Around the world in 60 minutes View from Rabobank Bart IJntema - - PDF document

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View from Rabobank

Bart IJntema Cavan, Ireland 7 March 2016

Around the world in 60 minutes

Rabobank: uniquely positioned around the world

‘Nearby’ network for the entire F&A chain

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Rabobank: uniquely positioned throughout the chain

From product centric, to customer centric , to value chain centric

FARM INPUTS PRIMARY SECTOR TRADE & EXPORT PROCESSING RETAIL

FAR, Global Sector Bankers building Global Relationships. F&A knowledgeable Relationship Managers building local relationships Markets, M&A, Products, Client Solutions

Rabobank: focussing on Food and Agri industry globally Committed through clear strategy: Banking for Food

• Leading global F&A bank
• Servicing value chain world wide
• Long term relation
• Societally involved
• Culture & customer focus – F&A in our

DNA

• Our cooperative & F&A roots

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Who is Bart?

Food and Farming in the spotlights...

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4 Global Challenges Food Security

Economical Societal

Relevance And of course… Building blocks Contribution Rabobank

Increase the availability of Food Improve access to food Stimulate balanced nutrition Enhance stability

Earth’s pin code is changing ...

Europe America Africa Asia

1 1 1 4 2015 2050 1 1 2 5

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Importance

The world is growing with 5 million more mouths to feed every month

That’s a city the size of Singapore

Need to produce more with less ecological impact Agricultural land per capita has halved since the 1960’s

…But there is no equal distribution…

China & India together host 40% of the world population on 20% of the world’s arable land, with only 10% of the global renewable water resources

Africa3 China India Indonesia EU11 US+Canada Oceania Russia S+C America Other

Distribution of arable land

Africa3 China India Indonesia EU27 US+Canada Oceania Russia S+C America Other

distribution of population

Source: FAO, UN

...implying that trade will increase

7/3/16 6 …And, World’s agricultural land is limited

... and declining... to 0.5 ha per capita in 2050?

2050 0.5 ?

Importance

Almost 800 million people are chronically hungry … due to lack of know-how, improper handling, transportation

• r storage

1/3

• f globally produced food

is wasted… New born inhabitants /min. Of which 154 from expanding populations in emerging and developing regions

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... 95% of this growth towards 2050 will take place in developing regions: first Asia, >2030 Africa

Importance

More than 1.4 billion people are overweight, 1/3 of whom are obese Roughly one in every six Americans suffer from a foodborn disease Less than 5% of Dutch children eats the recommended daily amounts of fruits and vegetables

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Importance

Price volatility is especially disadvantageous for people in developing regions who spend up to 75% of their income on food Prices of agricultural commodities remain volatile Risk and return are unevenly distributed throughout the chain Every 20 years the number of people depending on 1 farmer, doubles

More with less

Increase food production… ...and halve the ecological impact

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More with Less: food loss and waste

About 1 out of 4 calories produced gets lost or wasted globally

Food loss and waste per capita (kcal/day)

1,600 1,200 800 400

Kcal/day In developed regions: much by consumer; in developing regions: much in supply chain

Macro economical relevance

Agro & Food sector:

10%

• f the Dutch economy

and employment In 2030 the global food expenditure will have grown with

70%

In 2050 the demand for food will have grown with at least

60%

Conclusion: Abundance of opportunities?

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End to commodity boom, but volatility to stay

19 50 100 150 200 250 300 350 400 450 500 200 400 600 800 1.000 1.200 1.400 1.600 1.800 2.000

GBP/tonne USDcents/bushel

Wheat CBOT Corn CBOT Soybeans CBOT Wheat UK

Exchange Rate Volatility Impacting Competitive Positions

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60 70 80 90 100 110 120 130 140 150 160 3-1-2014 3-2-2014 3-3-2014 3-4-2014 3-5-2014 3-6-2014 3-7-2014 3-8-2014 3-9-2014 3-10-2014 3-11-2014 3-12-2014 3-1-2015 3-2-2015 3-3-2015 3-4-2015 3-5-2015 3-6-2015 3-7-2015 3-8-2015 3-9-2015 3-10-2015 3-11-2015 3-12-2015 3-1-2016 3-2-2016 3-3-2016 3-4-2016 3-5-2016 3-6-2016 3-7-2016 3-8-2016 3-9-2016 3-10-2016 3-11-2016 3-12-2016 Index exchange rate, Q3 2015 = 100 EUR AUD BRL GBP

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Farmer crop plans vary worldwide

US (MidWest) France US (Great Plains) Brazil (Mato Grosso) Poland Australia (NSW)

Corn 50% Soybeans 50% Wheat 50% Fallow 50% Soy only 60% Soy + safrinha corn in the same year 40% wheat 56% barley 26% rapeseed 18% Wheat 72% Barley 14% Canola 14% Wheat 62% Barley 20% Corn 18%

Farmer margins down worldwide but not to the same degree

US (MidWest) France US (Great Plains) Brazil (Mato Grosso) Poland Australia (NSW)

• 500

1.000 1.500 2.000 2.500 '00-10 2011 2012 2013 2014 2015 2016 EUR/ha Gross margin Land rent Fuel costs Crop protection Seed Fertiliser

• 500

1.000 1.500 2.000 2.500 3.000 3.500 4.000 4.500 5.000 '04-10 2011 2012 2013 2014 2015 2016 PLN/ha gross margin land rent fuel costs crop protection seed fertiliser

• 100

200 300 400 500 600 700 800 900 1.000 '00-10 2011 2012 2013 2014 2015 2016 USD/ha Gross margin Land rent Fuel costs Crop protection Seed Fertiliser

• 500

1.000 1.500 2.000 2.500 3.000 3.500 '00-10 2011 2012 2013 2014 2015 2016 USD/ha Gross margin Land rent Fuel costs Crop protection Seed Fertiliser

• 100

200 300 400 500 600 700 800 03-10 2011 2012 2013 2014 2015 2016 AUD/ha margin Land rent Fuel costs Crop protection Seed Fertiliser

• 1.000

2.000 3.000 4.000 5.000 6.000 2010 2011 2012 2013 2014 2015 2016 BRL/ha Gross margin Land rent Fuel costs Crop protection Seed Fertiliser

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Brazilian margins at high levels, but credit issues impact farming negatively

• The depreciation of the Brazilian real results in

attractive farmer margins despite rising input costs

• Farmers negatively impacted by credit

availability issues Australian margins are expected at acceptable levels

• Relatively strong global wheat prices combined

with a weakening Australian dollar are keeping Australia’s farmer margins at acceptable levels US shows another poor year in the Midwest and slight recovery in the Great Plains

• Midwest margins will fall back to the lowest level

in more than ten years

• Margins in the Great Plains are expected to

recover slightly due to higher yields while prices remain stable Dutch margins recovering, French margins stable but Polish margins touching lower levels

• European field crop margins also under

pressure, but still above the long term average.

• Lower rapeseed prices negatively impacting

Polish farmers, while recovery of potato prices supports Dutch margins

Summary outlook field crop margins

Brazil Australia US Europe

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Global Outlook – Dairy

Currently low prices due to temporarily over supply. Re-balance in supply/demand and price expected in H2 2016.

• Chinese buyers increased purchases

forcing up global prices and accumulating considerable stocks.

• Russian embargo on dairy products

imports from many dairy exporters.

• The resulting over production of

milk has lead to an extended period of low prices which will continue until inventories are normalised and markets re- balance, this may take until 2H 2016.

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Global Outlook Dairy – Supply

India will take the lead followed by USA, SA and EU. Land and environmental constraints in NZ and Netherlands

• Vast majority of worlds milk is produced

in worlds temperate regions where forage can be easily grown.

• Over the medium term availability
• f land and environmental

constraints will limit production growth in EU and NZ with more production growth in regions with more land available.

• Potential supply growth in the period

between 2014-2020 needed to satisfy the forecast demand.

• Much of the additional supply will be

generated within India with the support

• f Government/World Bank/FAO.
• USA, South America (Argentina,

Uruguay, Brazil) and the EU will also contribute significant supply growth.

• 1,0%
• 0,5%

0,0% 0,5% 1,0% 1,5% 2,0% 2,5% 3,0% 3,5% 4,0% CAGR Volume growth (2014-2020

• 5000

5000 10000 15000 20000 25000 30000 35000 40000 45000 Absolute growth 2014-2020 (000 tonnes) Source: Rabobank Analysis

Expected rate of dairy supply growth 2014- 2020 by region Expected absolute dairy supply growth 2014-2020 by region

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Global Outlook Dairy – Cost of production

Cost of production gap is closing, currency effect is large. Margin pressure greatest in NZ (environmental constraints and low milk price) and Netherlands (high fixed CoP)

• Difference in regional costs of

production are important as multi- national companies retain their competitive position by procuring milk from lowest cost sources.

• While production costs have been

converging over time when considered

• n an cost of producing milk solids in

US$ terms. (The currency which dairy commodities are traded in) much of this convergence is the result of currency fluctuation.

2 4 6 8 10 US$ Comparison of production for 1Kg Milk Solids (US$) NZ Cost of production per Kg of MS (US$) NL Cost of production per Kg of MS (US$) 80 85 90 95 100 105 Index 2007 = 100 Comparison of production for 1Kg Milk Solids (index based on local currency) Index NZ Cost of production per Kg

• f MS (NZ$)

Index NL Cost of production per Kg

• f MS (€)

0,10 0,20 0,30 0,40 0,50 0,60 0,70 USD per litre (standardised) Netherland s Upper Midwest California New Zealand

Development of cost of production in US$ terms in leading dairy supply regions (standard litre basis)

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Global Outlook Dairy – Price

Global dairy market to remain supply constrained. Milk price will follow cost of production

• Only EU, NZ, USA, Australia, Argentina,

Uruguay, Brazil produce sufficient milk to create export surpluses. A few highly regulated markets (India and Canada) are broadly in balance while most are in deficit.

• Expanding in deficit regions difficult

due to climate, lack of suitable land and/or skilled workforce. Expanding in regions with export surpluses difficult by lack of land and increasing environmental constraints. As a result the global dairy market is expected to remain supply constrained.

• A medium term trading range for whole

milk powder of between US$3500 and US$4000 will be required. This level is a move up from the trading range between 2010 – 2014 of US$3300 – US$3800.

Whole milk powder trading range

From intuitive to fact based farming; Impact of big data on farming

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The Big Change: from intuitive to fact based decisions

Fact based Intuitive time decisions

From precision farming to smart farming

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• Straight lines/work tracks
• Prevent overlap

1.0 More precise

• More accurate measurements
• Better decisions based on more

information

2.0 More informed

• Real time automated decisions,

addressing within field variability

3.0 More fine-tuned

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New technology impacts farmers

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• More datapoints bring more insights
• Farmer control rooms create more

informed decisions

• Leveraging agronomic know how
• ver large areas much easier

Scale advantages increase

• Automated decisions to tackle

within field variability

• Tailoring inputs to each other, local

circumstances and (expected) weather

Development

• f integrated

solutions

Who will be the integrator?

32 Input manufacturers Input retailers (cooperative and private) Agronomists Farmers Offtakers (cooperative and private) Where to expect integration of inputs to an integrated farming solution?

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Farmer options

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• 1. Become a big farm
• 2. Become a big farm operator
• 3. Source new know how externally
• 4. Cooperate

Farmer owned database/ platform is preferred option

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Emerging situation Preferred situation

Farmers.. .. provide their data to databases.. .. that provide the basis for product development Competing on access to data / quality of database Farmers.. .. combine data in an anonymous database.. .. That provide the basis for product development Competing on quality of algorithm

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Business model of a farmer

• wned data cooperative

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1.

Create level playing field for developers of data-intensive solutions, sell data?

2.

Provide peer data to farmers

3.

Increase market transparancy, compare inputs on costs and benefits

4.

Support farmers in marketing decisions

5.

In the long run: take the lead in value chain transformation

The global food security challenge from a farmers perspective; Key topics and themes

• Succession: Enabling the next generation
• Sustainability: From dedicated supply chains to circular systems
• Science: Unlocking big data, innovations
• Social enabling: From theory to practice
• Social Media: Virtual Farm concept P2P for leading farmers
• Supply Chain: Balance the value chain
• Safety & Health: Nutrition-sensitive growth
• Success: Best farm management practices

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Think and act differently; innovations and

• pportunities from farm to fork

Breed different Farm different Eat different? Think different? Live different?

Bart.IJntema@rabobank.com

Thank you for your attention

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