2,9 2,6 3,8 3,7 3,5

11,8 11,3 11,1

23,5 23,4

2,8 2,7 2,0

Vietnam

2,0 2,0 2,6

23,2

China

52,8 53,0 54,9

EUA Brasil Rússia Canada

2015 2016e 2017p

Page 14: Global pork market - piclatam.compiclatam.com/news/galeria/upload/documentos/iztMsW_1. ADOLFO FONTES.pdf · Global pork market . 2 Pork Global Market Perspectives A changing world

14 Note 1: Compound annual growth rate Source: Rabobank, OECD, FAO

+1,4%

CAGR¹

2015-2025

+1,1%

+1,6%

+2,0%

312

14 (4,6%)

113 (36,1%)

118 (37,7%)

67 (21,6%)

2015 2005

254

12 (4,7%)

83 (32,7%)

61 (24,0%)

+1,4%

+2,5%

1995

189

9 (4,8%)

46 (24,3%)

98 (38,6%)

78 (41,3%)

56 (29,6%)

2025p

357

17 (4,9%)

131 (36,8%)

131 (36,6%)

77 (21,7%)

Globally, pork consumption will achieve 131 million tons.

Global consumption of meat [ MM tons]

Pork

Poultry

Sheep

Beef

Page 15: Global pork market - piclatam.compiclatam.com/news/galeria/upload/documentos/iztMsW_1. ADOLFO FONTES.pdf · Global pork market . 2 Pork Global Market Perspectives A changing world

15

(M tons CWE)

Pork demand should be sustained by emerging markets

2014-2024 pork meat consumption growth forecast

Source: FAO, USDA, Rabobank

0.1 0.1

1.8

0.1

1.0

Chin

a

4.8

Arg

entina

South

Kore

a

Indonesia

Bra

zil

Mexic

o

Russia

USA

Vie

tnam

0.7

Philip

pin

es

0.4 0.4

Ukra

ine

0.4

0.2

0.7

0.2

Thailand

0.4 0.2

Austr

alia

Oth

ers

Colo

mbia

Page 16: Global pork market - piclatam.compiclatam.com/news/galeria/upload/documentos/iztMsW_1. ADOLFO FONTES.pdf · Global pork market . 2 Pork Global Market Perspectives A changing world

16

Pork imports (million tons)

Source: USDA, Rabobank Analysis

0.4

2016 7.9

2026 8.6

0.6

0.2 0.9 2.4 0.5

0.2 2.4

0.3

1.3

0.7

0.5

1.3 1.3

1.0

0.5

0.5 0.2 0.7 0.4

Hong Kong Rússia México Coreia do Sul

Austrália China

Japão

EUA Filipinas Outros

710 thousand additional tons of pork will be imported annually

by 2026. Mexico, Philippines and South Korea will be the main destinations of this volume.

Major Importers – Export opportunities

Additional volume imported

MEXICO

PHILIPPINES

SOUTH KOREA

AUSTRALIA

HONG KONG

242

210

130

55

50

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Self-sufficiency in animal protein and GDP per capita (1980-2014)

Source: USDA, FAO

As China grows economically, it will not only import grain but also meat

40%

50%

60%

70%

80%

90%

100%

$0 $10,000 $20,000 $30,000 $40,000 $50,000

Percen

t self

-su

ffic

ien

t in

an

imal

pro

tein

GDP per capita (current prices, US$)

Japan

Korea

China (including Hong Kong)

Page 19: Global pork market - piclatam.compiclatam.com/news/galeria/upload/documentos/iztMsW_1. ADOLFO FONTES.pdf · Global pork market . 2 Pork Global Market Perspectives A changing world

19

China’s Slower GDP Growth, But Still Above 6%

2018E Real GDP Growth China GDP Growth 2007-2020E

Sources: China National Bureau of Statistics, IMF Aug 2017

0%

2%

4%

6%

8%

10%

12%

14%

16%

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017E

2018E

2019E

2020E

0%

1%

2%

3%

4%

5%

6%

7%

8%

India

Chin

a

Indonesia

Mala

ysia

Thailand

Kore

a

United S

tate

s

Fra

nce

United K

ingdom

Bra

zil

Germ

any

Russia

Japan

Page 20: Global pork market - piclatam.compiclatam.com/news/galeria/upload/documentos/iztMsW_1. ADOLFO FONTES.pdf · Global pork market . 2 Pork Global Market Perspectives A changing world

20

0

5,000

10,000

15,000

20,000

25,000

2011 2012 2013 2014 2015 2016 2025f

78%

20%

28%

40%

4%

40%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009 2010 2011 2012 2013 2014 2015E 2025f

Below 500 500 - 10,000 Above 10,000

Greater Consolidation in the Coming Decade

Source: Boyar, Rabobank, 2015 Source: MOA, Rabobank, 2015

Structural change in pig farming sector Changes in number of designated abattoirs

Page 21: Global pork market - piclatam.compiclatam.com/news/galeria/upload/documentos/iztMsW_1. ADOLFO FONTES.pdf · Global pork market . 2 Pork Global Market Perspectives A changing world

21

-10%

-5%

0%

5%

10%

15%

0

10

20

30

40

50

60

70

Pork Production YOY Growth

However, Chinese pork production will slow down into 2020

Source: China Statistics Yearbook 2015, Rabobank

China pork production (unit: million tonnes)

Page 22: Global pork market - piclatam.compiclatam.com/news/galeria/upload/documentos/iztMsW_1. ADOLFO FONTES.pdf · Global pork market . 2 Pork Global Market Perspectives A changing world

22

Diverging Performances of Meat Consumption

Source: MOA, Rabobank

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990 1995 2000 2005 2010 2015 2020f

Pork Beef Sheepmeat Poultry

Change of meat consumption structure

Page 23: Global pork market - piclatam.compiclatam.com/news/galeria/upload/documentos/iztMsW_1. ADOLFO FONTES.pdf · Global pork market . 2 Pork Global Market Perspectives A changing world

23

China’s Pork Prices Compare with Those in Other Countries

Source: European commission, USDA, PEI pork, Rabobank, 2016

5.00

7.00

9.00

11.00

13.00

15.00

17.00

19.00

21.00

23.00

RMB/ KG

China US EU Canada

Page 24: Global pork market - piclatam.compiclatam.com/news/galeria/upload/documentos/iztMsW_1. ADOLFO FONTES.pdf · Global pork market . 2 Pork Global Market Perspectives A changing world

24 Source: China customs; Rabobank, 2017

China Will Continue to be the Largest Pork Importer

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25 Source: China customs; Rabobank, 2017

However, 2017 imports are expected to be lower than 2016…

Import from Tonnes 2016 2017

YOY % Change

Jan - July Jan - July

US

To HK 33,116 37,621 13.60%

To China 134,832 105,850 -21.49%

Total 167,948 143,471 -14.57%

Canada

To HK 3,200 2,120 -33.74%

To China 102,892 114,007 10.80%

Total 106,092 116,127 9.46%

Europe

To HK 52,931 74,706 41.14%

To China 599,002 423,142 -29.36%

Total 651,932 497,848 -23.64%

Brazil

To HK 78,742 53,565 -31.97%

To China 35,332 32,781 -7.22%

Total 114,074 86,347 -24.31%

Global

To HK 203,963 213,383 4.62%

To China 945,702 749,981 -20.70%

Total 1,149,665 963,364 -16.20%

Page 26: Global pork market - piclatam.compiclatam.com/news/galeria/upload/documentos/iztMsW_1. ADOLFO FONTES.pdf · Global pork market . 2 Pork Global Market Perspectives A changing world

26

Pork Imports Will Stay at High Levels

40

45

50

55

60

65

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017f 2018f 2019f 2020f 2021f 2022f 2023f 2024f 2025f

Production Net Import

Million Tonnes

Source: National Bureau of Statistics of China, China Customs, Rabobank, 2017

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28

European Union is the largest pork exporter region in the world

Source: European Commission; Rabobank 2017

30.0

30.5

31.0

31.5

32.0

32.5

18 000

19 000

20 000

21 000

22 000

23 000

24 000

2010 2011 2012 2013 2014 2015 2016 2017f 2018f

kg per year Thousand tonnes

Pork production Consumption Per capita consumption

China is the most important export market followed by Japan and Hong Kong Pork production remains well ahead of consumption

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30

US hog slaughter forecast, 2015-2019f

Source: Rabobank 2017

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31

Mexico and Japan dominate on US exports of Pork

Source: USDA, Rabobank

0%

5%

10%

15%

20%

25%

30%

35%

40%

Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17

US % of exports by destination

Japan Mexico Canada South Korea China (ML) Hong Kong Australia

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32

US exports of Pork reaching a plateau?

Source: USDA, Rabobank

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33

Pork Global Market Perspectives

A changing world

Pork global market

Latin American potential

Challenges

Conclusions

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35

Water availability

Source: Harvard Business School

and availability Use of water

Page 36: Global pork market - piclatam.compiclatam.com/news/galeria/upload/documentos/iztMsW_1. ADOLFO FONTES.pdf · Global pork market . 2 Pork Global Market Perspectives A changing world

Ideal conditions for agriculture

Agroclimatic factors: • Soil

• Climate & rainfall

• Topography

Abundant agricultural land resources, few competing alternative uses

Relatively cheap labour

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37

Pork production costs

Source: AHDB Pork

0,46

0,650,61 0,63 0,66 0,65

0,81

0,90

0,63

0,72

0,54

0,11

0,090,12

0,180,18 0,22

0,22

0,16

0,24

0,17

0,110,05

0,050,11

0,100,10

0,10

0,130,12

0,12 0,07

0,050,07

0,07

0,08

0,150,16

0,17

0,17 0,16

0,16

0,10

0,10

1,34

DEN

1,06

CAN

0,92

BRA (SC)

0,86

BRA (MT)

0,69

1,33

GER

1,14

FRA USA

0,80

1,10

GB SPA

1,06

NL

1,15

ITA

Depreciation and finance

Feed

Labour

Other variable costs

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38

[kg of feed/kg of pork]

[piglets per sow/year]

High productivity in Brazil and Mexico

Feed conversion

Piglets per sow

Sources: CEPEA; Embrapa; IAFDA; Mielle, M. (2006); The Pig Site; USDA

3,23,13,02,92,92,92,92,82,7

Japan South Korea Canada Mexico EU China Brazil USA Philippines

16,016,018,0

21,021,922,022,422,5

Philippines Dominican Republic Ireland France Brazil China USA Australia

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39

[thousand ton]

[thousand ton]

Latin America Pork Exports and Imports

Pork exports

Pork imports

Source: USDA, April 2017 (Major Traders)

128178

627

141173

832

160180

900

Chile Mexico Brazil

2017 2015 2016

38

981

4716 42

1.021

7635 46

1.100

9245

Chile Mexico Argentina Uruguay

2017 2015 2016

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41

Source: MDIC

-49%

+49% +12% +14%

-11%

+12%

Uruguay

22,6 20,1

Angola

23,3 20,4

Argentina

23,4 15,7

Singapure

25,0 24,4

China

35,7

69,5

Hong Kong

112,3

125,8

Russia

208,6

186,0

+2%

(1.000 tons)

2016 X 2015: +33% Jan-Sep17 x Jan-Sep16: -3,8% Jan-Sep 17

Jan-Sep 16

Brazilian pork exports in 2017 x 2016

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42 Fonte: USDA, Rabobank estimates 2017

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017f 2018f 2019f

Pork exports (000s tons)

Brazilian meat per capita consumption (000s tons)

Projections on pork production (000s tons)

0 100 200 300 400 500 600 700 800 900

1,000

37.9 37.1 36.2 37.0 37.0 38.4

13.8 13.9 13.7 13.8 14.0 14.2

44.3 44.8 43.0 44.2 45.7 47.4

0

20

40

60

80

100

120

2014 2015 2016 2017f 2018f 2019f

Beef Pork Poultry

Potential in Brazilian pork market

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44

Long term Mexican pork production and imports

Source: SIAVI, USDA 2017

1.734

1.540

1.323 1.2931.178

981

+31,8%

+31,1%

2020 2015 2025

Imports

Production

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46

Sources: USDA, Ministry of Agriculture, AAPP, SENASA and Rabobank’s market intelligence

Pork industry in Argentina is still small when compared to other countries, but has presented high growth rates

Pork production and imports evolution (thousand tons)

0

100

200

300

400

500

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Production Imports

Breakdown of pork imports (2015)

62% 12%

12%

8% 6%

By country

Brazil Germany Denmark Spain Others

7,903 tons

0

2

4

6

8

10

12

14

0

100

200

300

400

500

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Kg p

er

capita

Thousand t

ons

Total consumption Per capita consumption

Fresh pork consumption evolution

Breakdown of animal protein consumption (2015)

33% 37%

22%

53%

43%

10% 2%

World Argentina

Turkey

Pork

Beef

Poultry

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47

Pork Global Market Perspectives

A changing world

Pork global market

Latin American potential

Challenges

Conclusions

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48

Sources: USDA

Russia is becoming less dependent on pork imports

300347408515

868971916876917889

785637

728822

529

307

2006

2.557

2008

2.720

2.843

2007

2.897

2009 2010

3.035

3.252

2011 2012

3.268

2.333

2005

2.400

2.119

2004

2.510

2.070

2003

2.615

2.209

2002

2.870

2.189

2001

3.000 1.816

2000

1.648

2.064

2.175

1.077

1.981

1.844

1.736

1.107

1.640

1.444

1.334 1.433

2017f

1.341

3.300

2016

1.287

3.217

2015

1.367

3.023

2014

1.481

3.025

2013

Production

Imports

Russian pork production and imports (thousand tons)

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However, there is potential in more mature Asian markets – higher value

Japanese pork imports (thousand tons)

South Korean pork imports (thousand tons)

Sources: USDA

1.3501.3611.270

1.3321.2231.2591.254

1.1981.138

1.2671.210

1.154

1.3141.269

1.0911.1081.022

947

2009 2010 2011 2012 2013 2014 2015 2016 2017 2006 2007 2004 2005 2000 2008 2001 2002 2003

630615599

480

388

502

640

382390430447

410

345

233

163164132

184

2009 2010 2011 2012 2013 2014 2015 2016 2017 2006 2007 2004 2005 2000 2008 2001 2002 2003

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50

Price forecast: CBOT Corn

Source: Bloomberg, Rabobank 2017

250

300

350

400

450

500

550

USc /

bushel

CBOT Corn Previous forecast Rabobank forecast

unit Q1'17 Q2'17 Q3'17 Q4'17(f) Q1'18(f) Q2'18(f) Q3'18(f) Q4'18(f)

Corn USc/bu 364 368 366 370 380 395 400 390

CBOT Corn price forecast maintained amid US yield uncertainty and high crop variability

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51

Corn prices are historically higher in Asian countries

Source: Bloomberg

$-

$2

$4

$6

$8

$10

$12

ene-0

9

abr-

09

jul-

09

oct-

09

ene-1

0

abr-

10

jul-

10

oct-

10

ene-1

1

abr-

11

jul-

11

oct-

11

ene-1

2

abr-

12

jul-

12

oct-

12

ene-1

3

abr-

13

jul-

13

oct-

13

ene-1

4

abr-

14

jul-

14

oct-

14

ene-1

5

abr-

15

jul-

15

oct-

15

ene-1

6

abr-

16

jul-

16

oct-

16

ene-1

7

abr-

17

jul-

17

USD

/bushel

US Brazil (West Parana) China (Jilin) Japan (Tokyo Board)

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52

Local challenges

Infrastructure

Productivity gap

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53

Pork Global Market Perspectives

A changing world

Pork global market

Latin American potential

Challenges

Conclusions

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Takeaway points

Uncertain outlook on political front in important markets.

Consumers increasingly make decisions based on the ‘story’ behind brands.

Growth opportunities are changing – more value than volume.

The good use of market intelligence in additional to a stronger relationship

through the animal protein value chain will make a significant difference to Latin

America’s prospects.

Robust demand for meat in developing countries will be sustained. However, pork

might face stronger competition from other animal protein products.

And it’s not all about exports - the internal market is also big…

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55

Thank you [email protected]

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The information in this presentation reflects prevailing market conditions and our judgement as of this date, all of which may be subject to change. This presentation is

based on public information. The information and opinions contained in this document have been compiled or arrived at from sources believed to be reliable, but no

representation or warranty, express or implied is made as to their accuracy, completeness or correctness. The information and opinions contained in this document are

wholly indicative and for discussion purposes only. No rights may be derived from any potential offers, transactions, commercial ideas et cetera contained in this

presentation. This presentation does not constitute an offer or invitation. This document shall not form the basis of or be relied upon in connection with any contract or

commitment whatsoever.