consumers and society Strategic outlook for the EU poultry industry - - PowerPoint PPT Presentation

Embracing the demand of consumers and society

Strategic outlook for the EU poultry industry

Nan-Dirk Mulder

• 1. Setting the scene: a new market reality
• 2. Europe from a global perspective
• 3. Shaping the industry for competitiveness

Content

Rabobank: A leading global F&A bank

Rabobank group global presence

EU meat and egg market: pressured, with shift to chicken

EU meat and egg market

• 5,000

10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 Eggs Sheep Poultry Pork Beef

Meat and eggs: +0.5% Meat and eggs: +0.0% Meat and eggs: -0.6%

1,000 tonnes

Beef: CAGR +0.2% Pork: CAGR -1.0% Pork: CAGR +0.9% Pork: CAGR -0.2% Beef: CAGR -1.8% Beef: CAGR +1.4% Eggs: CAGR -0.1% Eggs: CAGR -3.2% Eggs: CAGR +1.0% Poultry: CAGR +1.0% Poultry: CAGR +0.1% Poultry: CAGR +0.8%

Source: Eurostat, Rabobank Analysis, 2013

Cross European decline in meat demand, but chicken keeps growing

• 400
• 300
• 200
• 100
• 100

200 300 400 500 600 Poultry Pork Beef

1,000 tonnes Market size (x 1,000 t) 1,500 3,000 4,500 6,000 7,500 9,000 CAGR:

• 0.7%

CAGR:

• 0.7%

CAGR:

• 0.3%

CAGR:

• 1.6%

CAGR:

• 1.0%

CAGR:

• 1.6%

CAGR:

• 2.6%

CAGR:

• 0.1%

CAGR:

• 0.1%

EU meat market by country change 2007-2012

Source: Eurostat, MEG, AMI, Rabobank Analysis, 2013

Not only an European trend, also in the US

5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Eggs Turkey Broiler Pork Beef

1,000 tonnes

BEEF: CAGR +0.4% PORK: CAGR +0.8% CHICKEN: CAGR +2.4% EGGS: CAGR +1.0% BEEF: CAGR -1.8% PORK: CAGR -1.2% CHICKEN: CAGR -0.4% EGGS: CAGR +0.5%

MEAT AND EGGS: +1.2% MEAT AND EGGS: -0.9%

US meat and egg market 2000-2012 Population growth is 0.6%

Source: USDA, Rabobank Analysis, 2013

Same trend in the UK market

• 1,000

2,000 3,000 4,000 5,000 6,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Egg Sheep Poultry Pork Beef

1,000 tonnes

Meat and eggs: +1.7% Pork: CAGR +1.1% Beef: CAGR +3.8% Eggs: CAGR +2.7% Poultry: CAGR +0.1% Meat and eggs: -0.6% Pork: CAGR -0.8% Beef: CAGR -1.2% Eggs: CAGR +0.7% Poultry: CAGR +0.9% Sheep: CAGR: +0.6% Sheep: CAGR: -4.6%

UK meat and egg market 2000-2012

Source: Eurostat, MEG, GIRA, Rabobank Analysis, 2013

UK poultry + eggs still growing

Economic crisis: Trading down affects meat sales

‘Expensive’ ‘Cheap’

Sales channel Meat species Meat products

Restaurants QSR Premium retail Discount retail Veal Beef Pork Poultry Ready meals Steaks Breast meat Minced meat Sausages Legs Eggs Grains/vegetables

Source: Rabobank Analysis,2008

Industry fails to pass on higher and more volatile feed costs

EU feed vs broiler, eggs and meat prices

Source: Eurostat, Rabobank Analysis, 2013

60% 80% 100% 120% 140% 160% 180% 200% Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul 2007 2008 2009 2010 2011 2012 2013 Feed Beef Pork Poultry Eggs

EU Compound feed index

Rising power of supermarkets, growing importance of discounters

0% 20% 40% 60% 80% 100% Finland Lithuania Sweden Romania Slovakia Denmark Germany Czech Rep. Ireland Belgium France Netherlands Hungary UK Portugal Bulgaria Poland Spain Italy

• No. 1
• No. 2
• No. 3
• No. 4
• No. 5

0% 20% 40% Germany Denmark Austria Poland Czech Republic Netherlands Hungary Belgium Portugal Italy France Ireland Spain United Kingdom Finland Sweden 2000 2006 2012

Discount share in food retail Food retail top 5

Source: Lebensmittelzeitung, Rabobank Analysis, 2013

Rising consumer concerns as change factor in NW Europe

Buy local Animal welfare Environment friendly Food safety

Source: Rabobank Analysis, 2013

Volatile exchange rates; weak pound sterling strengthens UK position

40 60 80 100 120 140 160 180 200 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 2007 2008 2009 2010 2011 2012 2013 GBP / EUR GBP / USD GBP / BRL GBP / PLN GBP / JPY

Exchange rates GBP based

The EU meat and egg industry challenge

Stronger retail power Volatile exchange rates Higher and more volatile input prices Consumer concerns: Licence to supply Economic crisis Growing chicken demand, declining red meat and egg demand Volatile supply of agricultural products

Source: Rabobank Analysis, 2013

Growth in UK poultry, egg and pork sectors

Ireland UK NL Germany Poland France Spain Italy Denmark LEGEND

Beef Pork Poultry

EU Meat production CAGR 2007-2012 Industry consolidation Buy British, Lion code Weak pound sterling Modernization

Why?

Eggs

• 1. Setting the scene: a more challenging landscape
• 2. Europe from a global perspective
• 3. Shaping the industry for competitiveness

Content

Global protein markets keep growing, but with shift to poultry and eggs

Global meat and egg demand

• 20,000

40,000 60,000 80,000 100,000 120,000 Eggs Pork Chicken Beef 2007 2008 2009 2010 2011 2012 2013*

1,000 tonnes

Eggs: CAGR: +2.4% Beef CAGR: -0.6% Pork: CAGR: +1.8% Chicken: CAGR: +3.1%

Source: USDA, IEC, FAO, Rabobank Analysis, 2013

Poultry industry better positioned to benefit from new market reality

Production cycle length “Flexibility” Cost of production “Efficiency”

1 2 3 Salmon Beef Pork Chicken Eggs

EUR/KG

10 20 30 40 50 Salmon Beef Pork Chicken Eggs Breeding Finishing

Months Source: Rabobank analysis,. 2009

• 5,000
• 5,000

10,000 15,000 20,000 25,000 30,000 Eggs Poultry Beef Pork

1,000 tonnes

First tier: 59% Second tier: 20% Rest:: 21% 4% 2%

65% of global growth is in Asia,

• nly 10% in emerged markets

Market growth estimate for key meat markets 2010-2020

Source: Rabobank, FAO, FAPRI, OECD, 2013

Asian countries lack supply power

Key exporters of grains and oilseeds as sign of competitive power Net exporter Net exporter Net importer Net importer

Source: Rabobank, 2013

Globalisation of the animal protein industry to kick off

Globalisation in the meat industry

Source: Rabobank, 2013

Where’s Europe?

Top 20 Global meat companies: Increasing role emerging markets

• 1,000

2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 Poultry Pork Beef

1,000 tonnes

Source: Rabobank

Rabobank Global meat ranking

Fast industry modernisation in Asia: Need for products, knowledge and investors

High feed prices Food safety Higher incomes Modern distribution Modern value chain Larger companies Vertical integration Efficiency Yield Value chain management Animal disease threat

Source: Rabobank, 2013

• 1. Setting the scene: a more challenging landscape
• 2. Europe from a global perspective
• 3. Shaping the industry for competitiveness

Content

European industry does not benefit from large EU market potential

Romania Labor costs 300 EUR/month Polen: 40 million consumers Growing retail sector UK: Added value market Strong retail power Consolidated industry Nordic countries High incomes High standards Low meat consumption Southern Europe: Traditional demand Lower retail consolidation Germany Traditional sales market Competive power

500 billion consumers Big differences in competitive advantages A very domestic, fragmented, industry

Source: Rabobank

Need to create larger sales markets: regionalisation

East - 79 million consumers North- 20 million consumers Northwest - 173 million consumers South- 171 million consumers South East - 41 million consumers

Source: Rabobank Analysis, 2013

Eggs: Internationalisation process is just starting

Egg packing Egg processing

Local players Local players

Source: Rabobank Analysis, 2013

More industry consolidation to improve market power

Future Old

Volume

• Category leadership
• Nationwide sales
• Internationalization
• Market power
• Cost leadership

Specialty

• Small/mid sized retail/wholesale
• Regional sales
• Niche products
• Regional products

Number of companies

Source:: Rabobank, 2013

Industry needs to create more market power

Top 20 European poultry companies by volume

• 100,000

200,000 300,000 400,000 500,000 600,000 700,000 800,000

Tonnes Source: RabobankEstimate based on public sources

10 Golden rules for winners in the poultry and egg industry

• 1. Focus on right market segments – fresh and added value
• 2. Become preferred supplier of a customer or brand your products
• 3. Manage the value chain
• 4. Be flexible in your supply chain
• 5. Food has to be 100% safe and trace-able
• 6. Be optimal price competitive
• 8. Spread your risks
• 7. Have adequate scale and achieve optimal internal synergy
• 9. Implement pro-active CSR in your company strategy
• 10. Product development should be a key area of attention

Source: Rabobank Analysis, 2013

Growth:

• Chicken cuts
• Further processed
• Egg products
• Value added
• Regional products
• Animal friendly
• Meat substitutes

Saturated markets. Fine tune your market positioning

Decline:

• Whole chicken
• Beef
• Sheep meat
• Table eggs
• Fresh pork

Changing EU market trends Less trad. cooking Convenience Trading down Animal friendly Health

Source: Rabobank Analysis, 2013

Market development and innovation to be key in new reality

PACKAGING HEALTH ANIMAL FRIENDLY MEAT FREE EGGS CONVENIENCE

Efficiency is more important as ever before

16.6 14.4 14.7 16.9 15.7 14.1 61.9 56.4 57.9 57.4 54.1 60.7 3.1 4.4 4.5 4.9 4.6 1.4 7 5.4 5.8 6.5 6.5 5.9 8.3 10.6 10 9.2 10.5 8.1

20 40 60 80 100 120 UK NL GE FR DK PL Other Housing Labor Feed DOC 96.9 91.2 92.9 94.9 91.4 90.2

FCR 1.75 1.67 1.68 1.75 1.65 1.76 Live wght 2.3 2.2 2.2 1.9 2.1 2.3

Cost price of chicken by country in 2011

Source: LEI

Adjust business model to great volatility challenge

Grains and

• ilseeds

Feed Farming Processing Customer Volatility in grains and

• ilseeds

Volatility in livestock and poultry markets

+ =

Request for stable sales prices Volatility in exchange rates

Market power Balanced markets Low stocks Pricing Risk management

Source: Rabobank Analysis, 2013

“Kip van morgen”-to change Dutch retail market?

Impact on industry

• Aim: only “chicken of tomorrow” chicken

to Dutch supermarkets in 2015

• EUR 1.5 EUR higher cost of filet
• 4-5% higher cost of production
• New dedicated breeding line
• Better image?

Animal

• Slow growing bird (max

50 grams per day)

• Lower density (42

kg/m2 to 38 kg/m2 in 2015)

• Straw in houses
• 6 hours per day dark in

houses Environment

• RTRS soy 2015
• Ammoniac emission

35 to 22 gr/animal place/yr

• Sustainable electricity

BUT IS IT ENOUGH?

Dutch retail market: EUR 650 million

“Initiative Tierwohl” in German meat sector to start in 2014?

Initiative Tierwohl

• 80% of German supermarkets to accept standard
• Supermarkets guarantee compensation additional costs

First EU companies to capture growth potential outside EU

EU Companies with non EU-investments Russia China/India/Asia Brazil/Latin America North America Market growth potential Partnership with value chain partners

• Retail/QSRs
• Compound feed
• Meat processors

Higher standards:

• Need for knowledge
• Need for management
• Need for investors

Synergy with exports Potential for imports

Conclusions

Declining EU meat demand, slight growth in chicken and eggs Rising social concerns High and volatile costs Rising client power Trading down in demand EU industry fragmentation Suboptimal efficiency Market development and innovation to stimulate demand More welfare and region driven concepts Pro-active approach regarding consumer concerns Efficiency more important as ever before: need for investments More consolidation and EU - regionalisation First EU companies to capture non-EU growth Supply discipline to be key

A new market reality Shaping the industry

Globalisation of egg processing Global growth and industry modernization

Thanks for your attention!

Further questions: nan-dirk.mulder@rabobank.com