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TRENDS & PROSPECTS IN THE BROILER INDUSTRY
JOVEN P. DYSenior Vice President
Bounty Agro Ventures, Inc.
WORLD BROILER
2
QUANTIFYING BROILER INPUTSQUANTIFYING BROILER INPUTS
Source: G. Butland, New Delhi
8.5 million GP - US$ 200 - 250 million350 million PS - US$ 850 -950 million 100 Million MT live bird – >US$ 60 billion200 million MT feed - > US$ 40 billion130 million MT corn/wheat – US$ 15 – 18 billion45 million ton SBM – US$ 9 – 12 billionAnimal health products – US$ 2 billion> 8 billion kms. transport for feed and birds alone
WORLD ANIMAL PROTEIN CONSUMPTION IN 2005
0
20
40
60
80
100
120
Million MT
2005 103 81 63 64
Pork Poultry Beef Eggs
Source: FAOSTAT
Although there are no official figures yet for 2006, preliminary USDA estimates show almost very small increase in consumption.
3
PER CAPITA CONSUMPTION OF MEAT IN SELECTED COUNTRIES, 2006
42.929.046.3US
65.228.2Argentina
18.043.916.2EU - 25
23.114.828.0Mexico
32.228.129.8Canada
4.542.029.5Taiwan
4.013.97.5Philippines
36.911.736.0Brazil
36.0Saudi
38.3Malaysia
15.365.738.8Hong Kong
43.0Kuwait
60.3UAE
BEEFPORKBROILER
Source: USDA – FAS, Livestock and Poultry, October, 2006
9.79.39.4Brazil
60.1
1.2
1.1
1.2
2.6
7.4
10.4
16.2
2006
61.158.7World
1.21.2Japan
1.11.0Thailand
1.31.9India
2.72.5Mexico
7.57.6EU-25
10.510.2China
16.415.9US
2007(f)2005
WORLD’S TOP PRODUCERS
7.57.47.4EU-25
58.9
1.9
2.3
2.0
3.0
6.8
10.4
13.8
2006
59.756.9World
1.91.9Japan
2.41.9Russia
2.21.9India
3.12.9Mexico
7.16.6Brazil
10.610.2China
13.913.5US
20072005
WORLD’S TOP CONSUMERS
Poultry Production & Consumption (in Million MT)
Source: USDA – FAS, Livestock and Poultry, October, 2006
4
9595101Canada
685620755EU-25
6,470
90
280
350
2,454
2,500
2006
6,7376,791Total, World
11084Argentina
280240Thailand
365331China
2,5082,360US
2,5502,739Brazil
20072005
WORLD’S TOP EXPORTERS
645600522EU – 25
470434480Saudi
5,168
234
370
400
740
1,240
2006
5,3375,063Total, World
237222HK
430219China
424374Mexico
725748Japan
1,1501,190Russia
20072005
WORLD’S TOP IMPORTERS
IMPORTS & EXPORT (in ‘000 MT)
Source: USDA – FAS, Livestock and Poultry, October, 2006
AVIAN AVIAN INFLUENZAINFLUENZA
5
PATH OF MIGRATORY
BIRDS
AVIAN INFLUENZANations with confirmed H5N1 cases
Source: USDA
North America
South America
Africa
Asia
6
AVIAN INFLUENZA TIMELINE
2003
JuneSE Asia:
Outbreaks start but
unreported
December Thailand:
Zoo animals die; start of investigation
December: S.Korea reports
deaths in poultry
January Vietnam, Japan,
Thailand, Cambodia, Laos
FebruaryIndonesia
& China
June/Julyrecurrence
in China, Indonesia, Thailand
and Vietnam
WAVE 1
AugustMalaysia
SeptemberKorea
disease free
October Brussels: H5N1 in eagles from
Thailand
January Malaysia declared disease
free
WAVE 2
2004
2005April China
birds die in Qinghai
Lake
July Russia reports H5N1
August Kazakhstan
and Mongolia
report H5N1
OctoberTurkey,
Romania & Croatia
affected
December Ukraine
and Kuwait report
February Iraq,
Nigeria, Azerbaijan,
Bulgaria, Greece,
Italy, Slovenia,
Iran, Austria,
Germany, Egypt, India,
France, Hungary, Malaysia. Slovakia, Bosnia, Georgia,
Niger
March Switzerland,
Serbia, Poland, Albania,
Cameroon, Myanmar, Denmark, Sweden,
Afghanistan, Israel,
Pakistan, Jordan, Czech
Republic
April Burkina
Faso, UK
2006
May Sudan, Cote
d’Ivoire
July Spain
WAVE 3
Data from World Health Organization
EFFECTS OF AI FELT WORLDWIDE . . .Principal transmission is still between animals and
between animals and humans; pandemic is feared and countries are taking steps to prevent this
Economic and social costs felt only in poultry sectors of the affected countries
Around 200 people have died since 2003 due to exposure to animals with the H5N1 virus
Source: Milan Brambhatt, WB, Conference of Avian Influenza in Humans, June 29, 2006
7
Economic and social costs felt only in poultry sectors of the affected countries
EFFECTS OF AI FELT WORLDWIDE . . .
East / Southeast Asian countries hit by AI have thriving economies except Thailand where slowdown was noted; 40% in drop in Exports of Thailand
Source: Milan Brambhatt, WB, Conference of Avian Influenza in Humans, June 29, 2006
ECONOMIC COSTS OF AI . . .
Direct productions costs due to:
losses on poultry due to disease and culling – over 200 million poultry
15-20% decline in stocks in Vietnam and Thailand (effects a 0.1 – 0.2% decline in GDP)
impact on poultry traders, feed mills (in EU, 40% decline in demand for poultry feeds), breeders
additional losses due to lower egg production
Indirect effects due to:
shifts in market demands due to consumer fears
trade restrictions to limit spread of AI
Source: Milan Brambhatt, WB, Conference of Avian Influenza in Humans, June 29, 2006
8
ECONOMIC COSTS OF AI . . .
Prevention and control costs
purchase of poultry vaccines and medication
hiring workers for culling and clean – up
set – up of surveillance and diagnostic systems
compensation of poultry owners
Cost to the community affected by AI
unemployment
decline in labor productivity
cost of hospitalization and medical treatment
effect on travel and tourism
20% decline in tourism, transportation and key services = decline in 2% world GDP = $800 B/year
Source: Milan Brambhatt, WB, Conference of Avian Influenza in Humans, June 29, 2006
ASIAN POULTRY
9
PRODUCTION(million metric tons)
0.0
5.0
10.0
15.0
20.0
25.0
30.020
04
2013
2004
2013
2004
2013
2004
2013
2004
2013
Asia &Oceanic
LatinAmerica
USA &Canada
Europe MiddleEast &Africa
PRODUCTION(million metric tons)
0.0
5.0
10.0
15.0
20.0
25.0
30.020
04
2013
2004
2013
2004
2013
2004
2013
2004
2013
Asia &Oceanic
LatinAmerica
USA &Canada
Europe MiddleEast &Africa
Future Regional Production
8.4m 45%
1.4m 13%
4.1m 26%
2.3m 43%
2.8m 17%
• Asia is by far the greatest opportunity for volume growth– China – 3.8 mmt (38%)– India – 2.5 mmt (154%)
• Latin America– Brazil – 2.2 mmt (25%)– Mexico – 0.7 mmt (34%)
• Europe– Western Europe – steady
or declining– Russia – 0.7 mmt (68%)
Source: Gordon Butland
Poultry Production in Southeast Asia has been growing consistently throughout the years.
10
Poultry Systems in Selected South East Asian Countries, 2005
65%15%20%Vietnam
10%20%70%Thailand
90%10%Lao PDR
63.4%11.8%21.2%3.5%Indonesia
98%< 1%< 1%Cambodia
BackyardSmall Commercial
Large Commercial
IntegratorCountry
PHILIPPINE PHILIPPINE BROILER BROILER
11
CHICKEN PRODUCTION IN THE PHILIPPINES
NATIVE -13%
LAYERS -17%
OTHERS - 3%
BROILER -67%
COMMERCIAL–35%
INTEGRATOR –35%
KEY INDUSTRY PLAYERS(Ranked According to Production Volume)
Foster6. Foster Foods
None5. Universal Robina Corp.
Cook’s4. Vitarich Corporation
Swift3. Swift Foods
Bounty Fresh2. Tyson / Bounty Agro Ventures
Magnolia, Supermanok1. San Miguel Pure Foods
BrandCompany
12
“Small is Beautiful”
Critical Units:
1. Contract Growing
2. Dressing Plant
3. Sales
0
20
40
60
80
100
120
140
2002 2003 2004 2005 2006
1st Q 2nd Q 3rd Q 4th Q
453 473 494 482 438
CHICKEN PRODUCTION IN THE PHILIPPINES, ’02-’06
(BAI, PABI DATA)
13
CHICKEN IMPORTS (in MT), 2002-2006
0
5,000
10,000
15,000
20,000
25,000
30,000
2002 2003 2004 2005 2006
In 2006, industry players were given the chance to import leg quarters under a special importation agreement to alleviate short supply.
MINIMUM ACCESS VOLUMES (MAV)
continued implementation of Minimum Access Volume (MAV) mechanism beyond June 30, 2005
DA expected to maintain its final year MAV commitments until a new WTO agreement is reached
volume under MAV (in-quota) shall continue to be exempt from special safeguards which has been in place since 2001.
Final Year Volume: 216,940 MTCorn
40%40%Frozen Chicken (Cuts)
OUTINFinal Year Volume: 23,490 MTPoultry
50%35%Corn1005
40%40%Frozen Chicken (Whole)0207
Tariff RatesProductHS Code
14
30
35
40
45
50
55
60
65
70
75
80
85
90
95
J F M A M J J A S O N D
Live
Dressed
2006 COMPARATIVE LIVE & DRESSED CHICKEN PRICES
68%
14%
10%
3% 3% 2%
Fish/Seafd
Pork
Poultry
Pr Meats
Beef
Others
PHILIPPINE ANIMAL PROTEIN CONSUMPTION
Source: USDA FAS GAIN Report
15
CONSUMPTION OF CHICKEN MEAT IN THE PHILIPPINES
4.312.97.6Philippines
BEEFPORKBROILER
FOOD BUDGET SHARES FOR SELECTED COUNTRIES
22.7111.5514.833.6214.042.3124.5416.8012.32Brazil
15.3411.0512.392.8511.804.7524.9210.8921.36France
9.7314.1114.661.778.591.1919.5811.3928.71US
28.568.9916.382.765.233.3118.6416.1128.57Thailand
48.359.8111.101.766.7114.5014.4929.7311.91Philippines
Food as % of
Expenses
OtherFruits, Veg
Fats, Oils
DairyFishMeatBreads, Cereals
Bev & Tobacco
Country
Source: USDA – FAS, 2006
BROILER BROILER PRODUCTIONPRODUCTION
16
GRAND PARENT FARMS PARENT STOCK FARMS BROILER FARMS
FEEDMILLS HATCHERIES ANIMAL HEALTH GROUP
QUALITY ASSURANCE
PRODUCT DEVELOPMENT
PROCESSING PLANTS
SALES & MARKETING
INTEGRATED POULTRY PRODUCTION
THE PRODUCTION CYCLETHE PRODUCTION CYCLEGrand Parent
At week 24, they start to lay until week 68Growing period is from day 1 to week 23
Day old chicks from eggs that hatched are selected to get the hy brid male and female line for transferto the Parent stock farms
At week 24, they start to lay until week 68Day old chicks from eggs that hatched are then transferred to the Contract Growing farmsGrowing period is from day 1 to week 23
BroilerDay old chicks become full grown broilers at an average of 35 days
Processing
Harvested broilers are brought to the dressing plant where they are processed
Hatchery Feedmill
Two major facilities supportthe farm operations namelythe Hatchery and Feedmill
Key support groups are :
Animal NutritionDiagnostic LabAnimal Health
First egg laid GParent 162 daysHatching period 21 daysFirst egg laid Parent 162 daysHatching period 21 daysDOC delivered to CG 366 daysDOC to Broiler 35 daysTotal Cycle 401 daysOr 1 year, 1 month and 5 days
Parent
17
INDEPENDENT BREEDERS
INTEGRATORS
BREEDER FARMS
HATCHING FACILITY
CONTRACT GROWERS
DRESSING PLANTS
COMMERCIAL GROWERS
VIAJEROS
EXPORT
HRI
Supermarkets
Wet Market Distributors
Small Retailers
L
O
C
A
L
M
K
T
Int’l Mkt
Day-old chicks
Grown Broilers
Day-old chicks
Grown Broilers
Dressed Birds
BROILER PRODUCT FLOW
PHILIPPINE BROILER INDUSTRY DEVELOPMENT (TRENDS AND ISSUES)
increased production by commercial sector
competition among big supermarkets driving margins in the sector; although only about 10% of supply is sold in this channel
industry remains highly viable with expanding line of value – added chicken products (nuggets, hotdogs, chicken – based ham, tocino, sausages, marinated chicken)
18
BROILER PRODUCTION PARAMETERS
1.551.50 – 1.80 ALW, kg
95%95%Harvest Recovery %
1.902.00Feed Conversion Ratio
STANDARDSPHILIPPINE AVERAGE
PARAMETER
* How big we grow birds depends on market preference.
ELEMENTS OF BROILER COST
Feed Cost
Day – old chick Cost
Growers’ Fees
Vaccines and Medication
Operating Expenses (salaries, incentives of CG personnel)
FEEDS REMAIN THE BIGGEST COST COMPONENT OF BROILER PRODUCTION
Except for corn, 2006 RM prices are generally lower than 2005 prices
19
5
6
7
8
9
10
11
12
13
Actual '03 8.25 7.80 7.70 7.70 7.80 8.20 8.20 9.50 8.90 9.60 9.60 9.40
Actual '04 9.87 10.56 10.44 10.62 11.23 11.34 10.53 10.30 9.75 9.27 8.84 8.95
Actual '05 8.96 8.43 9.13 9.66 9.48 9.42 9.63 9.85 9.61 9.21 9.45 9.94
Actual '06 10.9 11.51 11.5 11.45 11.62 11.12 11.11 12.14 11.17 10.37 10.64 11.05
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
CORN
5
6
7
8
9
10
11
12
Actual '03 6.90 6.90 6.90 7.50 7.50 7.75 7.75 8.97 8.97 8.88 8.40 8.88
Actual '04 9.86 9.88 10.70 10.33 10.29 10.21 10.13 10.14 11.41 11.42 11.41 9.94
Actual '05 9.11 9.70 9.94 9.94 9.94 9.41 9.42 9.41 9.43 9.54 9.03 9.67
Actual '06 10.07 10.04 9.73 9.43 9.38 9.02 10.06 10.07 10.25 10.27 10.3 11.17
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
INDIAN/CHINESE WHEAT
20
13
14
15
16
17
18
19
20
21
22
23
24
Actual '03 14.12 13.70 13.70 13.90 13.90 13.90 13.90 14.85 14.95 14.95 14.55 16.10
Actual '04 17.77 18.47 19.39 20.13 20.25 21.94 21.86 22.25 21.52 19.81 18.47 17.92
Actual '05 18.25 17.99 18.76 16.85 17.05 17.13 17.06 16.74 16.65 16.22
Actual '06 15.74 14.97 14.9 14.69 14.24 16.74 15.73 15.22 13.34 13.80 13.70 13.14
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
ARGENTINE SOYA
22
24
26
28
30
32
34
36
38
40
42
44
Actual '03 28.20 24.50 24.30 24.30 24.00 24.50 24.50 24.70 24.00 26.10 26.10 27.95
Actual '04 31.36 32.18 35.71 38.38 40.65 40.44 39.32 38.28 36.84 35.09 35.40 36.06
Actual '05 35.47 34.6 34.75 35.34 34.63 34.04 33.5 31.18 29.26 28.75 29.53 28.6
Actual '06 28.59 28.19 28.46 28.62 29.23 29.24 28.75 29.63 30.21 29.73 30.12 33.75
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
COCONUT OIL
21
AI and the PHILIPPINES
Detection of H5 avian influenza strain in a duck farm in Calumpit, Bulacan in July, 2005
Australian Animal Health Laboratory tests revealed that the strain is low pathogenic avian influenza (LPAI)
Japan bans all poultry imports from the Philippines following announcement of detection of AI strain in Bulacan
Philippines has remained AI free since the July, 2005 incident
Japan lifted its ban on poultry products from the Philippines last May 24, 2006
Philippines has been granted clearance to pursue poultry exports in Japan starting June 7, 2006
THE BROILER INDUSTRY AND THE EXPORT MARKET
BEFORE DETECTION OF THE LPAI STRAIN IN BULACAN, THE PHILIPPINES HAS BEEN EXPORTING TO JAPAN, KOREA AND THE MIDDLE EAST
3,3941,615TOTA
7AGRI FRUIT
1,993399ROYAL CARGO
145100TAVI
708606SFI
540510SMFI
JAN-JUN 20052004COMPANY
EXPORTS IN ‘000 KILOS
22
CHALLENGES IN GEARING FOR BIGGER EXPORT BUSINESS
No equivalency in accreditation systems (Halal)
Set – up of traceability system (for EU markets)
Very few plants are GMP and HACCP – accredited
Inadequate disease surveillance system
Inadequate meat inspection system
Production costs remain high despite good efficiencies
Lack of storage and freezing facilities
High cost of freight and storage
Development of export – quality value – added products
NEXT STEPS IN AI PREVENTION
Intensification of AI Protection Program
Review of AIPP protocolsStrengthening surveillance
Domestic poultryWild birdsImports and smugglingHumans
Strengthening of Poultry Industry CoordinationNational Poultry BoardEstablishment of Indemnification Fund for AI
Source: Ruben Pascual presentation for UA&P
23
BE A PARTNER OF THE BROILER INDUSTRY . . .
contract grower
contract breeder
trucker / hauler
toll partner – hatchery, dressing plant, feed mill, processed meats
vaccines and medicines supplier
feed raw materials supplier
trade distributor